transcript

Speaker 1:
[00:05] We're gonna get that sound ready because we got some bad news. Thoma Bravo is taking a massive write down on a software company called Medalia. Thoma Bravo is reportedly handing over the software company Medalia to creditors after restructuring negotiations failed to materialize. This is a $5.1 billion equity wipeout for the firm who bought the business for $6.4 billion in 2021. There's some background in Reuters that I think I should read through, and then you can sort of give me your analysis and what you're seeing on the timeline roundtakes. So from Reuters, exclusive, Thoma Bravo nears agreement to turn software firm Medalia over to creditors. That does not sound good. Private equity firm Thoma Bravo is nearing an agreement to hand over software firm Medalia to lenders, wrapping up months of restructuring negotiations. The move will wipe out $5.1 billion in equity. Medalia has struggled in recent months under the weight of $3 billion of debt, which it owes to Blackstone, KKR, Apollo Group and Antares Capital. Thoma Bravo, Blackstone and KKR declined to comment. Apollo and Medalia didn't immediately return quest for comments to writers. So like other software companies, Medalia's valuation has been hit in recent months over concerns that its services will eventually be supplanted by artificial intelligence. What does Medalia do? Medalia provides software that collects and analyzes customer and employee feedback for companies. We've had some startups, some of them backed by Sequoia Capital, that are using AI to do this exact thing. That's a potential disruption and then there's also...

Speaker 2:
[01:33] So they're main rivals, Qualtrics? But yeah, and maybe you said this already, but you know that Sequoia was one of the big backers of Medalia. When they were a private company.

Speaker 1:
[01:42] Oh, interesting.

Speaker 2:
[01:43] I mean, they're still private.

Speaker 1:
[01:44] But there's a long history of that with the firm that was before Zenefits was called SuccessFactors. Lars Dahlgaard did that deal.

Speaker 2:
[01:53] Sequoia is a real winner here. They did $35 million in 2012. They did another $50 million in 2014. And then they later led $150 million round.

Speaker 1:
[02:03] Wow. And then eventually, did they take it public or did they sell it for $6 billion to Thoma Bravo directly from the private? Was Medalia ever a public company? That would be interesting.

Speaker 2:
[02:11] I think they were.

Speaker 1:
[02:12] You look that up and I will keep reading from this to give some more backstory. So private equity firms invested heavily in the software sector when interest rates were low following the peak of the COVID-19 pandemic. We all remember 3% interest rates. It was the golden era of startups and growth. All of the DCFs were massive and then of course, the valuations came down once the interest rates went up. So investors have become increasingly nervous about the sustainability of high valuations assigned to some of those assets and the debt rates to buy them if you're on a floating rate. These firms are not necessarily backed by a 30-year fixed mortgage like your house. Your interest rate went up and the debt payments ballooned. If the cash flow from the business has not also ballooned, you could be in trouble like this company potentially is. Blackstone, KKR, and Antares hold some of the debt in traded and non-traded funds. FSKKR Capital Corp marked the debt at $0.79 on the dollar in its last quarterly report. Of course, debt is senior to equity. What does that mean for the equity? Not good and that's why this deal is happening. Apollo Debt Solutions marked it at $0.74 on the dollar. A question about can they even recover the full value of that debt? The equity is obviously in deep, deep trouble. So Blackstone's Global Head of Private Credit, Brad Marshall, said on a conference call in February that Medallia had been quote, underperforming not because of anything related to AI, but due to what we believe to be execution driven issues. So there is a question of well, if they restructure and this company gets in the hands of creditors, maybe they can roll out AI features and become an AI winner and accelerate the top line and restructure the debt.

Speaker 2:
[03:50] I saw someone was sharing that there were some salespeople doing some anonymous reporting and saying a lot of the reps were struggling to hit quotas. Basically delivering 20% of quotas, something like that. So just basically getting out competed in the market. And just to go back to the earlier point, yes, Medallia went public in 2019 on the NYSEE, was taken private July 26, 2021. It had been trading around the $5 billion mark prior to the take private at 6.4.

Speaker 1:
[04:23] So Thoma Bravo, after taking it private, installed the new leadership team in early of 2025. Marshall, the head of Blackstone's Global Head of Private Credit, said that they were working on a turnaround plan, and we expect there to be discussions around the capital structure. And so people are blackmailing on the timeline. Brandon says, yes, I am sure this is the bottom in software and we won't get worse from here. Not good signs. This is potentially one of those cockroaches that Jamie Dimon is worrying about. There's another post that seems like it was deleted, but we can see some of the screenshot here.

Speaker 2:
[04:57] The tough thing is that everyone involved here has been on a kind of a press tour, saying like, everything's fine. We're all good. AI is going to be an accelerant. But even ignoring the AI question, a lot of these businesses no longer have our founder led. They're competing against other companies that are founder led. And yeah, it's just kind of credit to Jamie Dimon for his comments saying like, I don't think this is over.

Speaker 1:
[05:28] Yeah.

Speaker 2:
[05:28] When you had first brands and some other shutdowns.

Speaker 1:
[05:33] Yeah, in the previous startup era, there were, I mean, I feel like it would have been hard to raise for just like a vanilla Qualtrics or Medallia competitor. And just saying like, pre-AI, like we're just going to build SaaS and we're just going to build a CRUD app and write software.

Speaker 2:
[05:49] Yeah, a new players, a company, Aru.

Speaker 1:
[05:51] Yeah, that's a very different approach. Simulation. Yeah, that's a very different approach.

Speaker 2:
[05:56] And then we had another one. I'm blanking on the name. It was a YC founder. He had gone through YC a few years ago, but his company is taking off doing something similar. So people have been well aware of the opportunity that Medallia and Qualtrics have owned.

Speaker 1:
[06:14] Yeah. But in other debt-related news, Xi Jinping wants to use the International Monetary Fund to rescue the array of distressed Chinese loans around the world. This is an interesting piece from the Wall Street Journal opinion. Noah Smith is laughing. He says, lol, Belt and Road failed so hard. Xi Jinping is incompetent. This is a very narrative violation.

Speaker 2:
[06:43] Do not go to China, Noah.

Speaker 1:
[06:44] Yeah, this is an interesting thing, but maybe a potential bargaining chip in all of the other discussions. In tech, Tyler always points out that tech is too focused on chips when it comes to Chinese diplomacy, that there are many, many other questions around trade, and what Apple is doing in rare earths, and just the broad history of the Chinese empire that play into what their Taiwan policy is, how they will interact in the Middle East. We tend to focus it all on AI. It's all about the data centers and the chips, and perhaps there are more things. This is one example of something else that is a key factor in a broader negotiation that includes chip exports, and also rare earths, and also talent movements, and whether or not Manus will be able to move over to Metta and a million other things. And so that is the job of these world leaders, is to swirl around all the different trade-offs and get to, hopefully, a good deal for both sides.

Speaker 2:
[07:46] Breaking news.

Speaker 1:
[07:48] Merriam-Webster.

Speaker 2:
[07:48] GPT 5.5 is out.

Speaker 1:
[07:50] Oh, it is.

Speaker 2:
[07:52] Is out. Introducing GPT 5.5, a new class of intelligence for real work and powering agents built to understand complex goals, use tools, check its work and carry more tasks through to completion. It marks a new way of getting computer work done now available in Chagy PD and Codex.

Speaker 1:
[08:08] I like this demo of the Rubik's Cube. GPT 5.5 excels at writing and debugging code, researching online, analyzing data, creating documents and spreadsheets, operating software and moving across tools until a task is finished. GPT 5.5 delivers this step up in intelligence without compromising on speed, matches GPT 5.4 per token, and allows you to see the real-world latency in real-world serving. There's the model card there and there are some other posts.

Speaker 2:
[08:33] We will wait for the reactions to come in. We will gather them, we'll summarize them, but the team cooked.

Speaker 1:
[08:38] Cooked. Congratulations to everyone that worked on this.

Speaker 2:
[08:42] Let's head over to Merriam-Webster. John, what do you got?

Speaker 1:
[08:45] Merriam-Webster added a new word to the dictionary, I believe. And I feel like the pace of vernacular... I don't know.

Speaker 2:
[08:54] I mean, it's in merriamwebster.com. Okay, so they have a slang section.

Speaker 1:
[08:56] Oh, okay. Slang and trending. They must be working overtime over there because the number of wombos, if you're not familiar with wombos, these are word combos, things like queesh.

Speaker 2:
[09:07] Lorraine.

Speaker 1:
[09:08] Lorraine. The lore plus explain. Lorraine. Or queesh.

Speaker 2:
[09:12] I could tell, John, can you Lorraine GPT 5.5?

Speaker 1:
[09:16] Yes, give you the lore. And tell you about what happened with 4.5, 4.0, 3.5, 3.0 DaVinci. Give you the whole lore, but then also explain what this model is capable of. That's the full Lorraine of GPT 5.5. But we're not here to talk about Lorraine. We're here to talk about Choppelganger, which is a new word in Merriam-Webster, the dictionary. It's basically the main dictionary as far as I'm concerned. Choppelganger is a term for a less attractive version of someone or something. So whoever's going out there and distilling 5.5 into sort of a chopped version of it, that will be the Choppelganger of the official GPT 5.5. So stay away from the Choppelgangers unless you're really down and you're lucky and you need a Chinese open source model to do something for you. Then, you know, buyer beware because it might have some flaws. Separately, there is new news from Michael Kratzius that the government seems to be taking Anthropic and OpenAI's messaging around distillation very seriously and is setting up a task force. We can read a little bit more about this later, but setting up a task force to actually figure out how to prevent distillation at scale. As the models get bigger, it's more and more of an economic impact. When you're talking about, you know, a hundred million dollar training run and a Chinese lab can distill it and sneak the weights out and sneak the, you know, exfiltrate the data, that's a lot different of an economic impact from stealing something that, I don't know, cost billions to train or billions to put together. Good news there. Hopefully, they're successful. It was also sort of a white pill to see a lot of the labs working together to understand, hey, we're seeing this weird amount of data go to this particular company. Are you seeing the same thing? Or it's a shell company and we have five shell companies in these areas that are asking for these queries. And then the other lab says, oh yeah, we're actually getting something similar. And if you puzzle piece those together, all of a sudden, you're getting a really solid map of what a frontier system is capable of. And so it feels like we, the industry, are the victim of a distillation attack, even if it might not register among a single lab, because that single lab is only getting hit with like one third or one fifth of the total attack.

Speaker 2:
[11:31] Subject adversarial distillation of American AI models. The United States leads the world in AI technologies. That lead reflects decades of foundational research, gold, entrepreneurial risk, taking in hundreds of billions of dollars in annual private investment. American AI leadership drives economic growth, strengthens national security and advances the frontiers of science, medicine and human knowledge. The breakthroughs emerging from American industry raise living standards, expand opportunity and improve lives around the world. However, the United States has information indicating that foreign entities principally based in China are engaged in deliberate industrial scale campaigns to distill US frontier AI systems, leveraging tens of thousands of proxy accounts to evade detection and using jailbreaking techniques to expose proprietary information. These coordinated campaigns systematically extract capabilities from American AI models exploiting American expertise and innovation.

Speaker 1:
[12:28] Every AI researcher needs this button on their desk if they detect a distillation attack. Fire it off and the security team will come and make sure you're locked down. And it does seem like overall all the labs are being more careful about how the APIs roll out, how they're doing KYC, how they're doing different partnerships and stuff. And I think it's all a back and forth and a dynamic. But it's fun that this new model is available and people will play with it. And I'm sure we'll see some cool stuff.

Speaker 2:
[13:01] Yeah, and Quen 3.6 rolled out yesterday. People are like, wow, it's almost as good as Opus 4.5. Yeah, because they distilled Opus 4.5.

Speaker 1:
[13:14] Don't ask for its name.

Speaker 2:
[13:15] Anyways, I'm glad that Kratios is on it and I'm glad the labs can coordinate and work together on this one.

Speaker 1:
[13:21] Yes.

Speaker 2:
[13:22] More breaking news.

Speaker 1:
[13:23] Yes.

Speaker 2:
[13:24] And unfortunate, but we had talked about this previously. Meta is cutting 10 percent of their workforce for just 8,000 employees.

Speaker 1:
[13:31] But this has been telegraphed for a while.

Speaker 2:
[13:33] Eliminating 6,000 open roles.

Speaker 1:
[13:35] Yeah. I saw Microsoft was doing something similar. They're offering early retirement to something like 7 percent of the workforce, trying to lean out a little bit. I'm sure the debate will continue to rage over the underlying motivations. These companies can be big and sometimes maybe they're too big, maybe there's AI gains, maybe there's different investment strategies. We will have to see where they are moving chips around, what projects they are actually cutting, what projects they are doubling down on because these companies are also hiring at all times effectively. Well, Kristoff had some actual media ideas for the tech industry. He says there's not enough media in tech.

Speaker 2:
[14:16] We need more tech-positive media, for sure.

Speaker 1:
[14:19] So he says, silent library with founders, winner gets investment.

Speaker 2:
[14:25] What is silent library?

Speaker 1:
[14:26] Silent library? So is this like a webcam that observes?

Speaker 2:
[14:31] Silent library is a television show. It has four seasons. It's a game show.

Speaker 1:
[14:36] Oh, it's a game show. Game shows are fun. I can see a game show being fun, at least different.

Speaker 2:
[14:41] Six friends vying for a cash prize. Only they can remain silent, as one of them is forced to endure a bizarre stunt while seated in a library.

Speaker 1:
[14:50] Okay, okay.

Speaker 2:
[14:51] What else? Jackass with founders.

Speaker 1:
[14:54] What does that mean? How do you make that tech related, maybe like humanoid robots? When I think of Johnny Knoxville, I just think of bull riding effectively, and so I imagine riding some sort of robotic bull would be it, but it's very dangerous. The team that worked with Dan Margera and Johnny Knoxville, they had some serious injuries from time to time, and I don't know if it's in your best interest to be a founder and be like, yeah, I need to launch my startup, so I got to go in the ring with a mechanical bull and potentially break my arm and not be able to code. Seems rough, but would be entertaining, and with the right twist, I believe it could work. Interview founders while going ghost hunting. I feel like paranormal tech content, Jesse Michaels doesn't get enough credit here.

Speaker 2:
[15:43] He is a technology podcast.

Speaker 1:
[15:46] It's in the technology charts, and it charts high. It's up there, and he has an incredible pedigree, great investor, and also has some of the best reporting on aliens and paranormal activity and conspiracy theories. I guess he just hasn't cracked the way to bring a founder along. But if your friends with Jesse Michaels are in touch, maybe you just tag along for a little cameo on one of his videos, and that's all the PR you need.

Speaker 2:
[16:14] Founders give their pitches while skydiving. Can you talk while skydiving?

Speaker 1:
[16:21] With the right headset.

Speaker 2:
[16:22] Have you gone skydiving?

Speaker 1:
[16:23] No, but I like the idea, and I like the videos.

Speaker 2:
[16:25] Have I told you the story where I was on an overnight flight back from Europe?

Speaker 1:
[16:30] No.

Speaker 2:
[16:30] I'm sitting on a plane, and I'm awake, I can't sleep. And out of the shadows, John Wick starts walking up the aisle.

Speaker 1:
[16:42] Keanu Reeves, the real actor.

Speaker 2:
[16:45] It's effectively like 2 AM, and Keanu Reeves is walking at me on this plane in the middle of the night. We ended up talking for like five minutes. It was cool.

Speaker 1:
[16:54] That's cool.

Speaker 2:
[16:55] And then we went back to his seat.

Speaker 1:
[16:57] And yeah, well, he stayed on the plane. He did not die by that.

Speaker 2:
[17:00] Super, super nice guy.

Speaker 1:
[17:02] What else do they have here? SF Party, I'm Schmacked Videos. I don't know I'm schmacked.

Speaker 2:
[17:07] Wow, unc. You're unc. You guys know. I kind of remember, but- You remember? Basically, this was this whole like, you could call it a media company, but it was really like a guy that would make party videos.

Speaker 1:
[17:19] Okay.

Speaker 2:
[17:21] For every college.

Speaker 1:
[17:22] Okay.

Speaker 2:
[17:22] So it was really popular probably 2010 to-

Speaker 1:
[17:24] So pre-NELC.

Speaker 2:
[17:25] 2013.

Speaker 1:
[17:26] Okay.

Speaker 2:
[17:26] Okay. And I will say a lot of people use these videos as a sort of college guide.

Speaker 1:
[17:32] Okay. Okay.

Speaker 2:
[17:34] So I'm sure they have millions of views at this point.

Speaker 1:
[17:39] Kevin Kelly, the founder of Wired, had some incredible predictions in 2016. Let's read through them. Summary of the inevitable understanding the 12 technological forces that will shape our future. This was Kevin Kelly's book from 2016. According to Kelly, much of what will happen in the next 30 years is inevitable. The future will bring with it even more screens, tracking and lack of privacy. In the book, he outlines 12 trends that will forever change the ways we work, learn and communicate. Becoming, moving from fixed products to always upgrading services and subscriptions. That has definitely happened. We're moving away from even seats. Everything's consumption based now. Cognifying, making everything much smarter using cheap, powerful AI that we get from the cloud. Nailed it.

Speaker 2:
[18:24] That is a fantastic prediction for assuming he wrote it. He actually wrote it probably in 2015, published in 2016.

Speaker 1:
[18:33] But he's the creator of Wired. He's been tapped in to attack his entire career. Depending on unstoppable streams of real time for everything, for sure. Turning all surfaces into screens, that definitely happened. A toaster can watch TV now. Shifting society from one where we own assets to one where instead we have access to all services at all times. Collaboration at mass scale. On my imaginary sharing meter index, we are still two out of 10. Filtering, harnessing intense personalization in order to anticipate our desires. Remixing, unbundling existing products into their most primitive parts and then recombining in all possible ways. That's definitely happening. Coconut simulator, unironically an example of that. Interacting, immersing ourselves inside computers to maximize their engagement. Tracking, employing total surveillance for the benefit of citizens and consumers. Sounds scary. Potentially a good outcome if things are done properly. Promoting good questions is far more valuable.

Speaker 2:
[19:27] You're out of answers.

Speaker 1:
[19:28] What?

Speaker 2:
[19:29] You think total surveillance is a potential?

Speaker 1:
[19:31] Well, he says total surveillance for the benefit of citizens and consumers. So if there is a black box where my Netflix activity exists, where no Netflix employee can see it because it's encrypted, but it can make great recommendations and recommend me the next great show that I will actually enjoy, I'm cool with that surveillance.

Speaker 2:
[19:50] For the benefit of John Coogan?

Speaker 1:
[19:51] Yeah. There is a surveillance bulk case. Constructing a planetary system connecting all humans and machines into a global matrix. Okay. That one we're still waiting on. But a lot of good interesting predictions. Jason Schuman says, wild how accurate these predictions were, and they were in fact.

Speaker 2:
[20:08] Well, more breaking news in the Journal. Bob Iger is returning to where?

Speaker 1:
[20:14] Disney?

Speaker 2:
[20:15] Thrive.

Speaker 1:
[20:15] Thrive. No way. That's amazing.

Speaker 2:
[20:18] Back to Thrive.

Speaker 1:
[20:19] Love it.

Speaker 2:
[20:21] Yeah. I think he's been an LP in Thrive. He also bought a piece of Thrive.

Speaker 1:
[20:25] Yeah, that's right. Okay. Well, that will be a good next act for him. I'm very interested to see where he goes. There's a whole alumni class coming together. Reed Hastings is out and on to the next thing. We'll see where they go hopefully.

Speaker 2:
[20:38] Back to Intel. Intel announced its first quarter earnings for the Bell on Thursday, beating analysts' expectations on the top and bottom line and providing better than anticipated Q2 guidance on strong data center sales. Intel said it expects a revenue of 13.8 to 14.8 billion for the second quarter. Wall Street was anticipating 13 billion. And as of this morning, they were at around 100 times PE. And so only up for Intel.

Speaker 1:
[21:09] Climb in the ranks, climb in the ranks. Tesla also released Q1 earnings. Revenue of 22.4 billion versus 21.4 billion estimated. So they beat on top line. They also beat on net income. 1.45 billion versus 1.17 billion estimate. The interesting article in the journal was that Elon was being more cautious about Tesla talking, saying, I think we need to get realistic about some timelines. So he is certainly not pumping everyone up and he's trying to sort of reset around the fundamentals. And so we will see where that goes. It is a wild timeline that SpaceX, if it goes out at 1.75 trillion will be bigger than Tesla, which is sitting around 1.1, 1.2 trillion these days. So still both huge.

Speaker 2:
[22:02] Credit to Bubble Boy over on X. Two hours ago, he says, everyone asked me about how I'm playing earnings. He says, doubling down 25% of my portfolio is in Intel calls.

Speaker 1:
[22:13] Wow. There we go, Bubble Boy. Congrats.

Speaker 2:
[22:15] Well done. Well played.

Speaker 1:
[22:17] Stuff.

Speaker 2:
[22:18] Well played.

Speaker 1:
[22:18] Leave us five stars on Apple Podcasts and Spotify Center for a newsletter at tbpn.com. Throw that flashbang, Jordi, cause we are out of here.

Speaker 2:
[22:25] It's been an honor.

Speaker 1:
[22:26] It's been an honor and a pleasure.

Speaker 2:
[22:27] Thanks for hanging out with us.

Speaker 1:
[22:28] We will see you tomorrow.

Speaker 2:
[22:30] We'll see you soon.

Speaker 1:
[22:31] Goodbye.