Pivot · Jun 5, 2020

Zuckerberg does nothing about Trump, Google’s Incognito is not Incognito?, Amazon bonds and a prediction about 2020 IPOs

Automatic transcript of the end of the episode, from 30:21. Speakers are labeled by software and may contain errors. Highlighted passages are Scott’s predictions.

Speaker · 30:21 Corporate bonds, including a billion dollars in debt at a US record low interest rate of just point 4%. Is this just a crazy gangster move by Amazon to raise capital at extremely low cost? I don't have a deep background in corporate finance. So can you explain why only very few companies have access to cheap capital like Amazon does? How does this strategy play into their continuing dominance? Thanks. Love the show. Kara Swisher · 30:45 Oh, that's a good question. I'm gonna start this. Of course. They get better rates. They're bigger. They get... You you always get better rates if you don't need money. And so, this interest rate is is amazing. It's an amazing interest rate. And why shouldn't they take free money? Scott, why do you think they're borrowing money? Why not? Like... Right? Scott Galloway · 31:03 Yeah, so every company Kara Swisher · 31:04 They're going buy something? They did it last time, then they bought Whole Foods. So what do you think? Scott Galloway · 31:08 Well, every company has a cost of capital. And Amazon still needs to fund projects, and they're still at a point, unlike any other company in the world, where they invest more or they're not cash flow positive sometimes. They could be cash flow positive anytime, but they make these big, staggering bets. Even if they don't use the cash, they can use it to buy back stock. Your cost of capital and your CFO's ability to manage your cost of capital is an incredibly important feature of your business. So in your household, the way I would equate it to a household is if you have credit card debt at 13%, and then you also have stock holdings, you go to the institution that holds your stocks and says, Can I borrow money against my stocks at 2% or 3%? Which at Interactive Brokers, you can borrow money against your stocks at 2% to lower the cost of capital funding the debt to keep your house going. This is just nothing but trying to lower the cost of capital. It's a great move. And interest rates are at historic lows, so the ability to fund projects at a low cost of capital or even some companies are taking out debt to buy back stock if they feel really confident in their stock. I think that's a bit of a dangerous move because all you're doing is substituting equity. But at this point, issuing equity, they think that's more expensive than issuing debt. I'll give you an example, and it's not just big companies. When I started L2 and we took venture capital money, there are banks that follow Tier one venture capital firms, and if they invest $15,000,000 the bank shows up and says, We'll give you $5,000,000 of what's called venture debt. And the attribute of debt is it sits on top of the cap structure, meaning that if the company goes over, they're first in line to get the assets. So technically, it's the most secure thing. Debt is the most secure. It feasibly gets a lower return. But these companies in this case, I think it was Comerica came in and said, We'll give you venture debt. And I said, I don't need any more money. And there's something about most of us we're a little bit weary or wary of debt. And debt is a fantastic tool And if you get at a low they said to me, said, Just for fun, what are the terms? And they said, No covenants, no warrants, and three point five percent five year term. Oh! So if you can borrow It's Kara Swisher · 33:16 free money. Scott Galloway · 33:17 Literally, if you can borrow money as an entrepreneur for what was, know, at the time a great company but still risky, at 3.5%, I said, send it over and I'll sign and fax it back today. Even though I didn't need the money because I thought having that cash on the balance sheet, even if I didn't use it, the copy Kara Swisher · 33:33 You had the ability. You had the ability. In that case... Of Makes more bulletproof.... The Foods. And also people will find it a good investment too. Scott Galloway · 33:42 So This it's is a good historic, and then this has so many opportunities for us and so many dangers. Interest rates are so historically low, but if interest rates spike, the amount of money we have to spend on our interest, which is now greater than the national what we spend on national defense despite record low interest rates at the same time, should municipalities or even the federal government think about on Borrowing. Yeah, to build infrastructure, right? So debt is a powerful tool. And I've always had Kara Swisher · 34:08 a Get natural connection used to well is a powerful tool. You're 100% right. And, you know, interestingly, Silicon Valley doesn't like to use it that much. But, know, Brian Chesky just did it. A lot of them are doing it now. Airbnb just did it. A lot of them don't... I think he had tougher times. Scott Galloway · 34:23 It was expensive. It was 900 points above LIBOR. It's a great piece of paper for the investors. Kara Swisher · 34:27 Yeah. So I think it's really... It's something Silicon Valley doesn't think about a lot, but certainly is a good idea for companies to to consider. And I think you'll see a lot more of it, especially right. In any case, we have to take a quick break now and we'll be back with predictions. We predicted AMC would be in trouble and it is. We'll be back after this. [Ad break] Kara Swisher · 35:30 know [Ad break] Kara Swisher · 35:36 Okay, Scott. As I said, we predicted AMC would be in trouble. Good job. Good job all around. Scott Galloway · 35:42 That was a pretty reflex. I know. AMC will be in trouble. Kara Swisher · 35:45 Yeah. I know. That's it's like saying, it's like Scott Galloway · 35:47 I think Myspace days are number. I think Myspace days are number. And not only that, think I think, Kara, I think Ass Jeeves is in real trouble. I think Ask Jeeves is going away. Kara Swisher · 35:56 Didn't you like that butler? He's one sexy butler. That was an ISV property. Sec. I know. Scott Galloway · 36:01 Powered by Google. Let's have the metaphor of a butler on top of Google. Kara Swisher · 36:06 I know. But, you know, Google was a little little baby then. Let me just tell you. You didn't know it was gonna turn into your time. Scott Galloway · 36:11 More like Chucky than a baby. — Predictions segment begins — Kara Swisher · 36:12 You know what? I told you that story of Larry Page when I'm like, do they know what you're doing? He's like, no. Like, he was always like... He knew what he was doing. Same thing with Yahoo. They... He's like, don't tell them. You know what I mean? Like, it was... He's a he's he's a very savvy customer. I'll tell you that. He's gone. He has disappeared off the face of the earth, by the way. I don't know what he's up to. He's probably moved to another dimension is my guess. So, so what is your prediction, Scott? We need a prediction from you. A a good predict... You know, we we... We've been doing a lot of political stuff. I'd love you to do a business prediction. Scott Galloway · 36:49 Oh, I have a business prediction. Have a communications I think the most interesting statement I think there's been a couple just fantastic in retrospect, and I'm trying to think what were really the seminal moments or the people who showed tremendous leadership here? And I think Killer Mike's statement in Atlanta talking about his background, his family he has a lot of family in law enforcement. And I just thought he struck to such a fantastic tone, and I think that statement is going to age really well. The other statement that I think is going to age really well, and that I think a lot of, I'll call it, young men should take pause and really learn from, I thought one of the more interesting statements of this entire crisis was the twenty one seconds of silence from Justin Trudeau. Kara Swisher · 37:33 Oh, that was fantastic. Scott Galloway · 37:35 That was so powerful. Kara Swisher · 37:36 Thrilled. Scott Galloway · 37:37 And as a young man, and again, and I'm turning this back to myself Kara Swisher · 37:41 Especially with the beard. Scott Galloway · 37:42 I recognize that. Oh, he's just so fucking dreamy. That guy is like, Jesus Christ. Kara Swisher · 37:46 Not many people can afford a beard. World. Go ahead. Anyways And he's got his issues. And by the way, he had his issues with black faces that you recall and everything else. So keep keep going. Keep going. Okay. Scott Galloway · 37:56 By the way, does Canada likely think it's in an apartment above a meth lab right now? Canada definitely thinks I Kara Swisher · 38:03 think he kind of said that. The apartment above I think China was like, what the Scott Galloway · 38:06 fuck Okay. What's going on down there? Kara Swisher · 38:08 I literally was like, Amanda, pack up your things or move to Vancouver. I I really was. Scott Galloway · 38:13 But there is I think there's a lesson here. I don't think that was planned. And I think young men need to really register the importance of thinking about a question and being silent before you respond and choosing your words carefully because I know as a younger man up until about six months ago, I had a position and as soon as someone disagreed or asked me with a question, I thought it was leadership and showed strength and masculinity to immediately respond forcefully and have an answer. And I think there's a real grace and a leadership ability in having the confidence to to just sit there and think before you speak. And I thought that was really... Anyways, my my... We're not doing wins, but I think one of Kara Swisher · 38:57 my wanna talk about dreamy Justin Trudeau, but go ahead. Scott Galloway · 39:00 What's a gangster move, though? Kara Swisher · 39:02 It was. It was. This Prediction, please. We gotta get out of here. Scott Galloway · 39:04 I have a date Kara Swisher · 39:05 with Andrew Ross Sorkin, and you're trying to keep me from it. Scott Galloway · 39:07 Don't rub that in my face. Don't rub that in my face. By the way, I am pissed off at that Canadian spy, Andrew Ross Sorkin. Kara Swisher · 39:14 Canadian, and he's not a spy. Scott Galloway · 39:15 Spy. That guy would be the most effective spy in the world because he's so likable. Anyways, I texted him and said, call me. I have an idea on what I'm about. I have not heard from him. I have not heard from him, Andrew. Kara Swisher · 39:26 Maybe he gave you... You know, like how women can give men the wrong self. Scott Galloway · 39:29 Oh, I'm used to that. Trust you. I am used to that. Kara Swisher · 39:32 Maybe that's what happened Scott Galloway · 39:33 to spies are supposed to call me back anyways anyways who asked for a prediction. Kara Swisher · 39:38 Yes, prediction. Scott Galloway · 39:39 The IPO class of the last half of twenty twenty in the first quarter of twenty twenty one will be the best performing IPO class of the last decade. You're going to have... We have this anomaly right now in the markets where the markets have totally disconnected from Main Street. And that is the economy has taken a huge hit, you have 40,000,000 unemployed, you're going to have discretionary spending go down once the helicoptering goes, goes away. But at the same time, you have a ton of institutional capital because their stocks have not gone down. Even if they're in the NASDAQ, if they have a tech heavy portfolio, they're actually up for the year. And as a result of the real economy getting hit hard, there are a lot of companies that were kind of lining up for direct listings or IPOs that aren't going to get out. And the companies that do get out are really the best of breed disruptors, the Airbnbs, the lemonades of the world. And I think these guys are going to just go crazy. Think Are Kara Swisher · 40:36 you investing? Are you going to be Scott Galloway · 40:38 investing Yeah, I'm actually contemplating, and I want to do a longer show on this, but I'm actually, for the first time in a long time, contemplating getting out of big tech, not because they're not great on a risk adjusted basis, but because the numbers have just gotten so big. And I'm thinking about getting into what I'll loosely call the disruptor class, and that is the Airbnb and the Airbnbs and the lemonades. Because what you're going to see coming out of this recession is a lot of old industries weaken. The insurance industry is going to be weakened. The hotel and hospitality industry is going to be weakened. And here come these fists of stone called Airbnb and Lemonade and other disruptors. I think there's an interesting company that I'm contemplating getting involved in called Public, which is sort of the more woke, more kind of interesting Robinhood investing app. Anyways, I think the IPO class of the next twelve months is gonna be the best performing IPO class of the last decade. — Predictions segment ends — Kara Swisher · 41:29 I like it. I like it. I think that's a really smart thing. I think you've you've mentioned it before, but this... It's absolutely true. I do... I think Airbnb is in a much better position than hotels. They're gonna go through a rough period. But as... And I would recommend the interview I did with Brian Chesky last week. It really is a... It's not about tech. It's not... It's about how to manage your way through a crisis and the insecurity and difficulty of doing so. And I thought he did it with a of humility, a lot of honesty. I thought it was a really interesting thing, but I really, I agree with Scott Galloway · 41:55 question is what interviews have you done would you recommend we skip? Kara Swisher · 41:59 I didn't think my Scott Galloway · 42:00 Sam Harris Come on. That's good. Kara Swisher · 42:01 You love... No. That's true. I didn't... I thought my Sam Harris Scott Galloway · 42:04 What should we ignore? Kara Swisher · 42:05 Sam Harris. The Sam Harris one. I know you're Scott Galloway · 42:07 Oh my. Are you nuts? That hurts. Sam Harris is a gangster. That guy is so thoughtful just because he has... He doesn't, like, hold hands with you on the way to the woke spa. Kara Swisher · 42:17 No. No. Listen to me. Listen, woke man. Don't even start. You started off this thing saying I just realized that people of color have a problem in this country. But listen, the, the the Scott Galloway · 42:27 I'm flexing. Anyone on YouTube? Little gun show in town. Little gun show. Kara Swisher · 42:31 Listen to me. I thought I did a bad job. I thought I did a bad job. I think I did a bad job. Scott Galloway · 42:36 With Sam Harris? Kara Swisher · 42:37 I think I did. I think it could have been a better conversation. I think I should have Scott Galloway · 42:41 I think he's one of the more interesting thinkers of our age. And I think he's feral. Interesting thinker. Kara Swisher · 42:45 I think Scott Galloway · 42:45 I wouldn't... Kara Swisher · 42:46 Interesting is the only word I would use, but I would agree. I think I didn't... I am blaming myself on that one. I think that almost all of them are pretty good. Scott Galloway · 42:55 But That's the best interview I've ever done on the prop g podcast. Kara Swisher · 42:57 Alright. Okay. There we go. Scott Galloway · 42:58 We have a Kara Swisher · 42:58 different thing. Scott Galloway · 42:59 Or best interview I've ever had. Kara Swisher · 43:00 It's a really I'm good I'm interviewing a lot of people in the next month because Rico Decote is coming to an end. I have some really amazing Scott Galloway · 43:08 What's he like? What's Brian Chesky like? I don't really know him. Kara Swisher · 43:10 He's lovely. He's lovely. Yeah. I have to say he's... I wish he was running Facebook. I don't know how else to put it. That I wish he was running Facebook. He's he's he's really an interesting... He struggles with things. I know there's all kinds of controversy around, and... But he addresses it. He doesn't he doesn't shirk it, and he doesn't do mumbo jumbo intellectual nonsense that others do. Scott Galloway · 43:30 So Anyway They... Last round private Kara Swisher · 43:32 Talk about learning. There's someone who learns. There's someone who really does try to learn. Scott Galloway · 43:35 Last round private valuation was 40,000,000,000, and most recently, there's a secondary sale. Oh, no. You can now pick up shares in the secondary market for 19,000,000,000. I think it got public at 40 Biscayne and I it's 1,000,000,000 in Kara Swisher · 43:45 three years. That... He talked about that whole debt thing and what he had to do. So I would listen to it. It's really interesting. Alright. We gotta read... You gotta read us out, Scott. That was really great. Don't forget if there's a story in the news that you're curious about and wanna hear our opinion on, email us at pivot@voxmedia.com to be featured on the show. Scott read Scott Galloway · 44:03 us out. Today's show was produced by Rebecca Sinanis. Fernando Finete engineered this episode. Erica Anderson is Pivot's executive producer. Thanks also to Drew Burrows. What a fantastic team we have. What a fantastic team. Thank you. I wanna... Just a quick out. Thank you for saving me from myself often. They're really... They they take... You know, I think they take both of our voices and give them flight, if you will. So thanks to the team. Make sure you subscribe to the show on Apple Podcasts. If you're an Android user, check us out on Spotify or wherever you listen to podcasts. If you liked our show, please recommend it to a friend. Thanks for listening to Pivot from Vox Media. We'll be back next week for another breakdown of all things tech and business. Have a great rest of the week. The Canadian spy needs to call me back, Kara. Kara Swisher · 44:48 He will not. I will tell him this. Scott Galloway · 44:49 Call the dog back. Kara Swisher · 44:51 I I I don't think he knows who you are. Scott Galloway · 44:53 Oh, that hurts. That hurts. [Ad break]