Alan Patricof, Julia La Roche, Gerald Parsky and Steve Case Discuss Venture Capital at Greenwich Economic Forum
Alan Patricof, Julia La Roche, Gerald Parsky, and Steve Case, deliver Revolution in Venture Capital Panel Discussion at Greenwich Economic Forum (Greenwich, CT)
- 2018 saw over $254B invested into 18,000 startups globally via venture capital financing
- Aurora Capital Group Manages over $2B in private equity capital
- In 2018, 52% of Global VC investments were in U.S. alone, totaling $130.9 billion
- Greycroft has two funds: Greycroft venture, a $256M venture fund and Greycroft II a $256M Growth-stage fund
INTERVIEW TRANSCRIPTS: Alan Patricof, Founder/Managing Director of Greycroft, Julia La Roche, Correspondent for Yahoo Finance, Gerald Parsky, Founder of Aurora Capital, and Steve Case, Founder of Revolution
Julia La Roche – Correspondent, Yahoo Finance: 00:00
We are joined by some pioneers in the space. We have Alan Patricof, the founder of GreyCroft. We have Steve case, the founder of AOL and Revolution, and Gerald Parsky, the chairman and senior advisor of Aurora Capital. So welcome to you all, gentlemen. Thanks for joining us.
Alan Patricof – Founder/Managing Director, GreyCroft: 00:18
Nice to be here.
Julia La Roche – Correspondent, Yahoo Finance: 00:19
The word “revolution” can seem to have a lot of different meanings, but in the context of what we’re talking about, it’s really about a widespread change. So, Alan, I want to start with you because you’re a pioneer in the venture capital space. And as you look out today, what do you identify as one of the big changes that you’re seeing right now?
Alan Patricof – Founder/Managing Director, GreyCroft: 00:41
Well, I think that today it’s really an industry. It’s an industry. I mean, when I started out in 1970 it was just a cottage group of people. I don’t think I probably remember where they even called it venture capital. It was really a development capital, the deal business. And it gradually, it didn’t become actually an industry until 1976 or 77 when they formed the national venture capital association. So it was a disconnected group of people. There weren’t syndications you had to go out and search for deals today, you sit in your office and you’re inundated, particularly in the startup area. People find it hard to believe that we see almost a hundred new deals and we’re one of a couple of thousands firms in the business. We see at least a hundred new deals every week. And that’s between our office in New York and Los Angeles. And that’s not Boston in San Francisco. So I mean, you can get an idea of just how much is around plus all the follow on investments and the amount of capital and businesses extraordinary compared to what it was at that time.
Julia La Roche – Correspondent, Yahoo Finance: 02:01
And Jerry, you’re, you’re up here representing the private equity space. What would you say is the revolution that you’re seeing within your world?
Gerald Parsky – Founder, Aurora Capital: 02:08
Well, I would characterize it for private equity as an evolution, not a revolution. And I think I start with the proposition that historically I think there was a reference to, you had one fund and you look kind of carefully at what you were going to, how you were going to diversify that fund. And if you had a growth company that you were looking to buy reasonable leverage kind of in the old economy. If you were there you would buy the company at kind of maybe with some adjustments, but reported even with some adjustments eight times, seven times today. All of that is out the window. Keep in mind what was previously said about the political environment and the economic climate and the cycle we’re in. Keep that in mind and we’ll come back to it in a second.
Gerald Parsky – Founder, Aurora Capital: 03:03
But you have as I think Alan said, you know, over 2000 firms and you have, I don’t know, 750 billion to $1 trillion of dry powder out there waiting to invest. So what is the consequence of that? People are moving valuations up to astronomical levels, which will make it very difficult to achieve the returns that would justify an allocation to private equity. So now it’s common for a GDP growth company to look to be bought at 12 times, 30 times, 14 times adjusted EBITDA adjustments for things that haven’t quite happened. I kind of looked at a one recently that was run rate adjusted EBITDA at the end of the year and I’ll come on. So I think what it takes now is to step back as an LP, don’t criticize a firm for keeping dry powder dry for a while. And in fact, if they’ve had a good business for a while maybe it’s a good time to sell and realize on that business.
Gerald Parsky – Founder, Aurora Capital:04:27
But don’t, don’t, don’t worry about people saying dry powder, especially because there’s uncertainty in the marketplace, the economy and what was described in our, in our first chat, these are clouds out there. At some point, maybe we’ll talk a little bit about California. I come from California. If you want to know what’s coming across the country, just look at where California is, especially in the unfunded pension liabilities that exist. But today, how do you, how do you navigate that in the private equity arena? Very cautiously. You can look for businesses that you can bring operating improvements to bear. This isn’t an environment where financial engineering can get you to the end zone. This is an environment where you have to take a good company and bring operating people to bear who have had a lot of experience in our firm.
Gerald Parsky – Founder, Aurora Capital: 05:28
An example is a Larry Bossidy who has been chairman of our board. A perfect example of this is not financial engineering. This is taking a good company and helping it get better. So very selective in private equity to navigate these waters. A recession that’s coming, I would kind of agree with the notion that 2021, not necessarily 2020, but if it’s coming, then look for other things. Have specialization industrial specialization or industry specialization, maybe look at creating a vehicle to invest for the long-term. Why are you forced in today’s environment, in private equity to buy and sell a business in three, four, or five years? If you’re buying it 15 times, there may be a multiple contraction. If you had the ability to grow a business carefully over 10 to 15 years I think you’d do a lot better.
Julia La Roche – Correspondent, Yahoo Finance: 06:39
And Steven, a lot of us know you as the founder of AOL, also the founder of Revolution, a DC based venture capital firm, and you really champion this notion of the rise of the rest. Can you talk to us about what you’ve been doing, where you’ve been traveling and the opportunities that you’ve been seeing outside of California?
Steve Case – Founder, AOL & Revolution: 06:56
First of all, I should say I was a beneficiary of that early first wave of venture capital. We started AOL in 1985 and only 3% of people were online. They were only online one hour a week. And most people didn’t believe that the internet would ever account for anything. But Alan Patricof was one of our venture capital investors. So he believed that we’ll all be grateful.
Alan Patricof – Founder/Managing Director, GreyCroft: 07:15
I wish I was.
Steve Case – Founder, AOL & Revolution: 07:17
Now, in terms of the rise, the rest, we launched this effort. I shall say that a couple of earlier speakers, David Rubenstein and Ray Dahlia are investors in this rise. The rest fund we created because we believe there’s a great arbitrage right now. The venture capital obviously is the jet fuel that kind of powers the innovation economy disruption now happening across a lot of other sectors, healthcare, food and agriculture, smart cities and so forth. Half of the fortune 500 will likely turn over in the next 25 years cause that’s happened each of the last several 25 year periods. But overwhelmingly that venture capital is invested on the coast. Last year, according to the NVCA, the venture capital association tracks with 75% of venture capital went to three States, California, New York, Massachusetts, 75% the other 47 States are getting 25%. Connecticut less than 1% Virginia, less than 1% Michigan, less than 1% Ohio, less than 1% Pennsylvania, less than 1% California more than 50% and California is great.
Steve Case – Founder, AOL & Revolution: 08:17
Silicon Valley was great. We’ll continue to be the far and away the leading kind of ecosystem for startup development. But it’s crazy that essentially we’re putting all our eggs in that basket and we’re not diversifying more. And we’re missing out as investors on what is a great arbitrage because the valuations in other places around the country, because of the classic econ one-on-one supply and demand are lower. So rise the rest is, was designed to identify promising startup ecosystem, identify interesting companies in those areas. We’ve now invested over a hundred companies in over 30 States, just not last week, launched a second of rise, the rest of fund. And last week we announced it in, in Detroit. And the first unicorn out of that seed fund, it’s an early stage seed fund investment strategy raised $200 million billion dollar valuation went from six employees to 900 employees in three years in Detroit.
Steve Case – Founder, AOL & Revolution: 09:09
And so, and we’ve seen a company, one of the companies we co invested with Alan and GreyCroft is, I think at one point it was most successful great coffin investment was in Birmingham. So we’re seeing great entrepreneurs, building great companies everywhere. We’re trying to level the playing field, kind of be an advocate for those you know, companies. And then when they scale from the seed stage to the venture stage, the growth stage, the Revolution is also has venture funds and, and growth funds. We’re looking to back the most promising companies as they scale up. So I think this is a story that is not being told that the entrepreneurs in different parts of the country are now starting to see multibillion dollar exit. There’s one, you know, not too long ago in Ann Arbor, $3 billion do a security one and you talk Qualtrics $7 billion one in Miami, you know, chewy $3 billion.
Steve Case – Founder, AOL & Revolution: 09:52
I mean, these are, these are significant, you know, companies that are being built, evaluations at the early seed and venture stage are lower. So when these companies are successful, you can make more money. So over time I think you’ll see a venture capital shift. The coastal investors will need to have more regional investment strategies as, as GreyCroft had. More entrepreneurs, we’ll get back to more parts of the country, more big companies will build, more jobs will be created that will have some broader political implications as well. But to me it’s feels a little like the internet 35 years ago and when nobody other than a few like Alan believed in the idea of the internet and people when I was talking about it, were skeptical. People want to talk about the rise of the rest and entrepreneurship in Detroit and Birmingham and other places are skeptical. I look at some of the eyes out there. I see some skepticism, but I’m pretty confident over the next decade, people will be surprised to see what happens in these different cities and venture capital will the revolution in venture capital will be more of a regional approach as opposed to a coastal approach.
Alan Patricof – Founder/Managing Director, GreyCroft: 10:50
I have to, can I just tell a little side story? I tweeted, I used Twitter also once in a while this morning. You should all read my tweets about corporate governance.
Gerald Parsky – Founder, Aurora Capital: 11:04
We in California don’t tweet at all.
Alan Patricof – Founder/Managing Director, GreyCroft: 11:07
But, 25-30 wasn’t that the eighties I was visiting Don Valentine who was one of the great founders of the venture and founded Sequoia who was a real hero to the industry. It was written up, there was a, I don’t know, good story, but a story about him yesterday in the wall street journal. But when I was at seeing him, he said like all that people in San Francisco, I don’t go outside my zip code. I don’t go any places within an hour outside my office. I don’t go outside of my area code. And about a year later they split 415, and 650.
Alan Patricof – Founder/Managing Director, GreyCroft: 11:42
So I send him a note at that point and said, your market is just so, but we are, we are in Indianapolis, Minneapolis, Austin at Birmingham where we did have what our most successful investments, which we just sold recently. And we are very happy, and the truth is, it’s hard to get venture capitalists to make a trip that involves more than one flame. They have to switch to planes that it makes it uncomfortable if it gap to stay overnight. So it’s depending a lot on local support. And there are an enormous number of local incubators and startup labs that are developing every single city in the city. And the real challenge we’ve found is attracting technical talent to these areas. The ideas are there, the entrepreneurs there, but getting technical people to move to some of these smaller cities is tough.
Steve Case – Founder, AOL & Revolution: 12:39
Which is really, I’d say just move. Silicon Valley, I spoke at a conference but 2000 people about a year ago and asked for a show of hands, how many people were from the Bay area? Less than 5%. Everybody in Silicon Valley is from someplace else. They grew up and went to school in Ann Arbor or in Chicago or other places. But they left massive brain drain over the last several decades because that’s where the action was. That was where the money was. So the opportunity is to slow the brain drain, create enough opportunity locally where people don’t leave and now Carnegie Mellon, Pittsburgh, more people are staying now than were staying 10 years ago. So that’s encouraging and then get the boomerang of people returning because they see the startup ecosystem growing and the, so it’s partly a capital issue, but also, as Alan said, partly a talent issue.
Julia La Roche – Correspondent, Yahoo Finance: 13:25
Well, you all took my next question, which was, what was the challenge there? So I guess to segue from there, what do you think the future of talent looks like and how, I mean, I’m a millennial. I moved from a small town in Virginia to New York city and it would be really hard to get me to go back. So how do you convince people?
Gerald Parsky – Founder, Aurora Capital: 13:43
Well, one thing I’d say about concerns I have about the millennials. I think if we’re not careful, we’re planting the seeds of not just an angry generation where people are angry. They’re angry at the fact that there’s such a wide gap between those that have made it in those that haven’t. They’re angry because if they, if they don’t qualify for financial aid in in college and they can’t afford it, they have to take out a loan. They’re not quite sure. So we have to create or help create an environment where people are prepared for the jobs that are going to be available. But I also saw one other poll I’m having been involved slightly in some of the political activities. I, I think I understand some polls. There was a poll of millennials that I was fascinated by it because it said 20 about 25% who were polled, didn’t have a friend, didn’t have a friend.
Gerald Parsky – Founder, Aurora Capital: 14:46
So it’s not just an angry generation, but it is angry, potentially lonely generation that if we’re not careful. So we, the generation above the mentors for the next generation have to be thinking about how our educational system can prepare young people for the jobs that are be available and have to create environments outside of these two or three city centers where they can earn a living, enjoy and raise a family. And this is a challenge that if we’re not careful about, we are going to have a very disruptive both economy and social system here.
Steve Case – Founder, AOL & Revolution: 15:33
Well just to add to that, the, if you look at the data and venture capital, I mentioned 75% goes to three States. If you looked at the last election, President Trump won 30 States. If you add up all the venture capital that went to all 30 States, it was 15% one five. And given that venture capital a correlation with venture capital, fast growing companies that end up creating a lot of jobs is pretty clear. We shouldn’t be surprised that there are a lot of people, a lot of parts of the country, they’re kind of feeling kind of left out and left behind because they are kind of being left out and left behind. Answer to your question, the people should have the flexibility and the opportunity to move wherever they want to move obviously, but they also should have the opportunity to stay where they are if they choose to stay where they are and a lot of people do not really have that opportunity.
Steve Case – Founder, AOL & Revolution: 16:18
They feel like they had to leave to pursue their, their career, pursue their dreams. So slowing that brain drain is, is critically important. Creating more of an opportunity for people to come back. It’s critically important and just two weeks ago LinkedIn published some research that says now more people are leaving San Francisco, then moving to San Francisco. It’s getting a little bit of a tipping point because it is a wonderful city. There are a lot of great things happening, but it’s an expensive city and there’s a lot of traffic and other challenges that people are dealing with. And some of those people, not all, but some of those people actually would rather move back to someplace where they came from or went to school in or their spouse has some connection and some other part of the country. Up until now, the opportunities have generally not existed there.
Steve Case – Founder, AOL & Revolution: 16:57
And as we see these rising cities more and more of these breakouts, you know, successes, you’ll see an acceleration of that, which will then we think accelerate the potential investment returns here because that arbitrage around arbitrage, around valuation exists. But having the talent to scale these companies go from dozens to hundreds of thousands of people is a challenge. But the way to deal with that challenge is to create more mobility around talent and create more opportunities for more people and more places so they can start a company wherever they want or join a company wherever they choose to live.
Gerald Parsky – Founder, Aurora Capital: 17:28
That applies also to private equity. As I said, I’m looking at this notion of creating longer term capital that can, can invest in companies for the longer term and in cities other than the ones you mentioned out there. There are family owned entities where the owners don’t want to sell to a private equity firm in an auction because they know they’re going to get resold again in three or four years if you are willing to get out and beat the bushes to some extent and allow family owned businesses to keep an interest as they’re growing. What can happen in private equity? We’ll match what Alan and Steve are saying on venture capital.
Julia La Roche – Correspondent, Yahoo Finance: 18:16
Steve, I’ve talked to Jean about this. You know, your wife, there’s a really small percentage of VC funding that goes to women and it’s even smaller for people of color. How can we bridge that, fix that, maybe reach parody at some point.
Steve Case – Founder, AOL & Revolution: 18:34
So here’s the data on that, which is pretty scary. Last year, over 90% of venture capital went to men. Less than 10% of women, less than 1% went to African Americans. So I’ve just looked at the data is a great entrepreneur nation and proud of it. We all should be proud of it, but it does matter where you live. It does matter what you look like. And it does kind of matter what school you went through, who you know, who’s in your network. If you have an idea, you have a genuine shot. The American dream. So the challenge, how do you level the playing field? So the opportunity exists for everybody everywhere. And what we’ve seen with rise rest and it’s more of a place based strategy. We’re going to different cities working in different cities. We have co-invested now with over 200 regional venture firms around the country have built really strong networks that we do have tremendous deal flow.
Steve Case – Founder, AOL & Revolution: 19:23
But if you’re paying attention and you’re going and making the effort to, you know, go to these, these places, even though it takes a little more time, the, the diversity of the entrepreneurs you meet is much better. 45% of the companies we back are founded by women or people of color. The last pitch that we do, we do have these road trips around and bus tours and so forth. Four of the five last winners were women. So they’re out there. You just have to make more of an effort to find them.
Alan Patricof – Founder/Managing Director, GreyCroft: 20:04
Our percentage is not as good as what Steve said, but we have a pretty good percentage. Like first partner was a woman when I printed started Apex, my first partner Greycrop. It’s a woman and we back many, many women in business and we have a lot in the firm. I think it has a lot to do with the attitude of the people that are working firms like us and being receptive for us. It makes absolutely no difference. I mean we have lots of women entrepreneurs. They have as much chance of getting finances. Anybody else? But there is some, it could be, she knows Steve that there aren’t as many women coming and soliciting with business plans.
Steve Case – Founder, AOL & Revolution: 20:28
Or they can’t figure out how to get in, get their email read or they’re getting, you know, get a meeting. So I mean it’s going to take effort. I mean this whole, it goes back to my early experience with the AOL and internet. That first decade was really hard. Like we believed in the idea of the world getting online it really hard. Most people didn’t, you know, why would somebody actually sit down and type a message to somebody when you just pick up the phone and call somebody?
Steve Case – Founder, AOL & Revolution: 20:54
Man, it was not obvious why it would take up eventually. It was a lot of hard work, a lot of people, a lot of partnerships over. Eventually it took off. This idea of leveling the playing field around entrepreneurship and place is going to be you know, critically important. You know, people are going to be critically important. The other point I think we should emphasize is in terms of this revolution in venture capital is the nature of the kinds of companies that are going to be created that are hugely disruptive is going to change and what’s happened in the first wave of the internet. Companies like AOL, it was quite different than what happened in the second wave and I think now we’re seeing the third wave and two in particular, we’re focusing on policy is much more important for this next wave of entrepreneurship. Regulatory issues because of whether it be drones in the skies or autonomous vehicles or medical device safety or what have you.
Steve Case – Founder, AOL & Revolution: 21:42
Understanding the policy side of things is going to be much more important and partners are going to be more important. It’s not going to be dropping an app in the app store and hoping like Snapchat or something. It just spreads virally. The software, the coding is going to be the table stakes to get in the game. The partnerships you form healthcare for example, if you can’t get the doctors using it, the hospitals embracing it, the health plans, paying for it, the government allowing it, you know, you’re, you’re, you have no shot. And so we need to understand that where entrepreneurship is happening is beginning to shift and the kinds of things entrepreneurs are going to have to do to be successful are going to be shifting. And that’s obviously a focus of what we’re trying to do at Revolution, sort of rise of the rest and the third wave of the internet.
Gerald Parsky – Founder, Aurora Capital:22:20
It shows you a little bit that you have to be as an investor or as an LP, I’m selective about the people that you are in your committing to at this point in time, no substitute for really examining the GP of venture capital or the GP in for that matter of private equity and that returns in before in private equity and venture. Have you say, Oh, well. we’ll make 18 to 20% net return. I’ve seen some analysis that basically says, well, we’ll settle for at in today’s environment a 10% return net. I would say to an LP, why would you commit your money tied up in private equity or venture capital if that’s what you’re going to achieve? Take a look at any S&P index fund over any period of time. It’s not worth the liquidity that a tie up that you have for that kind of return.
Julia La Roche – Correspondent, Yahoo Finance:23:30
I do want to shift gears a little bit and just talk about some of the more current news specifically exits, IPOs. What we’ve just saw with we work at an Alan, I’d like to get your thoughts on this. We talked about the dual class share structure. What are your thoughts? Is this something that’s, are these pro, is this a con? How do you think about that?
Alan Patricof – Founder/Managing Director, GreyCroft: 23:50
Well, you know, I’m obsessed with that subject, dual class shares and I was pleased today that the vision fund is now decided not to invest in companies with dual class shares. Took a while. I think that everyone should be, that we were perspectives, if you can get ahold of it. 350 pages and it’s a seminal piece. About 10, 15 years ago, the SEC passed something which was called “Plain Speech”, which enable you not to have stiff language but to be more relaxed. Like you were, you know, talking to real people. And this is the absolute height of simple with all kinds of emotional appeals and, and adjusted EBITDA numbers that will just are mind blowing. So I think that was a seminal event. It’s worth reading to know this was, I guess it’s not the, it’s the bottom of where you’re going to hit.
Alan Patricof – Founder/Managing Director, GreyCroft: 24:45
And from there on I that’s had a, it’s going to have, it’s having already a real impact on any company that’s been in the back log of companies pretending to go, getting ready to go public and making them look again at how their corporate structure is set up, how their capital structure shouldn’t be, how that cap table is set up, how their directorship is set up and how they report their earnings. And I think there’s going to be a lot more scrutiny about companies who really don’t have an economic model that works yet that has not been proven, not they’re making money, but that the model itself doesn’t show that it has an economic viability. So I think that is a we’re an important event when I used to speak, but let me go back. When I started to GreyCroft in 2006, I said, we didn’t expect any company we had in the portfolio to get sold in a public offering because the IPO market had just disappeared.
Alan Patricof – Founder/Managing Director, GreyCroft: 25:44
And it was true until honestly, the end of 2018 we were 100% correct. Nothing went public, but we sold a lot of companies and private transactions. I had been saying for the last six or nine months, I think we have changed. I think we’re now in a period of time when the IPO market has opened up and it closes very quickly. By the way. I think it’s opened up, but it’s going to be more, a little more discriminating than it was in the first few months of the year. And a lot of companies got out and people are taking second looks and seeing if the emperor has clothes on. So I’m, I’m positive about the outlook that there will be a lot more companies going public. Remember, there were a lot of companies that have been private for a lot longer than they would have been in the past that are, we’re able to finance privately because there was so much money in the later stage funds, they just kept feeding huge amounts of capital that enabled the founders to get liquid, selling shareholders to get liquid. And we’re now at a point in when the next step has to be through a public marketing and get market to get full liquidity.
Steve Case – Founder, AOL & Revolution: 26:48
I agree with the Alan and are on the revolution growth side. We have several companies, sweet green and clear and scope Lee that have raised money at well over a billion dollars in the private markets and the late stage private markets have been, you know, quite robust. That’s big. You know, a little bit of air is coming out of that, which I think is healthy. I think the IPL market, even some other concepts, direct listing, other things are beginning to kind of play out, which I think is super important. I worked with Obama on the passing something called the jobs act or changed some of the rules around going look and using crowd funding. Just talk to a couple of weeks ago the SCC chairman who’s very concerned about, you know, democratizing access to the innovation economy right now. Essentially when the companies go public, you know, they’re kind of fully developed.
Steve Case – Founder, AOL & Revolution: 27:29
There’s not much upside. When AOL went public in 1992, the first internet company to go public, we raised $10 million in our IPO. The value that day was $70 million and 10 years later it’s $160 billion. And all that upside was captured by, by retail investors. That dynamic has, has, is really not the case anymore. And figuring out ways to give know, kind of retail investors in a smart way, access to these growth companies earlier in the cycle, I think is, is a critically important. And some of that will just as, as some of that late stage sometimes called tourist road capital pulls out of the market when there is a little bit of a hiccup that likely will accelerate things. But ultimately companies should be thinking about, you know, going public as vibrant, independent companies. That’s certainly what we urge our entrepreneurs.
Alan Patricof – Founder/Managing Director, GreyCroft: 28:15
You can’t underestimate how important that job’s hack that Steve’s, I mean, really dedicated, I think a couple of years too. But how it’s opened up the private markets to democratize the, so that every, almost everybody can participate now whether they’re accredited or not accredited.
Julia La Roche – Correspondent, Yahoo Finance:28:33
Gerry, anything that you want to add.
Gerald Parsky – Founder, Aurora Capital:28:35
Well I do think that in this environment we heard a lot about the political climate and the cycle. And I do think that certainly investing in private equity, you need to be very careful, especially when the values are being driven up this way. I’d only say that there are some dark clouds coming from California that I’m not sure people on the East coast fully appreciate. I chaired two commissions for Governor Schwartzenegger kind of California’s answer to Donald Trump, but the commissions were one on tax reform and one on public pension reform and the unfunded liabilities in California healthcare for public employees in 2010. That’s school districts, cities, counties, state, 118 billion for Calpers and Calsters the state obligations and the university of California, about 70 billion of that.
Gerald Parsky – Founder, Aurora Capital:29:43
These are unfunded liabilities. Their liabilities that will become, do they somehow don’t appear on the state budget? They just they evaporate. And so we came up with one simple recommendation. We said we think that what you ought to do is pre-fund. We’re not going to advocate changing the defined benefit plans to defined contribution plans, which perhaps we should have seven Democrats on this commission, seven Republicans. I chaired it and I thought, my goodness, if we recommend that change, it’ll be seven to seven. Well, I have seven to seven. So one simple recommendation and that was pre-fund your obligations. And by the way, for this 75 billion that’s going to come do, we did a kind of an actuarial study and came up with, if you set aside 1.6 billion a year for about 14 years out of a budget, that was then 125 billion, that the earnings, 4 to 5% on those, on that and accumulation of principle would fund these obligations.
Gerald Parsky – Founder, Aurora Capital:30:54
So the Republican members said, great, go ahead Jerry. Go talk to the Democrats. You know them so well. I said, okay. I went over there and they said, I’m sorry we can’t support that. I said, well, why? They said, well, we have other priorities for this 1.6 or 1.7 billion and you want, we’ll deal with the future. I said, well, wait a minute. Now you want me to get up as a chairman of this commission and say that you have a higher priority than insuring your union members that they’re going to get their healthcare. Oh, you can’t say that? Why not? That’s what you’re doing. Unanimous recommendation. Nothing has happened. Nothing has happened to deal with that. That 75 billion is now approaching 175 billion and growing. This is a cloud that is hovering over California and it will impact the economy. It will impact people willingness to stay, and you couple that with a tax system that drives people away, and this is a cloud coming and you have to be really careful about it.
Julia La Roche – Correspondent, Yahoo Finance:31:59
On that note, I’d like to thank my team so much.