What Will a Recession Do to Venture Capital?

Published on
July 24th, 2019
35 minutes

What Will a Recession Do to Venture Capital?

The Interview ·
Featuring Josh Wolfe and Raoul Pal

Published on: July 24th, 2019 • Duration: 35 minutes

Josh Wolfe, co-founder of Lux Capital, sits down with Raoul Pal to examine the indicators that are warning that the economic cycle is reaching an inflection point. Wolfe and Pal discuss the idea that inflated valuations in venture capital are being caused by the incremental buyer's desperate search for growth. Wolfe warns that if the cycle indeed turns, a liquidity crisis could emerge. Filmed on July 9, 2019 in New York.



  • AS
    Andrij S.
    29 November 2019 @ 17:59
    so the money does not flow because the owner are to old?
  • BA
    Blair A.
    2 November 2019 @ 02:44
    Can we get Josh and Raoul back to perform an autopsy of wework?
  • BA
    Blair A.
    3 October 2019 @ 02:56
    “I have always depended on the kindness of strangers”
  • PK
    Patrik K.
    2 October 2019 @ 18:49
    Just watched this again and your guys were incredibly prescient regarding liquidity. WeWork has failed it's IPO and might go bust at the same time that the Fed has to do emergency repos.
  • UB
    USMAN B.
    7 August 2019 @ 10:54
    Conversation Porn!
  • JU
    Jay U.
    3 August 2019 @ 18:31
    Great Interview! Love the detail on the private markets. Forgive my ignorance of the workings of VC funds, but I wanted to clarify one of the liquidity issues mentioned. When Josh gave the anecdote of the investor who was 12% allocated to VC, but had a 5% target allocation, is this allocation referring to the amount that is committed, but not actually called for investment? As a corollary, when Josh refers to the risk of an LP turning down a GP “coming to market” is he referring to the risk that the underlying company needs cash, so the GP makes a capital call to the LP, but the LP turns it down because they have over allocated and multiple GPs are making calls at the same time?
  • ES
    Eric S.
    25 July 2019 @ 22:50
    Question at 21:15 - What is LP and GP stand for? Thank you
    • AK
      Arthur K.
      25 July 2019 @ 23:40
      limited partner general partner
    • KS
      Karen S.
      25 July 2019 @ 23:43
      limited partner & general partner
    • KS
      Karen S.
      25 July 2019 @ 23:44
    • BG
      Ben G.
      28 July 2019 @ 18:59
      General Partner raises a fund and gets paid management fees + performance. Limited Partner (someone who invests in the fund, e.g. a wealthy individual)
    • DC
      D C.
      2 August 2019 @ 02:21
      Low pay and Great pay
  • DV
    Dimitri V.
    28 July 2019 @ 18:13
    Great video love hearing from Josh Wolfe
  • JL
    Jinny L.
    28 July 2019 @ 11:11
    dude is jacked! wonder how he has the time to get ripped like that
  • MN
    Michael N.
    27 July 2019 @ 22:33
    Josh and Raoul in the same interview? Phenomenal. Could listen to these guys analysis all day. Thank you real vision
  • JL
    Jack L.
    27 July 2019 @ 18:15
    I normally listen to most videos at 1.25x....this video needs to be slowed down to understand fully
  • DD
    Derek D.
    27 July 2019 @ 15:38
    Crikey. Galaxy brain.
  • TR
    Travis R.
    24 July 2019 @ 06:13
    Mark to market accounting is dead; mark to model ensures there will be no domino effect after a bond downgrade/default. CBs are unrestrained, all-in on asset purchases, and channeling NIRP. WAKE UP; the game has changed. Raoul Paul and company are smart and well versed in how economies and liquidity flows are supposed to work. However the old rules have been thrown out by kamikaze central bankers. Cash is trash and will lose value quickly once the broader public wakes up. The next crash will NOT be in asset price deflation but in currency debasement. It will be a silent crash where asset prices may move sideways or even drift higher in nominal terms but be killed in real terms by inflation (currency debasement). Currency=Fiat=Debt the opposite of money; true money = GOLD.
    • MB
      MIKHAIL B.
      24 July 2019 @ 16:39
      What is mark to model?
    • JB
      Jonathan B.
      24 July 2019 @ 17:30
      For sure gold. Time to bring Rick Rule or Fred Hickey back on ...
    • CL
      Cyril L.
      24 July 2019 @ 18:17
      I think there is a risk that CBs lose control, but the scenario you outline seems a real possibility (I should add: unfortunately). That's why it's so tough to invest right now. When you see the Fed panicking after a mere 20% correction, you think that's crazy; then you step back and realize that maybe they were right to panic - that's how bad the systemic situation is. Mikhail B: mark to model means that you (or a third party) value your assets based on a model. That's usually the case when there is no secondary market (e.g. for private equity) to observe market prices - the market price is only available when you sell the asset. Of course it opens the door to manipulation. That's why PE can claim that they generate much higher return than public equity with lower volatility; since they price their assets themselves, they decide the volatility that they want to show (sure they usually get 3rd party validation by an accounting firm, but... well... an accounting firm is not going to be harsh on a client generating huge fees).
    • DS
      David S.
      24 July 2019 @ 21:16
      ”Mark-to-Model refers to the practice of pricing a position or portfolio at prices determined by financial models, in contrast to allowing the market to determine the price. Often the use of models is necessary where a market for the financial product is not available, such as with complex financial instruments.” Wikipedia. Any stock or bond that is trading will not be able to use the mark-to-model. DLS
    • TR
      Travis R.
      25 July 2019 @ 01:16
      Not true; banking rules were changed back in 2009 allowing positions to be carried on balance sheet mark-to-model.
    • ST
      Steven T.
      27 July 2019 @ 15:30
      Deutsche Bank derivative holdings is an example of mark to model (make believe) accounting. https://www.reuters.com/article/us-deutsche-bank-derivatives-exclusive/exclusive-deutsche-banks-problem-derivatives-cloud-recovery-sources-idUSKCN1UI2TT From the Reuters article: Deutsche Bank has held on-and-off talks with potential buyers of some of those assets over the past two years, three people said. The sales did not happen because the prices offered would have resulted in hundreds of millions of euros in losses for the bank, they said. The derivatives themselves are not creating losses, but global regulations introduced following the financial crisis have forced the bank to hold more capital against them. How can the holdings create no losses on one hand, while at the same time create hundres of millions in losses if sold? Suspension of mark to market is how this is done. After 11 years and all the stuff global central banks have thrown at the system, DB and likely many other banks still can't unwind their derivative holdings. Seriously, just how toxic are these assets?
  • ra
    rehan a.
    27 July 2019 @ 02:52
    Excellent ...how about private markets as a future theme...sure Beats crypto week
  • DS
    David S.
    24 July 2019 @ 21:07
    The erratic US tariff war is an administrative tactic meant to be disruptive to Capex outside the US forcing corporations to fund Capex inside the US. It is interesting that even Canada and Mexico are often targets making it less risky to build in the US. Corporations will be looking to invest in manufacturing in the US, but they will do it with robots. Maybe we need a Trade Idea in how to invest in companies benefiting from the boom in robot sales. DLS
    • TM
      Tom M.
      24 July 2019 @ 23:18
      That is exactly right. Trump is sending a message: Invest in US or face uncertainty. Most corporations don't want to hear that as they have gotten used to cheap offshore labor. Waiting Trump out is going to fail, Trump is a symptom not the cause. Globalization is on the way out.
    • DS
      David S.
      26 July 2019 @ 06:05
      Globalization is just another part of the equation and will remain so. DLS
  • JM
    John M.
    24 July 2019 @ 10:41
    Josh is not missing arm day... Respect!
    • WB
      Wes B.
      24 July 2019 @ 14:15
      Funny. I had the same thoughts. After saying to myself once again "This guy is f##king smart." My second thought was... "He's been working out."
    • DV
      Donald V.
      25 July 2019 @ 14:39
      Telling that this is the top comment. Fuck yeah!
  • DV
    Donald V.
    25 July 2019 @ 14:38
    Great content. Still unsure what to do with my own 60-40 portfolio seems that this time it is different because of the liquidity that dries up. I might buy more IEP (ichan stock) and BRK.B since those guys have cash and the balls to navigate illiquidity.
  • HH
    HODL H.
    25 July 2019 @ 12:21
    Man I really wish the interview did a deeper dive on WeWork. Also, would love to hear Josh’s opinion about Vision Fund Pref. I would assume it is PIK interest, but if you assume what the FT said, $45bn is pref debt funded at 7% coupon, which means they need to hit $3.1bn every year. All their companies except ARM and NVidia burn a shit ton of cash, so are they trying to IPO everything in order to get liquidity to pay Pref or just striking why the Iron is hot or a mix of a bunch of different factors?
  • MB
    24 July 2019 @ 05:55
    Josh may be a great guy, but why don’t RV interview Andressen, Conway, and other silicon valley celebrities?
    • ET
      Eduard T.
      24 July 2019 @ 08:16
      It's quite hard to get some of these people on camera....
    • RP
      Raoul P. | Founder
      24 July 2019 @ 13:03
      We'd love to but its hard to get them... all help appreciated.
    • EF
      Eric F.
      24 July 2019 @ 13:04
      My guess is they simply don’t want to be interviewed. RV has some incredible guests, so a harsh criticism IMO.
    • MC
      Mario C.
      24 July 2019 @ 23:59
      How is getting Peter Thiel/ Eric Weinstein on RV going on? With Michael Green support, there should be some hope?
    • AG
      Adam G.
      25 July 2019 @ 05:27
      Let’s do a Biotech VC series !!! I’d be happy to tee that up.
  • KA
    Kevin A.
    25 July 2019 @ 05:18
    That was fantastic, thanks both.
  • LH
    Laurent H.
    25 July 2019 @ 02:05
    I liked the general theme of the vid, but lost me a few times on some of the VC terms. Still good interview
  • JH
    Jesse H.
    24 July 2019 @ 23:35
    This was fantastic. Thanks, Raoul and Josh. Very interesting interview and I am starting to see how all of these various linkages across and within sectors are critically important, especially as the cycle likely draws to a close.
  • RA
    Robert A.
    24 July 2019 @ 22:21
    Another great video in this series and fantastic to come at it from all these different angles. RV is killing it.....and for an incredible price to participate.
  • DS
    David S.
    24 July 2019 @ 20:32
    Great perspectives. Profitable growth is best, but cash flow growth with low profit growth - like Amazon -can keep a company alive for a long time. DLS
  • VS
    Victor S. | Contributor
    24 July 2019 @ 19:43
    Well done thanks
  • AR
    Anthony R.
    24 July 2019 @ 18:22
    At a dinner in 2007, as the head of the 'sub prime' began to surface, fellow diners in the 'finance industry' scoffed 'Not a problem. These people (subprime mortgage holders) don't have any money to spend on the economy anyhow. Fuck'em.' In other words, 'Its contained'. But these 'people' were the weak hand marginal buyers of housing. And as we all experienced, there was a knock-on affect. History is rhyming again.
  • SB
    Stephen B.
    24 July 2019 @ 17:45
    Gosh, that was a great interview.
  • AM
    Alonso M.
    24 July 2019 @ 16:40
    Excellent dialogue. That blue and white carpet creates a great setting for these videos. Maybe some people think this is a clown comment, but I'm actually being serious. I wonder how many people actually listen to the very end. I think most listen to the end of the interview but turn it off with about 45-50 seconds to go. Great interview.
  • SR
    Steve R.
    24 July 2019 @ 13:19
    I do not think it is likely that corporate CEO's can think that they can "wait out Trump" on Chinese tariffs. I can not see President Sanders or Warren saying that "we will drop tariffs on China so that US jobs go back there." The "Chinese supply chain" ship has sailed and smart CEO's know this.
  • ET
    Eduard T.
    24 July 2019 @ 08:15
    fantastic interview! learned a lot and go see a perspective from a very experienced VC!