A Q&A with California's Former CFO | Venture Capitalist Steve Westly

So they got 2 dads to help write the course for the 12-year-olds in 7th grade. Between 7th and 8th grade, the kids taught by 13-year-olds offered a class, 9 to 12 in the summer. Who knows who's going to show up, right? It's summer. Who wants to take application coding camp, right? Class sells out in the first day. $495 a kid. Every mom wanted their kid in that class. So they did the afternoon. Sold out in a day. They went into week 2, eventually into week 3. While I was like mowing lawns in the summer, these kids were making, get this, $5,000 a week. Schools and the grown-ups couldn't figure it out. Kids and dads did. I just want to reiterate, there is a revolution in using technology in schools. They're firms like Quizlet, which— do any of you know— how many of you know what Quizlet is? OK. So the reason I mention this, there's a whole debate. Is there enough testing? Should we have more testing? Testing equals accountability, maybe more. Others say, you know, fill in the bubbles, you don't learn much. There's a dirty secret here, folks. Everybody says students don't want tests. Students actually are willing to take tests. Maybe not the standardized ones, but by and large, Students would much rather figure out on Tuesday or Wednesday night whether they know the stuff than show up on Friday and get a C- and go, oh crap, I really didn't know it at all. And so there is this website, 100% free, that has tests on it so you can go in for whatever you might want to take— U.S. capitals, multiplying fractions, dissecting a worm, it's there, dissecting a frog. There too. Starfish, that's there too. How many tests would you guess are available on Quizlet at this moment for free? Take a guess.

5,000.

5,000?

Low.

A million.

A million? Low.

10 million.

Way low.

90 million.

90 million, heading toward 100. So every test— look folks, you're not the first one to take a test. You're not the first one to be in second grade. You're not the first one to get a real estate exam. It's all there and it's free, giving people a chance to test themselves and to make sure they're up for snuff. These are the models of the future. I think most all of you know about the Khan Academy. We need to incorporate things like this and MOOCs into school. I believe we can provide a superior education for less money and to a much broader audience than was ever done before. I went to a public high school. I wanted to take calculus. I was trying to apply to Stanford. My high school didn't even teach calculus. Bummer. But now you can do this stuff online so that every child, not just here but globally, can have access. That's a good thing. Other questions? Sir? Is California still on the side of entrepreneurs? A lot of people have come here and said that there's kind of a regulatory push against small companies. A regulatory push against entrepreneurs?

Yeah.

I don't buy that. I think what there is is a little bit more of a have and have not, where a lot of young people and entrepreneurs are making loads of money and splashing it around and perhaps not being terribly sensitive about it. But I think people love entrepreneurs. I think the more interesting question is, Do we tax the entrepreneurs enough? And are the entrepreneurs or people who are becoming more affluent in our society pricing other people out of their homes and their way of life? And I think that is a serious issue. And that's why I started out saying California is the most extraordinary place on the planet, not just economically, but because we've captured people's imagination. But we have to figure out a way to make California work for everyone. Sir, and then we'll come back to you.

Something going along that line and regarding the sharing economy, in terms of like in the politics scenario, do you think there are some risks of this sharing economy in terms of regulatory terms, like government intervening in certain areas like Airbnb or Uber and trying to block these companies that are basically empowering people to work? Yeah.

So this is the big question. Folks, get your arms around this. You have this huge opportunity, economic explosion, changes that never occurred before. There are more opportunities to make money, change the world, do exciting things than ever, and you're in the middle of it. But it doesn't come for free. There's risks. So what are the major ones? You mentioned some.

Regulation.

Safety. Privacy and security. I mean, stuff is going to happen. I mean, just imagine you've got a world that for 10,000 years people are riding around on horses and all of a sudden the guy shows up with a car. And people are saying, geez, weighs a couple thousand pounds, that could run people over. We have the same thing today. We have huge privacy risks, huge security risks. This privacy issue is something you're going to be dealing with for the rest of your life. And if you can spend a little bit of time to understand that, you will be very smart. I have to stop here for a moment. For the last 30 years, a lot of people in Silicon Valley have said, It's been this strange libertarian thing. We're entrepreneurs, we're doing great stuff, we don't need government. You almost never hear that anymore because people understand government created the internet. Without that funding, that's not here. You actually need government to have basic regulations and there need to be some compromises. With this issue of Uber, I'll just tell you straight out, you are not putting Uber back in the bottle. Uber is a great thing. Uber creates jobs for a ton of people, and it actually increases the amount of economic activity and convenience. It's awesome. But that does not mean that the people at Uber do not have a responsibility to do basic background checks on their drivers, to make sure that these people have a track record of driving safely, to make sure that you're keeping an eye that you're not putting sexual predators in cars without people knowing about it. There's some fundamental standards that we need to be paying attention to. Government will always have a role. I would just suggest to you, not enough of the people in Sacramento have the expertise you do, and they will need your help and your activism to make sure that we have laws that keep us in the right place. Let's do this gentleman, and then we'll come to you.

So, I'm 25. I just graduated from school a couple of years ago. At this point of my life, I think I'm ready to get a job. I could be working for Apple, Microsoft, Google, or any of those companies, and whatever income I make, the government will tax me on my income. Let's say one-third of my income is going to taxes. That's okay because these companies are big, I'm working for a big company, my future is secure, all that is fine. But I gave up that option and I became an entrepreneur, and right now I work— I bootstrapped for a couple of years, I worked so hard, I just received the seed funding for Let's say $200,000 and just take my first salary, and the government wants to take the same amount of taxes from me right now after being a C100 bootstrapped such a hardworking entrepreneur as the same tax that you take from an Apple employee. How is that fair? Why don't you help support hardworking entrepreneurs who bootstrapped so much so long and who are who have the potential to create more jobs? The Tax rate for entrepreneurs living in a hut and living in a bungalow like Apple or Microsoft is the same. Why is there no support for people, for entrepreneurs like us who are in the seed stage?

Go ahead. I want to hear some of the rest of you respond. Go ahead.

Oh, myself?

Yeah, please.

Well, no, I think it's a really interesting concept because people being able to keep a When they're taking on risk, you know, what else can offset that? I mean, granted, you know, we spend all the time and we spend all our effort into either serving a table or whatever we need to do. And to know that the society is actually endorsing that kind of behavior to be able to grow it, you know, over time, I think would be certainly something powerful. So I'm very interested in your response to that.

The appreciation of this equity will That's exactly correct. So a lot of things going on here. First, I have to reveal a terrible secret to you. I used to be the State Comptroller, Chief Fiscal Officer of the state, and I oversaw the state's taxation system. Yeah, that's why I asked. I cannot tell you, by the way, how many times I would be sitting on an airplane and there's some stranger and they're saying, I got this business, you wouldn't believe it, I got all my money here. Hidden in Nevada. I don't pay any taxes. And I'm just like, wow, great. What's your name again, sir? What's your email?

Thank you.

Thank you.

Good. We'll be following up. Number one, people are like, my god, taxes. It's terrible. Too much. Too much. It's like, well, tell me. About 55% to 60% goes to K through 12 education and to the UC system. So that's about you know fifteen or eighteen percent goes to basic healthcare. Some goes to building roads. What part of taxes upset you? Is it the educating poor people, healthcare, or building roads for the future?

It's the redistribution of wealth.

Actually, it's not it's not really a tax question, to be honest. It's it's more of a it's it's not even it's not even oh there's burden. It's the question of how.

How it's distributed?

No, no, no, no, no. When it comes down to, as Vivek was talking about, like we're taking on a degree of risk on our own lives. But ultimately, I think many people in the room, not everybody, is also looking to give back in some way. So we're doing this in a positive sense and in the sense of a whether it be even job training or being able to access other types of resources. It's that kind of thing.

It opens the door. No, this is a good point. And again. I don't want to convince you of anything. I just want to make 3 points. One, when you talk about taxes, it sounds so terrible, but by and large, a lot of things the money is being spent on, you wouldn't feel that badly about. Number 2, having been the chief financial— everybody comes in and says, but my group is special. Entrepreneurs say that. Veterans say that. People with disabilities say it. Single moms say it. The list, folks, it is not small of people who are looking for a special deal. If you're ever lucky enough to be in public office, you will be stunned how many people show up on your doorstep with their unique exception. Finally, third point, this gentleman hit it. The rest of the world is out there saying, can you believe those blank holes in Silicon Valley already get this—

Capital gains.

Capital gains exemption and they're already making millions. I'm stuck out here in the Central Valley and we don't have these opportunities, no venture capitalists and— You know, my parents didn't go to Berkeley or Stanford, and I've been disadvantaged. And they get a tax discount. So it's a very, very tricky issue. That having been said, I will tell you right now, the challenge here and around the world is to get the next generation of millennials to be thinking about how can I do exactly what you are doing, which is start your own business, instead of saying, Which big company or government is going to hire me? In France, close to 40% of the people work for the government. Not sustainable. Even working for big companies, probably not sustainable. We need to teach our people to do what we're doing. So having given you the caveats that you need to think through and you need to be able to answer, I'm sympathetic. We've got to find more people to go into being entrepreneurs, and there are a lot of ways to get there. Let me give you a chance to ask a question. We'll come to this gentleman in the front row.

Hi, thank you, Steve, for the talk. My question is, what do you see as the role the government plays in this wave of technology? So there are 2 pieces of news. The first one is governments start to tax some Airbnb hosts, like places to try to pick up revenue for the government as well. And also there's news like, for example, in China, we as a nation create something like Uber so that it's like a government facility. So what's your opinion on that? Like, okay, on the one hand, if government provides this kind of like basic facilities like roads, bridges, it definitely benefits more people instead of just one company.

Yep.

And on the other hand, once government set the footprint for that economy, The dynamic is changing for the entrepreneurs. Everything is higher cost, the barrier is higher.

What's going on? So this is like the age-old question is, what is the appropriate role between the private sector and government? They must work together. They cannot be like opposite sides in constant conflict. We in the US need to do a better job, I think, of having more responsive government, especially to deal with these new age challenges, like how do you regulate Uber, not run them out of business, but appropriately regulate them and provide basic protections. How do you regulate Airbnb? I think there should be a modest tax for Airbnb that goes into the city because they're reaping the benefits of being there. Is it 100% of what the hotels pay or 80%? There's some reasonable compromise we need to find. But there's 3 issues that come across with government. One, government has a role to invest money in basic R&D that moves everybody forward. Think of the internet. 2, government needs to be more actively making sure that every young person in our country is getting some basic technology education so our populace can compete in a global environment in the 21st century. We are not doing that today. 3rd is, what is the appropriate role? I'm working on an article right now about this issue of the gig economy, because you have employees now that are taxed as full-time employees, and we all get that, and you're required to do benefits and healthcare and time off and paid leave. And then there are contractors where the employer doesn't have many responsibilities at all. And these people are often really exposed. And the issue of should there be something in between for the gig economy employees where maybe a firm like Uber has a responsibility that for every unit of time you spend working for them, They are required to put a little bit of money into a pot that goes towards either disability or time off or both. So these are the things we need to work out. I know China is working with the same same things. Let's come to this gentleman and then you two, and then I have to zoom off to San Francisco. But I'll give you shorter answers here. Go ahead, sir.

Still on the same topic about governance. My question is about we spent some time with Tim and. Spoke of us to that people he looked up to the most, like Gorbachev, Washington, and Xiaoping, are people who kind of pushed away power.

Wow! Gorbachev, Deng Xiaoping, and George Washington—that's an eclectic group. Yeah.

So the question was about what you see as the role of governance becoming because you already got like sharing economy, sharing energy between like Sudan, North and South Sudan. Yep. You have more countries being formed. Yep. In our age right now.

Yeah.

Than at any point in history. So how do you see that? What do you see happening in the future? Do you see more city-states being formed as opposed to smaller units, countries being established?

You know, it's so interesting. There's always states contracting and growing all the time. And so I don't know if the trend line is one way or another. You know, there's all sorts of places that are talking about breakups. Sudan has just broken up in the last 2 years. There's a vote in England. We've seen it with what used to be East and West Pakistan, now Bangladesh. It happens all over the world, but these are regional battles. I think the real issue is not where you draw a particular boundary. It is how can you make government work better? And for me, and I want to dovetail off what you said, most of us in America have said we live in a democracy. In America, the greatest place in the world. I agree. And by the way, I sure wouldn't want to live in an authoritarian place like China or 10 other countries I could give you. But if you go to China and you look at the rapidity of change, how quickly China has lifted 500 million people out of poverty, you might reasonably come to the conclusion that democracy is better than an authoritarian regime. But gee whiz, we better figure out how to make things move more quickly. in our democracy, or we may no longer be the biggest economy in the world. And the point is, do not get complacent, even about our government. And that's kind of a revolutionary thing to say, because most people are like, whoa, whoa, is he saying we might want to relook at the Constitution again? And I'm here to tell you, we must, must, must be evolving our democracy all the time. all the time or we risk falling behind. We need to grapple with these questions and we need to make our democracy move much faster. So you might say, well, how the heck would we do that? In California, we've just enacted 2 things that are so powerful I cannot tell you. Most people don't even know they've occurred because government is sort of sleepy. First, we had this radical idea, and I know most of you think we're better than the Chinese because we're a democracy and they're an authoritarian. We have gerrymandered political districts. You had a better chance of losing an election in the US in the 1960s than you did in Russia in the Supreme Soviet.

Yeah.

Incumbents never lost because we gerrymandered the districts. We in California are the first state, I believe, to enact independent third-party redistricting, so you actually draw the districts so So the candidates have to campaign. So that's something we should have done ages before. And who led that one? California. The latest thing we've enacted is an open primary initiative. So for our whole world, we just assume there's a Democratic primary and a Republican primary. And I will just tell you, having been someone who's run for office, when you run for office, it's a very scary thing. You get the playbook and it says, OK, I'm a Democrat. I'm a Republican. Here's the playbook. Run to the left and don't stop running. If you're a Republican, you open the playbook and it says, run to the right and don't stop running. Now there's an open primary where Republicans can vote for Democrats, Democrats can vote for Republicans. And guess what the fastest rising pot of voters is in California today?

BTS.

This gentleman got it. Democratic Party shrinking, Republican Party shrinking even faster. The fastest rising pot of voters in our state, decline to state, slash independent moderate voters, millennials. Most of them look like you. This is why we have to keep innovating as well. I'm gonna do 2 more questions and then I've got to take off. Sir.

Yeah, I was just curious what your thoughts are on Proposition F, which for people who don't know about it, I don't know a whole lot about it, I think it's a proposal to limit the number of days that San Francisco Airbnb homeowners can rent out their homes on Airbnb and maybe just the greater idea of regulation on Airbnb.

Yeah. So again, I'm not an expert on all the city initiatives. From what I understand here, this is probably a reasonable step forward. You need to have some modest compromise. And again, I do not want to close Airbnb down. It is important stimulus to the economy. It increases tourism in our place. And I think the more people travel around the world and actually Live with people in that area. It's a good thing. We just need to come up with some reasonable assessment because there should be a small tax paid. These people are making money on it. They're a bit like a business. From what I've read, I think it makes sense, but I'm not an expert on it, so forgive me. But that is the direction of the future, sir. Yes, thank you very much. We have lots of changes going on. First of all, Uber, Airbnb. But what do you think?

Where is head?

Where is health insurance going? If we have millennials and things? Where is what going? What will happen with health insurance, for example? Health insurance?

Yeah.

So this is the good news, and I'll close with this. The world, your generation, is going to demand basic healthcare insurance. And so, as you know, most all of Western Europe, a lot of Asia already provides universal healthcare insurance. We now have it through Obamacare. We should have had it ages ago. You probably know the story, but for those of you who live outside of the US, Teddy Roosevelt, a Republican, was the first to say we should consider this. Richard Nixon, known for being a conservative Republican, said we need to explore universal healthcare. Mitt Romney actually developed Romneycare in Massachusetts, but when Obama put it up, all the Republicans said bad idea. The fact is, we need basic healthcare, but you need to administer it in a way that makes financial sense and that our country can afford it. So, if you will, the devil's in the details. Because of this thing we had here, I pointed up big data, I am quite confident we will be able to provide healthcare for all of our public and do it at a cost that makes sense. But we need people like you. To come into government at some point of your careers to help inject the entrepreneur's DNA you have into our government. Only then will we measure up to our real potential. On that note, I have to leave, but I just want to say this to you. You have an opportunity to change the world that your parents never had. This millennial generation has more clout than any generation ever before, and you're in the middle of it. The fact that you're at Draper University gives you opportunities other people could never have dreamed of. I challenge you to go out and do something special. Send me your business plans. I'll do anything I can to help you change the world. Will you be at the pitch day? I will try to. I've got a few things going on in my life these days.