he's optimizing the view now i'm optimizing for shade actually i'm trying to get out of the oh [ __ ] christ you look like a [ __ ] look at that i mean this dip [ __ ] showed up he showed up to my beach club yesterday and it was basically like someone had taken a mummy and then wrapped a mummy inside of a white sheet and then presented him at this point
at this place oh he lathered in his like spf 500. and so i laughed at one point i said at one point let's go for a walk and this [ __ ] had the nerve to grab his cell phone and a battery pack for the cell phone i forced him to leave the phone he felt naked then i made him take off his shoes and socks and then i tried to get him to take his shirt off we got almost all the way there yeah
that makes sense all right everybody here we go three two three [Music] hey everybody hey everybody welcome to everybody's favorite game show guess who's not in italy with us today david sacks wearing sunglasses with the view of an ocean clearly on a nautical vessel and i'm in an old apartment in the center of florence and chamoth is at his hideaway
somewhere in the countryside and friedberg is in front of a abstract piece of art two people high on crystal meth trying to break into his car in san francisco i'm no longer a san francisco resident i'm proud and sad to say after 20 years of living this city i have relocated still in a not to a nondescript location still in california but uh you're in the bay area enough i'm in the
bay area so with us again obviously raid man the dictator and back from a week off the queen of quinoa what ha tell us uh queen you had a big week you had a some nice ink come out some press about the production board raising some monster round and you took the week off give us the feedback what was it like taking a week off from the pod and uh
now you're getting press and you're becoming a public figure uh what's it been like for you the past week and tell everybody what went down with this new fund you know my strategy was to take a week off from the pod and then have the ratings go up and then i could quietly and nicely exit um as the as a member of the cast but uh unfortunately i've been drawn as al
pacino said just when i thought i was out i am back in so uh it's i missed you guys i actually listened to the all in pod for the first time ever last week you guys did a great job you've been complaining these other last 41 times without even listening to it you know um i will say i listen to it while we're on it but this was um actually really interesting because
that's big of you you're actually listening while we're taping we we do it ourselves i hear the whole freaking thing in real life so listening to it i found it really entertaining and i uh i think i have a better appreciation it's less about some of the points and facts we make which i've been pitching and complaining about the topics and you know where we go with the
conversation and stuff but it's just generally just nice to just hear everyone you know kind of shoot the [ __ ] anyway good job so you're saying you're a fan of of the all in pod i might get a wet your beak mug from one of our outfits i have one i haven't i actually use it you sent me a whole gift basket from the kid who's paying for college based on our ip
it's all good um no so we yeah we announced our tpb funding last week too which i have been running the production board for four years now a little over four years it's been my primary vehicle where i've been primarily incubating new businesses and making some investments from the balance sheet uh you know we've raised several rounds of capital over the last few years we've
never talked about it publicly we've never done press around it but um as you guys know the primary reason for going public with it was really just to gain recruit interest in the work that we're doing so we really want to see great people be made aware of the work we're doing at the production board and each of our individual businesses so we could start to
um you know at least get get get folks knowledgeable and aware of us so when we uh reach out and and folks are interested in thinking about what else they might want to do with their careers and their lives you know were hopefully there for them so that you know it was great i mean it's nice to kind of share what we're doing we also shared five of our businesses that we've
incubated several of which have been stealth up until now uh you know one of which jason i think you've kind of referenced in the past our molecular beverage printing company canna so that one's kind of starting to emerge a little bit more now after several years of r d and work so we're kind of making progress now and i'll uh hopefully have more to share
over time in terms of what we're doing but we're excited and it's great to have great investors come in yeah it's a great piece in cnbc by ari levy uh i guess you gave him he's a great journalist by the way like old school legit journalist yeah and i think fan of the pod how did you pick ari to be the the vehicle for this to use a pr firm where you just decided i'm going to
share it with this one person we had a mutual person who's npr who introduced us i didn't want to go do a broad pr thing so i was just kind of like um let's get you know i was going to do my medium post which i wrote was like a blog post and that was the primary content and then it was like let's just find someone good who can kind of at least you know push
people to that content that can speak well to our business and you know he was recommended i've never met him before great guy so you know we just wanted to kind of get that one piece done anyway he did a great job he said he i think he's been on your show right but if you're you're he's shown my show he's been on this week in startups yeah and i
i see him when i used to go to cnbc i would you you walk down uh at one market you used to go there trim off too and you walked down like a row of journalists and as you go to get on set i don't know this time to youtube one or two of the journals will intercept you and try to get a story so he would always tell me hey i heard that travis at uber was this or whatever
uh but great job on the inc it's great to see you uh you know raised 300 million there was a lot of references to larry and sergey and google maybe you could tell us what how much uh who who led the round this 300 million dollar round and what's google's involvement when i first started the production board it was my i had made personal investments with my
own money and started some businesses with my own money and i had a series of dinners and conversations with larry page about like doing something together with alphabet i knew larry from my google days obviously um and uh you know we ended up kind of after a bunch of conversations with folks at the level below kind of saying let's i didn't want to manage a fund and i
didn't want to go work at alphabet so the idea was i would set up a holding company kind of a permanent company that like any business has a balance sheet with cash on it and can do stuff with that money and alphabet invested in the holding company they put some cash in and this was four years ago and they became a minority shareholder
and had a board seat and i set up a board and so that's the work and then we've raised another round since then and then we just raised this round we announced last week and so our you know the round was i think uh i don't know if we announced but it was kind of co-led by blackrock we had um you know morgan stanley koch industries bayley gifford allen and company
um foxhaven arrowmark just a bunch of really high quality long-term institutional investors alphabet put more money in the the gates family office called cascade has been an investor with us for a while so they all put money in into the round and um you know it's it's great because we can use that capital to build new businesses and support some of our existing businesses
so some of our businesses are really hard deep tech companies we don't want to have to go rush out and raise venture money or and we don't want to have an incentive to try and mark the asset up and you know get a good mark on it so really we can use some of our money now to support some of our businesses until they're ready to go commercial or
until they're ready to raise outside capital if that makes sense for them not always going to make sense um and so we have so you and you own 100 of every business that comes out of here then you find a management team as we discussed and then spin them out chamoth what do you think of this venture studio approach which has only really worked for bill gross from idealab
and maybe john borthwick with beta works in new york and i guess science maybe worked as well with dollar shave club but here you have you know i think fredberg a great um entrepreneur as well uh doing this what are your thoughts on this studio model going long uh in in building companies in a studio system well i think it means a lot of different things to different people so i'm not
sure honestly what a venture studio is that's different in somebody else's view than what freebrook is doing but what i will say is that the different thing that he's doing which i believe in is you have to become uh extremely hyper focused um you know i think that there was a moment where if you look at when idealab was really successful or when beta works
was really successful in the case of idea labs they had a very specific prototypical web 1.0 business betaworks had a very prototypical web 2.0 kind of social business they all work because these guys were experts in those things and so i'm pretty bullish on what friedberg's doing just because he's not trying to boil the ocean he's being very specific around you know
synthetic biology and i think that that is probably what got other people excited because then not only from friedberg's execution capability which i really believe in but then now think about it if you're an investor i don't want to put my money into something that all of a sudden looks like nine other things where all of a sudden it creates a lot
of correlation that i didn't really know existed especially when i'm investing hundreds of millions of dollars it's a very big deal that a lot of investors have and so when freebur can very legitimately say look i'm you know explicitly focused in this thing and then he also said and friedrich you may want to talk about this and this is the only thing i'm going to
focus on it gives an investor a lot of confidence because it's like here's a really smart guy who's done this before he's going to stay in this swim lane and do something really specific here and now i can understand how it fits into the rest of my portfolio so i think that there is a lot of value for um investors in a bunch of different ways
so i don't know i'm i'm super excited i appreciate that i mean i think like one of the things that mattered to me jason and the way i kind of frame it like a lot of people think oh venture studio it's about how many things you crank out that's like y combinators model for me it's not about how many businesses you start it's about absolute value creation
so you know you have to do the the things that you have the resourcing to do with the objective being to drive business value as a whole so that means doing one thing doing three things doing five things it's not about how many things you know whatever the right balance is it's not about just cranking out businesses because each one of these things we have to continue to be active
and we need to continue to build and when we start a business we reserve a good chunk of the business as equity for the team that works on it so it's not like we're 100 owners right we've got to get the right people they've got to feel like and act like owners in that business with us you wind up owning 50 or ballpark 40 what do you think it actually varies quite a bit so you
know without getting into too many details i mean you know when we start the business we're the majority owner and in many cases when we've brought in other investors over time we get diluted down to become a minority owner so 30 or something like that like as if you did the series a or something but but in many cases we end up being um you know
we want to continuously fund some of these businesses um because it may not make sense to bring in outside investors and and we'll continue to be the majority owner and but we create an independent board we make sure that the the team feels like it's an independent business and we give them a lot of infrastructure and tooling finance hr legal facilities
uh support recruiting support etc and obviously templates for how to succeed and and play books and so on so that's a lot of what i would call our platform value amazing another bestie housekeeping by the way david sacks is an investor in tpb i don't know if you guys knew that invested around ago so good good job saks good job saks is that another unicorn for me
technically yes look at you uh well in other news uh sax this is like the victory lap uh episode saks you announced you're closing 1.1 billion dollars with a b in craft's third fund and explicitly talking about focus to chamot's point explicit focus on marketplaces and sas uh maybe you could explain uh how long it took you to raise the 1.1 billion
i think the first phone was 300 million the second was 600 million so you're basically doubling each time almost i mean the first time was 350 second fund was 510 this one is 1.12 billion it's going to be 612 million for venture which is c series a series b and 510 for growth and yeah we are focused on sas and marketplaces i kind of run the sas practice and my
thesis is really the same as it was when i was doing yammer which is apply consumer growth tactics to enterprise software make it go viral inside companies uh sort of sell it bottom up through the average employee as opposed to top down through the cio uh and then the other gp in the fund jeff floor is focused on marketplaces he was the founder ceo of stubhub which was one of
the original e-commerce marketplaces on the web and uh so he leads the marketplace practice and those are also you know i would say along with sas marketplaces are the best kind of internet businesses to to create and so we've just decided to focus on those two areas and that's kind of enough for the world for us and in related news your project call-in which is a
podcasting plus casual audio application has been doing great in beta yeah and uh i'm proud to announce that uh we had a small allocation for our syndicate the syndicate.com which is my syndicate and then the all-in syndicate which we created as a lark uh between those two syndicates my syndicate had 900 requests to invest over i think seven million dollars we
had a small one million dollar allocation and we basically did a lottery uh so something like one in i don't know seven or six got in and then the all-in syndicate also filled up and then the all-in syndicate no carry no fees everybody gets a free ride thanks to david sacks and uh that's our first all-in syndicate chipping away at my core business
and eating my lunch thank you and that the all-ins that they all unsyndicated is is going to be 250 000 uh 250 1 000 checks with no feet no carry and um the company is paying the administrative expense of that we just want to let you know 250 of our listeners what their beaks yeah so and uh is it open yet sex like can anyone download the app and use it yet no it's
still in private beta we're going to open up soon you know we'll certainly getting better i was looking at it the other day it's getting really tight i mean can i talk a little bit about it or do you not want to keep it yeah go for it yeah well i mean here's the genius of it um and i mean that sincerely uh not just because you gave me an allocation but um clubhouse when you go to
clubhouse if you miss the great conversation it's gone and clubhouse has really bad audio quality and the rooms are and there's really you know there's clubs as a concept but in call-in uh everybody creates a show then the show is syndicated to an rss feed like a podcast so you can basically start your own podcast with no staff no post-production you
just talk and then it goes out to an rss feed so we're thinking david and i of doing like a post uh show after all in like two days after just to talk to the fans and do like a little private group thing but it's kind of like a really nice overlap of podcasting and um yeah well i was going to say it's it's basically long tail podcasting using social audio
as the gateway drug to you know to long tail podcasting uh because is a company worth 4 billion yet we have we internally marked up the round four times like jason horowitz did with clubhouse let me ask let me get your mouth in the conversation jamal what do you think of a venture firm making a seed investment at 100 million then a billion then at 4 billion
for a product that you know it's largely sideways this is like internal three bets and marking it up 10x and then 4x so 40x lift over three rounds what do we think of this i think the best venture firms shouldn't give a [ __ ] about any company and i don't think that they really do if they're very savvy they should be doing exactly what andreessen um you've seen the articles about tiger
you've seen all these other folks the real question is maybe if you want can you please explain what they're doing and what they're doing is to me if you understand the investing landscape makes a ton of sense which is technology used to be the small niche and so we used to only get you know when i started social capital there was probably 25 to 30 billion dollars a year
flowing into venture just in 2011. fast forward a decade we have like 120 billion dollars a year going into tech and it's going up like crazy and if you're the best brands you're going to get the overwhelming amount of interest from people who want to get into the asset class as the asset class expands right so if all of a sudden you know
you decided to invest in private equity when private equity was going bonkers you're not going to take as much of a shot on an emerging manager you're going to want to take a shot on blackstone or kkr right and that's what's allowed those folks carlisle to scale aum just unbelievably blackstone i think is under management exactly half a trillion dollars now at blackstone
similarly there are these indelible brands in venture and when everybody realizes they need to be long tech they jump in now when they do that you have to understand who these people are there are two things that matter one they are people like pension funds and their hurdle rate meaning you know what are they trying to do better than in terms of it of a rate of return
is in the low to mid single digits that's really important to know nine percent ten percent not even but not even not even five percent six percent okay and then the second thing you need to know is that these guys have so much money that they would rather when they spend an hour meeting with you they'd rather give you a 50 million dollar check than a 5 million dollar
check a 5 million dollar check just compounds their problems so if you put these two things together it makes a ton of sense for companies like andreessen to now focus on the velocity of money raise a fund put the money to work raise a new fund in a very systematic way that everybody can understand and can predict so that andreessen can tell their lps on
a calendar guys i'm going to be back to you in 18 months guys i'm going to be back to you in a year and be able to scale the capital and i think if you if you look at it in that framework it explains and recent it explains excel it explains sequoia and by the way it's a brilliant strategy because these guys still make two and a half percent on the money
they end up returning the market beta meaning what the average market would do anyways plus a little bit of alpha right so they'll still do a little bit better than the market which means they'll be able to raise money infinitely so if i'm just using the public market or the venture market it's a venture market no but that'll decay right so that'll decay down to the
two to 10 or 12 but my point is it's still better than the five or six percent these pension funds and other folks need to earn so today the goal of every fund that's successful that has a brand david's included should be do good deals make sure you're in things that that can work and the thing that david has which other folks know is david can help
make things work when they're not necessarily obvious but then pound the money in and then raise more money as fast as you can because then you know it helps the investor that's what they want and they're happy to pay you and then for you the gp you start to make enormous fees and the whole cycle works so for and recent i think that's the calculus it's like
[ __ ] if i can put 100 million in that's 100 million less i have in my fund now i can go i'm 100 million closer to raising the new fund okay now the criticism has been freedberg i'll go to you it's bad hygiene for the same firm to mark up the same product three times in this case you know um clubhouse what's in it clubhouse so is that a warning sign for you that it's a bubble
or it's kind of the the worst case i've heard is like marking up your own book self-dealing whatever how do you look at that issue freeberg and then i'll go to you sex well if it were spacex you would look like a genius so you know i think we can criticize it until what's up or what's that and sequoia has done this many times where they've been the lead in multiple rounds
in the company and they have high conviction in the quality of a business and they don't want to bring other investors in and when you have high conviction and you can continuously buy more of the stock and buy more of the company and be a bigger owner and then it works out you look like a freaking genius and so i don't want to criticize the investing
style of these guys i mean time will tell if they made good bets or not as a whole you can kind of make the case maybe that they're trying to be asset managers and drive assets under management up and gain more fees but i think lps are a little shrewder than that they'll kind of take a smarter look at that at the end of the day the guys that are
known for doing this like sequoia and founders fund and others have had incredible returns by doing exactly this so the strategy does work and you know you just have to have to do it with the right businesses and that i think that will you know demonstrate the quality of your investing acumen all right sax any further thoughts on that the marking up your own book is
that something you plan on doing with this new fund and having the growth and how would you look at hey call in starts getting some traction does that mean your growth fund is going to go mark it up and take that those shares or do you think that it's better hygiene to have the market price it well i guess it just depends i mean the growth fund does give us the
ability to double down at a later stage on our own early stage companies but you do have to be really sure when you do that because it does you know it certainly raises questions if you're wrong right that you wouldn't have with any other investment so it just it definitely raises the stakes you have to be really certain i guess but you know if colin's a big hit do we
go raise you know a growth round yeah and now i think what we might do in that case because we incubated it is we'd let somebody else lead the round and then we would participate so you have some third parties setting the price because we incubated the company and frankly that's what we did with the round that you just participated in is craft participated but we did not set
the terms it was actually uh gold crest and sequoia co-led the round with craft when you incubate a company like that let me ask another technical question because the audience last week or in the week before really responded well to us talking about this as opposed to covet and delta variant uh which we'll talk about at the end of the show
for those people you can basically turn off the show at 50 minutes or 75 minutes when we talk about the effect of the pandemic but uh and i'm hoping you're thinking right now about who's not in italy i hope we'll get back to that again when you incubate a company like that who owns the original founder shares craft the organization david sacks the individual came up with it
what's the inside baseball there so it's sort of all the above and uh we meaning craft uh have a deal with our lps that's called an lpa limited partner agreement and one of the things that was negotiated when i found a craft four years ago was the terms on which craft would incubate deals and um and so it's all predetermined what i get as a founder
what what our funds get what the lps get so there can be no argument about it later and uh this is this i call it well we've actually done now we have a few incubations in development you know for me it's really important to scratch that product itch you know i'm originally a product guy and um and i you know i love investing in helping companies but occasionally
about i'd say maybe once a year i get a product idea that i think is worth developing and so this gives us the ability to incubate it so we did it a few years ago with a crypto company called harbor we ended up selling that company to bitco which just announced the largest uh acquisition of a crypto company uh galaxies acquiring it for something like 1.2 billion
so anyway so harvard i think um will work out uh you know once that deal closes and collins the second one there's a couple other things that are still you know they're too early to talk about but um but i think colin will be the the second one to to launch chamoth as an lp in a lot of funds what do you think when somebody comes to you and says i want to in my lpa
my limited partner agreement have the ability to incubate these companies that a good trend bad trend how do you think about it i think it's great i mean i don't really you know push back on a single chairman in the lpa because i'm only doing it mostly to support people and so whatever terms they want they get from me and you know kind of just like let them
go and hope they get lucky you know i have a very different approach to to these kinds of things because i'm not necessarily trying to compound my capital i'm just there to sort of enable folks and you know take one percent of the fund or sometimes a little bit more if i really have an asymmetric view on a specific thing that they're doing but otherwise i just take one percent sign
the thing and you know wish them wish them the best and then try to support them and that's all i'm trying to do if i believe in what how they're investing and the deals they've done uh you know however they do it is fine with me i want to go back to something which is i actually think it's not a question of hygiene it's really a question of governance
because when you do these things and you mark these companies up the real question if a company stops working is they tend to have too much money and then they tend to not have enough governance and the reason is because governance typically comes with board diversity and board diversity comes with more and different investors who have different you know
puts and takes at any given point in time that diversity is very helpful to keep everybody on the same page and to actually get a decent outcome when things aren't working as much now when things are working obviously nobody cares you know because like you can just have jim getz on the board of whatsapp with john and it's all kind of said and done it's not been to the right
so as we're saying when things are when things are good nobody complains yeah no and you know this may be a good jumping off point for uh you know we wanted to talk about xymogen today can i say one thing before we get into zymogen which is just look i think there's all sorts of new models now with with just sort of tech and the money going into tech the
venture capital exploding there's all these innovative new models and i think it's all for the good a studio that i think is great is uh what um uh jack abraham's done with atomic you know they've produced multiple unicorns out of there because jack is just a phenomenal idea guy he's like a 10x idea guy so he then as part of atomic comes up with the idea and then brings
on a operating partner and that model works for them and then you know he just partnered with keith raboy on open store and keith decided to become the ceo and keith is still a gp at founders fund so we're seeing like the blending of these models you know it used to be that you made the decision to become a vc and your career as a founder was just over it was like this
line that could ever be crossed again and now you're seeing the blurring of these lines and look i think it's good for everybody because frankly when you know keith or you know what i'm doing with call-in we remind people that we're still founders and product people and you know not just sort of semi-retired guys and frankly it's like it's good for what
we do as investors i mean we saw it with uh mike spicer who is a partner at sutter hill he incubated it started and was the original uh head of snowflake uh which was a map and before that he's this is his third so you know right he did pure storage he did snowflake i think he did lace works incredible he's incredible he's just [ __ ] money it's just just
just folks that don't know snowflake you know it's an enterprise software company they make software so he's a venture capitalist he started this company while working as a venture capitalist they brought on a great ceo and some incredible guy later who's frank slootman who's a legend and the company just went public last year i think or the year before and
they're worth 82 billion dollars today um and so it really highlights that while this guy is still operating as a venture capitalist and a gp he's been able to generate incredible returns for his fund um and and build amazing businesses at the same time so i mean spicer spicer is a perfect example because i i've known him since like the early 2000s and at one point
spicer started this um consumer company called bix and i was like we were like an investor i was a small investor in bix and uh and it got i think it required by yahoo and it was always curious because like spicer was clearly the smartest one in the room and it's like he was kind of grinding this consumer thing and then he left yahoo went to sutter
hill and he basically said you know what [ __ ] this i'm going back to my roots because before that he was a pretty traditional enterprise guy and he just crushed it it's kind of like michael jordan was finally like ah [ __ ] baseball i'm going back to basketball and it's like reed hoffman and neil bustery at greylock right i mean these guys are incredible operators business builders
and they continue to do that work while uh while being partners in the vegetable we have three directions we can go moving on zymergen zymergen's so interesting i think we should do it okay let's do zymergen i agree all right so for people who don't know zymer jim went public uh 31 dollars a share in april uh traded as high as 48 shortly after that um i had the
uh ceo on my podcast and uh i was confounded trying to understand the business you had told me i had asked you for some questions free berg and you gave me some choice statements of what to ask which can i say no i don't think so okay anyway you gave me some choice questions i didn't ask them exactly the way you said them uh but here is the quote of what
happened on tuesday uh zymogen stated the following zymogen recently became aware of issues with its commercial product pipeline that will impact the company's delivery timeline and revenue projections accordingly the company no longer expects product revenue in 2021 and expects proven product revenue to be immaterial in 2022 they also announced that the founding ceo josh
hoffman who was on this week in startups to maybe a month ago stepping down as ceo will be replaced and zymogen stock then dropped 70 percent on the news i don't know if this was a spec or not softbank hype though it was a straight ipo in the stock right 80 yesterday 80 a day after going public three months ago yeah so i think freeberg a good way to start
would be what did they say they were going to do and then why has this happened so zymergin and a couple companies like them started around the same time which is around 2014 uh 2013 2012 that era 2015 even and um the the promise of these companies is truly to be everyone wants to be this platform for synthetic biology and what that means is they can take
cells and in a smart way edit the cells and get those cells to make things that humans need and so you can kind of think about making materials like silk and leather and plastics and you can think about making food like egg proteins and milk proteins and so on and you can think about making industrial products uh you know enzymes and things that might be used in laundry
detergent other applications and so for years you know we've gotten dna sequencing cheaper we now have dna writing and editing cheaper we've now got other tools to basically screen sell so we have these the set of tools where these synthetic biology platform companies popped up and said you know what we're going to put all these tools together
and build a platform for editing sales and doing a better job of making things and we're going to get into all these markets and zymergen when they first started were like several other companies like them as services business so they would go to big partners like dupont and say hey let us make a new enzyme for you pay off 25 million up front and then we'll get a royalty on
the back end when that product eventually goes to market and they did that for years they went after insecticidal products they went after plastics and materials and all sorts of stuff and as is the case with a lot of deep tech it turns out it's really friggin hard you know these tools might be there but like we saw with the clean tech era where everyone thought they could make
oil from sugarcane you know 20 years ago using the same sort of approach to get the unit economics meaning can you make the product cheap enough it's really really hard that means you've got to get these sales to be just perfect and you got to get the systems to be perfect and so at the end of the day they went through a lot of customers at xymer gym
that paid them tens of millions of dollars and zymergen didn't have anything at the end of the projects to say here's something that works that you guys are willing to pay for that you're gonna go take to market because it really wasn't that compelling the unit economics weren't good enough and it didn't really have big breakthroughs for any big industry
and so zymogen like other companies in the space pivoted and said you know what we're going to now be a products company so we're going to make our own products instead of just being a services company and as they started to get into that they decided that their first big product would be this kind of you know plastic for for um for for cell phones or whatever
protective film and in the meantime what happened is it takes so much money to do all this r d to run all these labs to have all these robotic arms that they have that are moving test tubes around hundreds of people building and running these labs and um and so they've had to raise money and in order to raise money as you guys know you have to kind of hype a story you
have to say look we're gonna change the world we're reinventing everything we're using synthetic biology to rebuild everything yada yada and the story resonates with me because i truly do believe that the potential is there but the timing and the sequencing of these things is hard as is the case with a lot of deep tech companies when you get too far ahead of
the curve and you start saying i'm going to do x y and z but you can really only do a b and c today you raise money saying i'm worth billions of dollars you raise hundreds of millions of dollars and the hype has to keep stepping up and they eventually got into the trap that a lot of companies got into which is taking money from softbank and softbank said here's 400 million
dollars at a 3 billion evaluation a few years ago and they said great let's run at it let's be a product company and they burnt through a lot of that money and suddenly they didn't have any products to show because deep tech is hard it took a lot longer than anyone thought and what will you know we better try and craft a narrative and get public and so
they did that they got public and um you know a lot of what they had been telling people was coming was coming it's going to be here soon didn't really work so they had to pivot the business they had to become a product company they kept telling folks they were going to be x y and z months away uh and they were gonna be able to hit these targets on the product
and it turns out it was always a little bit a little bit further away a little bit further away and then boom they have a big board review recently and they look at the product pipeline and they look at where they are and they're like oh this really isn't gonna work and the whole thing you know falls apart because everyone was banking on this
massive return and everyone missed the story which is that they've been doing this for many years and had to eventually abandon and pivot away from their business because no one was willing to pay them for it so truly they never found product market fit in their first generation of their business and they never found product market fit in the second generation of the business
and it's really worth taking a watchful eye based on this this learning which is just a fundamental basic premise for starting a company do you have product market fit and can you make money from your product and if you can't answer those two things there isn't a business and then the third thing is how valuable is the company as a function of how much you
can grow and so you know um they really hadn't even gotten past phase one and everyone kind of wanted to believe the hype so it's a bit disappointing to see but it's really going to impact the industry broadly because now people are going to say a lot of synthetic biology companies are smoking mirrors and they're really not there yet so a lot of folks in the
industry are really concerned right now so to dovetail this with the previous discussion sacks funding your own company over funding of companies we talked about hey if it goes well like whatsapp did uh well you're a genius but if it doesn't go well and you get ahead of your skis you don't have product market fit and you've raised a bunch of money
then somebody becomes the bag holder no jason it's it's even it's even bigger than that it's it's not just that it happened just in the private markets and we then you had jp morgan and goldman sachs take them public and then they raised you know another half a billion dollars in the public markets and then they shut the bed right and we seen the same thing this is
the same week that nicola founder who went out by spack and was going to compete with tesla and ford there he's now under indictment for lying and selling shares also known as security fraud probably going to go to jail i had him on the podcast that was underwhelming so saxon we look at these which is it should we on a hygiene basis be throttling these companies and have
milestone-based financing or or is this the sign of a top in the market that people are able to go public people are being given large amounts of money by softbank and these things probably people should pump the brakes yeah look softbank is engaged in a style of investing that we would never engage in it's absolutely antithetical to the way that we
invest right they're making 500 million dollar seed investments in massively overvalued companies you know we we are one of the reasons why we like sas and marketplaces at craft is they're very milestone based i mean we you know if we invest before you have a functional product it's going to be at a seed valuation you know like a 10 cap 10 million dollar valuation not in the billions
uh like you know like zymergen uh and you know we're gonna in order to do a series a by and large we need to see some revenue you know um and then you know if we're gonna do a growth round we need to see more revenue and more customers and so you know you you show incremental progress you know we're we're engaged in milestone based investing where the amount of
money you raise and the valuation you're able to get scales with the amount of proof that you have delivered you know to investors about the company and the crazy thing about these like spectacular implosions and they're usually around deep tech is because these entrepreneurs can tell a story and people just seem to suspend belief and don't demand any proof
for years and years so it was thera knows it was nikola and alzheimerjin and i think by the way deep tech is it's it's not that we should dismiss technically difficult problems we should engage and fund and build great businesses that are technically difficult how much should we fund them for how many months or quarters yeah but or i mean what's important is you know what is the
representation that's being made and i think there's only one hype man on planet earth that is good enough to pull this off uh and actually deliver the goods at the end of the day it's probably elon like because you know he funded these businesses that were deep tech businesses tesla and spacex for many many years he was able to get investors excited he
funded them himself he felt like he fought himself for but remember most of the capital i mean he put in some capital but the vast majority billion no with tesla he put in 50 million and went bankrupt he went bankrupt he was living off a 200 000 alone from a billionaire friend of ours yeah yeah no no no beep that part out you're not allowed to say
sorry sorry sorry elon only self-funded the first couple hundred million of these companies he delivered revenue very early on you remember at tesla he first developed the sports car right the roadster and that was really 150 000. he sold 100 in advance not dissimilar to uh virgin galactic's playbook right and maybe that's an important lesson right like in deep tech
uh you can't just say i'm going from zero to one with billions of dollars over decades you know that that's a government-funded program well or you can if it's your own and that's what say that's what branson did so at bezos when i showed up richard had spent 1.1 or 1.2 billion of his own money and i thought i mean at some point in the game it's that's that's skin of the game i
mean bezos has been funding blue origin for 20 years right i think they take necker and mosquito island if he if that doesn't work out i mean there was also quibby that's another story yeah quibby it didn't even involve deep tech it didn't require any scientific breakthrough it just required some marketing proof that people were interested in that
format and they just lose a billion dollars well basically katzenberg along with meg whitman who was kind of a weird choice to be a co-founder because she's more of like the like the late stage ceo you bring on to take the company public once it's already working she's not really like a she's not a product innovator no she's not yeah but katzenberg katzenberg
is though right katzenberg's obviously very creative and so they came up with this idea he knows talent so they came with this idea to build a studio they put a billion dollars into creating short 10-minute videos the problem was there's no proof that the market was wanted that format they should have spent five or 10 million proving that the format made sense and then
spent a billion dollars if it worked and um you know i just i i don't understand why why um founders or really investors kind of put up with these types of stories look at wework same thing yeah there is not a shred we were about a shred of evidence that there was an economically viable model there and yet billions and billions of dollars went into that company before the bottom
line well it actually in fairness disagree i disagree on that one too much because the first couple years was economic viable it just wasn't a software business they had great gross margins it just wasn't scalable like software exactly there's no leverage in the model it was just purely like go lease something for x dollars and then sublet it for x plus y
you know x plus y dollars and and it worked it just like how do you scale that and then they got ahead of their skis and did all sorts of crazy stuff to get the tech valuation hold on a second but it's not like you can just go to the store and buy it off the shelf like there's a tech valuation thing you can buy other people had to believe it as well and
those other people were also pretty credible smart people were they the later stage people do you read the we work book the later stage ones i think we're like we're like evading the thing that that we're not saying which is that as much as we all want to believe that we're all doing incredibly incredibly diligent work there are a lot of examples where belief
trumps logic and even the smartest people just look past the obvious and we just talked about four pretty obvious examples in no world should a credible tech investor not be able to do a simple valuation or see a business model and brazenly believe a real estate business is a tech business at the same time there should be no world where you know your pitch something that is
just so incredibly grandiose from a technical perspective and be and the reason you invest is actually because you don't understand it because if you did you'd be more critical that's [ __ ] insane well you this is the thing people reverse examples these examples exactly that yes they're suspending disbelief and they're not doing the basic tenets
of investing which is milestones talking to the customer these are blocking and tackling i think it's more than jason it's greed it's criminals let's be honest this friday some of it's fraud so re read the quote read the quote from the u.s attorney of manhattan who said milton with respect to nikola lied about nearly every aspect of the business
people like that need to go to jail okay big time in jail big time the startup world the investing world only works if investors can trust the information and the financial statements are being given by operators because we have to make decisions quickly and if they give us bogus numbers how are we supposed to make educated decisions well some people don't want to
do diligent sacks people don't want to do diligently we look at metrics we always look at metrics okay we look at um look we can get we can do the metrics in one day churn we look we look at arr we look at net revenue retention we look at churn we look at cac and we look at your financials we can do it in one day okay it's not an invasive process we can decide very very quickly
because we know what numbers we're looking for and how to read the statements so the question for you when the founders say i have a competitive process we don't want to do all that has that been happening in today's crazy market where people say the train's leaving the station and we can't do diligence we don't have time for this are you ready
has that happened to you in the last six months in in a sense but we say to them listen here's what we need and if you give us these numbers today we can make a decision within 24 hours so and there's no reason we can't and by the way they have those numbers and if they say they don't have those numbers they're too incompetent to be funded because these are all the course ass
metrics that you should have to be tracking your business so we would never make an investment without seeing the sas metrics for a sas business yeah let me just step in for a second because i think there's two camps one is businesses companies that operate a business and what you're talking about it makes a lot of sense you could have looked at the business metrics of work
and made an assessment of the quality of that business or nikola or nikola well on the other hand or if you have this on the other hand you have companies i'm saying not their notes and not nikola because those are not businesses yet those are still in technology development they're deep tech so what happens is the founder the ceo the management team
they put together their own representation of the metrics that they believe should matter and then they try and show how those metrics translate into value over time so there's no revenue there's no customers there's no profits what they're saying is we can in the case of zymergen we've got x number of experiments we can run per day and as a result those experiments should
translate into y discoveries per year and those discoveries should translate into z dollars of revenue per year and that's where the pyramid gets built and the same was true of nikola the same was true of a lot of these companies where they say we can do x therefore we're worth y and it's that sort of narrative that investors then say my god the story is
so compelling if you're right i want to believe it i want to put the money in and i want this thing to work and therefore i'll fund this thing um and i think and i think that's what we've seen continuously it started with the cleantech industry and now we're seeing it increasingly with all magical companies magically and in a lot of these cases by
the way i will also say nicola it's you know it's easy to do that but it shouldn't be a representation that the entire set of opportunities is a false narrative absolutely there are many great businesses in biotech that actually do deliver the goods and they turn into incredible companies there's a synthetic biology competitor to zymergen who i spent a bunch of time with i'm not
going to say the name of the company and they and i and i asked them uh what gross revenue simple question what's your gross margin what's your revenue what are your cogs what's gross margin and i got an asterix laden answer what does it mean astrix lighting answer it's kind of like adjusted ebitda adjusted for what speak english that's what you got to
tell them speak speak [ __ ] english this is like when i would come home my dad said where's your report card i say you know it's interesting my report card yeah i don't have it so where is it i passed and then i you know again it's still shocking to see the number of people that will still do these deals and look maybe it all works out in the end
but i tend to think like if you can't present things simply and you can't explain things simply that's on you however if then you still do that and you still have good intentions maybe you don't but then investors toe the line the problem is there's this momentum thing that happens among investors as friedrich said where the fomo kicks in and some of the smartest people become
some of the dumbest [ __ ] people no they are suspending disbelief like you would not believe in the industry right well because it's not their money i mean look at the end of the day why does it happen meaning how can a zymogen ipo happen like this or nikola like meaning if you look under the hood in the s1 i was trying to find it in the s1
was there somebody that actually did like some due diligence into highline clearly not was there was there a synthetic chemist or a synthetic biologist that basically helped clearly not um did everybody say that that was okay clearly yes you know um did i don't know anybody get under the hood of nicola uh and actually like look at the engine make sure the thing worked
i don't know by the way people did there just were enough people that didn't that they were able to get a financing done right and i think that that's the important point is there's enough private markets i'm talking about two public market examples you're not allowed to have sex sequester diligence when you're going through an ipo yeah it's not how it works
by the way i i like do you guys know the difference between humans and animals there's one there's one distinguishing characteristic that that that i think uh making choices making narratives narratives narratives stories this all comes down to narratives like there are dolphins that can communicate with one another there are monkeys that sit in a tree and they can warn each
other about approaching predators meaning that there are other species that can communicate what humans can do that no other species can do is create a narrative to create an ethereal belief in something that does not exist and get others to believe in pursuing religion democracy the financial institutions the monetary system a business like this they're all the
same it's all about someone saying hi alive nichola yeah no exactly and i think in all these cases by the way this is the cliff notes version of sapiens everybody yes yes let's know it's version of sapience i have a funny thera-nose story um if you guys want to hear it let me just finish this one point like there's a fundamental premise which is humans want to believe
and so when you have a barnum type person show up when you have a you know a compelling narrative and a compelling deliverer of that narrative whether it's a religious leader or or a presidential or a government leader or a business leader and you want to see what they're selling come to reality you want to write a check you want to put your time or your money
into seeing that thing come reality no no i i fundamentally look at you're you're missing a key point it's not their money so stop saying that go ahead they would not put their children's [ __ ] education account into these companies they're putting other people's money they're putting other people's money this is the key thing not enough skill and they always put their time into
these companies for the same reason people join their money people trade off money and time all right my point of people will take their time they're giving up the opportunity cost of working somewhere else to go work at these companies david david i honestly i really [ __ ] disagree with you here the reason why somebody goes and works at this company
because they believe there's positive signaling from a soft bank okay so these people are smart they think this money must mean it's real they think i'm now going to commit my reputation and my time to get options because obviously these folks must have done their work how i'm not making the mistake and that's the lie because those folks are not doing the
work you're both making sense there's a group of people no there's a group of people placing bets who are placing bets of other people's money you would do different diligence let's be honest the zymogen ipo the traditional ipo would have been entirely different if they had to write if the underwriters were at risk for their own net worth it would be and
if their stock was locked up of the management teams for five years or ten years i do agree with that point i do agree with the point you're making foreign sacks from a boat go yeah i'm not i'm not disagreeing with chamoth but the the point the point that resonates with me that friedrich said is actually the book sapiens really did impact my thinking
as a vc which is you know yuval harari makes this point that it's narratives that kind of define you know humans and that's what binds us together in societies and frankly the vast majority of narratives throughout human history have just been wrong but they still worked as good stories binding people together and i kind of and i kind of applied that to vc which
is the vc process revolves around a pitch it's a narrative session where the entrepreneur goes up there yeah and presents a narrative and then everyone debates the narrative and decides whether they buy into it and you know after reading sapiens i'm like this whole process like is stupid how do i get out of a narrative driven investing philosophy and that's where i'm back to look
i understand sas i know what the metrics are supposed to be um also listen to the pitch i want to hear it but to show me the numbers first and at least i can get to a decision that's somewhat grounded in reality because i think most of what the vc process does is just measure a founder's ability to tell narratives and that may be correlated with their
ability to do marketing but it's not correlated with whether their idea is fundamentally correct or not it's fine in the seed state it's fine in the seed stage i think yeah i think there will be the least amount of fraud when you either have um irrefutable metrics or the investor has to invest their own money yep that's the gold standard everything else is just you know
catch's catch can and you're just gonna have a bunch of trash yeah here's how i'm handling at the early stage saks you because you get to meet my companies uh i have told them to craft their narratives around their traction now because i know that all this performative stuff is nonsense so when you meet those companies they do a three minute pitch
it's the majority of it is here's the product here's the traction and i accept people based on traction and then i give them more money as the traction goes up and we bet four or five times on the same company based on metrics and i tell them all you're coming to the accelerator here's 100k if you want more money from us we'll keep giving you money if you can grow 10
or more per month on real metrics period and we will keep giving you money forever right and i like these launch um like demo sessions that you do with us because now you force them to base their presentation around a chart so at least i can see some metrics and the other thing we do similar to you is i always start with a product demo our motto is show me
the product not a powerpoint because the same powerpoint can describe 10 or 100 different products it can describe a product that might be great it can describe a product that sucks totally so show me the product and now at least i'm grounded in what you're doing and i'm not just listening to some story by the way i'll i go back to this i still think that funding narratives
makes a ton of sense in the early stage cd i rip i rip in 50k to 5 million dollar checks all the time i could care less if it sounds reasonable i'd take a punt at it right but the minute that i'm writing a 100 or 200 or 500 million dollar check i pay [ __ ] attention yes because it's my money it's my money and and go back to this when it's not
their money you're going to see this thing riddled with fraud you're going to see cases like this stuff constantly and the person that pays the price where i do agree with freeberg is the employee because they mistakenly think that these folks must know what they're doing but the reality is it's not it's somebody else's money they don't really care they're just doing a
job they want to get paid themselves and so this is how these success you got you guys let me just give you some specifics on the zymergen scenario so they're going to go public right leading up to their ipo the stocks at 31 bucks and the ipo so if you're an employee and you have stock options in xymerogen you have the option to exercise your
stock options any time which means you buy the stock at your strike price and then you can sell the stock later when the ipo is over so a lot of employees you know exercise their stock options meaning they put their own money up to buy the stock at ten five bucks four bucks whatever it is and they actually owe taxes on the difference between their exercise price
and the fair market value at the time that they exercised so if the stock goes public at 30 bucks and they exercise they got to pay taxes as if the stock was at 30 bucks and then they end up in the situation where um they can't actually get liquid and so there was a lot of employees that got really screwed on this transaction when uh when zymergen went public
because they thought the company was going to be worth you know 10 20 30 40 50 and now the stock's at eight bucks uh and they're gonna actually owe money to the irs and they paid for their stock option so it's a it's a it's a brutal scenario when it plays out for employees and i just feel really bad for a lot of it really really great you know um smart people that work there
uh that take a massive hit on this thing i i hired two more researchers on my team just to do diligence at the syndicate and i would say between 20 and 30 percent of deals that look great when we get under the covers and look at the diligence we look at the cap table we look at the revenue we look at the accounting we asked them who's doing their
accounting we asked them for bank statements we asked them for incorporation docs we asked them for ip assignments this is like the basic blocking tackling 20 to 30 percent do not pass diligence and we find stuff that is crazy i had one founder give themselves a loan and then we didn't know about it and then we find out about it later they they did a loan
and the company owes them hundreds of thousands of dollars had another one where they were presented their uh revenue is reoccurring and it was a a it was a cruel basic it wasn't accrual based county was a cash-based accounting and i'm like yeah what is going on here you you're basically lying and you're misrepresenting your company don't do that it's called securities
fraud when you make a representation don't ever bend it or exaggerate it just tell the truth period what's the thera-nose story jamal i need the thera-nose story and then i'll give you a follow-up story the uh theron story is so i had i had a couple i had a very famous investor tell me this was like 2015 2016. uh and i said guys you know we were just talking i said
what do you like what do you like like you know we all kind of talk like that at some point whenever we interact you know um and he said this company theranos you have to maybe it was 2014. anyways 2015. theranos theranos theranos and uh i i said are you an investor and he said no but i wish i was it's incredible and i tried to get an introduction and i
thought okay this is um uh this is gonna great story interesting i couldn't get an introduction but then i find out who the board is and instantly i get turned off so in my mind i had a very negative impression because the board was literally not all 90 year olds and i thought what do 90 year olds know about you know uh blood testing and you know basically building a tricorder
and at that time you know i think i told the story before but i had burned about maybe 50 75 million bucks on six different startups trying to do this like you know in situ kind of like you know finger prick blood testing blah blah blah so i was really fascinated with the space a year and a half later a guy that i work with at facebook a very senior guy says to me i'm
thinking and i was trying to recruit him to come work at one of my companies as ceo i'm thinking of going to theranos and i said just go to the interview and tell me what happens uh before i you know try to convince you to not go he goes into the to the interview to be ceo of this [ __ ] company they don't let him pass reception they interview him in a makeshift room
outside of the meeting and he said well can i you know go inside and you know when do we have a follow-up interview you know i'd like to meet some of the team i want to see what it is and uh they said no no we're good here's your offer letter do you want to join well can i see the device can i try it i don't know no we're good let's go and i said to this guy i said
how can you [ __ ] join this company i mean it's not like you're you're coming in as like a junior flunky you know you're coming in as the second or third most important person in this business you haven't been past reception you don't even know what's past reception you don't even know what your office will look like you don't even know if you like the office furniture
at that basic level think about everything else that comes after that and then you know what happened happened so what a disaster william perry former head of secretary of defense henry kissinger we didn't just it was like it was a bunch of grand poobah types that's how you knew it was a red flag if you got one of those guys you got one guy like kissinger on your board
it's okay if they're all like that it's a problem problem huge red flag i go on cnbc i just had uh john kerry roo from the wall street journal who broke this thing wide open on my podcast and i started getting all these inside tips about theranose and one of them was that elizabeth holmes and bahwani who was the ceo were in a relationship together they
lived at the same address all this nonsense and i checked with kari roo and i'm like hey is this true and he's like yeah that's true yeah i was like why don't you report it's like i'm just chasing it down whatever it'll be in the next story so i go on cnbc and i was like listen when there's smoke there's fire if they had the device my game theory is
if you have the device you show it if you don't have the goods you don't show it period end of story i think my gut tells me this is a total fraud it'll be zero and they're like oh and i was like yeah and you know when the ceo and the ceo are in a relationship that's bad and they're like what and they didn't know this and i like they're like are you sure and i'm like yeah that's
what people are telling me i don't know if it's true or not i don't know first their knowledge but that's what i think is going on so this whole thing blows up calacana says this blah blah blah cnbc that night i got invited to bib's house in the valley for movie night we've all been to that yeah yeah yeah yeah yeah i walk in there's zuck there's this famous person
there's this googler that person it's you know it's 50 people and the celebrities who are in the blockbuster movie are there i think it was the movie arrival but i'm not going to make any i don't want to give away whose house it was i go to the secret movie night i walk in i get greeted and i kid you not 15 feet in front of me looking directly at me
is elizabeth holmes and i get with like 10 feet and she just looks at me snarls and walks away it's like the most uncomfortable moment of my life clearly a giant scam and fraud and she's going to go to jail too by the way she's going on trial this month august i believe she'll be on trial it's taking way too long i hope she goes yeah i mean the
justice system's a little bit screwed okay we're we got to wrap up i guess you have a pretty good you have a pretty good track record of calling out these frauds i think it's a service to the community yeah i agree you're one of the few who actually does it you got any other budding frauds well you called out ripple right oh let's not go let's go easy on the ripples there's
some people who are friends with people well i think while you're back it off i'm not backing off i just don't want to lose a member of our little quartet here but i will say uh that my my fraud of the moment the one that's making my spidey sense go crazy is tether usdt these these guys are i mean this feels like it is going to be a 60 billion dollars oh okay this is the
crypto thing there's a crypto stable coin the idea is they said it's one dollar in u.s currency one dollar per tether always and then over time we find out maybe they don't have a dollar in their bank account for each one the new york attorney general finds them 18 million says you can't work with anybody in new york they say we're not a fraud and i'm
like well what about the attorney general who said you were a [ __ ] fraud and they're like yeah yeah no no that was a misunderstanding yadda yadda i'm like there's no misunderstanding you know what we should do you know what we should do we should get all the fans the all in pod we're going to declare a certain time and date where and we encourage everyone who's in
tether to pull out a tether to stress the system and see what happens yeah let's stress test well the problem is you don't actually own your tethers that's the other scam it's like eight or nine of these offshore unregulated crypto exchanges not the ones in the united states that are highly regulated like coinbase this is offshore and there are white
what i've been told is you can create an exchange yourself with white label software and pop up your takeout you're on right now yeah there's some other people i want to call out there's some other people i want to call out so let's move on to it oh scott galloway [ __ ] oh no no free he's small potatoes but is it a small potato irrelevant doesn't
look like thirst and hell the third on his uh he does he dies yeah all right so jason's in florence chama uh chamath is at his estate i'll tell you where i am actually jake i appreciate this i'm on a boat uh outside elba which um is the police it's where uh napoleon was in prison i'll actually i'll show you the the prison where he was where he was kept i think you can see it
if i get to the right spot you know what we put the nicola founder in there and we'll put uh elizabeth holmes in there same place can you see that the uh just see your [ __ ] ugly face or whatever and your beautiful yacht [Laughter] how much are people going to hate us three of us are in italy in august it is like the stereotypical work hard and you'll be understanding
too of course of course i'm staying in an airbnb it's costing me 350 euros a night for four bedrooms i feel pretty good about myself i'm the center of florence i think it's you you're spending about the same amount on your boat right 350 400 euros a night per room yeah i got i got the airbnb deal talk talk to us about after pay sacks okay so well first i mean if we're going
to call somebody out first i want to call out paypal okay what's going on there i actually wrote a blog post about it um called the no buy list basically paypal is creating the equivalent of a no-fly list with respect to their search terms well for anybody who they put does they deem as deplorable or undesirable basically they're working with
the adl the anti-defamation league and the southern poverty law center splc to create lists of people and groups who they are going to ban their accounts now let me i got to say this the adl and the splc are storied institutions that did great work combating both anti-semitism and racism but they are now under new management and new leadership and they have greatly
expanded their missions the adl was originally about stopping anti-semitism now it's about uh basically opposing extremism or white supremacy and you know in any of the places they find it and so for example they've taken positions on u.s supreme court nominations um i mean it's like they've gone very very far afield um of their original mission splc has
gotten sued a number of times for putting people on these lists they put sam harris at some point on the list they put another human rights person on this anybody who challenges any or has any guest on their podcast that they the southern poverty law center doesn't like they right they basically blacklist them right right and the list has become very expansive
they become very expansive so so here here's the problem is you now have look before this was just some ivory tower you know uh non 501 type thing where they would basically it was hyperbolic rhetoric they would basically call these people and groups names but now paypal is operationalizing these banned lists they're turning it into a no buy list
they're saying we're gonna cut off your account and that's very dangerous because we've already seen the precedent with speech online that we had a bunch of social media companies banning people from participating in online speech now what paypal is potentially doing is banning people from that from financial access and losing your right to speech is bad but losing your right to make a
livelihood is even worse and i think republicans in congress need to say to dan schulman first of all it'd be great for him to haul him up there in front of congress to a hearing like they did with jack and zuck and sundar haul him up there and say to him in no uncertain terms we see what you're doing we don't like it we oppose it we're gonna get on our hind legs and fight
this uh if you try to deny americans their right to access the new economy we see no reason for your company to get any bigger we're going to oppose every acquisition you ever do and we may not be in power today but one day the tide will turn we will get control of congress and at that point you know um you know elephants have long memories so
you know we're watching you and you know it's been a long time since republicans thought of their role this way for the last few decades they've been very lazy or fair with respect to the economy but there's a very successful republican president on mount rushmore teddy roosevelt and he's on mount rushmore because he busted up the cartels and the oligarchs of his era
and he fought for the rights of the of the common american to make a living that is the playbook that republicans need to follow right now okay henry belcaster you got that clip it right here let's get some animations on top of it let's go all right square has bought after pay for 30 billion which represents a large portion of their outstanding equity
it's an equity-based deal what do we think freeburg they issued a third of their stock um uh to buy this company so basically square's a public company they you issued shares to after pay shareholders and after pay only represents about four percent of squares revenue so they gave away a third of their company to increase their revenue by four percent that that's the
pessimist view of the business now if you kind of think about square they've got two businesses that are equally sized one is like a consumer business uh this cash cash app yep yeah and they do a bunch of stuff including crypto in there and then they have another app uh another set of tools for merchants which is businesses on the other side so it's
a mark it's becoming more of a marketplace business and the idea is that this after pay deal can solidify their ability to basically be a lender to their consumers and provide a tool to merchants to increase sales because the way after pay works it's a buy now pay later product these have been around for a long time and you can basically make a purchase
uh online without having to put down a credit card or to pay for it and they instantly run a credit check on you and instantly offer you credit to buy that thing and then you pay in installments over time and so it allows people it allows websites and businesses to get more consumers to buy stuff because it's really easy for them to buy stuff if they don't have the money
today right and by the way this this yeah this business this business content has been around for a long time there's a company called bill me later that was bought by paypal in 2008 for a billion dollars and it was a similar thesis right so the thesis you know what's old is new again the thesis is if you can provide these tools to merchants they will get more sales and
paypal on the other side would make more money because consumers would spend more through the system um and and i think that's the same model with square but most important so we're seeing square consolidate the marketplace dynamics in their business they're also effectively stepping up and competing and making sure they're locking in the
competitive advantage they have with having this two-sided marketplace against emerging competitors like a firm uh and so far enough was the original yeah the public capital markets will always reward great growth strategies the minute that they announce this deal this the market cap of square went up by almost 25 the deal is free free now what i repeat
they just acquired a 30 billion dollar company for [ __ ] free which is what happened with whole foods and amazon here is the secret hiding in plain sight that and not enough ceos understand about the public markets and so for the ceos out there listening there are two ways for you to get constantly rewarded by the public markets number one is what square did which is to incrementally acquire
feature after feature after feature the thing with buy now pay later is that it is not a company it has always been a feature and it's a feature of a much larger financial services platform and i think square is proving that and everybody else over time will realize that goldman sachs and apple are about to do something there with buy now pay later as well for
themselves they already apple already does it for the phones so the idea is that this is just a credit feature that should be on every single major network i wouldn't be surprised if whatsapp and facebook had a buy now pay later feature amazon overtime everybody needs to have this feature you can't build a company around it and so if if square can basically continue to
acquire or build adjacent features that consolidates the financial services stack for their consumers the stock market will reward these guys they'll be able to grow and buy things for free for the next five or ten years the second way that corporate uh that companies can get rewarded in the public markets is if you look at your costs and you flip them
from a cost or an expense into revenue and the gold standard is amazon so if you guys look back i'll just give you a very quick example because it's incredible in 2005 year end 2005 amazon they had eight and a half billion of sales two billion of net profit their two biggest costs there was product and shipping so what did they do they started amazon
kindle they started amazon basics they started amazon fire they started amazon echo and all of a sudden that whole thing shrank their gross margins went up then on the operating expense side amazon was spending six percent of revenue on fulfillment they started a fulfillment business they were spending five percent of revenue on technology they started aws
they were spending two percent of revenue on marketing they started amazon prime they started they were spending two percent on payment processing they started amazon payments so if you look at any company like this square i think stripe is another part of me uh shopify is another great example where you can see the path to growth if you can see folks acquiring adjacent
features or if you can see folks taking expense lines and turning them into revenue lines these are in my opinion sure bet companies that compound forever in the public there's great network effects if you think about financial services for consumers i would argue there's five general categories there's banking lending trading crypto and insurance and i think in order of retention
meaning how long a customer is likely to stick with a service provider it's banking then lending then trading then crypto then insurance and in terms of profit generation per customer per year it's trading then crypto then lending then insurance and then banking and so what we're seeing is a lot of these financial services providers to consumers in the digital
world replacing the old school world by starting to consolidate these categories in a smarter way than the old school offline companies have been able to do banks need to make money through overdraft fees they make 30 billion a year in overdraft fees so if you make banking entirely online and make it free you retain a customer and then you can
make money by offering them lending trading crypto some of these other services and that's certainly the trend i have a big thesis and a big belief that over the next decade we're gonna see those five categories start to merge and you're gonna have three to five super powers that are gonna offer a consolidated stack of services and the unit economics are gonna change
because they're gonna focus on getting the high retention products to be cheap and free and then they're going to make money on the high margin product the canary i completely agree with you and the canary in the coal mine is who will be given a federal banking license because that is the only gate that the authorities have to king make who those consolidators will be
and that's an easy thing that can be unemotionally assessed or amazon just buy one you have to apply no you have to this is an incredibly arduous process to get a federal banking license to be cleared by the federal reserve what if amazon water bank you have to get it approved jason you're not listening to me these are regulatory things i'm asking a question for the audience
you cannot acquisition versus applying okay so even if you want to you can't just buy a company like you bought whole foods so for example uh i think square now is a federally licensed bank uh and i believe that at the federal reserve recognizes these guys they can borrow when they can borrow money at the discount window at the discount rate um
as startups get more successful and can get there those will be the ones that will do what david said because it doesn't matter how many users or how much momentum you have if you cannot get a federal license to operate you can't consolidate so you can be a vertically specific great business but eventually you have to sell e-trade morgan stanley is a great example where
you know in the absence and an inability to expand you have to sell yourself because the cost of capital um eats you up the the the comment on this by the way the most obvious one here which i think is interesting is the shopify stripe debate because if you look inside the p l of shopify an enormous line item now about 350 million bucks a year is what they're paying to stripe
and you know there's going to be a lot of pressure over time to figure out what these big businesses want to do with respect to their payment strategies and and do it themselves because they may be able to save a lot of money unclear can i be like the lone voice of dissent on this after pay thing oh go ahead yeah well look it's clear the market loved it jamaat is right
about that it's sending a signal to everybody in the in the industry in the finance industry that consolidation is going to be rewarded it seems like finance is going to go the same way that media did where you start to see studios in hollywood all get gobbled up by big tech players sort of the final convergence of digital analog you're clearly going to see that in
banking now too so as a as a business person and as an entrepreneur i respect and admire what jack dorsey has done with square but as an american i'm definitely concerned about this accumulation of power and we now see jack is the first person i don't think it's there's ever been anyone in american history who holds in his hands the right to deny people's speech on a
on a major speech platform and the ability to deny them access to a major consumer payments platform now he doesn't have dominant market share in either one of those no he's got less than 10 in each but but he's an influencer and we saw that twitter was the first site to kick off trump and then in the wake of that every other tech platform did it
and square after january 6 cut off the accounts of everybody who was involved or connected to it whatever that means and a bunch of other players in the fintech stack did it so we now have this issue of financial d platforming paypal is already well down that road what will jack dorsey do i don't know i mean on the one hand why don't you start up why don't you buy
or start or incubate your own that's protection freeze free you're not going to ban people from calling so you win just [ __ ] start your own square competitors saxon stop complaining jason look these companies have gigantic network effects paypal is over a 300 billion dollar mark cap company if all of them if they back those 10 if they knock 10 of people off
you get them now you got your now you got your beach head stop complaining it is not it it is it is a non-argument to claim that a cartel of gigantic fintech companies that have monopoly scale monopoly network effects acting together that is not a threat to people's rights to have a lot of say it's not i'm talking about how you can make money from it i'm just talking your
book like you're just not making money for me it's not about making money for me this is no i know but it is an opportunity like who's to stop somebody from creating isn't parlor back and isn't there some other like um right wing or more conservative twitter that's booming right now i heard there's another one kara swisher was talking about
i'm predicting right now that financial d platforming is gonna be the big hot potato political hot potato over the next year this is the next wave of censorship and what i agree with republicans what the republicans on the ftc on that board need to ask jack dorsey right now is will you import the twitter block list over to square or will you keep these things
separate bestie gusty jack can i just say something sexy poo i think you're right but if you just want to make a lot of money um and you have to have some financial stock ownership over the next few years i think the the way to do it is just to kind of like figure out which of these emerging companies have or are about to get or have disclosed in their earnings that
they're filing for licensure and i think you want to own those things because the the key thing is like when you get these licenses you just get a cheaper cost of capital it just allows you to out compete and outmaneuver and then all of a sudden you're competing with these big lumbering incumbents who just don't have the access to the same flexible technology and they're
running code that's you know 40 50 years old then the policy decision becomes much more complicated because i do agree with you that there's going to be platforming or de-platforming issues that happen the good thing about this that it is highly fragmented and that there is in no clear path at least that i see for two or three folks to have 25 to 30 to
35 ownership that already happened sort of in credit cards and i think we've learned our lesson from that it hasn't happened since i hope it remains that decentralized but what what i think the the reaction of the stock market to square buying after pay is now everyone's gonna be looking at that and going wait a second i can spend you know a quarter of the
market cap my company and have no position no but david my point that's not what they're saying what they're saying is hold on a second these companies are features and we want to have folks who are licensed and capable to consolidate what freed brooks at these five categories and if you look inside a square they have an incredible lending business they
have incredible merchant services business they have a you know a pretty decent and emerging crypto and trading business right so they're putting all the pieces together that's what they saw and they're licensed right but who are the big winners in this wave of consolidation going to be at the end of the day it's going to be square it's going to be
stripe it might be it's going to be paypal it's going to be the big online companies not the offline legacy banks it's the same same thing that happened in hollywood the only studio that didn't get gobbled up by a tech company is disney right so it's gone eighty percent because they became a tech company and they become a tech they became a tech company
so i think their whole business they're gonna they're gonna catch up to netflix and then they're gonna roll netflix they're going to roll right over netflix the reality is that there is something about big tech that wants to de-platform people the legacy analog offline companies were never this moralistic uh towards their customer base they never d d platformed and banned people
the way that these are they limited they limited their moralizations and their high horse to the oscar awards in the enemies you're correct jake jacob i'm going to do a i'm going to do a a crazy wine dinner tomorrow night uh and it's about 45 minutes from you you should take a car um have them wait eat dinner and then drive back all right i'll try i got i i'm i'm doing
i'm going to see david which you know for me as a lifelong dream every time i i'm going to go see david because not david sacks david you know the the statue of david which to me is like looking in a mirror my whole life i looked at that you know that body small stubby schlong i get it but why don't you i have so many tours i'm doing in florence maybe i'll
zip out let's see maybe i'll zip out but i'm going to see you next week it's 45. the question is freedberg what are you [ __ ] doing get on a plane and come see your besties you're the only person not in italy you come for three or four days i know you got a pregnant wife i know you got to let you're moving all this stuff you gave up on san
francisco let me go talk to her just come for three days three days get get her some presents and uh maybe get some extra help with that they're all just sitting there in italy hanging out having mine are literally having the best time but they're living their best lives right now they're like oh we're gonna take a tour eventually do they wanna get some hours in i mean
no okay i'll set my plane it's united i'll send united for you jacob why don't you come visit me tomorrow you don't need to see a museum you know you don't want to spend time in museums why are you having a great time with my girlfriends in florence i'll see you all my mom's here you know like i have a lot of people here for two days and hang out for two days with us
what are you doing 48 hours it's not a big deal bring everybody all right anyway love you guys i love you besties all right y'all congratulations jake allen rob congratulations on robin hood okay thanks guys all i gotta say is is my first fund my little 11 million dollar fund right now you know we'll see what happens a long way to go once again i'll have a top
five percent one percent fund the first fund i did with sequoia with the scouts was like 150 cash on cash who knows this first fund i did with you guys backing me uh thank you for supporting me that 11 million dollar fund could be five six jacobs 567 x could be who knows we'll see go big cash on cash yeah you know it's a good feeling it's a good
feeling yeah thank you for the problem we're proud of you saxy poop nice week forever everybody wait did you have any wins this week aside from spending a lot of money on wine chamois is there any spectacular news that we need to know well i think dave david can confirm but i think uh i probably made a billion dollars this week all right there you go oh something's going
okay so there must be a smack coming brace no no no no no no no no oh something's getting sold all right we'll find out next week we'll see you all next week all right bye bye love you guys love you guys love you besties love you italy of course everybody's favorite the queen of quinoa the science conductor himself david freeberg all the data all the sockets says go do
whatever you want to do go into a nightclub sweaty robbing beast nothing else [Music] themselves as opposed to just telling them this is a single point that you should believe [Music] nothing else matters so much is all about like the good and evil them and us and we don't recognize that in moments where there are shared values we're just
sitting on both sides of the same coin or recognizing that sometimes having different values doesn't necessarily make someone evil nothing else nothing else oh no i appreciate it i appreciate you i appreciate you i appreciate you you you i appreciate you i appreciate you i try and kind of elevate the conversation a little bit and why i care so much about this point go
into a throbbing ring of course everybody's favorite the queen of quinoa the science conductor himself david freeman the quality of the show he calls it the if freedberg talks a lot it's a great episode go into a throbbing ring all the data all the time do whatever you want to do go into a nightclub go into a robin red sweaty nothing else nothing else nothing else nothing else