Hey everybody. Before we drop this week's amazing episode, just some quick information for you. Sachs and Chimath both had the week off, so we had two amazing friends of the pod on: Gavin Baker from Atreides and Joe Lonsdale from 8VC. What a treat to have them on the program. But there is some big news, huh Freeberg?
Yeah. Well, the news dropped after we recorded, so it's not going to be referenced and the show might feel a little stale, but here we go. Our friend David Sachs is the White House AI and Crypto Czar of the United States of America. Congratulations to our boy. Amazing.
Super thrilled. That is a big reason why he wasn't able to join us for the show. He was in the middle of getting this news ramped up. It came out. We had already recorded. Yeah. Take that into account as we go into the show. Yes. And according to Trump's Truth Social post, Sachs will guide policy for the administration in artificial intelligence and cryptocurrency. He will also lead the Presidential Council of Advisors for Science and Technology. How great is that, Freeberg?
Wow. Science corner in the White House. Can't wait. It's going to be fun.
Pretty awesome. I have no announcements. The rumors about me becoming fresh secretary are obviously premature, but if asked to serve, I will serve my country. Okay, let's get to it. Don't worry, besties. All-in isn't going anywhere. We'll be here every week for you except maybe Thanksgiving or a holiday now and again. All right, let's start the show. Great episode.
All right, everybody. Welcome to the All-In podcast. I am your host, Jason Calacanis. How are you doing, Freeberg?
I'm hanging in there. I'm waiting for the tsunami to hit. It's going to be about 40 minutes away. I'm a little anxious right now.
More anxious than normal is what you're saying. Like on a scale of one to Freeberg, this is as anxious as you get with this tsunami.
I don't know what's going to happen. This current warning shows a 5-foot water rise.
Or 5 meters. I can't tell.
God, I really hope we don't publish this episode and there's a total disaster. We're kind of making light of it. I feel like this is going to happen.
We're not going to make light of it. We get warnings once in a while just to give everybody a little perspective here. I'm at David Sachs's house. I've taken over as you can see. I got my Montclair hat on. Freeberg, I found Sachs's robe. Is this here? It was Sachs's room, but I got a red Sharpie and I just crossed it out and put Jake on it. And then I went down and I was talking to Chef.
Does Sachs know that you're staying at his house?
He knows I'm staying here.
He doesn't know that I found the actual caviar.
Let your winners ride.
Rainman David.
We open source it to the fans and they've just gone crazy with it. Love you. Queen of all.
With us today. Chimath couldn't make it this week. And had surgery and now he looks like Gavin. Okay. Yes. And Sachs is taking a day off. He's got the day off today. I think he's just winning too much with us. Two substitutes to jump in here for the team cackling. You can hear the cackling. Joe Lonsdale. There's Joe. I'll take my mom clear hat off here. And Jal, I'm also winning too much but I'm happy to be here last minute as a sub for David.
Joe Lonsdale for people who don't know is to the right of David Sachs. He is a venture capitalist and he started a couple of companies you might have heard of: Palantir. What are the other greatest hits?
Anduril just crossed $7 trillion? Reported on it this month. It's a real company. OpenGov sold this year. We started a bunch of good ones.
Yeah, Joe gets a little bit lower profile than all these accomplishments. It's pretty incredible. Co-founded how many billion-dollar companies have you co-founded now?
I don't know, maybe six or so.
Six or so. Also with us, Gavin Baker from Atreides. He is a hedge fund manager. He does private, he does public. One of the smartest guys I know, great analyst. Welcome to the program, Gavin, friend of the pod.
Thank you, Jal. Happy to be here. Great to see everybody. Yeah, we are experiencing a huge Trump bump. The election is over. The cabinet is being assembled and we're seeing Doge, the Department of Government Efficiency, as well as maybe regulations being pulled down. And we'll get to our first topic about our new SEC chair. But just generally speaking, Gavin, as a market participant for a living, what's your take on what we've seen over the last three weeks since the election results came in? So if they execute on stated plans and there are some of the world's greatest execution machines involved, Elon generally does what he says he's going to do. This is going to be awesome for America, for markets, for the world. The analogy I keep coming back to is Satya Nadella taking over as CEO of Microsoft. Microsoft was a monopoly, incredibly advantaged, had just been horribly mismanaged for years. All he had to do to start winning was stop doing really dumb things. And that's an incredible place to be. America is the greatest country. We've got oceans on two sides, peaceful neighbors, incredible natural resources, can produce our own food and energy. In many ways, the most privileged country on earth. But sometimes with great privilege comes great stupidity, and California is a leading example. Most privileged state in America has predated away with bad policies. I think everyone agrees there are too many regulations that result in far too many administrators, far too much complexity, and an inability to build things in America. It was used effectively against the Harris administration. They approved $42 billion for rural broadband, hadn't built anything. Approved $40 billion for EV chargers, hadn't done anything. It's not that they didn't want to dig trenches and do broadband or make EV chargers, but their own regulations prevented them. So deregulation and simplifying regulations and the tax code will lead to immense growth, which all Americans should be happy about.
Joe, you want to maybe give us your take? I know you're very vocal, a conservative, run a think tank and have strong feelings on all this. But there is consensus amongst all Americans that we don't like fraud, waste, abuse. Those seem to be consensus building. Efficiency and paying lower taxes. All of that seems like something almost all Americans can get behind. So what's your take on what we've seen in the markets and the plan, and are you going to be involved in this at all?
Well, listen, Jake, I think I do agree. I think almost all reasonable Americans can see that our growth is ridiculously constrained. Jeff Bezos was saying yesterday we need a growth-oriented mindset to get out of our debt problems and deficit problems. So it's nice to see everyone coming on the team and saying we need to fix these things. What people don't understand is how broken the government bureaucracies and regulations are. It's not like they're kind of sort of bad. It's almost like they're companies that went bankrupt. Think of the worst company you know in Silicon Valley that went bankrupt 30 years ago and imagine if someone kept pumping money into that company over 30 years to keep hiring people. It's more fucked up than anything you've seen in a long time. One important thing is America used to have these really hard tests for a hundred years. In 1883 we said we shouldn't just hire our friends. If someone's going to run something in government, let's have tough tests like China did for thousands of years. For 100 years we had really hard tests. When we went to the moon, when we fought the world wars, we did the Manhattan Project. The people making decisions had to pass things that only 5-10% of people could pass. Then in the late 70s, we said the tests are racist, so we can't test people anymore, and we can't fire people because we give them protections. So for the last 40 years, it got dumber. Then 10 years ago, we started doing virtue signaling and hiring based on identity. So it's even worse. Now it's so broken that we're lighting tens of billions of dollars on fire. There are two things: one, you got to take a chainsaw and cut a ton of broken stuff. But day two, you got to say how do we make this not stupid in the future? Maybe bring back tests, maybe bring accountability. The thing I'm most passionate about is there are over a million rules at the federal level. Everyone disagrees on them. You could be the most left person trying to build solar or wind, and you're like, what? I have to do what study over how many years? This makes no sense. So we got to take these regulations and not only cut them, but make a data-driven system that forces regulations to defend themselves. That way, instead of a cancer that grows forever out of control, you have a process that naturally trims things and makes things fight for themselves, so it doesn't get as dumb ever again.
I would say why not just make them automatically sunsetting after five years if they're not renewed?
Exactly. But make the process to renew them difficult and data-driven.
Yeah, exactly. So if renewing them takes so much time, it will slow it down.
I wonder where we got to this place. Freeberg, I will bring you in on this. Two or three years ago you started pointing out the debt spiral we're going to get into. I want to give you your flowers here on the pod. From this pod and your obsession and harping on about this national debt problem, you saw it early, you talked about it constantly, you brought a lot of consensus on board. Now we're seeing it as the issue of the transition: the debt. We were sitting here for the past year or two saying when are politicians going to pay attention, and now they are paying attention. So first, here are your virtual flowers. Second, how are you feeling about the transition?
Well, I think first of all, there are three layers of the problem I've been trying to harp on for almost four years. Number one is the inefficiency and lack of accountability, which Joe and Gavin are talking about, and that leads to excessive spending, which leads to the debt problem, which creates an arithmetic debt death spiral, something you don't want to find yourself in. So that's the inevitability I've been worried about. Look, the first derivative and second derivative can be addressed, and hopefully you don't get to the breaking point. Right now everyone is banking on deregulation to unlock growth. By unlocking growth, the arithmetic argument is to grow GDP because you can't shrink debt super fast. To grow GDP, there needs to be some unleashing. If you can get GDP to grow 4-5% and minimize the excess spending, meaning the federal deficit, and therefore minimize the increment in the debt level, the debt-to-GDP ratio becomes more manageable because you can only tax so much of GDP. So this is important in both senses: cut the inefficient wasteful spending, get rid of the regulations, and that'll unleash the necessary growth. One proxy I look to, and I think this will be a critical motivating factor for the United States, is the increment in electricity production capacity in China compared to the US. We are going from 1 terawatt to 2 terawatts. They're going from 2 to 8 over the same time period.
That's so important for people who are listening. I'll let Joe answer that. Joe, go ahead and unpack it for the audience.
The number one thing I'd say is it's usually correlated to how well the working class is doing in your country, per capita GDP, cost of goods. I care about it because we want to scale AI and do all the things we're doing effectively. If you look over time, the relationship between how well your average working middle class person is doing, their quality of life, cost of life, and the cost of electricity and power is clear. It's crazy we're not just ramping up and cutting to do this. More electricity means more automation, more AI, more things being done for every person, unlocking a new level of living. There's this guy who writes books that Bill Gates always talks about – Vaclav Smil – on the history of the relationship between energy and prosperity. There's definitely correlation and causation. Gavin and I, there are simple examples. Lee Kuan Yew from Singapore talked about how air conditioning changed the country's fate. It raises average IQ by two or three points. It really matters.
But look, at the end of the day, my key point is we have to make sure this administration, and Joe can hear me on this, makes it such a priority to accelerate nuclear energy rollout in the United States because that's what China is doing. They have dozens of Gen 4 reactors that are going to be built out, each with a gigawatt of production capacity, and they're doing it at a cost we can't compete with today. Fundamentally, they can do it in the US, we can't even do it.
And regulations. It goes back to Joe.
And so the regulatory structure prohibits our ability to expand energy capacity or electricity production capacity, which is a critical difference. Ultimately, in 10 years, we'll be looking across the water at a competitive country that has 3-4 times the electricity production capacity of our country. Everything is cheaper, faster, giving them superiority in many functions.
This is a national security thing too because we need manufacturing here to be affordable and competitive for our national security. David, when you texted me last minute to join this, I was in a meeting with our friend from Founders Fund who's building nuclear fuel again for the first time in the US. That's gone away too. So that needs to be approved. I know Chris Wright, the nominee for energy secretary. He's super pro liberty, super pro cheap energy, and pro nuclear. So we have some really great people who care about this. We're going to be fighting hard for it.
Gavin, what's your read on it?
Yeah, more nuclear is better. I agree with everything Joe said. The only thing I'd add is it is the most environmentally friendly kind of energy source. It's even more than that. I think it's highly likely that in my lifetime the world runs on solar. We all know compound interest is the greatest force on earth. Look at the rate at which photovoltaic cell efficiency is compounding and battery efficiency is compounding. People make balance of system arguments, but it will never be as cheap as nuclear, but it will likely approach coal. A lot of the world will run on solar, but that's going to take 50 years. Nuclear is arguably just as environmentally friendly done right and carefully, and it is here now.
Yeah, it's unbelievable to watch the precipitous drop in the cost of solar panels. Solar is very impressive, but in some ways it's a little dystopian to think about all these forests covered with this stuff. It's rate limiting. You have to have many acres rolled out, and with nuclear you can have a building that powers the equivalent of many acres. The answer is both. Elon has tweeted many times about the tiny fraction of deserted desert areas of America that need to be covered with panels and then you put in batteries. There's still a space limiting issue. Fast forward 100 years, energy demand has a nonlinear scaling problem, meaning land consumption scales nonlinearly.
If we're going to say 100 years, technology changes. It's very clear you could probably do it from space if you really wanted to. That sounds crazy, but you could have tons of these in space. 100 years is far.
We have enough uranium in just the crust of the northern hemisphere to power everything. Unlimited energy for all time. Just to wrap this up and move on, if we can get out of our own way with a bunch of midwits who have put so much regulation in place and who are working from home for four or five hours a week, if we can just get them out of the way, maybe we could approve some nuclear reactors and a little more solar.
Did you just call government workers midwits? The ones who are blocking? If you're not blocking and you're working 50 hours a week, God bless.
A lot of people work hard in the government. That's exactly my point. But there are some number of them who obviously do not see the forest through the trees.
By the way, on that point, J, it is interesting. Texas is the number one solar producer in the country. It's not because everybody there is more environmentally conscious. No, we're not that liberal here. It's just easy to build stuff in Texas. You build solar power plants.
This is for the libs in cities who are so pro-solar and anti-natural gas. Look at Texas. They just build as much as you want. And where Joe and I live in Austin, home prices have gone down two years in a row. Rent has gone down two years in a row. They are building like lunatics because you don't need to beg and bribe people to build stuff. Joe, maybe some thoughts on what we've seen in regulation in Austin.
City Council is not perfect. Austin, they call it the blueberry in the tomato soup. So there may be a tiny bit of begging going on. But despite that, you're able to build there and everywhere else around it, you're building like mad. So it works. There's plenty of supply. I agree.
Speaking of regulation, Gary Gensler is out. Paul Atkins is in. And Bitcoin just cracked 100k. This is all obviously related. Atkins was previously SEC commissioner under Bush 2 in the early 2000s. In the 90s, he worked for both Bush 1 and Clinton at the SEC. According to the New York Times, Atkins is admired among DC legal circles and regulators. He's pro crypto and has been helping draft some best practices for crypto trading platforms. As you know, Gary Gensler's approach to crypto was: there's a rule set, follow the rule set, we're not here to change the rules, good luck. In some cases, he was right with ICOs and a bunch of scams, but he also gave good actors no path to go forward. Anybody have strong feelings on this?
I love Paul Atkins. I think he's a fair guy. I've met him several times at conferences and groups. He's a really smart guy, cares about the rules, cares about helping innovators. The thing that really pissed everyone off with Gary, I think you've probably seen, both Coinbase with Brian and the Winklevoss twins have put something out. They won't even hire anyone who worked with Gary on any of this stuff. The reason they're that angry is they were purposely not defining the rules in certain cases and then going after people after not having defined it, playing a gotcha game that was very dishonorable. Paul sees all that and there's no way he's going to allow that.
Gavin, any thoughts here on how this might change regulations in our business? Also the fund business. Joe is a venture capitalist, HVC. You're in public markets and funds. I do pre-IPO. So what do you think in terms of funds and regulations there and then crypto, and the SEC maybe becoming innovative as opposed to punitive? What's the word for Freeberg? Adversarial?
Well, they are a regulator.
They are a regulator, but they seem to have gone beyond just regulating. They seem to have been aggressively adversarial.
I mean, they're a regulatory enforcement agency. That's their job. But not giving a path or not even meeting with people, I think that was the thing that felt kind of weird.
Well, maybe if you were a big donor to the left, they wouldn't meet with you otherwise. That was part of it too. That was sketchy. That's why SBF got tons of meetings but Brian got none. I mean, it's nonsense like that.
I do think cryptocurrencies at some level fundamentally reduce the power of nation states. That is something that is often on the left, and if you are a devout believer in the power of the state to do good things, I get why you would not like cryptocurrencies. At the same time, we're very early in crypto. I read with interest all the posts that David Marcus and his peers at Libra made about what happened to them. Libra was a Facebook project to embrace cryptocurrency at a very intrinsic level onto the identity level of every one of their billions of users. I think you can argue it would have been really good for not just America but the entire world. There are a lot of immigrants in America who send remittances back to their home countries at extremely high predatory rates. It would have made that free, which would have been amazing for a lot of hardworking people all over the world. Visa and Mastercard do charge big fees. The credit card complex in aggregate is a reasonably big fee. I think Facebook had a sound argument that they could have done that cheaper, and that would have been an efficiency gain for America. It really bummed me out to read the letters they sent, the way they killed Libra. Politicians sent letters to participants in financial markets saying, 'We don't know if they're doing anything wrong, but we think they probably are, and we're going to look at this very closely, and we want to discourage you from participating.'
It was worse than that. It was like a mafia letter. 'If you are to support this and help with this, we are going to look into everything else you are doing and we may then find some issues.' It was like a mafia threat. 'We can't stop you legally, but watch out.' It was really sketchy. It was Sherrod Brown who led this, the senator from Ohio. It was really bad what they were doing.
It was really bad. I found it upsetting as an American.
And you hinted at this, Gavin. The fear of governments is that they will lose control of money supply and monetary policy. Maybe unpack that a bit, and then Freeberg will go to you on the same thread.
Yeah, look, it's a rational fear. Controlling monetary supply, at some level the greatest powers we give the state are a monopoly on violence to keep us safe, and control over the money supply as a means of exchange and a unit of account. Those are great powers, particularly if you're America and your currency is the reserve currency. The only thing I would say to balance this out – and I think people are very positive on Paul Atkins, I've never met him, but the reaction from people who know him like Joe has been very positive – is it's important to remember we have the best capital markets in the world. The US equity and fixed income markets are the most trusted places on earth. We can always make them better, but you want to be vigilant about keeping them fair and keeping out things like inside information, which makes people feel comfortable doing business here. Having investors have confidence in a company's financial statements is one reason America is such a great country.
And Gavin, to put this in context, during the David Marcus Libra process, certain people in government – and I'm not saying I endorse this, but this is their position – felt Zuckerberg had too much power. Zuckerberg was censoring people. The right felt they were being censored, the left felt Cambridge Analytica and people were using targeting. The general vibe, even JD Vance was in on this, was too much power specifically at Meta. Too much influence. Now they've got this many people, this penetration, and the algorithm plus we're going to give them money and they're going to have power over people's wallets. Then what does the government have? They can't censor people, they can't control the message, and they can't control the purse strings. So that's the time period we're talking about.
I don't know. I understand 100% why they did it. I just think as an American, at a minimum, the way they did it was, to use one of Joe's phrases, dishonorable. If you want to say we're going to kill this, then just let's have a debate as a nation. Don't do it in the shadows.
Yes. Rule of law. Rule of law is also another reason America is a great country.
Freeberg, your thoughts on Dave Marcus's comments and this SEC pick and generally a more pro less regulation situation?
I think the SEC is one of the most important agencies we have, and I think they're one of the best federal agencies. I've worked with them and with other agencies, and there are all these issues with the SEC, but they play a very important job. If you've worked in foreign markets and dealt with foreign securities regulators, you're going to be like, 'Thank God for the SEC.' This whole crypto thing, there's a distinction between Bitcoin and cryptocurrencies as speculative assets, speculative trading. I definitely concur with Gavin. I think Bitcoin fundamentally is meant to be, ultimately will become a real threat to the US dollar. It's ironic that Trump had this declaration this week that he's going to put a 100% tariff on all these BRICS nations that try to participate in an alternative currency to the US dollar, the greatest currency on Earth, when he literally turns around and says we're going to support Bitcoin. That felt like the biggest irony of the week. I do think Bitcoin is the big threat to the US dollar, and at some point, whether this administration or the next, they're going to wake up to that fact. Maybe the network state concept emerges and that's where we end up. But we want to have a strong federal government in the United States for quite some time. I don't know if you can really just let the dollar be supplanted by Bitcoin. Bitcoin seems to be more of a safe haven asset, a store of value and alternative to gold.
You think the state has reasonable concerns about crypto competing with it? And then maybe specifically when you saw Trump talking about, 'Congratulations on your Bitcoin, I did this for you on 100k' and taking credit for it, which he should take credit for. He did that last $40,000 per coin. And then you see him talking about the BRICS and then we have the US currency. So which is a bigger threat to American exceptionalism and supremacy on planet Earth, Bitcoin or BRICS?
So one represents a move towards liberty and the other represents a move towards authoritarianism. If BRICS were to become dominant, if China and Russia were able to control global currency together and other players, that is terrible. It's bad for the US for so many reasons, bad for the US consumer. He's right to fight it. At the same time, having this pro-liberty network state-like forces in that direction, I think rather than just Hong Kong and Singapore, we should have more Hong Kongs and Singapores in the West to compete with the US. That would be good for all of us on the pro-freedom side and make the US wealthier. It would show examples of new experiments that create great wealth. That's the side of Bitcoin: you want more experiments and competition from the liberty distributed side. You don't want competition from the authoritarian side. So to me, it was very consistent.
Yeah. Well, I would just say Texas is the Singapore of America. It is putting pressure on the rest of America. I don't say that just because I grew up in Texas, it's just a fact. I do think long-term Bitcoin, I do not think the BRICS will ever be able to replace the dollar. Just rule of law, even if it has occasionally been corrupted in America, is very powerful. As opposed to rule by law. But I do think Bitcoin will at some point be a serious threat to the US dollar. And that just is what it is. We will see how different administrations react. It's a check on the most aggressive mistakes. If the debt doesn't get under control, if our deficit is ridiculous, Bitcoin is a wonderful check. You actually want healthy competition from something good to check the excesses and craziness. You need someone coming from the outside to say, 'No, don't do that.' At some point an AOC-like person gets in charge, it could happen in the next 20 years. You need a check on the dollar, and it's much better to come from the liberty side than the other side.
I agree with all that. I will just say on AOC, I thought it was very interesting. If you're a Democrat, you're probably largely heartened by the intellectual leaders of that party's reaction to losing. It's focused around, 'Hey, we do need to deregulate. It is too hard to build.' Josh Shapiro has been tweeting every 3 days about how he's making it easier to do business in Pennsylvania. It used to take 20 days to get a hairdresser license, now it takes an hour. All that is good. But I actually thought AOC, who is a very talented politician, an extraordinary communicator, her reaction was she posted on Instagram, 'If you voted for Trump, I want to hear why. I want to hear the things you listened to that convinced you. I don't say this out of anything other than genuine curiosity. Clearly I am missing something and I want to listen.' I thought that was a very interesting reaction.
That is the proper reaction. Absolutely.
I want to point out one thing I did. I was doing some research before the show and I found this SEC speech from 2007 from Paul Atkins. He was giving his state of the union here, talking about doing some self-reflection and accreditation rules before the great financial crisis. The concept of economic risk and return also affect a different proposal of the commission relating to private investment funds. Specifically, part of the commission's proposal would add an additional requirement for any natural accredited person to have at least $2.5 million in investments before they could invest in a private investment fund like a hedge fund or private equity fund other than a venture capital fund. The underlying premise is that these investments are too risky for individuals other than the very rich. Therefore, we would have to presume that the non-rich are either unsophisticated or lack access to sophistication, and it is simply not tolerable to have these types of people at risk of losing their money on a hedge fund. Assuming these premises are true, what evidence does the commission have to support the conclusion that private investment funds are the most risky? What makes a hedge fund or a private equity fund more risky than a venture capital fund? Great question. And how does the risk profile of a pooled investment compare with the risks of investing in securities of a single issuer for which this new $2.5 million standard is? This is where it gets super interesting. Many public comment letters expressed indignation. One commentator wrote, 'Stay out of my wallet. Stop trying to protect me from myself. Stop presuming to know more than I do about my own life, risk tolerance, and financial sophistication. The commission's proposal may prevent the non-rich from losing their money in private investment funds, but it also certainly will prevent the non-rich from participating in any upside profits and gains on these funds. Does this mean the rich get richer while the non-rich should be content to just hold their place on the economic ladder?' This to me when I saw this I was like, you know what, I am feeling absolutely fantastic about Trump if he stops these wars, or stops one out of two, and keeps us out of participating even though we're not on the ground, and removes regulations, and we have people in power who understand that moving up the socioeconomic ladder is as important as protecting the downside risk, especially when we see wealth polarization. This is a great pick. Now, the other picks, there are some whack picks. I'll be totally honest. I don't know what the strategy is, Joe. I'll ask you that in a minute. But what do we think, Gavin, of this approach here, which is really thinking thoughtfully about what is sophisticated and what are we doing here? What is the outcome we're looking for?
Yeah, no, I think it's great. The reality is a hedge fund that runs with a lot of leverage probably is more risky. I don't know that it's more risky than a single security. But since he wrote that letter, it was an incredible 15-year run for private equity. Now all the big private equity firms are making a huge effort to appeal to Main Street America. It would have been cool if Blackstone or KKR in 2007, 2008, 2009, 2010 could have had their fund up on the Fidelity marketplace for subscription. That probably would have been good for America, so I think his comments are well taken.
Imagine if Elon could have raised for SpaceX from regular Americans. I'm sure he would have loved to do that if it wasn't crazy risky with the SEC. So all these people, they're blocking us from letting the average person be part of it, and it does keep them from climbing the wealth ladder. I think it's crazy.
Jason, there are a lot of places people can invest their money. They can buy public stocks. There's $20 trillion of public stocks. I don't think you're prohibiting people from transitioning their wealth by not being able to buy private stocks. In fact, it's more likely that people are going to go market shit securities in private markets and rip poor people off even worse. That's why there are these regulatory barriers. I don't think it's necessary. Everyone says let's make everything free and libertarian seems like a good idea until someone gets punched in the face, gets ripped off, someone dies from a drug that's not properly tested, and then we're all like, 'Where were the regulators? Where were the agencies to protect the individuals?' I think that's the role these agencies are providing. That's the reason these rules are in place. I don't think this is one of these things where liberty is being denied. There's a careful line to walk. I'm generally pretty centrist, so I agree with a lot of what David said. I do think if you were to allow ordinary Americans to buy private companies that are held to a lower standard of disclosure and reporting than public companies, something would have to change. Private companies would need to meet higher standards.
Tweak the numbers and have non-GAAP financials. Yeah.
And there is a lot of fraud in venture. There are unethical people. Smart, diligent people can't even find it all. The smartest, most diligent people are still getting ripped off.
Yeah. Look at FTX. FTX ripped off some very intelligent friends of ours.
Did anyone do any diligence at FTX?
Yeah. But which is an important part of this. There's such an easy solution: just do a sophistication test. People take a 5-hour course and answer 50 questions at the end like a driver's license.
Well, I do think it is a little – that's why I talked about private equity. These are extremely sophisticated institutions who are always investing alongside their clients. They're buying established businesses, putting leverage on them. Private equity is kind of a middle ground on a pooled basis. I think you could argue that maybe those funds would need to change their reporting and disclosures to deal with the average American, by which I mean strengthen it. But I think private equity – his comments were well taken. That's what I would say.
Joe, what are your thoughts?
Yeah, I think the elephant in the room here is that you have the people on the left saying that only people with lots of money are smart enough to be allowed to do this. I think that's a very funny position to take. You have to have a few million dollars to be sophisticated enough to be allowed to do this. I like your idea, Jake, of a test. There should be some other way of accessing this if you really want to. I agree. Listen, I don't want to live in a world where we're all constantly being spammed to the average person by stupid financial stuff. We would be scammed all the time. There probably should be some rules. I'm not a total libertarian on this. But to totally block people from participating sounds crazy. A finance college professor might not have $2.5 million, so they would be blocked.
They would have to make $200-$250,000.
Let's talk about a very important public market set of transactions. Gavin, I'd like your point of view on Michael Saylor's convertible note issuances.
Being used to run bitcoin to the top, which this morning, Bloomberg reported is the hottest trade in hedge funds right now. Nick, if you could pull up the article and then Jake Cal, I know you've been an outspoken opinion setter on Michael Saylor's promotion of his securities actions. We'd love your point of view, Gavin.
Would you say at some point this does get too big? For a while when it was smaller, you know, you could support the debt.
Sorry, could you explain it? Could you explain it to everyone, Kevin?
Yeah. So, what he is doing is issuing debt and buying Bitcoin with the premise that Bitcoin is always going to go up. And he, you know, has made eloquent arguments why that is the case. No trees grow to the sky. And I think the interest expense on his convertible notes is $75 million off the top of my head. And by the way, I could care less about MicroStrategy. Like I'm not close to it. I'm not involved.
I don't know any hedge funds who own it.
Yeah. I think a lot of hedge funds are short MicroStrategy, but I have no horse in the race. But his underlying business that pays the interest expense on the debt only does $400 million a year in revenue and it's high gross margin revenue, but I just unless debt investors have absolute confidence in Bitcoin as collateral and I don't think that's where fixed income markets are, it will get to a point where it is too big for the size of his company and then yeah maybe he can overcollateralize it and have $10 in Bitcoin for every dollar of debt but then the magic money creation machine that I see discussed on X breaks down because that's very, very different than what is being discussed today.
Joe, do you have a point of view? Because Joe's got to run, by the way. So, Joe, do you want to close us out with defense people down here in LA?
Listen, I am very bullish Bitcoin. I love all the energy of our society around it. I agree with what you said, Dave, that there needs to be some barriers for the public taking crazy risks. And I think the risks around how he's accessing this is actually very unusual and does scare me a bit. And people need to do their research and they shouldn't just throw money without studying it. It does scare me a little bit how blithely people are throwing money at this without knowing the kind of leverage he's taking, you know.
Yeah. Joe, anything else you want to share that you're up to that you're excited about before you head out?
Well, this weekend is the annual defense forum at the Reagan Library where I'm on the board. It's the biggest defense event of the year. Everyone's coming. And I guess I'm really excited that America has woken up and assuming we can bring back more advanced manufacturing here. I think there's enough top companies now with Anduril, with Seronic, we're going to be building thousands of these vessels for the Navy with AI. With EPIS, we're turning things off 10 miles away with microwave radiation. There's some really cool technology coming that actually is going to make us be able to deter enemies. So, if you ask me six, seven years ago, I was panicked we were going to get way behind China. I'm feeling really good about it now. And I think this Pete Hegseth pick is actually someone I'm quite bullish on from everything I'm hearing. So, I think things are going the right direction.
Is there a wholesale upgrade happening in defense in the United States? Are all systems and all strategies being rethought right now using technology and innovation and a performance-based product mindset leading a reinvention of everything? Is that what's going to happen?
Warfare is fundamentally totally shifted. We're seeing some of this in Ukraine. There's all sorts of new ways you want to swarm things on the land, swarm things in the water, swarm things in the air. How do they coordinate? How do they work together? How do you manufacture enough of these things and how do you use electronic warfare in new ways? It's basically created by this and it's a whole new way of doing things and we are going that direction. Too much of the money, David, like 95% of the money is still going towards like frankly wasteful legacy things we don't need, but enough is shifting and there's enough good people fighting and as long as we keep allowing open competition, let it be okay which is better and just let the best things win, I think it's going the right way. I'm feeling very good about it.
Is the Chinese position shift in their technology strategy and their system strategy going to motivate a shift here? Do you think a shift is underway?
It already, I mean it definitely already.
So we don't need big aircraft carriers. We don't need F-35s. We need drones. We need lasers.
I think there's a role for carriers and force projection. I don't think we need incrementally a ton more of them. I'm not like this crazy radical where you get rid of all this, but yeah, on the margin I'd much rather have 10,000 more smart drones above and below the water than an incremental carrier, right? So there's on the margin all these things that are better uses of money and I think we're pushing that way.
And is there a huge tidal wave of venture money? I was at a dinner last night where there was this conversation about defense tech used to be off limits and a lot of LPs say you can't invest in defense companies. That's now changed or it's changing and everyone's kind of coming up with their own defense tech strategy. Do you think, I mean you were obviously early in this Gavin? I don't know if you're an investor in the space, but are you guys seeing a big shift?
I obviously, listen there's only been nine unicorns I think still at this point and I started three of them and invested in three of them the first round. So I'm obviously pretty involved in the space. And I think listen, it helps me if there's more money for my companies which is really great. I think there's probably the right answer for the US. It's not going to be like a thousand businesses or 100 businesses. It's going to be seven to 10 new primes. One of them is obviously Anduril. I think one is probably Seronic and EPIS, but we'll see. But like there's going to be seven to 10 new primes and that's what it's going to be. So there's going to be a lot of zeros and a lot of bad investments. But yes, these seven to 10 new primes are going to be huge and if you can get access to them, you're going to do really well.
Gavin, how do you look at that market? You agree?
I agree with everything Joe said. The only thing I would just add on China, what we are doing by restricting their access to advanced compute and advanced networking, if you have read or watched the Three-Body Problem, America is unfolding a sophon over China.
Yeah, that's a great way to say it. I have been really impressed with some of the Chinese models that have come out and I think the risk to this strategy is necessity is the mother of invention and despite this handicap they're managing to stay just behind the leading edge of America which is amazing. But you know, Nvidia's Blackwell chip comes out next year, you're going to have new chips from AMD, new ASICs from Broadcom, and I think at that point it is not going to be possible for them to keep up anymore.
So that's actually positive regulation and great in your mind for foreign policy.
It is very aggressive foreign policy.
You know that could have lots of unforeseen consequences.
Yeah. What do you think about the rare earth trade restrictions coming to us and is that going to actually affect the supply?
