This Week in Startups - Ask an Angel with Zach Coelius: is moving to SF still worth it, bubble/recession potential, post-COVID funding & more | E1172

Episode Date: February 10, 2021

FOLLOW Zach: https://twitter.com/zachcoelius FOLLOW Jason: https://linktr.ee/calacanis

This week in startups is brought to you by Vanta. Compliance and security shouldn't be a deal breaker for startups to win new business. Vanta makes it easy for companies to get a SOC2 report fast. Twist listeners can get $1,000 off for a limited time at vanta.com slash twist. Gusto. Running a startup is hard work, but thankfully, Gusto makes payroll easy. They also offer flexible benefits, onboarding, and so much more. Twist listeners get three months free at gusto.com slash twist and LinkedIn jobs.

A business is only as strong as its people and every hire matters. Post your first job for free at LinkedIn.com slash twist. Hey, everybody. Hey, everybody. Welcome to another episode of Asking an Annette. Angel Live. Here we are with Zach Collius, who is an angel investor in how many companies, Zach now? I think it's like 50. 50 companies. We keep selling them. So like the number kind of, you know.

Yes, you've been having exits. And you started Angel investing in earnest in what year? 2015. Got it. So you've been added for now into your sixth year. And so you're averaging basically an investment a month. Is that velocity increased or decreased? Do you do a month now? What what are you doing? Yeah, it's about the same. Check sizes have gone up quite a bit, but usually it's, you know, I'll find a company a month if I'm lucky. It comes in fits and spurts, so like there'll be a period of running to do anything for six months and then I'll do five deals in three weeks. Kind of crazy how it works. What's the average check size for you now and where did you start? So I kind of have a barbell strategy. For my early stage checks, I can be kind of

200 to a million. And then for my later stage checks, I can do 2 to 5 million for sort of series B and later. When I first got started, I think I was lucky to do a 200k check. That was like a woohoo, yay. Big deal. Yeah. Yeah. Are you still doing investments via syndicate or just from your fund now?

So I have three vehicles that I deploy off of now. I've got the main $45 million fund with industry ventures as the sole LP, and they basically are, you know, they have lots of cash, and I get to help them put some of that to work. And then I have a rolling fund for sort of friends and family and people who want to deploy alongside, and that operates in parallel. So everything's the same as the industry fund. And then I have a 2,500 person syndicate on Angel's, which is actually been a superpower for me, which I'm sure like you, like they bring me deals, they help with diligence. It's like, it's like 2,500 people on my team. Like, when we show up at a brawl, I've got an army. It is one of the things that I think, Naval, who really created this movement, shout out to

Naval, Ravacant. He really got right, which was, hey, having more people involved is a good thing. Whereas most people said, hey, you just want to have two or three people on your cap table. It turns out when you, I think our average deal now is 150 people per syndicate at the syndicate.com. We started on Angel List. We moved to the syndicate.com. but you can find Zach at angel.co slash Zach? I think it's Zach Collius.

Zach Colius, which is C-O-E-L-I-U-S for those people who don't know how to spell it. Coelius. And what's really interesting about that is you get those 100 people on one item on your cap table, correct? Yep. And then I manage everything. So, you know, for instance, we just sent out an update for mudwater, one of the companies I'm invested in. And, you know, a couple dozen people sent me back notes about ways they could help. and then I kind of filter those and pass those through the founders.

So I serve as the intermediary. Awesome. And so tell us a little bit before we get into the questions here about a rolling fund. How does that work? How big is the rolling fund? And is that something that you think is going to be sustainable? Because it seems like that's an unnecessary piece between the fund and the syndicate. Why not just do the syndicate and the fund?

It seems like that was the third piece. It's a little confusing to me. explain why what that is, why it's necessary. Yeah, so the rolling fund I did because after I announced my main fund, a bunch of my friends reached out and they're like, hey, I want to get in on that. And, you know, there wasn't an opportunity to do that. And the great thing about a rolling fund is it's super LP friendly in that you can sort of like have a fire and forget fun where you put in capital and you get cross collateralization

across a large number of investments. You don't have to pay any attention. but you only basically are committing on a quarterly basis. So every quarter you can be like, oh, that's that guy's an idiot. I'm out of here. No more capital for him. Or you can be like, oh, I need to buy a house. I want to not invest this quarter and the next quarter and then I want to go back up again in three quarters.

Or a whole, I just went public. My company went public and I want to increase my allocation. And so it's a much more flexible model for the LPs. It's super flexible. And for me, the syndicate. is kind of, it's, you know, I've struggled with the syndicate in terms of writing quick, small checks. So like if there's a, you know, a small, fast round that I need to put capital into, the syndicate's not a great tool for that. It just takes, it does take four to six weeks.

Yeah, too much time and a lot of energy. And so, like, I really prefer for the quick, small, early stage checks to pull off of an existing full of capital. And so that's, and that's really where a lot of my friends were looking for early stage exposure. They were like, they wanted to get in on the early stuff. So that's why we did the rolling fund. It makes total sense to me, actually. When you explain it that way, it makes total sense. Yeah. Yeah. And the syndicate is, you know, for like bigger later stage checks, it's a superpower. But for the early fast checks, if we're going to write a 200K check, it's like, it's not even worth like all that bother for everyone. I think you and I have figured this out, which is I have a fund, a $44 million

fund, paradoxically enough. And that complements the syndicate. And so 100% of our investments or in that fund, and then the syndicate does probably half of those deals. If the founder wants to do the syndicate, they have to opt into it, and there's an allocation available. So it is pretty amazing how that has grown over the years. Let's take a couple of questions here. Our first question comes from Matthew. Matthew asks, is it worth moving to San Francisco right now for a young entrepreneur, question mark? Some context. I recently sold my startup to a company in San Francisco, but I'm currently based in Connecticut. I'm working as a PM, that's product marketer, I'm sorry, product manager for a company

that purchased us with plans to move to San Francisco soon to work in person. I am planning on launching another company in one to two years. Zach, this is a question you and I are getting. The future of San Francisco, we're taping this in February, the literal, I think this is the 12th month of the pandemic. It is. And San Francisco has been. and rocked. So is it worth moving here for a young entrepreneur? Hell, yes. So the way I think about it

is rents are collapsing here. So it was very unaffordable to be here, you know, 12 months ago. Now it's just pretty much unaffordable. But the density of smart people who work in technology is unsurpassed anywhere else in the world. Ten times more people on a density basis are in this city than anywhere else in the world except for maybe Shanghai. So if I were you, move here. This is where the party is. So I will take a counter to that. Nice. Which is, it used to be absolutely the advice to come here immediately if you really want to advance your career because we all know that the density of investors and the density of founders is, there's nowhere greater. But the city was so horribly expensive. I think it was like something like

$4,200 for a two-bedroom or something crazy like that. So you start looking at if the average person is in a, you know, whatever, $4,000 apartment, well, that's dropped down to three now. So that actually is an opportunity. You know, instead of it being, I don't know, $50,000 a year to live here in just a base level of comfort, a two-bedroom, which I wouldn't say is extravagant by any means. You're talking about 50k post tax. If you're paying yourself 150K at your startup and your series A company, that's a lot, which means your after tax income, you're paying 60% of it towards your rent. Basically it means you're not saving. You're going to be up against it. What has changed now is investors are investing 100% over Zoom. And I do think that that trend continues. So you don't have to be here.

And I do think L.A., Miami, and Austin and Salt Lake have really great communities, Colorado as well. And you will have, I would say, close to equal access to venture capital, not maybe 90%, 80%, because they're all investing. Of course, this depends on when we get back. But I think we're back May. We'll be back in business in terms of in-person meetings. Therefore, it's kind of a jump ball. You can't go wrong coming here, but I do think you can go right in Austin, Miami, Colorado, and other places, and your costs of living will be much lower. So I don't think you can lose, right?

I guess is what we're saying. But I do think those, you do think those other places are also an opportunity, correct? Yeah. I think if you would ask me that two years ago, I'd be like, San Francisco is a disaster on many levels, but you really have to be here. Now I think you don't have to be here. but I do think that it is, it is, the density is so much higher that this is a better place to be.

Yeah, and rents according to Zumper, shout out Zumper, where might are tiny little investors, but we're happy to be in there. 3,400 a month, 12 months ago for a one bedroom down to 2650. I think that's probably conservative.

I think it's even gone down more. 24% decrease year over year. I think it's even more. And the amount of apartments available is unbelievable. And now, Oh, by the way, they're also giving two months free rent here now. So if you, that number I gave, I don't think includes that. You include the two months free rent.

I do think that it's probably more like 40% down. 2,600 apartments plus for rent, according to Zumper right now as of today, 2671. I think more coming. Like Salesforce just announced that they're going to go to like a hybrid remote with, you know, a couple days a week for some of the folks. Wow. I think a lot of the companies are going to do that. And so, you know, I think a lot of people are going to move out, but a lot of young people can move back in because the city is a much funer place to be when it's full of young people rather than old people.

Absolutely. And when it's fold with artists and restaurants and the storefronts don't cost $12,000 a month, maybe somebody could open up an experimental art space, a, you know, club or something interesting and avant-garde. And we've seen this creative destruction over and over and over again. So it's actually good for society, I think. And it's also going to make San Francisco have to be competitive because people are just do not want to stay here and pay the taxes and get a really bad level of service. So hopefully.

Crime is insane. It's crazy. How many people do you know who've been a victim of crime in the last year or two? Oh my God. I have like a lot of my friends have basically been like either mugged, like literally mugged on the street. Like that's like, like it's becoming a. common thing here.

Burglaries, common. Like, it used to be just, like, we'd all get our car broken into every few months. Like, that was annoying. But, like, you know, when people are breaking into your house or, like, mugging you on the street violently, like, this shit's got to stop. I would, you know, listen, I, I, I'm for gun control. If you live in the city, if you live in San Francisco and you do not have serious armaments and doors locked, you're crazy because your house will get broken into. and the person in the likelihood is going to be high as F,

and they might kill you or your family. I know this sounds crazy, but we are having many homicides in San Francisco, many people being beaten up. And the crazy thing, I don't ever saw this, old people being beat up, why?

I mean, it's one thing, I understand, you're deranged and you're out of your mind and you steal an iPhone or somebody's video equipment. I saw the video of people breaking into the back of a Prius that was moving. Yeah.

They're on the street. It's turned into Gotham City. Like literally people are jacking cars that are rolling down the street. These people broke the back windshield of Aprius to take out their video equipment while the car's moving. That's how crazy it is. This is how crazy it is. I think it's true. But it also is like it accentuates my point.

Like that's how powerful the density of technology people is. It's even with all that just insanity. I think it's still like the being able to be in person and go to dinner parties and hang out and like come to your events, come to my events, just like be here is like, is a big, is a big delta over basically Miami or Austin. Why is SOC2 compliance critically important? You hear it all the time. Sock 2, sock two.

Well, if you don't have your sock two buttoned up, you can't close major companies as partners and as customers. It's that simple. And guess what? Vanta is going to give you $1,000 off your Vanta compliance process. And this is something that's very important. What they're going to do when you get your sock two, with Vanta is, they're going to continually test against technical and non-technal SOC2 requirements.

And they also have partnered with over two dozen auto firms who have been trained to file SOC2 reports directly in Vanta. On average, the Vanta customers get their SOC2 compliance in just two, three, four weeks. Compare that with three, four, or five months without Vanta, and you understand why everybody's going crazy about it. I just had a twist listener, John, email me. He's got the drone startup, Kitty Hawk. You may have heard of them.

They're very famous. And he says Vanta was essential in helping them get SOC to compliance up and running. And he loves their tie-ins to Google, Slack, GitHub, and AWS, which are all essential apps that run Kitty Hawk's awesome business. Vanta, again, is giving Twist listeners a $1,000 discount on their subscription right now. And I know many of you take advantage of it. V-A-N-T-A.com slash twist, Vanta.com slash twist for $1,000 off. Okay, let's get back to this amazing episode. Math Sitter says thoughts on free apps with high growth versus paid subscription apps with low numbers.

What looks better to an angel, love the pod, Jason? This is a great question, Zach. What would you rather see a free app with high growth or, say, slower growth, but with paid and subscriptions? I think in both of those dynamics, they're just two levers to the same ends. You know, in the case of the free app, you know, the question is, like, building a free app is not the long-term goal because it does nobody any good. So how are you going to monetize that? And once you start adding monetization, you basically have to start thinking about, you know, slower growth against that sort of cohort of user base. Do you force people into, you know, tighter and tighter funnels?

Do you use advertising? Like, how do you make your money? And so if you have a free app and you haven't yet figured out what that monetize, you know, representation looks like, that risk factor decreases your valuation because we don't know what's going to happen there. And until you figure it out, like, we have to assume that there's a good chance it won't work. On the other hand, if you've got, you know, a paid app and you're growing really slowly, you know, you might need to figure out how to juice that growth because without, without growth, really no investors are going to get very exciting because we're all in the business

of the billion dollar plus outcomes. And, you know, if you've got, if you're growing slowly, never going to get there. So you got to figure out how to get there. I love this answer, Zach, because really when you look at it, growth is the key. If you are growing as a free app, I would expect you growing 5% per week, 5% week over week, which would be, you know, let's call it 30% month over a month. It's free. You should be growing fast at least 20, 30% a month. Now, if you're paid, I might expect you to grow 10% a month, which means you would double every seven months. If you're free, you should be doubling every three months in terms of your user base. And listen, the number two investment we ever made was Com, who was the first syndicate we ever did.

And they charged, and they used to charge $10 for the app one time. Then subscriptions came out. And because of subscriptions, consumers are now very delighted to pay monthly or yearly a subscription for $60 to $300 a year if they're getting value from it. I believe, I prefer the consumer subscriptions. I'll tell you why. I think it makes people more focused on providing extraordinary value. Whereas when you're free, you kind of provide value, but if they're not paying, it's not extraordinary.

So with some rare exceptions like a clubhouse or a social network, I prefer, and I'm super, I mean, a great subscription consumer subscription app is catnip for me right now. I will roll over and I'll jump and through hoops for anything. I have right now, steazy for dance, calm for meditation and mental health and sleep. I have tone base for classical music. I have musician for many different musical instruments. I have soul savvy for sneakerheads in a community paying for consumer subscriptions. I have brilliant.org for learning math.

Did I miss any, Nick, on my consumer subscription tip? I think I'm missing one or two. Anyway. Did you say FitBod? I didn't say FitBod. Oh my God. That's the second most successful one for Cross Fitness Training. Thank you, Nick.

So I love these consumer subscriptions. You know what I view it at SAC? The continuation of what Spotify and Netflix did. People were like, I don't know if I'm going to pay for a music subscription. I don't want to pay for online video. Remember, like people were wondering if people would actually pay for that? And now it's like, do you know anybody who doesn't have a music subscription to either Apple music or, I mean, nobody? So both of them can work.

I think is a long way of saying it. Okay, let's go back to the top here. We're going to take one of the pre questions that came in. again, Zach Coelis is here. Follow him on Angel List. Follow him on Twitter. He's Zach Z-A-C-H-C-O-E-L-I-U-S. He invests 200K to $5 million from his fund, his rolling fund,

and from his amazing Angelus Syndicate with thousands of members. You can join any of those, where you join two of the three of them. You can look up his rolling fund and join that if you're an accredited investor, or you can be involved in his syndicate. And if you're a founder, you can just DM him. He's one of the great investors, love doing business with my man, Zach. Ahmed asks, do you see us heading into another recession anytime soon? Is our bubble about to burst?

If so, what are some warning signs and what sectors do you assume will be safe slash remain relatively unharmed? Zach, I'm going to throw it to you. Are we in a bubble or not? Is a recession coming? So I'm going to do the total cop-out and say both. So my view is that the long-term technology trend, like if you look out 20 years from now, we're going to have self-driving cars, we're going to have VR that feels real,

we're going to have air taxis, we're going to have electric planes, we're going to have like all this shit that if you think about the work that's required to build that from here to there, the technology that needs to be invented, the programs that need to be written, all the stuff we need to do, we in the technology business have 20 years of work ahead of us before we get even close to what we can imagine. let alone with stuff we can't even imagine yet. And so the long-term trend in technology is like that.

Now, the thing about technology that's difficult is that what happens is that you get growth, and then as growth starts to occur, investors get a little excited, and they start investing against that curve, and then they drive that capital drives up growth until it becomes unstable, falls over in itself, and we get a little crash. And so this is very normal in this 20-year cycle. We're going to go like this. We're going to have, definitely going to have down terms and we're going to get some beatings ahead of this.

But if you're a long-term investor in technology or a long-term entrepreneur in technology or a long-term player in this game, just focus on long-term and you're good to go. If you think in decade-long increments, you're going to be fine. When Zach said it's moving like this for those people listening, what he was showing was a wave going up and down, but trending up. and what Zach and I have learned in our careers is, you know, Uber and Airbnb were started right after the financial crash of 2008. Tesla, Facebook, and Google grew through multiple recessions straight up into the right. So when the market crashes, the great companies who are capitalized properly, in other words, they have cash in the bank, and they are not burning tons of money, they benefit from it because they get to gain market share.

They get to deploy money when money is valuable. Right now, there's so much money in the system. And something's really changed since we started our career, Zach, is the ability of a company to go from one geo to 100 geos, that used to take decades. Like, it would take Microsoft, you know, 10 years to go into Europe. It would take them another decade to get into India. These were decade-long processes. now you look at something like com.com or clubhouse. You know, they can go into another market and even localize into another language so quickly

because there's all these third-party tools and infrastructure. If you put yourself on a certain cloud computing platform, whichever one it is, you basically get a global footprint almost instantly. If you want to localize by language, you put in a little SDK, and all of a sudden there's all these outsourced companies that will translate right? So if something does stick, the ability to go around the world with it is unbelievable. I think there could be a recession. I think a pullback could happen this year of 20 or 30 percent, which is, I think, the recession territory. But given all the stimulus and given we're coming

back from the vaccine and a year in quarantine, I think it's YOLO for 18 months starting in the spring, which means I think it's going to be an up into the right market, until, until 20, 23. That's my guess. But nobody, you know, there could be pullbacks along the way, but always, you know, if you're doing what we're doing,

which is investing in companies for between 10 and 20 years, like, you know, I'm in my second decade of owning shares of Uber and I'm not selling them because they're a record high again today. And I think that they're going to come back from this crazy pandemic and be even stronger.

Let's take another question. This one is from Chase. What companies are you? most excited for in 2021 and a post-COVID economy? Great threaded question here. What do you think, Zach? What excite you in a post-COVID economy? You know, I actually have no idea. Like, my favorite part about this job is that smart people come to the door and they drop these wisdom bombs of just like, hey, check this crazy thing out. And I'm like, oh my God, that's new. Because at the end of the day, if I have the idea, it's not a new idea. Because I'm just an idiot VC wandering around like,

talking to people. Like, you really have to have your hands on the metal and really understand what's going on in the market to come up with a new idea. And so if I have it, it's not a new idea. It's the entrepreneurs to create the new things. And when they tell me, my job is to hopefully recognize how awesome it is and not be an idiot and be like, oh, my God, let's do it. Like, yeah. So I don't know. We're going to see. It's going to be awesome. I hope. We're going to see. And, you know, I think the public markets are a great indicator. If you look at the travel stocks and you look at Disney, you know, I think that with the pen, pandemic did is any crisis like this promotes change. And I'll just pick three companies, Airbnb, Uber, and Disney.

Disney said, well, you know what? We were going to make Disney Plus the focus of this company, but we have no choice. Therefore, did you see when they had their Disney Day how many shows they're making for Disney Plus? It's like Disney Plus is their Amazon Prime now. It is not the side show. It is the show. and I think theme parks are a feature of Disney Plus. You buy Disney Plus, you get one day at the theme park, you buy Disney Plus Plus, and you get,

you know, whatever, a family pack for the theme park. And your Disney Plus login is your theme park login. You go there, they take pictures of you. You open up your Disney Plus app. There'll be a tab.

Here's the photos of you at Disneyland. And imagine just that one simple idea. Disney Plus has, the theme parks integrated into Disney Plus. So when they launch a new ride, you get a trailer of the new ride. And it says, click here to book a day. And all the booking and your wristband is Disney Plus wristband. You show up at the park, you know, and you make your reservation through Disney Plus.

Now imagine this. Okay. So then you add VR. You can go visit the ride. You put on your headset and boom, you're at Disneyland. Genius. It's like F. or you're a Disney plus plus subscriber plus plus plus like you just just keep adding pluses to it right

I could be a five plus subscriber and that gives me whatever access you know weekend access or whatever you start thinking about the possibilities there so all of that I that was probably a five year in the making trend that got compressed into one year and they got rid of their yearly passes they just got rid of them they discontinued those season passes which I used to get with my daughter and I used to take her whenever she had like a day off from school or we'd call in sick and I would just take her at Disneyland on a Wednesday. It was great. Dad of the year. And so that's just one example. And now I imagine all of their, they don't have this in there yet, but Disney Plus Plus, imagine all their merchandising. You open up Disney Plus. I'm on the Mandalorian page and I see buy Baby Yoda.

Why is that not set up? I mean, what are you thinking Disney that you don't have, you know, a thousand or a million or 100,000 limited edition, baby Yoda's only for sale to Disney Plus Plus Plus users, right? It's a no brain. Now let's go to Airbnb. Airbnb was spending too much money that had too big of a staff. What did they do the second the pandemic happens? They cut a third of the staff.

Now they're lean, they're mean, and they had their largest couple of months ever. Then you go to Uber. They were like, you know what? The rides business was the focus. Now they're like, wait a second. We could be Amazon for two-hour delivery. What if we get every bodega, every store, every local business to put their inventory on here and deliver? They just started doing that.

I find myself going to the app now, going to Uber Eats, to order soda or drinks, and they bought Drizzly and et cetera. So there's a brave new world. All of those companies are accelerating. They're accelerating. And then just think about the movie theaters. I think Disney should buy AMC now. And if you're a Disney Plus user, imagine this, Zach. You can go see the Mandalorian on whatever, Tuesday, Wednesday, Thursday.

It's playing 24 hours a day. You can go see the last three episodes in a row, including Friday's episode. Or you can wait for Disney Plus on Friday. But if you have Disney Plus Plus and you pay 40 bucks a month instead of 10, you get two free tickets. Can you imagine how great that would be? I mean, it just makes me so excited about what could happen as we really open up the aperture of what's possible. Listen, 2020 was a crazy. hectic, insane year. My God, it was like a decade in a year. And there was a lot of uncertainty,

let's face it. But we're going to minimize our uncertainty in 2021. And we are going to start the Roaring 20. So let's switch to a smooth and painless payroll and HR system. Gusto is that system. And it wasn't just built for small businesses. It was built for the people behind them. That's you and me. Their online payroll is so easy to use. Gusto can automatically calculate paychecks and file all your payroll taxes easy-peasy. Three out of four customers say they run their payroll in 10 minutes or less, which means you can get back to your business. Heidi, who manages operations here at launch, she says,

Gusto frees her up to do more business critical tasks like running our syndicate. They offer unlimited payrolls for one monthly price. There are no hidden fees, and they help with time tracking. A lot of people need to do that. Health insurance, critically important 401Ks. Be generous with your employees, onboarding commuter benefits. offer letters, access to HR experts, and more. And if you're moving from another provider,

Gusto is going to transfer all your data for you. No surprise, 94% of customers are likely to recommend Gusto to a friend. Of course they are, because it's so easy. Here's the best part. Because you're a Twist listener, you're going to get three months totally free. All you have to do is go to gusto.com slash twist. That's g-U-S-T-O-com slash twist. Let's take another question.

This is a pre-question. Now we have a mod, another Amad. We're very popular with the amods. What do you think of crowdfunding and do you think it proves product market fit? So I'm going to say crowdfunding will say clearly that's Indiegogo and Kickstarter, not equity crowdfunding. You said crowdfunding. Is that a good proxy for product market fit in your mind, Zach?

I mean, yes and no. Obviously, if people are willing to pay money for something, then there's interest. The question is simply you really still have to drill in and figure out if it's niche interest versus a wider. sort of audience because you can really do really successful crowd fundings for really niche products on, you know, on those platforms that just really don't have a broader applicability. But in general, whenever you can get people to pay for something, it's a good signal. I think this is very important. There are people who are very good at doing a Kickstarter.

And what I found in my portfolio is sometimes those folks are so good at packaging and sizzle, but they're not good at growth and sustained operational. operational excellence, you know, because they haven't developed that muscle. So it is nice, but a lot of times the reason people do well is they underpriced their product. So they sell a product and they give a discount on Kickstarter, Indigo. That's not what Indigo is there for. If you're one of the first thousand people, you should be paying two times or three times as much for the product to get in early and you have enough margin there. What I find is people get desperate and they take something, whether it's a camera or whatever, and they charge you a little for it. And then they're already losing money to, like,

literally, you've probably had these pitches where people raised a million dollars on Kickstarter in Indiegogo, and now they're trying to raise a million from venture to deliver the first million of products. And you're like, well, what happens if we don't invest? It's like those people don't get their product. And that was one thing that Kickstarter in Indigo had a big problem with. So it's a great question. We'll take a question from the live audience. Matthew asks, when the U.S. legalizes cannabis on a federal level, how do you see this impacting angel investing in the sector? Go ahead, Zach. It's going to be awesome. I'm so excited. I've been prevented from investing in cannabis companies because of, you know, my LPs and Angelus and everyone else. So same with me.

The whole marijuana legalization thing is like, come on, we have to go faster with this. It should have been legal 30 years ago. So I hope we can, hope we can invest. This would have been such a no-brainer for Obama in the second term. My understanding, was Obama was considering in the second term. He never got there. He didn't want to do it in the first time because as somebody internally said, he didn't want to be like the first black president and like in his first term he's like legalizing cannabis. Like there was like some idea that he wouldn't be taken seriously. And I think race had part to do with that thinking and like the pollsters, which is really weird. But I was told that he was going to do it in his second

term, he didn't. Then Trump was a no-brainer for Trump to do that. He would have made so many people, he would have endeared himself to so many people, he didn't do it. Now we have Biden and Kamala, come on, guys, like 90% of people in the United States want to see this legalized. It's legal in almost every state. Just do it. Canada did it. We can't let Canada beat us to stuff. Just get it done. And we cannot, from our fund, invest, just so people know when you have a fund. You have LPs. The LPs you have have LPs, especially in the case of industry ventures, they're a fund of funds. So they have LPs. So all those conditions get dragged down. So adult weapons and anything that's illegal, basically, you can't invest in. I can, with my syndicate

invest in these things. And we've done one investment cush in, which is a marketplace for cannabis, but we will be on it big time. And we're also going to invest in it. Ha ha. It's a little bit of a joke there. And we're up to Marissa. Are the private markets? This is Marissa, I'm assuming mayor, are the private markets now less crazy and less speculative than the public markets? Zach? No way. No fucking way. It's bonkers out here on the streets. It's bonkers. What's a crazy shit you've seen recently? We had one last fall, 300K ARR. 300K ARR. Okay, 25K a month. an MRR. Yeah, yeah.

There was auction, 73 pre. Auction. What? Yep. So that's 80 post. Yep. Well, a little bit more than... Is that 200 times revenue?

It's bonkers. It was crazy. We've had, I mean, in the last six months, I've had multiple deals where we invested at like 10, and then two months later, somebody else marks it to 25 or 30. Like, two months. Like, no, no. significant change in the business. Is that in your best,

when you're an investor and you see that happened, you're obviously getting to write up and market up in your books. But let's be honest, reality has not changed significantly, with the exception of more money being in the bank account and more dilution occurring. Is it a good thing, a bad thing?

Does it make you worried? Or how do you manage that when the founder says, hey, you invested a million for 10%. Now somebody wants to put in 2 million for 10%. or $3 million for 10%, whatever number of months later, what do you advise them to do? Take the quick, easy money, or just keep your head down and focus?

It really depends on the business. I mean, so some of the businesses really have that $10, $20, $30 billion market cap upside, and at which point I say, pedal to the metal in terms of like, this rocket ship has a long way to go, and we need to go as fast as we can without breaking up the ship, which is always a challenge. You don't want to go too fast because of the, breaks up, you die. But you really do need to really throw the throttle down when you've got to go that far.

But for other businesses, it just don't have that upside and where we can get a two to $500 million exit and be super happy, there we need to be more careful about the capital we bring in and how we manage that. But it really just comes down to like what that trajectory looks like and where they are in the growth cycle. But in general, where I invest, it's so early and we have so far to theoretically go that if a good founder investor fit happens and they like the investor and then we can put the capital to work. I'm like, let's go for it. I love that answer, Zach, because you and I are so sympathetic on this. If it's a great investor and it's a fair valuation, a good valuation or great valuation, you take the money. It's a great investor. If it's Sequoia, if it's Saks, if it's Chimap, pick who your favorite

investor is. They got a great track record. What's the downside? It's a fair price. You take the money. Now, if it's a great price and it's an okay investor, I still take the money. As long as you have to give up control, right? You're not giving up too much. But what I always tell people to do is look at that opportunistic money and don't spend it like a drunken, goddamn seller. So keep doing what got you here, as Mark Cuban always says.

Whatever got you to hear, keep doing it, man. Keep grinding. Don't have that money get you distracted. If that money makes you think about opening up a new office or redoing the receptionist desk and, you know, spending money. money on stupid shit, don't do it. But if you look at that money and say, you know, that $3 million, we've got our customer acquisition costs, our KAC dialed in, and we want to try two more channels, podcasting, and we want to try radio, or whatever it is, or outdoor advertising.

Mazel Tov, do it. You earn the right. You take two more swings at bat. And yeah, if you lose, let's say in this theoretical situation, your company, they raised $2.5 million for 10%, and they spent $2.50 on podcasting and $250 on outdoor advertising. And, One was a waste of money and one worked. Great. You earn the right to take a little risk there. Great, great question. Okay, streak habits.

Do you still invest in similar startups you already invested in or is just a conflict of interest? How do you deal with this? Because you know, you and I are starting to have large portfolios. You have people pivoting, right, into all kinds of different businesses. How do you deal with the conflict of you invested in a Lyft and an Uber or, you know, you invest in Uber and Postmates? I have friends who invested in both companies and then Uber ads, Uber Eats.

Yeah, yeah. I have had that happen. I've got a number of companies that have sort of like swayed into each other. But generally I try to avoid that for a new investment because my job is to be able to be there when the CEO is like dealing with a difficult situation and they need to talk to someone who's not on their board who's not their boss who can't fire them. Let's say they just get sued or they've got some issue with an employee and they need somebody who, give them the God's honest truth, they can call me. And it's difficult. I can't play that role if I'm basically like doing that for two competitive companies. And so I don't invest in competitors for a new investment. But if they start to sway together, then I have to maintain a Chinese

wall. And they have to trust me that I'm going to do that. And if they don't, then, you know, they can just stop telling me things that they want to. Yeah. And the firewall or Chinese wall, by the way, Chinese wall, not a derogatory, actually a compliment. Somebody tried to cancel me, Zach, for using the word Chinese wall. And I was like, hey, dip shit. I know that like you want to cancel everybody. Yeah, it's so crazy. Ask 100 people who are Chinese,

what Chinese wall means? It means the Chinese built the longest running, most well-built wall in the history. It's a compliment. It's a big wall. You can't get over. Yeah. They have one of the great innovations

in the history of architecture. It's a compliment. But what the firewall means or the Chinese wall means is you would have information from one company firewalled or, you know, imagine the Great Wall of China, separating it from the other company. So it wouldn't happen. If this has happened to us, when it happens to us, typically because of company pivots, oh, I'll just put Jackie or Ashley in charge of that investment and I'll take the other one. You flip a coin and no harm, no foul.

And we will actually do adjacency. So we have a company that does baby massage, you know, kid massage. along with sleep stories for kids. Now, is that directly competitive with comp? No. But does Com have sleep stories? Yes. Do they have sleep stories for kids?

Yes. Do they do massage? No. And what that does is it actually helps me with the Com team because now I've got investments that if they want to do an acquisition later, okay, you know, maybe these two companies could come together, which is exactly what happened with Postmates and Uber. We had a company, we invested in space, which is doing casual audio rooms for creators

and for enterprise. so it's a slightly different than Clubhouse. And then Capiche.com, Austin Smith, or Austin Peter Smith now, he changed his name. He pivoted into Capeshafm, which is also in the casual audio space. Not my fault if they,

people pivot into direct competition with each other, just like the Postmates investors would never know Uber way to add Uber Reeds. The new year is here. It's 2021 and you got a fresh start for your business. You're probably thinking, my God, we had a great 2020. We're profitable.

We got a little money in the bank. It's time to, expand. It's time to build out the team. Well, we're doing that here at launch. This week in startups, doing so well. We need a second producer and a third video editor. We're hiring a community manager. Things are going gangbusters. Where do we find the most qualified candidates? LinkedIn jobs. Obviously, duh. We love using LinkedIn jobs at launch because we can manage all of our job postings and contact candidates from a single view. It's all streamlined into one simple screen. just how we like it. And whether you're shifting your business hours or hiring more remote employees,

one thing that remains unchanged is the importance of having the right people on your team. You're only going to go as far as your team will take you. When your business is ready to make that next hire, LinkedIn jobs can help by matching your role with qualified candidates so you find the right person quickly. And those are the two things you're looking for, speed and quality. Speed and quality. You want that position filled by a high quality person. yesterday. And that's what LinkedIn jobs is going to help you do. And all this works from your mobile phone, no matter where you are. So go to LinkedIn.com slash twist, and you can post your first job for free. Nothing to lose. LinkedIn.com slash twist to get a free job posting. Once again, LinkedIn.com

slash twist to get a free job posting right now. Terms and conditions do apply because they're giving you that free job posting. Okay, let's get back to this amazing episode. This is what comes from Christopher. Jason, I am working on an AI company based in Bulgaria that automates e-commerce processes. What advice would you give to gain customers in the U.S.? What are your first steps? What are the first steps you would take? Zach, for somebody who's not based in the United States to get customers in the United States,

how would you do that? Good question. What I like to say, and I say it so often, I'm sure people are bored to hear me say it, but if you can't cold call a customer who you've never talked to before at 9 o'clock at night on their cell phone while they're putting their kid to bed and tell them what you do in one sentence, and instead of having them say, fuck you, instead they say, oh, I want to talk to you tomorrow. Your startup idea is not a good one.

Because you don't actually, you're not, you need to be able to be creating so much value that the customer's pain or the value that they think they can get from what you're delivering is so significant that you can break through the walls and the barriers to customer acquisition because it's so good. So think about Uber, when Uber first started, you know, if you went to somebody in the streets of San Cisco in 2005 and said, hey, you can push a button on a phone and a car will show up and take you wherever you want to go and you don't have to pay for it. And it's a clean car and it's fast and it's all rated. Everyone in the streets would be like, oh my God, can I have that? How much

you have to pay for that? It's so powerful. And so if your startup doesn't have that level of value proposition, you need to iterate on what you're doing to get to the place where the customer acquisition becomes easy. It's like in the beginning of a startup, when you're looking for what to build, you want to iterate until you find it so that it's the iteration has reached that point of like value that customer acquisition becomes easy then everything else becomes hard and that's a different story but so great so great so great so you gave an answer that was it that he didn't ask the question for and I really love that which is you know it's not about reaching US customers necessarily like through some technique like I immediately started thinking like okay maybe you can hire somebody

in America or maybe you hire an SDR and I started thinking like on a very tax basis. You open the aperture of that question and your answer and said, well, is your product so good it can't be ignored and that it is drawing people to it? If you're not in the United States, and that is a great way, it's be so good they can't ignore you, so good that they seek you out. This is such great advice. I'm not going to give any more, you know, pragmatic advice on such a good answer. Let's take another question. 100. You nailed that one. You dunked. I just got out of the way. I don't want that smoke. Here we go. Brazil's underscore R9. Ask what is more important? The idea or the founder? I know where you going with this one. If I had to choose between a great idea and a great founder, I was investing a great founder because great founders always end up coming up of great ideas, whereas great ideas, if you don't know the founder, you can fuck up a great idea really easily. So precisely, you could have the greatest idea in the world.

And if you suck at execution, you're like, I've got a great idea. I'm going to make this incredible service. Let's pick one that we love that's recent. I'm going to build com.com or Robin Hood, even better. I'm going to build Robin Hood. If you can't execute, what's the point? You need a great founder who is so charismatic. They, they, all jambon.

genders, even no genders, they, that founder, they, them can inspire the greatest people in the world to join the team and make the greatest product. As you talked about in your previous answers act, it's all about execution. A person who's asleep can have a billion dollar idea in their sleep and they could be an absolute idiot. You can be a schmuck and a moron, a dope. A dope could come up with a brilliant idea. If you can't execute, there is no point. The founder. And what is a great founder skill? The ability to lead, the ability to draw talent and attention to the mission of the company and to stay focused and to stay goddamn solvent with cash in the bank, which was dovetelling with another question. Let's take a question for Patrick. What skills would you suggest a founder

build on in order to make the founder and founding team were marketable for VC investment? What a perfect dovetailing. Go, Zach. The thing about being a founder is it's the hardest job in the world because you rise to your own personal level of incompetence. It's a rocket ship ride into that brick wall. Whatever it is you suck at, you're going to hit at really high speeds. So if you're Elon Musk, you start a company on day zero, it's a billion dollar business, 100 people come work for you for free. Every investor in the world will want to give you money. But if we look at the history of Elon, he's almost gone bankrupt so many times. And he still might. like and and he's the goat right now you like there's so many different ways that like you as a founder

will run into your walls of your competence so i think the number one skill that founders really need to be good at is one having the self-awareness to realize what they suck at and two having the ability to learn and like when you hit that wall such good answer pull yourself off of it put yourself back together and figure out how to get around it being self-aware is so underrated when you're in the cockpit and you're the one leading the team. If you're self-aware and you can know, I suck at this. I need help. I need to either add this skill or add a person with the skill. That makes you a great leader. That makes you more fundable. The person who in the meeting, when you say, hey, what's your go-to market trad and you say, you know what? We really need to work on that.

Right now, it's all word of mouth and organic. And it's going, well, we're going five to 10% a month, but it is spiky. I really need to find a great paid marketing person. I really need a great PR person to get us organic reach. And I need somebody who specialize in virality. And I'm actually interviewing for each of those three specific skills. I might find one person with all of them. I might find three people. But if you know anybody, I really need in which order would you do those in? Like when you have a founder talking to you like that, Zach, and they're that self-aware and they're like, I suck at growth. How do I become great at it? You're like, so investable. So investable. Because nobody has all the skills, right? Nobody has all the skills. I mean, there's some people who are

pretty close. I mean, I would say Elon and, I mean, if you look at the evolution of Elon, the fact that he's become a masterful marketer and communicator without a PR firm with spending $0 on advertising, and he basically takes up, you know, a disproportionate amount of market share in terms of ideas is pretty amazing. Okay, let's take another question. This one came to us from Jackson. What qualities made Travis, Kalinick, a great entrepreneur. And did some of those same qualities eventually lead to his exit? Did you invest in Uber based off product or strictly the founder?

How can founder assimilate Travis' best qualities without taking it too far? All right, listen, he's indefatigable, indefatigable, and he is resilient, and he's super pumped, and he's brilliant, and he's a great leader, and he's relentless, and he's driven. I mean, so many great qualities. He taught me in a great lesson around that. Like, when he first started Uber and he and I were at a party at the first round capital office, and he told me the idea. And I was like, dude, the taxi lobby is going to fuck you.

There's no way you can break through those guys. It's a brilliant idea, but there's this really insurmountable barrier between you and success. And he was like, I'm a fighter and I'm going to kill them. Correct. The thing that I didn't, the thing I didn't quite understand is as an investor, I wasn't investing at the time, but like I didn't understand it is that like sometimes the biggest opportunities are on the other side of what seems like insurmountable walls. And those entrepreneurs who can crash through those walls have a blue ocean on the other side to then grow to infinity. Sometimes a certain company needs a certain leader. And it could be different leaders at different times.

But sometimes you need to see jobs to say, stop making so many. goddamn average products or good products. And we need one product for professionals, one product for consumers. He drew a four quadrant. And he was like, we want to have the best product for consumers that's portable and the best one for their desk. And we need the same for enterprise. And he was like, okay, here's your Mac Tower.

Here's your IMac. Here's your MacBook Pro. Here's your MacBook Air. Done. And they were like, but we have 17 different skews. And he's like, great. Now we have four. Right.

And then there was the story of like, remember mobile me? What a disaster shit show that was. This is a great story where he comes into mobile me and he's like, he comes into the meeting and he's like, what is mobile me supposed to be? What is it supposed to do? It's like, well, it's supposed to back everything up. And when you get a new phone, it's supposed to automatically put things there.

And he's like, well, why the fuck doesn't it do that? And the guy's like, uh, uh, and he's like, you're fucking firing. Get out of the room. Who wants to run this? And people are like, uh, it's kind of like the joker when he breaks the stick in half. And he's like, we got room for one more person on the crew. It's like sometimes you need to just throw the gauntlet down and say, get your shits together, people, period.

And, you know, Travis was that wartime CEO. And the company could not be what it is without him. Period. End of story. You're in. Ask Marketplace idea. Can the take rate be very little to prove a consumer behavior to get seed funding or is that a red flag?

Take rate is what percentage you take from the transaction, obviously in the case of the app store, it's 30% in the case of, I think, Uber, eats, it's 15. Uber rates in the DoorDash is something in that 15% range. I think 10% if they bring their, it's free if they do their own driver, 15% if they provide the driver, 10%, something like that. What's the right take rate in your mind? I mean, I think it really depends. I'm not to pronounce it in China. The app, Juan, Juan, Mi'an, Mi'an 2, 2. I pronounce that? I don't even know. I obviously don't use it. But they basically went after. Alibaba with a super low take rate.

One duo, duo, no, Pinduodua. Pindu duo, yeah, Pinduodua. They went after Alibaba. Did it work? Yeah, they're massive now. It can see any huge. So that's interesting. And so it really depends on the market dynamic.

So like if you have a market dynamic where the customers are clamoring for your app and you have no competition, then, you know, a high take rate is powerful because you can use that to fund the operations, you know, if on the other hand, you're a. challenger brand and you are going after an incumbent that has a really high take rate, and you can prove that by having a lower take rate, you can grow faster than them. Sometimes that's a good strategy. Yeah. I think it really depends on the dynamic.

I think you're absolutely correct. You're going into a market, and it really depends on what the marketplace dynamics are. If you come into a market where, let's say, the app stores were taking 30%, and you came up with an app store that was 5%, my God, if you were a lot, to put that app store on phones, you would do great. Or a free one and you monetized it some other way. Same thing with, let's say, and then there's times where you just take too little to make it an interesting business. An example of that would be Patreon or other services or substack. They take 10% plus 3%. It's just, it's very hard to make that into a really big business. I think Kickstarter also had the same problem. So you have to be careful. You may need to have huge numbers in order to

make any kind of meaningful money. And if you look at YouTube, I think it's one of the canonical examples. They take 45%. They give 55%. This seemed incredibly unfair to me, but it's worked. It's worked. And there's no challenger who said, we're going to take 20%. So until somebody has the hootspah, that might be a good idea for somebody listening,

is creating a YouTube competitor that took 20% of the ad revenue and gave 80%, you might actually be able to skim some cream there. All right, this has been amazing. Everybody follow Zach on the Twitter, Z-A-C-H-H-C-O-E-L-I-U-S. Zach Olius, Zach Olius, Zach Olius, amazing, world-class, early-stage investor. He will give you time, he will give you money. He'll give it to you straight, super candid.

Thanks, brother, for doing this. I appreciate it. All right, and we'll see you all next time on this week. And Star, we've got to make this a regular. I ask Jason and Zach.