YouSaid · the spoken record

Mark Lemley

lines on the record: 69
first: 2020-03-09
most recent: 2020-03-09
sittings or episodes: 1
sources: podcast

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“Yeah. So I think the answer is we might see fewer, and they might be, I mean, they might be just as big, whether they're impressive, whether they succeed once they've gone out as another matter. But I don't, you know, I don't see a move towards the kind of keep the small, reasonably but not hugely profitable company running and have it grow at a reasonable but not exponential pace. That doesn't seem attractive to the venture capital community. And so that's not what people are pushing you for. And so those companies, I think, end up getting bought, not going public.”
2020-03-09 · Decoder with Nilay Patel · Recode Decode: Mark Lemley · IDENTIFIED FROM THE TRANSCRIPT
“So we'll get to contradiction, but will there be even fewer IPOs or IPOs that are less impressive Because you're saying by focusing on exit strategy, that's what creates this idea of a big giant boom.”
2020-03-09 · Decoder with Nilay Patel · Recode Decode: Mark Lemley · IDENTIFIED FROM THE TRANSCRIPT
“So, I mean, I think it ends up being, as we concentrated in fewer companies and bigger companies and later companies, they get more scrutiny. The payoff post IPO has to be pretty big, right? So I have to have a story that I'm going to continue a growth pattern that has gotten me to the point where I'm big enough that I'm an Airbnb. Those are harder and harder to sustain and fewer and fewer companies can sustain them. So we're already moving now towards concentration in the markets.”
2020-03-09 · Decoder with Nilay Patel · Recode Decode: Mark Lemley · IDENTIFIED FROM THE TRANSCRIPT
“I mean, every one of them is going to. But that's what we're aiming for, right? That's what people, that's kind of become the benchmark that people are shooting for. There's no reason that that sort of has to be the model, right? You could imagine sort of going public relatively quickly with a hundred million dollar valuation, and that might be the right thing to do for a number of companies.”
2020-03-09 · Decoder with Nilay Patel · Recode Decode: Mark Lemley · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so I think one of the things you see, as we've seen fewer of them as it gets harder, they tend to be later in a company's life. Airbnb has been around for a long time, right? They tend to be bigger. Because if it's later in a company's life for the venture capitalists to get the payout that they want from an IPO, it's got to be a big IPO. Some of that is anchoring this idea of unicorns and billion-dollar valuations. Nobody wants to be a non-unicorn.”
2020-03-09 · Decoder with Nilay Patel · Recode Decode: Mark Lemley · IDENTIFIED FROM THE TRANSCRIPT
“Probably are in trouble. Yeah, exactly. So when you think about what happens to IPOs, if these are the trends where there's fewer and fewer IPOs, I mean, allegedly, Airbnb is supposed to go public. There's a whole bunch. And even now, everyone's like, well, maybe they won't. What is the market for IPOs now? And how is that changing? What do you see happening?”
2020-03-09 · Decoder with Nilay Patel · Recode Decode: Mark Lemley · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so I mean, I don't know the details of all of WeWork's financials, right? But I think one of the things that happens when you go public is you get a lot of scrutiny. You get a lot of scrutiny into the financials. You get a lot of scrutiny into the business model and where it's going and also into the team. And some companies, I think. Struggle with that, right? I mean, the market is. It's a herd mentality in a lot of ways. And so if the market decides you're in trouble, then you probably are in trouble.”
2020-03-09 · Decoder with Nilay Patel · Recode Decode: Mark Lemley · IDENTIFIED FROM THE TRANSCRIPT
“Right. I mean, so I think the answer is the only reason to do the IPO is I really want to stay in business as an independent company and I want my employees to get paid. I want my VCs to get paid, but I want to keep operating as an independent company. And the pressures are pretty strongly against it. It's hard to turn down the Google or the Facebook offer. And in fact, some of the ones that are now the dominant folks, like Facebook, I think is a clear example, ended up going the route they did because their CEOs were both kind of willful enough and had enough power over their own company that they could turn down very lucrative offers to sell the company and say, no, I want to keep doing it myself. But that's, you know, you face a lot of pressure and a lot of headwinds.”
2020-03-09 · Decoder with Nilay Patel · Recode Decode: Mark Lemley · IDENTIFIED FROM THE TRANSCRIPT
“So, you're not as likely to just sort of run up. Kind of model the way economists and antitrust lawyers think about market power. Our worry with market power is always you're going to take over the market and when you take over the market, you're going to charge us high prices and we won't have any choice. We won't have anywhere to go. And Amazon is a remarkable company because it's basically taken over the market over a 25-year period, successive markets, by keeping prices low and keeping service quality good. And antitrust doesn't really know what to do with that.”
2020-03-09 · Decoder with Nilay Patel · Recode Decode: Mark Lemley · IDENTIFIED FROM THE TRANSCRIPT
“All right, we'll talk about that because one of the things there were a lot of companies that went public even before that in the 2000s period where they were just not businesses and they would have enormous losses. Now one of them was Amazon.com which was called Amazon.bom at the time and it had constant losses even though it had gone public. Let's look at that company, for example. So their exit strategy, they went public like everybody else did, but they went public with not a lot of not very good financial tables for anybody to look at. And then they managed to change that over the course of time. That couldn't happen today, correct?”
2020-03-09 · Decoder with Nilay Patel · Recode Decode: Mark Lemley · IDENTIFIED FROM THE TRANSCRIPT
“Coming into a company and losing a bunch of money. So we wanted to make it harder for people to go public without fully disclosing all of the information. After the 2007 financial crisis, we ramped up the disclosure requirements in general for publicly traded companies. So, being public is less attractive than it used to be.”
2020-03-09 · Decoder with Nilay Patel · Recode Decode: Mark Lemley · IDENTIFIED FROM THE TRANSCRIPT
“And so venture capital, I think, popped up to serve an unmet need, which is here's a company that has real promise in the future but can't actually start paying interest right now because it's not making profit right now. And so we will basically front you the money, but in return, we want to get paid quite a lot at the back end once you succeed, once you take off. And so they needed a way to cash out that investment. And the way we've cashed out the investment is the IPO. But I think there are a number of factors here that probably feed on each other, right? So we worried about IPOs, especially after some of the market crashes. We worried about kind of naive investors.”
2020-03-09 · Decoder with Nilay Patel · Recode Decode: Mark Lemley · IDENTIFIED FROM THE TRANSCRIPT
“All right, we're going to get into that in a second because there's so many parts of this. But first, let's talk about the idea of how we got to this idea of exit. That makes sense that people would want to make money from things, but what talk about the change of what exit meant?”
2020-03-09 · Decoder with Nilay Patel · Recode Decode: Mark Lemley · IDENTIFIED FROM THE TRANSCRIPT
“In fact, there was an example just this past week reported of a company that stripped its assets and gave away a bunch of stuff to get below the threshold before it could be acquired. So that acquisition would avoid antitrust scrutiny.”
2020-03-09 · Decoder with Nilay Patel · Recode Decode: Mark Lemley · IDENTIFIED FROM THE TRANSCRIPT
“So, well, so that's right. I mean, exactly. You can avoid the scrutiny that you would get if you went public. And in fact, you may be able to avoid scrutiny altogether from the antitrust authorities. So one of the things that antitrust law has done, we have a process for reviewing mergers in advance to see if they're anti-competitive. But we put some thresholds on it because we don't want to, you know, every time a mom and pop store buys another mom and pop store, we don't want the antitrust division involved. But one of the things we've seen is that as companies start acquiring startups, they can buy them up before they hit the merger threshold and therefore avoid any antitrust scrutiny. Antitrust division doesn't even know it happened.”
2020-03-09 · Decoder with Nilay Patel · Recode Decode: Mark Lemley · IDENTIFIED FROM THE TRANSCRIPT
“And so increasingly, it gets harder and later to IPO. And that means you have to wait longer to get paid. And that means you need to get paid more money if you want to bring a return to your investors. Or on the other side, you've got this attractive offer from a Google or a Facebook or an Apple that says, hey, we'll pay you a lot of money. So we've increasingly seen the shift not only to acquisitions as the exit strategy for startups, but to acquisitions by dominant incumbents.”
2020-03-09 · Decoder with Nilay Patel · Recode Decode: Mark Lemley · IDENTIFIED FROM THE TRANSCRIPT
“So I think there are a number of things that are going on. It got harder to do an IPO. We've increased the regulatory burden. But I think part of it is also that venture capitalists are looking for bigger and bigger exits. A kind of pretty good return didn't look great. And the alternatives also started to look more attractive. And the biggest alternative is selling the company to an existing business. And now there are companies in Silicon Valley that literally don't know what to do with all the cash they're sitting on. And so Exactly. I mean, hundreds of billions of dollars in money that they can't spend.”
2020-03-09 · Decoder with Nilay Patel · Recode Decode: Mark Lemley · IDENTIFIED FROM THE TRANSCRIPT
“And how you're going to end it means how you're going to get paid, how the venture capitalists are going to get paid. Traditionally, that end has been an IPO. You go public, you sell your stock to the world, and everybody gets rich, and you keep running your company. But IPOs have gotten fewer and further between. They were 80% of exits in the 80s. They were 50% in the 90s. They're now less than 1 in 10. And what's replaced them is acquisition.”
2020-03-09 · Decoder with Nilay Patel · Recode Decode: Mark Lemley · IDENTIFIED FROM THE TRANSCRIPT
“Sure, so the basic idea is if you think about it from outside venture capital and outside Silicon Valley, the kind of odd fact that if you start a company in Silicon Valley, first thing you got to figure out is how you're going to end it.”
2020-03-09 · Decoder with Nilay Patel · Recode Decode: Mark Lemley · IDENTIFIED FROM THE TRANSCRIPT