Foundation capital and a vc vet. Good morning to you both. Good morning. Timothy, ill start with you. Looking across your coverage universe right now, how are you factoring in china trade talks, and are there names that you like in light of the potential for a partial deal we generally favor Communication Service companies and Cable Companies that dont have a lot of exposure to china and pricing is holding up very well microsoft probably has the most exposure of anybody. We think well come to a resolution here but microsoft is walking through a mine field. Paul, 24 more u. S. Entities put on the black list including eight pretty highprofile tech unicorns in china, moving beyond the talks longer term, does this represent a further entrenchment of this tech cold war were seeing between the two countries . If so, what then i think it represents a further entrenchment of a temporary war between the two countries thats been carried out by the Current Administration i dont know that this actually portends anything in terms of whats going to happen beyond that there are definitely imbalances between the two countries, but those have been exacerbated by policy, and that policy can change tim, microsoft sort of has the best kind of china exposure, right, that you can have in tech these days its a software company, its cloud led so its harder to pirate than five, ten years ago. How do you sort of do the calculus on that type of company that is leaning in with the cloud but still has china exposure should it fluctuate much, no matter which way this thing goes its probably at this point getting close to 10 and its Software Based it solidifies their almost monopolylike position globally with a lot of their products we think china is growing more rapidly than the rest of their businesses so its an important country for them. How do they potentially get hurt and piracy isnt as much of a concern. They dont arguably need as much help from the Chinese Government to police it the Chinese Government could block their cloud capabilities if things got really, really bad between the two countries. We think thats highly unlikely, but its a risk. Meanwhile theres a lot of discussion about i. T. Budgets. If ipos are pressured to be profitable quicker, maybe they spend less one of your colleagues on the cell side says ceos more see budgets going down relative to overall revenue the next three years than going up. Does that seem fair . Its a risk for sure. For startups its a lot more of a risk because theyre burning so much capital. They need more funding all the time they continue to spend on cloud. Fortunately, microsoft is a little less exposed to startups than an amazon web cloud is. Microsoft has more entrenched companies in common enterprises. Enterprises do seem to be digitizing their businesses a lot more and to the degree they can save money from migrating to the cloud no one is suggesting its not going to be anything but strong, paul, but i wonder are you getting the sense out that that purses are going to get pinched even on the margin i think the question on the macro has been up in the air the last five years. Ive had people say im getting out of the market and they got out three years ago, which is a disaster basically so i think that were going to be subject to cycles in the economy just as we are any other time right now if you look at our companies and look across the valley, the Good Companies are performing well and the companies that arent so great arent performing as well. I would say at the moment it feels sort of close to normal. Where it goes in the future based on i. T. Spending and things like that well have to see. I guess i would break it maybe into two categories just for simplicity id say just broader infrastructure type spending is going to be a little bit more volatile or a little bit more at risk, but when you look at things like security spending, theres nearly an inelastic demand curve because theres urgency around fraud and cybersecurity. So that really we havent seen any real change there from paul, i want to get your take on the health of the ipo market right now, especially since weve seen a number of Companies Delay plans to go public, including most recently postmates. Do you think the pipeline is closed right now, at least temporarily . I think fred wilson and dan primack did a great job last week dan did the first one and fred followed on where they really looked at theres the haves and the have nots in terms of the ipo market there are high Margin Companies like zooms and data dogs 85 , 90 gross Margin Companies. And then there are the physical companies, the Gig Economy Companies that anywhere from 10 to 40 Gross Margins those companies had done very, very well as we all know over the last five years in the private markets, and now its time to come into the Public Markets and it looks as if the timing is not so great for them. All of a sudden the Public Markets are a lot more sensitive to these types of companies. Paul, what do you think happens if, yes, the ipo window really does close or nearly so, and then at the same time the sort of flood of vc money thats been out there, certainly for latestage companies but arguably for companies of all sizes for a while now, if that starts to dry up at the same time, do we end up with sort of a regional, i dont want to say recession but slowdown in Silicon Valley that perhaps reverberates outward that would be kind of the extreme view, i think. Instead youre going see something different. Youre going to see companies where you see those high gross margin and theyre going to be fed. Theyre going to continue to attract capital and expand more rapidly. Those other companies with lower Gross Margins, some of these companies will have to very rapidly move toward profitable to attract further capital theyre not going to be able to go out in the market and say were going to burn 20, 30, 40, 50 million a month while we continue to grow and expand. That phase of the market seems to have ended at the moment. Lastly, tim, i want to get your thoughts given the pullback weve seen in the market, if you had to choose one name what would it be . Microsoft is my top pick. Gentlemen, thanks for joining us today tim and paul. Thank you. Despite todays positive trade news, the u. S. Black list still going after some of chinas most important unicorns. Goldman sachs reviewing its involvement with some of those names. Deirdre bosa joins us now with more hey, jon. Some developments this morning you just mentioned Goldman Sachs but also m. I. T two american institutions working with Chinese Companies added that the black list say they are reviewing their relationships. Goldman sachs is underwriting a 1 billion ipo in hong kong and is reevaluating its involvement. M. I. T. Gave us a statement not long ago saying theyre reviewing all existing organizations added to that entity list and will modify any interactions as necessary. Now, guys, these developments, they could represent major blows to two of chinas most promising startups, unicorns that are leading chinas ambitions in artificial intelligence. Three of the most important names are sun p sensetime, megv and yitu investors include soft bank, fidelity, vaul calm. Megvii runs face plus plus, the largest facial recognition system yitu is backed by sequoia and is number 20 on the disruptor list. Yitu has worked with researchers at the university of california san diego. Now, guys, megviis addition to the black list is particularly challenging because it would be the first a. I. Company to go public this is a very important step in chinas battle for tech supremacy, so by targeting some of these up and coming startups in that space, the u. S. Could be targeting those plans. Thank you very much. When we come back, chris wylie is out with a new book that suggests what happened in 2016 mhtig just have been a trial run. Dont go away. Facebook in hot water again, approving a false biden attack ad and refusing to take it down, citing facebooks fundamental belief in free expression. Social media platforms face increasing political and regulatory execute kneescrutiny ahead of the 2020 election cycle. A new account of the Cambridge Analytica scandal expose how they were used to manipulate results. Chris wylie is here with us to talk about his new book which you can see on your screen right there. Chris, welcome. Cheers, thanks for having me. So what dont we know whats in this book . I think one of the reasons i wrote the book is after spending a year going and testifying at congress, speaking with every threelettered agency that you can think of that were investigating everything from russian collusion to facebooks operations, the thing that i realized was there was a lot people didnt quite understand when youre a journalist, you have limited space to write about it so i really tried to explain how the origins of this company are in military contracting. When i first started, i was looking at how to use data to identify people who would be vulnerable to extremist messaging originally for the defense of countries like the United States or britain but after we got acquired, i saw the work that i was building be completely inverted and instead we were targeting the same kinds of people who were vulnerable to exploitation, vulnerable to paranoid ideation and radicalizing people in the United States for the altright. One of the things people will take away from the book is even if the company has dissolved, the capabilities of the company havent. My real concern is what happens if china becomes the next Cambridge Analytica . What happens if north korea becomes thenext Cambridge Analytica . Has the proprietary technology really become state owned or are there more private companies youre worried about more fundamentally something i talk about in the book is how social media Companies Like facebook operate you know, these are architectures that are completely unregulated. For now. For now but, you know, when you listen to how facebook, for example, talks about itself, you know, it talks about terms and conditions and youre opting into a service. But when you look at the types of people who work at facebook, theyre engineers and architects theyre building an architecture when you think about would we allow architects, physical architects to get away with building buildings without fire exits or without thinking about the safety using those buildings and just point to a set of terms and conditions at the door and say, well, if theres no fire exits, people agree to it. How do you regulate that . Because in a sense isnt what youre talking about the fact that youre finding Vulnerable People and influencing them to do something they wouldnt otherwise. Some might say thats advertising, right i agree that its being weaponized in the Digital Economy at a level it hasnt before, but how do you target just that activity in this social media age to be effective . One of the things that i talk about in the book is how the way facebook operates makes it conducive for disinformation and manipulation when i talk about regulation, you know, we are currently relegating the security of our democracy to a private company, which is incentivized to not talk about whats happening on its platform i think we need to take a step back and look at how do these systems actually operate and more broadly, when we require, for example, Drug Companies or other forms of technical engineering to prove consumer safety before they release a product, why are we not doing this with facebook and social media why are we allowing social media to conduct a grand social experiment without any ability for us to know is this going to be safe or how is this going to affect our elections in the future this is a key point i wonder what you think of the doj coming out last week and saying to facebook we know you have encryption plans for whats happened, some of your other products that youre rolling out, but please slow down on rolling them out until we can figure out some sort of security mechanism or back door in case we need to get information on some people. I think rather than having a piecemeal debate about specific things, in this case about encryption or security, i think more broadly we need to take a step back and say do we need a set of principles enshrined in law about how, whether its in america or more broadly in the western world, how we want to treat the internet and how we want to what rights should you have as a user of the internet rather than piecemealing it, which is currently whats happening. You talked about the roots in military contracting, and i think thats a key point as well we talk a lot on this show about the idea of weaponization of information and of data. Does that really represent where modern warfare is going . If it is, is the u. S. Not paying close enough attention to it yeah. One of the things i talk about in the book is the u. S. Military has such a big budget that it tends to focus on its run by generals who are boys with toys. They like things that blow up, right . When you look at modern security threats, at the time when i was working at Cambridge Analytica, isis was just emerging when you look at radicalization around the world, an organization like isis recruits online, organizes online, dissem nats its ideology online, as does russia and other countries. When were looking at National Security, thats not just things that explode what happened in 2016 was an attack i talk about in the book, i talk about Cambridge Analyticas role in that. You know, just because things didnt blow up doesnt mean that there arent serious harms that were done to the Democratic Institutions of the United States and more broadly how society functions moving forward. Two things. Facebook is throwing a ton of money at the problem, so much that its become an issue for the stock over time. The other is that we got through the midterms do you think we got through the midterms safely . And why is that not a good report card heading into the general . We are blindly trusting a company when theyre saying were putting in lots of resources. I say what is that they do filings every quarter. Yeah, but, but more fundamentally, we do not allow private companies, for example, to manage border security, right . Theres an agency that does that we do not have we do not allow private companies to run issues of either National Security or more fundamentally like whats happening in our political and civic discourse. So youre not encouraged by fcc, state a. G. , congress, all these set of eye balls. Im encouraged theres more scrutiny, but having been a lead witness in many investigations of this company, i can say that these are agencies that are not it is not a fair fight. They are not they are not staffed well enough to handle emerging problems that are happening online and they arent experts. The idea the idea that its the ftc and the s. E. C. That is the only are the only agencies that are effectively trying to rein in these companies to protect our democracy i think is kind of ridiculous we dont have a regulator that is able to do this. The government that seems to be the best at setting a framework and reining in behavior online is china so how does the United States walk that line between protecting the democracy and the safety of people and yet not becoming so heavy handed that the rule of law that exists in the United States gets violated . The thing that id say is the United States is walking in the same direction as china, were just allowing private companies to monitor us left, right and center just because its not the state doesnt mean theres not harmful impacts that can come if you have one or two very Large Companies monitoring and tracking everything you do. So does facebook need to be broken up . When we look at big things like electricity or water or public roads, we dont talk about breaking up a Water Utility or an electrical company. We regulate it and put consumer safety first and so whether or not we should break up facebook, im sort of either way on that but what i do think is that we do need regulations in the same way that Certain Industries that have become so important because of their vital importance to business and peoples lives and the nature of their scale, we put in place rules that put consumers first. You can still make a profit, you can still make money, but you have to consider the rights and safety of people. That debate is going on right now with vaping, for example, but your point is broadly well taken. And youre banned from facebook. After i came out as a whistleblower and started working with the authorities, i got banned on facebook and also instagram. And i still am because this is what happens when you have a company that does not have to follow due process. If you have someone who comes out and criticizes it, they can just eviscerate you from their platform you dont have any rights in that situation and i sort of question, you know, should we be trusting a company like this who bans whistleblowers who are working with the authorities about wrongdoing happening on the platform and try to shut down what theyre saying . Sounds like theres a case for censorship happening potentially. Potentially, yeah. Chris, congratulations on the work. Cheers, thank you. Of course here it is once again on your screen we cant say the title for obvious reasons. But Cambridge Analytica and the plot to break america. Chris, thanks. Cheers, thank you. Coming up later, twitter saying some user data ma