The Pomp Podcast - #277: Arjun Sethi on Data-Informed Investing

Episode Date: April 23, 2020

Arjun Sethi is a Co-founder and Partner at Tribe Capital. He previously built multiple successful companies with 9 figure exits. In this conversation, we discuss market timing for product-market fit, the cyclical nature of growth tactics, slow vs fast money, N-of-1 companies, and Tribe's view on cryptocurrency. ===============================  Crypto.com is the only all-in-one platform that allows you to BUY / SELL / STORE / EARN / LOAN / INVEST crypto all from one place. Join over 1 million users currently using the Crypto.com app. Download and earn $50 USD using my code ‘pomp2020’, or use the link http://platinum.crypto.com/r/pomp2020 when you sign up for one of their metal cards today. =============================== Blockset by BRD is your hosted blockchain infrastructure. Blockset enables enterprises and developers around the globe to deliver high-quality blockchain-based applications in a fraction of the time, at a fraction of the cost. Using the services provided by Blockset, businesses can build professional custody solutions, accurate and near real-time portfolio management solutions, auditing platforms, commercial block explorers, and much more: blockset.com  ===============================

This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast. Simply the best podcast out there. Let's kick this thing off. Arjun Sethi is the co-founder and partner at Tribe Capital. He previously built multiple successful companies with nine-figure exits as well. In this conversation, we discuss market timing for product market fit, the cyclical nature of growth tactics, slow versus fast money, n of one companies and tribes view on cryptocurrency i really enjoyed this conversation with arjun and he didn't disappoint before we get into the episode i want to talk about the

two sponsors for today the first is crypto.com they're a pioneering payment and cryptocurrency platform that seeks to accelerate the world's transition to cryptocurrency they have a vision to put cryptocurrency in every wallet which is frankly why we're all here the crypto.com app offers a full range of financial products with competitive pricing, well-designed user experience, and high security. It is the best place to buy, sell, and pay with crypto. These guys have been longtime supporters of the Pomp Podcast and keep launching new product after new product.

So do yourself a favor and go to crypto.com to check them out. Again, crypto.com, the place where mass adoption is occurring. The second sponsor is Blockset by BRD, or Bread. If you're building on the blockchain space, you got to know about them. Their goal is to enable the next wave of developers and business leaders to build amazing applications. Blockset offers accessible data from all the major chains through a single easy-to-use API. It acts as your hosted blockchain infrastructure, and it ultimately enables high quality apps to be built at a fraction of the cost, in a fraction of the time. Go sign up for

a free developer account at blockset.com and start building today. They were built by BRD, Bread, one of the first wallets in the app store from 2014, and one of the largest in the space today they've taken everything that they've learned over the past six years to create block set a robust reliable and strategic b2b offering for developers and enterprises thanks to them you can now build at light speed using their unified api that is data from all the major chains go check it out at blockset.com again blockset.com all right let's get into this episode with arjun i really enjoyed it and i hope you do as well anthony pompliano is a partner at morgan creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions

and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinions expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only. All right, guys. Bang, bang. I've got Arjun here. Thanks so much for doing this, man. Thanks for having me. Appreciate it. For sure. Let's just jump right into your background. You are one of the rare folks who's actually built a successful business, exited, worked at a large corporation, and

now spends time investing. So kind of just walk us through your background. yeah i so i actually grew up in the valley so my dad had been in the startup ecosystem my mom was there as well uh and so i kind of watched them literally start their companies in the garage my dad's first company that he started was a company called berkeley networks there was just a ton of folks that came from boston east coast area this is a you're talking about semiconductor networking see the real people that built real companies at that time they would uh they you know they they would literally be sleeping in their garage um some people were in their backyard in their tents um i'm forgetting what kind of car someone had but

it was essentially like this big volkswagen like camper van uh in front of our house and he would sleep in there and he would just come in and take showers and so i i kind of watched that and to be frank i i saw that and uh and thought to myself why would anyone ever want to go through this much pain to start a company uh and and and again being a kid uh in your mind uh you think of starting a company is like you know starting a shop uh at a retail location maybe it's 7-eleven or something like that and uh uh so so never i never really like grasped uh uh growing up what it really meant uh to start a company or what was venture scalable what was high growth you know what was revolutionary versus what's disruption oriented and so I actually and I

think we kind of share this I actually had you know enlisted for the army in 99 and so I went I went through basic got out and you know they take they gave you a series of tests to see essentially they're testing your IQ level around what are the types of things you can do and so I never went into any sort of standard mos i actually went straight to the department of defense and started contracting with them uh before i was deployed out with uh folks in the army between 99 and 03 uh and during that time frame i i think what i started learning was that there are so many unwritten rules to the rules and there's just so uh uh you can push uh the boundary as much as possible but just learning what's available what's not so i started taking classes

uh i went to community college at the same time there's something at the time called community college at the air force i don't know if you remember that uh because the army didn't provide it and the different uh military stipulations and so then i eventually just transferred to university of maryland at college park uh taught a little bit of rotc there as well and then just you know studied math and history never finished math i only finished history and then the startup ecosystem was actually starting to get hotter and hotter in California where I grew up so I came back and started a bunch of companies and while I appreciated that you said hey I had a successful company I had maybe 10 or 11 you know starts that didn't work

they all failed and they're not on my LinkedIn I wouldn't talk about them because they're embarrassing uh but i i tried everything you know uh photo photo sharing to uh micro payments to you know payments and wallets this is this is pre-iphone this is during j2me and brew and you're trying to figure out how to use the phone so timing was off obviously by you know 10 to 15 years but uh that was my background and then eventually you know i started a social gaming company out of my time from Facebook on the on the Facebook platform there's a company called Low Lapse we scaled very quickly I would say we had a lot of tailwinds and luck on our side and you know we went to zero to 100 million in monthly active uniques zero to 100 million

revenue at some point but it was never a straight line and what kept going up and down because our game would scale and then it wouldn't and then we get another game and that wouldn't and so a lot of what we tried to do is get enough games to build distribution once we had distribution we started distributing other people's products we became our own platform and not just here in the united states on facebook but we eventually moved to mobile we started publishing games from asia here in the united states and back into asia and different markets and eventually we were acquired by nexon in 2011 so for about quarter of a billion and And that was alongside a merger with a company called Six Waves.

So we all kind of came together and we were their outfit to publish games on mobile. And so that was, you know, that was a wild ride because we were taught how to scale an organization. So we went to a couple hundred people, fired a couple hundred people, went down to 30, scaled again to a couple thousand people, fired uh 500 600 people because the games had oscillated um and then we uh you had to build uh infrastructure from from the ground up so bottoms up had to think about what it meant to build uh data architecture what it meant to measure your customers what it meant what ab testing really meant during that time frame uh again aws was just coming and so we were using you know uh uh products like soft layer which eventually got acquired by ibm and and remember

during this time this is this is the first time where storage started getting cheaper you could retrieve it faster you could analyze on top of it this is when data and analytics companies started emerging at a faster pace so that was a time when i was growing up in my and my companies were uh uh either succeeding or failing but uh this is how you built your product and engineering teams and so kind of fast forward from there you know i started another company called message me sold that to yahoo i was on the executive team there scaled their whole mobile unit out to a couple billion um uh in in revenue from zero where they went from desktop to mobile uh so and and we also acquired 250 companies it's kind of a wild ride and the only thing that

helped us from our portfolio approach was using some sort of data analysis or frameworks to be able to leverage the data to make decisions in the future and a lot of people say they just use the word data and analytics and then and they think all their problems are solved but that's that's not true right it's more about what are you measuring what are your frameworks what's the philosophy around the data that you're collecting and then how are you going to make decisions based off of that and i and i think you know the companies that have done that really well have been Google during their time, Facebook, probably, you know, the most prominent of them. And we're more biased there, because that's our background. It's where a lot of our team comes

from Jonathan, my co founder at tribe, you know, essentially invented the data science practice at Facebook when he started there. So a lot of, you know, you have to kind of think about what does data help you do. And I started thinking about what does what can data help us do in the private venture landscape. You saw a lot of companies and hedge funds and funds in general use third-party data sets and publicly available data sets to start thinking about how to invest in the public markets and have some sort of edge. And we've all heard that story. There's the famous folks at Renaissance, they have their strategy, but the list of folks that have been successful but pretty long and we you know we we thought okay well on in the private markets

what's most important and what was most important was the same work that we used to do when we built a company from the ground up from scratch which is you have all this data storage is getting cheaper retrieval of that is cheaper and you should be able to analyze it so what are the frameworks that you use to make good decisions and so I eventually joined a firm called Social Capital. You know, there was three co-founders, Chamath, who's more famously known because he was at Facebook as well. And it started, you know, the growth initiatives and this type of thinking within Facebook. But he had also helped start this ecosystem of thinking, in my opinion, across the Silicon Valley ecosystem. And I joined because Social

Capital was the only firm that was thinking about leveraging data from companies, their primary data to build bottoms up view to make better decisions. And so what I really pushed for during that time was great, we can do that. But how can we help to augment the companies that we work with? How can we make better decisions ahead of time? How can we store and query this over time so that we can get better at our decision making? But as venture capitalists, how to augment our time of, you know, of our experiences, right? Like I've been an entrepreneur at scale companies, who cares? There's a certain amount of time that goes by that it's less relevant,

but it only becomes relevant if I have data and context to understand how companies work and what's really happening versus, Hey, I saw this company 10 years ago, do this. Or I saw another company six months ago, did this, you should do it too. Those are not really helpful. And a lot of my investors in my past used to do that. they would come into a board meeting and they would basically just you know reflect on other companies and what they were doing and i remember one time there was this one investor who said

let's take a look at um living social and groupon and you guys are very good at distribution we should do the same thing and i was like we have uh distribution retention for our games we make money uh we have a profitable unit economics and we want we need to scale that and I think a lot of people focus on short-term metrics short-term vanity metrics in some cases and so a lot of you know my time and my colleagues time have been spent around what's the data that matters a philosophy behind it and how do you automate and build abstraction layers on top of that to make better decisions yeah so let's go back for a second the the thing you said

in terms of you start a bunch of companies some work some didn't but timing was a big piece of this. I want to start at kind of a 10,000 foot view of just, I think a lot of entrepreneurs, especially earlier in their careers, don't understand that this may be the most important factor, right? It's just, if the idea is time has come type thing, maybe talk a little bit about through your experience, both in starting a company at the wrong time, and then also starting one, you know, kind of at the right time with the Facebook platform and stuff like that. Yeah. So if you, if you use the word timing you know, it really goes back to, in my opinion, four pedestals but people talk about product market fit product market fit is essentially

just that it it fits within a certain time frame and then you have a product that is working uh how do you quantify that in a market that has demand for that product how large is that market at that time um and then what's the team behind it that substantiates those two aspects and i'd say the other pedestal in our opinion that people kind of forget about is the distribution of that product into that market and and that's another piece there I would say you know the the timing really equals product market team and distribution as a whole if you were if you want to look at as a formulaic perspective and the you know the the products that I were I was building and my colleagues were building you you can say that either the timing was off that the market wasn't

ready for it or the product you built just wasn't working for the market that existed right like it's kind of either or and i would say all of my products had a failure of one of the two at any given point when we when we first started right where um you know the market was fairly saturated with a ton of the same types of products so what you were building wasn't any differentiated it was a commodity um and so we call that kind of red ocean markets right where you're just building the same thing uh it doesn't feel monopolistic it doesn't feel like there's a unique value proposition unless there's something really unique and sometimes unique means distribution but a lot of companies don't have that either but when you're starting off from scratch you know say

zero to one you don't have distribution you're trying to figure out what's the wedge to get that distribution and then in terms of how do you evaluate that right so like I'm an entrepreneur I want to go actually build this company I've got this idea how do I evaluate is this the right time for the product yeah you know that what i'd say is who fucking knows right i think the part of that is that there's a certain amount of risk that you're underwriting in the beginning uh you know maybe it's a vertically integrated sas play into a certain type of market that's never seen software are they ready for not who knows maybe it's in a market that's not the united states it's outside so it could be energy um you know real estate insurance it doesn't matter i i think there's

just a certain amount of risk capital that's needed and a certain amount of risk attribution of founders and teams that start with hey i've got this idea i think i have this problem that i can solve let's just get it out there and see how the market reacts and so so i'd say there's a certain amount of risk capital for that uh and the types of people and partners that you want there's no data uh at that time right especially like let's just say you and i are starting a company the two of us um uh or and maybe we get two to three people to act on top of it what we're really doing is we're just building some sort of prototype we're building something that has capital expenditures towards some sort of roi and that roi might be nothing is that hey

we just learned that this doesn't work or we just learned that the market doesn't exactly want our product this way we're seeing all these demand signals to go a different direction let's build in that direction and that's typically what you see for a lot of companies it's really rare it does happen though but someone says that I have this unique insight I'm gonna build this product and then I'm gonna be able to sell it what typically happens is they'll make that pitch and then they come out with the product and then they start tweaking it for their customer tweaking and tweaking and tweaking it until they've honed in on it sometimes those companies start off the services

which is what we all know some what SAS has really turned into and either that's top-down mid-market or bottoms-up but you know the the main thing I would think through is that, you know, there's no real data in the beginning, you got to have some sort of keen insight. And then as time goes on, and especially in today's day and age, you do have data that you that are that you're collecting on how your customers are interacting with your product. And the beauty of software products are, is that there's a leisure to it, there's breadcrumbs of how people use it. And that's actually where we come in, is that we have like this guide map of what it looks like to be a healthy company for your industry at your stage

and life cycle. And here's how you should measure yourself against that or benchmark yourself against that. And if you could do that, then you know where you are in the quadrant or gradients of healthy to unhealthy. It's kind of like, you know, getting ready to run a marathon. Can you run it? Yeah. And I guess part of this whole idea of market timing is one, one of you bringing the actual product to market, but also the growth tactics, right? You talk about the distribution. Obviously, there was a point in time where using Facebook for massive distribution and growth made a lot of sense. Maybe some would argue now it doesn't. How do you think about also the timing of the growth tactics that you're using? You know what I find interesting is

if you uh i was actually reading the book um from harvard box marks on mastering the market cycles but what it really reminded me of the cycles of distribution that the same distribution techniques always work it's just when do they work uh and at what time do you use them right like if you go back in history you know there's people um that were using um you know the the the first ads on for newspapers from the late 1800s and even the early 1900s to sell snake oil right and like vitamins and and medicines or liquors or whatever they called it um and those tactics are the same things that people use today it's just that do you have the ability to make it work or not right where a five-hour energy just grew very quickly because they were on tbs at like late nights when

people were tired um and so so i think like if you have a much more longer-term perspective on what distribution channels work and what don't you know email still works sms still sms still works um uh newspaper advertisements still work it just depends on what your product is who your audience segmentation is and uh and do you have a unique value proposition that will work i've always kind of found it interesting that people say hey we have this new unique distribution that we're going to go after and then you can go back to and say okay well over the last 50 years like these are the people that have done it maybe we should just learn about how to do it better does your audience segmentation work there or not i've always seen people try to use you know the

facebook tactics that we had used you know for enterprise infrastructure or hey let's use let's just buy some ads on facebook for a top-down sales model and and i've always questioned that and i said well why would you do that um that's not where your audience lies it's not where your segmentation lies it's not where you're going to have intent what's the point um and so you know while we get these new channels, it's just it's, you know, more of the same. It's just about how do you use those channels? And how are you efficient with it? Yeah, one of the differences in the private markets and venture capital compared to the public markets, the public markets have a price associated to the asset every day it trades, there's a lot of volatility.

And so emotion becomes much easier to manipulate just because they're seeing something go up or down in value. In venture capital, you don't necessarily have the day-to-day price movements, but there's definitely a motion that gets involved in decision-making. You guys, I think, have done a good job of just being super data-driven. Maybe talk a little bit about how at Tribe you guys are using data, how it affects the decisions you make, and how you guys are using that once you make an investment to support the companies. Yeah. So I think there's a couple of ways to answer that question um they're you know one is people use the word data driven where um i'm really averse to that uh because it just means that you're just gonna go um like you're

not gonna be you're not gonna think about what this data means in the first place and so we like to use the word data informed internally and so we came up with this framework uh called the eight ball um where it was essentially how do we quantify a product market fit for any company that uses software or is enabled by technology in some way and you know the the reason we had that was it's akin to financial accounting right if you if you look at a statement of cash flow or balance sheet uh you know pnl etc these are standardized frameworks that were invented in the late 1800s to help guide you on what are the transparent things that you want to look at for a company before you dig in deeper so if you if you look at a financial accounting statement

And there's a very good chance that you won't be interested based on the financial, right? Like there, you might say no, right? Like you're nodding your head saying like, yeah, like that company doesn't feel healthy to me. So I'm just going to pass them and look on to the next thing. However, if you, if you find something that's interesting and say like, you know, this, the way in which this company has cash management or efficiency or, you know, overall their overall cashflow in nature, maybe I should dig in deeper.

And you start doing your work from there. Then you start thinking about demand signals. What does the overall, what does their customer base look like? What's the recurring nature of it? What does the margin structure look like? If it's lower, is the market big enough? Is the volume large enough where they can get to a certain scale? You start asking these bigger questions about different industries,

but then you're able to compare multiple companies to each other by using this and then dig in deeper. But you know what? In the private markets, one of the issues has always been, how do you do that? What are the standardized frameworks that you use? Can you actually measure it? And financial statements don't work as well for early stage,

mostly because those are all lagging indicators. So if you're investing in a seed plus or series A or series A, a lot of these companies have really de minimis revenue or revenue that's really not going to paint its picture yet. And that's coming later. And so you're looking at forms of demand or engagement, which is what I call it. And so you have to have standardized frameworks for that.

And that's really where we've spent almost all of our time. Now you can take that and say, okay, great. You can actually do more, the more data you have, you can do more of that for even later stage companies. And we do that as well because investors typically kind of what I'd say regress to the mean is they just go back to the finances and say, Hey, they said they're going to do this, but I don't see it reflected in the finances. Sure. But you could have said that for Facebook, Airbnb, Uber,

at some point kind of you know google at some point as well like you would never really understand how these businesses work unless you could look at what we call the software ledger and that's understanding the demand signals for how a company works so our framework was called we published this uh you know about six years ago my partner had done this he had published this actually uh even while he was at facebook and you know if you're coming into facebook today as a product manager you read this if you are learning product market fit quantitatively like what are the frameworks that you use at Stanford they reflect our work you go to Sequoia's website they have a section for product market fit it links back to our work because we created a

standardized framework to understand product market fit for a company at a certain life cycle and and that's what we do really well is to just get those frameworks out for ourselves and we have a ton of software to help automate that we have a ton of software that stores all this for every company we've ever seen so we can get better at better at not just evaluating but giving this insights and feedback back to the company like if you're a founder and you're starting a company the first question you ask everyone is like what does it take to raise a series seed what does it take to raise a series a what does it take to raise a series b what are the milestones i need to achieve. And we basically say, here are the fucking milestones that you need to achieve.

And here's the gradients of where you need to be. And here's what use of proceeds really look like and what people are going to gauge you on. And this is what we tell our entrepreneurs. This is where we think we can help. But more importantly, because it's standardized, this is a standardized framework you can use to reflect back to the market as well. And so we use this as a foundation to understand where a company is at its life cycle and then what it's going to take to scale like what

is this going to take 20 million 50 million, 80 million of subsidization of venture capital or other sorts of capital to get us to certain sizes scale, that's what venture capital is all about which is the velocity of growth is what people are trying to invest in I think a lot of people kind of forget that

is it a sublinear path, is it super linear or is it just linear and all companies have different different stages. And at some point, I'm sure we'll talk about network effect, because we both also came from that same background. But that's just as important, right? Is that you can only really think about network effect if you have a foundation to understand where a company is in its lifecycle, and do they have product market fit or not? You know, frankly, most products don't have product market fit. And that's what you want to know. Do you want to spend your time as a

founder on something that's not working. And in my opinion, if I knew that earlier on, I would say I wouldn't want to have done those 10 things. I would have wanted to only focus on the two that started working because it had product market fit. Yeah. And I think part of this, what you're highlighting in terms of Sequoia and Facebook really covering this stuff is the first part of this is it's a mindset. It's a philosophy, right? Of looking at building a business in a very scientific way measuring this stuff and the part to me that's always been shocking is once you kind of see the lighter or you get indoctrinated to this then you look at user metrics you see a whole different part of the business because it's not so much hey how many users do you have right now

you start asking differentiating questions like what's your week over week growth your month over month growth what's the retention look like like there's more nuanced questions can tell you so much more about the business and really what you guys have done is you've built software that can do this in a very automated fast way and also compare it back to other companies you've seen yeah i mean what we tell any companies that we work with and you know we always say feel free to ask any of our companies why they wanted to work with us is uh i mean you pretty much have the facebook the uber or the airbnb data science team as your capitalists and and and and i and i say that not in a uh in a joking way is but that's our background that's what we've been doing

And as individuals without software, we can only take you so far. And that's what most of the Joe Schmoes of the Valley and the investors are, is that they pick someone or a collection of individuals that had some experiences qualitatively and bring them into a firm and say like, this is your guy or this is your girl and she's going to help you get to where you want to get to. Well, the problem with that, as you know, is that we just talked about cycles of things changing. Things change so fast. You know, the things that work for my companies over the past 10 years are not going to necessarily reflect or work in the future. So what do you do? Well, you got to start with some sort of foundation. You got to understand your data. You got to understand the ground truth of what's working at your company to be able to make more informed decisions. So if you are a network effect company, or if you're a marketplace company, or you're a widget company, you're a grocery company, you're, you know, you're redefining what it means to be a delivery company here in the United States today, you know, given the COVID pandemic and environment, what, how should you think about measuring yourself versus, you know, what, you know, Facebook measures themselves again, you know, like DAU or MAU doesn't make sense. So it's more about like, you know, what are the ground truth type metrics and demand signals that matter and then the unit economics behind it. And a lot of people have their own frameworks for thinking through it. My biggest issue has always been those are always lagging indicators, right? Like looking at someone's finances are lagging indicators for early stage, not late stage. And so how do you then take this super data informed approach where you do have access to that software legend you talk about?

do you say hey we're just going to listen to the data and the data is going to tell us what to invest in and what not to or is there still an element of like uh kind of the art of investing what a lot of people say it's my gut it's my you know personal um you know position or opinion on this not actual data yeah you know i i always go back to look uh the why do you partner with venture capitals in the first place the ideal situation is that they're they are long-term patient capital with you that knows that your business is going to have ups and downs you're not having price discovery like the private markets on a daily basis you're only having price discovery you know sort of maybe like twice a year if that that seems at a higher frequency

already and what what you're what you're really trying to do is understand micro and macro and i think this is important right and and the data sets behind that uh and right now we've been talking about primary data and micro um and and understand what is it going to take for use of proceeds uh to get companies to the next stage to to you know to get them to a place where they can self-sustain in some cases some people call that profitability some people call that like you know high growth, which is what the market was, you know, valuing up until end of December 2019. It's, I think kind of the best way to think about it is like, what are the milestones that you're investing for in the future? And who are the folks that you're going to have around the

table to do that? And so again, I go back to the context has always been, let's focus on people. And then, as you mentioned, gut-driven investments. Or can you get a foundation or a context of a certain type of company? And do you have software that helps augment that with their workflow to help me be a better investor or help me be a better board member or an active investor? Remember, at the end of the day, you have these active investors around you, right? That are coming on the board. You're spending time with them. Strategically, you need them to help you.

They have a brand in some capacity. they have a network as well for helping to hire or you know corporate m&a etc and so you're choosing them and so the the people you choose are just as important as them having context into your business and so the way i kind of explain this is look if i'm around a dinner table and let's say you know it's a it's a corp dev style conversation you should expect your investors to have almost the same context into your business that you have maybe i'm not going to have all the nuances on like what you AB tested last week? Of course not. But I should be able to explain your business from the bottoms up around why it's so important. And if I can do that around

the dinner table or over a Zoom call like this, because I have context, I have my data informed methodologies to do that, that will just make us better investors regardless. And I think that's always the case. That's the case when you are a GM of a business unit or a head of product for a company it's the same thing how the product has no idea what's happening at the latest a b test you know three or four orders down like if you trace it they don't know they're they're hoping that their teams are accountable to get stuff done and in the same way i think about it as on our side which is as active investors and minority investors in many cases we should be accountable to understand what's happening at our company and then therefore the second order and

third effects of that is that we can help them strategically because we just know what's going on If you ask any VC out there, how is your company doing? They'll say, that person is great. They know what they're doing. I love how they're attracting the customer base. All these high-level, fluffy, duffy shit. And then what they'll say is they're killing it, even if they're not. And you have no idea what's happening.

And if I was a employee and I got introduced to a VC that just gave me those, why would I work there? It just means that my investors have no idea what's going on. And I can only really underwrite the team and the CEO. The capital around the table won't matter. And our whole goal is capital around the table should matter because in the past it has mattered. And if you really look at the venture capital industry and where they've been the most helpful, And that's been the case.

Yeah. Speaking of that, you guys recently put together some work and pulled a bunch of data and analyzed around this idea of fast money and slow money. Maybe talk a little bit about what that means and then what that work showed. Yeah. So we did we did two things. One was, you know, what was the failure rate of companies during some of these downturns? And then what are the behaviors of capitalists, regardless of being venture capital, hedge funds, private equity, or family offices? What is their behavior in these types of downturns? And so, you know, what I kind of, again, I always go back to, you know, most people don't understand cycles, in my opinion. um they haven't been they haven't been around long enough uh to see multiple cycles and uh they haven't seen the lessons of past um you know uh historical cycles and and so you know our goal was you know in in the last two uh pieces that we wrote for uh you know for our founders and in

our audience and even our lps was to kind of uh give a perspective again on like this is short term uh regardless of whatever we're saying it feels like every day is a year and it feels like every week is a decade is that um you know in in six months the world is going to be different and so what you really want to know is um what's going to be ahead um in the future after the cycle right like uh and are you are you are we in fear mode or greed mode and i would argue right now we're in fear mode um and so what's happening is that that's been augmenting and propelling the way in which people behave and so our whole goal was that uh in these analyses if you read through them you know who are the folks that have the most fear how do they retreat and how do they treat you

and are those the types of partners you want to have around the table in a time of despair and fear or do you want to have partners which we could define as slow money that are going to be there um you know through uh through the thick of it to understand where you are and continue to support you and that may not be capital it just may be like strategically we should think about doing X, Y, and Z. Whereas the other folks, they have a trade mentality or a flight to safety mentality. And sometimes that mentality is not helpful towards company building, a multiple building and compounding. Yeah. And I guess part of that is you guys looked at not only the frequency of activity, but also kind of pre, during, and after these crisis periods,

you know, where people even just around, right? Because I think one of the most telling things was just there's a lot of transactional firms that were super active, you get crisis, and then they basically disappear. They're not even there anymore. Forget about being not great partners, they just disappear. Sure. Yeah. I mean, look, as much as every cycle is similar, every cycle is also different. And so if you go back far enough, right, like you can go back to the 80s, you can go back to the early 90s, and then obviously the late 90s and the 2001, and then you had 2004 and 2005. People always forget there's these mini cycles as well, especially in the technology industry.

We had 2015 and 2016 on the SaaS side with LinkedIn, sort of losing about 50% of their market cap. You have these things happen all the time and people can get fearful. And as you know, press PR and media can kind of compound that and conflate things where they might not be needed. And so, so it was more about, yeah, who, who's, you know the venture tourists so who are the capital tourists in this industry um and and you guys obviously had um you know the same type of winter in the crypto space and the question is

who comes back who does and who stays around who kind of believes in the long-term viability of a certain type of new market and that's the same thing for venture uh in my opinion uh is that the folks that understand venture the folks that understand cycles folks that understand long-term building are going to be sticking around. And they might not be able to stick around the same way they were before, but they're still around. And a lot of what we wanted to do was to make sure that we could give this information to our portfolio first, as well as the community around how to think about building your long-term strategy over the course of the next year. And so you also recently wrote a big piece on Carta and kind of this idea of end-of-one

companies. Maybe let's just start with Carta and kind of walk us through the history you guys have had with that company and what's really driving a lot of the conviction there. And then we can get into what N of one really means. Yeah, sure. So to give you some background, you know, a lot of our work as operators, you know, from our time in the Facebook ecosystem at Facebook was essentially we spent all of our time understanding and building out data and infrastructure products features to augment and build uh network-based companies right like that that's our whole history um and when you have a network that's very strong um it doesn't matter what industry it's in you know you can uh you know you can call it you know a network in the marketplace etc

it doesn't matter when you find something that's special and a network is being built the question you ask is how big does this get uh and and a lot of humans in my opinion have a hard time one thinking linearly but imagine when you ask them to think exponentially it's just it's just so hard and we spent all of our time looking at all types of demand signals how to quantitatively measure network effect everyone says the word network effect but no one really knows what that means every deck that you see for even venture investors or companies that are coming in they'll say, we have this type of network effect, and this is why we're growing. And then you ask them to define, okay, well, what does that network effect really mean? They say, oh, we just do paid

advertising. Well, that's not really a network effect. It just means you pay to acquire a customer. Or we go door-to-door style sales or bottoms-up or top-down, and we have a network effect. People know it's our brand. Well, that's also not a network effect. It's called a brand halo or scale of economy effect uh sorry economy is a scale effect and so um what you really want to be able to measure is how your customers interact with each other what you really want to be able to measure is does your network allow you it does as your network is being built are your customers reinforcing each other right so for the example we use for you know facebook uh was that you know as more and more people came into your network

your experience on the facebook platform improved right don't have just one friends you have seven friends they have 14 you have 20 and now those friends are sharing photos and those photos regardless of how many people are linking it and liking it or commenting on it it's valuable to you and that's a network and so we kind of always define the facebook as you know the atomic around facebook was actually the photos and you could tag it you could like it you could reshare it um and eventually became a media type right where you don't share just your photos you do videos and articles etc but you have all these interaction points that are different and the experiences that uh different customers have are different it's not the same like your experience

the same article is is is different than my experience that same article because it's just the way in which we are approaching it um and so you have this platform in this product uh but it's different for everyone that's interacting on it and so you know we had never obviously seen anything like that in our lives before in an ecosystem that was created on top of it uh you know and that story obviously has gone through and we've seen companies uh of similar nature have those types of network effects you know all the alibaba i'd argue being one of them uh you know companies like wechat in asia etc so you kind of have these things pop up all over the world and so when you start questioning and say okay i wonder what type of businesses and products will have similar style

network effects in their industry uh and will it be disruptive or revolution as that space the first one we ever saw as investors was slack and so we kind of you know double down triple down quadruple down into that company we were the first uh investors you know post pivot when they went from a gaming gaming company uh to a messaging company for enterprise and we saw very similar characteristics of network effect there we measure that quantitatively um pre-revenue and i think this is really important around the engagement that was happening in that network and what that was going to mean and the and the business that you can build if you look at slack's you know product market fit today um versus what they had when they started it's pretty much the same right

Like, you can basically say, like, here's their foundation, and they've just been able to scale it up using the same sort of techniques. And what you're really augmenting is the friction they might have created when that product came out, right? If you really look at what makes Slack special, it's not just intercommunication, but it's external communication as well. You know, companies communicating with other companies akin to email. And so that was the pitch we made. And that was actually the first time we had taken these frameworks from Facebook and from Slack and started using the word end of one. And this is why we were at Social Capital, like using these frameworks and starting to use where is this company standalone by itself, category defining? Does it have monopolistic characteristics for the wedge that they started in?

And so this really gave us what I'd say a training ground to understand what it means to have a network effect business and where else could this be applied to. I think we got very lucky. We saw the exact same thing quantitatively from the bottoms up for Carta at that time called eShares. Like the pitch of eShares was, and I'll give Henry a lot of credit as the CEO there, and one of the co-founders was that he said, I want to build a network effect. I don't know what that's going to look like, but in order for me to do it, I need to have this centralized view of the world versus a decentralized view of what everyone else is having. It was very contrarian. Everyone else at that time was talking about crypto, blockchain, distributed systems, all be able to interact like programmable money and currency. And what he came away with is that we need to be able to systematize and work within the bounds of what the customer wants first. And what that really was, was what we call the issuer, or the assets or the stakeholders for a company. And that's what they had built out. And so it was the first time we saw engagement and network effects quantitatively for the bottoms up of employees engaging on a platform, companies themselves engaging on the platform, you know, similar to payroll like benefits, GPs at firms, and their back office engaging with the platform.

and then their investors engaging with that platform. You had this really weird but extremely engaging set of nodes and edges interacting with each other, but they were so far away from each other at the same time. You don't have the head of Harvard Endowment deal with someone at Gusto that owns a share, but they're both stakeholders of the exact same asset and they're all in one platform.

And so that was really exciting to us. And so, you know, a lot of what we wanted to do was understand, you know, they have one business, which was a core cap table business where you charge to understand what it, you know, what it means to manage your cap table and all the stakeholders that come on board there. There's a lot of competitors in that space at that time. And then they had another business called the 4iNA that you had to do in order to define fair market value in order to issue options for your employees, right? It's very employee and company and issuer specific. And over time, what you were able to see was that as the network got larger and larger, you know, again, akin to the photos parallel that I mentioned from Facebook, and then building multiple businesses on top of it, ACARDA started saying, you know, because we had spent a lot of time with them talking about the NM1 framework, talking about what an atomic value means, talking about what it means to have gasoline on top of your atomic value and how to scale. you know they they came up with another product for a different set of customers that were already on the platform that were engaging now i think this is really important is that you have so

many people engaging on the platform what are the types of products and revenue line items that you use to start monetizing them uh and then they built what we call fund administration which is essentially you know all the back office uh work that you need to do to understand your portfolio all the rules and compliance regulations that go with it for venture funds private equity funds and hedge funds and and uh and they launched that and so what you had was this new revenue and new engagement and new product and on the same network and i think this was key which is that it's all interacting with a portfolio of assets that you own and then what are the types of products that you build for them. And what that's really led to is what else can you do? There's

banking and financial services for these companies, in some cases lending, because you have now a distribution of, you know, 15,000 companies in the platform. You know, we say a trillion in equity, and we think that's really important. It's kind of akin to DAU of MAUs of companies of engagement on Facebook platform. And then you have a million stakeholders in the platform. And so the question you really ask is, what happens when you 5x that or 10x that or 20x that, you know, worldwide? This is just in the United States alone. How large of a company is that? And it's the first time in our opinion, in financial history, in the private markets, where you have a really good transparent look through and you can start building a new type of market. like if if if you really think about it you know people have talked about uh democratization of capital in in this country in the united states where we're a democracy democratization of capital is only 30 40 years old like where you had um you know securitized loans uh collateral

uh uh collateralization of bond obligations uh of loans etc that that industry is 40 years old And look at how many jobs were created because of that. Look at how much access to capital so much more people got because of that. New underwriting procedures that came away because of that. And so we kind of think about Card in the same way, which is like, what happens when this network gets larger and larger? And what does democratization of capital look like in the private markets where the liquidity has been so constrained for so long?

And actually, this is where I get a lot more excited is what happens now when the crypto markets get involved on top of a platform that has transparency? What does that actually mean versus a platform that didn't have transparency before? And I think that's what we, that's what I started getting really excited about, which not just on Carta, but you know, other areas and industries where you can do this real estate, you know, go back to mortgages and loans. You can go back to understanding what does it mean to have access to capital

and I would call it democratization of capital in those industries. And what does that look like? Not just here in the United States, but worldwide as these things become more and more interconnected which i think a lot of people forget about yeah one of the things that you mentioned uh is kind of these early uh stage businesses where you can really start to see the network effects and so if you put yourself in the operator seat at facebook i think it was like can we get you 10 friends in seven days right or something like that uh at slack i think um i've read that it was like 2500 messages among the team and then you knew that you had them and they were going to stay retained what were some of the

metrics that you saw early on with a business like Carta, which maybe it's not as obvious to people that it's a network effect business, but you guys, by looking at the data could really tell, is it number of stakeholders? Is it transactions, logins? Like, like how do you actually think about that from the more tactical standpoint? Yeah. I mean, if I would really urge anyone to read our, you know, Carta manifesto, there, there are a lot of things that are trade secrets. I won't go into that. And, you know, it's competitive in some ways to companies that want to uh compete with card on the long term uh but but i but i think you hit the nail in the coffin which is essentially um that the stakeholders on the ecosystem and the equity value behind those

stakes is what matters the most uh and and i don't i always go back to it's akin to dau and mau right like your form of engagement is that that not every not every asset value or equity is going to be equal. And as time goes on, what does that really mean? And what are the types of products that you can build on top of it? Now, that's the main thing. And again, when you're going back to a company, you're not talking about engaging with people logging in every day. What you're really talking about is the number of stakeholders that are in a company. In theory, you could say the larger number of stakeholders and the value of that stake that goes up over time makes that stake uh more important to the ecosystem uh up until a certain scale and and and the question you have

to really ask is like what are you able to do with that over time um and and what does the what do the companies in the ecosystem look like what does that allow the companies in the ecosystem to do um uh not just carta itself like i know a lot of people think about carta but it's like if you are a company on carta what can you do now you could stay private longer just like microsoft wanted to they didn't want to go public facebook didn't want to go public what are you allowed to do and how are you able to think about long-term growth but at the same time giving people access to be able to participate in that alpha rather than saying it has to be in the public markets in the long term right if you really look at it private markets have just gotten larger and larger

and larger and they're growing at an exponential rate and i think that's the key it's something that worries me at the same time but it's also a trend that i don't believe is going away because of the way in which companies need to be built for long-term viability of investments rather than the short term. Yeah. And so one of the things that people usually talk about is always how do I find product market fit? How do I build the network effect? And from the investor seat, people talk about, do you have that monopolistic tendency? You guys use the terminology end of one, but what can happen between when you first get product market fit or network effect and it actually doesn't work out? Like how have you seen people either break the network effect or actually make a

stake as they scale? And the reason why I'm asking that is, is it a situation where kind of like betting on the right market, an average team can be successful because the market forces can take care of it? Or is this something where it's not good enough just to get the initial product market fit or network effect? You've got to really actually make sure that you don't screw it up on the way to scale. Yeah, you know, that's a really good question. I would say that any example i give you will have a counter to it and that uh you know i i i generally believe that if you are in an excellent market your team can be average or below average and it'll still work um and and the reason i say that is there's just so many companies where you can see that um and and i

won't i won't name names but i think they're quite obvious when you start digging into know who they are i think it's extremely rare to find a good team uh in a good market uh building a good product and and uh you know i i will be bold enough to say that i think you know facebook has been one of those unique companies where they had all three uh and and you can see that in the way in which they execute and what they do they've just been very very good um uh at executing their product across all these markets now you think about all the other companies and say okay well what do they do really well versus what they don't. And most of these companies, I would just argue,

they're just in very, very good markets. And they were able to have product market fit in those markets. And they are riding on the tailwinds for as long as possible. Our goal is to try to find companies that were just like Facebook, that were able to recognize that they had a good product. They need to build out their team and make sure they can continue to execute. And then they can continue to ride market tailwinds and use those tailwinds for the next adjacent markets that they want to get

into versus hit into headwinds. Like a lot of companies do over time. And so I don't, I don't have any hard and fast rules there or what we advise, you know, our job as investors is, as I mentioned before is think about micro and macro. The micro side is where we use our quantitative frameworks to help evaluate and judge companies, but then share all that back with the company, right? our companies get like these 40, 50 page reports every quarter and they love it. I remember one team came to us and said, Hey,

we went on an offsite for three days and all we did was go through line by line, your guys' whole analysis. And to me, that's, that's great because that means we are adding value to our companies because we're just making them think we're not telling them what to do. We're not telling them if they are good or bad. We're just giving them raw ground truth and a bottoms up view around how to view themselves. And it's up to them to make decisions on how to execute. And we've been doing that across multiple companies. We do that for a few public companies today. And we've been

helping some folks even underwrite risk on the debt side using these same frameworks because it's standardized and it's helpful. And I can't echo that enough. I think it's really important just to make sure you have ground truth before you start any decision making that's qualitative or quantitative and then what i'd lastly add is that in order to understand macro environments you need to have a perspective on micro uh it's really hard to make any sort of projections and i think we're all typically as humans very bad at making sort of projections anyways um on what's happening in the macro landscape right like i'm not an economist um you know i i won't you know i can't give you a very good honest perspective on gdp and you know what's

happening in the ecosystem today but what i can tell you is if you give me a set of thousand companies where i have primary data i'll be able to give you a pretty good bottoms-up view and understanding how they're performing and how healthy they are and the demand signals that go into it because those are our frameworks and ideally that can help inform a macro perspective right as venture investors our job is to understand what's happening today as clearly as possible uh you know benchmarks says this very well very well as investors the reason they do well is to understand the present clearly um you need to you need to understand that in order to understand the future which is what is actually happening it's really easy to say we need to do

these five things or we need to build uh for the future you know invest in you know biotech you know sci-fi and and i think we think of that as well but you got to understand bottoms up where we are in order to get there. If you want to get to the moon, you know, you got to, you got to launch rockets to get there. If you want to 3d print on the moon, you got to get there first as well. And so understanding point A to point B transportation supply chain, all of that is a part of what we do. Yeah. How does that change when the macro environment changes? So take like COVID-19, for example, there's a number of shifts, obviously one, everyone's had to go sit in their house. Two, you get things like in the fundraising environment, there's definitely a bigger focus on

profitability versus maybe growth. And then three is, I think a lot of people look around and they say, hey, valuations are going to change. They're likely to come down. How much? How quickly? There's a lot of questions. And if you don't have data, you don't have those answers. Are you guys able to use some of the data frameworks and things that you've seen in those past cycles in order to inform it? Or, you know, like, how do you actually apply this in these kind of weird transition periods? Yeah, absolutely. You know, it's, what's interesting is that when you get raw ground truth data, you're able to go back and reflect on things that might have happened in the past. And, you know, and I know it sounds like a history lesson, but like, you go back to the

1600s, and you go back to the 1700s, 1800s, and 1600s, you know, the currency of barter, or if you want to call it the reserve currency in some cases was tobacco you know and after tobacco was cotton and uh during that same timeline it was cotton and sugar um before we started moving into gold and silver because we had production uh so if you go back far enough and you say okay well what was happening to these uh markets at that time companies that were being created incentive alignment that was happening you know you know 400 year history of i want to call it colonial and U.S. capitalism, what was happening and had these types of things happened before? And the answer is yes. We've gone to war. We've shut down demand access to other countries and

companies as states were being formed here in the United States. Civil war, something very similar had happened. And so you really talk about that and you say, okay, well, what are the types of decisions you make as investors? What are the types of decisions you make as entrepreneurs? What are the types of decisions you make on a macro side for the small to medium businesses that are essentially, what, 99% of the employee base in the United States? I think roughly like $1.5 trillion in payroll. Like, all of these things have second, third, and fourth order effects. And so when we think about COVID-19, one, it's a forced government shutdown. I'm not saying that's negative.

That's what it is. and we're fighting this war against a pandemic that is indiscriminate in some cases, right? Like you and myself, any person of any purchasing power gets affected. And so what does that mean for markets when demand can systematically get shut down and has to get shut down?

And then how long does it take to recover? So as an investor, you kind of have to understand, okay, where are we in that cycle? What is the effect post cycle? And is that still a down cycle of fear? And then what happens after that? And then what are the companies that are able to sustain and exist within that timeframe?

Which are the ones that need help or subsidization, not necessarily from us. And then where do you start placing your bets from in terms of growth? Where do you start placing your bets in terms of what needs to be built? That doesn't necessarily have to be software, you know, software, infrastructure, technology, energy, insurance etc um the list kind of goes on and uh and where are going to be ecosystems that are going to either be rebuilt or augmented because of what's happening today right and so a lot of

people look at the short term what do they say they say oh great um you know shipments are going up for essential items and groceries are going up well humans also kind of regress to the mean six months from now are we going to do the exact same thing and i'm pretty sure we're not uh going to do the exact same thing but we're going to be really really close um and so you go back to past cycles. In China, when we had the first SARS situation, that country retrofitted itself to be able to withstand these types of things in the future. And they're doing a pretty good job to get out of it. I wouldn't say perfect. And so they were able to get to some sort of recovery faster. I'm not saying there isn't a downturn, but some sort of recovery. And so what does that

mean here in the United States? And where do we start investing our dollars and our capital and our time uh and everyone has a different perspective and and i think the cracks that you see today are housing health care and education we've been talking about it for 10 years but you've never really seen the cracks till now uh now you see the cracks right like on the health care side i mean this is a you know uh from a overall inflation rate since like 1995 i think it's like 55 percent um that basically means things have been getting more expensive it's getting harder and it's an out of reach for people um that were what i'd say you know a plumber that was making you know 30 to 50 000 a year today was making the same amount uh uh you know 20 30 40 50

years ago i mean they just make less money than they did today because of that and that's important so the unskilled uh labor workforce versus the skilled labor workforce uh and the change uh of that as well and so i'm going through a lot of concepts talking about a lot of stuff but i think those are the things that are important because those are what drive our demand and our economy and then you have underlying companies that need to support that may that be small and medium venture-backed or large corporations yeah would it be fair to say when you're evaluating individual companies you're very bottoms up but just hearing you talk through a lot of this in past conversations we've had i think that you guys take this macro view of kind of where where are we today macro

wise, where are we going? And then you go look at the companies in those areas in which you guys believe will have upside in the future. And a lot of times it's even places where maybe they're not popular today, but they end up being. And then when you find those companies, you start bottoms up. Is that a fair way to view kind of the process you guys go through? I'd say on a week to week basis, even on a month to month or a year to year, we might have theses that continue to get form top down by our bottoms up work and vice versa right where uh our assumption like i think the way we think about is the the when we get into the room and we're assessing any company anything bottoms up is that we just don't know anything we just check everything out the door and so we just

don't know so what are the assumptions we may have made that are wrong uh what are these new assumptions we should start making now based on this data and how does that help inform us for long-term capital deployment remember we're venture investors so our timeline is 5 10 15 20 years in some cases um as an angel investor i have a i have an investment from 2005 that's still not liquid right it's still there and i'm still hanging on um and uh and then when you start thinking about uh going from 10 to 50 to 100 to 200 investments that uh your your thesis has to be different. You have to start thinking about your portfolio, your liquidity needs for yourself and your LPs, but also what you need to do in order to make better decisions in the macro and

micro environment. The reason macro is important is you have to understand the bottoms of demand signals you see. Are they going to continue to see tailwinds? Are they going to hit headwinds? Are they in a regulatory environment or not? And I think, you know, what you've seen, unfortunately in again housing education and health care uh sort of being the the main ones i'd focus on the reason why they've had a harder time is that they're they're more akin to political and regulatory behavior where you have institutions that are set to make sure those things uh stay status quo it's hard to innovate and so even if you see a company that's bottoms up they might have a small uh niche that's working they can get slapped down by the regulatory uh side of the

house uh and and sometimes that may or may not work right like in the case of uber they hit a lot of turmoil sort of lift they were able to make it through because what was happening is that we were moving away from a world of being regulated to a world of being unregulated uh to make it more beneficial to the consumer make it more beneficial in my opinion to the folks that were being employed to make money through that through that remnant inventory same with Airbnb etc and so you kind of have to look at that and say well what is what are going to be those types of change that will happen that are effective for education healthcare and housing and the question you ask is in this environment is that helping to accelerate some of those industries to deregulate

and get more innovation and to be able to help build in that direction or are they going to stay status quo and that's where we spend a lot of our time thinking through which is you have to understand that part of the macro and and gather data on that side as well and and that's the hard part like that's the art on top of the science which is science is not going to tell us what's going to happen we're we can only know what's happening on the ground and we can only know again bottoms up making you know actual trends and demand signals we don't know how long that's going to last depending on what type of environment what type of investment we're ranking and so that's why we do focus a little bit of our time on lobbying. We focus a little bit of our time

building those relationships with, you know, the central government. And, you know, I think a lot of people don't like to say it, but, you know, I think the biggest threat to the United States is not understanding what's happening in Europe, what's happening in Africa, what's happening in India, and what's happening in China, and in China more specifically. Now, I'm not, I'm not, like, I think longer term, we have a better model of incentive alignment here in the United States like we have over the last 400 years. However, China understands their incentive model. They're copying us.

They're getting into that direction. And even though they are centralized, they've been figuring out ways to deregulate pieces of their economy to be able to innovate the same way which we do here in the United States. But at the same time, they do have a top-down macro perspective

on what they need to focus on. And we've lost a lot of that, in my opinion, here in the United States post-World War II, uh up until maybe the uh early to late 70s and 80s uh you know i went to a china what they call the china finta conference um and who here's who put it up you had the state government uh of china uh the people's bank uh uh i'm forgetting the name of china uh you had the top 10 universities stand this up and there was only one um uh outside uh speaker and one uh uh outside participant

and that was me and i went there with thinking oh i'm curious to see what was going to happen and i and i and i did a keynote uh speech there on behalf of not just us but even our company card on what's happening in the financial industry and on there uh you know before i had started uh they had a couple days uh of all the companies that were uh pitching you had some of the uh you have the heads of government you have the heads of states there you have the heads of universities there um you had innovation cycles you had startup companies there like the top 10 um and then you had folks like Tencent, Alibaba, all these guys there talking about what's going to happen. You basically had the smartest people in the room, regardless of market cap, talking about what is

important. And guess what they were talking about? They were talking about how much we need to pay attention to crypto, what reserve currencies look like in the future, where they need to innovate, where they need to subsidize, where the government needs to spend more time helping companies get off the ground and where in the world should they be paying attention? And, you know, luckily for us, you know, I, you know, we've been in the lead for a while, but we have to be kind of vigilant is that they basically said the only country we need to pay attention to, the only innovation centers we need to pay attention to nowhere else in the

world we need to pay attention to is the United States and Silicon Valley specifically. It's incredible to hear that, that literally we sit around and we don't understand many of these regions, but they're just solely focused on us you mentioned crypto bitcoin a couple of times kind of how did you guys think about that entire sector of the world and you know what's possible there and have you done any investing on that front yeah we so while we were at social capital we invested in a company called second market and second market had sold a portion of their

company. I'm forgetting who they sold it to. NASDAQ. NASDAQ Secondary Markets. That's what it became. And then they became a holding company, a market maker, and investor all at the same time. And so most of our exposure through crypto had been through them. And this is Barry's company. And they were essentially our our overall holdings and exposure into the crypto markets from blockchain to crypto and you know

over time what that really did was one we got exposure to all these companies like coinbase some that you guys are in co-investors with you guys as well as us starting to think about where do we want to spend our time and what are the types of bets that we want to make and and to be frank we didn't make a lot after that you know i think a lot of it was for us to understand And where are we in that cycle? Are we still in the winter? Are we still in a fear-based cycle of what crypto is going to look like, Bitcoin and all the alternative currencies?

And then what does it mean for the space? I think I still have a perspective that it's still very speculative. There is some volatility there. So it's hard to think about how you innovate on top of it. I think the main thing that's really interesting at the end of the day, and a lot of people have talked about this much smarter than I am, about it being just programmable capital, programmable money. And so when we talk about democratization of capital, what does that mean?

Could this be a facility to help augment that? And I think the answer is yes, absolutely. And I think there has been more innovation on what crypto and this protocol through blockchain and these methods that you can use outside of the United States than here in the United States. And I think that's where we are weak, where we're not even willing to understand it. We're just so scared of it from like a political nature.

And that's what we kind of fight to push is, you know, how do we understand it more before we start thinking about investing in it? And I think you've got to have bottoms up investing. You have to have top down investing, top down subsidies in some cases or research. Again, I always go back to World War II, you know, during the time of Bush

and the entity he created in alignment with our military to be able to just do basic research that could help propel industry on top of it. And I think we've lost that. And I think a lot of what I'd like to see over time, not just from the venture community, but accelerators, grant institutions, the government in some cases to move back into,

great, maybe crypto isn't where we want it to be today, but what could it be? and what can we start incentivizing people to work on that's not just pure bottoms up or speculative in nature. And I think what you've seen most so far has been speculative in nature. Some companies getting to a certain level of success, but then stagnate very quickly.

And where we want to spend our time is not just financial markets, but just where does that help across the ecosystem and go back to our roots of what we do really well is understanding product market fit quantitatively understanding how that can scale and where we deploy our capital towards a business being built uh around uh being augmented uh you know leveraging and utilizing distributed system crypto in some cases uh blockchain etc right because the technology that's protocol that you can augment rather than it being the solution yeah how do you

think about like the market size being either empowering or limiting and what i mean by that is uh crypto is big if you talk to some people but on the grand scale of things it's very very small compared to most technology markets or kind of addressable user bases um does that you shy away from that is it more something hey we understand where it is today we kind of see if it continues to grow you know five six seven years from now it could be the size that we need or just like what's the thoughts there on market sizing yeah you know the everything starts small right uh i i think people as i mentioned before people have a very hard time of understanding exponential growth like like how do you comprehend it it's hard um and so when you think about crypto what has

already happened in the last 10 years it's amazing like how much it's compounded forget market cap Just the amount of people engaged, the amount of open source folks focused on it, applications that our people are trying to put together from payments to wallets to money transfer. Even if it doesn't work, who cares? People are trying. And then once you get to a standardized framework that people start all agreeing to, that helps propel the next stage, next stage, next stage. So, I mean, even with the Internet, look how long it took to get up and running.

and so so what i'd say here is that you you've you have people on the bottoms up doing things and you have a certain amount of risk capital there i think the ico market really fucks stuff up i think there were a lot of people similar to what i'd say 99 to 2001 people just heard the word technology or dot com wanted to get involved and i'd say it was like the it's the panic buying on the upward trend but we're all going to lose out um and so like the moment my mom was saying hey should we look at crypto or my brother-in-law who knows nothing about the space saying should i invest in bitcoin you know things are fucked um and so and i think and and we hit that uh uh during that you know a couple a couple years ago and so now the question ends up being like now we have a

foundation where do we build from here and so what i really pay attention to is like what happens over the next two to five years and five to ten years with uh you know with bitcoin as a currency i don't know if it ever becomes a reserve currency i know a lot of people talk about it but you know I go back I always go back to history what was reserved for a while you know you can say U.S. was a reserve at some point you know post-world sorry post-civil war up until world war one you know with the the advent and the droppage of the gold standard but there's always something that people kind of hold on to and and will bitcoin get pegged with other fiat currencies I don't know and and what do you build on top of that versus now but I again I always go

back to remember when we had uh securitization of mortgages um uh mortgage-backed securities uh securitized debt um collateralized bonds obligations loan obligations that is only 30 to 40 years old i think everyone forgets how large that industry is in the trillions um and and and how much billions of dollars get traded on that every single day uh and what that looked like when it started pretty nascent so here we are in the crypto markets it may not ever yield anything but it has a lot of legs where we've already started and so you think forward 10 years 15 years what happens what do you build on top of it and you've already seen it i think you guys are already investors in you know in terms of lending in terms again in terms of securitizing

it it seems small and it is nascent but again bottoms up what happens over time and what are the leading indicators and demand signals that you should really care about in order to either participate, invest, or innovate on top of. Yeah, it makes a ton of sense. Two questions before you, I let you ask me one question to end this thing. You're the favorite book that you have or most important book you've ever read. Yeah. So there's always a new one that I'm reading. I actually always go back to reading the same book over and over again. And the books that I like reading are Mastering the Market Cycle. I like reading Irrational Exuberance. There's a book that my colleague Jonathan recommended to me called The Righteous Mind, just about how we think

and what gets us there from a social contract perspective and social psychology. And I kind of put all of these things together and I reread them because my experiences change every three, six, 12 months, every two years they change. And I go back and I reread them and I don't know what i when i glean from it is just new learnings and so i'm a i'm a larger fan of rereading the exact same books over and over again uh versus uh opening up and and and i kind of and the way the reason i think about that is that you know as an entrepreneur as an investor um you know you'll read a lot of books uh about how to become an expert in something um it doesn't happen overnight it takes five seven people call it seven year cycles and so a lot of what i try to do is

how do I take a lot of these lessons that other people have had on top of what I'm doing today and how can I become more and more of an expert of what we can do really well not just me as an individual but as a firm and as a team and so those are the books that I like to read over and over again and I think one book that I keep going back to as well is a zero to one by Peter Thiel like I think I'm much more in line with his types of philosophies not not not 100% of them, but it probably like a 70 to 80% overlap. Um, and then, and then all of these other concepts and books. And those are probably my favorite books, books that are all around frameworks on how to think. You just rattled off some pretty good ones there. So it's not a bad

answer. Um, you, uh, you've got an eye for space and made a number of investments and kind of spent a lot of time there, uh, believe in aliens. I think they're real. Um, so, so let me tackle why I care about space or climate change and healthcare education. The reason I care about one is that I, I, I am a diehard American. I know it's kind of like a negative thing to say these days, but I'm here. I'm privileged to be born here. You know, we, my dad was successful because of the opportunities that lie here. And so a lot of what I think about is what are the type of next growth factors

that are going to come to the United States? What's hard, what's hard to build and what are the types of companies that we need to invest in to make that happen so while we have this core business of how we think about quantifying uh and recognizing and amplifying product market fit the way i think about it also is just being responsible is whether there is a certain amount of capital that we want to put because our overall historic loss ratios are low that we want to put towards um you know high risk endeavors but what should those high-risk endeavors be? So I think about American exceptionalism and American ingenuity and where can that be? I think about 3D printing, manufacturing, parts of education, parts of

healthcare. And I think in order to do that, you need to have a certain amount of social capital, human capital, and access to capital. And we're privileged to be in that situation. So we invested in space and a company called Relativity Space. And that was all about 3D 3D printing rockets from the ground up, which sounds like a crazy idea when we invested in it, where we could, again, where you could build and 3D print a rocket as quickly as possible. And the frameworks we used there was that what could happen where you could design, iterate, and launch a rocket in sort of the same types of ways in which you think about software. Like if a rocket doesn't work, how can you redesign it, iterate it, and 3D print it,

and shoot it back up to see if it works. And so that's what this company has been doing. When an engine didn't work, they would redesign, reiterate it, something that would take people one or two years. They could do it in seven days or 30 days. So you take that concept down and say, well, what happens when you can do that, not from just the engine, but the full rocket, full rocket to a multitude of rockets to a multitude of payloads,

and how do you get from point A to point B? And so their whole goal is like they want to get to the moon. They want to 3D print on the moon. and that's what we invested in was a company called relativity space and again it was all about american ingenuity american jobs focused on building hard things and so they're based out of la seattle and louisiana and and another company was a company called sail drone it was the same concept, which is, you know, just as much as space, the world's oceans are just as hard to innovate on top of and below. What do you build? And there's this company called Cialdron that

started, you know, as a science project, but they were able to finally go from technology to platform to problem solving. And they do the same thing, you know, instead of NASA, the World's Oceans Institute that's similar is called NOAA. And the company works, you know, very closely with them as well as being here in the united states and working with world governments but even the u.s government to help understand measure quantitatively our world's oceans our weather and what's happening on a minute by minute basis not on a month by month or not by a you know a cyclical six six month time frame you want to know what's happening in the arctic and the antarctic now you want to know what's happening on the buoy system that's in the pacific ocean you want to

know with that because that is what informs us and what's happening for our world's oceans our weather our fisheries oil exploration if you want to call that from an energy perspective defense of the United States if you want to go that far as well all the way into how that affects our agricultural components here on land like all that stuff is important and so there's a hard thing you have to invest those and so we don't take as many bets in those areas but we take a small amount of bets that we think are again bottoms up where we have a macro perspective and we want to take moonshot bets if you want to even call it moonshots we'll do that but we're investing behind people that know how to do this and we're spending a lot of time asymmetrically

with these teams where we can help them step function and that's how I kind of think about and then to answer your question about aliens do I think they exist that's a hard one right I think in the infinite realm of possibilities of what the universe looks like uh my my scientific side of me says yes they have to exist we just don't know what they're going to be um are they humanoids or not uh or are they some sort of you know uh uh you know bacteria or single cell organism that exists outside here and i think you know we have uh theories about them already existing you know on other planets may they be dead or alive um but uh i i do think aliens exist and the question ends up being are they more akin to uh how we are and you know like in in my in my

lifetime i'm not sure i want to meet anyone uh that's an alien or or anything uh because that would scare the shit out of me um because that would ruin the framework about how i think about this world and and how we think about the macro uh but at a high level yeah i mean i do believe aliens exist and and you know that might think of me as an ace here but uh you know the you know that that that's how i think about it my whole thing is just if if they exist let's make sure we discover them they don't discover us right it never really works out when uh when you're the invaded it's much better to be kind of the invader if it has to come to that yeah i mean there's this uh book i don't know if you've read the expanse series um at all uh and then it became

an Amazon sci-fi show than an Amazon show you know they're it's kind of interesting to see how people think about science fiction and what it really means but my sense is and as I mentioned humans are bad at projections my sense is that you know we're focused on becoming an inner planetary species first and I think that's gonna we're gonna be focused on for the next 200 300 years that's just that's that's what I'd like to see happen and that's where I'm putting our capital personal and our venture firm over time and you've seen some of our first bets there but we look at that kind of across the board is that if you think about the word growth and

what that means where we have to go over time with eventually a stagnant population we'll get there even though it doesn't seem like that we'll get there and and new growth opportunities space is one of those areas that we need to focus on because the amount of things that we can do in space versus what we can do here the physics of being online here and on earth is very different and there's a lot more innovation that happens in space than they can and so you want to make sure that you can reduce the friction make it cheaper and build there across the same types of ecosystems that we invest in today you know biology metals production communication etc

that's gonna happen from space absolutely you get asked me one question to finish this thing up, what you got for me? Yeah. So why did you decide to invest versus operate? Same question back to you that you love asking us. I think that what I really began to realize is I enjoyed building businesses, but my favorite part about building the business is going from, Hey, this would be a cool idea. Let's test it. Let's see if it works. Let's get some product market fit. Uh, and then when you get into the true, like scaling part of it, um, to me, the day-to-day pieces of that were less exciting. Um, and so for me, it was, how do I go as early as possible, find founders to kind of continue to just do that same exercise over and over again

in different markets. Um, and when I first started investing, uh, full-time, I don't know if I really had like some master plan, right. It was more of just like, I know this one thing I really enjoyed doing. I know a lot of other people that are trying to do it, but they've never gone through that process before. Um, and, and so as I kind of did that more and more and more, what I then started to understand is, Hey, I like these markets. I don't like these markets. Here's the types of teams I like to work with all of those things. And it's one of these pieces where you guys obviously have a lot of software, um, and data analytics that, uh, that help inform this stuff. But like you specifically have probably done, you know, that, that initial

exercise i don't know 100 times now right and it's just like you've got the pattern recognition you know certain things that uh are not so much shortcuts but just you can avoid the potholes you can go ahead and you know the test to run like all of those things can really accelerate a team to get the answers as much as you get to see patterns we like any other humans we regress to the mean i fuck up all the time that's why that's why we have this software to help us make make sure we don't make those mistakes because our you know we our gut reactions thinking fast and slow or not you know uh are sometimes not in line with what's happening so yeah i mean i've been watching you uh for a while and i think you know we've obviously had invested in in one of your companies

way back in the day and spent time and kind of watching your progression uh so i i think you know i i think it's really great to see where you've gotten to things that you care about now more than ever and i'm watching that progression and i think what you do now and how you kind of inform what's really important I think we all appreciate it so thanks of course I appreciate you coming on here and we'll definitely do it again awesome thanks for the time