announcer: from the heart of where innovation, money, and power collide, in silicon valley and beyond, this is "bloomberg technology" with emily chang.

katie: i am katie greifeld in new york in for emily chang. this is "bloomberg technology." coming up, musk's latest subpoena. the whistleblower who used to run twitter security says that company has been incompetent since the boss left. is that enough to sway the court? we will discuss. plus, the tech industry's most prestigious company has named its first asian-american ceo. i will talk with garry tan about what to expect from leadership. bitcoin falls below $20,000 as investors respond to the fed's hawkish stance. how did the world's largest crypto perform during a recession? first, let's look at the markets. after the big draw down on friday, it has calmed down a

little bit in terms of losses but still decidedly risk-off. ,you look at the s&p 500, the nasdaq both firmly in the red. 100, chips underperforming. the philadelphia semiconductor index off by almost 2%. on top of that you did see two-year treasury yields rise a little as investors tried to recalibrate fed bets. let's talk about bitcoin. we are again talking about $20,000. during the summer, we broke above it a little bit. we know crypto and bitcoin tend to move in 10k increments. that is why you see a staircase pattern on the chart behind me. are we going to $30,000 or $10,000? we will try to answer that question. let's check in on the meme trade because that has been one of the narratives over the last few weeks. it continues today. you saw speculative corners of the crypto market posting some

gains. once again, bed, bath & beyond crushing it, up almost 25%. gamestop notching gains of about 2% on a down day in the broader market. speaking of memes, let's listen to how some bloomberg television guests are reacting to this moment. >> memes come and go quickly. same thing with prices. volatility down, stock market up. a perfect precondition for meme stock action. >> there is a discovery in market efficiency if you adhere to fundamentals more. >> gamestop has been steady. it has maintained better than some other stocks. bed, bath & beyond, there is probably a lot of factors at play. >> gamestop is not sustainable if you use fundamental analysis. , >> for leadership to be maintained, we don't think that is sustainable.

>> we have seen a turn in terms of general market environment and in people getting involved in capital markets. those things together explain why we are seeing a meme stock resurgence. katie: let's get more from bailey lipschultz on the phone. the market live blog at bloomberg news just ran a servi -- survey on this topic. will the meme mania fizzle out? two thirds said no. let's start simple. why? bailey: i think it is a combination of factors like some guests mentioned. you have trading applications like robinhood. you have the ability for retail traders to buy far out call options. you have the sense of camaraderie and community like reddit and other platforms have

founded. when you look at the confluence of those factors, we see it continue to pop up here and there. that is what we saw most recently last week with bed, bath & beyond in particular. that gets back to late 2019 when the trend of retail traders came into vogue. katie: the last two years of living through and reporting on this meme craze that is continuing in markets, we saw -- these stocks used to trade in blocks. you can see a break apart here now though. are we starting to see any fundamental stories return to these memes? bailey: i would not say it is fundamental. the more investors i talk to and strategists, each have their own story. gamestop was the tide that lifted all boats in january of 2021.

then amc caught fire in early june, late may when the ceo embraced retail trading. then you saw that play out with bed, bath & beyond. you are looking at it where there are not fundamental reasons for the rallies. bed, bath & beyond will give a strategic update on wednesday. that is a speculative event for investors to play with call options on bed, bath & beyond by itself. katie: let's dig into bed, bath & beyond. one question in the survey was, which stock would go bankrupt within the year? 45% expect bed, bath & beyond to go bankrupt in the next year. what are we expecting to hear on wednesday? bailey: the big focus was laid out by morgan stanley. they are looking for comments on cash. the company has continued to burn cash the last few years

dwindling the cash position from over $1 billion a year ago to closer to $100 million. looking for cash burn. comments from vendor reports. we saw a reports from two weeks ago maybe they were not getting good supplies because they were running back on payments. the other thing is looking at current trends going into the holiday season. according to analysts, this is a make or break stretch for bed, bath & beyond going into the fourth quarter and what that could mean for a company that is kind of nearing what could be a potential light. katie: make or break stretch. definitely watching with bated breath. when i think about stacks and memes and crypto, it boils down to the speculative urge driving these bets in my view.

is it fair to lump stacks in with these meme names? bailey: it depends. when you look at the spac trade with virgin galactic and 2019 turning into draftkings in early 2021 which set the stage for investing, it caught the energy of the market that seemingly was a bull market that could not run out of gas. when i talked to sources, that is why spac's got caught up with meme stocks and alternative cryptocurrencies. there was so much froth in the market that the speculative corners were able to go mainstream and be adopted by traders as well as speculative investors. katie: thank you so much. coming up, how startups can change their strategy to raise capital in the current environment. this is bloomberg. ♪

>> restoring price stability will likely require maintaining a restrictive policy stance for some time. the historical record cautions strongly against prematurely loosening policy. the open market committee focus is to bring inflation back down to the 2% goal. price stability is the responsibility of the federal reserve and serves as the bedrock of our economy. without price stability, the economy does not work for anyone. in particular, without price

stability, we will not sustain market conditions that benefit all. the burdens of high inflation fall heaviest on those least able to bear them. we are taking rapid steps to moderate demand so it comes in better alignment with supply and keep expectations anchored. we will keep at it until we are confident job is done. katie: that hawkishness from fed chair jerome powell crushing the risk-on move we have seen in recent weeks. the sentiment does not bode well for startups seeking funding. here to discuss is the ceo of the financial software startup. you recently raised $30 million for your series b funding round earlier this summer. that is a much different environment than your series a round a couple of years ago. compare and contrast the difficulties.

>> series a was about 18 months prior. that was the beginning of the party. this was when unicorns were being crowned nearly every other day. it was the world of endless capital without guardrails. we have moved into a world where the sentiment has changed and we are going back to old-fashioned business fundamentals. we are a planning company and did plan for this. our business model lends well to good times and bad. when times are good, companies need to allocate capital in the most effective way possible. that is harder to do than it looks if you think about all the companies that have blown billions of dollars. when times are challenging, it is about extending runway. we like to say while cash is king, runway is queen. we help companies do that. katie: runway is queen. i'm going to use that.

$30 million, you raised, what are you spending that on? is that different from what you might have planned to spend it on, had this risk off vibe rippled its way across? christina: we would have been more aggressive in our growth targets. there was almost a joke going around the startup ecosystem meaning companies would grow , 800% year-over-year. 3x was the gold standard for growth. what we are now hearing in terms of sentiment is three years is the new 3x. going back to how we are spending capital, we are looking at extending runway for a longer period of time. rather than growing aggressively to the point of putting ourselves in position that the growth is difficult to achieve or maintain. that is something different than the world of 2021. but we are in a great position

to get to either a path to profitability or extend the runway as long as possible. katie: i would love to expand on that. how do you expand your runway in a market environment such as this one? christina: going back to core business fundamentals, every company has to think about how much they are willing and ready to invest in r&d. for us and our investors and customers, this is an area that is really important. we do not want to hold back. we could get to profitability faster if we pull back on r&d because it does not generate immediate revenue but is an investment in the future. it comes down to solid execution around our market. we are looking at a lot of predictive measures around how go to market is performing. we look at things like magic number which is how much we are spending each quarter versus how much revenue it is generating in the following quarter. a best business practice is for

that magic number to be somewhere between 0.75 and one. that is something we are doing to extend runway so we are efficient with the capital we use. one of my favorite coaching lines came from the netflix show "cheer." it's not about what other teams are doing. it is about what we do on the mat. for our company, it is at how we operate internally and how effective we aren't leveraging the capital we already have. katie: that show made me feel inferior. i'm glad you pulled something from it. as someone who recently went through fundraising, i would love to hear your perspective on what is top of mind right now. what are they looking for in potential investments? christina: it is good old-fashioned business fundamentals. i am a former cfo so i love going back to basics. the numbers that are top of mind for most investors today are your growth and that dollar

retention. you get customers, but how well are you retaining and growing them? that is the most effective use of capital. how quickly and effectively are you growing? some of those terms like magic number. a lot of things like market fundamentals. i have not mentioned cash yet but your burn rate and ratio. how well are you using the cash you already have to generate either additional growth or moving towards profitability? one of my favorite metrics is the rule of 40 which looks at how much profit you have versus how much growth and trying to get two or above the number 40, 40%. katie: if you were to give advice to a startup trying to attract funding right now, trying to capture the attention of some of those vc's, what advice would you give them in this environment? christina: what i am hearing is most startups are not advised to raise this second.

if you can extend runway, that is not just through business fundamentals but also looking at other sources like debt. if you cannot raise equity, look for a line of credit or another way to extend runway. maybe reducing burn, whether reducing your growth rate or the amount of r&d or just ways to extend capital until we get to where investors are confident enough to start investing heavily again. katie: debt is cheaper than equity. i have heard that before. christina ross, appreciate it. the u.s. and china are near a deal to avoid stock delisting. how might it impact your portfolio? we will find out. this is bloomberg. ♪

katie: the u.s. and china are nearing a deal to avoid massive delisting's over audit supervision. the agreement lets american auditors go to hong kong to check the records of chinese companies listed in new york. but if the agreement falls through, more than 200 u.s.-listed chinese companies face delisting from american stock exchanges starting early 2024. here to discuss strategy risks, the founder and ceo of strategy risks, isaac stone fish. great to have you with us. how likely is it this agreement goes through? isaac: i think it is very likely the agreements will go through. what i am more uncertain about is whether it will solve what the u.s.

government wants it to solve, mainly equal treatment for chinese companies and u.s. companies and other global companies, and whether or not it will stem the tide of worsening u.s.-china relations which seem increasingly likely to lead to all-out conflict or war. katie: do you think big hurdles like that could be solved? is there any agreement that could go through that would satisfy all of those requirements? isaac: no. katie: let's talk about ramifications. this agreement does not go far enough in your view. if it does not go through at all, what are the ramifications? what is at stake here? isaac: it seems what the chinese site is doing is buying time. there still are roughly 18 months or so until companies would have to delist. i think the idea is we will sign this, the u.s. side will try to implement it, we will find a lot of stonewalling on the chinese

side, and by 2024, things will be different enough that we will be able to keep moving the goalpost and pushing the can down the road and figure something out then. it does not feel like this is a very big concession. it feels like a stalling technique so companies on both sides and investors on both sides don't see beijing communicating they are not really open for business. katie: if that is the future we are looking to, that the goalpost continues to move forward, a series of stalling techniques do you think we will , ever see these delistings go through? isaac: great question. i think the question of whether or not these companies will delist will depend more on the macro environment at the time. we saw significant delistings earlier in the month from several large ones because they did not want any u.s. auditors near their books.

i think it is possible if u.s.-china relations worsen, certain companies will delist because of other considerations. i think a lot of promising chinese companies are finding it less appealing to list on u.s. markets and are looking closer to home for capital raises. katie: why is listing on u.s. exchanges not the holy grail or the big goal it might have been? isaac: a lot of it is the chinese communist party's increasing paranoia about data security. a lot of folks believe this has to do with beijing fearing that the u.s. is going to go to war with china against taiwan if beijing were to seize the island. national security is really coming to the forefront. there is an expression in china that in china politics dominates. i think we are seeing that not only with domestic politics but

with foreign policy and national security as a major force driving beijing's decisions. katie: who has more to lose here if we make it a binary conversation? is it more important for a chinese company to list on the u.s. exchange or more important for the u.s. exchange to have those chinese companies? isaac: great question. i think it is pretty even. from a broader perspective, it is the investors who lose because of less choice, less efficient markets. what we are seeing on both sides is the u.s. and china prioritizing national security. that is what governments do. that is what investors often do not like governments to do. but that is really the new reality, the new base case for u.s.-china relations. investors thinking about various equities should really have a national security strategy in mind as they make decisions. katie: going with your expectation that we continue to

stall, what do you think could happen along the way in terms of the chinese tech crackdown? do we expect to see delistings even if not forced to? isaac: i think that is possible. i think one thing investors have to keep an eye on is both beijing and the u.s. are worried about u.s. companies in china and chinese companies in america. if this seems to move forward and then there is some corruption allegations against a chinese company on the u.s. exchange, beijing could retaliate against an american company in china. it is also possible investors start to feel like the markets and the other country are less appealing and governments respond accordingly. i feel like there are a lot of people with large positions in china who want you to believe this is business as normal, and it is really not. beijing has been explicit about that.

this is not the key signal, it was part of the noise. katie: we have to leave it there. appreciate your time. that was strategy risk founder and ceo isaac stone fish. coming up, twitter's whistleblower now subpoenaed for elon musk's team. what that means for the rest of the trial, next. this is bloomberg. ♪

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katie: let's move on to the

musk twitter drama with the whistleblower now subpoenaed by elon musk's lawyer. the whistleblower claims twitter official did not know or care to find out how many accounts where -- were spam and bot accounts. let's bring in kurt wagner for more. the argument made is that the claims could help elon musk walk away from the deal over those spam accounts. does that theory hold water? kurt: i think it is more complicated. what the whistleblower basically said is twitter has not done a good job with security or identifying how many bots are on the service. he really is meaning in total. how many of the total accounts are bots. he claims twitter has no idea. it gets more complicated because twitter's argument has been it is fewer than 5% of the accounts we count as monthly active users and share with wall street. they are talking about two different things.

what i think matters is the whistleblower is a top senior executive at the company, reported directly to the ceo who is painting a picture of a company mismanaged and not taking the issues seriously. whether or not the data will help elon musk, i think he is painting a picture of a company that has not taken the issue as seriously as twitter wants you to believe it has. katie: theoretically, he would know. is there any world in which this subpoena could backfire on elon musk? kurt: sure, if he goes and starts answering a bunch of questions that confirm even though maybe twitter does not know how many bots in total are on the service, they are making their best guess. they are doing the best they can to create this number that they share with investors. that is really all twitter has to do and has been saying they have been doing for years. they are doing their best to calculate this stuff. if for some reason some of his answers start to show twitter did put some thought into this and did handle this in the best way possible for the investors,

that seems to defend twitter's argument. katie: let's talk more about the twitter side. how would you expect twitter to respond to the subpoena? kurt: they declined to comment on the subpoena specifically. i imagine they are interested to hear what he is about to say. they have subpoenaed a bunch of people. i'm sure they would love to ask questions of him themselves. they have come out and said everything he said in the whistleblower complaint is false. they said it was mischaracterized, all the things you would expect a company to say to someone like this. again, no comment specifically on the subpoena today. but they are clearly unhappy with what he shared thus far and claimed it is not accurate. katie: i know you are living and breathing this case. but for the rest of us, what should we keep an eye on next? kurt: there's going to be a

shareholder vote in a few weeks. it feels like a formality, but i think it is important because this feels like the last hurdle twitter has to clear to show they've done everything in their power to make the deal happen. that is on september the 13th, in just a few weeks. if shareholders approve of the deal, twitter can say we have done everything we said we would do, we will see you in court. i think that is a big moment just after the holiday. katie: plenty to keep an eye on. kurt wagner, thank you so much. coming up. as crypto follows the sharp adjustment in stocks, where is it headed? what does it mean for institutional interests? we will discuss next. this is bloomberg. ♪

katie: time for our crypto report. bitcoin is still hovering around $20,000. this as risk appetite wavering following jerome powell's speech on friday addressing interest rates may have to stay elevated to stamp out inflation. let's bring you a blockchain capital partner for her read on this. great to have you with us. at this point, how much is bitcoin and crypto just a macro trade? reporter: thanks for having me.

i think bitcoin and the crypto market more broadly have certainly expanded over the last cycle. i think we are starting to see that reflected when it comes to macro comments coming from jerome powell and the general market sentiment tending to edge away from risk. i don't know if that will continue long term. it is certainly a result of how the markets have performed the last 24 months. katie: sonali, it definitely feels like chair jerome powell spoke and crypto listened. sonali: crypto listened. even though it's trading lower than where it was a week ago, you do have it back up in the last 24 hours. if you look at what is happening, macro is driving much of the story. there are also some single name events, when you look at tokens

that are trading, ethereum being one of them. avalanche on the downside. some news over the weekend driving the price lower. how much do fundamentals matter? guest: i think there are going to be short-term narratives -driven moments as are with any equity or asset class more broadly. fundamentals continue to matter. i think the long-term investor is still paying attention to fundamentals and that is going to be driving a lot of investment. sonali: as far as investing, how much are you thinking about valuation? there are a lot of questions about whether ethereum has a lot more room to run given what we have seen from bitcoin the last several years. do you believe there are more complications ahead? guest: i think the merge is a big milestone for ethereum. this transition is going to have a lot of ramifications, whether that is related to institutions being able to allocate to

ethereum more heavily than in the past as well as certain fundamentals around the issuance of ethereum itself. i think this is going to be a big milestone. it is unclear if that is reflected in the price of ethereum today. i certainly think it will be a big part of the discussion in the next six months. katie: i want to talk more about institutions in the crypto space. a narrative i have picked up on over the past few months is the big volatility, their dramatic drawdown we have seen across the crypto landscape is going to pair off more traditional players, big institutional players. has that been your sense as well? guest: my sense is a lot of institutions and enterprises more broadly are using this time as a way to implement strategies and figure out what role they want to play in the market.

even today, we heard an announcement from meta announcing the ability to post nft's across instagram. i think that is a big strategic move in play. i think we will see similar on the institutional side as they have been putting the pieces in place. katie: speaking of meta, i think back to this time last year or even six month ago, i was hearing about the metaverse. his hearing about web three. it feels like those conversations have petered off with market volatility. when are we going to see a rejuvenation in that space? is that tied back to what the federal reserve is going to do? guest: yeah. it is difficult to know exactly when markets will come back to life.

however, i will say founders and teams continue to build in the space as well as metaverse. there are a lot of projects funded over the last 12 months that we will see execute and i think we will start to see great engagement and use cases come to light over the next year and a half. sonali: there's also a lot of dry powder on the sidelines when you look at how much money have been raised in the venture capital industry. is there an opportunity now that valuations seem to have stabilized more? they have come down quite a bit. where are you placing your bets? guest: we continue to think this is one of the most opportune periods to engage with founders focused on the long-term. we are doubling down on infrastructure as a key theme for us, whether that relates to scaling existing blockchains,

privacy more broadly. we think infrastructure is a good space to be in and something we are spending a lot of time on. sonali: i'm curious about some of the existing companies you have placed your bets on. we are seeing interesting changes in what some of them are doing. think about coinbase and how it says more customers will be using the services. i'm curious as to how consumers will be interacting with some of these companies differently as we look to what crypto looks like coming out of this most recent merger. >> i think platforms like coinbase will try to put their users in the best position given market changes. as this becomes more of a mainstream use case enabling millions of users to get access to products, i think it is a big value prop for folks like coinbase or other exchanges that have the ability in their product suite. on the other hand, we are seeing

entry points for users proliferate over the open protocol system. i think everyone's entry point looks different right now. really trying to ensure there is a place and use case for everyone. katie: i am fascinated by the idea of the internet on the blockchain. i have heard it both ways. you could see some players come in, more traditional companies that are not crypto related come in and build. i have heard it has to be someone native to the crypto industry. where do you fall on that debate? when you think about the bets you are placing, are you more likely to invest in a crypto native company or someone with more experience coming from traditional finance? guest: i think every company has its own use case to think through.

i will say there is something special that comes from being crypto native and solving for pain points within the ecosystem. crypto more broadly is focused around grassroots organization and community giving ownership back to the users of the product. i think being crypto native is important and how you build a product in crypto and how it can scale over time. that is not to say financial institutions and web 2.0 companies will not be able to build great products and ideas in the crypto space. but i will say being digital and crypto native is a unique advantage. sonali: along those lines, when you are invested in everything from sushi swaps to coinbase and kraken, centralized or decentralized? which is the way of the future?

guest: it really is a spectrum. it is not a black or white question in terms of whether the world will look centralized or decentralized. i think that has become clearer over the past few years. at blockchain capital and more broadly thinking about the market, we want to back founders and products solving for customer pain points and real problems they are facing in the market. i think that will continue to exist on a spectrum. katie: great discussion. thank you so much. coming up, we are going to speak to and initialized capital founder garry tan. he is coming back. more on that big news next. this is bloomberg. ♪

katie: garry tan, managing partner and founder at initialized capital, will come back to y combinator as president and ceo early next year. he will also be the firm's first asian-american chief. gary 10 -- gary can joins us now for more on the news. in many ways, this is a homecoming. what brought you back to y combinator? garry: for me, y combinator is a beacon for opportunity. growing up, text gave me everything. i started my life as a child of chinese immigrants. we were sometimes food insecure. we were in one-bedroom and two-bedroom apartments. i got my first job making webpages. that helped pay for the down payment for their home. i remember going to y

combinator.com/apply. they met me. they funded me. they put me in this community and that changed my life. at the end of the day, i know that is what we should keep doing for thousands more people, possibly more than that. that is really the goal. they gave me so much and i want to give back. katie: you start early next year as president and ceo. what is top of your priority list if you had to pick? garry: one of the things that has been incredible for me is i want people to know what i see is a place where the alumni help each other in a fundamental way. i will tell you a story. when i was in nyc in the summer of 2008, there was a company most tech people know that were on their way.

they did get acquired by salesforce and was one of the biggest deals at the time for y combinator. i remember the founders telling me this is how you raise your seed round. this is how you do it. they gave us their secrets. they said what they said in those combinations and gave us the words to do it. six months later, we were running one of the biggest websites at the time. they wanted our source code because they said we are a hosting service for rails and need to be able to handle the biggest website. normally in technology, nobody would ever do that. source code is your crown jewel. we said here it is and we helped them. that is the kind of thing that happens every single day. these are not stories or access to information you can get at a conference or sitting next to someone even at the top business schools. this is real advice and

resources from people who are the best in the game. you can just apply online. anyone has access to it. that is still super unique and so powerful. katie: you are y combinator's first asian-american ceo. when you are seeking to fund vc founders, how important will diversity be for you? garry: i'm super excited about jen wolf and brett gibson stepping in as managing partners at initialized. i have to recognize jen wolf as a true leader in bringing diversity to the fund itself. initialized is the second most diverse fund in the world according to information. at the end of the day, what is investing about if not try to build a world that we want to live in?

katie: talking about the world we currently live in, the market has seen incredible volatility the past few months. we heard from jerome powell on friday sparking even more volatility if you think about the higher interest rates we are heading into. how has that affected the how has that affected the the startup world and some of the investments you could be funding? garry: i think one of the lucky things about having early-stage investing period is if you look at times of great crisis, really great work is done. when people thought the web was dead, that is when facebook was created. when people thought -- i was in the least successful y combinator batch in 2008. because, lehman died. katie: i remember that. garry: which was crazy. friends of mine now, they went through y combinator was airbnb the year after.

he said there might not be a demo day because there might not be any investors. the blessing is whether it is a good economy or bad economy, if you pick a problem space that is real and use technology to attack big markets, those are the times when some of the biggest opportunities present themselves. and so, rain or shine, things have adjusted a little bit. they have slowed down a little bit, but this is good and healthy and good for the ecosystem. katie: let's move beyond some of the early-stage investments. i would love to get your thoughts on the ipo market. it has really dried up over the summer. when could we start to see some companies coming public? garry: it is like warren buffett says. these things are in the short term popularity contest.

in the long-term, they are weighing machines. when you're talking about ipo's, the weighing machine is not willing to give multiples a lot of people want. it is hard for me to predict, to be frank, when this will happen because it is sort of separate from the day-to-day of the startups which i know really well. i really hope a lot of the macro situation resolves itself. i think there are a lot of indicators that say inflation is over. i'm not exactly the right person to pay attention to there. we can tell our founders to be thoughtful about your cash, build something of true value, and don't build something for just the next round or to impress the next vc. it is really about impressing your customer, your user, high retention, high gross margin, and great customer acquisition. you know, the fundamentals. that is what we try to teach day in and day out.

early. katie: it is great to get some time with you. that is garry tan, initialized capital founder and partner and soon to be y combinator's president and ceo. thank you so much. that does it for this edition of "bloomberg technology." tuesday, we will speak to the coursera ceo to discuss growth in education technology. check out our podcast on the terminal and online on apple, spotify, and iheart. this is bloomberg. ♪

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