Bradley Tusk, Tusk Venture Partners Co-Founder and Managing Partner, joins Yahoo Finance Live to discuss the investing environment for crypto, startup valuations, and the outlook on tech stocks.
- It's been a wild ride for Coinbase investors as of late. Shares down nearly 70% this year, up 28% over the last week, and today falling today, as you see, double digits after earnings for the crypto exchange due after the bell. It is tough to predict. Bradley Tusk is the co-founder and managing partner of Tusk Venture Partners. Coinbase one of the companies in your portfolio. Good to see you, sir. How do you evaluate them in this moment, given the uncertainty and the volatility in the crypto space, the partnership with BlackRock and everything else?
BRADLEY TUSK: Yeah, I mean, there's so many-- what I was thinking about what I want to say to you, I was writing down sort of the pros and cons and data points. There were so many, right? So on one hand, the BlackRock partnership is great. It shows that there is a true institutional function for Coinbase beyond retail investors and data pairs and people like that. So that's really good.
On the other hand, beyond just the crypto winter and the fact that overall volume is way down, I think we're going to see when they announced earnings today Biden could be as much as 50%, 60% lower than it was last quarter. The other challenge is there's a lack of regulatory certainty in the crypto world. And that really hinders growth of the sector itself.
Now, the SEC may say, we don't like crypto. So we don't care if we're hindering the growth of companies like Coinbase. But it seems to me at least that crypto is not going anywhere. The jobs have to be somewhere. In many ways, the spirit of crypto, kind of innovation and risk taking and everything else, are very kind of American values. And I think our federal government will do everything it can to generate crypto jobs here in the US, not drive them away.
- So Bradley, what are some of the important nuances? Obviously, people see things like Celsius and Coinbase and they sort of lump everything together. What is important to note about the nuances in this environment right now?
BRADLEY TUSK: Yeah, I mean, I think one of them is like everything we see in finance, momentum has an incredible ability to sort of carry things in either direction. And I think for a while, it got carried sort of too far high or [INAUDIBLE]. And as a result, everything was overvalued. But at the same time, I think there are structural reforms that are at least worth considering that would make it less volatile and easier for consumers to have faith in the trades that they're making.
So, four examples, there are tokens that you could trade that have some sort of intrinsic value. That intrinsic value could be because there's a limited amount of supply of that particular token like Bitcoin, right? It could be because of the utility of the token itself. So on Ethereum or Tezos, you can build applications on top of their blockchain.
But I think when you have thousands of different tokens and nothing really backing up the vast majority of them, you run the risk that, one, consumers can't really distinguish between good and bad and, two, when one token that probably shouldn't be that successful all of a sudden has a plunge, it takes the entire market down with it. So I would love to see a world where the exchanges said, look, we are only going to offer trading on tokens that we think have some sort of inherent intrinsic value and not just be a slosh.
- But in the meantime though are you still interested in opportunities within the crypto space? Or the recent selloff and the uncertainty that we have, at least in the short term, does that make you a bit apprehensive for some of its other [INAUDIBLE]?
BRADLEY TUSK: No. I mean, look, I'm an early stage tech investor. So anything that I'm investing in, I'm not assuming a liquidity event for five to seven years. And I certainly have confidence in crypto long term. So we're still investing. But we're not a hedge fund. So we're not trading on a day to day basis any particular coin or token. So as a result, I'm not making those kinds of decisions.
But, yeah, overall, we're still investing and looking heavily at crypto, at Web3, at blockchain. I'm maybe a little less bullish on NFTs at the moment. But, yeah, this whole sector isn't going anywhere.
- And largely speaking, where are you on the tech sector as a whole with the uncertainty around the Fed, a long way to go, looking like a 75-point hike? We've seen tens of thousands, up to 30,000, I think, layoffs through July. Are you bullish?
BRADLEY TUSK: Long term, yes, in the sense of because I'm investing in companies that seed in series A. If we get to an IPO, even if the value of the company that drops by 50%, 60% which has been the average this year for tech companies, we're still way ahead because we got it so early on the deal.
But I think there's a bigger structural problem that needs to be talked about, and it's kind of swept under the rug a little too much, which is there right now is a system among venture capitalists and growth funds to sort of consistently overvalue the tech companies they're investing in because they need to do so to justify the size of the funds that they're raising. And when funds look at it and say, OK, if I have a billion-dollar fund for Series A and B, I get $20 million a year management fees.
That's great. But that means when it's time to write a Series A check, if you had to deploy a billion dollars, you can't do a redo and write a $3 million check, right? You've got to write a $20 million check. And the only way to do that is for the valuation to be a lot higher. And so I think everyone's kind of in on the joke from early stage all the way through to pre-IPO.
And then not surprisingly, when these companies hit the public market, the public markets are very rationally saying, this is way overvalued. There's too much focus on growth. There's not enough focus on fundamentals. And they slash the price. And we've seen that happen in lots of different sectors. It's not specific to, in this case, the crypto [INAUDIBLE].
- So Bradley, in this environment then, if you're a startup and you're considering, should I go buy an IPO? Should I go buy a SPAC? Obviously, we've seen SPACs and IPOs slow down. What is the landscape looking like for startups right now?
BRADLEY TUSK: Yeah, I think a few things. I think one is you should only be going if you're been around for a long time and you've really exhausted your private funding sources, number one. Number two, I think you can't continue to rely on this growth narrative all the time of like, yes, we lose hundreds of millions or billions of dollars, but we're growing like this. It's a hockey stick, so everything is OK. That mentality, even a year ago, certainly worked, but I think it works much less well now.
And I think if you are going to go public, you have to probably assume there's going to be a pretty significant drop in the share price of an IPO. And if SPACs-- you know, we see every SPAC, obviously, these SPACs at $10. And then it's been trading down to $2 or $3. The redemptions have been slightly better lately. But overall, if you're going to sort of take your shot in the capital markets and the public markets at this point if you're a tech company, you are doing so with some clear risk there.
- Brad, let's talk a little bit more about tech. Because we certainly have seen a slowdown in a number of the larger names that have been around for years at this point have been announcing layoffs or the fact that they are going to at least put a pause on hiring. Yet there was a Bank of America note today saying that the interest or their clients piling into tech stocks was at the fastest rate on record last week. What do you make of that dynamic at a time, obviously, when we are seeing a slowdown? Many of these larger companies are saying the slowdown could persist for some time, yet we are seeing that investor interest.
BRADLEY TUSK: Yeah, and at the same time also, the July jobs report was really good, right? So it's sort of like we sort of accepted this narrative of inflation is really high, Fed's are raising rates, job market is softening. And that will actually help give employers more leverage, which the market likes. It was a little paradoxical that in July all of a sudden, it was a really strong jobs report, which, I think threw, everything off. And to the point that you're making, that's much more-- that adds much more dissonance where the funds are saying, look, our investors wanted to tech stocks at a rapid pace even when the Facebook's, the Amazons of the world are saying, we've got to cut staffing by meaningful amount.
I think that the difference is that the companies probably are dealing with a lot more information than the funds are. And so if they're looking ahead and saying, we know that either revenue is going to slow in its growth meaningfully or maybe even we won't grow at all in some quarters, I trust the companies to know that a lot more than the funds to know that. And so if they're still making these layoffs, I think we should take those signs of caution seriously.
- Bradley Tusk, thanks so much for taking the time to join us.
BRADLEY TUSK: Thank you for having me.