Billion. We will have complete coverage. But first, top headlines. Versionreleased a new of its Flagship Smartphone called the htc one ma. M8. It features a dual kamran up to design. It is counting on the phone to reverse nine straight quarters of decline. That bitcoin should be property, not currency. That means that bitcoin income will be subject to normal federal taxes. Investors will also have to pay Capital Gains on any bitcoin money that they have made. Google wants to become a bigger player in cloud computing. They just cut the price of some Cloud Services by as much as 85 . Theyre trying to win over customers were storing data as amazon web services, microsoft, and other companies. First, to the top story. Cory johnson is with me here. Facebookking about announcing a major acquisition, buying oculus for 2 billion. This is a market that does not exist yet. This is not even available to consumers. A company that does not make a product. They have given it to developers but we cannot buy it. A this has been acquired by publicly traded company for 2 billion, including 400 foreign Million Dollars in cash. 400 billion in cash. Huge let form today. Theyre looking at the platforms of tomorrow. Facebook really missed the early days of mobile. It was not really that good. We just had the former cto of facebook on the show and he said that was a really tough time for them. See if you want to think that that was a lifechanging experience for facebook, missing mobile, recovering is amazing. I dont think they get enough credit. Looking at instagram and saying, it cannot grow and take away our users sunday. We are going to buy. Looking at whatsapp and sang, it cannot grow and take all the Text Messages in the world. We will buy it. Now say, what else can be out there . Virtual reality. It is not out there in any way right now so it is an aggressive mood. They will explain more with a Conference Called investors Conference Call with investors. That starts in a few minutes. Someone pointed out the zuckerberg is two months away from turning 30. That is ancient in the tech universe. Is he having a midlife crisis . I would not say that 30 is ancient. Trust me, kid. This is an aggressive use of cash. Know, some of us that saw 30 in the rearview mirror, that that does not last forever. This company is making some really big bets here. The board of directors has to be involved in some way in counseling the company. Sheryl sandberg is involved as well. It is a big deal. Lets take a look at oculus in action. It is a cool idea at the very least. Brad stone tested it out. Right now, i am wearing an headset. St rift im flying into space. I now see my enemies. Im firing my machine gun. This is crazy. The oculus rift headset is promising that Virtual Reality will finally feel real. Reality wereal perfect and we could have an experience of fidelity with full body line which, full presence, feeling like we are in the same space. It is like the matrix, except everyone realizes they are in it. Palmer lucky created the rift headset in his parents garage. This was your hobby and personal passion. Now youre the cofounder of the company that just turned 75 million, moving towards a commercial ruddock and you get to live your passion. It is pretty great. A lot of people are smart at what they do, not just me. One of the people he is networking with is brandon. About virtualcal reality because i grope in the 1980s and 90s but it didnt work. Now the technology is there. It finally works. Oculus has acause new technology called positional tracking. Ford, theyer leaves character leaves for his as well and sees the world with a new perspective. Technology has advanced. We are able to deliver on synthetic 3d environments. We could not do that before. We have accomplished a lot with this version. Unlike previous vr systems, i am not feeling nausea. It is almost like i am there. Announced product morpheus, its vr product for the waystation for. Aystationtion for pl 4. Take it seriously and deliver something great. I open makes the are a bigger industry. I hope it makes the vr a bigger industry. They have a lot of hurdles ahead of them. There is no release date. When can consumers buy and oculus rift . When it is ready and not a second before. Is that in 2014 . We will see. He literally just did that interview. That guy must have known. He must have known that he was about to sell to facebook. Lets dive into this a little more. Kedrosky is with us from san diego. Paul, the visual of the oculus on your face is so powerful, but it does not exactly look like a social product. . Hat is your take on this of things areunch going on. It is the emergence of a Virtual World as a new environment for interacting with social. The other is i have to imagine this was hotly competitive. What seemsok spends like and i bleed amount of money, it is probably because a lot of people were bidding i bleed minus ae little bit. It isoculus is getting a huge amount of attention because of the demos and the impression that someone cracked the kno and done it in a way that it is not a novelty. The idea of er has been around for 25 years. Has been around for 25 years. Is this different from other game makers over the years who have tried things like this . Yes. What youre seeing is the technology is there right now. The machines are powerful enough. The equipment yourself you can do positional tracking. It is much more in the picture. It is smoother, more reactive. You feel part of the scene that they put you in. It is really interesting that way, they are really trying to make sure that you feel part of the system. Do you feel that Virtual Reality could be the next big platform like mobile is today, or is that way far out . It is interesting. If you look at what mark mentioned in buying this in his blog, he is saying that, look, we are recognizing that mobile is there. Theyre climbing into the share of gaming. The oculus will be a big gaming platform. Once sony jumped in, there will be wait i did. Sony will put effort behind it and he realized that this is a market that this will go somewhere. Sony is doing well the playstation 4. Game Developers Conference last week that this is where theyre putting their way. Zynga was a big growth platform. Do you think when they see oculus, their single glass they are seeing a google glass . Yes. I dont see them spending 2 billion straight up for a billion a gaming platform. I think this is oneupsmanship. You think it is defensive . I do. I think it is a great win. It is a fantastic venture deal for the early stage investors. Be talkingoing to more about gaming coming up. Also, peter fenton of benchmark will be joining us next. Startup megadeals are happening. Other startups are raising megarounds of funding. Private hedge funds and mutual funds are pouring money into Silicon Valley at an unprecedented late. ,he latest example is blackrock giving a 100 that Million Dollar investment 100 Million Investment of hortonworks. In theenton joins us studio. Jon erlichman is with us from l. A. The megarounds of funding, there have been 11 ninefigure rounds this year. When it comes to hortonworks, how did you come to the decision to raise more money as opposed to going public . We have a response ability on the board to make sure the public the company is ready to go public. Were finding that there is such pressure from the public investors to participate early, they are fighting for ipo allocations when they dont realize they can go to the Company Prior to that. It allows us to build a company that has the foundation to be, not a groupon or a zynga in the book market, where we have predictability in the performance of six plus quarters. We know what the future looks like. We have also started a relationship with their longterm capital base. Blackrock and passport are fantastic holders in the public market. The company gets to know them and it puts pressure on the traditional latestage venture market because there is a new after. Your partner was on a couple of weeks ago, saying that there are ridiculous amounts of capitalchasing deals right now. You think it is ridiculous and you think it is at all bubbly . I think, without question, being a child of the last bubble , i started in the Venture Business in 1999 and i saw what happens to companies when capital was free. You start to take routes to acquire customers that in many cases are nondurable. The challenge we have as directors we have this flow of capital is to try and maintain the discipline and responsibility to have a Financial Model that works when capital is not free. It is less capital availability. Competitively, you can get access to a. What you do with that and how does it affect how you build for the long term . That becomes a big problem when you have Companies Whose underlying free model without capital will not work. A structural problem of not being able to generate longterm returns for your investors. Despite that, there are extraordinary companies that deserve these evaluations. There are some that dont. As the market gets more frothy on latestage, were going to push the boundaries and have companies in the dont then we in the duke category. Which ones dont . Is a matter of competitive advantage. Something we assess on his leverage in the marketing model. If you spend more per quarter to acquire customers and sell to them successively, that is a massive red flag. To me stand out in the dont category for the show Less Efficiency and capital versus more. At the moment, everyone is thinking that growth equals value a. Valuation. Some games that should not be played is played because the models do not supported. You have snap chat in los angeles, which is a company that edge mark has invested in. It got a lot of headlines when it said things, but no thanks to facebook. I spoke to osborne was around the time that said they would have liked to have seen a sale of that business almost as a theation validation of ellie market. What you think the public down the road and how that helps to validate a market . I would actually have the opposite perspective if i was an hour late i think the single most important thing to validate a market is building an iconic company. Every great company, google, twitter, goes back to facebook, face an opportunity to sell early, where they were given a multibilliondollar offer that they rejected because they have their days on the horizon gaze on the horizon. It is the biggest problem i see in new york. There is a more shortterm mindset around monetization. , itsalley has this belief purpose, to build the next google. You cannot build the next google if you sell before you reach your potential. Ask that snap chat investors, that is the game we play. We worked shouldertoshoulder with these teams so that they can realize their full potential. Along that road, your conviction gets challenged because there is a number that is put in front of you that is so irrationally large, you have to be a rational to stay independent. The best thing for los angeles and new york is that they will get their google or facebook. You cannot do that if you sell early. We will continue this conversation. We will have a quick break. Were going to talk more about the landscape and social. Welcome back. I am emily chang. We are back with peter fenton for an early investor in facebook and snap chat. Islichman with the with us from l. A. L. A. Or newt is york or Silicon Valley, you obviously made this decision to relocate to San Francisco from Silicon Valley, midmarket, not too far from twitter. Now that you have done that, how are you measuring for success . What has it done for your brand . San franciso became an epicenter is a place to build Tech Companies. The reasons for that are fascinating to us because it is a somewhat unintended consequent consequence of the google buzz. They give them an opportunity to San Francisco to live in San Francisco and bust down. If you are living in suburbia or a city as a young engineer, you pick the city. That started the process. The benchmarks standpoint, we work with entrepreneurs and have a fieldbased business and we measure success by the time of companies. It has got a meaningfully by being in San Francisco. 2 3 of our investments have been in San Francisco in the last five years. There was something going on which is not resolved between the Technology Industry integrating more deeply into the and itncisco historic, is something we are interested in because it is created tension. One community has been hypersuccessful and the rest of the rest of San Francisco needs to be brought into that. Whats that about one company that is thereby that is mentioned in terms of your success and that is twitter. We talked about it in l. A. As well because of ties to belarusian ties to television. About the ties between twitter and television for a longterm. In terms of twitter versus facebook, if you had to pick one as they both try to be the second screen, which one ultimately wins . I dont think it is an either or in that sense. Twitter has always been compared to facebook in a way that i think misses the unique wes the uniqueness of twitter has built. Aeir model is very much humanpowered network, much like a Telephone Network or other networks that we now use in our daily life. Twitter has established itself as a parallel channel two television, a nonsubstantive. Were not taking hours away or measuring time on site. ,e are trying to be a parallel consummate three channel to television. Agendak has a different or model. Both have a role to play. Twitter has been symbiotic to the content industry and has try to stay engaged with the online experience and not steal it away but amplified the success. Facebook bot whatsapp, instagram. There is twitter. How does this evolve . What is the dominant social Network Years from now . The question we ask is the chewing gum question. If you lose your flavor after or pick your timeframe, it is a question of durability. Snap chat is an example. Fad. Dnt know if it was a there are fats in our fads in our industry. We took a chance. The medium is the message and the tools that we create as much create us as we create them. Snap chat has created a flourishing set of Human Behavior that did not exist before. , the carefree, you are in control of your motions in reflecting to your friends in a private way. That is a different experience than existed before. Benchmark is a believer and a plurality of the networks. If you look at your phone, there is not one app that does everything. There are purposebuilt apps for things you are trying to accomplish. That allows for an ecosystem of multiple success stories. Thank you, peter fenton of benchmark. It is great to see. Jon erlichman as well. Were going to talk about president obamas lan with the nsa and changes that are coming. Watching bloomberg west, where we focus on innovation and the future of business. I am emily chang with our editor, cory johnson. Atg digital price their ipo 22. 50 setting their valuation of more than 7 billion. Billion according to the great leslie picker. Also with us is Paul Kedrosky from san diego. Leslie, this price is in the middle of the range we had expected to read expected. Is all about psychology. The high end of the range was already a discount to its peers. The number sounded high, 7. 6 billion is what it had been valued at the higher end, but it is psychology. The middle of the range helps investors feel like they got a decent deal on this if they decide to buy shares. All, when you look at this deal, i see a deal that prices the sales ratio cheaper than any of the other game industries other than Electronic Arts. What you make of this . I am torn. You sound sad. I am not sad at all. On onern because i feel Hand Commission applause and say the growth is flat line. Were going to make this thing she because we are a onetrick pony. Theyre not preying on investors, but it is a onetrick pony. We have been down this path many times. There is nothing different here. Is it cheap enough to discount . We know the likely trajectory of the company and that is a hard problem. It is not that cheap only know the history of Companies Like this. It is difficult. To credibly build a pipeline of mobile games or games on any platform. It is a very hard thing to do, among the hardest thing to do in technology. I think it is highly unlikely that they have cracked that particular not of building a process to do that. I think it is expensive. Lets talk about the one trick. They make this game, candy crush saga. It is 78 of the revenue. Leslie, what are investors and analyst telling you about how interested they are to getting into canaan king . Do they see longterm potential . Countless reader emails from Retail Investors on how they can buy shares of king. That is interesting me for me to receive those emails. It is from a fundamental point of view, they have been cachedfull positive for nine years. Theyre profitable, which is different from many of their other social media peers. There is a bullish case to be made from the fundamental side. That just terrifies the living daylights out of me. That is exactly the problem. It is a classic retailcentric deal. The only reason they would get involved now is because they think they could flip it to a bunch of wahoo Retail Investors. That is the danger here and that is a dangerous sign, that most of the interest, anecdotally, has been in retail. You said they were not trying to say that they have other games in the pipeline. I would argue that that is exactly what they are saying. There is a weird statistic that they came up with at the ipo filing. s, game eyepiece ip intellectual properties. Develop,ames th