All-In Podcast: E1: US Response to COVID-19 & Impact on Startups, VC & Public Markets with David Friedberg

Explore expert insights from the All-In Podcast on the US COVID-19 response, its profound impact on startups, VC funding, public markets, and the critical debates surrounding testing, treatments, and economic policy interventions during the early stages of the pandemic.

Timeline Overview

• 00:00–15:00 — Initial discussion on the escalating COVID-19 crisis, market drops (potentially 50% correction), increased testing, and Trump acknowledging the severity. David Friedberg breaks down the situation into health, policy, and market fronts, highlighting inadequate broad population testing and the frightening economic ramifications of shutdowns (potential 20-30% unemployment). Concerns arise about potential food supply chain disruptions if production factories follow auto plant shutdowns, though food infrastructure is deemed critical. Chamath Palihapitiya introduces the significant possibility of widespread asymptomatic spread, referencing data from Korea, the Diamond Princess cruise ship, and NBA players, potentially lowering the actual fatality rate.
• 15:00–30:00 — Discussion shifts to potential treatments like chloroquine showing effectiveness in early French data, contrasting with the FDA/CDC's reluctance due to lack of blinded controlled studies. The debate emerges: in a crisis, should policy triage allow faster access to potentially life-saving, cheap treatments despite incomplete data, mirroring actions in China and Korea? The potential downsides (side effects, off-label use) are weighed against the urgency. Estimated US fatality rate discussed, ranging from 0.15% (flu-like) to potentially 1.8% (10x flu), complicated by US obesity/diabetes rates but aided by higher ICU capacity than Italy. The crucial policy question: is the economic shutdown justified by the potential fatality rate? Chamath Palihapitiya steps off briefly due to market volatility impacting capital markets, which underpin startup funding and the broader economy.
• 30:00–45:00 — Focus on startup survival tactics. With funding drying up (deals being reneged), CEOs must cut burn drastically (salary cuts, layoffs) to extend runway, ideally to 36 months. Survival trumps growth. Companies need to reassess strategy based on changing customer behavior (e.g., software for bankrupt restaurants). The intricate relationship between Limited Partners (LPs) in VC funds (endowments, foundations) and General Partners (GPs/VC firms) is explained. Market crashes force LPs to rebalance portfolios, potentially pressuring VCs to mark down private company valuations (like Airbnb) and slowing down capital calls, further freezing startup funding.
• 45:00–1:00:00 — Continued discussion on capital markets seizing up, particularly the overnight repo market where hedge funds and banks secure leverage using short-term commercial paper. Market volatility and lack of liquidity create margin calls and force widespread losses across all financial players (hedge funds, sovereign wealth funds, central banks). Urgent need for broad-based antibody testing (using cheap LFIAs available from China but not FDA-approved for diagnosis) to understand true infection spread, identify immune individuals, and potentially recalibrate policy away from total lockdown. Frustration expressed over the lack of parallel processing for these crucial tests alongside PCR tests. Debate on bailouts for industries like airlines that spent heavily on stock buybacks instead of building cash reserves; strong sentiment for equity wipeouts rather than rewarding irresponsible behavior, despite potential impact on pension funds holding the stock.
• 1:00:00–1:15:00 — Exploring the potential for a major societal reset. The crisis exposes the fragility of hyper-efficient, just-in-time global supply chains (e.g., iPhones, medicine). A shift towards national economic resilience, diversified supply chains (including US-based production, even if costlier), and less focus on pure efficiency is predicted. This involves prioritizing national needs (food supply, critical manufacturing) and potentially accepting lower corporate profits for greater stability. Discussion on the immense US national debt and the scale of stimulus needed (potentially multiple trillions), arguing the US has unique leverage due to the dollar's global reserve status to finance such measures, especially compared to the collapsing Eurozone or stagnant Japan. A call for bold, direct stimulus (e.g., $5k per person) rather than piecemeal approaches.
• 1:15:00–End — Personal reflections on the crisis fostering a recalibration of values: less conspicuous consumption, more focus on health, family, friends, and community support. The shared experience highlights the importance of human connection (missing poker games) and potentially shifts focus away from status symbols towards essential needs and collective well-being. Predictions on reopening: Chamath suggests 6 weeks (early May) using zoned reopening based on immunity tests ("show your papers"). Friedberg takes the under, predicting West Coast reopening by April 7th/8th based on declining metrics and economic necessity, emphasizing the critical need for widespread antibody testing to inform policy and allow a faster, data-driven return to normalcy, even if it involves measures like masks and temperature checks.

Key Takeaways

• The initial US response to COVID-19 faced significant challenges, particularly in ramping up widespread testing needed to understand the true scale of infection.
• Policy decisions involving lockdowns and border closures carry immense economic risks, potentially causing unemployment rates unseen since the Great Depression.
• Emerging data suggests a high number of asymptomatic COVID-19 cases, which could significantly lower the actual fatality rate compared to initial estimates.
• Rapid, broad-based antibody testing (even using less precise, non-FDA-approved tests for epidemiological study) is crucial to understand population immunity and inform policy.
• Potential treatments like chloroquine showed early promise, sparking debate about emergency use authorization versus traditional FDA trial protocols during a crisis.
• Startups face an existential funding crisis; survival mandates drastic cost-cutting and extending cash runway to potentially 36 months as VC activity freezes.
• Capital markets experienced severe seizures, impacting liquidity across the financial system, driven by leverage and volatility in markets like overnight repo.
• Bailouts for industries like airlines sparked controversy, with calls to penalize companies that prioritized stock buybacks over building cash reserves.
• The crisis may trigger a long-term shift from optimizing for global efficiency (just-in-time supply chains) towards prioritizing national resilience and diversified production.

US Response: Health, Policy & Markets

• The initial phase saw a rapid escalation, with significant market downturns and a growing realization of the pandemic's severity, leading to widespread quarantine measures.
• A critical failure identified early was the lack of broad, general population testing (beyond symptomatic cases), hindering understanding of the disease's true dynamics and spread.
  • A task force led by Jared Kushner was working on ramping up testing, but the focus remained primarily on PCR tests for acute cases.
• Policy decisions focused on containment (travel bans, border closures, lockdowns) raised immediate and severe economic concerns.
  • Nearly half the US workforce in small businesses, plus significant portions in travel and energy, were identified as highly vulnerable.
  • Treasury Secretary Mnuchin warned of potential 20-30% unemployment by summer if drastic measures continued long-term.
• The shutdown of major auto plants (Ford, GM) due to UAW pressure raised alarms about potential precedent for other critical sectors, including food production and distribution.
  • While food supply is deemed critical national infrastructure and exempt from shutdowns, concerns remained about long-term supply if the crisis became protracted.
• Market volatility was extreme, described as the most precarious since 2008, with seizures in crucial liquidity mechanisms like the overnight repo market, impacting hedge funds, banks, and institutional investors globally.

The Testing Conundrum & Asymptomatic Spread

• Significant evidence emerged suggesting a large percentage of COVID-19 infections could be asymptomatic or present with very mild symptoms.
  • Data from South Korea indicated nearly 40% of infections were in the 20-29 age group, often without severe symptoms.
  • Up to 50% of positive cases on the Diamond Princess cruise ship were reportedly asymptomatic.
  • Early testing of NBA players showed positive cases with few or no symptoms.
  • A paper suggested up to 86% of infections in China might have been unreported or mild.
• This high asymptomatic rate drastically changes the calculation of the true fatality rate, as the denominator (total infected) could be much larger than initially assumed based only on symptomatic cases.
• There's an urgent need for widespread serological (antibody) testing using methods like IgG/IgM tests (lateral flow assays - LFAs) to determine population immunity.
  • These tests, costing pennies to make and widely produced in China, can identify individuals who have had the virus, regardless of symptoms.
  • While potentially less accurate (e.g., 90% sensitivity/specificity) and not FDA-approved for diagnosis, they are deemed crucial for epidemiological understanding.
  • Frustration was expressed that the US wasn't prioritizing acquiring and deploying these tests in parallel with scaling up PCR testing for acute cases.
• Understanding the true prevalence through antibody testing is key to making informed policy decisions about reopening society and the economy.

Treatment Debates & Regulatory Hurdles

• Potential treatments like chloroquine showed early promise in small studies (e.g., France), raising hopes for cheap, scalable solutions.
• However, the FDA and CDC remained cautious, citing the lack of rigorous, blinded, controlled clinical trials, adhering to the "do no harm" principle.
• A major debate arose: should crisis conditions warrant emergency use or accelerated access to drugs with plausible efficacy but incomplete data, mirroring actions taken in China and Korea?
  • Arguments were made for allowing doctors and patients to make risk assessments, potentially reducing fatality rates significantly, even if standard protocols weren't met.
• Concerns about side effects of off-label drug use, especially in patients already in distress, were acknowledged as valid reasons for the cautious approach.
• The regulatory burden and time required for traditional drug and diagnostic approvals in the US were highlighted as potential hindrances during a fast-moving pandemic. A shift towards faster processes or expanded "right to try" laws was suggested.

Impact on Startups, VC & Market Dynamics

• Startups, particularly unprofitable ones ("default dead"), face an acute survival crisis as VC funding rapidly dries up.
  • VCs are seeing deals rescinded or terms renegotiated; new funding is expected to be scarce for at least 3-6 months.
  • CEOs are advised to take immediate, drastic measures: cut burn rates significantly (deep salary cuts for founders/staff, layoffs) to extend cash runway.
  • Chamath Palihapitiya recommended aiming for a 36-month runway, arguing survival is paramount over growth during this period.
• Companies must reassess their strategy based on fundamental shifts in customer behavior and viability (e.g., businesses serving heavily impacted sectors like restaurants). Unit economics and core business survival are key.
• The crisis exposes vulnerabilities in the VC ecosystem itself. Market crashes impact the portfolios of Limited Partners (LPs like endowments, foundations), forcing rebalancing.
  • This "denominator effect" (where illiquid venture assets become an oversized portion of a shrinking portfolio) pressures LPs.
  • LPs may request VCs (GPs) to slow capital calls and mark down the value of private portfolio companies to reflect new market realities.
  • This markdown process, while painful for VC returns (IRR), is necessary but further restricts capital flow to startups.
• Extreme volatility and seizures occurred in core capital markets (like the overnight repo market), threatening the leverage underpinning many financial institutions and creating systemic risk.

Economic Fallout & Stimulus Responses

• The economic cost of a nationwide shutdown is staggering, estimated at roughly $1.5 trillion in lost GDP per month.
• The interconnectedness and leverage within the economy mean revenue declines have a multiplied negative impact, making simple "hole-filling" difficult.
• Strong arguments were made for large-scale, bottom-up stimulus, directly providing cash to individuals (e.g., $1000-$5000 per person, potentially recurring) who are likely to spend it immediately, supporting demand.
• Debate erupted over bailouts for specific industries (e.g., airlines) versus letting companies fail, especially those perceived as having acted irresponsibly by prioritizing stock buybacks over building cash reserves.
  • Mark Cuban and others argued against bailouts that didn't include strict conditions (no buybacks, executive pay limits) or involve equity wipeouts for existing shareholders.
  • The counter-argument noted that equity wipeouts could harm pension funds and retirees, but the prevailing sentiment leaned towards accountability for corporate decisions.
• Despite the massive US national debt ($23 trillion pre-crisis), the argument was made that the US has unique capacity to run large deficits (trillions more) due to the dollar's global reserve status, especially with other major economies facing collapse or stagnation.

Long-Term Shifts: Resilience & Recalibration

• The pandemic is expected to trigger a fundamental reassessment of globalization and hyper-efficient, just-in-time supply chains.
• A shift towards prioritizing national resilience, diversifying supply chains (including bringing manufacturing back onshore, like Apple potentially needing US iPhone production), and accepting some inefficiency for greater stability is likely.
• This may involve governments encouraging or mandating domestic production of critical goods (food, medicine, technology components) even if it results in higher consumer prices.
• There's a potential for a personal and societal recalibration of values, moving away from conspicuous consumption and towards essentials: health, family, community, and social infrastructure.
• The crisis highlights the need for regulatory reform, particularly around the speed of approvals for diagnostics and treatments during public health emergencies, potentially loosening FDA restrictions or expanding "right to try" frameworks.
• Financial regulations concerning corporate leverage, stock buybacks, and the stability of core market mechanisms (like repo markets) are likely to be revisited to prevent future systemic risks.

The COVID-19 pandemic exposed deep vulnerabilities in global health systems, supply chains, and financial markets, forcing a potentially painful but necessary recalibration towards resilience over pure efficiency. Moving forward requires aggressive, data-driven testing and potentially faster regulatory pathways for treatments, alongside robust economic support focused on individual survival and systemic stability.