#58 - How To Navigate The Upcoming Depression

What's up good people? Sean here. I just recorded an episode with Ishan, who is my producer. Editor. Right hand man. who helps me out with all my different projects.

And uh we talked about coronavirus. And we went through This email that I sent out to Uh every Sunday night I send an email out to the rest of the executive team And it's called one two three.

And normally this is private, but F This podcast I made it public. I talked about what was in the email. It's all about coronavirus. I gotta warn you. It's a little doom and gloom.

It's not the most optimistic podcast. But I think it is interesting. And I think you'll like it. And then around the 40 minute mark, I announce something new. So If you are uh checking this out, make sure you check out what we announce at the end. I think it's kinda cool. Um

But I like it. We're gonna do it. And uh check that out. Okay, hope you enjoy this episode. We're all quarantined and we're going crazy, so yeah. We wanted to to just do a conversation. How you doing, man? Uh could be doing better. Uh, but we're surviving day by day, so Uh I'm halfway across the world in Australia and this is you know just is

It's getting pretty bad here as well, so We're just uh hoping for the best. And every part of the world is different right now, right? You've got China, which is sort of like over it, so there's no new cases, or at least that's what they're reporting. And uh you have some countries that have the situation on lock. You have Italy and Spain which are sort of You know, devolving very quickly. Yeah. The US, which is

growing and you know, by the end of the week we'll probably be bigger than China. What's going on in Australia? Australia so far uh a few of the states are going into the stage one of lockdown, so all non essential businesses are sort of closing down, supermarkets, hospitals are still up. Um so you know Yeah. society as generally in Australia is be hasn't been responding to it very well. Um people are still going out. Uh a lot of the bars and restaurants like just uh last weekend before the lockdown was completely packed. People are showing up to Bondi Beach swimming and you know, even after the government has urged them to not go there. Um so

Yeah, it's they've been treating it a bit like a meme, but uh Things I think should get better and people should start listening, hopefully. Um But yeah, it's right. It's just I think we're seeing this in waves, you know, like like you said earlier today in the US, two weeks later we're gonna be where you guys are. Um you know, because you know there's a lot of inaction.

happening and Uh Yeah, things are just gonna follow suit. Yeah, unfortunately this is one of those things where You need to take action before it becomes a big problem.

Because once it's a big problem, it's too hard to contain. And um You know, the tr the tragedy of this is There's a a certain type of problem. This is this is like a a problem like in your company you'll have with security or

Fraud prevention. Where You do A whole bunch of work up front and you hope that Like nothing happening is a good sign.

Like I used to joke with my head of security If um You know, if we're not talking, things are good. You're doing your job. Now when I come and we have to talk, that's because There's a problem and by then it's usually too late the damage is done.

Yeah. And unfortunately with something like this where you have believers and non believers The problem is you l it's a lose lose. Let's say you don't take action. You don't take action and now the problem strikes and a bunch of people get sick, a bunch of people die and you know, bad things h happen.

Let's say you let's say everybody took precaution. We locked the whole country down. We we stopped, you know, travel, business, all this stuff. And if you succeed in doing that. the virus won't really proliferate. It'll look harmless. And then what people would say is actually not Good thing we did that, they'll say it was an overreaction. And so it's like a lose lose.

In terms of perception because If you take massive precaution the winning scenario makes it look like it wasn't gonna be a big problem. Right. It's a it's a dangerous thing. There should be a word for these types of uh

situations where that's the case. You know, like they ha they have that word anti fragile. Antifragile describes when If you haven't read Nassim Tillyb's book, Anti Fragil's When A system breaks. And the brake makes the system stronger for the next one. So it's like plane crashes. Yeah. Every time a plane crash happens Planes get safer overall, the next crash is less likely.

That's an anti fragile system. And uh So there should be some word for this too, where it's like The when you when you do that when you take precaution and you reduce risk

And then the thing doesn't happen. Yeah. You you don't want people's reaction to it to be, Oh, we all overreacted, it was no big deal. Right. It would have been a big deal. Just can't see. Right. And so um you sent you sent out like this email uh

Every Sunday. It's called the one two three. And right it's not it's not public. People can't subscribe to it, right? It's Yeah, I've talked about it before, but it's not public. Um, I send this to I used to send it to a private group of my mentors, advisors, friends when we were doing our startup and then once we got acquired

I decided hey, this would be a good way to connect with the rest of the exec team at Twitch because Everybody's so busy, we don't all get to spend much time together. So I said Maybe I'll use my one two three email, which is just me brain dumping a bunch of thoughts on Sunday night. I'll send it to the exec team here and

It's sort of like a private newsletter, private blog. And uh You know, my thinking mind it was was kind of a growth hack. I wanted to blog'cause I enjoy writing, I enjoy putting my thoughts out there. But I was like, Man, it's so hard to break out. Everyone's got a blog nowadays. So I mean this was many years ago, five years ago when I was like Well

If I just had a hundred people who I think are badass. Read this. That would be a win, right? I don't need a million unique visitors. I need A hundred of the people I like and respect the most in Silicon Valley to read this, that would be a win. So how do I guarantee that they read this? Well, let me make it something excl exclusive. So

You're handpicked to get on a list, you're only getting this and it's private, which means I can share You know. things that I wouldn't always put out in the public. And so that's how this all started And normally it's private, but given coronavirus. Uh this week's was all about coronavirus and I wanted to make it public. So I was like

Um let's Talk through what I put in that email. And uh share it with more people. So hopefully this is interesting to people. Right. And so I I thought this email was really interesting when I read it. Um Uh, let's just start like from the beginning. Uh how bad do you think this is?'Cause in your own words you said that this is really really bad. He didn't say one release had two really. So double really um double really. And so um on a spectrum from, you know

This is nothing to This is a complete catastrophe. We're gonna go into a depression. Where are you sitting and why? Yeah. So I should actually preface this. This is more of a doom and gloom podcast'cause that's kinda my outlook right now. So um if you're looking for something super optimistic. This is probably not it. This is me being

realistic from what I'm seeing. And I'm definitely no expert in infectious diseases. I am no expert. in um the economy. But I have a lot of smart friends. I ask a lot of really dumb questions to them so I can learn and I read a lot.

And so That's how I form, you know, my opinion on this and my opinion is that this is really, really bad. And I'll tell you why. So What's happening right now is that we have a health crisis. you know, a pandemic, which there's not that's not often. So we have a health crisis.

And that triggered It started in China, so it triggered a supply crisis because The supply chain broke down. The global supply chain, which depends on China. All broke down. And then it you know, as it's come to the US, it's created a labor crisis where

All these businesses, like You know, all of American sports are shut down. Hotels. Casinos, movie тетр, скул. Um, all the gyms all these businesses are shutting down and they're not gonna be able to go with zero revenue for long, they're gonna lay off employees. So you know you're gonna have a labor crisis where people are predicting

twenty, thirty percent unemployment, which is insane. Right. And then that create the labor crisis creates a demand crisis. So we have a s huge supply shock. And we have the demand. Prices.

And we have the labor crisis and we have the health crisis. And so What I wrote in the email was that I stole this line from my friend Bashall. It feels like an alien kid, you know, was got tired of playing the video game Earth. And he was on level twenty twenty and he's like, Ah, this is boring and he just started mashing buttons just to spice things up. And that's what twenty twenty has felt like for me so far. Right. Yeah, that's a really good analogy. Um

So you're saying In terms of Okay, that's this there's a health crisis that started and that triggered all these other sort of uh Would you say like a black swan event? I don't know if that's the right word for it, but Um we haven't really this is like really unprecedented.

And it's unprecedented. We've never seen this, um, or most people in their lifetime have never seen this. And even those who kind of have seen things like this It's very different because We've had financial crises, right? We've had bubbles. We've had um you know the SARS outbreak.

But we've never had these things stacked together. And for that reason it is very much a black swan event. Who could have predicted? My my brother in law owns I don't know. twenty to forty gyms here in California. Who could have predicted my sister runs three schools.

Um Who could have predicted that revenue would just go to essentially zero? For months. Like the no business really plans for that. And it's you know

even when you're making your sort of expansion plans, you're thinking about growth, you're thinking about how well things are going, you're thinking about expansion. And uh rarely do you sit down and say, Well Should I prepare for

You know, the white walkers to cross the wall and everything to shut down. Like but that's actually what happened. Yeah. I think it's um Uh it's you know be Previously, uh whenever something Like the economy goes down or something crazy happens. Um

a lot of the the stimulus packages they're to actually try and get people to work, right? But this is completely different where we're trying to get people not to work. We're trying to subsidize their living. Um we're talking about today, like what is it, two and a half million people are f filing for unemployment this week. Um this is way bigger than O eight and uh you know the ones before it's um This is Yeah, this is unprecedented and s it's uh It's a different kind of uh like war. It's not a different type of war we're tackling.

No war is the exact uh analogy here. We're we're fighting an invisible enemy. And um Unlike war where we usually, you know, send people out and we you know the whole country sort of galvanizes around it, here it's like there's an invisible enemy hide in your homes. That's the answer. And uh it's very unprecedented. It's very un American really. Americans love

when bravery and uh valor is what is the solution. But here it's patience and it's staying inside. It's doing nothing. And um That's very dangerous. So so that's that's why I think uh you know, this is really, really bad. So that's point one. Point two I had on here.

was about the health perspective. And I said from a health perspective, we have three pathways forward. The first one is mass testing. So we need to quickly, cheaply, and frequently identify who is infected. Option two, from a health perspective, uh you know, solution two is we find a miracle treatment.

And option three and is would just face a massive death toll. And You know, we should be clearly focusing on mass testing, but unfortunately It doesn't seem like we're on track to solve that any time soon. Um the types of tests we're ordering were short.

the testing that we're doing is inadequate. You know, there's so many carriers out there That are being turned down from testing. Right. And um You know, within seven to ten days the the Chinese virus, as Trump loves to call it, will be the American virus because we're gonna have way more cases than anybody else because we did not lock down and test

Temperatures. um and and sort of the infectiousness. Uh in any w nowhere near what China did, nowhere near what Korea did. And um unfortunately for us

That means this is gonna be a problem for a very long time. So that was point two. Right. And do you think It's the the the main issue right now is that maybe uh A lot of people maybe generally screwing to like a younger demographic, they're asymptomatic possibly to this and they're spread it's spreading faster than ever because of that, is that

Way see. Why we need sort of mass testing. Um because a lot of the things that I've been doing. This virus is very tricky because the virus is um It doesn't kill you right away. It doesn't show itself right away. And um

And in in fact, if it if this could kill anybody, I think people would behave very differently. The media sort of uh framed it and rightfully so because it's it's worse for the elderly, it's worse for people with underlying health conditions. But The interpretation of that seems to have been, if you just judge by the fact that hey, in LA People are out on the beach, they're playing pickup basketball, you know, like

people are not the younger people are not taking this seriously and they're spreading it. Yeah. And so um The interpretation of it was, Okay, well you know, it's not gonna kill me. And um Unfortunately You we're only as good as our weakest links. So even if the majority of people are behaving

The sad thing is that as long as some people are out there Spreading it, whatever that p percentage of people is, five percent, ten percent, fifteen percent. um this thing will continue to proliferate. And the longer they keep doing that, the longer we wait to get testing in place. Um the longer this persists and then the longer it persists, the more itchy people get.

in quarantine and they start to break. And uh they start to go out and then it stays longer. So I don't um I don't see a good solution here. From where we're at. And

Just really quickly I want to go over this whole like mass situation. Um Uh, I'm guessing earlier on, like I don't know, feb January, February, low health professionals were putting out messages saying uh that you know, you shouldn't wear a mask if you're not uh having any symptoms. Um and I think that was maybe possibly so people wouldn't obviously be panicking and buying up all the masks'cause people that do have symptoms, they should be prioritized and they should ha wear masks. But also we're seeing a lot of data now that, you know, places like Japan or Singapore where

wearing masks is very prevalent amongst a lot of the people and the It looks like their their curve is Flattened or f uh flattening. better than the uh the other countries like US, Italy and whatnot. Um do you think that Uh this is do you think that everybody should be wearing masks? This is like not a thing that's like uh because there's a lot of people that think they read one thing and they say, Oh okay, there's no point of wearing masks.

There's no nobody coming up. You know, I I think either might be truth to both sides. I think it might be true that It would not have been productive if everybody who didn't need a mask. Bought all the masks because we didn't have enough for everybody. And so I think that part was true that we should have saved it for people who needed it.

Um but I think it's also true that if you have a mask you're gonna be less likely to spread and less likely to receive it than anything else,'cause there's a barrier in front of your mouth and nose. Yeah. It's pretty simple. So Um so so I think that would have been helpful, but Yeah, at this point I'm not sure what's gonna happen. Right now it seems like you know, it's the hospitals that need the masks. So you have You know, the healthcare workers who They're constantly at risk.

that need the m that need masks and are running out. Yeah. I think that's the scary part now. I saw Bezos, uh he did like that announcement and he was saying that they ordered you know, a lot of mask for the Amazon workers, but they can't get them yet because the those masks are being prioritised for the hospitals and whatnot. So And Facebook, I believe, donated seven hundred thousand masks that they had Bought during the

um wildfire crisis, which was uh tiny tiny speck in comparison to this. But they bought seven hundred twenty thousand masks. For Facebook. And um they're donating all of them. And so yeah, you know, people are trying to step up and that's kind of great to see. Yeah. And um we'll see we'll see how the mass thing plays out. I don't have a super strong opinion there. Right. And so

So we've gone through you know how bad we think it is and what we can sort of go what we could do and what you see going forward that should happen. Um What about what are you thinking on terms of the economy? Um, what are sort of the short term but also long lasting effects of

Yeah, so I think the economy is gonna crash badly. And not a recession, but a depression. And I think that on top of that People will blame the virus. But the virus is the trigger, it's not the cause.

And um You know, I I could be wrong about this for sure. Uh this is not something that is easy to understand. Like a the economy is such a interconnected set of um pieces and um people who are experts in one area might miss another, right? It took

Um A lot no very few people saw the two thousand eight crash happening. Uh beforehand. Even those who did were not taken seriously. And only sort of later when we do a post mortem we realize okay, it was these subprime mortgages that were being

securitized and packaged up and then rated impro improperly, and that's where um you know, the the sort of vulnerability was building up. So in my view here. Um People are gonna blame the virus and say the virus is what shut down the economy. The virus is why we have high employment unemployment. The virus is why the economy's gonna take

Years to recover. And um In my view, the virus is the needle that pops the debt bubble. Right. And so In the same way that the coronavirus is fatal to people who have an underlying respiratory problem. I believe that the virus is fatal to the economy because we have an underlying debt problem. That is the under underlying

illness that the economy had. that the virus is um going to expose um Shortly. Right. And So like uh

you know, a a huge talk right now. There's a lot of people talking about, you know, bail outs and a lot of these uh Not just Airline, there's a bunch of other companies, but a lot of these companies that spent most of their profits on these share buybacks. Um And now they're asking for bail outs. Uh I know you explained this a bit uh on uh last podcast, but um I want you to sort of can you just give another quick sort of like explanation on what you what you're seeing right now and what are your thoughts on on

uh what's happening right now. Yeah. You know, my reaction initially uh when I had heard bailouts,'cause bailouts sounds like uh that word is just very loaded. Yeah. It sounds like, you know, somebody's getting a free get out of jail free card. And um that's how I felt in 2008. And then as I started to understand more

Um, and I I think I've recommended this video before, but I literally re watched it last night. Um And that's gonna sound silly because it's such a s simple video, but the reality is Um you really want to understand the fundamentals of anything. It's not y uh like usually the problem is in the fundamentals. It's not in

um, you know, uh you're sort of a PhD level of complexity around something. Yeah. And so there's this video by Ray Dalio and it's called How the economic machine works. It's on YouTube. It's thirty minute video. Most people are not gonna watch it. This should be required watching for every politician and every CEO and every college graduate should you know, before you get your diploma, go sit in this room and watch this video. Yeah.

And um what he explains in it is w why these cycles happen. So why do we even have cycles? Why do we have these ups and downs? And and so he explains, you know Um, and I can't, you know, sort of do it justice and explain the whole thing, but what I would say is The key to the economy is Um

Spending. And so One person's Um, you know, one person's spending is another person's income. And most spending actually is not through

cash that you have, you know, sitting in your bank or under your mattress, but through credit. Um businesses spend through credit, people spend through credit. Government spend through credit? And um so a lot of what's spent is credit. That credit becomes income of the next person.

the m when you get income, you become credit worthy and people will give you More credit. And then you spend it somewhere else. And that's how the economy expands. And so we go through these expansionary periods. Where people take loans. They spend, they buy houses, they buy cars, they buy they invest in businesses, they buy stocks, whatever. They whatever they buy. And um some of it's with cash and some of it's credit.

And then as when they're spending, that's somebody else's income. That person who g who gets income becomes credit worthy. And so then there you can Take credit you know, take loans and get credit and do their own level of that. And that's the expansion cycle.

And then that that naturally overreaches. So It seems like, you know, this party just don't stop. This is working, we're all getting rich together, we're all this is all growing, the banks keep landing, blah blah blah. And so um But you don't want too much debt out there.

And so, you know, the government uses interest rates to sort of regulate that. They'll raise interest rates which will reduce borrowing for a given time and and lower the amount of credit and debt that's in the system. And um and so they have this instrument that they use to do that. So the the video really explains how During expansion times, we use credit to expand quickly.

Uh in the same way that if your company needs to grow, you'll take a round of venture capital or you'll take an investment round. Or you'll take a loan, or you'll take venture debt. Um You know, those are the ways that you fund expansion that's gonna happen in the future.

And when it all works, fantastic. You expand, you make revenue, and now you're more credit worthy. You can raise bigger money, you can take bigger loans, that sort of thing. And um unfortunately human nature is that we get ahead of our skis. And so what's ended up happening here is we have uh twelve year bull run of the stock market, one of the longest bull runs ever. And um And so we had this huge amount of expansion and it was stimulated after two thousand eight w you know interest rates dropped.

This economic stimulus. Package happen, quantitative easing. So we injected, you know, performance enhancing drugs into the economy. And it gave us a period of expansion that lasted from essentially two thousand You know, nine ten.

Tell um Till twenty twenty, right? So you get this a sort of decade long expansionary period. And then you're going to have uh you know the the sort of deflationary period. where that comes to to to root. And so that's like a normal recession. But what he sa what he shows in the video is how these

That short term debt cycle layers on to a long term debt cycle which is happening over a seventy five to one hundred year time span. And what it sure does seem like is that we're Now facing Not just a recession, we're facing a depression. And a a recession is what's happening when the short term debt cycle

is being reversed. And a depression is when the long term debt cycle Is is on the sort of the downside. And uh you know, watch the video, it it paints a picture with animations. It's really great video just well made in general, but

Um for you know, when you watch that, it's hard to watch that and not walk away, uh looking at the world a little bit differently. And so my view is that after you know these periods of expansions and and contractions.

Um, we're now on the sort of wrong side of the long term debt cycle and we're gonna go through a multi year deleveraging or depression, if if for a better word. Um And I I think that's what's gonna happen to the economy. Literally I sold all my stocks, I moved every position to cash. Um

everything I could to cash and um with a little bit of a crypto hedge. And you know, if I could sell my house, I would have sold my house. Unfortunately, you can't sell your house now. There's like no liquidity. So Um I I took as much as I could out, but the reality is that um we're all gonna be exposed and I think everybody's gonna end up

less wealthy over the next few years because of this. Right. And so Y you say uh so you got out of everything, you cashed out, you wanna you transition into a cash heavy heavy position. Um what would you say without being financial advice What should people do in terms of okay, now they're cashed out, do they just like sit? Do they w do they wait nine months and then try and get bargains and try and get rich in a recession or depression? Or like do you do you just wait for years and years and just watching the sidelines? What what do you think is the right course of action to take advantage of of this? Yeah, you know, if I knew I would have made my first million a long time ago. Um and so I I don't think anybody really knows

But um You know, I'll give you my point of view and you know, you said that this is not financial advice. Why do people say that? Are they they think you're gonna get sued? I think that's why if you try to sue a podcaster um for financial advice, like you you know, immediate reverse sue to yourself. So Um so I don't know. Um my prediction would be that You're gonna have these sort of ebbs and flows and I think we're seeing that right now where

The economy is swinging. It's it's swinging like crazy. And uh it's swinging because people are covering their positions. And so you get what they call the dead cat bounce. Um and so I think we're gonna have that, you know, uh a few times here where it's gonna market's gonna plunge and then it's gonna bounce back and there's a little bit of a rally and then it's gonna plunge again. And um

The short term things I try not to really pay too much attention to or try to time it because That's a Trying to time the market or predict the market, I believe, is a bit of a A bit of a losing game. Yeah. Um, I'd rather just sort of think about the fundamentals and think about where I think this is going over a bit of a longer term and not try to predict a day to day week to week change.

Um if you can do that, fantastic. I don't believe you if you if you can. Um And so anyhow, I my plan, I'll just my own plan is Essentially try to uh wait for what feels like the bottom. And i you know, just ignore the first two times I think it's the bottom because it's probably not. Yeah.

Um, and just as I am assuming that this is a multi year multi year um uh downturn. And so multi year might be, you know, as as low as you know, two. And as long as ten.

And um And so I think you can pick up some Um stocks on discount. Yeah, along the way, but It's a risky game. Um and I I I don't think there is a good answer for that. And I don't pretend that I have it for myself either.

So if we just sort of go away from capital markets or like stock markets and we sort of transition to Uh what a lot of our listeners are the people that are trying to start businesses. And if we head into a recession or depression, is this not the worst time or it could be the best time to start something? What What would you say, like what are the sort of like checklists of like okay, you need this much money set aside, you need to you know if people get lick of their jobs, like what is what do you say to people that were thinking of s of starting something, but now, you know, are probably discouraged because of what's about to come?

Yeah, it's tricky, right? I texted several friends, um so I so I advised a couple of startups and uh when I told the startups that I was advising, I said You need to lower your burn rate. Immediately. Yeah. And they had already started that and I said, No, even lower. Um So I was talking about you know, one of the companies I invest in, they're burning. Seventy K a month. Right. And they had

seven months of runway left. So they were planning Hey, you know, things are going well, we're making progress, and the next two to three months we'll raise around. They're in one of the like kind of accelerator program. So they were like, Hey, there's a demo day. At the demo day we're gonna raise money.

And um So that's you know, seventy K a month and they were saying, you know, we're trying to get that down to like Forty five K, forty K. And um Right. And I you know, I was on board with that. And then the next morning I woke up and I just texted him and I said

Find a way to get it under twenty five. Like get it to twenty. That'll get you eighteen month of runway out of your same amount of cash. Right. And um I think you're gonna need it. And you don't wanna be in a position where this dies Because you

Spent too early. I said it's not about growing aggressively right now, it's about survival. Yeah. And you gotta know when to switch gears as a company. And so I think You know, it's very sexy and fun to be in the growth mindset where everything is about grow, grow, grow. But um there are times when you need to

play a different game and you need to um you need to bunker down, you need to survive, and you need to weather the storm. And I think that's what's what's that's my advice to the companies that I'm investing or advising. I also have friends who were out there raising money. They were You know, they had done their seed w their angel round and they were out there fundraising and I text some of them, I said, How's it going? And he goes

Well, I've had three investors cancel on me this week. Right. Like don't even take the meeting. Uh you know, but m uh you know, the the but the good VCs won't do that. The good VCs will continue to operate. Um, they will naturally get more selective. The f the valuations will come down. So for example I'm talking to a Y C company.

And um you know, they're raising their seed round and it's like, Hey, we're raising two million on a fifteen million dollar valuation. It's like, jeez, fifteen million and that's the And I said I said, How'd you get to how why fifteen? And'cause he's doing, you know Um Basically like a million dollars a year uh run rate. And so it's growing it's growing fast, so you can see how that's gonna grow, but

Currently, you know. um a million dollar year run rate. And he said, Well, the way uh Y C valuation works is pretty much Um if you've got nothing. You're a ten million dollar company.

If you um If you have something, you're a twelve million dollar valuation company. And if you're profitable like I am You're a fifteen million dollar company. It basically was like, you know, just sort of he was joking, but he was he was basically saying, Well It's Y C we get this premium, blah blah blah.

I'm very curious to see if the Y C premium holds up. um given what's going on because I think there's gonna be a tightening everywhere. Right. And um If you haven't listened to it. Um there's a podcast, a new podcast that I really, really love.

Um so Jason Calicanus has been doing podcasting for ages, right? You listen to it, I listen to it, he's done thousands of episodes. And that's his pack his podcast called This Week in Startups. But um He has a new podcast with Shamoth. called the All Lane Podcast.

And I think it's still under his channel, but they're just doing the all in episodes like as separate like episodes. And it's uh they've done one episode so far, but it was incredible. It's like you know, if you can get Chemoff who's a super smart guy Um, don't agree with everything he does or anything, but he you know, he's smarter than your average bear, definitely smarter than your average podcaster. Um, so y if you get his thoughts for free, that's like that's a that's a conversation you wanna be on a fly on the wall for.

And uh Jason's a very good sort of interviewer, potster, conversationalist, and that's great. So they did one about coronavirus already, uh definitely recommend you l go listen to that. And uh tweet at Jason and tell him I sent you. Um, it's a great podcast, so I definitely recommend listening. In addition to that, one of the things they mentioned on there is

Well how does this affect a startup? Their recommendations were Businesses should have Three years of runway in the bank. Which

I think it's hard, very, very hard to have. But let's say More what that really signals is you need more than you think not not don't think a year is good enough. Don't think eighteen months is good enough. Yeah. Try to get more. If you have any option right now to take money, either a a loan you haven't really fully drawn down Or

investment even if it's not the best terms or not the best investor. Take it. Take the money. And um So that was the recommendation there. The second recommendation they had was

The second story they told was sort of how does this work? And so the way it works is you have to understand how a a venture capital firm is structured. So you have The V Cs and they'll ra they'll say they raised a billion. But what's actually happening? You don't get a billion dollars in your bank account and start writing checks to to startups. you have commitments of a billion dollars, let's say, or commitments of a hundred million dollars.

From your L Ps, your limited partners. Your limited partners are Pension funds. Um s you know, family offices. Yeah.

Institutional capital, pretty much. Not individuals. And those institutions, they are basically gonna allocate, you know, some small percentage of their equities, right? They're gonna hold bonds, they're gonna hold, you know, stocks the public stocks, they're gonna hold private late stage stuff, and then they're gonna hold some of this sort of technology or venture venture bets. And they'll maybe allocate five percent of their portfolio to that. And what's happen what's gonna happen is

As the stock market crashes and the bond yields go down. Now that amount of money they committed, fifty million bucks, twenty million bucks, five million bucks to a venture capitalist, now makes up not five percent of their portfolio, but like fifteen percent, twenty percent, whatever it is. They can't have that happen. That's too much. That's the wrong asset allocation. So What ends up happening? What happened in two thousand eight?

According to Chemothan. Jason. It was very interesting. What they said was The VCs didn't stop investing, but they definitely slowed down. Because what happens is when the V C commits to a startup, they do a capital call. They say, Hey L Ps, we found a startup, we need

You know, that money you committed, we need ten million of it in the bank right now. And so what happens when uh when the stock market starts plunging and there's an economic freeze Is they sort of go to their L Ps or the L Ps come to them and say, Hey, it'd be nice not to have a capital call for a little bit. It's like you know, yeah, we're committed. We're with you, but like

Let's not call in my capital for for the next twelve months or whatever it is. Right. And so the whole rate of investing slows down because The VCs don't want to piss off their LPs. Um The VCs still make their you know, their management fees, so they're fine. They're they they don't need to invest this money to eat. Yeah.

And so um that's what ends up happening. That's what slows down all of the start up investing. So it's a long way of saying All the shit's interconnected. If you have options to take money, take it right now. And if you don't, it's gonna be very tough sledding. So

If you're gonna start a business. right now and many great businesses have started during recessions. I would say Starting it literally at this moment is gonna be tough because there's a lot of uncertainty. Once the crash happens.

It's gonna wipe out a lot of companies, gonna be a lot of talent that's available for cheaper than it was before. There's gonna be fewer startups in general, so it there's gonna be less competition. Prices are gonna go down across the board. Um, and so you can start a company then, but you have to be prepared to be scrappy. The the fat and happy period is over and now it's back to scrappy, you know, cockroach mode. Right.

Do you see uh In Especially probably in Silicon Valley, do you see a lot of secondary selling happening during these periods? within founders, investors, maybe employees, I don't know. Uh is that something that happens usually?

You know, it it all freezes up. There's not a whole lot like it's just like I was saying about my house. Yeah. Sure, I'd be happy to sell now. No one's buy. No buyers. Yeah, the buy buying slows down. And so when the bl buying slows down, the you know, there's just there's no liquidity in the market. So it freezes. Right. And you know, th this is happening at a economy level and the government's gonna pump in trillions of dollars of cash to try to bring liquidity back into the market. As they have to do. To unlock the economy.

But There's no such thing in the start up ecosystem. No one can print cash and give it to us. So Um that's a tricky situation. Right. And so uh so for the people listening that Uh was thinking about starting something or in the process of starting something, you say. And a bunch of other people have recommended eighteen to thirty six months of runway.

Um and preferably don't you don't already have that, if you're thinking of starting something, it's probably too late to get that. It's if you already have If you already have a company running, you need to reduce your burn rate so that you can get to having eighteen to thirty six months. You're probably not gonna get more cash, but you can slow down your burn. Right. And if you haven't started anything yet and thinking about starting You're saying to wait out this period possibly and wait till sort of the market, uh the economy, everything sort of consolidates and then start

Uh maybe take advantage of the resources that are like left alive. And that's probably pennies on the dollar. Yeah, well what I would say is Like if you're an entrepreneur and you're gonna start something, you're not gonna listen to me on a fucking podcast, right? You're gonna do whatever you're gonna do. That's entrepreneurs are stubborn and that's why we fail often too. But

Um so I I don't pretend that they're gonna listen to this, but I what my advice would be Um You know, think long and hard about what you're starting and if you're giving up something that's very, very secure, you know. You know, before If you were in a good job, you're you're engineer at Google.

You can quit your engineering job at Google, go try something if it doesn't work six months later. You can go get rehired by Google or Facebook or Amazon or Netflix or whoever. And probably at a higher rate. So the risk was low. The risk is now gonna get a little bit higher.

Depending on where you're at. Your level of safety and security Is like safety and security are gonna be a premium now. Right um whereas before it was all about growth. So I would just say yeah, think about it.

And the second thing is if you are gonna start something Just be prepared to be in cockroach mode. You're gonna get less capital. And um you're gonna have to be more scrappy than uh and in the end that might be a really great thing. Right. These are the forcing functions that bring out The relentless, resourceful entrepreneurs.

Who are gonna chase opportunities. That pro you know, um you had to run through walls for anyways. And so Um So I don't think it's gonna deter anybody. I think some great companies are gonna get started here.

But you need to have the mindset of It's you know It's cockroach time. Right. And I sort of want to reiterate something you s uh slightly touched on before. So what you're saying now is uh sort of

Uh sort of the the start up scene, Silicon Valley and the rest of the world, they go through this sort of like this pendulum swing of founders and investors and Uh during periods like this. the leverage sort of now goes towards the like the the investors, the founders sort of lose leverage in in

uh raising money and then in bull markets obviously the founders probably have a lot of that leverage. Um and so you're saying over the next probably Who knows how long over this last, whether it's seven, ten years, or in the short term definitely um Yeah, founders, you're saying that founders it's probably gonna be very hard to to raise money on your terms. You're probably going to have to negotiate and sort of settle for what uh the investors Uh so

Totally. Um my friend Vishall, who I I've stolen now two lines for for this podcast, he has another great one which is Venture capital is one of the few asset classes. Where The investment manager picks the security, right? Investor picks which company to invest in, but the security also selects the investor. Right. And um what that creates is this really interesting dynamic where

During times where um it's a bull market. And there's comp the the good companies will have so much leverage, right? Because They can pick you know, m money is a ca is a commodity. They can pick this investor, that investor, that investor. They're all the same. Um or even if they're not all the same. there's several tier ones, there's several tier twos, and so you have lots of leverage. You can sort of get the price you want, the terms you want, and this is why you see funds that are like, you know, no board seats

No liquidation preferences, blah blah right you get all these different terms. Here's you know, take a million bucks off the table um when you when you take this round so you feel secure or whatever, right? You can get lots of terms that you want. And when the market turns, that that changes, your leverage goes down. And um So it's I don't think investors are gonna be in a great position either.

But I do think that um The pendulum is swinging and the founders things are gonna be less friendly all around. people are gonna be less interested in investing in you. When they do, they're gonna be on less good terms and you should be prepared for that. Right. So uh

I think we've been really dark and gloomy for the Um is there anything Anything on the bright side that you wanna say that there's something to look forward to and to probably possibly give a bit of hope. To people listening. Yeah, you know, I think that there are some great things in every situation, right? Like I don't think there are actually good or bad situations. I started this by saying this is really, really bad.

In reality it's not really, really anything. It's what you make of it. And so Um, what we're seeing is actually a lot of people make interesting things of this situation. So You know, um Like last night they did the the sort of um I think Solidarity. I I don't know if you if they're doing that in Australia, but

Um they're doing it in different countries where In India I saw it, in Italy I saw it. Where people go out on their balconies, the people were quarantined and at seven PM or eight PM they go out on their balconies. And they cheer for the healthcare workers. I think it started somewhere where the workers were leaving the hospital and people were going out on the balcony cheering for them. And so the whole city

is out on their balcony just cheering for the healthcare workers, for the doctors, the nurses. And I thought that was pretty amazing. Yeah, that's great. And so we we did it last night. We were the only ones, we're just tearing to an empty street. No doctors or nurses walking out. Uh but there's still something cool of just like shouting it out to the universe. Um So I really love that. Some people are getting creative. There's um You know, uh

There's this thing called Love is Quarantine. Have you seen this? Yeah. And so did you watch the show Love is Blind on Netflix? Yeah, I've uh I've just finished it actually last night, yeah. Interesting show. Good show good show. Um so th so some people recreated the Love Is Blind show just using a Google Docs. So they basically said, Hey, we're gonna do something called Love is Quarantine. Right. And they m opened up forty slots and they said they started matching people into rooms.

And you have l like a voice conversation. You can't see each other. And um You're never gonna meet or whatever, you haven't met. And uh if you if you like'em you talk to'em again the next day or and y if you don't, you pass and you go talk to the next person. And um they're like running this whole thing off a spreadsheet and Instagram and

You know, people are getting really um Really crafty, uh, really creative. People are, you know coming together in certain ways, or really appreciating what they have'cause it's all taken away. Um like appreciation for the you know, the delivery people, the workers at the grocery store and at the hospitals.

Um I mean h y you can't look at these people the same way again because they sort of you know, they're saving your life. Yeah. Um they're providing for you when you when you needed it the most. And so I think there's some really good things for myself, you know, been able to spend more time with my family.

Uh my daughter was born, you know, and When she was born. Um Uh, when she was born I s took off two weeks from work and then I kind of, you know She's like

Just a baby that lays there and is like as interactive as a stapler. And so I was like, Okay, I'm gonna go back to work now and I just busied myself with that. And now with the shutdown I'm spending time with her for the first time and like Really quality time. extended and now she has much more of a personality. Six months later and so

Uh you know, that's been great. So I think a lot of people are gonna reassess what's important to them. People are gonna r you know, take time to reflect'cause they're just stuck in isolation. Yeah. And they're gonna be grateful for what they have. That's my hope as to what's gett the good that's gonna come out of this. And honestly, that is quite a lot of good. Yeah, I think

We're such a unique time in history where especially the last decade with social media and and technology evolving where We Yeah, every single second we're sort of our brain is filled with a lot of distractions. And this for the first time people just don't know what the hell to do, they're stuck inside. And it's just it's probably

This is actually probably uh sort of a net good that comes out of this that people I don't know in a way not sounding cheesy, they sort of. Uh To start thinking about who they want to be. And who what they wanna do and they have this really good this is a really good time to reflect.

Um And'cause you we don't usually H have time for that. Uh He says. Yeah, the the only thing that could have been more powerful is if the internet went out. If there was just no internet and there would be chaos and there would be lots of problems and people would also be like, What do I do with my time now that I'm not staring at this phone?

And uh Yeah, that's not happening but Uh but yeah, so so hopefully this wasn't too dim and gloom. Um I wanted to share what I kinda wrote in the email.

I hope I'm wrong, I hope I'm overreacting. Um I'm fine with that. I'm fine with preparing for the the worst and sort of Seeing um things through Hopefully a realistic lens, but skewing more towards

Not what I hope would happen, but what I think What I think is actually gonna happen. And um If I'm wrong, I'll be pleasantly surprised. That'd be great. Right. And just one last thing before we sort of sign off. I wanted to ask you, um

Now that you know people It's sort of hard to wake up in the morning knowing you know every every time you sort of wake up you're sort of paranoid or you're you're thinking about it's sort of hard to just ignore what's going around you and so um there's some there's interesting thing you're telling me earlier today actually when you're messaging me about sort of your morning routine Um I wanna know I want you to explain that to to people listening and there's a like a cool little project that we're thinking about doing. Um if you wanna go ahead and explain that.

Yeah, so um I'm sure a lot of you who are in quarantine or lockdown or You know, trying to adjust to a new way of life in a way. And um And you know, people are are are trying to figure out how to make this work for them, right? It's it's

You know, you can go crazy just sitting indoors. You can go crazy just reading the news and listening to what's going on and checking Twitter and it just the feels like the world is crashing. It's very stressful And unhealthy. And so um one of the things that keeps me sane is my morning routine that I've had for quite a long time and I'm not perfect with it at all. You know, there'll be

Sometimes months can go by and I forget it and then I come back to it always. Um but when I'm good I'm doing this every day. And um You know, I always wanted a morning routine, but It's in the same way like yeah, I also wanna wake you know, I wanted to wake up at five AM and go to the gym every day. I did it for like three days, but then, you know I stopped going to the gym because it's like

Such a tall task. Right. And so the one thing that worked for me was I was at a Tony Robbins event and he advises this thing that he's been doing for a long time and he says You know, I do this hour of power in the morning. I take an hour for myself and I really get myself prime for the day.

And he makes it makes it sound like a lot of sense, right? He's like You know, if you were an athlete before you go onto the court or onto the field you really get yourself in the right mindset. You get your body ready, you get your you're mind ready and you you you have a certain routine that you do. that gets you ready to perform.

And um isn't it strange that we don't do that in the sport of life, right? Isn't it strange that we don't try to get our mind and body ready for the day. For our f whatever our Yeah, sport is. And um

That resonated with me. I I as somebody who played sports That was something I felt like I It would be Unthinkable to just You know, roll out of bed and and go try to play in a game.

Um I would never have done that. But I'll do that with my work. I'll do that with my family. I'll do that, you know, on a normal day, I would wake up, I'd hit the snooze button, I'd wake up again, I'd be groggy. I'd be late and then I'd you know, hop in the shower and I'd Get dressed I'm half You know, looking at my phone I'm

figuring out what I forgot at home and I finally, you know, commute to work and I get there and I'm in a low energy state and I'm not really operating with any intention. I'm just on autopilot. And so I got sick of being an autopilot. So I I adopted this routine because Tony had this one thing he said, you know, I do this for an hour, but if you can't do an hour, do thirty minutes. If you can't do thirty minutes, do fifteen. If you can't do fifteen Do ten. If you can't do ten. You don't have a life.

Right. He just let it sink in. He goes, If you don't have ten minutes, you don't have a life. So, there's this thing that I do that's called the nine minute morning routine. I've been doing it for several years now. And um I think it can help a lot of people. And so we're gonna I'm thinking about this. I I think I'm gonna do this, you know, um I'm excited about it. So I'm gonna make a podcast. That's just the nine minute morning routine.

And I'm gonna record it. And if anybody out there wants to. Uh you know, try this in the morning and I think it'll help you. I think it'll help you Have a clear mind. uh as you approach your day. And I can explain kinda how it works, but that's the idea. I I have this morning routine. It's worked for me. It's helped me a lot.

I'm just gonna record it. And then if it work if it helps you, um, you can listen to it while you do it in the morning. It takes nine minutes. And if you don't have nine minutes, you don't have a life. And so if you wanna you wanna use this in the mornings, great. I th if this helps more people like it helped me, fantastic. Yeah, I think uh Anyone's listening if that sounds sort of interesting should Definitely tweet Sean and

Let'em know that you want that. And Yeah, we should we should get it all. I I don't I don't even need the tweet. I'm just gonna do it. Like imagine um you know how some people are with religion where they're like, No, this is the way it's like Oh you you know, you don't have faith like I have faith. This is the way. That's how I feel about my morning routine, where I'm like

This is uh indispensable for me. And if you if you don't have something like this You're just missing a piece of it. So I don't really need the like sometimes I'll be like, I don't know if this is a good idea. Tweet at me and I'll that'll give me a signal if you want this.

I'm just gonna give it out. I'm gonna put it out there. So If you just search I don't know what we'll call it. We'll call it nine minute morning routine. If you search the number nine minute morning routine After this I'm gonna record it and we're gonna put it up there and uh Subscribe to it and try it out. Try it out for one morning. Let me know how it goes for you.

Alright, so yeah, that's it from me. Anything any last one sentence to describe The week, the year, the Deckade going forward.

And what would you leave them off with? My one line would be Be a realist about the problem. An optimist about the solution. I like that.

Uh sweet. Uh I guess we'll see you guys. Next episode. Yeah. See you Tuesday.

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