Big Technology Podcast - Is Threads The Next Twitter Or Clubhouse 2.0? — With Zach Coelius

Episode Date: July 12, 2023

Zach Coelius is the managing partner at Coelius Capital. He joins Big Technology Podcast for a conversation about Threads' real potential, asking whether it's a redux of Clubhouse — destined to fizzle — or a real threat to replace Twitter. In this conversation, we cover Threads' potential, Elon's effort at Twitter, and whether we can really make assessments from the outside. Stay tuned for the second half where we discuss the venture capital environment and how Coelius' investments are performing. We also look at the demise of MediaMath, a once-leading ad-tech company that just went bankrupt. --- Enjoying Big Technology Podcast? Please rate us five stars ⭐⭐⭐⭐⭐ in your podcast app of choice. For weekly updates on the show, sign up for the pod newsletter on LinkedIn: https://www.linkedin.com/newsletters/6901970121829801984/ Questions? Feedback? Write to: [e-mail]

We've got so much news to talk about threads, the state of investing with someone who actually spends the money and chaos in the ad tech ecosystem. My conversation with one of the best investors in the world coming up right after this. LinkedIn Presents Welcome to Big Technology Podcast, a show for cool-headed, nuanced conversation of the tech world and beyond. Zach Collius is our guest today. He's the managing partner at Coelius Capital. friend of the podcast. We've had him on in the past. Last time he told us he'd lost money on just one investment that he had made. Well, we're going to get an update on that and plenty more

today. But first we're going to talk about threads. Zach, welcome to the show. Yeah, good to you back. Great to see again. Great to see you too. Always a pleasure. Likewise. So are you on thread? You are on threads. I found your account. Of course. Yeah. Yeah. I think it's Z. Coelius or Zach coolness. I'm not used to promoting myself on Mark Zuckerberg property. Zuckerberg property. So what we got here? Let's look it up because you know, got to get that out there. As you look it up, I want to definitely start with something that you said on threads, which I thought was pretty insightful and actually kind of picks up on what we were talking about last week with Alex Heath on the show. You wrote, I wonder how much this app cannibalizes Facebook Blue

versus Twitter, it seems like it will be a material amount. So basically your thought is that, look, this is going to take energy away from flagship Facebook. I think it will take energy away from Instagram, almost or as much or as much as it will take energy away from Twitter. Now I'm actually even more convinced that it's going to take energy away from Twitter. The thing is booming. I mean, 100 million users as of Monday, we're recording this Monday.

Who knows what it'll be on Wednesday morning when we published? Zach, what do you think? Yeah, I mean, I think there's a couple of, parts there. One, the 100 million thing, you know, everyone is excited about it and they're talking about it. But I think we have to be careful because, like, Facebook could create 100 million users on, you know, a poop app, like if they wanted to. If they were like, we want to make this big, they could basically because of their control of such a gigantic user base, they could move those people onto anything. So the question is, is how much of this is viral

organic, natural people are excited they're telling other people it's the movement of people to value in the product and how much of this is just distribution and we don't know, right? I have no idea. But I take the $100 million with a grain of salt when it comes to it being a Facebook property.

Now, okay, I'll take it a grain of salt also what Zuckerberg said, which is that they've done very little outside promotion. It's been mostly organic. So, okay, we're taking it. We also know he has personal animus with Elon Musk. So that's an important factor, But here's the counterpoint, right? Which is that Facebook has tried to create lots of standalone apps in the past.

Many of them have failed. It tried to basically a direct Snapchat competitor, and that didn't go anywhere. It had an app called Threads in the past, which was a direct message app, and that didn't work. So, like, something is obviously working when you're in the app, you feel there is an energy there. No, no, no, no, no, no, no, no questions. I just, I always like to like to, it's easy to basically look at a headline number and then just assume things.

And I think, you know, as we've learned in the past, those assumptions are not always correct. I think the other thing that I'm, I'm particularly interested in

is like, you know, remember the early days of Clubhouse and how unbelievably amazing it was and how the community was just like, just astonishingly good. And then very,

very quickly, basically the grifters, the information on entrepreneurs, the people who are hacking human bias, is the angry political voices came in and they destroyed that community. And so I think what's interesting is how long will the magic that is threads right now? Like when I open threads, I don't see a lot of that garbage.

Like I'm seeing my friends and I'm seeing interesting things and like it's valuable. There's not a lot of garbage in it. What happens when those folks show up en masse and start? start polluting the waters. I don't know. I'm very, I'll be very interested to see how it all plays out. So thinking it through, like the argument with threads would be that threads was, sorry, the argument with Clubhouse was that it was really a feature, right?

This wasn't a standalone app, right? This was something that might exist within a Twitter. But now you have threads. That's a proven format, right? It's a text-based app like Twitter. The thing is, though... I'm not a consumer pro. Like, I don't invest in consumer, really.

So, like, you know, take this with a fistful of salt. Like, I'm not claiming to be an expert here. But, like, I think if Clubhouse could have maintained the magic that was the early days, that's not a feature. That's magic. That's, that's a special thing. At the end of the day, I think what, I think the thing that the mistake that a lot of people made, including all the investors who dumped a shitload of money into it, was that they thought

the magic that was clubhouse was a function of the product that had been built and what instead that magic was the very careful audience curation that happened in the beginning and that's what made it magical and threads is magical right well i don't know if it's magical it's not clubhouse magical but it was like it's it's it's bad it's not polluted yet so like the question is is is that lack of pollution is that sustainable uh or is it going to go away and i don't know and there's i think there's interesting questions around if there's algorithmic sort of tools that Facebook has developed to help keep it from becoming polluted, which makes sense. With AI now, you can do some really interesting stuff that you didn't use to be able to do before. It would make sense to me that threads is basically

largely build a next generation AI for filtering the feed that works. But I don't know. Yeah, I would assume the same thing as well. And one of the things that we saw in the early days of Clubhouse was that in any new social app, now people understand that there's kind of a lamb land grab for audience at the beginning, which is why you would end up getting, you know, so many interesting people showing up at Clubhouse because, you know, they wanted to see what the experience was and they liked the experience. But also they were like, wait, I go on one of these, you know, conversations or one of these live clubhouses. And next thing I know, I have 10,000 followers on this. And what's that worth? And it seems like the same thing is

happening on threads where it's like, oh, there are large audiences up for grab. So people are investing more than they necessarily should just to see if they can build that audience in the land grab. And I think you're totally right, Zach. The real question is what happens once, you know, that land grab starts to peter out. And people say, as the audience that I have here worth the energy that I'm putting into versus the audience that I have on Twitter and LinkedIn or wherever it is. Yeah. Like, I mean, so like for instance, on LinkedIn, I have 140,000 followers on LinkedIn. Like, you know, theoretically, that makes me a big shot. In reality, yeah, it's not really. all that impactful. And my Twitter following is, you know, a fifth of that. And it's substantially

more impactful in terms of like the value that I get out of it. And so we'll see what happens with threads. I assume what will happen is it's just, it just further dilutes the audiences across all the different platforms and further segments them. And so the value of threads will not be anywhere near as valuable as Twitter. Because that's my guess. But we'll see. Yeah, I didn't want to end this conversation or this side of the conversation

without talking about that original thread that you posted, which is that you said basically that there's going to be cannibalization that will happen to Facebook properties. And you look at it, and by the way, I don't know if you've had this experience,

but every time I open threads, it's an image or video. And every time I open Instagram is the same thing. So, I mean, what are trying now? They're compelling. I mean, obviously with Instagram, it's just images.

Let's see what the... I mean, look, I moved it from the back of my apps to the front of my apps. Oh, actually, I have a text post at the top and then a link, so maybe this is not completely holding up. Yeah, I got one three hours ago that's... Oh, it's a long texting with an image. And then the next one is an image

that looks very Instagram-y. Right. That's the theory here, is that it's just going to look more and more like Instagram and then does it sort of dilute the growth of Instagram? I mean, we spoke about it on Friday, but I'm curious what you think about it because you pointed that out right away

as soon as you got on the app. Oh, yeah, I think there's the question I have, and I'm not an expert at this, and my friends who work at these big companies are a thousand times smarter than I am, is when you have sort of like large scale, like when you're really big, does the incremental cannibalization have large,

than incremental consequences to the network effects of the property. So, like, does losing 10% of Facebook equal just 10%? Facebook's 10% smaller and threads is 10% bigger and it's just like, it's just moving the sort of chairs around? Or is 10% actually have a 15, 20, 30% impact because of the lowered subsequent engagement for everybody and the lower value of the property because you've got, you know, 10% of 10%'s gone. So now it just starts to shrink as a result.

The product becomes less useful. I mean, I think we all noticed that with Facebook Blue when they made the algorithm changes to allow politics and news. And then it became this crazy fucking Republican uncle thing. And then everyone was like, fuck this. And everyone left. And now my feed is a fraction of as interesting on Facebook Blue as it used to be, you know, before they started to do that.

You know, everyone moved to Twitter and Instagram. So I don't know. Maybe I don't. It's an interesting question. They have the data. I don't. Right. And it does seem, you know, it's like that, if you lose 10% and you lose greater than that 10% on your network, it seems like Twitter is probably the most risk of that happening to it here.

Yeah. I think, I think, I think this is a direct blow to Twitter and it will be. I mean, the thing is that even if it only carves off a portion of the Twitter audience and Twitter keeps a bunch of these other, like I'm assuming they're going to keep the sort of. of right-wing folks will stay on Twitter. I'm assuming there'll be, like, certain groups that will stay on Twitter. But if they carve off a portion of that, then, you know, then it's the same question. It's like, does it 10% equal a more than 10% decline in the value? And for Twitter, I think, yes.

Like, if the interesting tech people gravitate over to threads, and that's where they all go, I think Twitter's going to see a pretty significant hit from that. monetization. So Facebook can make $40 per person on its platform. Snapchat makes $13 in a year. Now, Twitter's always struggled. I mean, we both come from the ad world. So we know what the story is. You need to have performance advertising, basically ads that compute to sales. And Twitter has always struggled to do that because its ad system has just been inferior. Well, Facebook's ad system has been much better in terms of optimization. Now, Mark Zuckerberg has said, okay, we're not going to turn on monetization until we're on the path to a billion users. I've heard from folks that, and this isn't, I don't really want to get too deep into the sourcing, but take this for what it's worth, that we could potentially see something like in Q4. That's when people are expecting it because that's when, you know, it's holiday season. Advertisers are expecting, you know, or need places to put their money.

And, you know, Facebook can now say we're 100 million users in. there'll probably be 200 million users in at that point. It's time to turn this on. I mean, they could make a serious amount. So Twitter in its best year in 2021 made $5 billion. With Facebook's ad tooling and a similar user number, I mean, could you see four times that much? I mean, let's see why not?

At the end of the day, this is exactly what Facebook is very, very good at monetizing, which is, you know, feed-based attention. modality. And they've got the advertisers. They've got the ad formats. I mean, it's, it's a one for one replacement for, you know, advertising on blue for sure, like denical effectively. And, you know, very similar to a lot of Instagram elements. So I don't think they would have any problem making comparable revenues. I mean, the end of the day, you have to remember these businesses, they, they're very strategic about when they want to utilize revenue opportunities like this to fill holes in other parts of the business. So if they were still, if they're strong right now, which I don't

know if they are, obviously they've gone through some really struggles since ATT. But if they're, if they're feeling strong, they want to hold this back to have it as, you know, a lever they can turn when they need it when something else comes short and they can turn this lever to fill a hole. they're not feeling as strong, they'll monetize sooner. I don't know. I have no inside information. Yeah, it's very interesting. And of course, Twitter just hires Linda Yakarino, who comes from NBC and is trying,

her whole thing is, I'm going to convince advertisers that this is a place where they can feel comfortable spending their money. And meanwhile, Elon is challenging Mark Zuckerberg to a, quote, literal dick measuring contest. And someone goes, at Linda Yakarino, can you please help? And I'm, like, looking at that, I'm like, no, she can't. Like, she's not going to be able to. It's almost like, you know, so I think Aaron Levy, who's going to come on the show in a couple weeks, he put the list of all the mistakes that Elon's made. And it's like, this does seem to be the exact list of things that you'd want to do

if you were, like, literally trying to destroy the platform you just bought. Uh. But push back on me. Yeah, I'm curious what you think. I mean, look, I generally have felt like there's, like, The social media, by definition, creates this weird echo chamber feedback loop that causes humans to lose their goddamn minds. So, like, with Trump, we saw that, like, we'd see that over and over again.

And I think with Elon, that's happening, right? Like, I think in most circumstances, if we knew all the details of what was happening inside these companies. And we paid as close of attention as we do to Elon and Trump. We would think the same things we think about Elon, regardless of the companies are succeeding or failing. I just think that like the incentives are for the individuals as an axe to grind to push information out. And the individuals who have good information, you know, they don't really have the same incentive to like go out there and try to spread the word that things are actually good. And so you end up with a whole bunch of fucking losers spreading a whole bunch of crap to make the world seem horrible.

And so, and then the feedback loop is depressed. Just they eat that shit up. They love it. They're just suckers for it. And so, like, any individual with an extra grind, they, like, they spread that shit. And I think it just leads to this really nasty feedback loop. And then the audience becomes very, very sort of convinced that that's the reality. Like, for instance, like, you and I know, like, when you think about ad tech, right?

Like, when we read what the press writes about ad tech, it's just like, it's hot garbage. It's total garbage. They have no idea what they're talking about. They don't understand it. Technically, they don't understand it. They don't even understand the most basic concepts. Like, they're just fucking wrong. It is really embarrassing.

That's true. And so then you're like, you're like, okay, this is like, these people are fucking stupid. And then you're like, you have to remember, okay, we know this is true for this. what level of relative insight do we think they have for everything else they write about? And the reality is probably not very much because they have to cover everything, right? Their job is to literally write about everything and to become experts in everything, which nobody is. And so then you have to just assume that they're effectively playing to their incentives

and their incentives are to get clicks. And the things that get clicks are outrage and and playing into the human psyche and biases. And so, so therefore, to bring this all back, I think Elon has got a lot of bad press because everyone loves to hate on the guy. I think he also enjoys playing into that.

I don't know why, but he does, it seems. But if I had to, if I had to underwrite the whole thing, put money on it, I think the, the perception of Elon versus a reality is very far apart, almost by definition, I'm sure. And I bet you the perception

is skewed dramatically worse than the reality is. And I think that then I think we'll be surprised. I'm not, I don't, I'm not, I don't have enough information to know what's going to happen. But like, I think on average, people are usually surprised in these instances when things work out better than I thought they thought they would. Yeah. Okay. Well, now I'm going to say my thing because, you know, I, I think that, first of all, with,

I don't want to spend the whole podcast talking about this. We have so much good stuff to get to. But I feel like we should, we should at least, like, take a moment to talk about. So first of all, I think that, yes, like when you work in an industry and you read press reports about it, almost all the time, you're rolling your eyes. And I think that's certainly bad and true. I think that there are some reporters that are good. And we know them in the ad tech world. And I think when people specialize, then they can actually get stuff right as opposed to.

But what we're talking about in this past bit of conversation, which is like you have like, and I'm not going to, well, I'm going to pick on the Guardian. like you'll have like a journalist from The Guardian who tries to explain like real time bidding and like talks about how it's evil and you like read that and you know anything about real time bidding and you're like just burn it just burn you know print this out on a paper and burn it you should not be writing about this stuff so yeah those generalists they definitely bring the whole profession down now in terms of like the way that the press is um handling Elon like yeah definitely I think the press is telling the story of Elon that's worse than what it is but this is the thing that gets lost and it often is like as a user you can tell like you can tell sometimes that the product is when you're using a product and it's diminished for a decade no doubt it was a hot mess but it's it's almost unusable now and i'll just point to some of the decisions oh really it's dramatically worse what is it what's worse in your opinion i think that all right i'll just go back to the um the coup with uh in russia with progotion or the insurrection mutiny whatever you want to call it yeah yeah i just wanted to know who the reporters were on the ground in russia there was no reporters on the ground

there. There are no reporters on the ground in Russia. They're, I mean, in Ukraine. They're a good reporter in Russia. They put in jail. Yeah, yeah. No, I know. We spoke about him on a last, last Wednesday show. Yeah. Okay, but let me say, like, the people who are like, you know, the reporters on the ground in Ukraine or the people who are actually reporting on this in the living. I wanted to see that blue check next to them. Yeah, but it was much harder to figure out who they were. It took longer. It did. It was less useful. Why do you think that's Twitter's fault? Because they've removed the blue check mark from the all every reporter and it's like blue check sorry did you used to be blue check yeah I don't it doesn't matter about me I'm talking I don't I don't care I think I do I think what's interesting is

I think it's I think it's always interesting to call out to try to identify our own biases even if we don't think that they impact us right because the thing that's that's they're real I think they're very real so our biases yeah yeah yeah you have a bias so all right let's All right, let's say, even if that's the case, given if that's playing in here. Like, Twitter is a news and information source. So I just want to know who's reporting. And I'm not going to say, if I see a blue checkmark next to them,

I'm not saying I trust them. Look, I agree with you. The argument is a good argument. I don't disagree the argument. But the counter argument, which is Twitter needs to figure out how to separate who is a real person from a bot. They have to do that.

That's the only way to basically take Twitter to the next level. Otherwise, the fucking Anans and the, and doing it with the legacy blue check system was not working. It was not working. And so the idea, the big idea was great. Let's get the users to pay a little bit of money and then use that money to fund making more money from the platform. And if we get all the users to do that, it will work. And that's an idea. That idea didn't work.

I assume, and by the way, in the process, we can kill all these fucking blue checks that Elon thinks is a bunch of stuck-out little bitches, which, you know, whatever. So, like, I assume that they're going, they tried it, they failed, they're going to go try it again. I mean, if Elon is good at anything,

it's trying it, failing, and doing it again. He's done that over and over and over and over. He's good at that. Like, he's learned how to do that better than almost anyone in the world. So, like, I assume that's what's happening now. We'll see. Maybe not.

But he's also got a, you know, a workforce that massively destabilized. And I don't know how well they can execute relative to his needs. And now he has Zuck, which is, you know, fucking beating about the face that he's got, he's got a real hard road. Yes, he does. But I think the blue check thing was a risk potentially, you know, that they, they, they, they took. Unclear if that will work out. There's so much better ways to have done it, though.

trying to get to what your aim is, just connect a credit card, pay a cent. That's it. Sure. Look. The $8 thing and the same blue checkmark and the execution of it. This is the thing. The reality that we're discussing right now versus the reality of actually building the product. So if we were at the company and we had access to all the data and we had access to all the things that's ever been tried and we had the team and we made the decisions that we made, I guarantee you the difference between what we're talking about right now and what they have is the same difference between the Guardian writing about our TB and what we actually know the differences. So we are morons relative to the person in the seat making the

decision. And so when we have the conversation about, well, they could have just done it this way. Generally, I have to take that with a huge fistful of salt. Yes. We are with the Guardian. No, I disagree with that. I really do. I know you do. You're wrong. We are the Guardian. I've been inside a tech company also. So I understand the constraints that exist. But you can also see like at the end of the day like you are what you do, right? Like you're

you are and that's the product that they produce. Like these are. It's too early to judge yes. Anyone based on the consequences, the outcomes that they have. At Twitter you mean. Like Elon blew up four rockets, three or four rockets on the pad before he built like the most valuable company in the fucking world.

Like like the failures in the process are just part of the process. And so, like, for the fucking people in the stands to sit up there being like, be, look at him, fail. Like, fuck that. That's bullshit. Like, like, in, like, a few years, we can look back and we can say, oh, he's a failure. Great. In a few years, I'm happy to do that. But until then, I, my belief is, like, it's just a bunch of fucking people in the stands yelling about shit they don't actually know about. Okay. I think that, like, saying Elon's, no, no, No, it's okay. By the way, like, Zach, like, this is why we're here. Like, you're on the show because I know we're going to have a good conversation. And on this show, I don't want any, like, we shouldn't hold back. Like, we should have a real discussion about it when it comes to this. I don't know how to hold back. No, it's good. It's good. I probably shouldn't learn how to do it. No, no, I mean, well, to do it in places other than this forum because this is good. No, I'm enjoying this, right? This shouldn't be a conversation that's held behind closed door or being polite. Like, let's actually get to the heart of the matter. There's no other way to it.

address it. So that's a fun part. On the other, I'm just going to say one last thing about this. Then we go to the next thing. Or then I'll give you the last word. Then we go to the next thing, which is that like if you're a user of a product and the product gets worse, you're totally within your rights to say, I wish the product was not bad. Absolutely. Cool. I'm point of agree. If you're on that first space X rocket, or you're the company that put the satellite on, I think there's a company that put the satellite in the third one. Yeah. There's a third or fourth. I don't remember which one it was that blew up. They were very unhappy. Oh, you know who it was?

It was meta. Mark Zuckerberg was furious about it. This is so meta. This is beautiful. It was. It was. It was. It was.

And maybe this all comes back to like Zuck was mad. And Elon was like, suck it, bitch. That's how Rockets work. And Zuck held that grudge ever since. Maybe that's it. Sometimes it's the simplest explanation that makes that. Occam's razor. Exactly.

That's fair. Yes. right. It was meta. Beautiful. Zach Collius is with us. He's the managing partner at Collius Capital. First half, all about threads in Twitter, second half. Promise you'll be equally as good. We're going to talk a little bit about investing, a bit about what's real and what's not in AI and then craziness in the ad tech world, which we know and love and we'll talk about. Back right after this. Hey, everyone. Let me tell you about the Hustle Daily show, a podcast filled with business,

tech news, and original stories to keep you in the loop on what's trending. More than two million professionals read The Hustle's daily email for its irreverent and informative takes on business and tech news. Now, they have a daily podcast called The Hustle Daily Show, where their team of writers break down the biggest business headlines in 15 minutes or less, and explain why you should care about them. So, search for The Hustle Daily Show and your favorite podcast app, like the one you're using right now. And we're back here on Big Technology Podcast with Zach Koli. the managing partner, the Coelius Capital, and in 2020, mid-2020, he tweeted this.

The traditional J-curve and early-stage venture is currently non-existent. Usually companies without traction die early, and winners take times. Over the last five years, I have invested in 63 companies. So far, only one has been a loss. One, even the lowest performers get funded. There is so much money chasing companies right now, literally everything is getting funding. any idiot with a checkbook, myself included in our sector, looks like a genius right now. We can argue about the cause and the potential outcome, but we can't argue that the beta

only has one direction up. So here we are in 2023. The world has changed a little bit. So give us an update. Yeah. Yeah. We were, oh, man, it's so good. It was so easy.

I raised my last fund in 2021. And, like, literally it had been like, it had been. six years of 50% compounding RRR every year. I mean, and I mean, I looked like a genius. We all looked so smart. I wrote my fund. It took three weeks to raise in Zoom. Only in, only in, never, only in Zoom, no in person meetings, three weeks.

People were committing on the first call. It was like, it was beautiful. Ah, so good. Yeah, we all looked so smart. It was great. Yeah, it's like Wilde Coyote, you know, it's like, you know, it's running, running, running, running, running, and then just ran off the cliff and now Wiley Coyote is like hanging in midair and we're all like, oh, how far do we have to fall? Yeah, so, we had one other company go out of business since then. So now I've got two, two dead bodies to my record. But we, I mean, God, we're dodging bullets left and right. I had a company that I was convinced. was going to fail last fall that somehow managed to scrape together

around. And now they're doing okay, but it was like, it was a slog. I have another company right now that is fighting toothed and nailed to stay alive. And it's challenging. And yeah, I mean, the funny, I mean, literally

before the bear market began, you know, a year and a half ago, I mean, I would have multiple exits a year and every company would effectively mark up every year. And, you know, now it's, I haven't, I haven't seen a carry check, new carry check in a year and a half. Okay. And being a VC right now in a bear market is a much harder job.

It's still a fraction as hard as being an entrepreneur. Like being an entrepreneur is 10 times harder or more. It's so much harder. Your job's harder than being a VC. Like, this job is not that hard. You can make it as hard as you want to. Like, you can, like, if you want to work 80 hours a week, you can. But it's, you don't have to.

Um, uh, and there's diminishing returns, which a lot of people don't talk about in B.C. But like, it's still an easy job relative, but it's much harder than it was. Yeah. Back when everything went up. I mean, literally everything. Every. Yeah.

Yeah. It's crazy. What do you mean there's diminishing returns? Oh, so what happens in V.C. Is that, um, about 80% of, of that value in the job comes from about 20% of the work. And then anything you do beyond that, it's kind of like you're pushing a rope. And that's why you see so many VCs on Twitter and so many VCs writing thought pieces which are actually garbage and doing stuff that like they're kind

of trying to get out in the ecosystem to like raise their name recognition. But it's the value of it is de minimis because the real value comes from people who you've built relationships with over a long period of time that they trust you and they come to you first before they come to anyone else and they're like, hey, I got this thing. And you're like, great. I'll give an example. It'll play into our next segment. So there's an entrepreneur. I had funded 2017, 2016, 2017, probably. And he built AI for drive-thru restaurants. So, you know, you go to McDonald's and you're like, hey, I want a hamburger and fries.

And McDonald's bought the company. And it was a great outcome for everyone. We're all super happy. And then so in 2021, he's like, he gets free. And he calls me up. He's like, I'm free. And I'm like, I'm in. I mean, I'll, I, my check is here.

You just tell me what the price is going to work out to be. And then in November of 21, he comes back to me. He's like, well, good news and bad news. The good news is we raise the shit. money. The bad news is the price is crazy high. And I'm like, you're a pro. I'm in. I said it was in. I'm in. And so then during 2022, I was like, God, I'm an idiot. Like I top tick the market. Like my first check from my new fund. My LPs are like, God, he's an idiot. And then then the product came out in 20, this, this last 2020, the end of 22, so like, you know, six

months ago. And it's so good. It's literally L-LM's generative AI for call centers. So, you know, you call the airline, you call hotel, and it's better than a human, demonstrably better than a human. It literally, like, it speaks whatever language you speak. It speaks at whatever speed you speak at. It speaks at whatever accent you need to speak in. And it answers on the first ring, so it can go from one to a million agents concurrently. So literally, you call on airline, you're never going to wait on hold ever again. Waiting on hold will be like dialing a phone. Like, we talk about dialing a phone.

Like, most kids don't even understand what that dialing a phone means. But like, but literally, like, waiting on hold will be in the English language will be just as antiquated as dialing a phone in, within a few years. You'll never wait on hold again. And so it's like, and then the great part is, is like, like, that entrepreneur is so good, that company is going to be such a big outcome that, like, you know, you know, I didn't have to do a lot of work to get that, just have this relationship that I've had with that guy for over a decade

and do the work in that process to be in that position. So it's like one of the great things about VC is that you're effectively harvesting the labor that's been put in in the previous years. So one of the, so in the good times, right, you invested in these companies and they kind of, you know, they kept going. And now it seems like, tell us a little bit about like what's going on now. Like the companies that you funded during the good times, like, are they like, you know, kind of at the end of their runway and trying to raise again and struggling or are they like

if they batten down the hatches and laid off a bunch of people to get profitable and survive? What's the sort of state of startups right now? I mean, all of the above, the good news is that like the majority of my portfolio generates a lot of cash. We do, I think we do north of, I think it's 800 million in revenue across all the companies in the portfolio now. Like, it's just like, it's a lot of money coming through those companies. So, like, the vast majority of them, at least for a revenue perspective, are doing fine.

They've just had to batten down the hashes. And they've found that growth has slowed. And as they, as their growth is slowed, they've had to cut back and stop spending as much. So then their growth has slowed more. So that feedback loop and then all the other companies in the ecosystem are doing the same thing. And a lot of, I sell, I invest in B2B software companies. And so they largely will often sell to other startups. And so you've seen this sort of like, sort of like feedback loops on feedback loops,

which is that like companies stop spending on growth, so they stop growing. And then they stop spending on software from other people. So then they stop buying and then vice versa. And so the whole ecosystem has basically deflated as a result of no more free money in the ecosystem, growth has slowed down. That's, you know, that's normal. That's part of what a bare market is. It, it weeds out a lot of the companies that were playing company and pretending to be real things. And then it weeds out a lot of these companies, a shit ton of these companies that the VCs were funding with a bunch of dumb money and that were that were all just

fueled by dumb money. And those companies are going out of business. Thankfully, I don't invest in that shit. So, like, I'm not getting hit yet with that. But the whole ecosystem is getting hit. And so everything is going down. And so, you know, the companies of mine that are, that have not yet found revenue at scale, they're in a tough spot. Like, they have to find product market fit or they die. And what about the markdowns? Like, is that also becoming a thing that a lot of the companies that you're working on are doing? Yep. We have a company. that did a markdown recently, you know, that's at the end of the day, there's a couple different ways it can work out. One way is that you can have what's called a pay to play

situation. The way I pay to play works is they go to all the investors and they're like, hey, guess what? You need to invest at this price, usually it's a reasonable price. You need to invest X amount of money or your holdings will be diluted by 90%. So before you own 1% of the business, if you don't invest now in this round pay to play, you're going to lose 90% of your your investment. So now you're going to own one-tenth of one-percent of the business. Massive dilution unless you invests. There's pay-to-play.

I haven't had a pay-to-play happen yet in my portfolio. Thankfully, they're in good shape. But, like, it could happen, it's possible. And then you just have to re-underwrite the company. You have to go in, you look at how they're doing, you talk to the, you talk to the customers, you talk to the team, you're like, okay, do I want to re-underwrite this company at this price? Yes or no. It's just a decision that gets made on the spot. And then you have down rounds, which are company goes out and they try to raise money.

And the money that they're trying to raise is at a lower price than they would have raised before. And the problem with down rounds is that you end up with this situation where the existing investors have an incentive to play chicken with the new investors. So I'll give an example. We had a down round right at the beginning, actually, of 20, 22. So right at the beginning of the bear market. And the founder had gone out and tried to raise money and tried to raise money and failed, failed, failed, failed, fail, failed. And he was on bad terms with his existing investors.

It was a kind of a weird, weird, weird dynamic. And the new investor comes in and it's like, I want to invest in the company. But as soon as you have bad terms with your existing investors, fuck them. I want them to take a 90% write down. So a total cram down of existing investors. And the existing investors were like, fuck it, shut it down. Just shut down the whole business.

They're plain chicken because they knew that they could get a better deal than that. But their leverage was to just shut down the whole business. And so the entrepreneur calls me up and it's like literally crying. Like, this is bad. What the fuck? Like I'm trying to save the company here. And I'm like, dude, this is a negotiation. posture. This is how it's going to work. And then the new investor is like, why am I even

bothering with this? Like, what are you doing? And I'm, I'm a reasonably big size shareholder in this company. I mean, I have maybe like 500 invested in this company. And so like, it's enough that I care. So, and I call the existing investment. Wait, how much invested? What's that? How much did you have invested in it? 500K. Okay. So like, it's enough that like. You don't want to lose that. Yeah. Well, I mean, this is my job. Right. Like, you know, the current, the current performance portfolio is about $100 million to deploy capital. So, like, I have to spend my time accordingly. And you want to spend it on the winners, not the losers. And so you, you know, when there's a write-off occurring, you just, that is what it is. So in this instance, I go to the existing

investor. I'm like, hey, there's got to be a way we can work this out. And so this ends up being six weeks of phone calls between these three parties with me being the mediator trying to get this thing sorted out. And of course, it's sorted out exactly where. you thought it would, like at a middle ground that's fair that everyone was happy with. And we all took some dilution and the new investor got to dilute us and everything got sorted out. And now the company seems to be doing okay. But like these down rounds are like just incredibly time consumed. Like it's just a real. Because because this chicken that gets played between the existing investor and the new investor, the leverage that they both have is simply

to be a stick in the mud, and so then you end up with this very complicated dynamic, this very time-consuming. And so when that happens, it's painful. Very painful. Now, I wonder a little bit about AI because, like, there's been this moment, and we spoke about this with Elliot Brown last week, but there's been this moment where, like, people say AI, and all of a sudden it seems like it's brought back, like, the roaring, you know, 20-20, right? And now it's like, well, how much of this is actually investable? There's been reports that, like, like actually interest in chat GPT is going down. I had it on Google Trends.

Some people had it on like the actual web traffic to this stuff. So I'm kind of curious like, are you seeing, so you mentioned the call center application. That's very interesting. Are you seeing like real and practical uses of this latest wave of generative AI? And can you share a few examples? Yeah, yeah. No, I mean, I've seen quite a few.

I'm a real believer in what I'm seeing. it's not perfect it's not magic it doesn't doesn't solve all the world's problems and it won't invent you know an endless tub of ice cream that can always have just sitting in front of us that just automatically replenishes not yet anyway um but it doesn't it is powerful so for instance I have another company in the business process outsourcing space so they basically they take things that were done by humans in the Philippines and in India before and they automate them and it's like it's better. It's demonstrably better than what they were getting before. It's cheaper.

What type of processes do they automate? They're not very public, so I'm not going to talk about what. I used to report on this company, what's it called? Names escaping me right now. But it's, they, yeah, they did robotic process automation. Is it similar to that type of stuff? Similar in a way. This is different in its own way, but yeah, there's some similarities.

But the end result is that AI makes that better. You know, for the call center thing, AI makes that better. For I have another company called Fireflies, you might know. They do your Zoom calls. They basically transcribe your Zoom calls and they turn them into action items. And, I mean, Fireflies is, I mean, AI has made fun. They got early access to GPT4. And, I mean, God, that product got, it was already good and it got really good.

Like people are, if you're not using fireflies right now for your Zoom calls, you're making a mistake. So wait, what does it do? It just transcribes and then gives you like some notes and action items. Yeah. So it transcribes the entire call, figures out what you discussed and then creates all of your follow-ups and action items. And it can push information into your CRM. Like it does. It's, I mean, if you're, if you're a professional and you're doing calls that have anything that you need to keep track of and you're not using fireflies, you are literally making a mistake.

Yeah. The company that I. The company that I was thinking of, again, is UiPath. Yeah, of course, yeah, Romanian company. Amazing company. Great, yeah. Yeah, no, no, no, UiPath is great. But AI has taken that whole market and really dramatically increase the performance of the products.

And so if you think about that, at the end of the day, like, all software products are, they're like tools to help people do their jobs better. And when you make those tools better, then people can basically get better outcomes and they become more efficient and the world becomes a better place. And so broadly, I think AI is it's a big, big, monster, awesome trend and we're seeing a lot of consequences.

When it comes to like the consumer use case, like chat GPT as a consumer use case, I still prefer to search and read the source materials versus like go just ask the question of chat CPT. I find the answers are kind of like, they're kind of like they're weak they're just they're just sort of soft and they're not they don't have an edge to them that I find interesting and I don't understand the conflicts between the various different positions on a subject is just like oh here's the answer and then you go

read the source material and you're like well it might be the answer but it's it just seems like it's sort of the mismatch center like it just like take all this matches together and come up with the most probabilistically sort of vanilla answer we can get so I I have not found chat GPT has not become like one of my main go-to sources. But that's just me personally. And I'm not a consumer investor, so I don't have a good sense of like where consumers are thinking about it from a personal use case. Yeah. And it's just one of those stories where the data is also just like very instructive, I think, in terms of like, all right, well, less people visiting. I mean, I know they did release an app, but I don't see it very high in the app store. So where are you on

I mean, you're doing AI business software. Where are you in terms of, like, productivity and jobs? Do you think that this is going to be something that helps create jobs or? Well, I mean, take the call center one. Right. It's a good example. When that happens, the pace that it will happen at will be so fast. I think it will be massively destabilizing.

So think about if you're an airline and when, you know, when United rolls out, you know, this company's solution. Any other airline that doesn't have it within 12 months is going to be, they're screwed. I mean, I'm not going to do business with an airline that doesn't answer on the first ring. And like, I get that now because of status. And like, when I have to deal with that airline that doesn't have that, I'm like, ah, I can't handle this. And so now every airline will be able to provide first ring better than a human AI call center. So they're all going to change very rapidly, right?

They're all going to switch. and all those jobs are going to disappear overnight. Like, I mean, you're 90% of those jobs, give or take, will be eliminated. And when you do that across all the call centers in the world, it's a lot of jobs. Very destabilizing. So what happens to society in that case? I mean, look, long term, I think the, oh, these tools make us more productive and it increases economic benefit and everyone's going to be happy.

Short term, that's the problem. is that, like, technology now is speeding up the rate of disruption and destabilization. And I don't think people handle that. Humans don't handle these things well. They go fucking crazy. And so, like, when you take all the call centers in the Philippines and you lay them all off all at once, that's going to be a big problem. Yeah. So when you read Mark Entry since, will AI save the world essay?

Well, he's got to, at the end of the day, do I want? a world where we create things like AI to make us more productive and smarter? Yes. Is it, do I, do I think most of the Dumers are idiots? Yes. So I largely align with Mark Andreessen, but at the end of the day, like, there's nuance in the middle. Am I afraid of the consequences of AI in terms of destabilizing human systems? Absolutely. Am I afraid of AGI in the long term? Yeah. it's not a zero. Like there's a real risk of like long-term, long-term AI cataclysm. That's that's not zero.

And like two or three years ago before, you know, we came out with LMs and genitive AI, the number was a fraction of what it is now in terms of like that risk number. And, you know, on the other hand, humans are just so stupid that like if you leave us to our own devices, like we, I'm more scared of humans and nuclear war and global war and global. global catastrophe as a result of the way that we treat this planet than I am that much more scared of that than I am of of of of of aGI destroying all the humans so therefore we either we have to we have to become smarter or we are going to destroy ourselves because we're so stupid yeah I'm in the same camp um okay so let's talk about media math media math is one of the most important ad tech

companies I think of the last 10 years and they just completely went bankrupt and they're shutting down. And it's just an interesting story to me because, like, the way I think about it, like, if media math can't make it, then nobody can make it. So, well, that's not true. Trade Desk is a large, private, public company. Yeah. But they are the only survivor, really, from that. Well, there's, there's, there's, there's, there's, there's trade desk. I mean, at the day, like, the, like, what happened to my company, Trigit was the very beginning of the emergence of the sort of like duopoly or triopoly, which is Facebook, Google, and I guess Amazon, they just crushed the open ecosystem. And they, they, they, they, you, if you're

an advertiser, you have to work with them. And if you were a, you know, supplier of tools for advertising on the open ecosystem, um, you got, you got your ass handy to you. But trade desk has done very well to navigate that and they built a big business. But, otherwise everyone else is there. Unless you do, unless you do, you play in the sort of gray areas. There's lots of money you made in the gray areas. Like if you're, if you're comfortable with ethically and morally unclear things, then there's plenty of money to be made in those areas. Yeah. So what are the morally unclear things? Oh, well, I mean, if you want to advertise products that Google won't let you advertise, Google won't take your money. There's people who

will take your money. Like, and so there's, if you're, if you're willing to, you're, if you're willing to, use tactics and strategies that Google or Facebook is uncomfortable with to get users to engage with ads. And there's lots of ways to do that. In the old days, it was pop-ups and pop-owners and it was spam. And there's lots of ways to advertise in ways that are ethically and morally dubious, but that make a lot of money. There's advertisers who will be more than happy to fund those ads.

There's lots of ways to make money in the ad ecosystem. Just, you know, are you building equity? value in those businesses? No, but you can put a lot of cash in your pockets. Yeah. I have friends who have big yachts from that shit. Right. What do you think happened with MediaMath in particular? Was it just that there was only room for one or were there strategic mistakes there? I think the, it was a challenging, look, if the ecosystem had stayed open, I think a lot of

us would have succeeded and done well and had great outcomes. When the ecosystem became closed, the number of chairs in the game of me, musical chairs evaporated, and it became very challenging. Like, remember, the beginning, the beginning days of those of us who were the sort of original DSPs. So there was MediaMath, there was Turn, there was Data Zoo, there was Trade Desk. And for those who are listening, that's the systems that you would buy ads with. Yeah, so these, so MediaMath is what's known as a demand side platform.

It's a tool for advertisers to buy ads out across the ecosystem. And when it first came out, back when, so we all kind of built on this concept of real-time bidding being sort of a way to buy and sell advertising. And we all, some came before that, some, and pivoted into it. Some of, some of us kind of pivoted into that once we saw that. But like, that was sort of the sort of the gun, the starting gun going off to become sort of the future of the open advertising ecosystem. And we all kind of bet on that.

And so in the beginning, there was this group of us who were there. Invite, they were smart, super smart. They got bought right away for a nice outcome. And then they went to go build a multi-billion dollar business. So, like, those guys are great, awesome. And then of the bunch of us, media math was really the only one left besides trade desk. Now a bunch of new entrants have come in subsequently and that market has remained a very hot mess in a lot of different ways. But yeah.

So it's largely the, when you say open and closed, so it's largely just the big tech companies that came in and closed the ecosystem effectively. We went apps and they figured out how to do the monetization there and that's what happened. Well, so for instance, with Facebook, before Facebook went public, they missed their Q4 because their ad platform was complete garbage.

Like they had designed it wrong. And they, at that point in time, and there's a great book by this, Antonio Garcia Martinez wrote this book, Chaos Monkeys, about this whole journey, and he wrote about, we were in that, about part of this whole process. He wrote the book. It's a good book. And but what happened was, they missed her Q4 because they had built their ad platform wrong. They just didn't, just didn't understand how to, how to build it the way it should have been. And then they, Zuck goes to the ads team and he's like, guys, what are we going to do? And he's like, give me your bet 10 best ideas. And one of the ideas was to open up the Facebook ecosystem to allow, independent companies to manage the advertising and target the advertising on Facebook for advertisers. And so Zuck said to the ad team, great, do all your ideas. And that was one of them. And so then the ads team came to companies like us. And we're like, hey, you guys want to buy ads on Facebook. So it's an open ecosystem. Like we were allowed to participate in that ecosystem. And we

were like, absolutely. We're there with Bells on. And, you know, my business went, we made it work. Like literally, the click through rates when we were first advertising on Facebook, so before we got in there, they were lucky to get one click for every 3,000 ads. So you run 3,000 ads, you get one click. And they were making pennies per, per 1,000 ads as a result. We were able to 100x that, literally 100 times more efficient and effective. And so instead of getting one click for every 3,000 ads, we were getting 30 clicks for every ad. Like, we crush it because we had, we had built good tools that targeted the right ads, the right people at the right time for things that they wanted.

So you go to booking.com and you're looking for a hotel in Sao Paulo, and we were like, hey, here's a hotel in Sao Paulo, here's the price, here's the dates you're looking for. And people clicked on those and they bought those. And so the ad prices that we were able to pay Facebook went up by a dramatic, number. So now Facebook sees this and their ads start to take off. Their business starts to take off. And they're like, oh, we shit. This is how we do it. And so then there's this big meeting that happened between Cheryl and the ads team. I don't think Zuck was there. But there's a big group of them. They get together. And they're like, okay, do we stay open and let all these

independent providers buy media for the advertisers? Or do we fuck all those guys? Build the tools ourselves and close and go direct so the advertisers have to buy from us directly. They chose to go direct and to become a closed ecosystem. So I have a scar across my belly from one side to the other from getting gutted by Facebook as a result of that decision. And my business, I mean, we literally went from a million in revenue to 30 million in revenue in 12 months. And we had 300 million in revenue on the books.

Like we were like, we would have blown it out if they had stayed open, but they went the other direction. That was that. And so the whole ecosystem has largely done that. So Google has done that, Facebook has done that, Amazon has done that. They've all kind of become very closed. Okay, last question for you, still living in San Francisco. I am currently still in San Francisco.

No, Miami plans on the books. Oh, no. Miami's never been my jam. I mean, I'm deeply, deeply, deeply frustrated with this city. I'm deeply frustrated by the idiocy that they have driven the city into the ground. It's choppy, right? now. There's, there's, there's, there's, there's, there's, there's, there's, of, of goodness again. And it's, it's, they're cleaning up. They're doing a good job cleaning up parts of it.

But like, I mean, they, they literally destroyed this city and it's going to take years, years to grind our way through this. Um, the big, the big question for me is what happens in the next election. Like, if the voters of San Francisco are like, oh, we want more of this, I've become very depressed and dispirited. If the voters of San Francisco are like, okay, enough of this. Let's get rid of these idiots that like are just like, I mean, these, these, these, there's ideologues run the city and they just do stupid things after stupid thing after stupid thing. And it's like the voters, they, they put up with more of this and, yeah. It's going to be bad. Well, I'll be there in 10 days. So maybe you and I can have coffee. It's been nice to see you in person. Come have, come have coffee in my, in my hood and we'll,

I'll show you, uh, show you around. That'd be great. Sack, thanks so much for joining. Great to see you. Oh, my pleasure. Great to see you too. Awesome. Thanks. Thanks, everybody for listening. Thank you, Nate Gwattany, for handling the audio, LinkedIn, for having me as part of your podcast network. And once again, to all of you, the listeners, if you've been listening for a while, want to give us a rating on Spotify or Apple podcast, that would be awesome. If you're a new listener and want to hit subscribe, we do these flagship interviews every Wednesday, and then we break down the news on Friday. Ron John Roy is back with us. We're going to cover everything that's happened this week. You don't want to miss it. All right, thanks again for listening. We'll see you next time on Big Technology Podcast. Thank you.