This Week in Startups - Alibaba's six-way split, Disney cuts its metaverse team, Substack's raise & more | E1708

Episode Date: March 29, 2023

Producer Rachel joins Jason to break down the latest tech news. They cover AOC's arguments against banning TikTok (2:29), Alibaba's six-way split (18:43), Disney's metaverse cuts (28:17), Substack's equity crowdfunding (39:16), Lyft's precarious position, and more! (55:09) Then, Jason breaks down the case for shorting Coinbase. (1:12:14) (0:00) Jason kicks off the show (2:29) Reacting to AOC's arguments to not ban TikTok (13:39) LMNT - Get a free sample pack with any purchase at http://drinklmnt.com/TWIST (15:09) The CCP’s interest in TikTok  (18:43) Alibaba's six-way split (26:49) Mercury - Banking built for startups. See more at https://mercury.com/twist (28:17) Disney sunsetting its Metaverse division (38:09) Crowdbotics - Get a free scoping session for your next big app idea at http://crowdbotics.com/twist (39:16) Substack's equity crowdfunding (55:09) Lyft's precarious position (1:04:18) Twitter shutters legacy verification badges (1:12:14) Laying out the Coinbase short argument FOLLOW Rachel: https://twitter.com/_rachelbraun FOLLOW Nick: https://twitter.com/nickcalacanis FOLLOW Jason: https://linktr.ee/calacanis Subscribe to our YouTube to watch all full episodes: https://www.youtube.com/channel/UCkkhmBWfS7pILYIk0izkc3A?sub_confirmation=1 FOUNDERS! Subscribe to the Founder University podcast: https://podcasts.apple.com/au/podcast/founder-university/id1648407190

Hey, everybody, we've got a great show for you today. It's a jam-packed. It's a long one. Producer Rachel joins me, and we do a quick hit on AOC's first TikTok, where she defends TikTok. And then, speaking of China, we go into Alibaba is going to split into six business units. Think about that. That would be like breaking Amazon or Google into six business units. What does that say about what's happening in China with entrepreneurs and entrepreneurship writ large?

Then we discussed the news that Substack is doing an equity crowdfunding. of $2 million on Wii funder. Is it a good bet or not? I go through their deal memo and I tell you if you should invest or not, but it's not investment advice. I just tell you how I would look at their round and why are they doing this now and how much money are they making? And is it a good business or not? We basically break down the business. It's a great product, but is it a good business? And then we dive in to the announcement that Lyft has had a bloodletting. The top two executives are gone. Founders are done and they've brought in a new CEO from the board. is that a sign that they're going to rebound

or is it a sign that Lyft is for sale and who would the likely buyer be? At the end of the show, we discuss Twitter's new product and that they're going to be retiring all their blue check marks. And finally,

producer Nick comes on to discuss if I should do my first short in history. I've never shorted a stock in my life. But I'm wondering, with all of this anti-crypto choke point stuff happening, should I short? Coinbase. We discussed that as well. It's going to be a great show, so stick with us.

This week in startups is brought to you by Element is a tasty electrolyte drink mix with everything you need and nothing you don't. That means lots of salt with no sugar. Get a free sample pack with any purchase at drinklmn.com slash twist. Mercury, where innovation meets peace of mind. Now more than ever, startups need a safe place to put their cash. Mercury. offers a simple way to manage bank risk and protect every dollar with up to $5 million in FDIC insurance and a money market fund. Visit mercury.com to apply in minutes. And crowdbotics. Great ideas can change the world. And crowdbotics is the fastest way to turn those ideas into code. Get a free scoping session for your next big app idea at crowdbotics.com slash twist. All right, everybody, it's

Tuesday. I'm in Tahoe. Rachel Braun is here. She's in New York. And it is a blizzard behind me, but there is so much news. I'm hoping I don't lose my power or internet here in the mountains. How are you doing, Rachel? Good. Obviously not as good as you. That looks a lot cooler than my background. Yeah. I took the girls out on the mountain at spring break. They got some runs in. It was quite nice. It's empty up here. But we have so much now. What you see behind you is a 20-foot of snow against my house. I'm on the second floor of the house, and that's how high the snow went. So you're not like getting out right? Your car's like stuff. Well, luckily, um, where I live, they have a service that plows your driveway and around your house, you know, on some regular

basis. And so we are in like a community that does all that. And so we're good. Okay, good. I can get out. So I can go like grocery shopping and everything. Easily, easily. And also the ski resorts make a point. of having access. So they are on top of it. And the access road and out of ski mountains tends to have like some hospitality stuff, like a supermarket. So thanks for thinking of me, but we're good.

And I got the four-wheel drive car with the tires. And I got Starlink. I don't have a generator. That's going to get put in this summer. The generators were backed up for two years because of the COVID and the supply chance. Yeah. So it seems like everybody's in the market for power walls and generators. So I'll probably get some combination of that in the near future and be totally off the grade.

You can see people skiing by me though. So it's going to be a nice day out there if I can get out there. So, you know, I wanted to ask you, what's the vibes, so to speak, on TikTok? I covered the TikTok bad. It seems like I was yelling out the window like a Gen X or like a boomer saying, you know, shaking my fist saying like, wake up people. This thing is a security risk. We don't have reciprocity with China. We really need to have them divest.

and or just, you know, have them have the risk of ruin. And sure enough, Democrats and Republicans seem to be absolutely in on this bipartisan dunk fest. But I want to ask you, amongst millennials, Gen Z's, and younger, and on TikTok, what's the vibe? Yeah. So obviously, Show Choo was just grilled in front of the house. But a lot of people are really making fun of the people that were grilling him. Not only, obviously, are there things that are really funny going around. They're called fan cams.

I don't know if you know what a fan cam is, but it'll be like a photo of somebody. I think I tweeted one. That was my favorite of Showchu, but it'll be like music to somebody almost like normally for K-pop singers and stuff. I've been seeing a lot of like memes, kind of like stuff like that around. But I think like the lack of understanding about TikTok

really showed through some of the people asking questions and it didn't seem like a crazy good use of time. And the interrupting was something that was also, I know not a super good thing that was happening, according to a ton of people on TikTok. It seems like people love the product. Obviously, they're addicted to it. They're spending whatever 90 minutes a day on and on average young folks.

I did see a really interesting TikTok that somebody was saying, like, it was a really interesting TikTok where the user was like, please take this app away. Like, I'm addicted to it. Like, I spend so many hours a day. I will never get off this app unless it's like literally taken off the app store. And in the comment section, people are actually agreeing, like very heavily. I think Jules Turpac actually tweeted the TikTok that I'm talking about if we want to add it later.

But that was a really interesting take that I saw. I think that's right. And I think that's the wider discussion. We have like five discussions going on here concurrently. One of them is around addiction and the impact on young kids, specifically young women and what we saw with Instagram. That should apply to all of these products. And there's even in Utah some laws coming out that, you know, you have to get parental approval for using these apps now. parents have to have controls over them and time limits and all the stuff.

So I think the news is tightening on all of these, but specifically China, I did notice trending that AOC, who has, you know, a very high degree of social media aptitude, she's, you know, incredibly dominant on Twitter. She actually just joined TikTok, and now she posted her first TikTok. Surprisingly, she's in support of TikTok and you, it as an opportunity, I think, to go after the other platforms in Zuckerberg and, you know, maybe pivot the discussion to privacy. Hey, everyone.

This is Rep AOC, Alexandria Ocasio-Cortez, and this is my first TikTok. Now, this is not only my first TikTok, but it is a TikTok about TikTok. Now, this week, the CEO of TikTok came and testified before Congress as there is growing rumblings and discussion over a nationwide ban on. the app. Do I believe TikTok should be banned? No. Why should TikTok not be banned? First of all, I think it's important to discuss how unprecedented of a move this would be. The United States has never before banned a social media company from existence, from operating in our borders. And this is an app that has over 150 million Americans on it. What do we think of that argument,

Rachel? It's never been done before, and a lot of people use it. I do think a lot of people use it. I think there's like another argument there about cracking down on all social media platforms. And I think that's true. Like you kind of mentioned already with Instagram coming into play. We've already seen China kind of regulate social media apps for kids, putting things in. Yeah, in their own country. Maybe not having something where like the kid has to share their ID or something like that as strict as like China does it.

But having something across all social media platforms where parental controls maybe are more heavily incentivized, should, in my opinion, should definitely be the case. Like, TikTok or not, TikTok's definitely being put on blast a lot more here. What's particularly disturbing about this clip, and she's super smart, so she cannot go unnoticed to her when she says this is unprecedented. It may be unprecedented here in the United States. We could maybe have that argument, a social network in the United States. But social networks, like TikTok, are banned in India and other countries because they see the threat. And China itself bans all social media from the United States, Iran and other authoritarian countries. So she's saying it's unprecedented that social networks are banned, but she must know, or is her argument so weak in the people preparing the script or if she's not doing it herself?

Does she not realize that social networks are banned everywhere across the world? And they're typically banned in authoritarian countries. And it's typically the American companies that are facing the ban. This is, you know, this unprecedented in the U.S. as a qualifier, I think, is a little bit of subterfuge there, like trying to distract us from the reality, which is other countries see these national security threats. Why wouldn't we? So, you know, feels like she might be gaslighting us all. Anyway, let's continue listening to her argument. Another 38 seconds. We broke it up. It's three minutes long. It's long. Is it long for TikTok? Yeah, it's a longer, longer one. Major social media companies are allowed to collect troves of deeply personal data about you that you don't know about without really any significant regulation whatsoever. In fact, the United States is one of the only developed nations in the world that has no significant data or privacy protection laws on the books. To me, the solution here is not to ban an individual company. but to actually protect Americans from this kind of egregious data harvesting that companies can do without your significant ability to say no. This is also weird because she's saying, again, with the qualifiers, this is why I feel like her argument is filled with qualifiers.

There's no significant regulations. Well, California has the Privacy Act. There is the HIPAA Privacy Act. There is one for children. There's a lot of privacy acts here in the U.S. And then she's saying, Americans don't know, that's also false Americans.

No, their privacy is, and they're all the time being told in different pop-ups and accepting cookies. Americans are very well aware that their content is being, their privacy is being compromised by all the stuff. I don't know.

Do you buy that argument as well? I think there's one, kind of what you were saying, like how there's pop-ups and things like that. And like, one's less time you've actually read thoroughly through one of those pop-ups. Like,

I've definitely accepted things, like in full transparency, like, I have a TikTok account. But do you know that they're using your private information to target ads to you? I would assume that they are, but that doesn't mean that it's right. And I think like there does need to be more regulations maybe that are stronger, more strongly like put in place around that issue. But I can't say that I didn't know that it was happening.

I mean, we have the California Consumer Privacy Act. We have COPA. That's the children. We have HIPAA. I mean, we have a lot of privacy regulations here in the United States. I think it's a little bit disingenuous of her, but I guess she's building to this final point here, 29 seconds. And usually when the United States is proposing a very major move

that has something to do with significant risk to national security, one of the first things that happens is that Congress receives a classified briefing. And I can tell you that Congress has not received a classified briefing around the allegations of national security risks regarding TikTok. So why would we be proposing a ban regarding such a significant issue without being included on this at all. It just doesn't feel right to me. I think this is based on the potential national security risk. So this is a very strong defense of TikTok. I'm sorry, it's a weak defense of TikTok, but she's saying in a very strong way, and she's going out of her

way to say it, it screams of like maybe they got to her. I don't know. I hate to be cynical, but I see people talking about maybe she's part of PACs or something that have had donations from people, which is the nature of our political system. It's not unique to AOC, but I didn't think this is a particularly strong when she didn't bring up the fact that the Chinese do not allow our social networks there. The Chinese have different rules for their TikTok.

She didn't bring up the fact that India and other countries have banned it. She didn't bring up the fact that they have information and data on all of these. They have used information data previously, that they track their own citizens, and that just tiny influence that we saw with TikTok and Facebook in previous, I'm sorry, Twitter and Facebook in previous elections would be even more powerful on TikTok.

It's like to not even steal man some of the other arguments makes this a very weak defense in my mind. In order to be intellectually correct, I would have liked her see her take on those five, six, seven facts I just brought up. Element is a super tasty electrolyte drink mix that I am going to drink right before I get on that mountain behind me. means that's got a lot of salt, not a lot of sugar, contains science-based electrolyte ratios, 1,000 milligrams sodium, 200 milligrams potassium, 60 milligrams magnesium, and element, which is spelled

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If you're doing any kind of physical activity or you're just stressed at work, you've got to do it. Get it now. I used to have a million at my ski house. And my nephew and his friend, loved it so much, they drank them all. So I re-up. And you should re-up right now. Element is offering Twist listeners a free sample pack with any purchase. That's eight single serving packets free with any element order. Go ahead and try all eight flavors at drink. LM-M-N-T.com slash twist. And of course, they offer no questions as refund. You got nothing to lose. D-R-I-N-K-L-M-N-T-com slash twist for a free sample pack with any purchase. And in an ideal world, like what would you want the outcome of this whole thing to be?

Like, do you think TikTok needs to be banned outright? Do you think an American company needs to go and, like, buy up the American branch? So what do? Let me ask you two questions or three questions here. These are just simple questions. Remember, you're under oath, Rachel. Number one, why do venture capitalists invest in startup companies like TikTok? Why do they invest?

Because they know it'll make money? Oh, it's a social app. So I don't know. Do social apps to make money? Yeah. Yeah, they do. Twitter is worth a lot of money. Facebook's worth a lot of money, Snapchat.

They do it for returns. You got it immediately. So venture capitalists invest for returns. This is a venture back company. We've got many well-known venture capitalists in it. This company would do, do, let me ask you a second question. Do people consider, do young people use this more than Facebook, TikTok? Oh, I would say so, yes.

Do they use it more than Twitter? I think so still, yeah. Of course. The numbers show that. Do they use it more than? than Snapchat, LinkedIn? Yeah. Okay.

Do they use it more than Instagram? Yes. Okay. So we just went through all the apps out there. Those apps are worth hundreds of billions of dollars and trillions of dollars collective. So, question number one, the answer to is VCs invest for a return. Number two, this thing has beaten the field.

So number three, would there be an appetite for an IPO? for this company here in the United States? Yes or no? Yes. Of course. So, why wouldn't they take the company public, the VCs who control it, VCs and the founders who control it? Why wouldn't they take it public, get their return, and then resolve the issue?

It's a clear path. Why wouldn't they just do that immediately? So I'll be my fourth question to you. There's some issue, right? There's some, somebody's making a decision to block this IPO. 100% of the people who have investments in this would love to cash in their chips and own stock in a public company and have the option to sell it or not, which they don't really have a free-flowing market for it to value it and to let it trade. So who is blocking the IP of TikTok

is really the only question. If you had to take a guess, is it the VCs? Nope. Probably China. It's of course China. There's no other person who can block. So it's being blocked from going public and resolving this whole issue. So why would China, the CCP, the Chinese Communist Party, why would the Communist Party not allow this to IPL? Why would they be blocking it? And they're on the board of the company, according to reports. Why would they block it? Is this where the data comes into play that you were talking about previously? That's a good theory. This is too powerful of an asset. So, I think when you look at any company in China, whatever behavior they do is going to be first through the lens of what is in the best interest of the Chinese Communist Party.

The second lens is what's in the best interest of shareholders. Whereas here in the United States, we don't say like, hey, should Airbnb or Uber go public? Well, what's in the best interest of the Biden or Trump administration whenever they went public? What's in the best interest of the current president or the Congress? We just say, well, what's in the best interest of the shareholders, the employees, the stakeholders? Go public. okay great market wants it let's go public that's all you need to know and uh i think there's another china story breaking today that will give you even more evidence of that so maybe you could do that one

yeah so ali baba announced it will spin itself out into six different independently run companies and the stock is up 13% on the news and this is coming at a super interesting time because the alibaba co-founder jack ma was just seen in china for the first time in over a year earlier this week and Do you remember what happened to Jack Ma? We talked about it earlier. Yeah, it was, and Financial was going to IPO. I remember this because it was during the pandemic, and I happened to be in Vegas, and a bunch of besties and I were doing a COVID bubble trip where we're going to play

some TV poker on Poker Go. And so we were there when this news broke, and I remember talking to my friend Bill Gurley about it, and Jack Ma had been critical of when, and Financial, which was like going to go public, he criticized Chinese banking regulators and how they were holding back innovation. And then he disappeared. And then they said he was pursuing nonprofit pursuits and oil painting. And then he was in Hong Kong up on that hill, which I forgot the name of, but there's a beautiful hike up there on that hill that looks out on Hong Kong Bay. Somebody will remind me in the chat of the, of the beautiful Victoria Peak, maybe. I've hiked it many times. But anyway, he disappeared. So he's back. And they're breaking the company.

up. So this is the equivalent of breaking up a company like Amazon, I guess? Yeah. Yeah, it would be like an Amazon breakup. That's a really, really good, good description. So according to the Wall Street Journal, it's actually splitting up into the following six like sectors as companies, cloud computing, Chinese e-commerce, global e-commerce, digital mapping and food delivery, logistics, and media and entertainment. And all six of these will have their own CEO, we're reporting to Alibaba's

CEO, Daniel Zang. And Alibaba will basically become like the holding company of all six of these. And these

six of companies could all seek separate IPOs and could raise external capital. So, they are going

to break up into Netflix, Uber DoorDash, Amazon, the e-commerce company, Amazon Primeish, Amazon Web Services.

Logistics, maybe that's like kind of Uber-ish as well. And their Chinese e-commerce, their global e-commerce brand, which, yeah. Well, I mean, it's obvious why this is happening. Xi Jinping, as we know, became ruler for life. He's the god king of China now until he passes on, and he's secured power.

And large companies, conglomerates, as we've seen here in the United States, can challenge political power. So while our government can try to take action against Facebook, as we see Lena Khan had done, she can also lose. And those companies can then file lawsuits. They can defend themselves. And we have a justice system here for American companies. And the government has to essentially, for better or worse, deal with these large conglomerates and the power they have. China, Xi Jinping can just say, break it up or I shut it down. And these will all spin out and they will be worth more than the sum of the parts will be worth

more than them put together. And it will create more competition and they'll run better, which is what would happen with Amazon. If you broke Amazon up into two companies or if you broke Google up into three companies, they would perform better. YouTube would be a stronger company if it wasn't part of YouTube at this point. Yeah. I believe.

And like imagine if this did happen to Amazon. You could split Amazon up into like online comments. third-party sellers, advertising and prime, which all generated 126.5 billion revenue in Q4. So you already said before, like, this crazy if it happened to Amazon, it totally would be. AWS alone generated 21.3 billion revenue in Q4. Yeah, they could be their own companies. The same joke is made about Apple because the AirPods business is like tens of billions of dollars on its own. so it could be like its own standalone business and still be huge.

You know, being a conglomerate gives you a lot of ways to not explain what you're doing and to do anti-competitive things or things that are on the margin or sharp elbow. For example, Amazon can for some period of time show a lot of Amazon basics and get people addicted to basics. Or they could show and rank slightly better people who give a larger percentage of their sales. to Amazon. And so they can obscure all kinds of things. They could lose money on a product, which is product dumping, dumping of products. You could have a company like Google give the pixel, the Google Pixel is a fantastic phone I've owned a couple of them. They could sell those for $200 each, and they could really be worth $600. Or they could be selling them now, I think, for $5 or $600, and they could

be worth $7 or $800. They could lose hundreds of dollars per phone and make it up in the long term with Android MarketShare because they have the App Store, Google Play, and they have ads on there, and just the increased reach of YouTube as well. So there's all kinds of bundling things you can do. You can kickstart a new business.

When Amazon launches a new product or service like the Fire Stick or, or, you know, Kindles or whatever, they can use their own ad network to blast them out. When Bardca came out, just recently Google was able to ship Bard to people, who have Gmail accounts,

etc. And they can use YouTube to do that. They can use all their channels to, they can make it the default. They can make it one of the search defaults. Use Google search, use default of Google Bard. So it'll be better for startups too,

but that's not why this has happened. This is happening because of command and control. Jack Ma was a god king as well. And he challenged Xi Jinping, and Xi Jinping cut him off at the knees. And now you'll have six warlords. and six warlords is a better, better for Xi Jinping than one god king to compete against. Yeah.

And that's my take on it. For context, like Alibaba, Alibaba generated around 35.9 billion in revenue in the quarter ending in December, which was up 2% year over a year and had a 6.6 billion dollars of net income in December, in the December quarter, which was up 138% year over year. Jack Ma made being a Chinese founder and a billionaire super cool and he became famous, which was super unusual compared to a lot of other people coming out of there. Yeah, tall poppy syndrome is a real thing. You become too successful, you become too famous, it's going to somebody might want to cut you down. And they might want to discredit you or, you know, reduce your power. And Jack Ma was the tallest poppy ever in the history.

of China. He was more popular in Xi Jinping, certainly. And in the West, that's internally in China and it's certainly in the West. People really thought he was a genius. They thought he was the next Bill Gates, you know, Steve Jobs. And that was a major threat to somebody like Xi Jinping. So obviously what's, it's obvious what's happening here. Any company there, you're going to look through the lens of the CCP and then shareholder value. And it might even be CCP societal value, then shareholder value. If you're an expert on, on China, feel free to email producers at this week in startups. We'll all see your analysis of it. But I think it's probably in that order that they would actually care less about shareholders

and more about citizens. So it's Xi Jinping, citizens, shareholders. Whereas here it'd be shareholders, shareholders, and then maybe society after that, maybe customers in society. Listen, you're a founder. You need to ensure your cash is safe. That's priority number one. We've all been watching what's happened. And it's been a big conversation. We all know the FDIC limit is 250K. And as we've learned, that's not enough for most businesses. So let me tell you about Mercury. Through its partner banks and sweep network, Mercury customers can access up 5 million of FDIC insurance. That's 20 times the per bank limit. These sweep networks protect your deposits by spreading across multiple banks, which limits the risk of any single point of

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Head to Mercury.com to join more than 100,000 startups that trust Mercury for banking. And if you're interested in the Mercury Raise program's applications for both Seed and Series A are open from April 3rd to the 20th. A couple of important disclaimers here. Mercury is a financial technology company, not a bank. Banking services provided by Choice Financial Group and Evolve Bank of Trust members, FDIC. Well, speaking of big companies and layoffs since we last talk. Yeah. talked. I saw, was it, I think 9,000 people are being laid off. No, no, 9,000 more at Amazon. Then there was

one of the big Anderson or one of the big consulting firms decided to lay off a ton of people, but Disney also laying people off. Yeah. 10,000 at Microsoft. I mean, this, this layoff train is continuing. And I think that means we're for sure in for a recession. The more layoffs, though, of course, the faster we get through the recession, and the quick, or we take the medicine. So explain what's happening at Disney. Yeah. So Disney fired its entire Metaverse team. So remember back in February, we talked about how Disney was cutting around 7,000 jobs and reorganizing into three divisions. Disney is estimating these layoffs will cut around 5.5 billion in costs. And a part of those cuts, the Wall Street

Journal just reported that Disney terminated its entire division that was responsible for developing metaverse strategies. And this consisted of 50 members. was led by Mike White, a former Disney consumer products executive. Yeah, it's interesting. They've taken a couple of swings at that. They had Tune Town Online, I think, was their massively multiplayer game. They have Star Wars games that are massively multiplayer. They license these games.

There is something. It's not Web 3, obviously. I think it's not NFTs. I think it's not the Metaverse. It's a wrong name for it. But I do think virtual, massively online games with their character base. obviously can make money. But they have businesses that already make a ton of money,

like the theme parks, like merch, like ESPN, like movies, and now, of course, Disney Plus. So it sounds like they're just,

in the words of Brad Gerser getting fit. And doing something super experimental, even if it's just 50 people, it's probably those 50 people would, or the salaries of those 50 people, or reducing those salaries, would shore up. the company more. So maybe put more effort into the parks on optimizing those, more effort into

merchandise, more effort into Disney Plus, and showing a profit, right, and servicing their debt. So this is just good hygiene, I think, in a down market. Well, was the Metaverse a zero interest rate policy distortion? I think people hiring tons of folks and being very experimental and pursuing a lot of innovative opportunities was indicative of the low interest rate market because you could take out debt. You could try a lot of different things. But what the stock market is going to want is if you have headwinds and people are canceling their Disney Plus on the margins, like there might be some people who say, hey, you know,

I got to cut spending or, hey, I'm not going to go to the theme park for five days. I'm going to go for three. Or I'm going to, I know this sounds silly, but I'm not going to spend any money on merchandise when I'm there. We'll go to the beach for two days and we're going to pack our lunches and not do fast pass. those kind of discussions are happening inside of every family right now. It could be, you know, rich families are saying, hey, you know, we're not going to Italy. We're going to go, you know, to Hawaii.

And then people who are going to go to Hawaii say, you're not going to go to Hawaii. We're going to go to Disney or we're going to go to, you know, San Diego, whatever it is. And so all of those austerity measures, which I've been talking about for the past years, are now, they're hitting home now. Consumers have spent their money. Consumers are going into debt. and if you look at consumer spending with all these layoffs, where do consumers spend their money?

Entertainment, food, you know, going out, hospitality. It's a big portion of it. They also spend it on things like clothes and consumables, groceries, and stuff like that. So, yeah, they just could be preparing

for cutting costs in relation to spending from consumers going down. But one thing I don't like about this, was that Michael White was also involved in their Amazon Prime, something I've been advocating with for a long time. And so they are, he was trying to integrate, according to that story I read it, data across the multiple platforms, Disney Plus, retail, smartphone apps, theme park visitors, food, merch, all that other stuff. That is a really good idea. And If that effort's been abandoned, that's a huge mistake.

They should be looking at Disney Plus and immediately going to merch. And then Disney Plus Plus merch should then go over into the theme parks. Now, how would you do that? You just got to keep it simple, stupid. It's the, you know, Kiss methodology. Keep it simple, stupid. If you're watching Disney Plus, I watched the Bad Batch last night with my girls. They love Star Wars right now.

I should be getting bad batch merch. There's a, you know, a Wookie Jedi in it. I should be getting upsold, the Wookie Jedi merch. at the end of every episode. At the end of the episode, it should show me related merchandise. It has my credit card. It has my address. I should have one click. Just buy it. I'm going to be price insensitive to when Baby Yoda's on there for 50 bucks. And then, obviously, if you buy your pass, you've already got the Disney Plus app. If you have Disney Plus, you should get priority at the parks. You should get a 10% discount. So Disney Plus should be the name of the product.

Disney, if you are a Disney Plus member, you have a subscription. Each of those people has a profile. So we have multiple profiles. My daughters have their profiles plus my wife. So there's five of us with profiles. They even made profiles for the dogs because they thought it was funny. So we have five profiles on Disney Plus. Those five profiles should have five different emails.

They should record what rides I went on and all of that they should sort of trend towards. And that would let them know that our household is big on Star Wars right now and was previously big on Marvel movies, but now is, you know, Team Star Wars for now. And they should be trying to, I've never got an upsell on going to the new $5,000 Star Wars adventure thing experience. But I bet you if we got upsold on that and they played us a trailer after Bad Batch, my daughters would be like, hey, I want to go to that. So just low-hanging fruit. Keep it simple. Just upsell me on merch and theme park stuff after I watch related shows. Yeah. I like that idea.

I also, it made me think of like, be real, which I don't know if anybody uses anymore, had a calendar and it like exit out, like the days that you be reeled. It would be cool to have an app where it had like all the different Star Wars movies and stuff like that and the riots that would like kind of tick off each one.

So anybody's here in Jason. Yeah. You take the basic, your knowledge of apps is very strong, Rachel. So like, if you take any gamification and then you go to a lazy big company that has money printing machines, they're probably not even hip to that.

That the idea that collect them all, or to have all of them on your profile would be really cool. So, you know, if you bought the Baby Grogu Dahl and whatever this, you know, wookie Jedi kid is, if you could put those on your profile page, or if I went on all the Star Wars rides, it would tell me I've got to seven of ten, and I have three more to do to get this, you know,

Star Wars, you know, Jedi Master badge. People would actually do that. And if when you were in the parks, it was upselling you, The problem inside of a big company in my experience is who gets credit for this and then who pays for it and then who's responsible for the execution and who gets fired if it doesn't work. So here we see who gets fired if it doesn't work, probably because they were tied to Web 3 and Web 3 is toxic and it kills anything it touches. We'll talk more about that in the show. And that's just the nature of it. So if you were working at Disney and you said, hey, I want to connect these things, well then you have to go fight with the Disney Plus person. You got to fight with the Disney plus person. You got to fight with the. the merch person, just to make that one connection. Who gets credit for the sale? Whose P&L is it on? Whose developers build it?

Who's responsible for the execution of? Who approves it? And then you need somebody like Iger to come in and say, hey, you two, get in a room. I'm taking, this is what I would do. I'm Iger. I'd say this is a priority. I want you, you, and you. Susan, Bob, Jennifer, from three different divisions,

merch, theme parks, and Disney Plus. You're all in this room, this conference room, which is next to my office. Because you know, Iger's got like three conference rooms and seven assistants. I'd be like, this is your war room, sitting here, and I'm going to come by randomly, and I want to see your progress. And I just want you to give me ideas and themes, and I'll give you the thumbs up, which one to execute on, and in what order? And I would just have them show me stuff every day and tell them they're collectively

responsible for solving that problem. But, you know, in the management theory, you would want each group to be doggedly fighting it out to solve their own problems. And instead of having one app, have a theme park app that's best to breed. Disney Plus app that's best to breed and a merchandise app that's best to breed. I know they have a theme park app. I don't know if there's a Disney merch app. And this is where APIs inside of big companies come in. If they had APIs between these things, it would be really easy to do because the people building Disney Plus could just upsell you on the API.

when you buy Disney theme park tickets, you could say, would you like us to ship you merch? Because you bought this for 30 days for now. Do you want us to ship you your clothes to wear when you're at the theme parks, right? So I'm going to be there in 30 days. Yes, send me my stuff ahead of time.

I get a discount. Yeah, I'll order it now. But they do have Shop Disney as the name of the app. It's not easy. Big companies are hard. Big companies are hard. You need to have, speaking of a god king and god queen,

we were talking about with a Jack Moss story, Rachel. You need to have somebody who's the God king and God queen to say, this is how we're doing it. This is the vision. Execute. All right. Probably the most challenging thing I hear from founders is related to building. Either they aren't technical and they're searching for a technical co-founder or they can code, but they're just spread way too thin.

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I think we can transition to some startup news. I feel like we've been talking a lot about the big companies. Yes. So SubTAC is raising $2 million of equity crowdfunding with a minimum investment up $100 to give its writers the opportunity for some upside in the platform, and they're using WeFunder to raise the money

with a goal of raising $2 million at a $5855 million pre-money evaluation. And it's calling this an extension to its 2021 Series B. They actually tried to raise a Series C last year, but the round was canceled due to the funding environment. Okay. So back of the envelope math,

this is an equity crowdfunding, by the way. WeFunder is a platform for doing equity crowdfunding. What this means is you don't have to be an accredited, investors. So if you want to invest on Angelist or my platform, the syndicate.com, it's basically my deal flow. About half the companies we invest in from our fund will ask us to syndicate them out to our 11,000 accredited investors and qualified purchasers. These are basically people who make over $200,000 a year. So when you do equity crowdfunding on Republic or refund or those are the top two platforms, and I'm seeing more and more companies do this. I actually did it for inside.com.

It's a way to get your existing users to really root for you and to be involved in your product or service. So I don't see this necessarily as a sign of weakness. I see it as an engagement. And the big criticism of substack is, hey, if you make a million dollars on substack, why would you give them $100,000? That's a big number. If you make two or three million in subscriptions, which the top 10 folks there do, why would you give them $200,000 or $250,000? you could use any of these other platforms. There's a bunch of free substack platforms you can use.

You could use Squarespace. There are a bunch of platforms that don't charge you that 10% Vig, that 10% commission. And this is a way to get those riders to have upside. So if you're a writer and you put 25K in this and you expect it to 10x, well, you got $250,000 in gains and you're more tied to the platform. So I think it's a savvy move on their part. Now, is it a good investment? That's a totally different question.

And they're already like pretty far along with us too, by the way. They've raised 785,000 as of 10 a.m. Pacific, the 785,000 out of 2 million. So that's already like 40% raised. And I don't know if I said this before, but they're going to prioritize investments from its own writers. Non-substack writers like are still allowed to participate. But this means that if they do exceed that 2 million threshold, substack writers are more likely to be included than others. page right now, and maybe it's because the news broke today, it says almost sold out 2.3 million reserved for 1,700 investors on the WeFundra page. What am I missing? So it was 10 a.m.

When we got this. That's like the last hour they got over a million dollars in investment. Oh, okay. That's interesting. Well, here's the other thing. And there's a lot of great charts on here. So if we can bring up the page, we can scroll through it. It shows the writers get 86% of revenue and substack takes 10 and payment fees eat up four. And then you can see the monthly active subscribers. They're growing like a weed. And you can see writers are earning money on substack, cumulative money paid to writers. A cumulative chart always goes up into the right. So that's one as a savvy investor.

I can walk you through this as I would as an angel investor or if I was making an investment decision here. So right there, you have a business that has very low margins. So when you look at a substack business, it's a low margin business. Normally you would want those margins to flip. It's a low take rate business. What's the take rate? of the app store, Rachel.

Is that how much percentage? I don't remember the take rate of the app store. Apple gets. I think it's 30%, it's 30%. 30%. Yeah. What's the take rate of other producers of Airbnb, real world app, Uber's 25%, DoorDash, 25%. So 10% is a very, very low rate.

It's a neem. It's a disastrous percentage to get. This is why Patreon is a hard business to invest in. And if you were an angel, in Patreon, you're very happy, but later stage, you start to see, this thing has to get very large. And in fact, and then they use a cumulative chart. So let's scroll down here. I'll look at some other charts. If you could blow up that chart, the green one there. This is monthly active subscription. And this is done quarterly. So quarterly numbers always are a little bit smoother, right? You don't have monthly spikes. You know, somebody joins the platform, somebody quits the platform.

But this is a nice growth rate, obviously. And then if you look at the next chart, writers earning money on substack. I think this is the number of writers who've turned on modernization. Interesting you see in the last year a major spike. That's probably because people are being laid off and a lot of people who are laid off from big media are going and starting substacks, right? And then says readers have cumulatively paid writers more than 300 million through substack. That means in its lifetime substack, if they got the full 10% has made $30 million. How many employees does substack have? And then I'll tell you what they're profitable. is. We'll get that number in just a second.

And then if we go down, there's a nice graphic. When you see nice graphics in there, that's always a waste of time. I hate those kind of things. It's fluff in a deal memo like this, more fluff. That's all the charts.

So now the other thing that happens when you do an equity crowdfunding is you're responsible to give backup documents. So there's an offering document somewhere on this page that will have a lot of terms on it. So now what's going to happen is we're all going to see right through. There's going to be a lot of transparency as to how this company is doing. And if you make an investment in here, if you make an

investment in this company, you are going to get updates and we're going to know a lot more about the results every quarter and every year. So this is, would I invest in this business at this valuation? If they could raise from venture capital, it's at the same valuation they would have. So that tells you something. And they supposedly have two million paid subscribers. If we give them a lot of credit, we say it's $10 a month, but I think it's probably more like seven, but I'll round it up to $10. That's $20 million a month.

That's $2.40 million a year. That means they make $2 million a month. They make $24 million a year right now. It's probably less. It's probably more like half that if they were making $5 per paid subscriber, which I think is probably more realistic. So I'd say they're making between one and $1. million a month. Now, they have 500 writers. I'm sorry, 500 employees, according to LinkedIn.

The 500 employees on LinkedIn, probably not all full-time. If you have a substack, you're probably putting it there as like your job. Pitchbook says they have 94 employees. I'm guessing it's more than that number. That's probably not a real number. But just take each employee in time set by 10,000. I'm going to say they have 200 employees. They're going to take the two numbers, 508 and 94. I'm going to go with 200. I can't see them having less than 200 employees. 200 employees. times 10,000 each is $2 million a month in costs for this business. So they might be close to break even. I don't know what else they're spending on servers,

email servers, et cetera. It could be another $20 million, $10 million a year. But it shouldn't ultimately be that expensive a company. So I think they're probably, if they are making $15 million a year, then $10 times $15 million is $150. $20 is $300.40. So they're getting 40 times their top line revenue. for a business that could be break-even or maybe losing a little bit.

40x is, if it was a public company, we'd trade a 10 or 15. So this is probably three times overvalued as a private market company, is what I would say. I guess all the people too, by the time the show comes out, they'll be far exceeding this $2 million of equity crowdfunding too. So do you have any advice for people that did already invest in this? Well, you typically, one of the interesting facets of this equity crowdfunding is I think they close it and then you show interest. And I think you have a 30 day period. You can look it up in the fine print. But it used to be that you had a 30 day, I'll call it like a cooling off period. Yeah. So in order to protect consumers, the regulations say like you have 30 days to consider and back out of your investment. So I'm not trying to neg the company. I think it's overvalued by at least 2x, but probably more like 3 or 4x versus a public market comp, which are admittedly low and sometimes you're private companies. So it's not that far off.

I don't think you will make more money on this investment than investing in, you know, a publicly traded, a high growth company like Airbnb, Uber, Google, Netflix, Microsoft. You probably do just as well to have liquid stock. And this is a challenge business. Now, they might have another business that comes along. That'll be a better business. That's a high gross margin business. but there's a low gross margin business

and they need five, 10 times as many paid subscribers and revenue in order to get there. And they're not sharing their revenue in this. So that's weird. I would think in an equity crowdfunding offering like this, you would have to share your revenue

more specifically and granularly. So I'm surprised I don't have quarterly revenue on here. So anyway, anybody who's in the equity crowdfunding space, explain to me if this is, in fact, an equity crowdfunding and if you have to be accredited, et cetera.

Let's see here in the fine print. I know they said previously when they were trying to raise. One of the reasons it didn't go through, excuse me, not when they were trying to raise, maybe this was two years ago. So 2021 during the last time they raised, they wanted to have people that were writers help invest there,

but they couldn't navigate people who weren't accredited investors, especially because of like that 2021 ruling by the SEC that made it a lot harder, I believe. Yeah, so this is, in fact, not accredited investors. You can be anybody. You can invest as little as 100. And, you know, if you were going to go spend your, if you were going to gamble your money, if you're going to play poker or blackjack, I think this is a much better bet.

If you were to invest in public market, high growth tech stocks, I think this would be a similar bet. I think you might get a similar return. You might grow, you know, 7%. This company might grow 20%, but it might be overvalued a little bit, so we'll catch up. bad investment. I don't think it's a great investment. And we don't know if they're existing how much cash they have on hand. They might have a ton of cash on hand already and they're just

topping off here, which would be a powerful move to do. And listen, it's got us talking about it. And that's what I think equity crowdfunding at its best is. I wish this option existed for you know, Ubers and Airbnbs and LinkedIn's earlier. So more people could participate. And I really think the accreditation laws in the United States, I've said this over and over again, should move from being about how much money you to make to how much intelligence you have. So if you're willing to get a license to invest in private companies, you're willing to take a course like my Angel University course or any other course on it. And they had a 50 question test that had four times as many questions as like a gun test or a driver's license like equivalent. Make it like as hard as getting a driver's license. Getting a driver's license is no cakewalk, right? You got to take a course. You got to do a practical. So I would say you have to take a written test and then you know how you go on a driver's test. Why not have like, you pay $100 to take a test and you have a proctor and they interview you and they ask you 10 questions and you answer the 10 questions and get certified as an accredited investor.

That will solve the entire problem. By the way, Rachel, that would solve a lot of the crypto problems because then crypto people could do crazy stuff and you could say, well, I understand they're doing crazy stuff because I have my accredited investor certificate. I took it. I understand that this is a wildly speculative investment because their product's not in market and they don't have customers. and I've reviewed the balance sheet and they're losing money.

So I know when I invest in a money losing company with no customers that has not released their product yet, I've checked off those boxes and I put it in the high risk category or the highest risk category. And then somebody with subscription member that's predictable like Netflix, I've put that in a much more trackable lower risk investment, right? Jason, can I ask you a question about sub-sac value? Sorry, Rachel. Yeah, go ahead. Can I ask you a question about the valuation?

Yeah. How much, I think public companies call it Goodwin. How much goodwill would you assign to the fact that substack has kind of become a noun? Like a substack journalist has become a thing? Do you think that's like an actual, valuable, tangible thing? Sure. Yeah, of course. Just like taking an Uber or getting an Airbnb or Googling something.

The brand has some value. Non-tangible value of substacks brand. If you are a writer and I say to you, you should go independent and make money direct from your customers. how would you do that? What are three or four options? A writer or an artist or a podcaster, a podcaster would say first, Patreon, and a writer would say substack first. So if you look at those two, I would say that's non-zero, 100 million. Just pick a number, 100 million in value. They've built up to get to that point. It means they don't have to convince people to try their platform.

People just sign up for it. In fact, I moved all of our newsletters over there because we were getting charged a subscription fee every month. I was like, wait a second. I can get this for free. And then the network effects are there. And so I parked all of our mailing lists over there. And then once in a while, I think you're using it for this week in startups email every week, the editors picks. Founder University is using it once in a while. Ticker. The ticker uses it every day. And so we went from having to pay, I think we were paying $2,000 a month for our email service provider. And now we pay zero. But in addition to that, we're getting the network effect of people signing up. And I see my personal

substack is recommended by like 50 people now. And I don't know if any of those are super accretive, but you can track it. So I'd say 100, 200 million. So you take the 600 million down to four. Now you got 400 million. The value is 10x, 15 million. That's 150 million. So maybe there's

250 million. You're paying 3x. Yeah, that almost makes up the difference, right? That you were saying. Makes up some of it. Yeah. It's a good point. It's a great point, actually. Nice punch up there. So yeah, go ahead and invest. I give you permission. I'm telling you to invest right now.

No, I'm not telling you. Not investment advice. Not invest in advice. But if you were to add, I don't invest late. I like to invest early and I can, but you don't have access if you're not accredited. If you're a writer on step stack, sure, I put a thousand bucks in. Why not? I think you'll get your money back times two or three in the next 10 years.

It will do as well as your 401K in my professional opinion. But this is not investment advice. But I am a professional. I'm an email newsletter, writer. for 30 years, and I invest in startups for a living, and I've traded, I've j-traded 15 times. So based on that, I am not, not telling you not to for sure invest in substack. We're going to have to have like a pop-up with like alarms being like not-investment of us, yeah. I mean, if I was a writer on substack, I would put $1,000 in just to have

the ability to say to them, I'm a shareholder. You know, when I want to get product updates or I need customer support, because now you can flex. Like if you're a customer support, you're like, I'm a shareholder. This is unacceptable customer support. And this is why I think companies like Uber, Airbnb, and LinkedIn and Coinbase, if they had the ability to have done this, they could have had 10,000 drivers, 10,000 hosts, 10,000 crypto projects, rooting for them and fighting for them in a very vibrant way and benefiting from their success and being more loyal to the platforms.

But speaking of Uber, ouch, Lyft. Yeah, let's talk about Lyft. So in a turn of events, Lyft co-founders are stepping back from their executive positions. And yesterday, Lyft CEO Logan Green and President John Zimmer announced they would each be stepping down. And this was expected. The board has been searching for a new CEO after Green said he wanted to take a step back, like last year. And Lyft has basically been on a downward trend since going public in 2019. It's a disaster.

Yeah. Like their stock is down 88% since its IPO. what do we call the zero interest rate environment policy? ZERP. This is your ZERP right here. The zero interest rate policy resulted in too much funding and the subsidizing of Lyft, DoorDash, Postmates, and Uber most of all on a global basis. Too much money. They zirped it up. And then the tide goes out and now you got to make a profit. okay now you are paying driver spiffs driver incentives do 20 rides get an extra $100 do another 20 rides this week get another get $150 they would do an all this gamification and that would push top line growth

but it would ruin the bottom line the market wants to see the bottom line and they want to see profits literally to this day even though Uber is starting to show free cash flow profits yada yada. Everybody's like, you're lying. It's not true. You're still not profitable. Even on CNBC, they're telling them and they're not profitable.

And now they're down to like the little granular debates. Okay, well, we have more cash than we did last quarter. Okay, yes, but stock-based comp. And we're literally just trying to get to a point where Uber can say, we are a profitable company, period, end of story. No accounting explanation necessary. No stock comp necessary. But Lyft, because they don't have the network.

effect of Uber and they don't have the dual business. When you stay home and order in, we make a bit we make, we can service you. And when you go out to dinner, we can service you. You're drinking a little bit of wine and you don't want to get thing with the DUI. Take an Uber. So, yeah. And the weird thing is who did they pick about this story? That's the big tell here.

They had to make a change because the stock is just absolutely disastrously going down. And I'm not saying this just because I'm team Uber and I have an Uber position, a significant Uber position. It's just the nature of it, you know. The network effects here are obvious to everybody. Yeah. They picked someone named David Risher to replace CEO Logan Green. And Risher was a former Amazon retail executive, the former CEO of a nonprofit called World

Reader, and he's a member of Lyft's board of directors. And Green in a blog post wrote, quote, As I pass the baton to David, I want to share this. We continue to have an incredible opportunity to push the boundaries and how transportation can help connect people and build a better future. And new CEO Risher gave the following quote. When I look at the 800-pound gorilla, I see a company that I think is very business model driven.

But we're going to be customer-driven. So yeah, former Amazon executive vibes over here. That is a bunch of word salad. And yeah, when you hear word salad and you have somebody being put in from the nonprofit space, I know previously worked at Amazon, but he's been out of Amazon for a long time. And it's an insider. That's exactly what you don't want. What you want is an outsider who can be absolutely critical of the business and has no sacred cows, has no allegiance.

By the way, that was Dara coming into Uber. He did not care about Travis's positions. He was not loyal to the previous regime. did not care about anything other than looking forward for better or worse. Now, I think if Travis was running Uber right now, it'd be $100 share and, you know, I'd be retired probably. I'm joking. Not really. And so I would rather have seen my guy keep going, if I'm being totally honest, but referring to like Uber as the 800 pound gorilla and then he was like, I don't want to smell pizza in my car, was his quote, like of them not going into the Uber Eats business or DoorDash

business. This sounds to me like complete capitulation. The founders have been ousted basically probably by shareholders who are fed up with it just absolutely plummeting in value, down to $3 billion. I mean, it was $5 billion as a private company, and they were gaining market share for some period of time against Uber in the United States in some markets. They had beaten Uber in a couple of markets, so they're running out of cash. They're losing money and Uber is becoming profitable. And so that just means like this thing is roadkill. And I think this signals a sale. So you think that should be like their goal going forward, like the sale. I think that is their goal. I think it's such a disaster that the board said, get max value for this

before we run out of money. So who can we sell it to? And he's a former Amazon executive. So who would Amazon be allowed to buy it for, I think the thing's going to keep going down in value. So if it goes down to $2 billion, then Amazon comes in and says, we'll give you $3.5 billion for it. Would Lena Khan allow it to go through? I think so. They probably have enough hatred for Uber, and that seems to be how they make their decisions now is they're quite vindictive. So I think they probably would be like, yeah, we should shore up Lyft. And now they'd have to decide if we shore up Lyft, does that mean we're hurting Uber or making Lyft more, Amazon more powerful? It's like a really hard thing to decide.

But, you know, most markets, it's winner take most or winner take all. Does the world need Lyft as a competitor? I'm not sure. I'm not sure the world needs it. It is nice that there's DoorDash and Uber Eats and Grubhub, but I'm not sure like there's the world needs another lift to compete against Uber's ride sharing business, which is but a portion of their business, right? Yeah.

So I think it's like Lyft was a feature. The company was mismanaged, whatever. they were up against a crazy competitor. I would not want to ever be up against Travis. That's a, yeah, he's, that's like going up against, I don't know, trying to think of the analogy in like the superhero universe, but it's not a good situation. I mean, he's.

Thanos. I don't know if he's Thanos as much as he's like Captain America or, you know, Iron Man, like this is not some, it's kind of going against the Hulk. like Hulk 3.0. You know when Hulk became Bruce Banner and you had the intellect of Bruce Banner but the power of Hulk and he had control both those things?

Travis is like the Hulk. Like he is incredible strategist and he is also a berserker who will not lose in a market. Couldn't you say that the Infinity Stones are like him gathering eats and then him gathering freight and then him saying,

I want to do self-driving. Sure. You could do that meme. The good meme. I would just say the good meme with like, I mean, I mean, maybe Cloud Kitchen

should buy Lyft. I hate to say that because people are going to say I have some inside information, but that would be interesting. And I don't know how, I don't know, does Travis have a non-compete and for how long? That's a good question, too. That would be fate loves irony. He's completely divested. He immediately divested. He immediately divested. Yeah, yeah. I mean, he's hard, like I said, it's kind of like the Hulk. If you don't want me, I'm selling every share. Bye-bye. And Cloud Kitchens, by all accounts, is crushing it. So I don't have any inside information.

Keep me out of it. But yeah, I mean, the world does not care if Lyft is around. And I would like to see, I hate to say this, but I bought Facebook based on the layoffs. Amazon I bought based on the layoffs. And I might buy more Disney based on these layoffs. Now, I hate to say that's cynical, but I think it is more pragmatic if people are willing to take the medicine. I would buy more Uber shares if he did another rip, if he made the company a little more fit.

and he readjusted the stock-based comp or whatever and just showed everybody that he was as serious as Zuckerberg. Zuckerberg did all that and he two and a half X the stock. I think if Dara just cut some unnecessary projects, which he's done consistently, but I think in this, people need to see him in 2023, make a statement about stock-based comp and the size of the team. Can he do more with less? and he doesn't have to, so I understand that as well. And he has beaten Lyft into a pulp

and he has competed well against DoorDash. So the question is, if he doesn't have to, should he? It's a hard question. But I think if he wants the stock to double, all he's got to do is just lay off a thousand people and 2,000 people, people are like, oh, okay, he's serious about profitability.

Yeah. Well, let's really quick, let's touch on Twitter. recent product announcements. Oh my God. Yeah, let's go. We're already talking about Uber. Disclaimer.

I have no inside information. So let's keep up the spicy, no insider information. No inside information, but I will comment. I guess on this one specific one. Going straight from Uber now to Twitter. So it's your, it's a, it's a day. I'm not a shareholder in Twitter, by the way. I'm not a shareholder currently in Twitter.

Everybody, hear, hear them loud and clear. Yes. Twitter's going to sunset all legacy verification. badges on April 1st, including celebrities. So they're no longer going to feature these non-verified accounts on for U-Tab. And this basically means that if you want to go viral, you have to pay. And also, verified users will be the only ones that can participate in polls to limit the impact of bots.

And this new business model also includes enterprise verification, which gives you a gold checkmark. This will cost $1,000 per month per company with an extra of $50 a month. to charge for each affiliate account. So, for example, the New York Times has to pay to have, like, the New York Times opinion page or top writer linked on its account listed as affiliate accounts. And the badge appears next to each affiliates account name. Each affiliate's account's name.

You can already see this actually on the All In podcast Twitter account right now. Yeah, David Sachs was a lot of fingerprints on this product. and if it drives viewers, then it would be worth it. So $1,000 is a considered purchase for a company, and $50 an account is a considered purchase. So you have to think, okay, will we get more views? And that will be how people will decide this. And I think it's worth it for companies to do it. Now, is it worth $1,000 or $10,000?

I think it depends on the size of the organization. So I have no inside information, but it seems like a decent starting point because any serious organization would want to have their accounts verified. And so to pay $50,000 a year to Twitter if you're Disney or Apple, to have additional metrics and to have more people following all the different Apple accounts, Apple podcasting, Apple music, etc. Or Disney Plus, Disney theme parks, etc. all of that seems like what you would pay for your LinkedIn recruiting account, right? So there is precedent here for businesses to pay for this stuff. There are also a lot of companies out there that provide, or previously provided third-party tools to monitor Facebook, Twitter, Instagram. So companies like Sprinkler, which we sold a company to back in the day. We have a tiny

investment. I guess we have it. We're tiny shareholders. Like when I say tiny, I mean super tiny. shareholders in Sprinkler. Radiant 6 was another one. There's a bunch of these other tools out there that charge similar prices, I think. So should you pay a third-party person to get information and data and verification on Twitter? And you can't pay for the last part of verification, but you can't pay for data. Or should you pay it directly to Twitter? So we'll see what this offering is.

I suppose this is the beginning of the offering. I know it's kind of controversial to make celebrities pay. and I guess you could argue back and forth on that. And the 4U tab, that's also a spicy take, I think. You know, if you want to trend, you got to be verified. But I do think I've always wanted to see a paid social network. So I'm glad that he's trying. Is he going to succeed?

It's going to take time. This is a pretty new concept, but Zuckerberg thinks it's going to work. He's brought in verification. So I think this will be the future. And by the way, there is precedent for this in Korea to open an account on social media you need to use your social security number. In China, you have to use your, basically, your social security number. And so in America, probably not going to have government intervention. We would probably feel bad about that. But having an option to pay and get, you know, less ads, less data

tracking, more features makes total sense to me. But I see why people, whenever you have a free service that people get a lot of value from and then you charge for it, that's going to be hard. That's going to be a lot of people are going to complain. So we have to just watch people's behavior. And why have you always wanted to see a page social media network? I just feel the quality of the conversations would go up and then the tracking of user data would go down and it would be more pure. Just like we're seeing in journalism, subsdacks, patrons.

If I could do it all over again, I would love, would love for this podcast to have been a subscription service. The problem was my mission was to spread this information as wide as possible, but to not have to worry about selling ads and reading ads would have been as, the host of the show a lot easier. Now, of course, we were very lucky to become a top 10 tech podcast and have, you know, all these users. So, no regrets. I love reading the ads.

We were sold out for typically months. And, you know, we've on average probably been sold out for three or four months. In some cases, we were sold out at one point at six months. So we probably have to raise prices. But it's just nice to not have to have the audience pay for it. The problem is, do you want reach or do you want reach? or do you want the security of subscription? So Sam Harris reaches a fraction of the people with this podcast.

Pre-Pahar's best podcast, Cafe Insider, nobody hears. And it's his best work. But it keeps the lights on. So it's kind of a bummer for me that Pre-Pahar, Redscar, Sam Harris doesn't get a wider listenership, right? So it's a double-ed short, but I think it would be more sustainable. You're less of the product, and then you can get more features. So I like it as an idea.

I realize it's going to be a bumpy road. It's obviously a very controversial and brave, crazy, interesting thing to do. So I think he's going to pull it off. But I do think some people are going to be very upset. It's been quite nice to be a blue check mark person and have hundreds of thousands of followers. And I've generated, I would say, millions of dollars in value from Twitter easily, easily millions of dollars in value from Twitter between my podcast and investing. So, you know, for me to pay $10,000 a year to Twitter is probably makes sense.

I'll probably pay for this week in startups. Yeah, I would pay for this week in startups and my affiliate accounts. So I'll pay. And, yeah, I only have to get, as a small organization, we'll probably have 20 affiliates or something, maybe 10. So my bill's going to be $1,500 a month, $18,000 a year. if I get one advertiser a year, if I get one investment a year,

it pays for itself. Now, I do have to figure out and make that connection. So that's how people are going to have to decide to do this or not. And then you'd have to look at competing platforms. Just spending $18,000 for me on Twitter,

get me one investment a year or one advertiser a year. Obviously, it will. But that $18,000 spent on LinkedIn or Instagram or TikTok or, I don't know, doing a live event or something, buying ads, promoting a substack, people will then have to make that decision. And I think that's how they'll make the decision. And it's an easy one for me to make, but it might be harder for other people to make. Yeah, definitely.

I think it's going to be bumpy seeing the next few weeks. I'm interested to see how this like rollout goes with everyone. I know for me, it's like one of the first things that I, if somebody has a blue check mark now, I've noticed that I, and they like send me a DM. One of the first things is go to their page, click the checkmark, and I see if it's a legacy account or not. Yes. To see if the person's like, if it's somebody saying their journalist reaching out,

like being able to like have that as verification so I don't have to leave the Twitter app and go over to like LinkedIn to verify that the person is talking to me is saying like, you know, you know, it's going to be interesting to see this role. It's going to be a bumpy road. But speaking of a bumpy road, let's talk about Coinbase quickly with producer Nick. I'm going to toss over to him. Nick, you know, I've never shorted a stock. Welcome, producer Nick, looking sharp.

I'm curious. Coinbase got this Wells notice. And they have not been doing well. Crypto is absolutely going through this operation choke point. That's clear. It seems to be getting worse. I think the rails are going to come off, the crypto space in 2023,

which I think that means the leading publicly traded company that would be impacted by that would be Coinbase. should, what's the argument for me shorting Coinbase? Which I'm not doing, but I want to talk about it because I've never shorted a stock. And somebody told me who I trust like, you're not going to be a great J trader. And you can go check out my trades at Jtrading.com. I talk about them here on the show. And I tell you about them when I do them.

So you'll always know my position. Should I short Coinbase? What is the argument for shorting coin? Can you disclose who told you that you need to short stocks to be a great trader? it was people who do it for a living. I don't want to say. Okay. But I've never done it because I just feel like it's a very negative thing to do and I feel I'm a super positive person. But now that I've made so much money on the Facebook trade

going against my morals and backing suck, I feel like maybe I, as a trader, need to learn at least the fundamentals of this. So this is, I'm still going to be majority long, but I'm just considering it. And I'm one stock one time, so I'm no expert either. Yes. How did it work out for you? It was lift. Oh, okay. That worked out well. I think the first thing you should probably do is just lay out the state of Coinbase right now, right?

They're trading out of $14 billion market cap-ish. I think it's like 14.3. It's almost down 80% from a COVID peak of $78 billion in November 2021. Which means nothing, by the way, because that was the period of insane hype not only in the market, not only for new issuances, but also for crypto. So I never would look at what percent they're down from that peak because we knew it was ludicrous. They're trading close to where they were right before they went public. Their last private valuation, I think, was in like a $10 billion range.

Quarterly revenue peaked at $2.5 billion in Q4, 2021. So last Q4, this past quarter, Q4 2022 a year later, net revenue dropped 75%, 6,5 million. Obviously, that was due to the transaction volume dropping like crazy. They've had negative revenue growth in three out of four of the last quarters. and what's wild about Coinbase is unlike Robin Hood, they charge a 1% transaction fee, right? So when transaction volume spikes, profit spikes like crazy.

So they were like wildly profitable all throughout 2021 because transaction volume was super high. That has dropped like crazy. Now they're losing money. Their cash position as of last quarter was $5.5 billion. And they call it USD Resources, which they define as cash, cash equivalence, USDC, and custodial account overfunding.

That last part sounds pretty forgacy to me. me. Not exactly sure what that is. Total account overfunding. What do you do? That's how like, is that a way of saying depositors put too much money in here and we have access to it? Yeah. Any debt? Do they have debt or is that $5.5 billion? That's always hard to figure out. I've heard that they have debt before, but I didn't look up when we were going to do this. We'll do that offline because we're going to talk about this Thursday on the crypto roundtable with my crypto guys. Yeah. Their transaction based revenue was hit even harder than their net revenue. Right. Obviously, it dropped 85% year over year in Q4.

It's going to keep dropping then. It's a dropping quarter over quarter is the next question too. So year over year, we know. I think it was flat quarter over quarter. So there are some true believers who believe in crypto who are still trading. And then their transaction revenue obviously has it's dropped. It's made up less and less of a percentage of its total overall revenue. So right now it's just over 50%.

Custodian is the other big part of their business. So institutional. They will keep an eye on your Bitcoin for you. So if you put your treasury in Bitcoin, which would seem like a crazy thing to do right now, unless your Obology, who is going to lose $2 million on his million dollar bet, it seems. Okay. So crypto overall is crippled. Therefore, Coinbase's revenue has been decimated.

Yep. And then when you consider, you know, the case for shorting Coinbase, I would put the bull case out and I would put the bear case out, right? In my opinion, what Coinbase's bulk case is has nothing to do with, transaction revenue because I think that's low quality revenue. It's completely spiky. It's completely dependent on interest rates on how much retail interest there is in the market. I would say their biggest bull case is the product they just recently launched. I forget the name of it, but basically they're trying to become the AWS of crypto, right? They're doing cloud computing for blockchain projects. But for this to happen, people actually have to want to be

crypto developers and the regulatory environment has to be either or both lenient and clear. It's certainly not lenient now. It's not certainly. not clear. And it's not clear. It used to be lenient and not very clear, right? That's what I mean. Coinbase has been asking for, hey, can you just give us clear guides? And the SEC has been basically saying, no, you make it up your, you interpret it as you will and then we'll adjust on the fly.

Good place to pause. The regulatory environment seems to be the major driver here. Mm-hmm. I have not seen the SEC move quickly, ever. I've been sitting here for a decade hearing that accredited investor laws are going to change. They haven't. I've been sitting here for a decade saying crypto regulation is going to be super clear, and it hasn't.

They move slow. They prosecute as but one example, the Floyd Mayweathers and Paris Hilton's or Kim Kardashians, whoever's doing some crypto promotion, those things took years for them to circle back around. So if there was going to be clarity, I don't see that measured in quarters. I see it measured in years. I don't see there being like clarity on this for at least two or three years. Right.

And I think that has a massive downstream effect with the people that actually provide the value to the ecosystem, which are the developers, right? Right. So if you have this crazy ecosystem, why was crypto, why were people, why were there so many developers in crypto in 2020 and 2021? Money. Was it because the tech was amazing? Was it because there was a bunch of consumer interest?

No. It was because you could spin up a coin and you could liquidate it in like six hours, right? And nobody bothered you at that point. Yep. That's where the developers were. Yeah. So I don't even know if that's a bull case anymore. I don't know if there is a market there for them to become some sort of AWS-sized business of crypto.

So even the bull case that they layered on AWS and had exactly what happened with Amazon, it feels like an unlikely bullcase. To me, yeah, I could be completely wrong. I would agree. Okay. If you're making the argument, yeah, I don't know. That would be my bullcase. That's what I would say. And then I said it in my head and I'm like, wait, how would that actually happen?

And then everything that's happening now seems like the antithesis of what you would need for this to be a reality. And then the bare case is basically everything that's going on right now. You know, the SEC considers everything except Bitcoin is security. Coinbase has to de-list, most are all of its tokens, transaction review. And then if that happens, then is there custodial business existing anymore? Well, I think if you're doing custodian right now, you have to be thinking, is this the best place for me to keep my money if Gary Ganser has said everything but Bitcoin

is a security. They're still pursuing XRP. They won't settle that. They're going to go to the mat on that. And Coinbase removed XRP and some other Ethereum classic, I think, or Bitcoin Classic, Ethereum something. They took a couple of coins off, which they said was because of low trading volume. But I also read that as like low trading volume plus why take risk.

Yeah. I think it's over for crypto in America. I think it's an offshore. We're going to cede it to offshore. like the kid, Nick said, who is very well spoken, by the way. I'd like to have him on the pod. He seemed very smart, by the way. He was good.

Another podcast. And just don't call him a kid. Oh, did I say that kid, Nick? Oh, God. When I say kid, I'm just a guy from Brooklyn. Anybody who's 10 years younger than me as a kid. That's just how I was treated. That's how it goes.

Anyway, this astute capital allocator, Nick, I forgot his last name, wrote that choke point, which when the Andreson, Horowitz, former crypto head, basically rewrote for the Wall Street Journalist seems the next day. Katie Hahn. Katie Hahn seemed to have rewritten his substack the next day. So I give him a credit for that. This Operation choke point, as he calls it, I call it Operation B. I find out. I believe that. But it's all the same thing. The United States is done with this. They're like, too many people lost money. And I predicted that from the beginning.

too many civilians lose money. There's too much agita going to the SEC, too many people complain to their representatives, too many district attorneys get complaints, and then what happens? Well, you effed around, and then you find out. You effed around on a level, not seven of ten.

You went to ten. FtX took it to ten. You know, NFTs took it to seven or eight, you know, painting the tape, front running the market. At Coinbase, there were people fronting the market, I believe. At OpenC, I believe there were people

who were doing shenanigans front running the market. So if everybody's playing games, even at the big companies, and I know they're isolated instances and they took action, it could happen anywhere. It's just that cumulative F-A-F-O, Fafo. Is that how we pronounce it?

This is called Fafo from now one. The Fafo, yeah. The Fafo is so strong in this industry that there is no turning back now. Therefore, it seems to me, what's the multiple of this company? And how much cash are they losing? Those would be the next two questions.

So let's let everybody debate this on Twitter. Debate it on Twitter. The Twitter handles TWA startups. Debate it in the community we have on Twitter. This is This Week in Startups Community. And you can email your best case, should we short, Coinbase or Not, Producers at this week in Startups.com.

Let's have an open discussion about it. And then on the Thursday show, I'll just ask Sonny and Vinny will present the case to them. I'll present it as best we can. and if you should short it. And I think how much cash is left and when do they run out of cash? It would be an interesting thing to look at. And do we think the regulatory environment changes by that?

And I would also add the final thing is, you know, when you are short in Coinbase, what do they say, bet the jockey? Brian's smart. That's the one thing. Yeah, I don't want to bet against Brian. And he seems like someone that is like on the, you know, Elon level where if you bet against them, they are coming for, your neck and they will fight to prove you wrong. And also, what's the short position currently on the stock? And then are there Yolo investors on Reddit that I'll find out I'm going to short the

stock and be like, oh, you know, it would be funniest to watch J-Cal lose a bunch of money. Let's all. And I have to talk about it on all in. And then you know, they'd invite Brian on all in and you have to face him. Yeah. I have to face them. Here's why I shorted your company. This, I like talking the book and being transparent about it.

Other people, maybe they're not as transparent about it. It's up to, it's up to the individual. I'm always going to do it. But anyway, I think I said intellectual exercise. I think it's interesting because those are two really significant factors you have to take into account. One, putting the short on is going to wake up all those orcs. You know, like when the dwarfs and the, in the, you remember in Lord of the Rings when they're traveling through the, they take the shortcut through the mines and then one of the hobbits knocks the thing over and it like rattles.

And then all the goblins and orcs and the balks are like, you could wake the Bauroc. And the Bowerc is Wall Street Betts. So please, nobody posts this clip to Wall Street Betts because they will literally would love to see me lose this ski house. Oh, they love it. They would love to see me liquidate the ski house and to see me on off-mounted skiing.

They would love to see that. They would love to see you drive into Hunter Mountain at 7.30 in the morning on a Saturday waiting in three and a half hour lives. Everybody crying. Yeah, that's what they want to see. So that is an interesting, yeah, rub to this is if you do put a short position, which I guess Hindenberg has to deal with. And then the guy from Herbalife, right? Bill Ackman had to deal with that.

He put the short on herbal life. He got walloped because. Yeah, but who is Hindenberg putting the short on? They put Hindenberg put the short on. Jack Dorsey. Where is he? That's not wise. Is it not wise?

Is he showing up for work? I think so. I think for Square. Like I would say put in the short on square. Oh, and I'm a square shareholder. I was in a venture fund that had square share, so I have exposure, but it's not crazy exposure. I would not place a bet against him because I think he's a product genius. Yeah, definitely.

And I think Brian Armstrong is a strategic genius. Not really is a product genius, but I think he's a strategic genius. So when people, this will be like, I think, something interesting to think about. But who would you want to place a short against incompetent management, somebody who's been a perennial loser. Jack has not been a perennial loser. You could say what you want about his quirky personality. He's an incredible inventor who built two multi, two companies worth tens of billions of dollars

in one decade. I would not go up against him. You have to have a pretty good conviction to go up against him. And how is that square short doing anyone? I think it was down 12% on the day, but I haven't checked on it since. Yeah. So anyway, we're learning here together. It's part of our J-trading.com exercise.

We look for one year. Yeah, the short has made, I think, a little difference. It's trading right now in the $64. And I think the short went on when they were at 73 or something, maybe 60s. We have to see when the short went on, but it hasn't been, it hasn't collapsed. It's been trading basically in the 60s and 70s for the,

basically it's been trading $65 for the last year. Nick Carter, by the way, was the name. of the crypto. Shout out to Nick Carter. He's a good blogger, too, by the way. I want to give him a shout out to Nick Carter, pirate wires. He's actually a good writer.

So, you know, me, I'm a writing snob. He's a concise writer. And that means a lot to me when somebody is concise. And he's a, I think he's a good podcast guest. He's like, Bology just goes crazy on a podcast. Like, Nick actually has a dialogue. So I'd like to have Nick on the podcast to talk about it. So open invite to Nick to Nick Carter.

of pirate wires. Search for pirate wires. Oh, it's piratewires.com. Yeah, that's Mike Solanas. Oh, I think he was writing as a guest writer. Got it. Oh, it looks like it's a substack.

Yes, a substack. Oh, they have their own domain. I didn't know you could do that. Oh, I should do that for our things. You can actually route your domain to your substack. Interesting. All right.

We'll see everybody tomorrow on this week in startups. Bye-bye.