The Breakdown - Can Social Media Be Redeemed? Feat. Early Facebooker-turned-Investor Bobby Goodlatte

Episode Date: August 5, 2020

Today on the Brief: President Trump wants a cut of the TikTok deal Previewing this week’s COVID-19 vaccine trade  Dave Portnoy breaks into bitcoin Our main conversation is with Bobby Goodlatte.  Bobby is the founder of Form Capital, a new seed investment firm that focuses on supporting portfolio companies with value-add design.    Bobby was an early employee at Facebook and has been an active angel investor since 2012, with investments that include Coinbase.    In this conversation, he and NLW discuss: The early days of Facebook Why angel investors don’t like new angel investors to get involved How Silicon Valley reflects larger questions of equity valuations  How social media has changed over the last decade Why politics is now “downstream from algorithms”  Why there are still possibilities to build new social networks Why today’s social networks could make different decisions that would be better for the world.  Find our guest online: Website: Form Capital  Twitter: @rsg 

There's a way to game these algorithms, and it's not a very hard game to play. The kind of limit is really one's own moral scruples. And kind of when you play games like that, then the only people who are going to do great in that environment are the folks who are kind of the least encumbered. And so having to be honest all the time and having that as part of your moral code is a hindrance in terms of achieving maximum engagement. It's fundamentally more engaging to tell a kind of out there narrative than it is to have to stick to the truth. Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by crypto.com, BitStamp, and nexo.io.

And produced and distributed by CoinDesk. What's going on, guys? it is Tuesday, August 4th, and today's main conversation is with Bobby Goodlatte. Bobby was an early employee at Facebook. He has gone on to be a prolific angel investor and has just started a new fund. And today we're talking about all of that plus a really important question. Can social media be redeemed? First, however, let's do the brief. First up on the brief, here's a crazy question. Should the U.S. Treasury get a cut of the Microsoft? TikTok deal. So what happened? President Trump said that he told Satya Nadella, the Microsoft CEO,

that, quote, a very substantial portion of that price is going to have to come into the Treasury of the United States because we're making it possible for this deal to happen. Effectively, Trump is saying that any deal has to have a payoff to the U.S. government as well. There are, as you might imagine, some pretty serious reactions to this. It is the headline story in just about every business publication, and I would say that there's a few different lines of reaction. The first is that this is 100% without precedent. There is a group in the U.S. that analyzes foreign investments for the context of national security conflicts, but that's a super secretive interagency group called the Committee on Foreign Investments, and it certainly doesn't

get paid by the deals that are happening. Now, maybe the best way to get into the other arguments against this is to share the one argument that I've seen for it, which comes from Joe Wisenthal from Bloomberg, who effectively argued that this is good because it makes the price that Microsoft pays fair. Effectively, Joe is saying that there's going to be such an urgency for TikTok to sell that the company who buys it would get a price better than they would otherwise on the open market, and so by paying the difference effectively as a tax to the U.S. government, it makes it fair. Now, 175 plus comments disagreed with the most common argument being that it was effectively a form of extortion to the U.S. government, that it would totally screw up the relationship between governments and business by creating this new pattern,

and finally by creating an incentive for government to do this over and over again. There was an additional argument that this made it harder in the future for the U.S. to condemn any potential surveillance capitalism or data implications of this, because effectively Microsoft had prepaid its debt to society so it could then say, screw off. This is one where I definitely fall with the non-jo camp, all of the respondents. I just think that it's a very hard argument to make that there's any way to make this sort of deal fair. It is an extreme situation based on the extreme new precedent of the U.S. government forcing a sale of a foreign asset, which is probably the thing we need to be focused on just from the start, but certainly adding this strange payment thing on top of it isn't going to make that any less complicated.

It just makes it another layer of complicated. Now, China, for its part, is obviously trying to blast this, saying that the U.S. is unfairly going after China's first global hit. China Daily, which is state-owned today, effectively called it forced theft. However, the flip side is that a lot of the China critique has a hard time finding legs to stand on because obviously China's approach to the internet is hardly neutral as well, which gets at the core issue of this whole thing. But this is a wild development and certainly is going to have some pretty big implications for both this deal, but also for the future of how governments view this type of global business as a new asset, a new political pawn effectively. And that's what really

concerns me is that all of a sudden business interests that extend across borders, which by the way is basically all business interests at this point, have a political utility that can now be captured and manipulated. Next up on the brief, we are back on the coronavirus vaccine trade, and I just wanted to do a quick preview of all of the issues around that this week. So the big one is a new stimulus plan that's being debated. It was debated very unsuccessfully last week, and you're seeing today a lot of the headlines having this idea of kind of a, quote, first glimmer of progress type thing. The key differences between Democrats and Republicans here are around unemployment aid and state funding, which they have been. And yesterday, Trump waded into this even further and said that he might

step in and do things by executive order, specifically around extending an eviction moratorium and adding a payroll tax holiday. When it comes to the vaccine, the Bank of America said that bets against the U.S. dollar are bets on a quick vaccine. Effectively, they are investors saying that they think that the dollar isn't going to be as in demand in the future because there's going to be a vaccine and things are going to return to normal. Meanwhile, the Wall Street Journal is publishing articles like this one. COVID-19 vaccine frontrunners and press investors, but concerns exist. Episelon theory put out a whole data analysis report today about how the vaccine trade is impacting markets. And on top of this, we're getting a new jobs report this

week from the previous month, which will have pretty big impacts on how we see this recovery, happening or not. So a lot of things to watch this week. Lastly, let's talk about Dave Portnoy's Bitcoin offer. So we've had an interesting day here with regard to Davey Day Trader Global. Last night, Dave Portnoy retweeted last week's episode with Tony Greer and said, somebody tell this guy at DDTG, we don't care about using big words. We only care about making big bucks, which we do every single day. Now, the interesting thing is that Tony, unlike a lot of macro analyst takes this phenomenon seriously. He was trying to explain the frustration part that might be a root of it, but he takes it really seriously and has been out and vocal about

complimenting what Portnoy gets that others don't. So it was a little bit of an interesting kind of misunderstanding there, but that was not even close to the most interesting thing that happened with regard to Portnoy in our little section of the world today. So listen to this clip to get an idea of what came out this morning. I don't know how to buy Bitcoin, all right? I don't know how to buy it. I don't want to get one of those wallet things where you need like a passcode that has like,

oh, you need Martian language in 16 hieroglyphics and your cousin's aunt's maiden name has to be like spelled backwards and you've got to hide the thing under your cushion and if you lose it or someone takes it, it's just gone. I don't know that part of it. You know who taught me how to do Bitcoin? And this will be for fucking the bubble again. And he probably has my Bitcoin.

I don't know. I bought Bitcoin in that original Bitcoin age. I don't know where it is. I don't know how to access it. I don't know where it went. I spent 20 grand. It's just sitting in the ether. And there's probably like little fucking teenage boys running around my Bitcoin right now.

So that's why I don't want to do Bitcoin because I don't want to understand it. If I could, if you could tell me I could put in B-I-T-C-O-I-N as symbols, I'd buy it on the stock exchange. But I don't understand the wallet and the coin. I don't get it. The Winkle Voss twins, the Winkle Valleys, someone cut this out and send this to the Winkle Vosses. I had a little exchange with the Winkle Vosses. The best cast characters in the history of movie, the social network. Those two guys, those rowing robots, I actually kind of like it.

But I don't know. So anyways, I was going back and forth and they're like, hey, we'll come explain Bitcoin. Like, all right, that sounds good because they're like, I don't know, they have Bitcoin bazillionaires. But they just want a free ad for their company. Like, we'll do a piece of you, we'll talk about it. I was like, what are you talking about? You want to come in and teach me how to do Bitcoin so I can get rich.

I'll talk about it. I'm not buying chain link. I don't know how to I've very explained. If the Winkle bosses want to come over and tell me how to do this in a way that I understand, I will look into Bitcoin. I want both the Winkle bosses. I want them in that little fucking row. outfits. I want him sitting in this chair being like, this is how you do it. You don't have to

hide. When I hide stuff on myself, I lose it. I don't like passwords. I like make it simple. If it's simple, I'll do it. I don't like, I have to have a key chain. If the Winkle Boss is one, knock on my door and be like, hey, Dave, and they get their row boards and they're like, if you invented Facebook, you would have invented Facebook. Like, if they want to tell me I do it, I'll do it. So Stool Presidente himself had invited the Winklevise over to his office, to actually learn about Bitcoin and within 20 minutes Tyler WinkleVos had accepted. To which Dave then responded, let's do it. I want to buy all the Bitcoins. So why is this important? Well, one, the comment about Chainlink at 145 is hilarious.

Chainlink Marines are everywhere, including in the Davy Day Trader Global Global Army. Two, the concern about keys and passwords and just the usability of this thing are legitimately huge. There are tons more people, I believe, who feel like Dave Portnoy than who are ready to accept the idea of not your keys, not your coins. So to the extent that we care about those people having a place in this Bitcoin ecosystem, it's something we need to address and understand. Finally, number three, while equity markets might be continuing to try to ignore the force of the retail army, the Davy Day Trader Global Crew, I don't think Bitcoin is stupid enough to do that. Now, part of that has to do with the size of our total industry is such that they obviously can have a much bigger dent in it.

But secondly, I think that we're less inclined to dismiss them because of being enamored with some type of experts. Everyone here who is more experienced in this space got that by just being here and learning and being around, right? There's no qualification for getting into the Bitcoin space. There's no criteria that means you are or are not allowed to be here. and that's what makes it so different from some of the traditional financial spaces. And I think that that's a powerful, powerful force, which is frankly well suited to this group.

So welcome, Davey Day traders, have fun playing the markets, have fun playing the ponies, and we'll be here when you want to get deeper, which we know a whole bunch of you inevitably will. But with that, let's intro our main conversation. Bobby Goodlat was an early product designer at Facebook. he is an active angel investor across domains, and he just recently launched Form Capital, which is a new angel firm that focuses on adding value with design. In this conversation, we discuss what it was like in early Facebook, building the foundations of what we now know as social media.

We talk about getting into Coinbase really early and where that came from. We talk about why Silicon Valley might be a canary in the coal mine for a broader question of equities valuations and asset price inflation, and we spend a ton of time on whether social media is, A, bad for the world, as it's constructed now, and B, whether it can be redeemed. So I hope you enjoy this conversation as much as I did, and let's dive in. All right, we are back with Bobby Goodlat. Bobby, thanks for taking some time today. Hey, thanks so much for having me. So I'm really interested and excited for this conversation. I think there's so many different dimensions. I want to get into some early crypto stuff. I want to get into some talk about social media and the future thereof. But first, for listeners who aren't familiar with your background, maybe we can dive back to when you kind of first got into the tech world. Where'd you get your start? What were you doing back then? So I was lucky enough to join Facebook as a early product designer right out of college.

I joined in 2008 and was one of the first product designers of the company. There weren't terribly many of us back then. I was the first designer on the user growth team there. And then later in my career at Facebook, I wound up on the photos team where I was kind of the lead designer for most of the photos UI for Facebook, kind of around 2012. So for those who aren't familiar, what's the difference between kind of product design and I think a lot of people who aren't in necessarily the tech space don't necessarily have a sense of kind of what the different dimensions of design might be or include?

Yeah. So I think even within product design, there's kind of narrower specifications. I really work primarily on app design, so designing UX flows and an end-to-end user experience. But, you know, I think about product design for digital products as kind of operating mostly on three levels. You kind of have the core product mechanics. Then you kind of have the flows and, you know, kind of the screens therein. And then you have the pixels, the actual kind of. for a polish. And I think a lot of folks have misconceptions about design. I think many people confuse designers for decorators. And really what design is, is about solving problems. And, you know,

product design is about solving problems through developing new products. Amazing. And so 2008, this is really early in Facebook's life. I mean, it's hard. I remember, you know, 2004 is when the very first access to Facebook happened, but 2008 was still really early. I mean, this was pre a lot of Web 2.0. So, I mean, how much were you guys just trying to adapt quickly to all of the new signals you were getting from social? Because what we thought of as social was still being formed in a lot of ways. Right. And, you know, it was a very creative and experimental time, which was really wonderful. And we certainly had this mindset of, you know, how can we rebuild so many aspects of the internet to be social first? What would all these experiences look like when you can bring an awareness of who your family are, who your friends are to these online experiences?

And it was just a very, you know, kind of wonderful product playground back then. And I think there were, there was maybe a bit more innovation than what we see in the social. media space today where I think kind of a certain facet of social media has been really optimized towards. But, you know, we were really thinking about how can these networks be a way of kind of augmenting one's social life. And so how long were you ultimately at Facebook before departing? And did you get directly into angel investing from there? Or did you do anything else in between first? Yeah. I was there for about four and a half years and then went right into, angel investing. And, you know, I was, I was very lucky. My timing was great and was kind of fortunate enough

to be in a position to do it. And, you know, just really, really jumped head in to angel investing. Yeah, I wrote my first checks kind of near the end of 2012. You had a great tweet from a couple weeks ago. You said, when I first started angel investing seven years ago, I remember a prominent startup investor predicting our wave of new angels would lose spectacularly. Boy, was he wrong. I hear similar grumblings now. If it's your calling, go with it. It's a great gig.

I'd love to co-invest with you. So I guess what was the narrative around Angel investing then? What was the constituency of people? What was that investor do you think referring to? And I guess how have you seen the face of Angel investing change over that seven-year period? Sure. I'll call out the person who said that. It was actually Mark Cuban who said that.

That was the investor I was referring to. And for as long as I've been an angel investor, folks have been kind of calling for a doom and gloom correction to much of kind of the value creation that Silicon Valley has driven over the last decade. Maybe some of it is still to come. Maybe some of it's warranted. But I kind of think that the kind of doomsayers were mostly wrong, at least directionally wrong. you know, in terms of kind of startup investing and becoming an angel or a seed stage investor or scout, there's so many more opportunities today than, you know, just six, seven years ago when I got started. Really, the track when I started angel investing was you really had to fire checks out

of your own pocket. And it's been such a democratizing and diversifying and very positive force that we have kind of new platforms, new willingness from LPs to invest in emerging managers. And, you know, we have kind of a whole new generation of early stage investors. And again, I kind of hear a lot of the same groans of, oh, there's just too many angel investors or, you know, people really in some ways try to pull the ladder up in a way that I don't really align with that. I kind of encourage someone who has the talent for it, who really enjoys it, to try to pursue it. And that makes for more great co-investors for me. And again, like I think there were doomsayers then. And this has kind of been a continual thing, basically,

ever since the first dot-com crash, really, there's been this. And I was much more close to some venture capital firms back in 2014. And the kind of narrative very, was this is not normal. These valuations are not normal. This kind of deal competitiveness is not normal. And I think it kind of normalized in a sense. And, you know, valuations can get over their skis in many cases, but deal competitiveness won't, you know, that's not going to go away. You know, it's interesting. There's a couple different things that I think are fascinating about this, actually. The first has to do with what's the locus for this assessment or this critique? And in some ways, I feel like the critique that you were hearing then seven years ago was almost more, I mean, I don't think that those folks recognize it as such, but it was almost more of a leading indicator of a critique that would come on a more kind of macro level where Silicon Valley and capital available, particularly to late stage startups, is kind of symptomatic of a larger question of cheap money in the system and how that that looks.

People have been pushed further and further out on the kind of risk spectrum. And because of that, that moves money into private equity, into venture capital, et cetera. But that's really, again, in that case, venture capital is symptomatic of a much larger question. And I think for a long time, because people could identify it in sort of discrete things like increases in valuations, they were kind of picking on venture capital. Again, really just one example of a much broader phenomenon. And I think to your second point, too, or I guess the second piece that I wanted to pull out is one of the things that makes Silicon Valley as an ecosystem of powerful and continuing force is that by constantly minting new people with means, it's constantly re-upping the supply of perspectives of early stage investors, right? We're going to bring with them different interests and different kind of passions and perspectives.

I can think of a few different investors who had, you know, I'm thinking of an investor who was always passionate about music technology companies, finally got the money to kind of really go after that in a big way, not through selling his own music technology startup because that's a notoriously hard area, but in a different dimension. And because of his passion and the capital that he was able to get through his just general being in Silicon Valley and contributing to a bunch of other early startups, he's now going to make available a number. number of probably companies that might not have otherwise had a champion early. And I think that there's a large point here, which has to do with just the democratization of people who can participate in as angels and how that expands the types and the breadth really of startups that might be able to kind of get attention. That's right. Again, I think there's been plenty of new angels sort of minted by exit opportunities. But I think the trend over the last maybe three,

four years in earnest, which I think is a very positive trend, has been a decoupling of kind of the need to, you know, have that windfall before one can get started in their seed investing career. And that has opened the floodgates to like a whole new different set of people in perspectives that is, I think, extremely valuable. I think it's also led to more competition, which I think that might be the source of grumblings more than anything else. And I think more competition between venture capitalists is a good thing because it forces, it basically forces change to drive kind of good money and drive out bad money. So I think we saw this in prior generations of seed investing,

I think like most famously represented by first round capital and flood. and some of these like amazing legendary seed funds. And they really drove a wave of founder-friendly terms. I think prior to kind of this generation of funds, it was more common to have some bad faith terms sheets offered to seed stage founders. And basically like the kind of existence of these funds really drove out that practice from the industry to remain competitive. like pretty much every seed stage fund had to write a fair term sheet. And I think that's a really great thing for founders.

And my expectation about what we're seeing right now is that I think another wave like that could be possible. I'm a bit biased because I think the fund that my co-founder Josh and I are working on could be part of that wave. But the idea is that extreme value add, tangible value add, real support that you can really point your finger to, funds that offer that might have an edge over funds that merely offer a check. And again, I think that's the sort of competitive, like competition sort of drives that dynamic in a very positive way for founders. So I want to come back to that point,

obviously, because that's sort of the genesis of Form Capital, which you're building now. But quickly, quick detour before then, just based on this audience, who all know, I'll be interested. How did your early investment in Coinbase come about? So one of my kind of mental models for looking at seed investing is find communities that see the future. And maybe that sounds like a kind of obvious thing to say, but I think it's like a great way to hunt for these asymmetric upside opportunities. So I was very lucky to be a college student when Facebook first came into being. And I think college students who are using the product every had a view of the world that pretty much everyone else did not have.

And Facebook's success was more of a foregone conclusion to college students when I joined the company than pretty much anyone else. When I interviewed for Facebook, the site was still kind of limited only to college students and they had just opened it up to kind of full, you know, everyone can sign up for registration. And so how I found Coinbase was like somewhat similar in the sense that I was a Bitcoin nerd in 2012. And I was on R slash Bitcoin before it became this toxic mess.

And I was hanging out in these online communities. And when Coinbase came around, especially given my design background, it just kind of felt like an obvious thing to me because we were used to using products like Mount Gox. And the status quo was just such a painful, frustrating experience that, you know, Coinbase, by just having a simple,

to use interface was really a somewhat obvious bet to make then. And so I think that's a really interesting lens to find startups, which is connect with communities or better yet immerse yourself into a community where you have an early glimpse of the future that may be something that looks completely crazy to an outsider actually feels quite obvious to someone who's spending a good amount of time inside of this community. I also think it's a really interesting segue and kind of example based on what you're doing now. So we're just speaking a moment before about how if one of the transitions over the last decade, call it, has been from, you know, founder potentially unfriendly or exploitive terms to more founder friendly terms because of the introduction of these sort of seed stage funds.

And now we're maybe going through another shift where founders are really going to be looking for value add beyond just the check. you are bringing to that a design-centric approach. And this Coinbase example is a great one. And I think people in crypto will resonate with the idea that in certain contexts, design, UI and user experience are more than just nice to have. They are actually kind of category shifting for the products that underlie them. So I'd love to hear more about form capital and how you came to this and what you guys are trying to do. Yeah, we should talk also about the crypto UX topic as well, because I think maybe the biggest

limiting factor for crypto overall, and I've been saying this since 2012, I think the single biggest limiting factor for crypto is UX, and it always has been. Anyways, Form Capital, new Seed Stage Venture Capital Fund that I co-founded with Josh Williams, who is just a remarkably talented designer and is real honored for him to to come on board with me. And our kind of pitch is pretty simple. We invest, have seed stage checks. And with every check we invest, we run what we call a design sprint. So hands-on design support with every check. And that can take a different kind of shape depending on what the founders' needs are. So in some cases, we'll do a branding sprint. So we recently

did one of these with our portfolio company, Almanac. We drew their logo. We branded the product. You know, we've done a number of these kind of different categories of sprints, but the idea is each one's kind of tailored to fit a startup's needs. So maybe it's optimizing an onboarding flow. Maybe it's designing a marketing landing page. But these are sort of projects that are kind of scoped down. So we're not going to design startups products for them. You know, this is kind of additive, not something where we want startups to become. dependent on us in any way. But we think it's a real tangible form of value ad. And we can really show

that. We can, you know, we can show you the pixels. And, you know, we launched this, kind of announced it last week. And it's gotten a lot of great reception. And you were really pleased with that. And I think one reason why it's being well received is that kind of in venture capital, and especially on venture capital Twitter, you know, there's a lot of kind of joking and meme. And about adding value. I think a lot of people just dismiss the concept altogether or kind of believe that many investors will kind of promise the world and promise to add all this value alongside their checks and then kind of never deliver on it.

And so our approach of having these case studies, having real deliverables, having kind of evidence, proof of work, if you will, I think that really connected with a lot of people. Yeah, I mean, I think, too, that part of the cynicism has to do with, again, an earlier generation of firms and investors who are saying this, but really what they were talking about is stuff like back office support and shared resources, you know, stuff that was like really not core to the experience of building a startup. It was kind of more of an optimization detail versus what it sounds like you're doing, which is really thorny kind of potential problems. Right. And it is sort of like deep specialist work. And Josh and I have the background to do this. You know, at Facebook, you know, the work I did on the user growth team drove very meaningful, you know, increases in Facebook's registration rate. And, you know, I designed most of the photos interface like the light box, you know, at a time when we were kind of in a desperate need for boosting some metrics. And that design delivered. And so we both have. of experience running design projects that have kind of measurable business outcomes to them. We think of it as kind of offering a number of strategic advantages to ourselves as a firm in terms of giving us a competitive edge, but we also think it adds a lot of direct value

to our startups. Does your particular focus lead you to be oriented towards certain categories or industries over others, or do you kind of find this type of challenge relevant across the board? So we are a thesis agnostic firm, and I think there's a number of reasons why that's the case. I think one of which is, for example, no fund had a crypto thesis when I invested in Coinbase because that category just didn't exist. And so the sorts of things we're excited to invest in are those category creator opportunities. And I think by the time the narrow thesis is formulated, it's generally too late for seed stage investors.

And so I think a lot of investors kind of market themselves. And I think this is the correct thing to do in general is to say, hey, we invest in this category. Maybe we can cultivate some expertise in our picking skill in that category. we like to think about cultivating expertise in our being picked skill. Like every investor will tell you that they have great picking skills. I can talk at length about mental models and thought processes for how to pick stars. But again, every seed investor will probably tell you that they have above average picking skill. And so I think that's kind of a dimension that is over celebrated in some sense.

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I think, and this may be getting a little too into the weeds too, part of the game with startups is not just getting in and kind of muscling your way to lead a round. It's being included in larger syndicate rounds or just kind of, party rounds that have a lot of different players involved and having a distinct thing that you bring to the table, which is clearly differentiated from others, means my guess is that part of the approach is to get allocations in some of those kind of hotter deals, the marquee investments that other people might not have access to because this is just something that they're not going to get from other investors.

Right. And, you know, one thing, one thing that's important to say is that I don't find there's any correlation between the hotness of a deal. and the sort of outcomes that it can drive. When I invested in Coinbase, it wasn't, I didn't have to elbow my way in necessarily. It was not the most difficult investment. Now, later rounds became obviously much more competitive. And so I think the sort of stars we look at, I think many of them will just fundamentally

not be hyper-competitive deals. But there are competitive deals that are worthwhile to invest in. And so I think our strategy really benefits us there. And then the other thing to say, and this kind of talks to our, how like our being picked skills maybe help our picking skills in terms of follow on investing, which is to say that we invest in a startup. We spend a pretty meaningful amount of time in the trenches doing real design work. And by doing that, we accomplish two things. one, we build a really deep relationship with our founders. And we really do try to be the kind of the most value added per dollar investor. You know, and you can kind of ask some of our

early portfolio founders if they think that's true. And we hope it is. And so I think that that relationship that we forge gives us opportunities later down the road, but it also gives us a chance to better get to know the company. So in worse, like, A traditional seed fund will spend an hour, two hours with a founder before making a decision, which is what we do as well. But then we spend all of this time during the design sprint. And I think that gives us these opportunities where maybe by digging in and actually playing around and helping to design out the interface, we clue on to the idea that, hey, this one's like even better than we thought it might be.

and we shouldn't sleep on this. We shouldn't wait to try to invest, follow on capital. And so I think it affords us a number of strategic tools that other funds don't necessarily have. Super, super interesting. Well, okay, so I could talk a lot more about that. I think it's really fascinating,

but I'm sure people will go discover more and you'll be talking about it more. It's brand new, so really exciting to see that. But I want to actually shift gears and talk a little bit about something that I know was kind of a real interest and passionary for you. So you were back with Facebook when, as we were discussing before, in some ways, social media was just being invented and still being kind of pieced out. And I want to maybe bring the conversation to now and get your take on how social media is

evolved. But I want to do it by kind of quoting two tweets of yours that I saw that I thought were really interesting. The first was this. Now, they're good. They're good. The first was this. We wanted the internet to be a marketplace of ideas. Instead, we got a marketplace of narrative. We wanted truth, but instead got engagement as the currency of the marketplace. And then I want to pair that with this one. A system can behave mostly the same as you iterate degree by degree. Until you add one more degree and hit a boiling point, a change of degree becomes a change of type.

I think this is the best explanation of how social media is now fundamentally different than it was a decade ago. So walk me forward, you know, a decade on from joining Facebook or more, how things have changed and what you see as the state of things right now. Right. Well, I like both those tweets that you brought up because they really frame my thinking. And, you know, I think we so often say, you know, say, it's like, well, this has always been a problem, right?

In other words, like overengagement in media or drive to maximize engagement predated social media. Certainly we had sort of the rise of cable news and then partisan news, kind of like the pre-Facebook pre-social media era. I think there was the early social media era, which was the products were more about individuals connecting with one another, not. this sort of publisher to audience mindset that I think has has sort of become the prevailing model. And yeah, like that argument that, well, we've always had issues like this. I find it a frustrating argument. And again, that's why I mentioned the idea that when you keep adding on levels of change, when you kind of change degree by degree, each change is just as a change of degree.

some up to really a change of type. And I think with these social media platforms, if you're an engineer at YouTube, you're probably constantly shipping improvements to their recommendation algorithm that ultimately drive watch time engagement higher. And each marginal change probably doesn't feel that earth-shattering. And so these products almost feel like they don't change at all. Same thing with Twitter, where it's like, you know, if some engineer is working on the engagement algorithm and, you know, ships a marginal improvement that boosts engagement by several basis points or whatever. And the kind of before and after of any one given change is probably extremely small. But the totality of all these changes totally transforms the product. And I think they've created a set of dangerous incentives that I think we're just dealing with as a society in a very, you know, direct way right now.

So let me pull up one more, one more tweet that I thought was interesting that I think makes this point as well. Politics now lives downstream of algorithms, edit the engagement algorithms behind Twitter, Facebook, and YouTube, and you massively change the sort of candidates who win elected office. The medium is the message, and never before has it been so editable and artificially constructed. And I guess what it sounds like to me, and part of this, is that these decisions each on their own are understandable. They are based on teams who are just trying to build things, who are trying to optimize for, you know, whatever is the next objective. But in aggregate, the net result is this force that society is now racing to catch up with itself around. Right. And it's also important to say how much there is an engagement arms race between the different players.

So I think if one player stepped off the accelerator, that just creates a market opportunity for someone else to kind of eat up that attention share. But yeah, to say that, you know, one thing I've said is like every time, and this is not that profound thing to say, but every time the communication media of the day changes, the sort of people who get elected to office change with. them. And so you've seen these notable transitions throughout history. I think like the most famous example is the first televised presidential debate, Nixon versus Kennedy. You know, very famously, Nixon was sweating during the debate and people who watched it on television thought that JFK won and people who listened on the radio thought that Nixon won the debate. But basically, like that was almost a transition point where now the sort of selection criteria of who is going to rise to elected office, that is now changed by the communication medium that is sending out information to voters. And so you can kind of see these changes every time the communication media of the day changes, it's going to shift the style of politician we get.

you know, in some ways, like the structure of these communication mediums pre-select the choices that we have as voters in terms of who we're going to get to vote between. And I think, like, the internet changed things kind of like the pre-social media internet created an opportunity for a new style of campaign. I think the first Obama presidential campaign kind of reflected a pre-social media internet approach of like massive email marketing, that sort of thing. And then, you know, Donald Trump, I think, has displayed a rather terrifying playbook. I think that really strikes to the heart of some of the issues with this kind of engagement-fueled environment we've created, you know, that I think just really incentivizes,

kind of bad faith actors to rise to the top. And there's a way to game these algorithms. And it's not a very hard game to play. The kind of limit is really one's own moral scruples. And kind of when you when you play games like that, then, you know, then the only people who are going to do great in that environment are the folks who are kind of the least encumbered. And so, you know, being, having to be honest all the time and having that as part of your moral code is a hindrance in terms of achieving maximum engagement. You know, it's fundamentally more engaging to, you know, tell a kind of out there narrative than it is to have to stick to the truth.

And when all you care about is getting attention, eventually just you don't care at all how you get it. You know, my worry is that, and again, I think politics is like a very good lens to see through, but it's not the only facet of society that has this, this challenge. And it is kind of troubling to me. Yeah, I think it's a, I think it's troubling to a lot of folks. And I guess that's my follow-up is what do you make of the uptick in conversation around the relationship between the government and social media platforms? Obviously, there was a big hearing last week about this and there's this sort of huge dust up with big potential implications around TikTok. But how are you reading what's happening right now in terms of government trying to reassert

some control on this? It's frustrating because, well, you know, there's a number of forces going into this. I think you have legacy politicians who were, again, who were elected by previous past office. And those past office were defined by a different media environment. And I think those people ought to be alarmed and driving this process forward. But they're also the sort of politicians who asked the sort of questions during these hearings of like, how do you make money? And, you know, Mark famously answered, Senator, we run ads. And it's like the level of technical sophistication that is kind of embodied in that generation of lawmakers is,

is a bit lacking. And then you've kind of got a new generation of lawmakers that are maybe the ones who are ushered into office by these trends, right? And that they're, you know, I think increasingly to win elected office, you're just going to have to be extremely good at harvesting attention through social media. And I think that's going to lead to some great elected officials.

Like I'm a big fan of AOC, for example. But I also think there's going to be a counterfeit, of these sort of populist demagogues that run a Trump-like playbook. And it doesn't have to be limited to one side of the aisle. It's really a nonpartisan kind of way of operating. And again, I think if those people get elected to office, they'll have very little incentive to want to regulate these platforms in a way that might change their future election chances.

But, you know, I think reform has slowly come from the networks themselves. And I think I'm actually optimistic that there are ways of these platforms to have their cake and eat it too in terms of, you know, they really care about engagement. You know, if they have a political leaning one way or the other, it is they're a political party of maximum engagement. You know, I think it's absolute, it's absolute nonsense. that Twitter or Facebook or YouTube has a anti-conservative bias or whatever, they have a pro-engagement bias. And I think in recent times, that has actually been to the benefit of more people on the right than the other way around.

So I think the interesting thing here is that even holding aside that specific detail, which the bluster of this being the main conversation versus, kind of anti-competition and just larger structural issues of power is whatever. But I think that regardless of the specifics of the diagnosis of political sides, I think it's hard to ignore the fact that social media, if social media is the mechanism by which political information is distributed in the future, social media rewards extremely unnounced, aggressive, extreme opinions that get people hollering, rather than nuance, right? And that is just a structural problem, no matter who you are supporting, right?

So let's say that things used to benefit the left. They're shifting and starting to benefit the right and a kind of counterreaction. No one on any side should want a political transmission mechanism that's exclusively the sound bite feeder, right? Right. It's not a partisan issue whatsoever. And the challenge is that it's just being misconstrued as one. My take on the conservative censorship issue is this. Actually, Mark Zuckerberg a few years ago wrote a great post,

which he talked about this concept of borderline content. Basically, the idea is that all of these networks, YouTube, Twitter, Facebook, they all have a policy enforcement line. If you say something that's against their terms, generally hateful speech inciting violence, really not stuff that's healthy. for discourse and, you know, really includes just the worst, most terrible things you can imagine. You know, if you kind of cross that line, you're supposed to get banned.

And in many cases, you do get banned or your post gets lead to you, you face enforcement. The challenge is this. When you look at the engagement that your posts can generate, as you walk closer and closer to that policy enforcement line, your posts get more and more engaging. and you get more and more distribution. So in other words, by just being shy of banable, you get a ton of reach. And so you're basically incentivized more and more every single day up until the day you're banned. And this is, for example, what Alex Jones did.

I think he's a textbook example of a new style of politics, which is you kind of just say anything. in fact, like being completely uninhibited, being nihilistic, having no true beliefs is an advantage for this rather evil strategy. And your real North Star really is only engagement. And so Alex Jones has admitted in court documents that his show was kind of a performance art. And that he doesn't actually mean the political things he's saying. And so here we have an environment where folks are making these very strong, heartfelt political assertions or saying crazy things like, you know, talking about conspiracy theories or making outrageous accusations. And they're not saying these things out of any earnest belief. They're saying because they get distribution for it.

They get rewarded for it. That reward can come in the form of advertising dollars or can come in the form of elected office. And I think that's sort of what's happening. And if there is a reason why some folks are getting more enforcement actions than others, it's simply because that's a playbook that's been more widely adopted on that side of the aisle. That they are flying too close to the sun in the pursuit of engagement. Yeah, it's fascinating. I think that's a really interesting.

It's like the Icarus argument. So I guess the question becomes what is the answer, right? Because I share your skepticism that the Congress and the Senate organized it the way that they are in terms of just who is in power is likely to have a really strong ability to reorient this power balance correctly. Right. And again, I think I have some optimism that there can be reform found from within on the social networks themselves. And one thing I point to is like, you know, look at Instagram. Instagram is probably my favorite of all the social platforms because it actually creates, by my kind of assessment, maybe Snapchat's kind of in there with it as well. But it doesn't generate so much of a political externality.

Now, I think there are aspects of it, and it has some negative political externalities, but certainly not to the same degree as Twitter. And I think, frankly, the reason why is the sort of content that is kind of naturally going to happen on Instagram is just not political content. And actually, the decision early on to not include third-party links, I think had such a, it's crazy to think just how much of a profound shaping that the early on decision to say, okay, you can't have, you can't have links and posts on Instagram. that totally shaped the culture and the sort of content that got shared to that network. It's like if you can't post links, then a lot of clickbait news and hyperpartisan news, it's just not going to be on there. And so you donge that issue entirely. And so I think the out for a lot of these companies is to focus on other forms of engagement.

So it's fine to optimize for engagement. so long as doing so doesn't create negative externalities in society. So long as we're not all collectively paying a cost for this engagement arms race. And so I don't think there's too much of a problem, or at least there are different problems when Instagram is optimized for engagement. I think it's actually on net, I think Instagram is beneficial for society overall. But if you say, okay, show me the most engagement. engaging photo of a sunset, that's probably a fairly good metric of quality that, like,

okay, this is worthwhile content. Versus if I say, show me the most engaging political speech, I think that typically is not something that most people would consider the best political speech. It's usually just incendiary, outrageous, offensive. It pushes buttons. And so there's certain categories where it's, It's more, you know, there's going to be less societal costs spared to kind of dial engagement to 11.

And I think those are the categories that these platforms probably should focus towards. Do you think, I mean, in some ways, though, that there's, is there any way to change a network like Twitter, right? I mean, Twitter is the world watering holes. It feels like that one's hard to re-engineer in that way. I disagree. I think we're to the algorithm like fish are to water, and we don't really perceive it as having this warping effect on discourse. But it's there, and it's, you know, it's showing you tweets.

It's injecting Donald Trump's tweets into my feed because he's hyper engaging. And again, that there's a societal cost to that. And I think you can devise an algorithm that, in my opinion, biases towards other things. And here's the problem with that is that, you know, once you kind of open up with the hood of these things and start tinkering, you know, now everyone's going to have a pretty deep opinion. You're going to get lawmakers, again, pressing the claim that this sensor is one side or the other. And, you know, I think the reality of it is the status quo of these algorithms has a bias onto itself. And kind of doing nothing is making a choice as well. Doing nothing is sort of. says, again, our political party is the party of maximum engagement. We want to sort of like summon that into the world. And I think, you know, rather than, I think like probably the smartest thing these platforms can do is try to dodge the issue. Facebook did this to some degree several years ago when they rebalance the newsfeed algorithm to focus more on family and

friends content. And I think overall that was actually a very good change. And I'm actually using Facebook more and more these days. And when I log on, I see, you know, photos from my aunt or long-lost high school friends or, you know, much less of this sort of, you know, engagement-seeking content that is defining Twitter right now. Super interesting. I mean, there's a way to look at it, I suppose, that is, I mean, I guess there's two ways to look at it. One is the only way to carve out more minutes of attention in aggregate is to keep watching. down the same paths of engagement, right? The same types, right?

Adding to your metaphor from before, an additional degree, an additional degree, an additional degree, a different approach is to view that attention as highly variable, likely to flow wherever it finds interesting things, and to assume that people actually have a lot of different things that can command their attention and engagement, and perhaps there is a choice involved in which things to promote. I mean, again, I think that that doesn't necessarily address the issue that you rightly bring up of once you start tinkering and you have any sort of board that's making those decisions, it's going to get dicey really fast. But it's an interesting take that it's a wrong-headed way to look at it, that the only way to kind of compete in this arms race for engagement is to go after

the same type of extreme attention-seeking engagement that we've had in the past. Right, right. You know, and, you know, And then I would just, you know, draw attention back to that famous Marshall McLuhan quote, the medium is the message. And again, I said the medium has never been so editable because these companies can edit these communication mediums, does that put responsibility on them to do so? Right. Like, you know, when you talk about pass forms of communication, radio, broadcast television,

these were not so editable, right? They were kind of fixed in hardware and in some ways bound by physical laws versus, you know, these are the communication mediums of today are these kind of artificial constructs. And they're always changing. Again, even though I think we're very perceptually unaware that they're changing, but I think they are in a radical way. Do you think that there is any possibility of an external network disrupting the incumbents today, or has that window closed? And does change need to come from within? Or can it be some combination?

Yes, I do think there's plenty of opportunity for new networks. Does a new network that maybe is kind of based on something other than engagement maximization, does that solve the problem? I'm more it doesn't because you can kind of create a new, kind of more virtuous platform, if you will. That doesn't negate the attention arms rates that's still happening within the incumbent ecosystem. But I think there's a lot of room for new networks, maybe now more than ever. I think, you know, it's new hardware capabilities, I think can give kind of a new network a new feature that is novel, that is maybe difficult to copy.

One of the pieces of advice that I give founders who are looking to start a new social network is trying to find a structural reason why an incumbent network just can't copy you. I think one quick, easy reason is actually having a different privacy setting. So, for example, one of the ideas I'm really excited about are proximity-based social network. So maybe using Bluetooth low energy to detect if I'm in physical proximity to a friend of mine. Obviously not very applicable during COVID, but we have to build for the future. But you can imagine the privacy implications of a product like that are significant. And it's something where if you started a new network from scratch, you can set the rules from day zero saying,

hey, this is what this app does. Here's the privacy implications of it versus if you're an incumbent network and you want to roll this feature out to all your existing users, all of a sudden that becomes this kind of impossibility because everyone had signed up for a different set of expectations around privacy. And it's really hard to change that at any one point. But when you're just getting started, when you're kind of starting from nothing, you can kind of make product decisions that will be painful for the incumbents to copy. I think one of the really interesting and important points here, especially reflecting on, you know, a number of different attempts over the last few years to have kind of crypto-centric social networks or pay you for your content social networks is this emphasis that you had on a fundamentally different architecture decision or feature, right, that creates an incentive to be there other than just it's the same thing, but you get paid crypto to do what you want, right?

It's something that's a fundamentally different opportunity of a new medium. Yeah, and I am optimistic there with kind of dashes of pessimism mixed in. One thing on the pessimistic side is that if a new social network that's built on crypto kind of feels anything like crypto Twitter, then that's going to be a mess. I think crypto Twitter is full of very toxic incentives. It's just everyone's sort of talking their book where a lot of their thinking is just entirely guided by what is in, you know, what assets they own. And I think that's just a very uninteresting place to have any kind of intellectual discussion within because I think it

kind of leads to cult-like thinking and, you know, really motivated reasoning. That aside, one real opportunity point that I see with crypto, and you have to be delicate with this, is it's an incentivized growth. And this is like an idea I've been thinking about for a really long time. And I think Bitcoin itself embodies this idea, which is when you're starting any new network, the network utility is nothing, right, when you're first starting out. And if you kind of abide by Metcab's law, if you kind of believe in that, then the network, the network utility, the value of the network rises exponentially as you add more users. But you kind of have this early ghost town problem where, you know, you're just not, the network value is not sufficient to

kind of drive engagement and the thing just stalls out. And I think one lines to think about this is, you know, what was the value of Instagram's first million users relative to the last million that just signed up? You know, many, many, many, many orders of magnitude to the point where it had those first million users not signed up, the thing would never have snowballed and taken off, right? And so I think Bitcoin offered an interesting solution to this chicken and egg ghost town problem, which is if you were an early adopter of Bitcoin, yes, the network utility in terms of who you can send it to was low, right? There's just no one to send Bitcoin to. but your incentive, your reward for joining early was kind of proportional to that.

So, you know, if network utility kind of scales up in an exponential kind of hockey stick like graph, then Bitcoin's sort of reward for being an early user kind of is like the inverse of that graph. So it's like it's an exponentially decaying graph. And, you know, I think you could adopt that similar sort of incentive curve. and apply that to a new social network, I think it pretty interesting. And actually, I don't think you even would have to build the core infrastructure of the network using crypto.

You could actually just kind of have this as a token. Or frankly, you wouldn't even necessarily even need to have this as a crypto project. It could just be a virtual currency within the social network. But the idea is like sign up as user number zero and here's a million tokens, which at some future date, you know, might be worth something, but kind of join now because the number of tokens being given out to every subsequent user is decaying rapidly. And so, you know, you hope that by the time you get to that crossover point where the kind of graphs meet, that that gets you through that early ghost town problem by having this sort

of incentivized growth model. Now, there's all sorts of holes you can poke in this, one of which being, the sorts of users you might attract by effectively paying them in some, you know, digital token might not be the best users. And you might also have to think about ideas of like, do we vest tokens? Do we, you know, do we make people earn the tokens by being, engaging on the network rather than just kind of staking their claim early on? But I think Bitcoin offers a lot of inspiration for folks who are thinking of how do I get, how do I solve that chicken and egg problem. How do I get through the ghost town? Well, this is something that I could

spend multiple additional hours talking about, but I want to, since I have you here, maybe we'll come back to that one as we see more things evolve at some point in the future. But while I have you here, I want to get your take on one more thing, which is GPT3. And whether you think, is it overhyped, is it underhyped, is it both all at once? What did you make of this new launch? I think like people are just so quick to like need to have a commentary that they're like, you know, I don't know if it's overhyped or not. You know, I also think that it's very possible. And I think some of the biggest transformations in technology fit this model where something can at the same time be hyped up by nearly everyone you meet and actually be underhyved relative to its potential. And I don't

know if AI is going to fit in that bucket. GPD3 was the first kind of spooky experience I've had in a while with AI. But for example, one trend I think that fit that pattern of it was always hyped, but actually relative to what it, what change it drove, it was actually underhyped, was what was the change to mobile. And that's something that kind of happened while I was at Facebook. And, you know, everyone across Silicon Valley was talking about the transition to these new devices and mobile firsts, all these things. It was very hyped up stuff and rightfully so, but I actually think it was still underhyped. I think people just didn't see the, in many cases, didn't see the magnitude of scale that these new devices were bringing on. And that actually

afforded a lot of investment opportunities into things like Instagram or I think Mark Zuckerberg was always very aware of the magnitude of that transition. I think that probably, informed his purchase decision of Instagram in some indirect way. Absolutely. I think that the key variable here in a lot of these cases is time scale, right? And just, you know, at what time scale are we talking? But Bobby, this has been a really, really interesting conversation. I appreciate your thoughts. And dare I say, some of your optimism around the potential in social media. Obviously, it sets such a context for everything we do, whether economically or otherwise. So thanks for hanging out. And best of luck,

with Form Capital. For people who want to find out about you and follow along the journey, where can they find you? You can find us at FormCAPital.com. Easy, breezy. Awesome. And you're on Twitter at RSG. I know because you're one of the other few people who has the three initial Twitter handle. Yeah, it's a good club. We're fortunate. And Nathaniel, thank you so much for having me. You bet. All right, Bobby, talk to you soon. There's no doubt in my mind reflecting on that conversation. the central question is, can social media in this current incarnation be redeemed, be changed, be evolved in such a way that it is better for society, that its benefits which are real, that it brings to society can continue to, or maybe in the future, dramatically outweigh the

negative externalities, as Bobby put it. I think I perhaps have some more skepticism than Bobby does, but what I appreciate about his perspective is the notion that the decisions that, the decisions we make about which algorithms to use to promote engagement are ultimately human decisions. We can prioritize different things. We can attempt to try to get the same type of engagement to compete in the engagement arms race, as he put it, by doing things that are better for people that are actually healthier, that don't preclude different perspectives. So I think that that's a potentially positive sign. However, how we get there and how much it comes from within these companies versus from new social networks that emerge versus from mandate from government is a really

big question with likely a pretty demonstrable impact on how this plays out. So it's going to be something to watch. And I mean, frankly, more than that, it is a central question of our time. Hopefully this conversation gave you some more food for thought and I appreciate you listening no matter what. Until tomorrow, guys, be safe and take care of each other. Peace.