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Market Meltdown: We Are in the Middle of the Second Dot-Com Bubble

The stock market is absolutely gross right now. Everything is down, except (as loyal listeners know) the CATAN portfolio. Crypto has cratered, growth stocks have been ravaged, and hedge funds are imploding. Why is this happening? Is this Dot-Com Bubble 2.0? And what does it mean for the future of the US economy, investing, and tech?

Investor, entrepreneur, and podcaster Jason Calacanis joins the show. He gives us a brief history of the 21st century tech industry, explains why this is like and unlike the summer of 2000, makes some bold predictions about crypto and the economy, and tells us how he’s advising young chief executives. Part of their conversation is excerpted below. If you have questions, observations, or ideas for future episodes, email us at [email protected]


Derek Thompson: So the market is absolutely disgusting right now. Tech stocks have been destroyed this year. Crypto’s been demolished. Growth stocks are down 70 percent, if they’re lucky. What is happening at the moment? Do you think we’re witnessing the popping of tech bubble 2.0?

Jason Calacanis: It’s a great question. There’s a lot going on concurrently, so this is unlike anything I’ve seen. We had the 2008 Great Recession that was based on one thing, real estate, and a bunch of people getting mortgages who probably shouldn’t have gotten mortgages and defaulting. Then you had the dot com bust, which I guess is most analogous since it’s the same cohort of companies, the same style of companies. But that was very different as well, because at that time they had tens of millions of internet users. Most of them weren’t on broadband. People were still afraid to put their credit cards online and the business models were not established. It was a very different world. The number of customers you could reach was typically millions to tens of millions. Now, it’s billions. You go onto the App Store, you can reach billions of people. You go onto both app stores, it’s 3 billion people.

And so what we’re seeing right now is, we had a very vibrant market and then the pandemic happened. What happened when the pandemic happened? Everybody looked at tech stocks and said, “My God, it’s so easy to make money with tech stocks. They just go up.” No, they don’t. They go to zero. I’ve seen many stocks go to zero and people forget that.

DT: So, Jason, you were there for the dot com bubble in 2000, and you’re obviously here now for whatever this is gonna be called—the COVID bubble, dot com 2.0, web3 bubble, the name will come. Can you do a brief history of the 21st century in technology for us? How did we get from the dot com bubble to the pandemic bubble?

JC: So how do we get here? For the last 20 years, we’ve talked about how few companies were going public. And the argument I heard as a private market investor—I’ve invested in 300 companies privately; before that I was a journalist and an entrepreneur—is that going public kind of sucked, and the markets were challenging you, and you had to disclose everything. So all of a sudden, we have all these unicorns, we have all this incredible innovation going on, and the business models become incredibly juicy. And SAS as a business model, selling software to businesses, recurring revenue starts to churn. Things like Salesforce and Slack are just printing money. And then you have consumer products like Instagram: All of a sudden they have 15 employees and a hundred million users. You’re like, “Wow, this is such incredible efficiency.”

So we have this industry setup where it’s like, these companies are not going public, and they’re money-printing machines and you can’t lose. Right? And that’s when you should start to get nervous. Overfunding happens. And founders say, “You know, every time I’ve raised money—C series, A series, B—it’s gotten easier and I don’t need to have discipline. I don’t need to worry about the bottom line because everybody’s rewarding the top line.” And obviously Uber was a big beneficiary of this. They just kept raising more and more billions of dollars. And it was like, well, what can Uber do? Let’s go to another 100 cities. Let’s do food. Let’s do flying cars. Let’s be super ambitious. If the money is coming in cheap, our company’s worth $20 billion, and we can give away 5 percent of the company and get a billion dollars, then we’ll figure out how to make that worth more than 5 percent.

And then of course the public markets start getting excited. Retail investors join the party again, always an interesting sign. And this time the retail investors are much younger and they’re very sophisticated, and they’re very risk taking and they have this app called Robinhood, which I was a seed investor in as well. And it makes it super easy. They take all the friction out to trade.

Remember, the friction to trade was $25. And you had to get on the phone and tell a broker what your order was. Like literally, when I started trading stocks in the ’90s, you had to call up, say, “I want to buy 100 shares of this at market.” They say, “Great,” charge you 25 bucks to put your order in. Now you can buy like a fraction of a share of Apple, trade it 10 times a day, and pay nothing.

That’s all the setup. And people lost their discipline on the investing side, people lost their discipline running the companies. And then the public markets said, as they got overheated during the pandemic, when everybody’s home, there’s no sports to bet on, and people have stimulus checks and people stop spending money. If you’re not going on vacation, if you’re not going out to eat, all this adds up, you start buying NFTs, you start buying stocks. What stocks do you buy? I don’t know. Reddit said AMC and GameStop are funny stocks to buy. The rise of meme stocks.

All this starts happening and people are getting disconnected from the fundamental reality of business, which is you serve a customer with a product or service. You charge them a price or you monetize them in some way, and then there’s a profit. At the end of the day, all of that went out the window. This is a full-blown contagion. The great news is there’s a lot of companies that are not sustainable but most of the companies actually have real businesses. And even some of the ones that are most punished. If you look at some of the most punished companies, Peloton comes to mind, and people love their Pelotons. They got 3 million subscribers—like to have 3 million subscribers in the dot com era would be extraordinary. So even the ones that are absolutely decimated have pretty loved products. Talk to anyone with a Platoon. They’re like “You can take this from me, pry it from my dead hands when I have a heart attack on it.” Like they’re not giving it up. And so this is a big swing probably too far for the overheated markets. But, you know, this is when fortunes are created. I always tell people, fortunes are created in down markets. They’re collected in up markets. And here we go, the cycle starts again.

This excerpt was lightly edited for clarity.

Host: Derek Thompson
Guest: Jason Calacanis
Producer: Devon Manze

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