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What are easy businesses that you've you started?
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Where you like cuz I for me Milk Road was a way easier business than any business I'd ever started.
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Um what what's been an easy business for you?
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And where does does that Where does the Where does agencies rank on the easy to hard scale? I'd say it's medium.
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I mean, the hardest let's just say the hardest possible businesses are brick and mortar or where you have to move physical goods and you have a lot of employees.
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All right, Andrew Wilkinson. You're back. What's going on? Not too much. Good to be here.
0:36
Uh Sean, did you know that that Sahil one that we did we had Sahil Bloom on the other day?
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Two things were interesting to me.
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One, people thought when we were making fun of him that we disliked him.
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They thought I disliked him which is not true.
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And two, it was shockingly popular. Did you see that?
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Well, that part's not that surprising.
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The first part's surprising.
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I mean, we were all making fun of each other I thought.
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I thought it was a fairly even give and take but maybe not.
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Maybe we were It was a bit of a roast battle.
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But you don't you only do that with people you like. Yeah, exactly.
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If you actually don't like somebody, you don't just come out and start busting their balls.
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To be To be fair, the guy is like stupidly handsome.
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I met him uh when I was in New York. Very very handsome guy.
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So, we got to [ __ ] on him. Yeah, he's perfect.
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I mean, you got to take down the handsome guys.
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You want And you the worst part is you want to hate those guys but if they're nice, it's almost worse. He was very nice.
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Yeah, but the one thing that was really good is he's pretty prone to like taking a pretty like a cookie-cutter response to things cuz he's like he's got like a good image.
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He wants people to generally like him.
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Like he's you know, he's on TV sometimes.
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He's got his like book deals.
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He's like doing things where you know, public perception kind of matters.
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Whereas if you're just an entrepreneur who owns some business like you don't need everybody to like you.
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But for his things, you know, it's good when people like him.
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It's it's good for business.
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But he came on and he was like super honest, super open about everything and was not giving us politician answers even though I do think he's a future president.
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He wasn't doing that though.
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So, I thought you know, mad props to him for uh for just being normal.
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Like like if we were normally hanging out, that's how he was on the pod. It was perfect.
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What do you want to start?
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You want to start with some postmortem stuff?
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You want to What What do you want to go with this?
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Andrew Andrew always sends us the best topics in advance where we could we could just pick and choose like what's this word mean and we could riff off that.
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But Andrew, I bet you have a sense of what you think the most interesting topic is.
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So, let's not bury the lead.
2:27
What do you think is the most interesting topic that you have?
2:28
When I started my business, um I was like Mr. Business Builder.
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Like I'd say yes to absolutely everything.
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I'd be in the shower and have the idea of like oh, you know, why doesn't this exist?
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And then that day I would start it and I would just constantly be starting new businesses like every single month.
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And I think it was really good because it was like throwing spaghetti against the wall, right?
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So, it was like seeing what a good business model is via pain.
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So, it was just constant pain.
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And then also running an agency, you get to see all of these startups make mistakes and learn from them.
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And I had this really painful experience of starting an agency, getting really really lucky that my first business was actually profitable cuz I think one of the things that happens is people start their first business and fail and then they just say I I don't like this entrepreneurship thing. I'm out.
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And so, I was able to keep going and started another five to 10 other businesses.
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Um and almost all of them failed.
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Like it was incredibly incredibly painful.
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And after that, I kind of swore off starting businesses and I've only just come back to it over the last 3 years.
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Um so, I can talk a little bit about my experience in some of those businesses.
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Sam was texting me before and he's like, "Well, you started all these businesses.
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You've like tweeted out all these businesses.
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What actually happens to them?"
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Um so, I was going to go through a couple of those.
3:52
And by the way, for the for the listener, this is Andrew Wilkinson.
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You You're on He's on the pod all the time.
3:57
Owns this thing called Tiny.
3:59
Although, are you guys Do Do you want to go by Tiny Capital now or just Tiny? Just Tiny. I hate Tiny Capital.
4:04
Yeah, I I know you I I know you hated it but everyone was like using it.
4:07
But he owns Tiny which is I think one person called you online the Warren Buffett or Berkshire Hathaway of internet companies.
4:15
So, you basically buy uh and hold a bunch of internet companies that collectively are now doing a hundred north or hundreds of millions of dollars in revenue, whatever the number is that you say publicly.
4:24
How much did you pay your friend to say that about you?
4:27
I actually It's really funny because there's been all these uh uh like on the cover of Newsweek or whatever, it'll be like the next Warren Buffett.
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And Sam Bankman-Fried was one of those people.
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And so, everyone's sharing all these covers from all these things.
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So, being called the next Warren Buffett is not good.
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Uh I and I'm I'm different from Warren Buffett but I've copied a lot of his ideas.
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Well, Like the the next Steve Jobs, that was uh Elizabeth Holmes from Theranos.
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That was a another another one you didn't want to get tagged with.
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I think Chamath was calling himself the the the new Warren Buffett or like the brown Warren Buffett or something like that for a while. himself that?
5:04
He called himself uh or I don't know if he called I don't know I don't want to put like the quote on it but he definitely insinuated it and he definitely said, "We're trying to build, you know, the next Berkshire Hathaway, blah blah blah."
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And so, you know, he he was given that or he named himself that in a way.
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My favorite thing about Chamath um was that in his annual shareholder letters, he would uh he would compare himself to Berkshire Hathaway.
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So, he would track Social Capital's results versus Berkshire.
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And then one year he just stopped.
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And I think it was the one year that he didn't actually beat them. I think. I don't recall.
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That might be unfair characterization but that's my recollection.
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So, where are you going with this?
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Do you want to do the postmortem thing? Sure.
5:45
Is that Is that where you were going? I don't know. Yeah, let's do it.
5:46
We can go through a couple of those.
5:48
I think it's kind of interesting.
5:49
Can you start with Pixel Union?
5:51
I think that's incredibly interesting. Yeah.
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So, um was running Metalab and I uh was like an early Tumblr user and I met David Karp just via Tumblr.
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Like he was he was the CEO of Tumblr and he kind of knew all the early users and stuff.
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And I ended up making a Tumblr theme that I wanted to use myself and he was like, "Hey, this is really really cool.
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I would love it if you could create some more of these and we're going to make a premium marketplace where other people can pay to buy Tumblr themes."
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And so, I'm kind of thinking like, "Oh, this is a favor for a friend and this is a really small platform.
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I'm not thinking of it as a business."
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But I end up going to a bunch of my designers and saying, "Hey look, you know, over the weekend would you be able to whip up some themes?"
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And so, um I go to one of my interns like like literally uh a guy who is like um my brother's friend who had like just finished like doing a I think a philosophy degree.
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And I was like, "Hey, like turn this into whatever you you want."
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And so, we ended up calling it Pixel Union and it started doing like $10,000 a month of revenue and it was my first taste of automatic revenue.
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Like I would go to sleep and I'd wake up in the morning and we would have sold, you know, 500 bucks worth worth of these Tumblr themes.
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And uh Shopify noticed what we were doing for Tumblr and they said And at the time they were a tiny company.
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They were about 15 people.
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And they said, "Hey, can you guys also do the same thing for us?"
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And so, we got into the theme world um for Shopify and Tumblr.
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Tumblr obviously died post-Yahoo acquisition.
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Um and the business still exists today.
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Um it's a really interesting story actually.
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So, we So, I I started incubated the business, didn't raise any outside capital, spun it out of Metalab, became its own independent company.
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Um we ended up selling it in 2014.
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And then I stayed on the board. I kept 20% of it.
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And then a couple years ago I bought it back.
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And then we ended up taking it public and that became WeCommerce.
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What did you sell it for?
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Like 10 or 15 million dollars?
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I think I I read about it publicly. I sold it for 7 million. $7 million. Why would you sell that?
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Well, at the time it was doing I think 500k of net profit.
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And I didn't To be honest, it was one of those things where I didn't know how good the business was and I hadn't read anything about investing yet.
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And so, I didn't know how to value a business.
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And so, it was a double-edged sword because I sold this incredible business for um you know, a good amount of money.
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It allowed me to kind of have a sense of comfort and retirement and all that kind of stuff.
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But doing so, I suddenly had this pile of cash and I had to learn how to invest it.
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And so, I started reading about Warren Buffett and reading all the investing books and going, "Oh my god, I can't believe I just sold that incredible business."
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You know, it was growing at 50% a year.
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And you know, I thought it was great to get a 14x multiple but not when it's growing that fast. Um so, I regretted it.
9:00
And then what did you guys pay for it when you bought it back?
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So, we bought it back for 26 million.
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And then we um did a bunch of acquisitions.
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And then we took it public at a when you bought it back?
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How How big was it when you bought it back?
9:16
Uh I think it was doing about $4 million of annual profit. So, it'd grown a lot. Um and we paid 26.
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And then we bought 460 and a couple other businesses.
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And then we took it public at a $260 million valuation.
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And when you you said I didn't know anything about investing and blah blah blah at that time.
9:38
I think today people look at you as somebody who knows a lot about investing and they want to be like you when it comes to investing or buying businesses.
9:45
Um What year was that when you said that statement? You felt that way?
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Cuz I I'm guessing it wasn't like that long ago. Is that 10 years? Is that 12?
9:56
It was 8 years ago, 2014.
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so that's basically 8 years, so less than a decade going from I feel like I don't know anything about any of this to you know, I don't know what it you're like in the top percentile you know, in our in our industry and have had phenomenal success.
10:11
I think that's just sort of a a nice thing.
10:13
It's like you if you were willing to put in a decade, um you can go from literally the bottom to the top and that's pretty cool.
10:21
Yeah, I think it was you know, getting obsessed, right?
10:23
I think that um when you there's no better feeling than you know, picking up a book about something and just desperately reading it.
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Like you can't stop going through it.
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And I spent probably two full years just reading every single book I could get on I could get about value investing.
10:40
Um so yeah, I think with intensive time you can do it.
10:42
And the nice thing is there's that great Buffett quote where he says, I'm a better businessman because I'm an investor and I'm a best better investor because I'm a businessman.
10:52
And Chris and I we were natural investors within our own business.
10:58
We knew how to allocate capital within the business to drive growth and profits and margins and all that kind of stuff.
11:03
So when we became investors, we were much better at it, I think because we had that operational lens.
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We could look at a business and say, oh, that's really hard or hey, they're not doing these three easy things that we did at our company.
11:14
And I think So one of the big problems with investors these days is they're often what I call spreadsheet investors.
11:20
They look at a business like a spreadsheet and they go, oh, it's easy.
11:23
We'll just increase margin by 20% not realizing that in order to do that you have to convince 100 people to change.
11:32
Um What a Let let me let me piggyback off that real quick.
11:34
So have you did Sam, did we talk about this Warren Buffett See's Candy letter?
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I know I had it on our list.
11:40
I don't know if we ever did it on the pod.
11:41
Did we did we talk about this?
11:43
You it's been on your list.
11:43
You've never you've never did brought it up.
11:45
So Andrew, you're like a you know, Warren Buffett PhD.
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So you you probably know this but maybe not.
11:50
I had never seen this before.
11:52
So there was a letter in 1972 that Warren Buffett wrote to the CEO of See's Candy after they had bought See's Candies.
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And have you read this before?
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If not, I just put it in the in the chat cuz it's kind of amazing.
12:02
I don't I want to talk about it.
12:03
This was this was very surprising to me.
12:05
So I put it in the chat here in Riverside, but um Okay, so I think of Warren Buffett as this like kind of like what I see today.
12:13
There's this guy who's super smart, really like you know, likable storyteller. He's an investor.
12:18
He's a you know, he's not doesn't look like an operator.
12:20
He's like a geezer, right?
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He's just sitting there at his at his at his table and he reads all day and you know, he makes investment decisions.
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He's he's a capital allocator.
12:29
But when you read this letter, you realize like how detailed and in the weeds he was and how business-savvy he was.
12:34
So I actually want to read out parts of this real quick so that you know, people who aren't reading it can Dude, this is this is terribly I mean, sorry.
12:42
This is incredibly well written.
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He's got a he's he's got such a good voice.
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He goes, "Dear Chuck, I was at Brandy's a couple days ago and have a few strong impressions to pass along."
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So he visited the store and here's his here's his impressions.
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He goes, "Um people are going to be affected not only by how our candy tastes, but obviously what they hear about it from others as well as the retailing environment in which it appears.
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This means like the class of the store, the method of packaging, the condition it appears, the surrounding merchandise.
13:08
Just like the New Yorker creates a different editorial environment for Lord & Taylor ad than it does for Village Voice, so do the surroundings of our candy affect the way that our potential customers' mental and gastronomical impression of our quality.
13:19
You know, of course you know, of course you of course know this better than I." Right?
13:23
So that that was the first piece, which he's basically talking about like you know, the the store environment, you know, like the way that Apple you know, sort of recreated the the retail store.
13:31
He's already thinking about this and sending this like more like an operational and almost like it's like a design note, right?
13:39
He's not talking about margin.
13:40
He's not talking about like you know, debt.
13:42
He's talking about the the the merchandising of the store and how it feels and how that's going to affect how people taste taste and stuff.
13:51
Um Then he goes and he talks about um Uh let's see.
13:55
What's the next good bit?
13:57
So he's like Number three.
13:58
Yeah, he goes, "At Brandy's our product suffers in comparative way against See's Stovers."
14:03
He goes, "They have extremely well organized, well displayed, attractive area put featuring nothing but their candy.
14:08
Um we've taken a number of our boxes, put them on the counter with 25 other offerings offering cheap bulk candy and other run-of-the-mill products.
14:14
And they you know, and so he's talking he's like basically comparing this the store design.
14:19
And then if you go down, he goes um So he's talking about the merchandising for a while and then he goes um He's like, "We may well want to have a have descriptive material, maybe our own little booklet called The Most Famous Kitchen in the World or something of that sort.
14:34
Coors gets a lot of mileage out of the fact that all their beer comes from one brewery and I do think there's certain there's a certain mystique attached to products from with a geographical uniqueness.
14:42
Maybe grapes from a little part of Italy or France um are really the best in the world.
14:48
But I've always had a suspicion that 99% of it is just in the telling about it and 1% is in the drinking." Right?
14:52
So he's talking about like you know, like sort of this marketing psychology about that you know, giving him like ideas for catchphrases and slogans.
15:00
This is way more active and sort of like the brain switched on in terms of operating than I had thought.
15:07
Uh what is this is was this a surprise for you too, Andrew or is this something you knew about?
15:11
That's one of the things I found really inspiring about Buffett is everybody I like to be honest, my impression was always like, okay, entrepreneurs are the people that do the work.
15:20
The investors are people that shuffle paper around on Wall Street.
15:24
And what I realized with Buffett is that he actually was someone who yes, he owned the businesses, but he influenced the businesses massively and he made them grow and you know, brought them together and did acquisitions.
15:37
There's so many ways where he built value, right?
15:39
Which you can't say about a lot of people.
15:41
Like BlackRock doesn't build value. They just index.
15:44
They own a bunch of pieces of paper.
15:46
Warren Buffett actually grows stuff.
15:48
What's fascinating though, and I'd be curious to know whether he would still write a letter like this is Chris and I had dinner with Charlie Munger a couple years ago and we asked him, how involved do you get with the CEOs?
15:59
And he really said, um I'll never forget this.
16:02
He goes, I've never been able to change someone's mind.
16:03
If someone has a an idea about something they want to do, um I've never been able to talk them out of it.
16:10
And so you know, he said there's always opportunities within their businesses to tweak them and make changes and all that kind of stuff.
16:16
But it's just very hard to actually get CEOs to do stuff. CEOs are not puppets.
16:21
They have their own brains and they want to do their own things.
16:25
And you know, to man with a hammer everything looks like a nail.
16:29
Do you ever get bored just being an investor? Yeah. Very.
16:33
That's why he starts all those businesses. Yeah, exactly. I honestly boring.
16:38
I that's why I don't really do it. It's so boring.
16:39
I told him it's like yeah, it's like imagine if you know, someone came along and was like, hey, look, you don't have to work and you can have all this free time and just read all day and it sounds like a luxury when you're a stressed out entrepreneur.
16:54
But actually doing it in practice, you have to find new things to fill your time with and you don't get your hands on the tools, right?
17:00
So you don't get the sense So like for example, you know, we bought AeroPress and when we first bought it, I helped drive the redesign of the website, which you know, I was proud of.
17:12
But I very quickly had to let go of it.
17:14
I knew I couldn't keep you know, holding on to the business.
17:18
And so I had you know, we hired a CEO and I had to pass him the baton and let go.
17:22
And yes, I get a sense of like pride of ownership, but as the business progresses, I don't feel the lifts. I don't feel the gains.
17:29
Can can we talk about that acquisition? Sure.
17:33
So the background here is AeroPress for like it's almost like a coffee snob product. I I owned it. I loved it.
17:39
It was basically like a more convenient French press that you could travel with. I love it. Owned or own? I still own. I I own two of them.
17:50
I have one that I I have one that I travel with and I have one that just stays in the cabin. I use it every morning. I love it.
17:56
But it was only sold I'm almost positive I would only see them in mom-and-pop coffee shops and maybe Amazon.
18:03
I don't even know if they were on Amazon, but I like I So the retail wasn't that great, but like it was clearly like a good product.
18:10
It's one of those products that like consumers can buy for 20 bucks, but even the coffee snobs are like, this is the best way to do it.
18:15
And and you guys purchased it recently, which it's not exactly an internet business, but you're trying to make it a little bit more internet related.
18:22
But are you happy with this deal?
18:24
I know you guys paid it seemed like a lot of money.
18:25
You paid a premium for it. Absolutely.
18:28
I mean, I think when I look across all the businesses that we own and I think about what business could exist in 50 years, there's a very very small number.
18:38
I mean, most businesses die and I think that AeroPress is something that has potential lasting impact and can be around for decades.
18:49
And it was just an incredibly unique business.
18:51
I mean, when do you get the opportunity to buy a way of making coffee?
18:55
It's like, how do you value buying Kleenex, right?
18:57
The word for the way of making coffee that's written on grinders and is a verb almost.
19:07
No, I think it's sick, man.
19:07
Sean, did you see he bought this?
19:10
Yeah, I'm not a coffee guy.
19:10
Like I literally don't drink coffee.
19:11
So even though I had heard of the brand, it didn't I didn't know enough about it or didn't sort of didn't have too much of a you know, opinion on it uh because it's not my thing.
19:22
But it does remind me of like I was looking at SodaStream and I was like, I really love this type of this category of product.
19:28
I think it's a fantastic category where it's a thing that get you know, another device that gets in that can get into every kitchen and has like this sort of consumable, you know, refillable component to it. So that's great.
19:41
And then if you become the de facto device, like you said, I think you just said like the verb basically.
19:47
Like if you could become a verb, I just read this recently with someone who was like, you know, I learned 25 years ago if something becomes a verb, just invest.
19:53
And uh you know, it's it's pretty true, right? Google it. We'll Uber there.
19:57
You know, like you you you you realize that these verbs tend to become like de facto winners of uh of of their category.
20:05
And so, I've definitely definitely uh think it's a good idea.
20:08
I just don't you know, drink coffee myself, so it's not that business that I own that people like when I tell people and you know, you know, if I'm in tech and you say, "Oh yeah, we own Dribbble."
20:18
And they're a designer, like they know what that is. They think it's cool.
20:21
They might like give me a little nod or something like that.
20:24
But if you tell like I'll talk to, you know, uh the carpenter working in my house and say, "Oh yeah, I own AeroPress."
20:31
And if they know what it is, they are passionate about it and they're excited about it. And that is very rare.
20:38
So, um it's a really amazing business.
20:38
I remember reading uh about this in Priceonomics.
20:42
The guy who created it, he was like this I know, now now he's quite quite old, I think.
20:47
I think he's in his 80s and he like an inventor.
20:48
He was like a wacky scientist inventor like stereotype guy where he also in created like uh the Frisbee or like uh what was the Frisbee there was the Aerobie Frisbee.
21:00
Do you remember those commercials there was like we could throw this Frisbee over a football field or something like that.
21:04
And he created all this amazing stuff and he just had owned AeroPress that he created.
21:09
But it he wasn't like a business guy.
21:11
Wasn't he just wasn't this kind of just sitting uh kind of just like on autopilot?
21:15
I wouldn't say it was on autopilot.
21:17
He had a really great president who was running the business side, but they were both older guys and they were really focused on the retail channel, which you can see there's a reason why if you walk into 95% of gourmet coffee shops anywhere in the world, they sell AeroPress.
21:31
But uh when we looked at it just a very very small percentage of sales were online.
21:36
It just wasn't a focus for them.
21:39
So, we came in and there's just a ton of best practices.
21:42
And Sean, it's funny you mentioned SodaStream.
21:43
We actually hired the president of SodaStream US who grew the business to 200 million in the United States.
21:50
That's the new CEO of AeroPress.
21:52
So, uh Oh [ __ ] Yeah, I read about that person cuz I was researching SodaStream and I was like, "Oh damn, this person was like you know, they they were I don't know, the driver or the trigger of a lot of a lot of growth that happened for SodaStream.
22:04
Cuz so didn't SodaStream sell a couple times?
22:05
Um like it's owned by who? Pepsi now? Something like that?
22:10
I think it's owned by um what is it? Um oh my god.
22:15
I think it's it's an Israeli company.
22:15
I don't know if they've sold.
22:18
They might have sold to JAB Holdings or someone like that. I forget. Yeah. I think they have. So, Yeah.
22:23
No, no, it's uh SodaStream was acquired for 3 billion in 2018 by Pepsi. Um Okay.
22:30
But maybe now it's owned by somebody else, I don't know.
22:32
There was there was some story like that where it had kind of like flipped hands, I thought.
22:35
Um and I I was thinking that there should be like more competition for this.
22:39
Like there's uh there's so many D2C brands and I feel like the D2C SodaStream competitor um should win.
22:45
And I know there's a few of them out there, but uh I'm surprised I don't hear about these more.
22:50
I'm surprised there's not a 100 million you know, a D2C SodaStream competitor that's doing, you know, north of a 100 million in sales.
22:55
I feel like that's a like that should be a thing cuz SodaStream is very not D2C. Totally.
23:02
Should we talk about some of the terrible businesses? Yes. Those are more fun.
23:05
So, and then I've got I want to talk about a new business I'm starting actually cuz I got yet another one cuz I'm a glutton for punishment.
23:11
Um okay, so some of the early stuff that I did.
23:14
So, um I had the idea that um ca- I had cats and I was like, "Okay, all cat furniture is hideous.
23:24
Like it just ruins your house. It looks horrible."
23:28
And so, I went out and I found a couple like kind of mom and pop brands that were doing this and I said, "Hey, I'm going to start an online store for cat furniture called HJ Muse."
23:36
Spent a whole bunch of money designing an e-commerce website and I um you know, poured probably 300 grand into it, which at the time was a lot of money for me.
23:48
You know, my whole business was maybe making 800 grand of profit a year.
23:51
And I just learned how brutal a business e-commerce was that, you know, I was basically eking out these razor thin margins, whereas in my agency or in Pixel Union, I was making 30 to 50% EBITDA margins.
24:04
I was making like 2 or 3%.
24:07
And the amount of work required to move physical goods around, buy inventory, I realized that while on paper I was profitable, I was constantly taking my profits and putting them into buying more inventory.
24:19
And so, I ended up shutting that business down and using I think I lost all the money I put into it, but it was a great lesson in in just hard businesses.
24:27
I didn't realize that different businesses were um harder than others, right?
24:34
Like you kind of just when you when you do you when you're inexperienced in business, you stumble into these things and I always go like, "God, I'm so lucky I didn't start a restaurant as my primary first business, right?"
24:45
Because it's so brutal, right?
24:47
It teaches you so much, but it would be so easy to tap out and just think you don't like entrepreneurship.
24:52
A restaurant was my first business.
24:54
Um And and then he went into e-com.
24:56
And then now I'm in e-com.
25:01
The road less traveled, baby.
25:01
Uh so so what uh what are easy businesses that you've you started where you're like cuz I for me Milk Road was a way easier business than any business I'd ever started.
25:11
Um what what's been an easy business for you?
25:15
And where does does that where does the where does agencies rank on the easy to hard scale? I'd say it's medium.
25:19
I mean, the hardest let's just say the hardest possible businesses are brick and mortar or where you have to move physical goods and you have a lot of employees.
25:28
So, one of the hardest businesses I own is I own a bakery and deli in Victoria, BC where I live.
25:32
And I bought it because I my my brother had grown up working there.
25:38
It was a neighborhood place.
25:39
The owner wanted to sell.
25:41
And uh I've owned it for about 5 or 6 years.
25:43
And I mean, they have to have about 40 or 50 employees.
25:45
Someone has to wake up at 2:00 in the morning and go into the basement of the bakery and bake croissants.
25:53
And the amount of coordination that has to go right where if a couple people are sick, how messed up the business can be is just night and day compared to any internet business.
26:04
Dude, if the if the if the manager of that bakery bails, are you going to who's going to go out and find a new manager?
26:10
I have I have a restaurant group like a food and hospitality group, so I have a guy who runs that now.
26:14
Before it was me, I mean, they would text me and say, "Andrew, the deep fryer is broken.
26:18
I need an approval to buy a new one or whatever it is."
26:22
Um so, I've put people in place between there.
26:24
Um in the medium camp of challenge, I would say agencies.
26:29
So, agencies are beautiful in that they're asset light.
26:32
So, really you you don't even need an office these days, but you really just need an office, an internet connection, and a keyboard.
26:37
And um you can hire generally the people as you need them.
26:43
And so, you don't really need any investment.
26:45
Um they're they're um scalable.
26:48
Um but they're hard in that you're constantly balancing supply and demand.
26:53
So, Metalab, for example, if Metalab was to do all the work that came to it at any given time, it could probably be five times bigger.
27:00
But in order for us to get five times bigger, we would have to grow the company too fast and we would ruin the culture.
27:07
And so, I would say that agencies are a little bit like a law firm or an accounting firm or a consulting firm where you've got this kind of flat linear growth that happens over time.
27:17
Um so, I think they're great businesses, but they're feast or famine, right?
27:22
And you really have to be prepared for a downturn.
27:25
Um and you need to be unfortunately ready to make radical changes in the business at the drop of a hat if your pipeline's not looking good and that kind of stuff.
27:34
So, it's just very um very difficult in that way.
27:35
Um of course, every agency owner I know wants to own a SaaS software company.
27:43
And every SaaS software company owner I want or or uh that I know wants to own like a consulting business or something that grows really fast. So, um grass is greener.
27:52
The easiest business that I own um is a company called We Work Remotely.
27:58
Um this is a job board that we bought from Jason Fried and David Heinemeier Hansson at Basecamp. They had started it.
28:06
And it was like the remote job board.
28:06
Um they'd written a book about remote and they had great SEO.
28:11
They ended up ranking number one for remote jobs.
28:13
And as you know, remote work has taken off over the last 5 years.
28:18
And so, we bought that business from them and it really was just kind of sitting idle.
28:23
And so, with some very simple best practices and a very very small team, we were able to build it into a very large business.
28:32
And what what about SaaS?
28:32
Where would you put you know, SaaS businesses that you've run?
28:36
Uh well, I've lost a lot of money doing SaaS.
28:39
I mean, I think a lot of people know the story of Flow, the project management software that I built where I basically poured 10 million dollars into it because I was competing with Asana and didn't understand the dynamic of when you're competing against uh you know, you're fighting an army that has unlimited budget.
28:55
It's like Fiji fighting the United States, right?
28:58
And I'm going like, "I'm going to win this." It's ridiculous.
29:01
And so, I lost 10 million dollars uh doing that.
29:04
And that was a great lesson.
29:06
But um incredibly painful and I wish someone like me had tweeted and I could have read it instead of losing all that money.
29:13
How many agencies do you own right now?
29:18
Um I think I probably probably own 10 10 or 12.
29:23
There was um there was uh what's the guy's name who's the richest black guy in America?
29:27
Robert Smith, I think his name. Uh is it Vista Equity? Vista Equity.
29:32
So, basically Vista Equity is a PE firm that owns They're they're mainly SaaS.
29:37
And I think if I remember correctly, the article said that they own 200 million or sorry, was it 100 billion?
29:46
I Whatever it was, it was it was north of a hundred billion of of SaaS revenue, I think.
29:50
It was second only to Salesforce in terms of their reach.
29:55
And he had this uh thing where he was saying, "Look, on our companies, we're actually only seeing a 20% decrease from where we thought we would be this year."
30:04
Meaning like only a 20% um He's like, "We're growing at 20% a year.
30:09
We thought we were going to grow at 25%.
30:11
So, we're seeing a small decrease in the growth that we expected.
30:15
Therefore, we actually are pretty bullish on the economy."
30:17
With your agency, since you mostly sell to big companies like Slack and whoever else you sell to, are you seeing a slowdown from American companies buying services? Yeah, absolutely.
30:28
I think we're seeing softness over the next six months, and things are definitely slowing down.
30:32
Or if they're not slowing down, people want to achieve the same things but for less money.
30:39
Uh and so, there's these pressures, you know, like I said, it's the supply or demand problem.
30:43
And you've got the labor market where people are demanding more and more pay.
30:47
And then you've got your clients crunching you down, right?
30:49
So, right now, um you know, I think that it's unclear.
30:53
So, the other problem is it's really hazy.
30:58
And so, you get into these situations like when COVID hit, we had a brutal three-month period where the pipeline dried up, and then everything was fine.
31:06
It really depends on what the market sentiment is.
31:08
Whereas if you're on a SaaS business, what are the odds that someone's going to take, especially a sticky one, what are the odds they're going to rip it out of their company and retrain everyone on that?
31:16
And plus, they're only being reminded they pay for it once a year, right?
31:20
It's I always think it's better to have 10,000 people paying you a small amount of money than a hundred people paying you a lot of money.
31:29
And what uh what's Famous Original? Huh.
31:32
So, um I would say that the theme for me is that I will often do the wrong business before I find the right business.
31:38
So, for example, um I started a I I always I'm a designer, and I always fetishize the idea of having brick-and-mortar businesses.
31:48
I was so sick of doing all these internet things.
31:50
I wanted to do something in my own city.
31:52
And so, I came up with this restaurant concept of like a bar and pizzeria called Famous Original.
31:59
And me and some friends did it together.
32:01
And we basically learned the hard way that restaurants are brutal.
32:07
You know, we were like super egotistical.
32:08
We're like, "Oh, we're great entrepreneurs.
32:10
We're going to be able to nail it in restaurants."
32:11
And Sean is I I've definitely heard you talk about your experiences here. Uh and nodded along.
32:17
We just learned it was the most brutal business in the entire world, and we're shocked by how much money we could lose.
32:23
And so, we you know, hired the wrong management, we got the incentives wrong.
32:30
Uh we overspent on the build-out to the point where we could never get our money back.
32:35
Um you know, labor shortages, we had slippage.
32:37
There was There was tons of issues.
32:39
But what I learned from that was what does a badly run garbage restaurant look like?
32:45
And then when the deli and bakery came up, I was like, "Oh, oh, this is a good one.
32:50
Like this has been around for 25 years, stable earnings, great general manager.
32:56
What type of food are you selling? I just let it run." Uh pizza.
33:00
You could screw up a pizza place.
33:00
I would've thought that'd have been one of the easier places to easier of the hard. Yeah.
33:05
Cuz like you don't need it's like pretty simple ingredients.
33:07
Uh I I I wouldn't have thought you were going to ruin that one. No, we managed to do it.
33:18
Our software's the worst.
33:18
Have you heard of HubSpot?
33:20
See, most CRMs are a cobbled-together mess.
33:23
But HubSpot is easy to adopt and actually looks gorgeous.
33:27
I think I love our new CRM. Our software's the best. HubSpot. Grow better.
33:33
You have a couple on this list you got things you did in the past, you have things new businesses you're doing now, but I'm curious, do you have I guess like we haven't talked to you in a while, have you have you had any ideas for businesses that you're not starting currently, but you're like, "Someone could do that or someone should do that."
33:50
Or I wish someone is, you know, going to capitalize on this opportunity or trend.
33:56
Is there anything that that comes to mind uh for ideas that you're not currently acting on?
34:00
So, I might have talked about this idea in the past, but I've had this idea for a long time.
34:03
Um I like the idea of a service that allows you to get on one person's radar. Right?
34:12
So, I choose let's say that I Let's say I want to sell my company in the next two years, and I think the right buyer is this, you know, this ex Let's say HubSpot, right?
34:24
I want to target Dharmesh.
34:26
So, everywhere Dharmesh goes on the internet, I want him to see stuff about my company, and I want him to think we're huge.
34:32
There's I forget where the quote comes from, but there's this idea that if someone sees you five times, they think you're everywhere.
34:38
So, if you're on five podcasts they listen to, they deem you a huge celebrity and a success or whatever it is, right?
34:43
So, I think I want that, but hyper-targeted, and I think it's worth a lot of money.
34:50
So, I would pay $10,000 a month to be on Dharmesh's radar everywhere he goes.
34:53
And so, I don't know how it gets done.
34:56
It's like a advertising sniper rifle essentially, but I really like the idea of something like that.
35:03
So, I have a story about this.
35:03
So, my best friend, his name is Jack Smith.
35:04
He sold his company called Vungle for $800 million right before the pandemic when he was like 29 years old.
35:11
The way that he started it was he uh was in England living in England as a college student, and he had this idea, and he wanted to go to a accelerator called What was it called, Sean? Do you remember? AngelPad? Yeah, AngelPad.
35:27
And the guy who run it run ran it was named Thomas, and Jack missed the deadline to join the incubator.
35:35
And so, what he noticed on LinkedIn, he goes, "Let's advertise just to Thomas."
35:38
And he said uh on LinkedIn, the way it worked is you could advertise to like it said like, "Only show this to people uh like a hundred people a day."
35:47
And he's like, "Wow, you can go to a hundred people a day?
35:48
What if I just moved it to like ten people a day?"
35:49
And they allowed it him to.
35:52
And it says, "All right, only show this to ten people a day, but make it so they have to work in San Francisco, and they have to work at AngelPad."
35:58
And the ad said, "Hi, we're trying to reach Thomas.
36:01
Uh please tell us to contact us."
36:03
And he did that, and it worked, and they let him into the incubator, and six or seven years later, the company sold for $800 million, and we at the Hustle wrote an article about this.
36:12
It went viral, and LinkedIn changed how they did it.
36:15
You can't actually advertise.
36:16
They won't tell you how many people you're going to reach per day. Or something like that. Totally.
36:20
Something like that would be amazing.
36:21
Or even just figuring out like, "Okay, what Let's Let's just do this."
36:26
So, so I get Dharmesh's email, and I run it through some sort of database, and I go, "What email newsletters does he subscribe to? Or what podcast?"
36:32
Like how do you I don't know if it's possible, but what is his information diet, and then how do I appear in all those things? That's crazy.
36:40
Yes, I think that would work wonderfully.
36:42
Yeah, there's there's a I I would love it.
36:44
If someone wants to start that business, please email me cuz I think it's a great idea.
36:48
Um but yeah, there's I mean, again, like I come up with tons of ideas, but that one has stuck with me for three years, so I feel like it's something good.
36:56
Yeah, what could go wrong?
36:58
Just targeting somebody wherever they go. Everywhere they look.
37:05
What could go wrong here? Um okay.
37:07
He's buying a billboard by his house. So, that's one.
37:10
Uh what about some other ones? I know you got more.
37:12
Let me Let me talk about the new thing that we're doing.
37:15
So, and this has been something that's been driving me crazy forever.
37:19
So, do you guys know what investment bankers are? Yeah.
37:23
I know people who call themselves that, yeah. Right.
37:25
But a lot of people kind of go like, "Oh, that's like a stock broker."
37:28
Or, you know, they work at a bank. It's not clear.
37:30
Investment bankers are realtors for businesses.
37:33
They go and they represent you, and they sell your business for you, or they raise capital for you.
37:40
And I didn't really understand that world at all.
37:43
Um so, like I like I said earlier, I have only understood finance for eight years.
37:48
And I would say really only over the last two or three years have I actually tapped the world of finance, like gotten proper banking, credit, learned how to sell businesses, learned how to use the investment bankers.
37:59
But I think those that stuff is not really accessible to founders, and frankly, they don't speak the language of investment bankers.
38:07
The investment bankers are the spreadsheet business people, right?
38:11
They look at your business as a spreadsheet, and they want something that's simple and easy to understand.
38:17
And frankly, like I was kind of allergic to them because I didn't speak their language.
38:21
They would come and talk to me, and they would use terms like EBITDA, and you know, gross margin, and all these things I didn't really think about as a founder.
38:28
And so, I have been looking for a firm for years um that I can use to either sell small businesses, and when I say small, I mean like kind of one to five million dollars of EBITDA, or help founders do secondaries, or all these sorts of things, or even just finance M&A.
38:47
And I'm yet to find someone.
38:50
Everyone seems to specialize in larger businesses, or they're too small.
38:56
And so, um last year, Chris and I met this young investment banker, and he was just a normal person.
39:02
Like we had him out for lunch, and he was not wearing a suit, and he was saying how miserable he was, and how much he hated, you know, his his old job doing it.
39:11
And we we kept saying like, "Look, like you should quit your job and come work with us, and we'll start a modern investment bank for founders."
39:20
Really focused on bootstrap founders because they don't know how to access capital.
39:24
And so, we we're starting this business called Tenzing.
39:28
We started like a month ago. What's Tenzing?
39:31
And the idea is Tenzing Norgay is the most famous Sherpa of all time.
39:33
So, he helped Edmund Hillary climb Mount Everest.
39:37
Um and so, basically, the idea is um you can go to him and say look what are all my options right I you know can I get credit from the bank can I raise debt to do M&A can I do a secondary can I sell my business and they can basically walk you through all of that stuff in a way that's aligned and not fee driven and more long term focus so we're basically starting our own little investment bank. Is that going to work?
40:05
Dude cuz if you are a if you're if you're a startup and you're in the if you use the word bank right now I hate you.
40:12
No it's not I mean it's not They're not taking your money.
40:14
I I mean I could just call it business we're starting a business realtor firm but the term is investment bank there's no banking we're not holding anyone's money there's no tokens I'm not going to Argentina.
40:28
You should consider it seems seems pretty lucrative. Yeah yeah yeah.
40:31
Tens of billions turns out.
40:33
Yeah do you like billion dollars or not?
40:36
I think like I don't know if you guys have experienced this but like even here in Canada so for like five years I wasn't aware of this but the government will actually pay 30% of your R&D when you're a small company and I just didn't know about that and so I literally lit a million dollars on fire I could have gotten a million dollars of these tax credits and I didn't right I could have used a
41:00
credit line to buy ads for my SAS business but I didn't know how to do that I could have sold businesses that were working but I didn't really want that just kind of died like I let them die right so I think it's about like how do you get how do you get the most out of what you have and giving people tools to do that and it's just I wish this had existed when I was starting out. Yeah I I totally agree
41:22
Yeah I I totally agree you know most investment bankers don't work with startups um because they're too small or the deals are too small or whatever so how are you going to get it to how do you get how are you going to get the numbers to work cuz I don't think they're doing it cuz they discriminate I think they're doing it cuz the money's not there for them so how do you make that work?
41:42
Well it's not small businesses right I mean like we're really focused on bootstrap businesses cuz that's where we come from and these are companies that are doing you know two three million dollars maybe 500k of profit some of them are actually bigger so we've talked to founders that are like hey I've got
42:00
like a you know 10 million ARR business I'm doing three million dollars of profit I was thinking I want to sell 30% of my business and we kind of go okay well we have the network we've gone and you know raised all these funds and met all the people in finance let's connect the dots between these people and be the financial translators. What's been
42:16
What's been linked you guys to the website it's tenzing.
42:20
co but you can kind of see what we're doing.
42:25
What's been the biggest oh dude I thought you said you hated these graphics you have the graphics of like the people with like the funny arms and funny fingers if I remember correctly you tweeted out if you see another page like this you're going to kill yourself or something like that.
42:38
No no no it was the um the like weird Russian looking ones that Dropbox was using for a while they were like so weird and depressing.
42:46
What a What oh dude I know you I know these folks I've met Rob before Rob is in our world I don't that's funny it's such a circle jerk world that we live in do you just like call you just collect people on Twitter is what you do.
43:00
Rob actually lives in Victoria so I've known him for a long time he he runs uh Outway the sock business that's right and they just launched a custom they just launched a custom sock business you guys should get some uh MFM socks made.
43:12
We did where I've gotten them for this other thing but what a what's been the biggest business that you've sold so far was it the uh fitness thing or the meal plan thing?
43:20
Yeah yeah we bought a business called Mealime um and we sold it to Albertsons.
43:27
Did you did you buy that or I thought you started it.
43:29
you started it. No we bought it so um there was a guy um up in Nanaimo he's a developer and um he uh started this business with two co-founders and his two co-founders after the first year didn't want to be in the business anymore and so we they owned 70% we came in we bought them out and Mitch the founder was basically like look guys like I'm already growing this business I know exactly what I want to
43:55
do just leave me alone like we tried to write the Warren Buffett letter and say like oh you should do this on growth or whatever and he basically just said leave me alone and so we said okay fine we'll leave you completely alone and a couple years later Albertsons came and they bought it for tens of millions of dollars and it was a great deal for everyone and yeah worked out really well. Do you think that in the future
44:14
Do you think that in the future you're going to sell anything or you just going to keep on buying and keep on holding?
44:20
I mean do you cuz cuz you don't want to sell do you?
44:23
No I don't like selling and I think that it's really hard to predict what's going to end up being large and how large it can be and then also if you think about it like if you have a business and it's dying it's hard to predict how quickly it will die and
44:40
how much profit will come out of it and usually when a business is dying you can't sell it for much right let's say the business is on a major downswing you might get like one times profit and so you're basically making a bet that it's going to die before a year which very
44:55
few businesses die that quickly and so usually it's better off just to hold forever I've found you know you will see like Warren Buffett sold off his newspapers I think that was partly because the writing was on the wall but also because it's like unions and a lot of complexity and they
45:11
wanted to get out of that but no I mean I I don't ever want to sell businesses As someone only reason we sold Mealime was because Mitch wanted to sell the business he came to us and said I want this exit and we weren't going to hold him back cuz he was the founder. We
45:24
We we just did this thing on the FTX saga and I know that you like have historically been I don't know if you call yourself anti-crypto but you're definitely not pro-crypto and you're for sure not pro-NFTs and all that other [ __ ] of which I agree with you.
45:37
What what's been your take so far on watching all this drama?
45:41
all this drama? Um I think it's really really bad for crypto I think that you know Sam Bankman-Fried is somebody who I certainly had thought oh maybe this is one of the good guys and I'd seen him uh do the podcast circuit um and he seemed like a smart guy and I think that when the number two you know if you think about these are like banks it's like that's the equivalent of like JP Morgan
46:06
going out of business just suddenly and everyone losing their money um so I think it probably has a lasting negative effect on crypto and trust um and it's been fascinating watching the price of crypto not react the way you would think where you know inflation you'd think would drive the price of Bitcoin up it doesn't appear to have done that to be honest I'm not I was saying this
46:31
to a friend of mine I think I've probably said it on the show before but if you came to me and you said hey I think British pound sterling I'm super bullish on them because XYZ macro event was happening I would just say why are you currency trading you're a tech entrepreneur and I think that Bitcoin is currency trading right like just buy great businesses do the thing you know and I think everyone is just speculating
46:57
on this stuff and there's a ton of fascinating arguments for it and I follow it but I have just fully steered clear and I'm sure that we'll invest in a crypto business at some point but for now I'm just waiting for it to play out more one important reminder is if you if you missed Amazon you had until 2010 to invest in it there's a lot of time to wait and sit and watch to find these great businesses. Uh two things one
47:27
Uh two things one uh that thing you just said reminds me of something Kevin Van Trump told us once he goes um we go what you know you've been trading for 20 plus years uh you know what are the biggest lessons or something like that I don't know I asked him some some stupid question like that and he goes well well you know there's no lesson blah blah blah and then he goes one thing there's always a second chance on the
47:50
train he goes even when it's a winner even when it's a good thing you'll always get a second chance on the train and you know so so that sort of takes away a lot of the FOMO when you realize that that there there you do get these second opportunities you know it happened with Amazon it happened with Facebook it happened with many many businesses where even if you weren't early and correct um these things go up and down now the hard part is
48:15
uh it's when they go down that you have the least conviction so could be that that right now is the right time you know now might be the second time to get on that train because prices are down but now is when people
48:26
are the most scared and the most hesitant to act on it if you were hesitant before you're probably triple hesitant now and so I think that's the hard part for for ticket to try to get back on the train when when there is a dip uh the second thing
48:39
is we talked about red flags and fraud I think on the last time you were on here we talked about people who were lying or our partners who had screwed you uh with the FTX thing did you hear of anything or or was there anything red
48:51
flaggy that you had heard either along the way or once it started to come out that you're like oh that sounds pretty bad actually that's that was a bit of a tell now either in hindsight. No I mean I like you guys um I I am
49:01
No I mean I like you guys um I I am I just haven't followed I I guess I hadn't followed it super closely and I hadn't really spent a lot of time on that particular business um I was quite shocked that he was known for risk management and he had been
49:20
talking you know was very assertive about talking about the security of the balance sheet and it seems like there's a lot of loans going on between related party businesses where he's bailing out his own business and stuff so very sketchy what I find fascinating is is this a bad actor? Right? Is he a psychopath who's Right?
49:38
Is he a psychopath who's building a Ponzi scheme or is he just somebody who got in over his head and used too much leverage and messed up?
49:48
And I I don't really have an assessment of that yet.
49:50
And to be honest, I'm not following it super closely.
49:52
I'm kind of waiting to read the book.
49:53
I find like waiting for this stuff to all blow up and wait 4 months for like, you know, the Atlantic or New Yorker or someone to write like an amazing piece on it is always more interesting than following the day-to-day.
50:05
My favorite Twitter feed, Autism Capital, who's been covering this whole story, has said that Michael Lewis, the guy who wrote The Big Short, has been like embedded with him for the past 6 months writing a book and that he's still involved.
50:17
And so I have a feeling we're going to we're going to we're going to have something good.
50:23
It was meant to be like The Blind Side.
50:24
It was meant to be this like, you know, this like you know, sort of like this was, you know, one of The Blind Side style story. What's that?
50:33
You said it's supposed to be like The Blind Side?
50:34
Yeah, like a positive story, right?
50:34
Big Short was basically like, here's, you know, this thing that was, you know, destined to fail.
50:38
I think he was following him not thinking FTX is destined to fail, but thinking, you know, these are the challengers, you know, and look at look at the crazy craziness that's going on, but like not I don't think he was following him and I don't think SBF let him in because Michael Lewis was thinking, it's just a matter of time until this blows up and this will be the big fraud and the big scandal like just like The Big Short part two.
51:00
You know, so so I think that that's the interesting part.
51:02
It's like, well, here's your here's your surprise twist ending that you got here.
51:04
I will say there's this one guy, Jason Troy, that wrote a Twitter thread that is the best Andrew, if you want to read the equivalent of the book or the the New Yorker piece, like I wouldn't wait for them because A, the New York Times put out a piece on on SBF that was supposed to be the um you know, the sort of like the recap and it was like incredibly soft on him.
51:25
It was sort of just made him out to seem like a good guy and you know, some oh, some bad things happened to happen.
51:32
And this guy, Jason Troy, wrote out this Twitter thread that's very clear and it has all of the evidence in a timeline that we know so far and it is it's pretty compelling.
51:42
You should check that one out.
51:43
Have you guys pulled it up.
51:46
Have you guys ever come Have you guys ever had contact with someone who's now a famous fraud?
51:51
I've I've never I've like never met someone who like was a blatant liar about things that like kind of became well known.
52:00
I've told the story about the guy I worked with, the king of coal in Indonesia, who ended up in jail and and away in jail and But he wasn't a fraud, was he? He was just a criminal.
52:10
I mean, he did like he he like like like he like Well, no, no, no, it's way different.
52:17
It's like someone you know who's like like, what do you do for a living?
52:20
Well, I I [ __ ] rob people versus like Bernie Madoff who's like, well, I I run a bank.
52:26
People who people who steal tend to lie.
52:30
And and you know, so I think that yeah, this guy was bribing people, but it wasn't just let's say bribery, you know, there was obviously going to be other things in an organ in an organization like that where your if your primary agenda is to make as
52:43
much money as possible as quickly as possible and you have great success doing it, but you're not doing a ton of the value creation yourself, you know, there's there's often a um you know, both there's often both going on. And you know, I I was able to see a
52:56
And you know, I I was able to see a little bit of it.
52:59
What I what I saw mostly was just the sort of like the the fact that okay, I guess that's the way you do business in these countries.
53:06
You kind of got to grease the the the guy in the middle and that's how you get the thing.
53:10
You know, the the sort of bribery corruption is very common in India and Indonesia and a bunch of different places and so that part was known.
53:16
I was an open secret, but I'm you know, it's not like if you had if you'd asked me at that point time, is there anything else going on?
53:22
I wouldn't have been able to tell you anything specific, but I would have bet a lot of money that there was something else going on and it's part of the reason why I wanted to to leave eventually.
53:31
So So I am most of the frauds that I've met have always been small-time.
53:34
So it'll be like I meet someone and I ask around about them and someone's like, hey, like, you know, they've gone through the city and got like $10,000 from all these investors and like defrauded them, but it's small-time enough that they get away with it.
53:51
Charlie Munger calls them the rats in the granary.
53:53
You can't really do anything about them because they're too small.
53:56
They're always going to be there and if you you know, you hammer them once, they're just going to come back in some other form.
54:03
Um I met a guy This is a bigger one.
54:06
So um in in the Canadian stock market, there's tons of fraud and there's very little enforcement and often what you'll see is something will get hot.
54:18
So like, you know, oh, vertical farming is hot.
54:21
So they'll find some, you know, guy with like five employees who has a vertical farming business and some investment banker in the public market will say, hey, let's dress this up as the next great thing.
54:31
And then what they do is they dump it to retail investors.
54:35
So they go to mom and pop and the investment banker calls them and says, hey, I've got this amazing deal. We're going to IPO it.
54:41
It's going to pop, whatever.
54:42
And they hand the candy out and often what ends up happening is, you know, as the trend goes, so you know, as marijuana stocks or fake meat or cubic farming or whatever it it is, it pops and then it drops.
54:55
And what happens is the investment bankers often make a killing because they get paid in warrants and they get paid a percentage of the money they raise.
55:05
So if they raise $100 million, they might get paid $5 million plus warrants and if it pops, maybe those warrants end up being worth $10 million and this is all legal.
55:17
This is totally legal and so it's basically legal stealing, right?
55:19
So they go out, they raise all the money from a bunch of, you know, grandmas and doctors and normal people.
55:25
Stock pops, they sell and then it goes to zero and all the employees get laid off and the company goes bankrupt or it's kind of a shell of its former self.
55:34
And I met a guy at a party you know, last last summer and he was bragging to me about this IPO that he had done and how much money he made and I started digging into it and it was literally a the equivalent of taking a corner store public.
55:52
This was like a two-location business and he dressed it up to match a trend How much did he make from it?
56:00
He probably made I don't know.
56:02
I could probably do the math, but it's I would argue you probably five to five to $20 million doing this.
56:07
And you know, he's bragging about it and the stock is down I think to like 10 cents or something, right?
56:15
It's just it turned into nothing.
56:17
And so it's crazy cuz it's literally legal it's legal stealing, right?
56:22
Like everything he did is technically legal.
56:23
They do all the right documents.
56:26
When they take it public, they disclose all the details.
56:28
They just write it in the right way.
56:31
hurt his reputation because he's behind the scenes and like, you know, no one knows.
56:36
And lots of people flip the stock, too, right?
56:38
So many of his early investors probably just sold when it peaked out to, oh, you know, what are called bag holders in in the industry and then those people lost all their money.
56:47
And so it's they hurt, let's say, 10,000 people in a very small way and so it's just not the sort of thing that gets a lot of attention from regulators.
56:55
So I find that kind of gross and crazy and there's a ton of that up here in Canada. So I tweeted this out.
57:03
Let's see, when was this?
57:06
This was basically last year, February 2021.
57:10
And I said, e-sport investments are a joke.
57:12
There's so much dumb money in the space.
57:14
Look at this billion-dollar publicly traded company in Canada.
57:15
And e-sports is another one of those like kind of hot industries that that you're talking about. And the ticker is EGLX.
57:25
So I showed this graph and I was basically like, look at this thing, it's trading at $8. 59.
57:30
So I said um you know, it's basically it's a hold co of random assets.
57:33
It's got like a website for The Sims.
57:35
They own a minority stake in the Overwatch team of Vancouver.
57:41
Um it's not necessarily a bad company, but it's definitely not a billion-dollar company.
57:43
And so it's like, here's some of the things that they bought.
57:45
They bought Luminosity, the team the e-sports team. They bought it for 1.
57:49
5 million in cash, 7 million in stock.
57:51
What's the company called again? I want to look it up.
57:54
I'll tell you in a second cuz the the the prediction came true. Here's the spoiler. So EGLX is the ticker. So it was $8. 59 when I wrote this.
58:02
It is now trading at what? 83 cents. . 84. Oh my gosh. So yeah. What's the market cap?
58:11
So it's down 90% since I wrote this thing. 126 million.
58:14
How does it even have 126 million dollars of cash?
58:19
guess spoiler, it's going to go down another 90% from here, is my guess.
58:23
Not to pick on these guys, but just like there's a lot of this happening.
58:24
I met other people, you know, who are doing the same thing and it seems to happen on these small exchanges in Canada and stuff like that.
58:32
So they bought Luminosity for a million million and a half in cash, 7 and a half million in stock.
58:35
They bought some agencies for 13 million in stock cash, some more stock.
58:40
And they started trading on the TSX and then they were up four four X in a year.
58:45
And it's basically an ad agency and then they own, you know, a couple niche websites.
58:51
And like, you know, if you add in all of the things that they bought, you know, they did 30 million in revenue with 50 million in expenses, you know, they lost $20 million this year and they call themselves a you know, a billion-dollar company.
59:02
And so, you know, like I said, and people want to invest in a rocket ship and this is a sparkler.
59:06
They have 8 million of cash left in the bank.
59:08
Looks like they're going to need to raise more money if they want to keep this going.
59:12
And so you know, I didn't even remember that till you just said this thing you said.
59:16
I was like, I think I saw some [ __ ] e-sport thing in Canada and sure enough, this was it.
59:22
Yeah, there's endless numbers of these.
59:24
I mean, it happens in the states, too.
59:25
You guys saw Nikola where, you know, even the name, you're like, okay, Tesla, Nikola Tesla, like you're just trying to grab onto this trend and they you know basically faked that they they had this what is it?
59:37
I forget hydrogen powered electric semi truck and it turned out they were just rolling it down the hill and turning the camera so it looked like it was driving on a flat surface. Complete fraud.
59:48
Complete fraud like crazy fraud. that commercial? Yes.
59:52
I'll link you guys to So there's this amazing guy named Nate Anderson.
59:58
He has a a short selling hedge fund called Hindenburg Research and he writes these amazing research reports where he takes down these companies and it's just facts, right?
1:00:07
It's like all he does is just basic diligence and he'll find like oh like it turns out Trevor Milton the guy who is the CEO of Nikola was accused of all these crimes and if you just do basic research on this guy obviously this guy is a fraud and he'll write these amazing research reports.
1:00:25
Here I'll send you guys one.
1:00:29
No, this guy his his stuff is good.
1:00:29
He's he's he I mean he's a short seller so obviously he's going to be a hater but his stuff is usually well researched and fun to read.
1:00:38
Yeah, I mean I think there's there's crappy short sellers who are going to you know make stuff up or you know hint at stuff and then there's short sellers that are basically journalists that just share what's going on.
1:00:50
Do you guys Do you guys remember Bird?
1:00:51
Sean, do you remember Bird in San Francisco? Scooter company.
1:00:54
Okay, so scooter company that I don't remember how much they raised but I I believe it was a $2.
1:00:59
5 billion valuation and I bet they've raised north of four or five hundred a lot.
1:01:06
raised over a billion dollars. Let me see.
1:01:07
They've raised over a billion dollars?
1:01:08
Yeah, I they're they've raised more than it's currently worth and I think it's currently worth So listen to this. Listen to this.
1:01:14
Google what it's worth right now.
1:01:17
So they took it public at a $3 billion valuation I think.
1:01:20
It's currently trading right now at $70 million.
1:01:22
70 Okay, they raised 883 million. Is that crazy?
1:01:28
This company is is is the market cap is 73 I think million bucks. Wait, which company? Bird. Bird scooters.
1:01:35
Do you guys think Oh wow.
1:01:36
They have to have at least 70 million of of scooters.
1:01:40
Well, and how much secondary how much secondary did the founders take out too?
1:01:43
Which I I can't blame them to be honest cuz it was so hot but still But I but I don't know how much he took but I always like stick with like the best way to figure out you know how wealthy someone is is by looking at how expensive their home is because it's kind of hard to like get a fake mortgage that way.
1:01:59
And Travis the guy who founded it if you Google his name and like house you'll see like you know tech entrepreneur selling $10 million home in Santa Monica or tech entrepreneur buying $20 million home in Miami.
1:02:13
So he's he bought he's I think he's bought two houses that are worth tens of millions of dollars.
1:02:19
So he's definitely There's there's something I've got a really quick thing if we have time. Yeah.
1:02:24
So do you guys remember I did this thing called a non-binary term sheet a couple years ago? Yeah.
1:02:31
So So I've always found I've always found venture really tricky, right?
1:02:33
Because someone will come to you and they'll say you know I am going to revolutionize XYZ industry and I'm going to create a billion dollar business and I always say okay well if you don't create the billion dollar business then I lose all my money, right?
1:02:39
And to me that A it sucks for the founder because if they um you know get a bunch of money at a valuation that's too high they can never make their investors happy and it sucks for the investor because it's binary either they lose all their money or or it goes.
1:02:47
And so when I was raising money for Supercast a couple years ago I wanted to get what the market rate was for valuation but I also wanted it to be fair because for me I didn't want to feel like [ __ ] if the business didn't pan out.
1:03:03
I knew that if the business didn't pan out to be a huge business it could actually be a good smaller business and so we raised it at a $10 million valuation which at the time was kind of a good you know angel angel round valuation but it was structured so that within two years if the business doesn't do a million dollars of revenue that turns into a $5 million valuation.
1:03:24
And so it ended up we we did close to a million dollars but we didn't hit it and so I crammed myself down by 50% to make it fair.
1:03:36
fair. Now I know a lot of founders wouldn't want to do this because why would you do this you know other than to be a boy scout and you know have a sense of fairness if no one else is doing it and if VCs expect this but I think it's a really
1:03:51
interesting structure and we've been offering it to more and more founders as the environment changes where we say look we'll invest but it has to be structured so that if you don't deliver on what you say you're going to do we can still get our money back. What do
1:04:03
What do you guys think about that?
1:04:30
I don't love it for two reasons.
1:04:30
One is what you just said which is like why would a founder do it?
1:04:34
Like if I think about it from the founder's perspective if I don't have to do that I'm not going to I'm not going to do that, right?
1:04:43
Like traditional venture would just be a better deal for me as a as a founder in that case.
1:04:48
And the other thing is I think it creates weird incentives like I like the concept behind it.
1:04:52
Like I like the spirit of it.
1:04:53
But then I'm like okay, who's going to set these benchmarks and then what happens when the thousand different things can happen in businesses and like you you you said it yourself like we got close but we didn't get there.
1:05:04
And then there's like this crazy urge to like do something to nudge it over the top and now you're doing something that may not be long-term you know right for the business and so you create some weird dynamics.
1:05:12
I wouldn't say it's worse dynamics than the currently exist.
1:05:18
It's just more like if I'm the founder I would rather I'd rather do that and I also think I'd rather take the venture path where I'm getting a higher valuation and selling less of my business.
1:05:27
I would also say there is a sort of like we're going for it or we're not.
1:05:32
Like you would if you're running a pro like my e-commerce business we run to maximize EBITDA.
1:05:38
Like yes we want to grow it but it's like this thing needs to make profits every year whereas when we do venture things it was like we don't think about that.
1:05:45
We think about you know how are we going to grow users let alone revenue let forget about profits altogether.
1:05:50
And so there is like sort of like a there is a benefit in knowing which path which blueprint of business you're trying to build and then being able to go all in on a strategy that's aligned with that versus a strategy where you're hedging.
1:06:04
You're like maybe we should Yeah.
1:06:06
try to have profits but also try to grow the thing. Sorry, go ahead.
1:06:07
But Andrew the my whole like I see all these I think there's this like I've seen this like this thing called the like Hustle Fund and all few other funds and they're like we're trying to do things differently.
1:06:18
And my opinion on that is why?
1:06:20
Like the game isn't broken.
1:06:20
The game works as it should.
1:06:23
The the the thing that's broken is people who are joining and playing the game and they maybe shouldn't be playing the game but it works perfectly fine.
1:06:32
Like we are getting our desired outcome.
1:06:35
Sam of where that's not true not necessarily.
1:06:36
There are certain businesses that are good businesses but they're not good venture businesses.
1:06:42
And then they have they have a lack of access to capital.
1:06:44
So I forgot the guy's name. I feel bad now.
1:06:45
He's kind of like it's kind of like an indie VC thing they're doing they created something.
1:06:50
Is it Tyler that What's it called the the seal agreement or the something like that?
1:06:53
They have like some new type of doc that's like the non non-binary term sheet.
1:06:58
not but that's not VC, right?
1:06:58
I mean you would consider that's almost like PE.
1:07:02
That's a different category.
1:07:02
Yeah, but I guess what I'm saying is it's a funding it's a funding option.
1:07:06
It's an it's an alternative funding option for a technology business, right?
1:07:09
You Right, that's what I'm saying. It's alternative to VC.
1:07:13
What I'm saying is venture capital as we know it I think it works perfectly fine.
1:07:17
Like it's the the way it's supposed to work is some get it most don't and the some that do get it most fail and very few become huge life-changing things.
1:07:28
life-changing things. But don't you think like okay so Sean let's say that you got really bullish about your e-commerce concept and you'd raised $10 million like let's say like in the age of Casper when e-commerce is super hot and D2C is crazy and the valuations are high and you go out and you raise $10 million
1:07:48
and now you're stuck where you're going you know what I really want is to pivot this into a lifestyle business cuz that's what's logical for what you want and imagine if there's a structure where you didn't have to feel feel like piece of [ __ ] because you can never get your investors money back, right? And what
1:08:02
And what I've seen is the incentive creates this situation where the founder is sitting on a business that could make them happy and give them a great lifestyle but they have a gun to their head and so they continue down the venture path even when it's actually futile and won't work and they drive the business into the ground.
1:08:20
So it's worse for the employees, it's worse for the founders, it's worse for the investors as well because the investors just go to zero instead of at least making a reasonable return.
1:08:27
So and it is kind of like private equity but you got to remember private equity doesn't take risk on what could be, right?
1:08:35
Private equity invest in what is.
1:08:37
They will say your business does $10 million EBITDA.
1:08:39
I'm going to assume it's going to be 11, 12, 13, 14 not venture which is your business does 200k revenue.
1:08:48
You're assuming you're going to get to two and then 20 over the next three years, right?
1:08:52
So it's a different form of capital in my opinion.
1:08:56
But isn't the problem like let's say I take that 10 million and I take it where I sell let's just say 10% of the company in that round.
1:09:02
And what you're saying is that in the event that things don't go as fast two years now from now that 10% becomes 30% for the same 10 million dollars becomes whatever. It's just Yeah. Numbers like that. Totally.
1:09:15
So but isn't the problem that they probably burned the 10 million along the way trying to get the thing to grow hiring people, marketing, whatever else they're going to do.
1:09:23
And now they still need money.
1:09:24
Now they have all these people so you're going to have basically like a combination of things.
1:09:28
It's like, we're going to lay off a bunch of people probably as we shift strategies to more of the lifestyle type of business to be more profitable.
1:09:36
We're going to ratchet up those investors. We go from 10% to 30%.
1:09:38
The 10 million is gone, so I still need money to run the thing most likely.
1:09:42
I need to maybe raise some additional capital, so I'm going to raise more money, but on those lower terms dilute everybody.
1:09:47
It just becomes kind of like It's like It's a sad rainy day.
1:09:51
No, or am I thinking about it? Only That's it.
1:09:55
I think I just fundamentally have a problem with founders who raise money at a very, very high valuation with the knowledge, especially from people who are not VCs, right?
1:10:05
So, you know, you've seen a lot of this.
1:10:08
Um there's lots of people in our world who have raised very like on businesses that we know we've looked at and would value at like maybe five or 10 million dollars.
1:10:19
And they've gone on crowdfunding platforms or something. give an example of one?
1:10:24
No, I won't say any names.
1:10:27
No, but there there's lots of people and there's I'm not singling anyone out.
1:10:30
Literally, there's like 10 or 20 examples I can think of.
1:10:32
And frankly, it's like it's opportunistic. I get it.
1:10:36
You know, you want to raise on great terms, but I have a fundamental problem with taking money from someone when I know I can't give them a return or there's like a 5% chance.
1:10:45
Um and positioning it as, you know, you're investing in this super solid, awesome thing that's going to be huge or is cash flowing or whatever.
1:10:51
And you're basically just taking someone from It's like going to someone in real estate and selling them on your tech startup that we would all know as a bag of garbage, but because they're in real estate, they go, "Oh, this looks great."
1:11:03
Yeah, I actually I I agree with you 100% and I I really, really dislike that.
1:11:09
I tweeted something out that I want to get you guys' uh reaction to.
1:11:13
So, I tweeted something that kind of uh I don't know, ruffled some feathers, I guess.
1:11:18
So, I go I go, "One lesson, uh let me pull it up exactly so that I don't say it wrong, but I don't understand how this ruffled feathers, but go ahead.
1:11:27
I go, "This year I learned there is no quote smart money.
1:11:32
Tribe, Coatue, SoftBank, Paradigm, Alameda, FTX, they all made terrible financial decisions at huge size.
1:11:40
And yet, most will get richer. They play a rigged game.
1:11:45
Uh Chamath made money off of a bunch of his shitty SPACs cuz he's the promoter.
1:11:49
And these funds manage billions of dollars and they'll make hundreds of millions in fees along the way as a reward even if they lose their investors' money.
1:11:58
Um they don't invest uh they didn't These aren't just companies that they invest in that start to underperform.
1:12:02
These are huge bets on fundamentally flawed assets. It's crazy.
1:12:06
But, the lesson for me, remember to think for myself.
1:12:08
Don't use the justification that the big name is investing as any sort of signal.
1:12:13
And remember that the smart money is just as dumb as me." So, I tweeted this out. I did it really fast.
1:12:18
I I probably should have worded it differently, but a bunch of people from these firms didn't really like what I was saying.
1:12:23
I think Did they DM you or comment? DM. Uh there Come on.
1:12:28
The courage to comment and get into a tiff about this? No way.
1:12:32
There there's no way they're going to they're going to take that chance.
1:12:33
Um You know, what and I think the the I think part of it is I worded it poorly.
1:12:39
I think they thought I was saying "These people who are supposed to be smart are dumb and evil."
1:12:43
And I think it's cuz I said like, you know, they play a rigged game.
1:12:48
I stole that from Chris Sacca, who was a VC.
1:12:49
He goes, "Venture capital is a rigged game.
1:12:51
You make money on the fees regardless of whether you get returns or not."
1:12:54
And then you get the carry on the returns, too, down the road seven to 10 years later before, you know, before anyone figures out if you're any good at this or not.
1:13:01
Um But, you know, I think they people thought I was calling them dumb and evil.
1:13:05
And actually, no, I think they're very smart.
1:13:07
My point was actually that even the very smart people are doing some really dumb things because it's a really hard game.
1:13:14
And um And I got to remember to like, you know, not use their conviction in something to override my own either cluelessness or lack of conviction in something and be like, "Yeah, this is a good This is I guess it's a good idea. These guys are doing it.
1:13:29
I guess I should put money in.
1:13:29
These guys are doing it."
1:13:31
Like the FOMO investing style, you know, I got burned on it.
1:13:36
I think this is one of the dirtiest things in our industry.
1:13:38
So, um you know, if you're in private equity or you run a hedge fund, you know if you're an idiot or a genius in months or years, right?
1:13:49
When you're playing venture, you can take 10 to 15 years to see what a fund really does.
1:13:54
And yeah, there's markups and all this other stuff, but at the end of the day to see realized gains takes a very, very long time.
1:13:59
And so, what you'll see is, you know, someone raises a hundred million and then 500 million and then a billion.
1:14:05
And on a billion, they're getting a 2% management fee.
1:14:07
So, they're getting 20 million dollars a year.
1:14:10
And let's think about what are the costs to run a venture capital firm.
1:14:14
You've got someone as a custodian managing your fund.
1:14:16
You could, if you wanted, probably have three or four employees.
1:14:20
I know Benchmark manages three billion plus with like 12 or 15 people.
1:14:24
So, these are not expensive businesses to operate, and I think that um they make money guaranteed every year.
1:14:32
And by the time that investors realize that over a 10-year period they've underperformed, they've already made hundreds of millions of dollars.
1:14:42
It's just absurd for taking very limited risk themselves, and they win no matter what.
1:14:47
And so, I think this is something that will go away in the long term, and I'm frankly shocked that when you raise a venture fund, you don't have to say, "This is my budget.
1:14:56
I'm going to hire three associates, and my salary is this.
1:15:00
That's all I'm charging you in fees."
1:15:02
Instead, they get this thing where it's like, "You get 20 million dollars of fees, and if you spend two million dollars a year on the office, you make 18 million dollars a year." It's total hustle.
1:15:11
Um and this is why like our rolling fund and our private fund, we don't cover we don't do any management fees whatsoever cuz I'm allergic to this. I find it really gross.
1:15:19
Yeah, that is crazy to me.
1:15:22
years of my fund, I took zero management fees.
1:15:24
And then as I hired people, then I added the fund.
1:15:27
But, also my fund is so small that 2% management fee of my fund is 200,000 a year.
1:15:31
It's less than what I'm paying people to doing it.
1:15:34
I am I am taking a loss on my on the salaries uh you know, with that management fee.
1:15:39
But, 2% of a billion dollars every single year is 200 million dollars over the life of that fund that you got as risk-free reward, which is insane.
1:15:47
And so, and then, you know, the other point I'm trying to make was that like there are times when you bet on something that's a business that's doing really well, a really healthy business, that hey, you know, it didn't achieve the maybe it didn't get as far as we thought it would.
1:16:04
So, it was a 2x instead of a 20x.
1:16:05
Or the something in the market dynamics changed, a competitor or regulation or the economy slowed down, and then they slowed down, and they they didn't end up, you know, achieving the dream that they had.
1:16:16
Versus like the the investors invest in FTX, if you're putting like like Paradigm.
1:16:21
Paradigm is the number one like, you know, crypto VC, crypto-focused VC.
1:16:25
And they put 290 million dollars into FTX, right? 300 million dollar bet.
1:16:32
Um and they came out the other day, they go, "We are writing our investment down to zero.
1:16:36
Um we want to assure you that this was a small portion of our overall funds, and we had no idea what was going on."
1:16:42
Like we didn't know about this.
1:16:45
And you you think about it, you're like, first of all, the fact that a 300 million dollar bet is a small portion of your overall thing, like that's true.
1:16:52
I'm not saying that that's not true cuz you have a three billion dollar or whatever fund.
1:16:56
But, man, when people when when an outsider reads that FT that Paradigm puts 300 million into FTX, they assume a couple things.
1:17:02
FTX is probably a good business, and that Paradigm, the smartest guys in the room, are probably doing diligence to say, "Hey, is this guy literally funneling customer money into his like his own trading hedge fund and like going and gambling with that money or not?" Right?
1:17:15
Like you would hope that somebody's doing the diligence.
1:17:17
And so, um you know, I I think that that's that's the case.
1:17:20
And not to pick on Paradigm, I still think these guys are really smart.
1:17:23
Um it just sort of shows in general that the amount of diligence you would assume happens on large bet sizes like that is actually uh you know, nowhere near what it what it could or probably should be.
1:17:34
And secondly, like you have people like like Chamath when he was doing his SPAC for Metromile, right?
1:17:40
Like you know, we've named basically a couple businesses that All-In Pod, I think these guys are super awesome. I love the podcast.
1:17:46
Uh they're super smart and successful.
1:17:48
That's There's no no doubt about that.
1:17:50
But, you talked about Bird, you know, David Sacks was the lead investor I think in Bird for like multiple rounds uh if I'm if I'm not mistaken.
1:17:56
And you know, Bird now is a 70 million dollar company, but you know, these guys cashed out at the IPO probably, you know, over a billion dollars.
1:18:04
And you know, you know, there you go. You're done.
1:18:06
Uh these guys were months ago laughing about Solana and how they, you know, just received all the Solana at the super low price.
1:18:13
They were can't wait to dump it.
1:18:14
And um and you know, now they're, you know, finger-pointing at other people in crypto for doing the same that for doing the same thing, but not acknowledging it.
1:18:22
Or, you know, Chamath took uh Friedberg's company Metromile public through a SPAC and said, "Buffett had GEICO.
1:18:29
I have Metromile, a better business in all these ways."
1:18:33
And like, I don't know, less than a year later, Metromile sells for a third of what it went public for um you know, it's to Lemonade.
1:18:39
And so, you you know, you see this stuff, you think, "Are these people lying?"
1:18:43
No, I don't think that they're lying.
1:18:45
It's just that investing in business is a really, really hard game, and even the smartest people in the room are making really dumb things really making really dumb decisions or dumb bets.
1:18:53
Um and in some cases, they have unfair advantages that you don't have.
1:18:58
So, it was a reminder to myself and to many other people out there who don't have those unfair advantages, that um you cannot take their backing or their involvement in a project as a signal that this is a a winner or a good thing. That's my rant.
1:19:12
When you just think about how much more powerful it would be if Chamath like I would have a lot of respect if he had said, "Look, you know, we took Metromile public.
1:19:20
I thought it was my Geico.
1:19:22
I put $200 million, 20% of my net worth, into this business and I lost it alongside of you.
1:19:30
Um, or I invested my warrants into equity and I I locked it up and I held it for 3 years or something like that.
1:19:36
But no, there's nothing like that. There's no alignment.
1:19:38
And I think so often this comes down to alignment of incentives.
1:19:43
Um, you know, they're they're incentivized to do the bad thing, right?
1:19:47
the general sentiment of the DMs, Sean?
1:19:50
Um, well, I got a bunch of like you're right?
1:19:52
semantics and all that stuff first.
1:19:54
Like, we wait, we weren't in FTX.
1:19:54
Like, dude, I'm not talking about FTX.
1:19:55
I'm talking about these other three shitty bets.
1:19:58
If you need me to name the names, I'll I'll do it.
1:19:59
That, you know, this thing you invested in that made zero sense, you know, blah blah blah.
1:20:02
So, it's like some was we didn't make this mistake.
1:20:06
And then the other one is look, this is just the nature of the game. It's venture. You should know this.
1:20:10
But you have a venture fund.
1:20:12
Like, you know, you're going to have a bunch of zeros.
1:20:15
And I said, I totally agree, you know, I I invest in seed, so you know, startup ideas that are, you know, some routine of pitch deck, a prototype, or, you know, early stage product.
1:20:23
I know a lot of these aren't going to work out.
1:20:24
It's very different than I put 50 or 100 or 300 million dollars into a business that was fundamentally like, you know, fraudulent or was like doing something that was uh um, you know, sort of self-dealing.
1:20:38
That's that's very, very different than um, you know, we bet on this technology and it turned out the costs weren't and you know, the cost didn't work out or that traction wasn't as it didn't grow as fast as we had hoped or whatever.
1:20:49
There's there's different ways to lose.
1:20:51
In the same way I always say in our business like, there's errors of action and errors of inaction.
1:20:54
If you're trying really hard and you make mistakes, totally acceptable.
1:20:57
If your error is that you didn't think about it or you didn't do anything, you forgot, you just dropped the ball on it, that's where I have trouble.
1:21:04
And the same thing in investing.
1:21:06
When here you can you can misjudge a business and think it was going to grow faster or, you know, um, it it got sideswiped by something else versus um you know, you put something into you put money into something that you should have diligence in and you didn't.
1:21:21
To me this is like, yeah, if A16Z on average delivers value, right?
1:21:25
So, as a portfolio, they've created all this innovation, they've invested in all these great companies.
1:21:31
And yes, there's going to be some colossal mess-ups where they're going to lose a ton of money. I think that's great.
1:21:37
What makes me sad is when you take the uh holistic result of an entire firm and you go, wow, over a 10-year period they made tons of money and all their investors lost a bunch of money or all these businesses were were zeros.
1:21:52
That, I think, is the hard part.
1:21:54
And again, this is a decades game, right?
1:21:57
Chamath, we won't know if Chamath has actually built value for another 10 or 20 years.
1:22:01
And frankly, like his it's all very like secret cuz I think a lot of his stuff is private.
1:22:06
So, we really have no clue how much money he has, how much money he made, um, what's been successful, what hasn't.
1:22:12
There's a bit of a smoke screen there.
1:22:14
Um, and I I, you know, I've talked to Chamath before.
1:22:18
I think he's like a super nice, charming, smart guy.
1:22:19
And I like you, I listen to All-In and I I like those guys.
1:22:24
And at the same time I go, you know, wow, there's some there's some games.
1:22:28
Yeah, and again, I'm not saying that they do a bad job or that they did anything bad.
1:22:31
I'm just saying the reminder to myself was just because this really smart person who you respect and is generally successful and has made money and probably will continue to make money is in something like you can't outsource your conviction.
1:22:45
Like, you can outsource a lot of [ __ ] You can't outsource your conviction.
1:22:48
So, that was really what I was trying to say.
1:22:49
I think I got a little too heated up and made it sound like they were dumb or evil, but that really wasn't what I was trying to say.
1:22:55
It was actually they are smart, but even the even though they're smart, they're going to make some colossal mistakes along the way.
1:23:00
They will probably end up fine, but you got to make sure that you know that.
1:23:04
You go in eyes wide open that smart person can do dumb things.
1:23:06
And it sounds so simple, but it's like the reality is we all do this.
1:23:09
We all take mental shortcuts.
1:23:12
Oh, if these guys are in, we're in.
1:23:13
If this if they say it's good, it probably is good, right?
1:23:15
And you have to do that to some extent or you can't function.
1:23:18
I can't sit here and diligence every business on earth.
1:23:19
But uh, you know, you you have to be you have to at the at the end of the day, you have to the reminder was to myself make sure if I bet on anything, and I wasn't an investor in FTX for example, but like let's say I let's say I was or investor in crypto or, you know, promoted Sam as a smart guy, like you have to try to um try to not lean on other big names as your source of conviction. Totally.
1:23:48
I I remember I read um Howard Marks' book.
1:23:50
So, he's like a famous billionaire investor, value investor, and specializes in distressed debt.
1:23:54
And I read his book and I went, wow, this guy's amazing. What a great investor.
1:24:01
And I realized there is ways to see what they were buying.
1:24:03
So, you can find out what all your favorite investors buy in the stock market.
1:24:06
And so, I went, well, I totally trust this guy. I read his book. It's incredible.
1:24:10
Um, I'm going to buy into this weird Greek shipping company that he just bought, you know, $50 million of equity in.
1:24:18
And so, I put like 100 grand into it and it goes out of business.
1:24:24
And what I didn't understand was two things.
1:24:25
One, he has thousands of positions, right? Or hundreds at least.
1:24:31
And for him it's just a a tiny little roulette chip that he's put down.
1:24:35
And two, he's a distressed debt investor.
1:24:38
So, he might buy the equity, but he's buying all mostly focused on the debt and expecting it to go out of business.
1:24:44
So, I actually screwed myself by not understanding it and just blindly going along with it.
1:24:49
And I've made that same mistake, you know, hundreds of times.