Pomp Podcast #288: Keith Rabois on the State of the World

All right guys, bang bang. I have Keith here. We are going to try to basically just download his brain on the state of the world and go for as long as we can. Thanks for doing this.

Pleasure to be with you.

For those that don't know who you are, the very few, what is your background? Let's just kind of go through that first so people understand what perspective you're coming from.

Sure, so I'm Keith Rabois. I'm a general partner at Founders Fund. I've been there a little bit over a year after spending six years as a VC at Coastal Ventures. So basically I've been a professional VC for about seven years. Prior to that, I spent about 13 years at Silicon Valley, operating companies, running companies, moved out here in 2000, late 2000, to join this bunch of misfits at a company called PayPal, went through sort of a sine wave distribution curve of ups and downs, but Eventually made the company pretty successful. After that, we both had an IPO in 2002 and then later subsequently sold the company to eBay. After that, kind of reunited with Peter Thiel and worked on incubating and funding new companies, new startups, particularly consumer startups in the wake of the internet bubble collapse when basically nobody else in Silicon Valley wanted to fund new and interesting companies other than really Peter and Reid Hoffman. So a lot of people came to us, had some interesting ideas, promising ideas. We got involved in them in the very early stages, everything from what became LinkedIn, what became Yelp. I got involved in both of those companies as well as several others, joined the boards of some companies, became a pretty active angel investor. So spent the next three years or so doing mostly that, working through this dev, corp dev, revenue generation at LinkedIn. After we changed CEOs at LinkedIn, I left to reignite with our CTO, co-founder, PayPal, Max Levchin, at a company that will not be remembered called Slide that was eventually hired. We built applications on social platforms, originally Myspace, but those be old enough to remember Myspace. And Facebook, acquired by Google, left that a week later after we acquired. joined this kind of crazy startup again trying to reinvent payments for SMBs and micro merchants, became the 21st employee prior to launch with a company called that became well known as Square and went through kind of a rocket ride there. We grew really, really rapidly once we figured out how to launch properly, where to launch and how to legally do it and then became a VC. But during the 13 years I was actively Running these companies, I probably invested in about 80 companies as an angel investor, many of which went on to be pretty interesting companies from, let's say Lyft to Airbnb to YouTube, to sort of been all over the map in Silicon Valley. I started as a lawyer, which I'm not sure I would recommend. I spent most of my 20s in law school clerking in the Fifth Circuit and litigating of all things, and then jumped sort of cold turkey into the internet world. in 2000.

You've basically done nothing. Like it's like you're just starting out.

Yeah, well, I mean, look, I got 30 something, at the current standards, I've got over 30, I've got about 30 years to run for president. So yeah, there's plenty of time.

I love it. All right, so you've had a lot of thoughts on COVID-19 and kind of the health crisis. I wanna cover the health crisis first and kind of what your general assessment of what's happened so far has been, and then we can get into kind of some of the steps that should occur moving forward. But just what's happened so far from your view?

Well, I think, first of all, let's start with this is fairly unprecedented, at least in the Western world. I think the Asian countries had an advantage because to some extent SARS was an early version of the same. And so most of the countries that have dealt fast with the problem saw earlier generations of viruses that were out of control and learned what that might look like. Whereas I think in the US and Western democracies, either we didn't have the experience or didn't believe it was credible that a virus would kind of escalate to this level. And we're basically caught off guard or with almost disbelief, even though the logic made sense, there's a lot of fundamental emotional disbelief. But it turns out, obviously, the virus did spread fairly rapidly, maybe not as rapidly as people projected, certainly nothing like smallpox or anything like that. But in the modern era, let's call it post 1958, really, we haven't really seen a virus like this in the US. And so I think the bureaucrats didn't really react that well. Politicians may or may not have reacted that well. They didn't really react that well anywhere in the Western world for the most part. Germany's been a little bit better, but only a little bit better than other democracies in the West. And so I think we've sort of confronted It is an unprecedented problem without a lot of preparation. Trying to wing things in the middle of a crisis is usually not the best idea. We've seen lots of mistakes by the media, seen lots of mistakes by the CDC, lots of mistakes by the FDA, probably a lot of mistakes by the elected politicians. They've compounded. Now the question is, what do you do about it?

For sure. And one of the things I want to start with is just the access to information and the, kind of accuracy of that information. So this is everything from the qualitative stuff of just, hey, it's bad, it's not bad coming out of China early on, to the actual quantitative data that we're seeing even here in the United States still. Kind of what is your viewpoint today as to how accurate is this stuff? And really through the guise of it's hard to make good decisions if you're actually looking at bad data.

Yeah, well the data lags, you know, in this case particularly, but in many cases, both, you know, time to infection, time to test, time to get results, you have to cover all that, time to have severe severity, like we have to be hospitalized, where you might die, you have to try to re-cooperate this like we do in our startups, and if you use the proper time stamp and time-coordinating the data is going to be a mess. So that's one. And then a lot of information is rapidly evolving. So, those are all like, you know, pretty fundamental challenges for everybody. In addition, I think the Chinese government had an incentive to mislead people and clearly did, which led to people being more complacent around the globe. They suppressed, you know, the severity, the human, the possibility of human to human transmission, the severity of the transmission, the, you know, potential impact in a variety of ways, banned research and from both researcher and journalists from investigating the origins and, you know, what was causing this in the first place. They suppressed the doctors, you know, and kill, argued that they killed the doctors in China that were trying to warn the world. So the world got off to a bad start through the active mismanagement by China with intent. After that though, for a variety of reasons, the experts didn't react very well. So we were told that closing the borders to people from China was racist, which of course it wasn't, and would have been very helpful if it had been done even two weeks earlier. We were advised that this can't be spread through the air, so you don't need to wear masks, et cetera. Turns out, well, whether or not we spread through the air is still a good idea because prevents it from accumulating on surfaces. Masks are fairly effective in limiting the viral transmission of the virus, all the experts say you need to wear masks from the media to the World Health Organization. Just every single possible piece of advice that the medical media world gave us turned out to be wrong. Some of it just pure difficulty of predicting in a rapidly environment world, some of it I think ideologically suspect and some of it actually actively misleading. So fortunately these days there are alternative sources of information, social media being one of the best ones, where individuals who have some access to data or ground truth can report it to the world and disseminate it. Social media platforms haven't acted that well. Zero Hedge, which probably got the whole story right, was banned by Twitter, which someone should investigate, who banned them, how, were Chinese spies involved in that decision. Secondly, to this day, it shocks me beyond belief that YouTube is barring videos that are inconsistent with the World Health Organization, where the World Health Organization has been wrong on every single possible topic about the virus. I think it's insane. I think after the virus is over, the government absolutely needs to call into account, needs to absolutely go after Google very aggressively, investigate this very carefully. Sundar and Susan probably should lose their jobs over this. I think it's not bad, and the Senate needs to seriously investigate Google's role in basically propaganda. And I think that will, but I don't think you should do it in the middle of the virus. I think it's something you do after everything has calmed down in the world. with a little bit the benefit of history, but it's not going to look very good for Google. I think the social media on Twitter, you know, that was very helpful is obviously our friend Balaji, I know as early as late January, warned the world that this was a very severe problem, that it was absolutely going to spread in the United States specifically, that people needed to start taking serious action. that absolutely we needed to adopt masks and vigorous testing, invest in the technology to trace, which we still haven't done. You can argue the wisdom of that, but one bellwether was there were early warning signs on Twitter that allowed some people to take action. Insofar as there were any experts that seemed to be somewhat right, Scott Gottlieb looked pretty good. He's mostly been ahead of the curve, notwithstanding his FDA background, he was a VC before that, and maybe the ability to do first principles thinking has helped him. But it's really been a catastrophe of errors, like left, right, ideologically, the spectrum is pretty broad. Nobody's been perfect here.

Yeah, so on the qualitative side, one of the things that this brings into question is, you mentioned YouTube using the World Health Organization as the bar for accuracy, of information. Obviously, we now start to question, well, if they were telling us not to wear masks and then they have to reverse the decision, how do you kind of give them credibility? And so how do you think about, if you are YouTube, if you are Twitter, how do you come up with where those sources of information are and what can you trust and what can you not, basically?

I don't think social media platforms should be moderating content based upon substantive accuracy period. This is something human history has resolved centuries ago. We have standards for what can be published in books. You can't publish pornographic material, you can't publish libelous material, defamatory material. Other than that, you should be able to publish anything you want. We have centuries of experience. There should be no difference on what can be published on Twitter versus if you can publish in a book. It should be on Twitter, it should be a YouTube video. Anything other than that makes no sense whatsoever. It doesn't work, it backfires. You want to read some great, you know, logical and historical works on this. Straucher and Thompson have done a great job talking about the fallacy of content moderation. And, you know, the mask example of WHO is just the canonical example of what goes wrong when you allow people to censor based upon perceived accuracy. Yeah.

And then you also mentioned the possibility that whether it's Chinese spies or people with agendas on the political spectrum inside of the companies actually having a hand in some of that moderation.

How do.

You kind of break that down or evaluate that? Is that something where an internal investigation can kind of come to a conclusion or do you actually have to go to a government organization or a third party to actually have a true a kind of unbiased investigation to figure that out.

You may at some point have to involve the government. There's a compulsory process that only the government has access to in certain ways. And the Pentagon has always believed that Chinese spies have infiltrated tech companies in some scale. Google, some of the protests against Project Maven are absolutely driven by Chinese spies. Google's done some internal investigations on this, but At the end of the day, that's the province of law enforcement, not necessarily companies, but you can at least look and see whether there's anything suspicious of who is involved in the decisions, who routed the decisions, who voted for the decisions, and then if there's anything that seems awry, absolutely the FBI or whoever's the appropriate government enforcement agency should be consulted.

Yeah, the part to me that just throws me for a loop is this one thing, if the WHO or CDC is saying, hey, don't wear a mask, and you make a video that says wear a mask, like very contradictory to their recommendations. Yes, you are taking it down because it doesn't agree, but you're also censoring. But I've even heard of videos being taken down that say simple things like drink vitamin C because it boosts your immune system, and that's not a WHO.

Or CDC approved message for fighting the coronavirus. Yeah, that's insane. First of all, with retro, that is almost surely going to be inaccurate, meaning like people who take vitamin C will have done better than the people who didn't take vitamin C. Secondly, the classic vitamin C controversy has been controversial about all kinds of health benefits since the 1960s and two-time Nobel Prize winner Linus Pauling. Trying to get involved in sensor content about things that are very debatable makes no sense whatsoever because it turns out that most things that look, many things have become paradigm shifting. look very odd and very controversial, you know, Galileo took on the Pope, otherwise, you know, we wouldn't have had any revolution in, you know, physics. It took taking on the Pope at the time, and that's pretty, pretty common for many things. Many of Einstein's theories were pretty damn radical. He was a patent clerk out of nowhere that basically changed physics in the understanding of the human understanding of the universe literally in one year in three papers as some random patent clerk. So if anybody had filtered on the basis of credentials or alignment with perceived wisdom, all of his breakthroughs would have been suppressed. I just read today, and I didn't read the underlying article, so maybe there's some distortion here, but Charles Darwin held publishing Origin of Species for 20 years because it was a of being persecuted. So that's not what we want. We want, you know, human advancement requires the publication and the dissemination of new ideas, new information as fast as possible, not as slow as possible. And that's what we're encouraging with these censorship, you know, sort of paradigms.

For sure. And this brings us to kind of the quantitative data, right? So in New York City, one of the things that just blows my mind is at some point they were reporting 12,000 deaths only I think it was 7,000 people actually had tested positive for coronavirus, but you didn't actually have to die from the virus as long as you had the virus and died, they counted you. And then the other 5,000 were quote unquote probable deaths. So if you died at home and they thought you were, you know, susceptible, they counted you. And so it just feels like there's a lot of data analysis that's going on data that we don't have any accuracy or confidence in it actually being maybe even directionally correct, let alone actually accurate.

Yeah, let's start with first principles. When I'm involved in a company as a board member as an executive, the most important thing I always try to teach and apply is you need to have directional accuracy. It's like flying a plane. You need to know whether your nose is going up or down. Any variable, any KPI, any metric where you're not sure if the variance is within the directional accuracy, is the most dangerous thing to use. Once you establish a constant confidence interval is above a certain direction or below, then it's very easy just to not, you're going the right direction, it's just how fast you go. But once you don't, when you do not know, you shouldn't be doing anything almost until you establish your confidence interval and make sure you're at least directionally right. And I think a lot of decisions were made that without the confidence that they were directionally right. That said, in any new environment, new virus, et cetera, you are going to have some of these challenges, even with the best people doing the best analysis for a while. It's going to take data to some extent time to sort that out. But I don't think there was a lot of attention paid to is this directly right? I mean, for example, there's good studies out today that take any of the Western countries, the percentage of people who've died that were living in nursing homes ranges from the low end 25% to the high end 54%. If you knew in advance that a majority of the deaths were going to be a function of living in a nursing home. The entire set of policies one might rationally adopt would be very different. And in fact, actually, Governor Florida was very criticized, particularly in the left-wing media and among the blue check marks on Twitter. It turns out Florida is going to have one of the best situations in all of the United States in terms of deaths per thousand residents, deaths per million residents, economic lack of economic damage, resuming the citizens to normal, at least mental states, as fast as possible. One of the subtle things the governor did though, was he was very attuned to the evidence that the virus spreads in nursing homes. And he more quickly locked down nursing homes than beaches. Beaches do not generally spread the virus, but everybody in the media was focused on who the hell is on the beach, and why are all these people on the beaches, et cetera, whereas the deaths are all being caused by people in nursing homes, and he had very strict policies very quickly about nursing homes. So sometimes you get distracted with the wrong shiny object, which prevents you from paying attention to the things that really matter. In this case, if we've done nothing except obsessively compulsively focus on what can we do to save the, as soft as limit the virus spreading in staff and among staff and among residents of nursing homes, probably would have cut the death rate in the US by somewhere between 30 to 50%, doing nothing else period. And so, but people were so, you know, focused on should you be allowed to go for a run outside? Should you go to the park? Governor Newsom's still focused on the damn beaches in California. In, you know, China, if you believe any of their data, there was like two external transmissions of the virus. But we're doing all the wrong things in many ways. Certainly the opportunity costs of focusing on problems that are not real problems, you know, has major consequences. Just as they do in our companies, when the executives focus on the wrong things, if by definition they're not focused on the right things, which means those companies deliver subpar optimization, subpar performance compared to companies where the senior executives know exactly their business equation. They focus on the two or three key variables. All the initiatives are prioritized against those two or three variables. So, for example, in this case, I still don't know, and this is a critique that applies across the political spectrum, what's the variable we're supposed to be optimizing? Is it, for example, infections? Hospitalizations, deaths, death rate. If you picked one of those, you would probably land on very different policies about what we should have done initially, which is revisionist history, so maybe not that important. But certainly prospectively about what should be opened, what shouldn't be. What are the standards for opening sequentially other things? But nobody's talking in terms of clear goals. And if you don't have clarity around the goal, how the hell they hit the goal with tactical policies. I think that's the first step. And I don't hear many people, certainly in the US, of any political orientation articulating a goal.

Well, I'll take it even a step further. One of the things that has been very confusing is as they go to reopen a lot of these economies, what are the metrics? What are those KPIs that they're looking at so that if at some point they trigger something and they realize, wait, we should stop, right? We should actually send people back inside. It just feels like it's kind of, hey, let's reopen, let's turn businesses back on 'cause we're getting that pressure. And we'll cross our fingers and hope it works, but they really don't have any sort of granular understanding of what they're measuring, if you will, as they do that.

Yeah, no, I think there's some real critique here of like, what should be the first principle role? You can argue what that could be. Like some people will argue it should be zero infections. I don't think that's the right goal for the last in right now, but I think one should specify what the goal is and then design a set of strategies that maximize the chance of getting there and minimize the collateral damage. Yeah.

What if we could go back? What do you think could have been done differently to get more accurate data? Is it just testing and actually doing it the correct way, or is there other things that you think could be a lesson learned? So if this happens again, we're better prepared.

No, I don't think testing really, I mean, everybody talks about testing more testing, more testing, more testing. But the truth is, because of this virus, people are asymptomatic for a period of time and perhaps for a very long period of time, or at least maybe permanently in some cases. Just testing people, unless we're testing a very random sample or basically everybody, wouldn't have necessarily been this perfect kind of SEA. Because by the time you go get tested, people had symptoms or at least had direct exposure to someone closer than last symptoms. And so it would have been difficult to stop the spread just on a testing regimen with the tests that were available. So scaling testing could have been done better. There's a lot of, the New York Times actually to their credit did do a pretty good expose on how the CDC botched the ability to scale testing in the US. Really there were private tests available, private companies willing to scale provide the tests, and the FDA and CDC in combination didn't allow them for weeks, arguably months, that was a major catastrophic error, but it wasn't a political decision. This was not something that was elevated to the secretary of HHS or president. It was the bureaucrats and that those two to four or six weeks had material impact.

What's your thoughts around whether it's a cure or some sort of treatment that mitigates the symptoms? How are you thinking about that? How realistic is it that we'll one see it and two, to in a short time period?

Well, I think the time frame matters. This is like if you're saying compress the time frame to weeks, what's the likelihood of that? Pretty low, months, pretty low, quarters gets better, years gets better. So I think it does matter. Also, when you say vaccine or cure, are you talking like 100%, 50%, like flu viruses typically have a 49 or 45% efficacy, Some solutions to major problems like TruVeta, TruVeta, whatever, has like a 99.9% efficacy against HIV, which turned out to be miraculous. But I think we're probably somewhere in between. There was some interesting, there's some progress in Israel today, there's some progress in the UK. But even if, you know, whatever the substance, whatever the technique they're going to use, proves to be both safe and fairly effective, scaling, not producing it, et cetera, distributing it isn't going to happen overnight. So I think there is a sustained timeframe almost in any, you know, any likely scenario that this is not something that we wake up June 1st and everybody snaps their fingers and thank God this is over.

Yeah, you've obviously been paying attention to a lot of the various drugs that, at least are showing early signs of potentially working. and you and Zach Weinberg lit up Twitter with a knockout, drag-out fight over what I think to a lot of people was the nuances of healthcare testing. Maybe kind of help us understand just like the two arguments there and kind of how you think about why your argument tends to be more effective.

Well, I mean, our argument is very straightforward. I think a lot of people if are so blind and so furious to the motion against President Trump, that anything he says, they just discount. It doesn't matter what the topic is. It can be like a recommended treatment. It can be whether China is responsible for the virus. It can be some other policy. It's like what I'm borrowing from actually a left-wing author, Brett Easton, is Trump Derangement Syndrome. I think most journalists and many people, including those popular on Twitter, tend to have Trump derangement syndrome, and they just don't think rationally after Trump puts his name on something. And so when Trump endorsed the prospects and probability that chloroquine or hydrochloroquine zinc would be effective, I don't think many people thought through whether it was or was not, and they're kind of applying a different set of standards to that treatment versus other treatments. I think the truth is it's almost surely not a perfect panacea or the people taking it, you know, we'd see statistically very different impact. However, it's almost surely effective, at least with some people, if taken early enough. And the countries that have vigorously prescribed some version of the protocol using chloroquine or hydrochloroquine, which is basically a malaria drug that's been prescribed for 70 years, have seen very different results like Korea, Israel, Costa Rica, have seen incredibly different results than other countries. But however, there's some studies that have been done that are certainly controversial. There are typically studies that have been done on the drug with people, patients that have already suffered severe symptoms, I mean they're hospitalized. It's most likely this is sort of like Tamiflu, which is a common treatment. It's not really a treatment, it's a common drug prescribed for suppressing some of the severity and symptoms associated with flu. Tamiflu only works if you start taking it in the first 24 hours when you experience a symptom. So a lot of the media that jumps on these studies and says that it doesn't work, blah, blah, blah. Well, it's not designed really to work for those patients, so it's not surprising. You need to take it very, very early among non-severe patients. But in any event, at some point, this all gets studied to death, whether or not it matters to death, at some point, maybe too late by the time we figure it out, which is my general point. The traditional way science looks at medicine is looked at this is to use random control experiments. The problem is they take, there's several ones. One is they take time. Depends on what the log is, on what the effect you're looking for. But let's say you wanted to do a random controlled experiment on whether something extends your life. well, good luck with that. I mean, like, let's say you did it on, you know, somebody who was 40. You're going to either lots and lots of users because people in their 40s don't die very frequently, or you're going to have to wait 30 years. That makes no sense. Like, are we going to wait to solve aging, which is probably more a disease than a natural State in. Because there's no way to do a random control. That makes no sense to me. I think we should be using statistics, and there's an example of math statistics working very well. The positive version of this was we discovered that there is a drug that was prescribed for people with diabetes that tends to extend people's lives, and it just showed up by accident in lifespan data. Secondly, and this is especially among for compounds and substances that have already been shown to be safe in humans, generally regarded as safe. Stuff is a lot less risky to just use pure stats on. But pure stats can be about when you can do something across millions of people, tens of millions of people, hundreds of millions of people, you can get to an answer that random control experiments don't show. So for example, if there is a bias in how you do your control, so let's say some genetic mutation is important. If you don't control for that in your controlled experiment, good luck getting results that are meaningful. If there's some variable that you don't understand, which in a rapidly emerging new virus is moderately likely, you're absolutely not going to control for that correctly in your experiment. You can even argue to some extent some placebo effects are a function of not understanding the control group really well and what the driver is. So I prefer like mass stats, mass data, especially if the substance is widely accepted as safe over highly stylized control groups. But this is a very vigorous debate Traditional medical practitioners love their control experiments. They grew up in a paradigm of the 20th century, not the 21st century, when either this mass scale data wasn't available or this this district techniques to parse it and infer causation versus correlation, which does exist despite what you're taught in stats 101 weren't as profoundly understood. To some extent, like we got to the smoking causes cancer by cheating. There was never a control group, a random control experiment. that showed that smoking caused cancer. It was a mathematical derivation from statistics, and people said, oh, we're just going to look the other way because our ideology supports this. So I think people are very hypocritical is at least a minimal viable critique. There was a famous VA study that studied the effect of hydrochlorothiazide regressively, retroactively, so not a controlled experiment, and showed it didn't work. The same experiment, the same technique was used in another experiment where it was just using retroactive data that showed that hydrochloric was incredibly effective, like incredibly effective with a probability of like sub 0001. So it passed any statistical significance test. The media covers one with headlines everywhere, front page stories. The second study you can barely find, you can find it on Twitter, the media covering it, the methodology between the two studies is identical. I defy anybody to point out any improvement in the VA study versus the second one. But the media coverage is at least 100 acts, if not 1,000 or more acts on the VA one. So I think people are just very ideologically hypocritical here. So another way to think about it is, if you ask doctors, what would they do? 34% of American doctors would prescribe hydrochloric acid or some version of that protocol to their patient if they had early symptoms. 28% wouldn't. So it's controversial and debatable, and 24% are confused as hell or something. So I think it is very debatable, but the idea that there's some gold standard that's magical and those who are using other standards are wrong, is totally ridiculous and people are being blind because they hate Trump so much.

What, speaking of Trump, what would you give him as a grade kind of through this whole thing, right? Are we talking A plus, A minus, B plus, C minus? What would kind of the grade be?

I think you'd have to decompose it. I think in February, you know, C, and I'd say C instead of worse because you look at what many other Western democratic leaders did in February specifically, it wasn't any better. In March actually, I'm not sure what else he could have done. I mean, he's got his usual misstatements and self-enforced errors and stuff. He doesn't always express things as clearly, cogently as he should and precisely. But the fundamental policies of the administration starting in March seemed pretty damn accurate. Even Biden has written these out, but that he hasn't answered exactly what he would have done differently in March other than tweet less, you know, and infuriate people less and be more sympathetic. But he can't identify a single policy starting in March. I don't think that he would have done differently. So I think starting then, the administration got its act together. It's been pretty damn good, pretty damn thoughtful, pretty aggressive, and, you know, is trying to innovate, trying to suspend regulations that didn't make any sense. For example, the FDA historically in the United States, doctors couldn't cross state lines. So we needed more doctors in New York, California doctors couldn't help. But they said that possible at least on a temporary basis. So a lot of positive innovation around the regulatory constraints has been driven by the administration, which I think is a very good and healthy thing. Hopefully some of those will persist. I mean, it makes no sense that doctors in California can't treat patients in New York as if there's regional variation in the appropriate standard of care, that makes no sense. It's very protectionist. So in any event, I think the grades get better over time, but I don't know that too many people had great grades in February, other than some people in the Asian countries, particularly Taiwan, to some extent, Korea, a little bit more mixed in Singapore, Israel seems to have been slow to the game, but very thoughtful and very productive starting in March. So it depends on the country, really. But I don't think anybody other than really like the Taiwan's, New Zealand, New Zealand's kind of a different demographic, geographic dispersion. There's a lot of issues in New Zealand. New Zealand's obviously handled this extremely well.

Yeah, the last thing I want to talk about the virus before we get into some of the economic stuff is there in maybe we're talking about six weeks ago, Zero Hedge came out with the connection between the virus and the virology lab in Wuhan. Not only were people literally like, hey, that's conspiracy theory, Twitter and the internet, Twitter banned them. And I remember talking to people and they were like, that is literally crazy talk. fast forward six weeks and we now have intelligence organizations saying we have a strong evidence that we believe this is accurate. You've had elected officials on television pushing this narrative, etc. Not so much like, do you believe it or do you not, but how do you think through, one, will we ever actually know? And then two, would that change anything in either what's already transpired or how we should respond moving forward? whether it did come from the lab there in Wuhan or if it's kind of more of the wet market narrative.

Yeah, so I absolutely do believe that one way or the other, some people will know. There's an article, I think, in the New York Times today, but it is the Washington Post, that said the administration has electronic intercepts of the Chinese leaders talking about the origin of the virus. That's going to be incredibly compelling. the problem is going to be whether the administration is willing to release those or not, because by definition, if they do, it's going to reveal how the level, the precision, and probably the methods we're using to intercept the leadership, the communication on the leadership of the Chinese government. And that's going to be problematic. And so there's going to be significant tension there. But yesterday, when the Secretary of State said unequivocally it came from the wild, The Secretary of State is a very serious, thoughtful person. Everybody in Washington respects him. He was previously the director of the CIA. When he says it unequivocally, there's no doubt that there's stuff sitting on his desk in my mind that proves beyond a shadow of belief that this originated in the lab. Now, I don't believe it was originated by intent. I think this is more either negligent, reckless disregard for human life, not an intentional creation of a destructive thing to unleash on the world. I think that is not true based on any evidence I've seen. But whether people acted improperly, had improper policies that led to this problem being confronting the world, I think is highly likely. And I think the U.S. government and intelligence agencies absolutely have evidence of that. It was pretty obvious to me months ago because Again, Senator Tom Cotton, who's widely regarded, widely respected, has aspirations, and we're sure they're running for president, is very close to both the Defense Department and the CIA. He's a CIA agent himself. He's been tweeting publicly for months that this theory originated in the lab. He was not going out on a limb. He's not the kind of person who goes out on a limb. He has a lot of reasons not to. He was clearly being fed solid intel that suggested this months ago. So I think it's inevitably going to be proven, but the willingness of the government to validate this with unimpeachable evidence is going to be one of these classic espionage trade-offs. The other thing that confirms this in my own mind is my understanding that the senior Democrats, there's a process for briefing the other party both the House and Senate Intelligence Committees and minority versions of the same, that when there's higher you'll be confidential intelligence, they are briefed as well. And despite the Democrats' general willingness to criticize Trump on everything, every utterance, every policy, they've been pretty damn quiet. In fact, I can't think of a single prominent Democrat who's criticized Trump on this specific point. And I think the reason why is I think they've been briefed too, and they kind of know the truth and they don't want to look stupid, and they know it could, you know, they can look really stupid all of a sudden. So I think this will eventually be the consensus view. Now, whether it matters or not, I do think it matters depending upon how negligent or reckless the Chinese CCP was, whether the appropriate reaction is to retaliate in some ways or not, and what the appropriate steps are. So I don't think it's irrelevant. I think They clearly mishandled the communication of the severity and that's caused a lot of pain on the rest of the globe. And it was partially, one way or the other, designed to not look back themselves and to prevent exposure of the truth. That alone has caused a lot of damage and could be a fundamental justification for some degree of retaliation and reaction, that is sort of unimpeachable that the Chinese government suppressed information, misled the world intentionally, at least during a period of weeks, if not months, regardless of the origin. So I don't think we need to go all the way back to the origin story. I think the origin story does matter, though, if you want to kind of understand what the likes of it is you confront something else. This is why it's pretty important is if we're going to see something similar, understanding how it happened, affects your opinions and probabilities about the likelihood that it's seen something similar in the near term?

So part of the reason why I love the internet is the second that the, what was previously considered a conspiracy theory looks like it has legs. You then get the other conspiracy theories that come out from there. And probably the most legitimate argument I've seen is a concern that this could be, you know, kind of this decades WMDs in Iraq type story. Where there's a pointing of, hey, here's a new enemy because of X or Y reason, do you have concerns about that? Or how can we mitigate those concerns if they exist?

Well, the way to mitigate them, subject to my prior points, is I think the US government may have to release some of the evidence eventually because of that historical problem with the Iraq situation. There's going to be some people who are credible about it. That said, if enough intelligence, you know, Democrats are briefed, including someone like Biden, and they realize that they can't go out on a limb being critical because, you know, Trump will eventually unclassify the information, that might need to, you know, at least the non-conspiracy theorists being pretty nuanced. So, yes, I think the reality is, anytime the government loses credibility, it's a bad thing. and this is why, you know, I've never liked President Trump. You know, I dismissed him as a sociopath in May of publicly on Twitter in May of 2016. So, you know, I think people who have this propensity to lie about mundane things, it really burns you later when you need the credibility for important things. So I think this is a fundamental problem with the administration. Like, for example, the first day in our role when he got in trouble manipulating the size of the crowds. I was actually pretty furious about that, not because of the crowds thing, but it's like that's exactly when you don't want to burn credibility. You need social capital and political capital for when you have to, you know, ask people to trust you. And, but I think we may be more likely the Cuban missile crisis, you know, Kennedy actually had to show the photos. And that was very controversial all the time, too, because it obviously revealed precision of our satellites. But I think the US public and the rest of the world might have acted differently, especially in the light of the Russian denials, the Soviet denials, until they put the photos out there. And it was pretty hard to debate. We may have to do something like that, even at the expense of admitting that we have capabilities that the Chinese government didn't know about. And that's obviously got long-term you know, downside implications. That said, I think this isn't like a new enemy. I think people should be paying more attention to what the Chinese government was up to for a very long period of time. I think we've misjudged their intent, misgauge their capabilities. And, you know, one of the positives, even though Trump is, you know, not my favorite president ever, he did call attention to Trump and has called consistent attention to China and the threat posed by China, even as a candidate and as president, he's been very active in shining a light on some of their misbehaviors. And I think that's been a healthy thing. It's actually becoming a live harvesting, sort of per se, which is nice, actually, in this era where people say there's no bipartisan agreement, there is starting to be a bipartisan consensus that we need to treat the threat posed by China much more severely and seriously than we have over the last 30 years. I think that's a welcome development. And it does seem to be achieving 50-60-70% supporting the United States at the moment.

One of the things that occurred obviously is this health crisis. And we've tried to address it, I think, the best that people could, whether they were right or wrong. But now we've created an economic crisis off kind of the back end. And really, Kind of the biggest point, I think, is around this government mandated shutdown and the shelters in place. Let's just start at a high level, kind of how you look at or assess what's caused that economic crisis and good, bad, should we have done something differently and kind of how you look at that.

Yeah, absolutely. Well, the economic crisis is pretty easy to understand. We had the best US economy in my lifetime as of January by any metric. And we, by government fiat, made commerce basically impossible in major metropolitan markets. So that will cause an economic mess. So the derivation is pretty easy. This is not a consumer driven recession, a consumer driven depression by any means. There's government policy saying thou shall not transact in ways you're used to. So, you know, that's caused massive unemployment because the people that you can't transact with obviously cannot afford to maintain employees, rents, etc. So that's the first, the first generation of this is clearly government Fiat. I do think that the government probably could have done things better. Even if you didn't have a Sweden strategy, if truly 50% of the people that were going to be most devastated were nursing homes, obviously could have changed behavior there. immediately in a very dramatic way without affecting the rest of the US economy. Secondly, it does appear that social distancing is very different than lockdowns and shelter in place. So the idea that people should have more dispersion, whether it's six feet apart or some other metric, the general density being a way to protect oneself, clearly does help in reducing transmission and severity. So, but people were adopting actually, there's evidence people were adopting social distancing prior to government mandates. So we probably could have done a lot of social distancing and had a lot of the benefits, sort of like 80% of the benefit with 20% of the rules right away. In addition, obviously we talked about masks, but how do we embrace masks either voluntarily or by mandate very early? The transmission rate and the safety associated with the virus or the downside associated with the virus. would have been tremendously different and we wouldn't have had a lockdown economy if people were wearing masks. So I think a lot of the most draconian measures, particularly the true shelter in places like we have in San Francisco, which is more severe and more draconian than many other US cities and many other countries actually, probably could have been avoided without increasing certainly the hospitalization or the death rate. There's evidence of that in Australia, for example. Australia has had a very successful management of the virus on par, not quite as good as New Zealand, but started later and has done very, very well. In Australia, some small groups of activities are enabled. So below a certain size assembly, you can certainly go to your house and visit your friends. So I think we could have probably managed the virus without completely interfering with people's ability to be sane. Because I think what we're also doing is a classic funnel optimization problem of the health benefits, the health disadvantages and downsides of the virus are very clear in the short term, but locking people up in isolation has been proven for 100 years to cause all kinds of health disadvantages, whether depression or other diseases. There's a reason why people who become isolated die fast. when they retire, when their spouse dies, et cetera. So we do not want to be isolating people more than we have to. And so even if you didn't allow large groups, large assemblies, traditional commerce, we obviously want to get people out of their houses and want them to be able to see at least some people as much as humanly possible unless they're probably above the age of call it 50, 60, 65, or otherwise immunocompromised.

Yeah, and I guess part of this.

Is.

Did they have another choice? Right, given the data we had, like I keep going back to, it's easy in hindsight for us to say, hey, there was probably some sort of overreaction, but go back to when they started to implement this stuff. I remember I think it was Hoboken, New Jersey was the first city to say that they were going to put some sort of mandate. They were going to shut bars and restaurants and stuff. And the mayors, kind of explanation at the time was we literally had a fight outside of a bar and rather than our first responders being able to go to the hospital and take care of people with the virus, they're responding to a fight outside the bar and he was really just fed up, right? There was no kind of scientific data behind the decision. So I don't know how you think about like, was it the right decision at the time and maybe we could have reversed course or actually, you know, we just overreacted at the time.

Well, I think that's right. I think it's fair to say, you know, look, we have a crisis, let's take draconian steps right away. But then I think it's also fair to say, well, as soon as you put in place draconian steps that have consequences. What I was saying when I got cut off was, I think there's some evidence that the impact of the virus is more concentrated in certain environments, indoor environments, nursing homes, etc. So as we had more of this evidence, I think we could have made adjustments faster in some places, and that would have enabled the economy to be less affected, less people lose their jobs, less SMBs and micro-merchants to fail permanently, et cetera. But I don't critique the immediate reaction of let's figure out what the hell is going on. If anything, I think we should have been more rapid in shutting down travel from Europe, more travel, certainly from China, and then waited too long. And the whole history of the US could have been different. It would have been one to three weeks earlier on some of those decisions. So acting fast in a crisis is not a problem, but then looking how to, what are the signals that suggest I can tune this to get 80% of benefits with 20% of the impact? as costs as possible is also part of the responsibility of elected officials.

How do you think about on that government mandated shutdown of the small businesses, the decision between what's essential and what's not? I saw that you retweeted Jeff Lewis talking about, hey, alcohol is immunosuppressant, but we have them open. I joked earlier, a couple of weeks ago, saying, it's funny how you can still buy lottery tickets, you can still go buy alcohol, you can do all the things that drive government revenue. I'm not saying that they went into a room and decided, let's keep our revenue channels open, but there's some questionable things on what's essential and what's not. What's going on there?

Yeah, obviously this betrays the idea that this is purely just a healthcare driven decision. Opening liquor stores being open is certainly not a health driven decision. As Jeff tweeted correctly, alcohol is an immunosuppressant. The last thing you really want to do if you're optimizing your health and your immunity system is alcohol. So I think that was done either for the political reality of avoiding a revolt, which politicians are very attuned to. If I take away people's alcohol, they're going to complain of wine and protest sooner. So appeased. Or maybe revenue driven at a lot of the municipalities, states, et cetera, depend upon sales of liquor. revenues, or maybe both. But it's clearly not in the best interest of we're going to maximize or minimize the number of deaths in the United States. So we're going to keep liquor stores open. That seems kind of silly. I mean, imagine like it is so perverse in California right now. It is insane. Our beaches are shut down, our parks are shut down, and the liquor stores are globally open. There's no rationality that makes any sense behind any part of that statement. And anybody who's, you know, people should be really criticizing Governor Newsom on this is, yes, if you want to be a zero-defact, no infections, no hospitalizations, no dashing California, great. Keep your parks and beaches closed and make people sit at home and, you know, suffer. But how the hell can you let them go to liquor stores, drink alcohol, versus going to a park for a walk on a hike six feet apart from people?

Yeah, it's pretty crazy. And I guess kind of going off of that as well then is there's a lot of businesses that, let's say you're a CVS, you're a Duane Reed, so you get lumped into, hey, you're an essential business, you're allowed to stay open, but the small business competitor in many cases is being shut down or not allowed to compete. And it just feels like it's very arbitrary, right? So I'm not even saying that I've got an idea as to what a better solution to determine it is, it just feels like once you step into the game of playing kingmaker really, right? Saying, hey, your business has to shut down, but yours doesn't. It's a slippery slope that I just don't think that there's a good answer, but I don't know how you think about it.

Yeah, there are some lines that, you know, probably are more logical and more defensible, and there are some that are clearly judgment or judgment based, bias based, lobbying based. For example, I don't think anybody wants to shut down the provision of food, food supplies, et cetera. And so I think there's not a lot of debate about that. So there's always going to be line drawing, challenges. And I think to some extent the health of 50 different states, different communities within each state, allowing them to draw different lines, and seeing what works and what doesn't is a great thing. Like the federal system, a lot of people are learning the benefits of federalism for the first time. Something you're taught certainly in high school and maybe people cross over. Obviously in law school you debate and contemplate the history of and learn the principle, the legal principles, the precedent behind. But it's still somewhat abstract and now people are seeing why it may be better to have 50 laboratories of democracy. using, I think, the Jeffersonian phrase. So I think right now allowing regional variation and experimentation is a good thing and that should apply to the definition of essential businesses as well.

So obviously that government mandated shutdown has created absolute economic chaos. We've seen 30 plus million Americans file first time unemployment in the last six weeks. You've got hundreds of thousands, if not millions of small businesses that are shut down, some percentage are not coming back. You've got a number of industries that have literally seen all of their economic activity evaporate. My favorite stat was the third week in March in 2019, US domestic box office did 200 plus million dollars in weekly revenue. This year it did less than $5,000, right around $5,000. So you got 99% evaporation of revenue and the Fed steps in. and they stepped in with all kinds of actions. What's just high level, good actions, bad actions? How do you think about their goal of trying to at least stem some of the issues and release some of the pain really?

Well, I don't know because they've been fairly effective actually at sort of propping up as much as possible. but what are the long-term consequences of that? I don't know and how to measure that. I'm not a big macro economic thinker and where does, there's always price to these decisions, but how bad is a price is unclear. So for example, you are running a lot of debt, right? Obviously, period. Now the problem though with that is not quite as severe as it might have been in other times in American history because the interest rate of that debt currently is so low. So that one of the things you care about is the debt service load, right? Like any other company, it's like what's the ongoing burden of debt? With interest rates so low, the amount of repayment per year is actually more tolerable than it might seem given the magnitude of the debt. So to some extent, it's unclear how this all nets out. Typically, these are bad things. They shift generate, it shifts burdens to generations. But the generations either aren't voting or don't track as well. So there's a lot of distortions that are going on. But in the short term, it feels like the Fed has minimized the short-term impact on the US economy.

Thoughts around bailouts and kind of some of the more specific actions to either bailout of specific companies or industries and for that against that.

Yeah, well generally, I mean, I'm a conservative. I don't sort of like Nikki Haley resigned from the board of Boeing because they were going to apply for government money. I don't believe the government should be bailing out industries or companies. However, I think where government policy specifically prevents you from doing business because of some greater good and there's an explicit rule that you can't engage in business, a much more sympathetic to those types of businesses being eligible for certain kinds of government relief, whether it's a loan, whether it's a bailout, whether it's some suspension of something. But that makes sense to me. If the government strictly interferes with your business out of nowhere and says you can't engage in the business that you've been able to engage in for 100 years because we need to shut it down temporarily, that's a little bit different to me than generally your businesses are doing that well. Here's a bailout. So I think there are some lines there that I'm more sympathetic to. Got it.

And then speaking of the bailouts, one of the things that I think a lot of people have not been paying attention to is there's actually local and state governments that are going to the federal government for bailouts as well. So, you know, in New York City, for example, subway rides are down 95%. Obviously, that's a big revenue source. And that's in a major metropolitan, you go out to some of these local governments and they're really, really suffering. Does that same logic kind of apply at that local and state government level?

Yeah, because many of these, it's mostly the state governments are making these decisions. The federal government has not generally shut down almost anything. The general rules by the FDA and CDC right now are commerce can continue as long as you don't have an assembly of more than 10 people. so that or unless you have a group of compromised, immediate compromised or otherwise susceptible individuals. So the federal government has not said that you can't engage in commerce. It's the states that are actually doing this. So the states bear responsibility for their decisions. And also the states tend to deficit spend or be very reckless in their reservoirs. Like they're asking the federal government to bail out the states. when the states know that they're overspending. So for example, California, California gets about 54% I think of their entire state income, state budget comes from extremely wealthy people in California, measured in hundreds to maybe a thousand. And we pay for literally half the state government, state's government expenses. As soon as there's an economic crisis affecting technology, half the revenues of California are going to disappear. This is, everybody knows this. Gavin Newsom admits this. He's actually admitted it to me years ago. No one is unaware of this problem. So if the government of California doesn't take steps to protect itself in good times so that when the technical elite are not making a lot of money and then paying for the entire government. I'm not very sympathetic to, oh, we ran out of money. This has been a problem. It's been a known problem. We saw this actually, the data was very compelling in 2000, 2003. The government was less reliant, state budget was reliant, but the pronounced impact was very clear. Even Governor Terry Brown, who's certainly not conservative, started to create a reservoir of savings. because he saw how dependent the California budget was on like a thousand people. And that's an insane place to be in the long term. So I think governments need to take their obligation of weathering a sine wave seriously. And if the state, if the governor, if Gavin Newsom wants to shut down the state, that's great. He's welcome to do that to protect the citizens, but he also needs to pay for it. And he shouldn't ask the people over what's called DebrOscA or whoever to pay for his decisions.

One of the things over the long term that people are worried about with all of these bailouts and the printing of money is do we go into some sort of inflationary or hyperinflationary scenario? I think the counterargument to that is, hey, we're in such a deflationary environment that it can soak up the liquidity. Do you think through that as you're making investments and what your gut tell you is the likely outcome there?

You know, the historical economical economics is of course it leads to inflation. But you know, you can't find any signals of inflation anywhere. Many of you see deflation. You see deflation in property values, deflation almost really going to happen in commercial real estate. So, and I don't, as I said, not being a superb macro economist here and not remembering all my macroeconomics, I don't totally understand why there's no inflation signals, but there are none. Now, I can definitely tell. You can look at any economic indicator you like. You can look at all the data reported by the Federal Reserve. There are no signs of inflation in the United States at all. So in the short term, it feels like kind of crazy to worry about inflation. But I need someone much smarter than me to explain a conceptual framework of why there's no inflation and what, where the negative, which must occur, where we substitute to. Yeah.

You mentioned real estate. Let's go to open door. Maybe just a quick one minute on what is open door? And then you guys made some announcements today and kind of what's the health of the business so we can get into how that'll play out through, through this crisis.

Yeah. So open door allows anybody to sell their home if basically minutes online. So if you own a house and you want to avoid the historical process of listing on MLS or on Craigslist basically waiting about 90 days on average and paying a realtor 6% for the privilege of bringing people through your home, we will give you an offer in roughly three minutes that's binding and you can have your cash as early as three days and move out on your own schedule whenever you want. so you don't have random strangers coming to your house, you don't have the uncertainty of clothes, you can go forward with your life, whether you want to move new cities, upgrade to a new house, you can do that whenever you need to. And so we've been live, we started the company roughly in 2014, live in 22 US cities, basically call it about half of the US population, plus or minus, I think it's 40%, somewhere around there. Phenomenal value proposition. Basically, it allows you to basically trade in your house like you trade in your car. 54% of Americans trade in their car when they buy a new car. The same, you know, same percentage should be trading in their house. So we started this process, rolled it out nationally in March. We had a phenomenal month, actually, the best month in the history of the company. Many, many of our markets are cash flow positive, we're doing really well. Zillow, which is a publicly traded competitor, decided that their business was archaic, their business model was archaic, and about a year ago said, we need to switch completely to copy OpenDoor. So I think they see the writing on the wall of where the world's going to, that everybody's going to want to instantly be able to sell their house without this pain and friction. We did temporarily suspended operations across the markets as governments mandated shutdown orders. This buying selling house in most states was not considered an essential transaction or business. Some states actually would have qualified, but generally speaking, it wasn't. So to protect the safety of our users, our consumers, and our employees, we basically pause all transactions as did our competitors. The good news is this is actually, people realize that actually buying and selling houses through Open Door is safer and better than the historical process. It's basically a contactless transaction. So you can buy a house, you can sell a house first through Open Door without having visitors and strangers and real estate agents in your home. And in today's world, that's very compelling and attractive. People do need to move. They may need liquidity because of, you know, or downsizing, they may want to move for new jobs, new opportunities, or safer both environments. So if people are going to still move and we enable them to move instantly with never having to touch human beings. So that's a more compelling value proposition than it was two months ago and it's really resonating. Secondly, we allow you to buy a house site without basically without having to encounter other people. All of our homes are equipped with keyless entry, and cameras so that you can basically 24/7 visit a house and purchase the house without having to go to an open house, an inconvenient open house, or schedule through a realtor. So you can also contact us this way, buy a house through Open Door, which is also now much more compelling, obvious value proposition. So we announced today that in Phoenix we're ready to go, we're live again, we're buying single houses as of today. And in several other markets, within a week or so, we'll be live, and then we bring on more and more markets back to business as normal, as soon as possible. But I think this is one of those clarifying moments where the value proposition, which was taking over the world slowly but surely, our market share was growing in every market. Zillow was helping also explain to the world that this is the future. It's going to be amplified by a lot because of people's unwillingness to engage with strangers and really understand the convenience of a, you know, snap decision that gets the money into your bank account without ever having to encounter tens of people walking through your house or going to these open houses with 40 other people. So I think we're going to grow much faster with the right product, the right technology, the right value, which is a little bit like telemedicine. So, telemedicine, they've been doing really well, but growing, I got fairly linear over the last five years. All of a sudden, people realized, why the hell am I going to a doctor's office for many, many potential issues? All they do in a doctor's office is have to commute across the city, sit in a waiting room, and get exposed to germs. None of that makes any sense for 40-60% of my medical needs. So, telemedicine companies have been exploding during this virus crisis. And I think the same thing is going to be true of Opendoor. The demand for our contactless transactions with the house is going to explode, and I think will grow at double-digit rates for the rest of the year.

What do you attribute the growth in March? Because it was right as the virus was being taken seriously across markets. Was it the market volatility and people needing liquidity, or what do you attribute that to?

Personally, I think it's more internal operational excellence. like any company, figuring out exactly, we're like a bits and atoms company. So like DoorDash or Instacart, we have a lot of people in the real world that are involved in a real estate transaction, a lot of processes. Figuring out how to master those, tune those, dial those in, master the communication and value proposition. I think the right team doing the right things was really starting to take hold the first quarter this year. so we had an incredible March and a very strong first quarter, just getting everything right. You know, business, you're always tuning your business equation and your operations, and it really started to click. Obviously, the last week of March and the first two weeks of April were weird times for everybody, but I've seen some evidence from other real estate companies, home builders, etc. that the past week or two of April started to return to normal and are continuing the growth rate with new home construction, new home transactions is back, you know, kind of the rate of growth you'd like to see. So I suspect we're going to do phenomenally well. There's pent-up demand to move because people suspended for a few weeks or a month, maybe moving and there's pent-up demand to sell. So I expect Q2 to be amazing.

Yeah, and I guess kind of a larger real estate market, there's a lot of people speculating on what are some of the longer term trends that will change here. So things like commercial real estate will suffer because more people move remote to being a migration from very dense urban areas to kind of less dense urban areas. Anything that you think about in real estate where you give credence to some of these or some that you say, Hey, actually, I completely disagree and don't think that we'll see that happen.

I do think there's going to be some impact to commercial real estate, but it's quite as direct and predictable as people think. So for example, yes, people will probably want smaller, well, some people will value remote working and minimize their commute time. However, the density per employee may also be required by law or by attractiveness be reduced. So yes, maybe they have less offices, but they need more, you know, real estate per employee. So that may net out. I think a lot of SMBs and businesses are going to unfortunately fail. It's the demand for certain types of certain costs of real estate, retail, Etc. Maybe significantly less, period. The fundamental economics of some of these Industries, like restaurants, if you need minimum density, I think you have to rethink the entire experience of a restaurant. So there's some fundamental transformations, but, and let's say an accountant, a solo practitioner, a lawyer, they may have had an office because they felt like they needed an office for credibility. This working from home for two months may cause them to rethink whether they actually need an office, period. And they may be more willing to not have an office. And that would, you know, at scale, across all this has matured in talks in personal real estate. Do people shift out of dense urban environments perhaps? And maybe that, you know, maybe that's a true trend, hard to tell. So I think there's a lot of implications, but what's predictable right now versus a second order effect and how do people adjust to react isn't as clear to me. I think there's a bit chaos theory that's going to happen. There'll be a lot of disruptions, a lot of transformations, a lot of volatility, and it's going to take some time to ascertain where the real transformations occur.

For sure. Another area that you've got a lot of experience with is digital payments, things like Square. What's kind of the general evaluation you have of that space as of right now? I know that you're generally long FinTech and digital payments, but anything specific there?

Well, clearly people have been transacting online at a higher rate than two months ago, partially because the offline equivalents have been shut down. The companies that process payments, whether they're Stripe, PayPal, Square, et cetera, have obviously been doing well. People are buying large exercise equipment, whether they're like a tempo, which is something I'm involved in, which is like weight training at home, or the canonical Peloton. People are financing products like that through a company I'm involved in called Affirm. So people are buying things at unusual rates, which is leading to the payment providers and the loan providers and debt providers that service that world, growing at rapid clips. That said, how much of that is a fundamental shift is unclear to me. Do people revert back to when I have the choice going to a gym or do I use my Polar Time? When I have a choice, do I go using Instacart for delivery or do I go back to Whole Foods and just discover what food I want and what meals I want to make? Not as obvious. So how much of this is a step function change? that just persists versus a temporary, you know, sort of wave.

Yeah, it almost feels like the virus has accelerated some trends, but also some of them may be false positives as well, right?

Right, let's talk about one that's, I think, really easy for people to rock. Let's talk about dating. Imagine you're going on a first or second date. What do you do at least last 50 years? What do people do on first or second dates? They go out for a drink. They go to a meal, a restaurant. might go to a movie, possibly a play, sometimes a concert or something, you know, like music, might go for, if the weather's nice, to hike a lot or something. Most of those options are basically not available. So like the top four to seven choices for people going on a date are basically really banned or unlikely to come back in the short term. in the same way. So people aren't going to stop wanting to go on a date when they're allowed to get out of their house. So something is going to substitute for those. But what is that? I have no idea. But the demand to meet somebody, have a common experience and filter and decide whether you want to spend more time with someone is absolutely good or go to a coffee shop. That's what people do. So before the virus, I would not have been willing to probably fund a new version of first or second date products. Because I think the inertia around these or go shopping, shopping malls, that's what we did in high school. All these seven or eight activities, the inertia was so great. The gravitational pull towards reverting to kind of the normal things would have been so hard to unlock a new dating experience. But right now, I don't see people going to a dance restaurant where the cost of the meal is too high. I don't see people going to movie theater, maybe ever, but certainly not at the same scale. Music venues, certainly not set up for the initial post-virus world. So I think there is a chance to create a new dating experience for the first time. This is just a metaphor of how there's a dislocation creating an opportunity because the demand, the consumer psychology, psychological demand isn't going to be be evaded, but someone may be able to channel it into something completely new. Yeah.

And I guess on the digital payment side specifically, are you worried that some of this kind of rise will actually dissipate and go back to the more traditional methods? Or do you think that it's something where there is kind of a net gain, but it doesn't continue to grow at the same rate? There's just a plateau. at that new kind of higher level?

I think it matters. It's like you almost have to go industry by industry or segment by segment to see what happens. I mean, obviously Shopify, which is taking advantage, you know, is obviously benefiting from this trend is trading at all-time market cap levels. It's a massive amount, you know, since the virus, because people are doing a lot of, engaging a lot of commerce online and Shopify is the default sort of infrastructure for a lot of this back commerce. But do people want to go back to real world experiences? I suspect at least in part they do. There are parts of shopping for things online that are extremely difficult to do. Think of apparel and sizing. Think of serendipitous discovery. I think there are great products online for when you know what you want. find it and transacting very conveniently in a utilitarian way. But being seduced to buy something you didn't know you want, I think is still extremely difficult to do online. And the real world is much better at that. And people like, people definitely vote with their feet. About 50% of expenditures are utilitarian in, you know, a decision to fulfill a specific need that I know I have, and about 50% are discretionary and induced by seduction. merchandising is the euphemistic way to describe that. I think merchandising is still happens in the real world when the virus issues are ameliorated. Yeah.

Before we move on from digital payments, let's talk about Bitcoin and kind of cryptocurrencies. How do you think through one, what's transpired so far given that the macro backdrop, and then two, what's the outlook you have as that ever being a legitimate either store value, medium of exchange in the digital payment space?

Good question. It's interesting because to some extent, crypto has proven to be less counter-cyclical than people thought. Almost everybody thought, for one it's added points. It seems to basically be more correlated with, like say, the NASDAQ than you would have guessed. I do think as a store of value, it's given the draconian and somewhat unprecedented steps that governments all around the world have taken, I think the clarity of why one might take their wealth and put it in a place that's very difficult and virtually impossible for the government to get their hands on is probably substantially clarified. you know, whether it was Elizabeth Warren pronouncing and running on a platform for wealth tax to the government basically banning things that people have done for centuries overnight, I think will lead to a, I want to place some of my resources in a way that regardless of what the government does, wherever I want to locate, I can have access to. And so I think that demand is substantially increased. Just because a lot of normal people now understand that it's not some crazy theory that the government might try to deprive you of your livelihood. So I think that will increase the attractiveness of crypto as a store of value. On a transactional basis, not so sure. Yes, there are kinds of transactions in the world though that maybe, you know, have been done for trust reasons have needed to be transacted in person. Think like purchasing a house in India. is basically still the other person, cash. So trustless transactions, if there's fear of germs and viruses, the need for a trustless transaction being enabled by technology could increase, too. So those may be areas where actually Bitcoin or other crypto takes off because the value proposition is just more compelling than it was three months ago.

Got it. What other areas of your investing are you either changing because of the virus or you're becoming excited about that you might not have otherwise why it's been looking at?

Yeah, I mean, I don't think we've changed our areas of excitement. I think we do ask the canonical VC question, which is why now? So every time we invest in a new company, we ask a version of why now? Why is this company more likely to succeed than before? Why is it more likely to succeed than people who've gone before trying to do something similar? So as the virus has reshaped the world, Some things are more obvious why now than they were before. For example, actually I invested in, I've been looking to invest in for two to three years, and something that would make homeschooling more successful and less full of friction. Turns out I already invested before the virus, but I could see why now more people would appreciate it, because they're confronting the challenges of homeschooling, the benefits of homeschooling, all at once. It was not all the products and services that helped so that's easier to ignore. But I don't think, so we're just asking, you know, a version of the why now, but really want an answer in a post-virus world, why is this better, more likely to succeed than it would have been previously? Where there is a change is in the, at least in the short term, there are three kinds of investors who succeed. There's founder-driven investors, market-driven investors, and technology-driven investors. and there's successful examples at the high end of the venture community for decades that are one of these three types. I think it's been much more difficult. I'm a founder driven investor, like 90% of my decision is, are these the right founders to potentially pull off this miracle? And it's obviously very hard to evaluate founders remotely. So in the short term, I feel like a fish out of water. like I'm deprived of oxygen because I can't meet new people. And Zoom is a proxy, but it's not a perfect proxy. It works pretty well for people you already know, because there's a lot of social capital, a lot of social cues already embedded in my ability to converse with people. So even board meetings, most of the boards I'm involved in are executives and teams I've worked with for years. Even the other board members from other VCs or people I've known for for a decade plus, so they don't feel as difficult to pick up on these cues. But I think Zoom isn't very effective for meeting someone from scratch. And so I have significant, I'm having significant difficulty in pulling the trigger on new investments. So either I'm going to limit the number of new investments until these real-world meetings are possible or maybe shift our risk appetite to just about less dollars. So maybe where we might have committed $5 million, maybe we'll commit two or three for now as the new world evolves. But I think, you know, I made my first investment ever in 20 years of investing professionally and as an amateur angel with founders that I had never met basically this month. And that felt a little out there. But the founders were at least people that were one degree removed from people I knew well. They both came from some sort of Facebook, Instagram world. And so we had lots of connections in common. Matt, the chief of staff, had actually worked with one of them before. So it was like taking one step removed from what I might normally do, but it didn't feel that far out there. But right now, yeah, it's very challenging Founder driven investors. The technical driven technology driven investors probably not that difficult. But at the end of the day, assessing technology through Zoom call isn't that difficult. And if you're depending on the transformative nature of the technology, you're not betting as much on the founder. It's a lot easier. So I'm somewhat jealous of my competitors that are technology or market steering investors at the moment. But we'll be back.

The founder driven investors will be back at some point. I love it. I want to run through, you've been incredibly gracious with your time and so people sent me a million questions. I kind of cherry-picked the ones that I thought you would enjoy answering the most, which tends to be you probably have the most interesting answers. So let me run through a couple of those. The first is thoughts around SoftBank and that entire situation.

Yeah, I mean, I've had lots of views for years about SoftBank. They were paying very high prices. somewhat adversely selected into companies and the returns are going to affect that. But I think the most important thing, most important dimensions to that were twofold. One, the strategy of money dictating the winner in a technology market is intellectually bankrupt. That's never been true. No, I can think of maybe one example in the history of technology, but fundamentally, technology is not about having the biggest bank account. It's about having the best value proposition and the best team. The team you build is the company you build. The product you have, the architecture behind that is 10x to 100x to 1,000x more importantly your bank account. And in a normal world, the capital will flow to people who have appropriate capital will flow to the people who have the right value the right team. So that was just purely wrong, period, end of story. The strategy made no sense and wasn't going to work. Second, though, and then there was a moral component to this, which, you know, also been outspoken about, which is I don't see how Americans are comfortable raising money where the LP, the primary, not arguably the exclusive LP, runs a country where women are second-class citizens by law explicitly. Gays are subject to execution. Jews are prohibited. I just don't understand how anybody in Silicon Valley can, with a straight face, accept money from people who legally are opposing these rules. on large components of society. We had a boycott in North Carolina from some tech folks, tech leaders and tech companies over whether the bathroom signs were correct or not. These are countries where literally you're executed if you're gay or you're Jewish or if you're a woman you're not allowed to drive a car or vote. The comparison, those are orders of magnitude greater It's a crime to be any of these minorities. And yet we won't do business with a city or a state that has arguably not the perfect bathroom signs. So I think the hypocrisy of people in Silicon Valley in being willing to consider money from SoftBank Saudi Arabia was so off the charts that it basically But meant that people weren't taking their morality seriously. So I think the combination of those three things was disaster. So fortunately, I think that error is over. I think SoftBank for many reasons isn't going to be a player in the Silicon Valley ecosystem in the future.

What was the most common response if you were to ask somebody, like, how are you comfortable taking the money? was there something that kind of bubbled up and people used as the explanation or excuse or was it just all over the board?

It was all over the board. Depends on the founder, you know, the company specifically. I never heard a compelling, you know, response, honestly. But, you know, lots of people are creatures of convenience. The highest price People will work with people who offer them more money at a higher price sometimes at the expense of principles. And yeah, I never heard a really compelling answer to that. There are some people who are somewhat neutral. I can see a compelling neutral answer, which is, I'm actually not going to impose values across any of the decisions we're gonna make as a company. But then you have to actually act that way. And I don't think many people were actually willing to act that way in Silicon Valley, but I think that would be a consistent intellectual approach. One could absolutely say, like, my employee base is a thousand people. They have different views, different religions, different political affiliations. I'm not gonna get in the middle of trying to figure out what's right and wrong. We're not as a company. Our customers are all over the map, all over over the globe, we're going to be as neutral as possible. That is an intellectually coherent position, but that also means that you can't be complaining about Trump, you can't be complaining about Trump's immigration policy, you can't be complaining about North Carolina's bathroom policy at the same time. So I think you have to be intellectually and honestly consistent, but there is a way to be consistent if you really wanted to.

Got it. How would your advice change for young people graduating college? I had a bunch of them asking, Hey look, basically I'm graduating into a virus, into an economic crisis. What's the best advice for me? And anything that you've said in the past that would change now?

I don't know that I would change any of my advice. My advice is typically find the opportunities that will give you the greatest challenge with the people that will challenge you the most. people who can learn from the most will challenge you. And so you want to have the cheapest possible learning curve and the steepest possible challenging curve that you can find. And I think that's always true. And in fact, it may even be more profitable in a post-fire world. People may be more willing to grant you unique opportunities because they have to. But I would always be looking for the same things, I think.

A number of people asked about some variation of your longevity stack or what you do from a longevity standpoint. What's kind of the daily routine right now?

Well, so first of all, I highly recommend this book called Lifespan by David Sinclair. He's probably the single best reliable expert. Read it. I'll tweet it about it so you can find the links on Twitter or media. tab. But fundamentally the things I definitely believe in, NAD and AP supplementation, I believe in high intensity interval training designed to both partially elongate your telomeres, reduce your or extend your two-minute recovery as a way of measuring on your Apple Watch in a non-invasive way. I do believe in severe caloric restriction, but I don't personally do it. I try some variants of intermittent fasting, which I think does get you maybe for 20% of the after or pain, 80% of the benefits. I think those are the three things that are most obvious. I also believe in sleep is the panacea for everything. Optimizing your sleep, ensuring you get a reliable seven, eight hours as much as possible, as consistently as possible. another book I highly recommend reading on this topic is why We Sleep by Matthew Walker. The single best thing you can do for your life, for your happiness, for your lifespan, for your success professionally is to sleep more.

I could say from personal experience, I was an anti-sleeper and when I started sleeping more, it was life-changing for sure. Another big thing was around Supply chains, national security, and this whole idea of like a resilient economy versus an efficient one, which was a framework that Chamath presented a couple episodes ago. Kind of how do you think about any shift there that we'll have to make from a seeking efficiency to something that looks more resilient?

I agree that we're going to shift to a, more, I don't know, exactly the right vocabulary, but a more controllable supply chain, meaning like more under our control. So, you know, for example, I believe it's true that there's no antibiotics currently manufactured in the US. That is probably a position that isn't wise. So I think we're going to take a look at various things that US society, US health to depend upon and ensure that there's enough volume and production capabilities in the US so that we're never exposed. I mean, we went through this in the oil world, right? It's funny, ironically, now to look at it where oil has basically no price to it. But in the 1970s, we were exposed to foreign oil and it caused a lot of consternation and arguably political decisions that were less than ideal because we were dependent on foreign oil. And we made a conscious decision as a society to minimize that dependency on foreign oil. We eventually got to a place where we were oil exporter, and I think it's led to a lot more flexibility in American decision making. And so I think we're just going to have to do that across all parts of our dependencies, food chain, drugs. The more vulnerable we are, the less we're going to want to do that. And there may be both short and medium-term costs to that. The truth of comparative advantage is true. Economic comparative advantage across the globe is a true statement. There is an inflation, at least in some period of time for some period of time, to having control of your destiny through various manufacturing techniques. Now, some of that can be offset at some point with automation. We are capable of investing in robots and other automated ways to manufacture that would potentially displace some of the costs that has led to the traditional comparative advantage overseas. But I think we're going to have to accept a temporary rise in cost to ensure that we have fundamental control over economic destiny.

The road to recovery for the American economy, what does that look like from a timeline standpoint and any estimation as to how many small businesses don't make it out the other side of this?

So my estimation is it's certainly measured in quarters, not weeks or months. And that probably means, I think this is more like in Silicon Valley vocabulary, 2000 to 2003 than 2008. And so I think it will take a while, partially because I don't think there's going to be a binary instant healthcare solution. It's going to be more of a gradual set of solutions that add up to being less threatening to all of us. And because of that, the economy is going to be impacted, even if not severely impacted for a very long time. The evidence is true in China, even people did not even using government stats, which are probably biased on the optimistic side, they will not snap back into immediate commerce right away. And the biggest fear is that consumer fear, which is the traditional cause of the recession or depression, actually gets layered on to government fiat recession depression, so that even when the government liberalizes the rules, people don't spend, or they can't spend, their disposable income has either been evaporated or their willingness to spend has decreased substantially because of perceived volatility of fear. And if that happens, then this would be a very long recession. I saw today that San Francisco, as much as 50 to 60% of SMBs may fail. And maybe that's a little paranoid, maybe that's a little pessimistic. But either the cushion associated with operating SMB has never been great. The margins in many of these businesses are small. The fixed costs are often high. So I do fear that the, the permanence and the devastation may be quite high. And then if you're right that, you know, some of the beneficiaries of the designations of essential businesses have been larger entities, chains, you know, national brands, they may be disproportionately set up to compete in a way that they weren't before, which would amplify the problem. I haven't studied, you know, you don't have to say this is segment by segment basis. it also depends upon how certain rules around density apply to healthcare providers like dentists, apply to restaurants, apply to bars and pubs, gyms, how those are rolled out and how consumers behave. Very hard to predict at this moment, but I think it could be catastrophic. It could take a very long time. One stat I saw that's moderately predictive is the month before 9/11 occurred in the US. We hit a domestic in 2001 domestic peak travel record in early September and it took until May of 2004 to re-hit that peak. So pretty pronounced and elongated in that vertical. And so, you know, that may be a benchmark that's appropriate to look at. for the most effective verticals anyway.

Yeah, one of the most interesting verticals to me is just the healthcare system, right, and how all of the ancillary services and elective surgeries and kind of high margin revenue has completely disappeared and they're having the explosion of the ER rooms and things like that. And it'll be very interesting to see how many of them, you know, have lasting effects from going through this versus not.

Yeah, I mean, I think obviously that, you know, one of the worst impacts of this is we were allegedly, you know, locked everybody down to quote unquote flatten the curve, which is designed to avoid overloading the healthcare systems. And what we actually did is start the healthcare systems of revenue to patients. That one may revert fairly quickly. You know, I think a lot of the healthcare postponements of elective surgery of treatment, which is unfortunate, it will lead to more severe conditions. will sort of unfortunately have to read them because people aren't going to get sick and eventually need their ACL replaced, et cetera, et cetera. So that would at least from a demand perspective may see some resurgence pretty quickly and the types of people who have the credentials, nurses, nurse practitioners and doctors who have been furloughed I think we'll be in demand again because that's a fairly specialized and regulated sort of profession. So we'll see, but right now primary care practices are probably the most affected and may be permanent. I could see a primary care practitioner who's, let's say, over the age of 50, you know, basically pseudo-retiring and not reopening primary care. We've had a sort of shortage and concerns about a shortage of primary care, especially in certain markets in the US. And that may, that may be a, there may be some severe impact on primary care, but in terms of the hospitals and the acute care, I'm not as worried if, if they, you know, if we're not locking down people for months.

Got it. Last two for you. The most important book you've ever read.

From a professional standpoint, high output management, it's really the Bible of how to run and operate a managed high growth startup, which is, you know, been what I've done for the last 20 years. And it's probably still the only book that really nails it and is something I try to reread once a year. It was written in 1982 by Andy Grove. From a personal standpoint, probably upside of stress, which was something that actually didn't change my beliefs about the benefits of stress and challenging yourself and how to manage stress and challenge to be more successful, happier, and live better, healthier, longer, etc. But it's very contrarian and most people didn't believe my philosophy. And so it's given me a tool for proselytizing in a way that's incredibly compelling. You cannot read this book and walk away the same person with the same attitudes that you did before you read the book. So I love the book. I still copies of it at home in the office. Even years ago, I used to give people books to read on my dates. So I was pretty crazy about this in my college days. But I said it's probably the most important from a political standpoint the go-to one. Thomas Sowell wrote a book, the Vision of the Anointed, that I read probably 30 years ago and again clarified my own thinking, really reinforced my own thinking. And, you know, it actually probably still is reflected in my tweets today.

Only you would name a book that you then could use as Firepower to prove a point. I love it. Last question for you is aliens, believer, non-believer and why?

Yeah, this is fascinating. At least, let's say the UFO version of this. I had a debate about this, you know, over the weekend. And it's. It's somewhat shocking that, you know, last week, basically, the Pentagon confirmed that there's UFOs. And it's about the third or fourth or fifth thing that people are talking about. between the virus. There's more people probably talking about the Michael Jordan documentary than UFOs. And like, it's almost like people are so confused by the confirmation in the evidence that they don't even know how to express the insanity or the, you know, inco in conceptual in tension with everything they've been taught. I mean, think about this is a classic way to need to close, but if any of these social media people or platforms had been regulating content or moderating content based upon credibility, we would suppress all this UFO stuff and fiction, non-fiction, people who are proselytizing about the existence of UFOs would have been banned from Twitter or from Medium. And yet, given all the current evidence, Yeah, pilot testimonials, photos these days, videos, measurement, instrumentation. It's almost surely true that there's objects of some sort that either violate the rules of physics that we understand or there are aliens or something. And we would have suppressed this for generations if any of the people who believe in content moderation and your social media platforms ensuring accuracy had their way.

We live in absolutely wild times where UFOs don't get coverage. And I think part of it though, I will say that it had leaked already, right, a couple of years ago some of the videos. So I think people may have been a little desensitized to the novelty of it, but still the fact that they They released it, one was a big deal, but two also like why now? Right, it's my first question. Like, why is now the time when you choose to do that versus some other time, I guess?

Well, the New York Times to their credit did run a front page story in 2019 about this, but there is a little bit more details in the confirmation of the video, authenticity by the Defense Department is interesting. I don't know about the why now. It certainly, it was designed to distract people from the virus. It definitely didn't work. work. It may be a little bit too, you know, there are positives to the Trump administration, which is things that more traditional establishment people have taken for granted. He's willing to rethink and declassifying some of this, you know, might be consistent with, you know, some of his willingness to roll the dice the way that traditional presidents happen or wouldn't of either party. But it is going to be interesting to see what else the Pentagon and other people are willing to be classified over time. There's no more surely more evidence out there.

For sure. Well, listen, I appreciate you taking the time to do this. I think people really enjoy it. Where do you want to send them if they want to learn more about you or Founders Fund?

Well, Founders Fund, you know, we have a couple of options. We have a website that has, you know, basically the team members, a little bit of content, some stuff and stuff. We have several podcasting series that a colleague, Mike Solana, puts on. every year that's thematic where we get people who have interesting perspectives and can hear them talk in their own voice. Obviously, social media, I use Twitter, some of my colleagues use Twitter, some don't use it at all. I think Peter has tweeted once. So a variety of different practices there, but we like, we will, you know, some of us blog or you substract, like my colleague John Luddy wrote a really interesting, fascinating piece about the future of Silicon Valley growth markets and growth investing. So I highly recommend checking out all of our perspectives. We think differently. We're willing to debate each other. We were going to, unfortunately, put on a conference, you know, in May called Hereticon, where we had an awesome assembly of speakers, a variety of different topics that due to virus concerns, we've obviously had to postpone, but we'll eventually bring that back and, you know, expose the world to a lot of different voices, divergent voices that they probably haven't heard from.

I will vouch for you guys in that my favorite part about Founders Fund is I've never seen partners at the same venture firm literally fighting it out on Twitter over a topic.

Like just absolutely... See us in person.

I can only imagine. All right, well listen, I appreciate you taking the time to do this and we'll have to do it again in the future.

Great, thank you.