American Alchemy with Jesse Michels - Priceless Investing Secrets from Tinder's Founder | Justin Mateen

Episode Date: October 4, 2024

Today’s American Alchemist is Justin Mateen. Justin cofounded Tinder in 2012 and currently runs JAM Fund, a $400 million dollar fund that invests in high-growth tech startups. We discuss his deal flow, what he looks for in founders, pattern recognition, and even did some holotropic breathwork together. Justin also forced me to take shots hot sauce after losing to him in Corn Hole. I’ll get him back though. Ranked #1 Seed Investor in the country by Business Insider: https://www.businessinsider.com/justi... *** AMERICAN ALCHEMY is an original series hosted by Jesse Michels that explores the frontier of science and tech. Each week, we bring you exclusive interviews with some of the leading thinkers of our time who are pushing boundaries and changing the way we think about the world. INSTAGRAM ➤ https://www.instagram.com/jesse.miche... TWITTER ➤   / alchemyamerican   EMAIL/BOOKINGS ➤ [e-mail] Learn more about your ad choices. Visit megaphone.fm/adchoices

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This is my good friend Justin Mateen. How's it going? He's the co-founder of Tinder, the app that needs no introduction, unless you're happily married. Brian was asking when the last time we saw each other was. I don't know, we're on the phone every day. One was?

Maybe at Moros. That one time, the damn channel went. In his second act, Justin runs a $300 million fund called Jam Fund, which invests in high-growth tech startups. In fact, we invests a lot. together. So what have you been up to? I was actually in Cabo and I just got back. I often ask entrepreneurs that I meet, who's the most helpful investor on your cap table? Almost all of them say

Justin, when that's 20, 30, 40 companies, I don't know how he has time in the day. I mean, it wasn't really a vacation. Knowing you, you probably were on calls the whole time while in in common. Justin is a very different breed. He gets great deal flow. He can do very quick mental math, and he's building an amazing track record for himself. He knows no other way but to go hard. You want some tequila? If you have tequila, I'll have tequila. I'm Jesse Michaels, and today's American Alchemist is Justin's team.

What do you look for in a founder? Obviously, you have qualities I'm sure you look for in other people. Many of the top founders that I've worked with are like, I can see the future, I know what needs to happen, and they have to have an irrational sense of drive where most normal people don't. To a certain extent, good founders have to be abnormal. I'm not in ages. but I usually like founders between 22 to 35.

At 22 years old, you have a little bit of work experience, but you're also naive. You know, I encourage people to take risk up front when they're younger. What else do you look for in founders? I look for founders with a chip on their shoulder. Yeah. Someone that's gone through a personal experience that has motivated them in an exceptional way.

Can you tell me about a specific founder in your portfolio and a chip that they have? One of my favorite founders actually grew up in Nepal. He was dirt poor, lived in a home with no power, tutored to make a little bit of money. His father had to sell one of the most valuable things they had in order to get him a flight to move to New York. He puts himself through school,

ends up working for George Soros, buys his family a home, and starts a company. He's been through so much just to get to the point of arriving to the U.S. But I know he's not going to fuck up. We're talking about curative. Brad Turner from curative has a massive chip. His last company, which I was an investor in, and they pulled a term sheet,

a $30 million investment in the final hour. Most of his investors didn't want to invest in him again. I became his first investor and his new company. His focus was actually, at that time, going to be on sepsis testing. I asked him, this was back February 2020, I asked him if he could focus on COVID testing in case COVID really became a thing in the U.S.

I had agreed to invest regardless, but he promised me that he would consider it. And a few weeks later, he ended up finding a lab in San Dimas. A California startup whose COVID-19 test kits became widely used almost overnight. And just for context for the audience, curative now powers a large percentage of COVID tests in the U.S. They're obviously the Sand Hill Road venture funds that like to invest in very kind of inside the Beltway. Silicon Valley, you know, sometimes slightly overhyped companies. A lot of your big wins have been a little more unorthodox. Like I'm thinking of one of the big ones early on was Home Chef.

I love betting on a second mover in a massive indefensible space. Well, that's pretty contrarian. That's pretty amazing. Do you like investing? Most people would say they like investing in monopolies and you're saying... I like investing in monopolies too. I'm saying if you're gonna invest in a space that's not defensible, Why pay a massive premium? I mean, if you think about it, the market size for grocery stores is $800 billion a year.

Do you know who the first grocer was? No idea. Neither do I, because it doesn't matter. Yeah. It's not really a defensible space as long as you're good at executing and you can scale quickly. Just because the company has a couple year head start doesn't really mean anything.

Lockheed Martin selects ABL Rocket for Shetland launches. Okay, let's talk about ABL space system. ABL space. I think that it's really impressive what they've done, given the capital that they've spent. Some of their competitors are burning more quarterly than they have since inception. And I think that the founders are really determined to build a big business. It's a pretty idiosyncratic. Yeah.

There are a small set of people who could even pull off a company like that. And right now the market is probably in an illusory way, small, the small sat launch market. Two years ago, it was written off as a market that wasn't even interesting to look at. But I think there's a lot you can do once you have a team of really great aerospace engineers. You know, there aren't that many players on that level that will be launching this year and have a very high probability of having a successful first launch. What are the number one reasons that a company fails? The first reason companies fail is they run out of money, you know,

can't reach profitability or can't get to a point where, investors feel confident. I encourage founders to raise a little bit more capital than they need. You know, give yourself backup capital in case you can't hit that next goal. Second reason, and probably just as important, is not being able to attract the right talent. Because as a founder, there's only so much that you can do on your own. You got to surround yourself with people that are better than you are at whatever they're focused on. So I think that those are probably the two ways to mitigate. And something you've told me a bunch is, you know, somebody would rather own 1% of a $10 billion

company than 10% of a, you know, $100 million company. Absolutely. Obviously, $10 million versus $100 million. But more importantly, when it's a larger business, it's also safer. If you own 90% of what you think is a $20 million company, the value may not actually really be there if you ever tried to sell it. The fundamentals have been weak for a while, and the coronavirus is just, as I've been saying, an extremely heavy straw on a very weak camel's back. It was interesting when COVID hit, it was like, oh, that the market's going to correct massively. We had conversations early on, and it feels like Jerome Powell, who's the head of the Fed, almost put a de facto floor in equities.

I was aggressively buying. Look, it's also, if you're a long-term thinker, it's easier to be right. You can't necessarily time the floor or catch a falling knife. But if you believe in something and you're buying the right companies that I think will be successful long term, then I think that you don't need to necessarily time it perfectly. Are the market's crazy, though? I think there's definitely companies that are overvalued, and I still think there's companies that are undervalued. There's something about pulling the trigger and making, doing the deal that is it's generative,

and then you do the next one. You keep learning, and the pattern matching almost gets better. It's all pattern recognition, yeah. You have to be obsessive, and you've got to take advantage. of an opportunity. It's kind of like what they teach you in economics where there's no such thing as a $20 bill on the ground because the second that you see it, someone's already picked it up. Don't just wait there for six months to see what the LTV to CAC will end up being. For all the viewers out there, LTV to CAC means lifetime value of a user per cost of customer

acquisition. And so you want the LTV to be higher as high as possible. I firmly believe that there is not a direct correlation between risk and reward. You want to invest your time and your resources and your money and things where you have either more information or a deeper understanding than the average person and you're able to identify something and take advantage of it. Are there any investors that you admire particularly or like co-investing with? Yes. Who? Peter Thiel. Why?

Because you work for him. Give me the real answer That's the real answer No, I think that Peter is a thought leader And he assesses individuals Based on the quality of thought Are there sort of proxy questions

You ever ask to people where you don't necessarily want the actual content of the answer The content of the answer Is telling you something about the person Yeah, I often ask What motivates you? Very few founders want to say that they're incentivized by financial gain. I don't want it to be the first reason or even the second,

but one of the top three or four reasons should be success. Because you're financially aligned with them. One is I need to trust them to make the right decision for the business, right? So if they're not thinking about the bottom line and ultimately building a real business that makes sense financially, then maybe they should start a charity. or, you know, do something else. Yeah, we've met founders who say they don't care about money

and that it becomes very clear that they care about money. It's very clear that almost every founder does care about money to a certain extent. So I just want to hear them say it. If they didn't, they wouldn't be starting the company. Right. So I think money is bad when you see it purely as a status symbol. Yeah. And it's like almost like a new version of like you graduate from school, you had grades, and now you have money and you have to just show off how much money you have.

And then I think it's good when you see it as a means to free. It's freedom. It's freedom. And it's the ability to do what you want in life. And that's amazing. You can express your highest version of yourself. I think there's rent-seeking wealth and there's value-creating wealth. And I think investing in high-growth venture companies is arguably, if you're doing it well,

one of the most valuable, beneficial things you can do for society. It's a double whammy. Definitely, it'll be a good investment, but you also, get you know you're accelerating the path forward for something that you know didn't exist so you've been hesitant to talk about this in the past and your tinder experience i think you're usually one to just move on and you know get the next w you're not the person to kind of hold grudges or you know only way to survive yeah i think that's right so you found it in 2012 with sean rad you guys paid for most of it with your own money outside of some engineers that you used from hatch labs which was

IAC's incubator. You initially had, I think, a pretty healthy equity split between you and IAC. And then as soon as they started to catch wind of all of the momentum that Tinder had, they realized it was their highest growth asset by far. They flipped that equity percentage on you. And you were in a relationship at the time with somebody else who happened to work at Tinder. You went through a bad breakup, but it almost feels like that bad breakup was used as kind of like a nuclear negotiation tax. by IAC to oust you from the company and for them to kind of gain leverage. You know, you gotta look to the future and just keep moving forward and learning from mistakes and improving. But yeah, I think about it all the time.

I trusted very few people for a certain period of time and then I realized that that's unhealthy and I adjusted. And I think in my case, I just thought I was a normal person and I was just going through a stupid breakup. I think that unfortunately the media, although they may have good intention, they may have good intentions. I think that it's also about arbitraging eyeballs and monetizing ads. I really respect outlets where, you know, they report the truth.

Larry King was always just trying to seek the truth. You know, ask normal questions, be engaging. And to a certain extent, I think, you know, you're that way as well. Don't go away. After talking each other's ears off for hours, we actually missed lunch and the food got cold. So we ended up playing a game of corn. All right.

Let's do it. Little did I know I was walking into a trap. Two, two out of four. The loser of the game of Cornhole had to take a shot of the hottest hot sauce from the show Hot Ones. Jesse doesn't know how to start or end. You lost. Oh, how many times have you played? Not that many more times than twice.

I see, that's unverifiable. I'm really sorry. I do not take pleasure in watching this, but I think it will be very very much. very useful. This is wrong. I took the shot and immediately I felt like I wanted to run out of my skin. Oh! And so while in no way does this mitigate the heat of the hot sauce,

I took off all my clothes and I literally jumped into Justin's pool. Wow, look at that body. Jesse, I can't believe he did not. Only Jesse could pull that off. Let me get you to tell. Justin's on calls all day long from 6 a.m. to minutes. I want to go around because you're dripping. So at the end of our interview, I showed him some holotropic breath work.

Belly, chest out. And always in through your nose and out through your mouth. He thanked me afterwards. Keep going, keep push through, push through. How do you feel? You feel light at it? Yeah, good. Okay, now breathe in for as long as you can,

and then we're going to hold it for a minute, all right? You're like a whole new person. That's so funny. I had to grow up. We're entirely ago. I think he freaked out like a minute in. He started to keep sat up. This is great, Chessie.

He started to go like that. Yeah, you feel good, right? I do. Amazing. I'm happy, bro. Love you. Love you, too. Ambition comes in all shapes and sizes.

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