Video Transcrip

00:12 Scott Gerber: The new age of investor.

00:14 Naveen Jain: Yeah.

00:15 Gerber: And the new hyper let's-get-to-exit market has created this boom in technology-based businesses, maybe not AI or the kinds of scientific investments that you would prefer to make. Do you think that based on the way that all these companies are building up valuations, time and time again, are we headed for another bust?

00:36 Jain: Absolutely. And it's already happening. We're in the midst of that. The thing is, the market can only sustain when you have a sustainable business. When you have a company that has zero revenue, and zero potential of making revenue, like Instagram getting sold for $1 billion, you know you are in a serious bubble when a entrepreneur and a founder says, "I don't know how I'm gonna make money, but let met just keep giving it away and as long as VC are funding it, life will be good." And that is the reason why you're seeing... This is exactly what happened to the Web 1.0, but in Web 1.0 people were able to live in that, what I would say, parallel reality for two years.

01:13 Jain: In these times, the things are happening much faster. Look at Zynga. Within the six months of going public, their stock is down 80%. In dot com, it happened over two years. You look at companies like Groupon, stock is down 80% from their high in within six months of going public. Facebook is down almost 40% from the days... In the four months before they went public. So that tells you that things are happening faster and the only way you can avoid is to create sustainable business. Create the value, create the revenue, create the profitability, go back to the traditional way how companies are valued. The only way that companies should be valued are really simple, how much money can you generate for the shareholders over time?

01:57 Gerber: I think most people would agree with that. Let's also talk reality for a second too. You have a VC community that is out, for ultimately, "I want an exit." That is the VC mantra, I wanna have an exit on my money. So can we go back?

02:09 Jain: Of course, you can.

02:10 Gerber: How? Tell me exactly how we get back to a point, where you as somebody who bought 10 years ago or more, companies for again, billions of dollars, and yet right now we're doing the same exact thing, Instagram gets acquired by Facebook. You probably would even make parallels to say that's exactly the same moves that you were making over a decade.

02:27 Jain: Absolutely correct. That's my point.

02:27 Gerber: So how do we change?

02:29 Jain: So the way you change is, there are going to be some VCs, just like any investor, they invest in what we call the momentum stocks. So if the momentum is in this stock, they will invest and they'll continue to. And there are other people who invest in what they call fundamentals. So there are gonna be tremendous amount of VCs. They still go back and look at the stuff and say, "Scott, tell me in three years what's gonna be your discounted cash flow. I'm going to fund you if you can show me in the next five years, you're gonna be able to generate worth $2 billion of profit, not the revenue but the profit."

03:01 Jain: "If I'm gonna value you for something, it has to be based on simply a discounted cash flow. And if you can't show me how you're gonna get money, I can't fund it." And there are gonna be some investors who wanna say, "Scott, just get me the 10 million users. I don't care if you ever make money or not, I'll fund you an exit." And you know what, they're gonna be both types of investors. And it... But the risk here is that one day when you need the money, your investor may dry out. If you're building a sustainable business, if it's not this investor, there's gonna be a different investor that'll come along.

03:29 Gerber: Do you feel like this path is going to lead down a path of killing innovation?

03:35 Jain: I don't believe so. I really think that innovation never dies. It just comes back in a different way. So for example, there's gonna be a tremendous amount of innovation that's happening in the area of genetics. In some sense, the innovations never die as different entrepreneurs come along, and they always say, "But this time it is different." So there's gonna be another Tulips and there's gonna be Web 3.2 tulip and it's gonna be around... When we saw the tech tulips and we saw the biotech tulips and we're now seeing the social media tulips. And then you're gonna have some maybe genetics tulips. You're gonna see the space exploration tulips and you're gonna find the nanotech tulips someday.

04:15 Jain: So you're gonna have all these things that are gonna come along and there are gonna be new entrepreneurs who have never seen it before who's gonna say, "But this time it's different."