VC Legend Bill Tai: The "New Era" of Valuations
RAOUL PAL: Bill, it's brilliant to get you back. You're one of my favorite people in the world to talk through big stuff with. I think the interview that we had about a year ago, I think, was one of my favorites of all time in the history of Real Vision. No pressure on you this time, then. BILL TAI: Thank you, Raoul. I'm delighted to be here, and the timing of our last talk was fantastic. RAOUL PAL: It was. Listen, what I'm trying to do is I'm trying to think through this hypothesis that I've got. I know you're
exactly the right person to think through this with is, I'm looking ahead and I'm looking at the amounts of disruptive technology that's not in ideation phase, but in rollout phase, whether it's autonomous vehicles, whether it's EVs, whether it's distributed computing, whether it's cryptocurrencies, and digital assets, whether it's genetic engineering, or genetic vaccines, there are so many things that are all in acceleration or exponential phase. I'm just getting a feeling that we're about to go through a period of change almost unparalleled in human history. I don't know is that's a very big way to start a conversation, and we'll talk about valuations and markets and all this stuff, but what do you think? Because you've been on the ground and looking at this for a lot longer than I have? BILL TAI: I totally agree with you. I think we're seeing a bifurcation of the economy. You've talked a little bit about platform companies, which has been a phrase inside the tech world for a long, long time. I'm going to mix a couple of things here. One is what makes for an exponential
valuation relative to the old stuff, and what are the business models that hyperfuel that? Obviously, we're in this tech cycle, or not just tech cycle, we are in a market cycle that the world hasn't seen before ever with interest rates where they are, PE multiples where they are. Those multiples are going to richly reward things that have high growth, and they will also richly reward things that have high growth in big markets. From a tech perspective, I think what's happened is that we've moved from smaller disruption, very disruptive still, but smaller disruption into like small hardware markets into massive, rapidly scaling disruption in consumer markets. If you think about what tech was like when I started in the 1980s, it was a world of reshaping the path of electrons in vacuum tubes, so silicon, and yeah, there were some good sized markets there but the rate of change was slow, because it was physical production of things. Then it moved to a little bit more hardware
devices, software, and then it was all B2B. It was all the technology being sold to technologists. Now, when there's a technology change, it can hit a billion consumers in a matter of months, that wasn't possible before. You have this combination of market effects rewarding things that grow, you have markets that are exponentially bigger than they were 20 years ago. Then you have rates of growth that are like 100 times faster than they used to be. It's all adding up to what you're talking about, and you mentioned platforms. I think there's a total change in the type of company that exists today. I remember when I was in the silicon business, I'd marvel
at companies like Microsoft, because their market cap per employee was 10 times what ours was in the silicon companies. I'd be like, why is that? Of course, they had the margin structures they had, but why did they have those margin structures? Part of it was monopoly positioning and all that, but part of it was also if you think about the architecture of a company that is "a platform", ---- NICHOLAS CORREA: Sorry for interrupting your video, but I have a very important message to share. At Real Vision, we pride ourselves on providing the very best in-depth, expert analysis available to help you understand the complex world of finance, business, and the global economy. So if you like what you see on the Real Vision YouTube channel, that's just the tip of the iceberg. You
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month's access to this incredible content. I don't think it's something you can afford to be without. BILL TAI: why did they have those margin structures? Part of it was monopoly positioning and all that, but part of it was also if you think about the architecture of a company that is "a platform", the market cap per employee doesn't count all of the people making a living and adding economic activity to that platform company that are not on the payroll. For every person in the world of Adobe, every person in the world of Microsoft, there's 25 to 100 people using their tools making a living contributing to that ecosystem, and it's moved the boundaries around where the contribution happens have now expanded. Now, you've got this whole world where there's zillions of people in open source adding value every day that accrues to certain companies and those companies have very few employees per economic activity. RAOUL PAL: That
is almost the definition of Metcalfe's law. It's the number of users and the value that the users add to the network that makes these things so incredibly valuable. We've gone from an age of producing a product and selling it to a market to creating a platform that allows everybody to either create economic benefits or other benefits on it, and that creates those network effects that are exponential, which is truly different. BILL TAI: Absolutely, because it's moved from capturing product activity to rich economic activity. I think we're moving from an era of, as I said, moving electrons, it's searing the flow of things to make devices, faster, cheaper, smaller, with the element of deflation. Technology was, still is, but very, very much was totally just deflationary. When you had the cost structure you had of vacuum
tubes inside of computers, and TVs and radios and things like that, the size, the power burned, the expense of building and maintaining those machines was enormous. When you could put it on a little piece of sand the size of your fingernail in the form of silicon, the prices went down astronomically, so there was always this fight because the companies using the new technology, their revenue was disappearing per unit but the volumes expanded greatly. There was growth, but it wasn't the growth we see today. When you move from electrons or steering electrons to steering bits, then you started to move information and the information age, in the internet age "information age", things got the lower friction, so productivity went up. The rate of deflation was still there but limited to certain industries like telecommunications. The other stuff, the asset utilization of physical things got higher because the information was more relevant to what businesses were doing. Then we've moved again, from moving electrons, moving information in the form of bits. Now, we're basically moving assets.
If you think about what's happening today, where we're sucking assets into those bits, and lowering the friction of transferring those, so it's not as deflationary. Back to your exponential theme, we were finding ourselves in deflating the industries we were going into, now we're just exponentially increasing the rate of transaction and the size doesn't change. The size of the asset, the cost of moving it deflates, but the asset value itself does not. RAOUL PAL: Digital currencies and the digital
asset universe is clearly one of the-- maybe even the epicenter of all of this change, because this is the digital transfer ownership, custody and everything of value. You've talked about this before, but you always got your eye on this space. How are you seeing this evolve now? Since we spoke, we've got the rise of NFTs, the massive rise of defi, I think we've got community tokenization to come. There's a huge amount coming in this space, how are you thinking through it all? BILL TAI: Again, the timing of our last call was fantastic, because I think it was summer of last year, and in a very, very brief moment in there, I mentioned that there was a little wave of NFTs coming, and really around Dapper Labs. It so happened that four years ago, I was one of the main angels at Dapper Labs, and they had launched this product, CryptoKitties. Back to the journey
of digital assets, when I first got exposed to Bitcoin around 2010, it was profound, because to me, that was an extension of distributed computing that you had mentioned previously. I had spent my life basically watching this wave from mainframes to minis to workstations to PCs, and ultimately, smartphones, where the smartphone in your hand today is 20 times more powerful than the personal computer you might have used in the early 1990s. The ability of all that processing to move to the edge to be in everyone's hand in everyone's pocket was just amazing, because it enabled the transfer of a lot of things. Without that, if you had to carry a PC,
a real PC in your pocket, we wouldn't have the world we had today. You had to lay that framework. Then as the compute elements moved from centralized to decentralized, towards the end of the 1990s, you started to see the first breakthrough totally disruptive peer-to-peer implementations in things that like Napster or like Kazaa, the music kinds of things that then got applied to video. You could see it, applications distributed to the edge and the reconstruction of the compute model from big machines inside buildings to millions of blade servers that were like a conductor in a symphony, allocating things to change the way data was handled, the way data was stored. Hadoop came out, it's like there's so many different things that were just a different model where you could have the power of many, many, many small elements working on stuff. When Bitcoin came out, the paper was called peer-to-peer currency, because you had now the smart distributed computing elements in your pocket and you could have little nodes running and maintaining a distributed database, so that you could prove, like proof of work, you could prove out in an internet-like way where you couldn't destroy the network, just like the internet can't go down if you dropped a bomb in some of the nodes. The processing that supports that currency or exchange value was distributed, can't destroy it, everyone can participate. That foundation is what you're talking about. Now, you had the ability
to encapsulate fundamental value, virtualized value into a node that anyone could transfer at any time, borderless, and you're right, it's like totally revolutionized asset transfer because if you think about what is currency, there's a bunch of definitions for it, but it's used to barter. Now, you represent the value in a third system, which is that paper bill that represents the value of these items. As we've moved forward to digital currency, the friction of that has gone down. If you think about Bitcoin, okay, so now wrapping it all the
way back to that discussion about Dapper, NFTS. When peer-to-peer came out and the network had these fungible bitcoins, one way to look at what is a unique Bitcoin is that it's an NFT. It's swappable for another NFT Bitcoin, but they're all uniquely identified assets. As I rode that wave of early cryptocurrency stuff, when my friends at Dapper got going on CryptoKitties, I was floored. I was like this, while it's a little weird, cats and the internet always are a good combination. It's a little weird. It's a little playful, but it represents something
foundational. I was all in and I funded that one as an angel. Sure enough, CryptoKitties took off as a low friction use case and that wave has progressed now. Now, CryptoKitties was so successful that it broke the Ethereum blockchain. Ethereum couldn't really handle it. They learned everything they could about why Ethereum couldn't handle it, they made a list of all the things that were chokepoints, and they created their own blockchain, which is the Flow blockchain and launched that last year, or maybe a little bit before that, and then tried to launch a couple things to test it. That resulted in NBA Top Shot. Talking about exponential, I have never seen a marketplace grow that fast from nil, 60 days later, zero to 5 billion run rate. It was a $14 million a day of GMV transactions on that one marketplace.
RAOUL PAL: This completely unleashes a new layer of value that didn't exist. Because there was no value in this before because there was no way realizing the value. That's the groundbreaking thing here is what you're doing is releasing value that was locked and unknowable before. BILL TAI: Yeah, and this is what economies are about. How do you unlock value, and if you can unleash value, just allow economic empowerment for value creation, that's the key to stable society and economies. If people are busy making stuff and unlocking value, however they're going to do it, they're happy. If they're idle and unemployed, they're unhappy.
I think this has got a lot of the brain power that might have been idle in the old structure economy that we had, it could have been like fomenting revolutions around the world but now, they're productive and they're applying their energy to unlocking value and everybody that's under a certain age and very fun and tech is having a blast and it's a good world in that area right now. RAOUL PAL: The other thing that I've been looking at is I think that logical conclusion, and maybe arguably one of the biggest use cases of this all is I think that things are going to coalesce around communities and value is going to coalesce around communities, whether it's a brand, whether it's an individual, whatever it may be, even a charity. And that in this world where you can now tokenize and create a shared incentive system amongst the nodes, i.e., your customers, and the value driver, and then get everybody's drive value within that, you create a new layer-- How I'm thinking of it is you create a new layer above equity, which is a whole new extra layer of value that doesn't exist that you can create within communities. That's for sports stars to musicians to great brands. I think this is a
gamechanger, and people don't realize it yet. BILL TAI: Yeah, I totally agree with you. I'm going to go back to some foundational thought about communities and value exchange, and then abstract to some things that have happened today that are actually already examples of that, but where the friction is getting lowered to greatly expand the markets. If you think about what is a currency, it's something that people agree has a certain value, and are willing to exchange with each other because they trust each other or trust the backer of that piece of paper in the 1900s version of what is currency. I've used this example before, but like when you think about when people got off the Mayflower and stepped on the forest land of North America, and they drew borders around things on a hand drawn map and said, this is Connecticut, this is New York, this is Virginia, because the people that rode on that boat with them were their friends, and might have been of the same religion, they trusted them. Every single state
had its own currency, they all define their own currency. It's whatever your tribe is, whatever your group of believers is, you can have a value exchange, and it's basically community driven value exchange, that's one base layer. What's happening now is that behavior, which went away briefly for the US dollar, for the Gold Standard for about 27 years, and then the petrodollar that we've been in for another 40 or so. Now, that's getting replaced by electrons, instead of hydrocarbon because productivity has moved from oil, burning oil, to what you do with your electrons. I've said this before, too, which is, if I had to give you the choice of give up your phone, or give up your oil burning, the thing that's important to you is electrons today, so there's a foundational change in what creates productivity. Currency is both
community exchange, and it's stored productivity in the World War II era. After World War II, nations that generated surplus needed to hoard oil, but they don't want to move oil around so they hoarded the dollar that represented the purchase power of oil. Now, these tokens represent electricity. These tokens are basically economic alignment of interest across communities of interest, which goes to your point about brands. For tens of years,
we've had loyalty points. What is a United Airlines smile? What is a Starbucks point? They're all interchangeable for products that you think you will use, so it's a reserve currency in a way for things that you might use. That is a precursor to the to what you just said, which is what's an ICO? It's a community of interests of believes that that token representing something is valuable, because somebody else in their community will take it. One of the companies
I funded is a company called TAP Network. They run the loyalty program for Uber Eats and Warner Music. They're making those tokens interchangeable into other things. Now, there's marketplaces where communities of interest can intersect and there's liquidity. Anytime you have liquidity in a marketplace, you unlock value, period. RAOUL PAL: A couple of questions on that. What's also happening is this change to this new system, the electron system, let's call it that, is happening at a pace of which we've never seen before. It's currently growing at 113% a year as
an overall number of users, which is almost double that that the internet grew over an equivalent period of time. This is unbelievable. We're about to throw in Diem into the middle of this with 3.5 billion nodes on a network and they will have their own community value proposition which is Diem and that will be interchangeable with others. The pace that this is going to transform all business model, I think people are still arguing, should I buy Bitcoin or not? I think they're missing the picture, which is this is a complete transformation of all value system. BILL TAI: Well, and yeah, because it introduces liquidity. When I started thinking about the transition from Bitcoin to blockchain. My first exposure was, wow, peer-to-peer currency, that's really cool. Then it was like, what can you do with it? What can you do
with the underlying technology? Then I started to think, wow, this is like, TCP/IP for assets. When you could use to have a fax, I'd write something on a paper, stick it in a machine, digitize it, send it over an analog phone line at a very expensive rate through a monopoly telco, and then come out on the other side. Now, you could just put it on a screen, type your words, drop it into a transport layer through internet, the email internet, boom, it pops over there in just nanoseconds. The lowering of friction unlock value. I thought,
wow, like if this is a TCP/IP for assets, what can you do, and I got my head around that and I threw my first blockchain summit on Necker Island, like six years ago. I got Michael Casey, who wrote Age of Cryptocurrency. He was at the time, the global finance reporter for The Wall Street Journal. I asked him if he can throw this thing with me, and I wanted to get this economist to join named Hernando DeSoto. I don't know if you've ever read the book, Mystery of Capital,
but it's a foundational piece that defines what is the fundamental building block of capitalism, and why do things work in capitalist societies in the West, but not in other places? His thesis was, in his world, it all went down to clarity of land title as an asset. Because if you were a squatter, you didn't have anything. If you had a clear line drawn around a piece of land you owned, you could take that to the bank and mortgage it and get capital and start a store. Then you had this network effect where you're leveraging that and taking the money and going and turning it into something. I said, Hernando, I want to take mystery of capital and turn it into a software program. I want to basically automate your brain and turn it into a software stack, where people could load assets onto it. Then they could be used
in smart contracts can be done, and I want to do this on a single blockchain. He said, what's blockchain? I explained it to him. So, back to the unlocking of value, I explained it to him in this way, because he had told me that he had bought a rug. I said, well, Hernando, think of this, it's like there's eBay, there's MercadoLibre, where you bought your rug, because he's in Peru. I said, before that rug was listed, it had zero value. It was sitting in someone's garage. It wasn't worth anything. But as soon as they exposed it to a network, they took a picture of it, they listed it, they described it, other people, communities of interest interested in rugs could see it. Suddenly, it had value,
and you bought it for a few $1,000. There was $2,000 of value creation out of nothing, because it was connected to a network. As you think about what does Dapper Labs represent, with its flow architecture, that is a very easy way to have "NFTs" meaning the digital certification of an asset, whether it's physical or digital, then they can list something that is valuable to somebody, but nobody knew about it before. Bam, $14 million a day of transactions of little video moments just from the NBA. That's just the NBA. I don't know what other leagues they will onboard at some point, but you can imagine every
single league in the world has contacted them. So, if-- I don't know, I'll make it up because I can't tell what they're working on, but let's imagine that UFC has contacted them or the biggest Soccer League in Europe or MLB, or what have you, if they're all the same size as the NBA, does it go from 5 billion run rate to 100 billion run rate? I don't know. The level of value creation and economic activity, you can't count it. It's so big. RAOUL PAL: Have you also been following things like Chiliz, which is Socios, which is the platform where all of the European football clubs, soccer clubs have been going on and creating community tokens and giving people rights within their community to vote for, let's say, the kit that year. They have some community rights. That's been fascinating, which I think is also coming and
what Rally has been doing in the background as well, I think, has been interesting. I think they're still in early phase. Are you following that kind of stuff as well, because that's like an extension of NFTs, but it's like community rights? BILL TAI: It is, because I think what's happening now is that we're in this-- I don't know if it's the first inning or the second inning, but it's somewhere in that range, maybe not even the first inning, because not everybody uses NFTs but the unlocking of value and the exposure-- it's funny, the eBay CEO the other day was on CNBC talking about they're going to get into NFTs. That's like Ground Zero, it's like what assets can you expose in a more efficient network based on blockchain. Then once you have that, you can because it's digital, assign all kinds of properties, and all kinds of community incentives, and governance structures around the items that are there. Some of that was already previously expressed, and some of the ICOs that happened in 2017-2018, where tokens you would buy would have certain characteristics, but now you're able to assign characteristics to assets.
If you think about the savings of labor ahead in some of the old world businesses, like when people are talking about land title and title insurance and things like that and getting rid of that for years, but that is like getting rid of the fax machine for email or getting rid of Swift and two or three days of waiting for your wired money to transfer through cryptocurrency. I think there's going to be great efficiencies, both great efficiencies introduced into the system for a community action, and also great functionality on top that produces other kinds of value that couldn't exist before. RAOUL PAL: Here's a question. The other thing that I see within this is that move towards the metaverse, which is a way where we all live in a more immersive digital experience, whatever, however you want to define it, gaming has done that, how are you thinking through the metaverse idea as well? BILL TAI: I literally was corresponding with Philip Rosedale yesterday, and Philip, if you know him, he was the creator of Second Life, and it was really through that interaction that I really got exposed to digital currencies. Think back to that era, he launched that world
in around 2000-2001 and people didn't have anything to do. I became Alan Greenspan Gollum, and he introduced the Linden Dollar, and there was a vibrant economy by 2006. People like the avatar Anshe Chung were showing up on the cover of Businessweek because he was doing digital work for other citizens of Second Life that wanted to dress a little better or have a little digital house and they would pay her in Linden Dollars, and there were exchanges where you could take the Linden Dollars and sell them for US dollars. I learned a while ago that one of those exchanges, IGX, run by this young kid, Brock Pierce. All of these things like intersected and set the stage for me learning about Bitcoin, and now we're in this world where the metaverse is coming back, not even coming back, it's taking a real world form. In that time, it was very labor intensive to create a character that represented you and then you'd walk around and try to find something to do.
Now in some ways, if you think about what's happening today, there's a couple vectors approaching this still in like a Gen Zero, Gen One way, but one of the next big marketplaces that Dapper is launching is with Genies. You can read about it, there's a press release on it. There, you create a digital avatar, and those can be NFTs, and you can transact and create an economy around your digital representation that's a little bit of a 2D model. On the other end of that, we are virtualizing people now through the internet. Think about this moment of productivity we're having on Zoom. What would it have taken to do this interview without Zoom, or without things like Zoom? The cost of time sunk to get on a plane to fly somewhere, to meet in a studio, to do something and record it, it's astronomical compared to this. Zoom in
a way is like a digital marketplace that allows people to virtualize themselves and transact. I think all these forms are going to merge at some point because now there are metaverses where you can enter and represent yourself not just with a 2D avatar like a Genie, but with a more full blown 3D construct and that the interface to that is still a little heavy. 3D glasses in some cases or other things like that, but it's going to get better and better and lower friction over time. RAOUL PAL: On a number of levels, it's captured my imagination is somebody sent me something. It was
the family office of one of the guys who started Nintendo. Their website is a 3D little metaverse. I saw that and I was like, oh, my God, that's amazing. Then somebody said, no, just have a look at, let's say, Cryptovoxels. What they gave me which changed my entire perspective on it all was as opposed to having a web link, it was basically a coordinate, like, I could drop a coordinate for you of my house, if you're trying to find it. It was a coordinate and I was in somebody's art gallery, with music playing, videos on the wall. I'm like,
oh, my God, websites aren't going to exist. BILL TAI: Yeah, it's the virtualization of everything. Let me talk about two levels of that. One early example of virtualization of an asset that everybody in the finance markets will understand is a futures contract. If you
think about a pork belly in the old, old, old days, where a farmer is trying to sell his load of stuff on the truck, the physical movement of that item, that transacting of that item was pretty heavy, and then to try to protect himself from commodity price swings, forward contracts, futures contracts would start to evolve where he could sell them before he delivered. What ended up happening was that piece of paper representing the physical item could trade on the CBOT. For every time that physical pork belly moved, the paper contract might move 18 to 200 times in the 1980s. In a way, you expanded GDP by 18 to 200 times by virtualizing
the asset to a piece of paper. Now what's happening is you're moving from paper assets to digital assets that are more directed in where they reach because you've got these subcommunities of interest that are voracious about their consumption, like the NBA moments on Top Shot. That early futures contract is representative of what's happened today, where every asset in the world can be virtualized. Its digital certificate representing that asset is trading. The NBA Top Shot, where does that video clip sit? It can be anywhere the digital certificate moves around, you're seeing now the physical assets starting to get onboard. Imagine like Cherry auctions, like a pair of shoes from a certain basketball player from a certain game, or a wonderful piece of art, that could sit in a room with a webcam on it.
The ownership certificate that's authenticated by the warehouse that owns it can now float, and that piece can move around at the same velocity that a futures contract did. If you look at events, like your event, the Crypto Event you threw, people are everywhere, the event is virtualized. Burning Man, which is a physical event historically every year, last year, they were forced to try something new. I did do some things to show them some new technologies that could make future experiences fun. Imagine a map of the playa instead of actually having to go to the playa and where the art installations would be in a physical world. Instead, there's that geo drop pin that you described, and you move your cursor, click on that and bam, you drop into the artist's studio, wherever he is building that art with a bunch of webcams that you can control.
You can move around in the room, you can change the focus, you can change the direction, and you could visit every art studio in the world from every cool artists that's building something for Burning Man before it gets there. Then the spatial audio that's available today, and Philip Rosedale and I were demoing spatial audio, because that was part of his next generation world of High Fidelity, you could basically-- RAOUL PAL: What is spatial audio? BILL TAI: Oh, it's 3D audio. The feeling that on the playa, like if you imagine a map of the playa, and then your representation and I are standing on that map, talking to each other chatting, and we're actually talking through our microphones, and we can hear each other because you can hear who's near you, louder than other people. We're having a conversation just like it'd be in real life. An art car drives by on the left hand side, you will hear and feel that audio. RAOUL PAL: As opposed to this 2D. If somebody would come onto the Zoom call,
they're the equivalence of us because it's 2D. BILL TAI: Exactly, yeah. RAOUL PAL: Wow. Okay, that's fascinating. BILL TAI: Very basic technology that someday may get embedded into all kinds of things. It's audio and video and your avatar.
He had developed that for High Fidelity so that when you entered the new world of High Fidelity, as your avatar's standing, and you have headphones on, and someone spoke on that side, if you close your eyes, you knew where that avatar was relative to you. All of these things, that's just one component of many things happening in the world of metaverses. RAOUL PAL: I assume that we're going to earning a living in the metaverse and that democratizes the ability to earn certain types of living because you can be in Ethiopia, or you can be in Seoul, and you can have equivalent access to generating certain types of income. Do you think people are going to earn an income in the metaverse? BILL TAI: Oh, you know what? They already have been. People did earn income in Second Life. Again, that was early, early behavior, but as we move forward, it's going to be profound in about 10 years, or maybe less. When you look at the generation of kids on Roblox today, that's one example. If you've ever been on Roblox, you basically have a platform where you as a user of Roblox can also be a contributor to the economy, and they don't call it an economy, but you can create your own world.
Roblox is basically a whole bunch of worlds that all these kids have created, and they invite other kids to come in, and they're open, many of them, so anyone could come in. It's a series of worlds on this platform and people basically make money. Some of them, there's a price of admission. You've got people all over the world that are getting trained to basically live in virtual economies at the age of 10 or younger in some cases. I think there's an expectation coming from this next generation that they don't ever have to go to a physical office, they don't ever have to work for a company.
The tools to create their own worlds, their own economies are on the screen of their computer today. We didn't have that growing up. It's quite profound. We used to have to go and make things and show up at a company or do food service or whatever it was, sell clothes at somebody else's place but now, all the tools to create your own job, your own workplace, your own economy, in your own world, are right in front of you. RAOUL PAL: Creating your world is another thing I've been thinking through, is platforms, as we know them won't exist in the same 2D world. Because you and I can create, I can create my Raoul's finance room and I can have a Bloomberg thing, I can have video, I can have podcast playing, I can have a stack of PDFs on my virtual desk, I can have my prices, I can have everything with one click that exists everywhere I wanted to do. That gets rid of even the notion of needing Windows. It's a whole weird thing
that we can have whole different setups of our lives in this virtual world that actually makes us more productive, puts everything together. BILL TAI: Well, and you have your own audience, which is your own community, and you can have your own currency. You could literally issue your own Raoul coin, or whatever it is, whether it's a loyalty program, or it's the way you subscribe to additional content, so you're going to see a fragmentation of the economy into all these little buckets that add up to one large, productive economy, because all of the currencies of each of these will be interchangeable and exchangeable in other places where there's connection points where you have a member of your community, that's a member of a different community, and they want to change points but it's the rate of growth of economic activity, it could totally inflect in the next 10 years. RAOUL PAL: That's been my hypothesis, just looking at this part, I'm thinking that this could be a trend rate of growth change. Yes, we've got offsets of aging populations, a bunch of other slowdowns, debt- based economies but this feels huge and interestingly enough, I've got a call after you with Mark Cuban. Mark reached out and said, I've seen your stuff on all of this and I said, I think this is new GDP. This is discovering the Americas. It's brand new GDP, and he said, I'm not sure it's new GDP,
isn't it taking from the pie of existing GDP? I don't think that's the case. What do you think, because I need to speak to him after I speak to you? I want to tell him. BILL TAI: I think it's totally new GDP being created that is not yet accounted for. RAOUL PAL: The pie gets bigger because it was non-released value.
BILL TAI: Yes, and the government doesn't know what it is. How do you measure the GDP of Roblox? It doesn't show up in any statistic. I don't know the number of hours that are being consumed on Roblox, but it's a lot. RAOUL PAL: Yeah, when you get to a place like Epic Games, this is now monstrous. BILL TAI: It is, and the value of Roblox being exchanged or whatever, how do you account stuff like that? I don't know that the cryptocurrency volumes and stats yet are in the GDP numbers that show up. Maybe they're accounted, I don't know, but there's so many things now that are not measured in dollars. They're trying,
the government's trying to come back and account for all that stuff, because you want to tax it and that's fair, because we all want to contribute to the greater good of the world but a lot of the stuff, or the mechanism to account for it doesn't really exist. What's a Farmville credit? I don't know how many people were playing Farmville, but the movement of the little Farmville tokens, does that get counted? I don't know. I guess this goes to the question of what is the definition of economic activity? Is it just a dollar-based purchase of something from the categories that the government statistics show or is it a kid doing something on Roblox for another kid? I don't know if it should be counted, but they're not being counted. I think this is why, partially why, going back to your thing, we're seeing this bifurcation of the economy where there's platform companies, platform companies, by definition, are their own economies. What is the Apple economy? It's a lot of people that they work in that world of Apple,
it's like its own country. It's profound, because you've got these economies forming around brands now that are live virtual countries. RAOUL PAL: Yeah, I completely live in the Apple world. Completely. Everything I do now is driven by that, because it's so interconnected. It creates all the connection points for me that it creates massive value. That's without it being a traditional platform like Facebook, it's not a network. What it is,
is a platform that creates endless added value. We've talked about the digital asset world and how game changing this is, what else you looking at? You were early saying Zoom, which arguably is part of that same digitization of the world. What other exponential trends are you identifying that you think are happening over the next 10 years? Because that's what you're good at, you spot these things early. Some you don't get right, but some you get spectacularly
right. What are you looking at now that you think, okay, this is all about to go exponential? BILL TAI: Well, and this word exponential matters, because in the layer of the funding stack that I exist, I am looking for massively asymmetric risk if it works, because here I am, a seed angel investor, working with young and some middle aged entrepreneurs too that are basically starting interesting projects where I'm counting on that if it works, it's going to change everything, because it redefines an economic layer. In that bucket, I think one of the areas that is totally, totally due for a remake is healthcare, just the general inefficiency of the healthcare system.
I have a little project, I took the main data scientists out of a little bit of a notorious company called Cambridge Analytica, and they were really good at what they did in order to understand patterns of data and steer things so they could get engagement and reaction and I teamed up with them to help create a company called dyad.net. Dyad basically is applying their data science skills to transforming the efficiency of healthcare operations from a data perspective. I think, on our last call, we talked about the power of data science and how old companies that didn't use data science, perfect example is retail, JC Penney, Sears, they didn't know what they had. Their inventory is floating, that gets written off every year.
Amazon and Walmart are basically data science clouds with products at the end where they know where everything is, they're living knowledge were clouds of products, that when there's a shortage in one area and too much in another, the thing moves. The working capital model is transformational compared to the old one. The old ones went bankrupt, and Walmart and Amazon didn't and they've just grown. That same effect is going to be applied to every type of business where there's things moving around, whether it's healthcare records or bills or whatever, because whoever has it is going to live and who doesn't is going to die.
It's interesting now that these companies are very aware. There's a public company called Change Healthcare. It's a 7 billion market cap company. It's interesting to see the partnering that's going on because all of the bigger companies now are starved of innovative young people, because everyone wants to go in a startup. They're having to partner with the young people, because the best ones can't be hired. Change Healthcare, for example, through a startup competition, where they invited hundreds and hundreds of companies picked the top 50, reduce it to a top 12 and picked one winner that was given access to their data, to their data lakes for healthcare plans. It
happened to be my company Dyad, but anyways. Now, you're going to combine a rich dataset with data science techniques, and a platform that can unlock a ton of value. In the same way we were describing about unlocking value before. I think we're just at the fringe of something that might happen five to six years from now where there's a total change in the efficiency of that area. Another area that I think is going to have to change and will be massive when it happens is power, electricity generation and consumption and the way it's handled. If you think about what happened when the telco industry deregulated, used to have these like fixed landlines, lots of money invested in that infrastructure. Then once you could
cut up the information flowing on those telephone lines into little chunks that had identifiers on them, headers, footers, so that you could know where multiplex a lot of things onto a line, have them come in and break out, then you had ISPs in the internet. Any kid in the garage could buy a router, stick it on the phone line, and become his own phone company selling data services to the whole neighborhood. You went from one phone company to tens of thousands of phone companies in a few months. In that era, there was a company in the 1990s, called Portal Software. They were the billing system that every ISP would buy the software so I could charge you if you're down the street for the amount of bandwidth you're using. That company went from nothing to $10 billion in market cap
in no time. I funded a company that does something like that called Power Ledger. They're out of Perth, Australia. If you think about what's happening with power, we're finally at the point now where if you look at the cost curves on the cost of energy production by burning long chain hydrocarbons, carbon molecules, and coal or whatever else, versus solar, or versus wind, we're at this transition point now where anybody can put a solar panel on the roof and be a producer. That's like that ISP. We're entering a world now where you're going to have tens and tens of thousands of little power companies and you just need a regulatory change like we did in the Telecom Act of 1996 at least in America, other places don't have those things. There's going to be places where peer-to-peer energy production and consumption just blows up like crazy, and everybody is an economically productive unit. If this happens in Africa, look out, it's going to be very, very big. RAOUL PAL: Also, if you say, rightly say
that we're moving into an electron world, then the more you free up the electrons, the more you free up the economy. BILL TAI: You do. Imagine a world where if you think about what the oil economy was, it was very concentrated in a few places, and only those who had control by armies, or regulation, or physical owning the land, they had economic productivity. The CapEx was pretty heavy, it was hard to get into the business. Now, it's like peer-to-peer, anybody can be a producer at some scale. In large population sets where you didn't have a lot of the legacy stuff, you're going to have a transformation in the same way.
When phone companies were built in America with landlines, the embedded infrastructure and the legacy wanting to keep that going prevented America for a little while from being a leader in mobile, which sprung up in Scandinavia and Southeast Asia first, because they didn't have all those landlines, and some of those countries are a bunch of islands. I think as we move into this world going forward, where the older infrastructure doesn't really exist, the new stuff that gets put in is going to grow at a much faster rate and be much more economically distributed. RAOUL PAL: Because they all follow Metcalfe's law then, because you're taking it away from a single node and creating multiple nodes and networks that coexist with each other. Of course, the rate of change goes from linear to exponential. BILL TAI: Yeah, and then think about the software economy too, the software economy, it has become a big part of the GDP and it used to be in the physical economy, people had to make things to have something physical to sell. Now, there's a bunch of bits that get downloaded and you pay for it. Microsoft makes a lot of money doing that.
That's actually quite astronomical. If you think about how software development has changed, and what's going to happen next, you may or may not know Andy Bechtolsheim, but he was one of the founders of Sun Microsystems, he wrote the first $100,000 check to Sergey Brin and Larry Page for Google. He became an executive at Cisco. Andy Bechtolsheim, myself and Eric Yuan, who founded Zoom, we were among the first three angels in a company called [?], which is a fascinating concept. If you think about the modern economy and software, it used to be that you'd have to develop as a developer, you'd have to understand something and write new code, and you'd have to write a book, you'd write the first thing, and it was labor intensive and hard.
Now, software development is no longer writing books, it's permission plagiarism. It's copy paste of other people's paragraphs, and you're swapping variables in and out. The world of productivity today in the fourth industrial revolution is really all about software, the marginal incremental productivity comes from software. Now, you've got all of these
bits of code out there in all these repositories whether it's GitHub or GitLab or Specialty, Zebra, code bases, whatever these things are, there's lots of them. No one knows what's in there. There's some rudimentary cataloging all that stuff, but it's like walking into the world's largest warehouse with boxes of gears and engine parts with no labels.
Imagine, and but you know that they're there and you don't have to make the gears, you just have to piece them together and reassemble. Imagine a clear categorization of all that stuff where you can walk in, and where it all is. You just say, give me that, give me that, give me that give me that, pop, pop, pop up, done. I think the rate of increase if the search navigation and discovery functions are good, it's going to totally change. RAOUL PAL: Because then you put an AI layer on top, and then it becomes ridiculously powerful. BILL TAI: Yes, we're on the verge of that too. When I say verge, I think in my last thing, I said, typically when I think through something, I have to wait seven years for it to be time. This is what I funded last year, I think it's going
to be a while but I think these are the kinds of things that I think will be massively disruptive. RAOUL PAL: We've seen some disruptive technology obviously come. Why have we had such bad GDP growth? BILL TAI: I think accounted. Well, I think it's a two things that I mentioned before, a bit of it is deflationary. It's this constant tension between lowering the cost of whatever the economic activity is, because it's become more efficient. Then the elasticity of the market, when that unit of whatever it is, is lower priced, and the adoption rate can go up but then you've got to get people's behavior to attach to that.
There's a little bit of a generation gap. I think, above a certain break point, the user friendliness, or the user familiarity with compute devices, is just not there. I think under a certain age, it's like no friction. I think that will add to the exponential nature, too, because we're getting to a point that at some point, everybody is facile and it's like very natural. You see it in kids today. You take a kid to a bank to deposit a check, they're like, why do you go there? What is that building? Why don't you just use your phone and take a picture? Well, they sent me a check, but you can still take a picture deposit it, can't you? Well, yeah. Then why do you go to the ATM? Well, I'm used to it. It's like the
bank branches are like museums to them, they have no idea why you'd actually walk in. Museums are very valuable, by the way, I love museums too, but I'm meaning that they're like historic icons that they don't know what they're for. RAOUL PAL: I guess one of the things also is if you're replacing old with new, even though the new is much more productive, it comes at lower prices. Even for volume adjusted, you're still destroying an industry next to it. It's a replacement factor for the time being. As you said, there is also I think the offsetting of the Baby Boomer generation
that's so large that they're non-adopters of a lot of this. They're marginal adopters, but once the Baby Boomers come through the other side of their lifecycle, you end up with, okay, now, total adoption everywhere. It's like, in the US, there's 76 million people who are Baby Boomers and yes, that some of those adopts this. But as they change and they'll
become-- or don't even need productive assets, because they're in their retirement years, etc., then suddenly, the rate of change can increase. That feels like, I think the average Baby Boomer now is 68. You're getting right there at the point where they're almost all about to come
out of the labor force, which is going to make the labor force participation rate numbers look awful for a period of time now. It's going to be a bit of a shock to the economy, because none of these guys are earning a living anymore. They're depleting income, so that's quite deflationary. We've now got this massive offset. I was really fearful of how the hell are they going to get through. When my father retired, he immediately dropped his spending by 60%, 70%, because he didn't know how long he was going to live for. Therefore, he did his bucket of
money, will it give him 30 years, 20 years and the fear of running out is the big thing. But it feels like the offsetting of that deflationary lack of consumption is going to be driven now by this massive technology, and the bringing of all of these young people into a new way of earning a living. Because, again, it was like, what's the job mismatch here now? We're creating new jobs in different worlds. BILL TAI: Yeah, and it's clear also while there's
that deflationary pile in the Baby Boomer era, the newer ones, the rate of growth of the economic elements, when they hit is astronomical, growth rates today on some things, they would have never been comprehended 20 years ago. I think digital technologies, the way I invest in things, I can't say it's totally cookbook, but what I'm typically looking for is, how do I find an emerging use case, and use digital technology to lower the friction to that use case? If you can lower the friction, you're getting more usage. Then you couple that with making it very replicable, number two, and then third, make it very scalable. All of the companies that I find have that set of characteristics, whether it was Zoom, or Dapper Labs, or Canva, or what I want to do with Dyad, or Power Ledger. It's like get that
new use case, make it super easy to use, make it easily repeatable. When it goes repeatable, make it super scalable so it happens fast. Because you can set things up for that today, and in fact, you have to or you won't win, the rate of growth when they grow is astounding compared to anything you could have done 20 years ago and the size of markets. I am so happy about that, like when we were making semiconductor chips, I was at LSI logic, we had the chipset for the PC Jr., IBM PC Jr. It was IBM was a lion share of the PC at that time, and a big
order might have been a million units. You might have had an assault base of a few million PCs, trying to sell a graphics card and you'd be, oh, I might get 20% market share. It might be 200,000 or a million units for the whole year. If you were a software developer making Lotus 123 like Mitch Kapor was, huge hit. I'll get 40% of all the computers out there, I might sell a few 100,000 units for the year, for the year, and you'd have to sell the software at like $100 a copy.
That's like a day now. If you get a good hit product, kablam. The markets are truly exponentially bigger. The ability to reach those markets, truly exponentially easier today. The distribution mechanisms of everything, like an Apple store, holy, wow, those didn't exist at that time. I think big market, high growth rate, high multiple, wherever that level set is with interest rates and parts of the economy are going to continue to just explode up around us even in the face of deflation. RAOUL PAL: I think when you and I last spoke, the obvious example the home run that you just had was Zoom. There was a new technology that lets
everybody to digitally represent themselves so you and I can chat. It's game changing, very easy. Then suddenly, the set of circumstances for the world changed and it gets mass ridiculous adoption. How fast was the change of customer acquisition at the--? BILL TAI: Yeah, that was remarkable. I was totally blown away. In December, I remember
the year before COVID really was being recognized because COVID had existed but people didn't really know what it was going to be. I think that year ended with Zoom's infrastructure being set for about 10 million meetings a day, which was a lot of meetings given the company's progression over time. I remember that the next February, things really started to spike. That month of February, it jumped to 200 million meetings a day. I was texting with Eric Yuan, I was like, wow, this is crazy. I was like when I funded you, I felt like my life changed because I really could be anywhere and work anywhere, and hang out in Perth, Australia, and fund companies like Canva, and I could be here. When I funded Dapper Labs, I was reminiscing with the guys the other day,
I was on a ship, getting ready to leave a port in Geraldton, Australia. To get to Geraldton, you got to fly from here in San Francisco area like 20 hours to Singapore, and then overnight, or take a break, and then fly another six hours to Perth, then you got to drive seven hours north to Geraldton. I'm on a ship, about to leave, and Roham who started Dapper is like, hey, we got a scheduled call. I'm talking to him off of Zoom on a ship and we worked out the deal to fund Dapper Labs. It was all because of Zoom.
Anyway, my world had become very free and virtualized and I could spend the year kiteboarding all over the place and fund companies anywhere. It was this grand. I was texting with Eric Yuan, and I said, Eric, I didn't realize how fun life was going to be. Now, there's 200 million people following me and then the next month, it was 300 million meetings a day, in March. I was like, oh, my God, this is crazy. I was like,
I've just lost my competitive advantage. RAOUL PAL: What's interesting to me in this is, so we get to the phase where Zoom explodes and everyone goes, this is excessively valued. What is now becoming clear to people and was clear to you when you and I spoke is the use case that we have now is only a fraction of what this network could be used for. Because you've created a giant network. It's a network built around, happens to be video, but it's a digital network so what is the future value of that? That is the value of networks. It's
not about the single original use case. Amazon was never about books, and Zoom was never about this. BILL TAI: No, it's a platform now. We talked about platforms. It's just so delightful to see what's happening with the platform. You may or may not have seen announcements in the past where Zoom announced that they're developing an app store and an SDK, software developer kits, so people can bolt on. Just last month, or a few weeks ago, they announced a venture fund. They've been onboarding little groups, because there are a lot of developers building things on top of Zoom.
I funded four or five of them, whether it's like class.edu, they've changed the name to Class Tech, class.com, they did get that URL, to there's all kinds of applications being built that are vertical communities, because part of community building is communications, and communication is fundamental the communities. Once you have communities, you have commerce, and you have vertical communities around different topics that are self-generating economies themselves In a way, zoom is enabling a set of communities to be built around the world by communities of interest where the nodes might be all over the place but now they can meet easily where they couldn't before. When they announced the app developer fund,
they put a little web page up where people could type in an application and what they're building. Within a few days, there were 200 companies. I don't know if it's going to be as big as an Apple App Store. That's like really, really hard to get to, but everybody uses Zoom. There are so many communities of interest now that can empower themselves and create things. There's little technologies to allow transactions, like I funded a little thing called Pledgeling. If you were to hold a little call here and you wanted to raise money for a cause, you'd click this plug-in, it would be embedded, and then on the window of the Zoom bar, it would it would say, oh, do you want to donate now and then you click on it, and it sends text message to your phone, you put in the amount. Then on the sidebar, it says Raoul Pal just donated X to this charity and
they power Zoom, they power Clubhouse. RAOUL PAL: Wait, so we all have digital wallets and that becomes entirely frictionless. BILL TAI: Super easy then, yeah. The unlocking of all kinds of economic activity, it's been happening through digital technology and it is accelerating. I do agree it's exponential. RAOUL PAL: As the final summary, I think Zoom is the great example of people misunderstanding because they linear think what the potential future value is of a network. They get it at first. Oh, yeah, Zoom has taken off, because a bunch of people were stuck at home. No, Zoom has created a massive network, which will now undergo network effects. Therefore,
the v
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