This Week in Startups - Ask an Angel with Zach Coelius: practical advice for founders and investors in a downturn | E1512

Episode Date: July 20, 2022

Molly had a big board meeting today, so we had our guy Zach Coelius join for another version of Ask an Angel (1:32). Zach and Jason share their thoughts on remote work (4:40), the downturn (22:10), and then they answer audience questions (41:22). It’s a solid episode for founders and investors! (0:00) Jason intro’s today’s Ask an Angel episode with Zach Coelius (1:32) Ask an Angel with Zach Coelius (4:40) Zach’s thoughts on remote work (13:19) Squarespace - Use offer code TWIST to save 10% off your first purchase of a website or domain at https://Squarespace.com/TWIST (14:37) Managing a company post-COVID (17:00) Who shines in the remote work era? (20:51) Notion - Get $250 off by using code TWIST at https://notion.so (22:10) The downturn: will people cancel or review their SaaS bills? (26:09) How many of Zach’s founders have prepped for the downturn? (30:50) Odoo - Get your first app free and a $1000 credit at https://odoo.com/twist (32:02) Don’t try to invest in pre-product market fit companies when you’re first starting out (unless you know the founder’s awesome) (41:22) Q&A: How do you think about competition in the same market in the early stages? (46:43) What are the top buzzwords you’re staying away from as investors right now? (59:00) Would you invest in SF? (1:04:00) How much dilution after seed rounds turns into a red flag? (1:06:14) Should the equity grant occur during financings or the board meeting? (1:09:15) What does Zach focus on in terms of diligence? (1:19:30) As a founder, when should you provide pro rata to angels and when not? (1:25:10) Have you ever advised a founder to leave the CEO role? (1:32:29) How long do you think the down market is going to be and what’s your strategy?

Okay, everybody, it's time for another Ask an Angel. Myself and Zach Collius are going to answer your questions, both on the investor side of the table and the founder's side of the table. Everything in between, we talk about prorata, we talk about the J-curve, we talk about founders getting fired, getting screwed by downstream investors. When Zach's on the program, it's fast-paced, and it's absolutely candid, insightful, important knowledge for founders and for investors. We keep it very real.

It's 100 here. Stick with us. This week in startups is brought to you by Squarespace. Turn your idea into a new website. Go to Squarespace.com slash Twist for a free trial. When you're ready to launch, use offer code Twist to save 10% off your first purchase of a website or domain. Notion. Notion is one place for notes, docs, projects, and everyday work that goes way beyond a wiki.

Go to Notion.S.O and use promo code Twist to get $250 off an annual team plan. And Odu. Odu is a fully customizable and fully integrated suite of business apps that lets you build and scale your stack as you build and scale your business. Your first app is free forever, and right now, Odu is offering $1,000 off your first implementation pack. at Odu.com slash twist. That's O-D-O-O-O-com slash twist. Welcome to another episode of Ask an Angel with Jake Hal and Zach Collius. Zach, welcome back to the program.

Always a pleasure, sir. Great to see you. Great to see you as well. How's your summer going? Oh, you know, I'm just living a douchebag, B-C. life. Good solid couple months in Europe, which was awesome. Oh, nice. Taking advantage of that remote work, life-south.

Let's start there. That's part of that job. Let's talk there, Zach. VCs and investors have always, always taken advantage of the remote lifestyle, calling into board meetings, you know, taking six weeks in the summer to go to Italy, taking six weeks to go skiing. But now everybody's doing that to this day. So what are you seeing on the remote work front in terms of startups, early stage, and even the more robust ones in your portfolio, and how they're dealing with either

hybrid, going back to work, or staying remote. What are you seeing anecdotally? Across my portfolio, it's almost entirely fully remote with this like, let's get together on a regular cadence as a group and let's have little pods that get together if and when it makes sense. But in general, remote. And it's really like what I talk to them about a lot is I'm like, look, you know, when in the early days of the manufacturing sort of era, it was figuring out how to make basically like thousands of people work together at scale that enable, you know, those companies like forward to win. And in this world, it's how do you figure out how to make somebody who's currently in Italy hanging out productive and make sure that they're not slacking off? How do you

manage your people at scale? How do you manage morale? How do you manage information flows? How do you, how do you do that correctly? And there's like a bunch of really cool companies out there. GitLab does some really interesting stuff about how to operate a remote. And they've been doing that for years that have really kind of perfected the best in class around this. And I think every company in the world now has to figure out how to do that or where they're going to lose. Yeah. It turns out information workers, the best ones, they're essentially, I don't want to say

spoiled, but they've adapted to remote work. For some of them, it's a non-starter. They would leave a job if they were forced to come back. As we saw it with Apple forced some people to come back. Some people said, yeah, not for me. I'm going to go find another gig. So if you want to keep your people, knowledge workers, I think you're going to going to have to meet them where they are. Now, let's unpack one thing. How do you make sure people

are actually productive? Because, you know, it's one thing to have 10 employees and team members. You can just talk to each one every day. You can see them in Slack. But how does that scale? And what are the challenges people are finding in terms of people slacking off? Because we all know anecdotally, we talk to our friends. And there's always one friend at your circle who's like, yeah, I'm putting in two hours a day, three hours a day. Everybody can kind of laughs about it. And who knows? Maybe they're like the most effective sales executive in the world and they can book two sales

in three hours a day and go skiing or, you know, mount a bike, whatever their bag is. And maybe other sales people work eight hours a day to close two cells. So as managers, do we actually have to care that that person is not doing four when maybe they could? How do you think about that? Or how are your founders thinking about that as well? I mean, I've always thought that there's just such a performative aspect to going into the office that never made any sense.

Yeah. Like, it's like everyone has to be together and everybody has to be able to see everyone else theoretically working. And like, you know, it was just dumb. And, you know, it was great for lazy management. But at the end of the day, like, management has always been the same, which is like you need to track the performance of your employees against their objectives. You need to engage with them and help them when they're not doing as well. And you need to reward them when they're doing great. And that doesn't really change.

whether it's remote or in person. It was lazy and easy to look over and say, oh, they're at their desk. That means they're doing their job. Whereas now you can't do that. But like when they were at their desk, we know they weren't doing their job on a regular basis. And so like a good manager would be able to ensure they were getting their job done. And, you know, crappy manager would be lazy to. So I think this just is going to reward great management.

And it's going to punish those who were just kind of like clocking it in, letting their employees just sit at their desks. So I think it's good because startups are all about that, right? It's all about great management. And this is really challenging for some managers. I agree. Even myself, I've had to look in the mirror deeply and say, am I giving clear enough instructions to people what success looks like?

And am I myself, I'm managing myself, my to-do list, etc. So I think all managers have to reflect and all founders have to reflect and say, okay, how do we manage our people? Because you're right. The easy hack was, okay, it's 930, it's 10. how many people are here? Okay, it's 6.7 p.m. How many people are still here?

I did a good job. When in fact, there are other ways to look at good jobs, which is setting, you know, what are the key results we need to see here in this business, right? What are the, what's our cadence for our product? What are our product releases happening? And then what I've started doing is everybody sharing their calendar. I share my calendar with my management team.

They know, like, they're calling me if I'm not on a call. You know, they know my calendar as the founder CEO. Now, if people, if everybody shares their calendar, then we can actually see what people are doing. And I think time blocking is becoming the thing I've added to all my companies. And if you're not time blocking as an individual, you're probably not optimizing yourself. And so put on your calendar like, hey, this hour is when I'm going to clear out my inbox. This hour is when I'm going to do my calls with my direct reports, whatever it is.

And then all of a sudden, and I'm not saying fill up your calendar, Zach, for the sake of theater or performance, right? We're back to performative. So you don't want a performative calendar. You want an effective calendar. Something that is saying, you know what? These are the important things. What are the one, two, three important things I need to get done today? And then reflecting that to the rest of the team and making sure your calendar is in sync with the goals.

And you're always going to have a little bit of leakage. You can have some people who abuse the system and you're going to have some people who do a great job. But really, I mean, what does this mean in terms of the operation? of startups and the scaling of them, I guess, is my next question for you. Because there are some people who believe you're going to build a better product when five or six people are in a room together. What do you think of that counter argument? You know, five or six people in a room, if you have a direct competitor,

Sleutman from, you know, Snowflake, who's got, you know, a boiler room going and five or six product people in a room, grinding it out. What if you're up against a maniac like that? Does this still apply? I think you always have to start with first principles in this, which is, you always have to start with first principles in this, which is the first step is recruitment. If you can't recruit great people, like anyone who says, hey, inferior people in a room are going to be great people remote.

I'm going to laugh at them. Like, great people are always the most important thing you can do. And so you go out and you find the best people you can find. And if you can put all those people in a room because they're all nearby each other or they want to be in a room together because they all believe that that's the right way to work together, great. I do believe that's more powerful. if they're all centered in a similar location, they don't have long commutes, they don't have

family lives that require them to basically like, you know, work remote because they have to take care of other issues. Great. But I don't think that's true anymore. I think that people who argue that, oh, we can get the best people in the world to all work in the same city is, I think it's just, I think it's, I think it's a hypnosis that of, of, of, delusion. Like, and it's great.

I love that they want to go argue that on Twitter because people, people, people, especially people who are sort of retrograde conservatives love to be like, oh, yeah, we're going to stay the way it always was. They always do that reflexively. Yeah. So, like, it's normal for them to do it in this case as well. But, like, if I was going to build the best X company in the world, 99% of time, the best people are scattered all over the world. And I want those people rather than like trying to fit it. Yeah, this is like a great point as well.

If you're trying to fill a sales position, waiting for somebody who lives in Austin or Miami or, you know, San Jose to show up, could, or to move. Now you're talking about three, six, nine months. Hiring the next best available person globally, now you're looking at four to eight weeks. And so if speed is the driver of, you know, performance for companies,

well, you know, especially for startups, that speed could be all the difference in the world. You know, if you can get three sales executives online, you know, in the next 60 days versus somebody else is going to take a year, I think we know who's going to win that battle. Here is a chart.

I'm not sure who Castle is, but they're tracking, you know, office occupancy. And it's just showing, you know, if we look at the 100% pre-pendemic, you know, it's slowly coming back and we'll hit 50%. But it'll be a permanent-access company. They like, they have the technology that facilitates like keying in the doors.

Got it. So they have like the real data at scale. Got it. Makes total sense. I think directionally it makes sense and you know there are going to be exceptions here if you're building you know rocket ships or cars or you work on the iPad team

and you're doing physical design yeah of course you've got to be in the same room if you're managing the server farms and you have to rack and stack stuff like yeah of course you've got to be in the data center some amount of time or somebody does but this is also great for this really does advantage startups

the early stage ones because they've now eliminated something from their to-do list, which was find an office space, get coffee, get somebody to clean the office space, get insurance for the office space, deal with parking, deal with people, you know, having an office manager, all those costs were, you know, for an early stage yard. Even if they went the WeWork route, you know,

they were spending just $6K a month or something. You're still talking about $100,000. So you can swap that out and get a developer, right? You can get another sales executive. I have a company that's like crushing it right now. They're called Uplex, and they've aggregated all, the co-working spaces in the world. We work plus 5,000 other ones and literally like on demand, you get access on a daily basis to any coworking space of whatever city you're in. And so enterprises

will license that for their employees. And so they're like, oh, we've got 10 people in Milwaukee who all work from home, but they want to get together this week and go into a space for the week and then, you know, push button. And it's all done, manage all the security and all the compliance. Wow. It happens. And it's called Up flex. You can do it as an individual. You can get access for yourself or like, I travel a lot so it's great. I can push a button to get like world-class coworking space in any city of the world almost. Is it subscription or it's just on demand? Like it's like hotel tonight.

So you can do on demand, but mostly they really are, they're really crushing it selling into these bigger enterprises because what the enterprises want is they're like, okay, I want to put 10 people in a room, but I can't have them from security perspective going and working in a random Starbucks and I want to have visibility into that utilization. And what's cool is that they're now getting all this really powerful data because they're seeing where people are coming together and how they're interacting and like all over the world. And it's like, it's so fun to watch that because it really, you're seeing this change in working behaviors, which is still very young. Like even in the last

call it six to nine months, you've seen really interesting developments in the way people are coming together as groups and utilizing space together. And I think we're at the very early meanings of this. Like, I, I, the work, the remote work trend is one of the biggest, most powerful, most interesting trends we will probably see in our lifetime. It's like, it's just so cool. Listen, Squarespace is the platform where you can build or sell anything. You all know it. I've talked about it forever here on the show. We love it at launch. We use it for all of our websites, including Remote Demo Day.com. You can see how gorgeous those websites are. But here are some Squarespace features that I know founders who listen to this week and startups are

going to love. E-commerce, right? Obviously, Squarespace, was known as building these beautiful templates that worked really well on mobile or iPads and, you know, being super affordable. But they have added some great e-commerce features in the past couple of years, including inventory management APIs, advanced analytics, SEO. And they now have member areas. This is so you can sell digital goods, right? You have some masterclass you want to do on angel investing. I could put that up on Squarespace and sell it there. And if you build it yourself on Squarespace, you don't have to give 15 or $1.5.00. 30% to other platforms. Think about that. Just move it over to Squarespace.

That's what you should do. Go to Squarespace.com slash Twist to start a free trial. Use the offer code Twist to WIST and you'll save 10% off your first purchase of a website or domain. And go ahead. You're listening to the pod. Say thank you at Squarespace for sponsoring this week in startups. It really does help when you tell the partners how much you love them and go use that code so they know we sent you. Yeah, it does seem that the management teams, now that,

people, I think I don't want to trigger anybody here, but people basically are not talking about COVID. 90 plus percent of people are not scared of COVID anymore, have opted to not wear masks. So if you're part of the 5 percent, you know, tell Lorenz, I'm sorry, you know, other people who, you know, there's a number of people on social media who want to keep this a lot. But it's, it's over for everybody else. Like, look, I think people who have autoimmune disorders and who are, who have, who have. have significant, like significant chronic disease. Like, I think they have a legitimate reason to be really unhappy about what's happening. It just unfortunately, they represent a small percentage of the population and their claim is

not strong enough to get us all to change our behaviors. It's just not going to work. Like, good luck to them, but it's not going to work. I think that's the pragmatic fair way to explain this, which is really sorry if you have this, you know, it's terrible. Yeah, it's terrible. But there are other people who've had this all along who can't get a cold in the winter. and therefore they don't go on the subway in the winter

or any other place they could catch a cold, right? They have to be vigilant. And I think we normalize masks, actually. So if I see somebody in a mask, I don't like feel bad for them or something. Yeah. If you want to wear a mask on a plane going forward because you don't want to get sick

because you got your kids theater rehearsal this weekend. Sure, why not? I mean, I might actually consider wearing masks on like long, you know, haul trips or something like that just for, you know, an extra layer of protection of getting sick or something. I'm surprised that we haven't seen really good, positive airflow masks, like becoming more normalized.

Like, when I used to do, I used to remodel old houses when I was a kid. And so we would have these like for like working with asbestos or working with really nasty stuff. We'd have these masks. It would literally like blow filtered air that would go through this really high, high powered hepa filter, blow filtered air in. And then it was really like you never really had to worry about like what you were breathing because it was always going to that giant filter.

I'm surprised we don't, we don't see that more normalized. Kind of like, was it Bain in the Spider-Man movies? who were in that, yeah. Oh, yes, the bot man. Yeah, yeah. The suffering in your portfolio will be legendary. I love Bain. He's like one of my favorite guys.

I would love to go for sushi with Bain or something. Oh, the Omocasa. That would be fun. That would be done. It would be great. So other aspects of this that are working even, that work particularly well seem to be professional development. using that as a reason to get together.

I have started doing this of my team. So in June, we got together, or May, we got together. We did professional development for our investment team. I'm going to do it for Inside Next. Just getting some people together and saying, hey, let's spend a half day talking about why we do what we do, the best practices. But writing stuff down and the tools are the next piece. So I think that's one of the things I'm realizing is the people who shine in remote work are the ones who can maintain and write best practices and share them with the rest of the team and train the rest of the team.

This, to me, is a person who was underappreciated in, you know, office culture, but now is becoming a critical piece. If you can write in your CODA, your notion, whatever your jam is in terms of your internal wiki, if you can write the training document, the best practices document, this is how we do what we do, here's the FAQ, all that good stuff. When you write that stuff down and you move. to this right first culture, then when new people join and they're wondering,

like, how do we do this? You just send them the link and they read it. And you say, hey, post a comment if you got a question. And here's the history of the page. What else you're seeing in terms of people who might have been, people or practices that might have been underappreciated in the real world, you know, in person that now remote is rewarding?

One of the companies that I work with is called Twine, and they just launched on Zoom, And what they do is they facilitate really fast networking sessions across a team. So you can take 100 people, load them in just twine. And they basically enable really quick breakout rooms, high quality breakout rooms between individuals and a bunch of metrics. And the best sort of networkers in the old days were the people that got together and got coffee together and they were constantly reaching out to people in their office

and also other office to figure out how to get together with them on a regular basis. Kind of like the VC job. And now I think with tools like twine, I think you can have these sort of like ways to kind of constantly get people to remember that they have these coworkers and give them a little bit of time together and give them the ability to engage with each other. And I think that's going to be the sort of like the best networkers of the next generation are going to be the people who figure out how to do that really well. So basically, I'm looking at the website here for twine. com. If you want to go check it out yourself, it's basically like trying to recreate the water cooler moments.

So they, and I've seen. seen like a bunch of like little integrations and you know, apps in the Slack directory for this, but they're using Slack as well for this, which is, hey, we're going to figure out how to randomly put people together. Hey, what's your favorite ice cream or tell me about, you know, your hobbies kind of thing.

And that builds fabric. And hopefully that fabric then when you're working together as a team will keep you more in sync. This is why VCs, we do all this kumbaya nonsense. and like if you wanted to like work at a VC firm. I remember like, I don't know, you know, Tony Conrad or these, you know, the, was it Tony, you know, like the true ventures guys would go on these like long walks with their founders and stuff like that.

You know, everybody's got to go for a walk, they've got to go for a hike, whatever it is. And it's just like, okay, a little too much kumbaya for me, but it is nice to know. People got kids, what they do. and this kind of stuff seems yeah really well designed and for five bucks a user per month 60 bucks a year if you have 10 employees and you spent 600 bucks on this

who cares like I mean that's what you would spend on one dinner so one of the things I love about SaaS software if you're in a remote startup you need to sign up for Notion we use it every day we love it we run the whole company off of it we have some amazing internal tools we built a database inside of notion of all the startups that we interact with It's basically our deal flow CRM. Notion is not just like a wiki.

It has all of these database functions that I wasn't even aware of. And my team keeps surprising me with better and better features. One of them is you can just mention somebody or you can remind yourself and set a reminder in the document. So if I'm writing notes on a startup that I met with, I can say, hey, tell me to reach out to the startup again on this date in six months, whatever. Hundreds of thousands of teams worldwide are already using Notion. and more and more often I'm seeing people use Notion to share their company updates. It's really just changed everything for our company and we'll change everything for your company. Notion.S.O.

And use the promo code twist to get $250 off their annual plan. $250. That could be a couple of months free if you're growing your startup. And if you want to send me your pitch in a Notion document, just add Jason at calicanus.com to it. And I will go read your pitch. And who knows? Maybe I'll call it out here on the pod. But that's a great way to get investors.

is to just share a Notion page with them with your deal memo. All right, everybody, let's get back to the show and thanks to Notion. You guys and gals over there, everybody at Notion's doing a great job. Let me ask a question about the downturn. Yeah, yeah. We've got a downturn right now. Rippin. Yeah.

Many different angles we could take here. The first one I want to take with you is, do you think we're going to see people canceling and reviewing their SaaS bills and saying, okay, I'm subscribed to 12 pieces of SaaS software? or maybe I cut these four and I make it work with these eight. Yeah. Maybe I work with the bundle.

I go to the Microsoft bundle where I don't have to pay for Slack. I get teams built in. Maybe, you know, I use Notion or Coda and I get rid of Google Docs or whatever I'm paying for. Google Docs is pretty cheap.

But, you know, people are going to start looking at, you know, there's OKR software. You can do your OKRs in Notion or Coda or you could just use, I have one very large company and they were going to use one of the OKR softwares, and they're like, it's really expensive for the number of employees we have.

I'm using a Google sheet. I'm like, is that sustainable? They're like, feels like it. So I was like, okay, whatever you want to do. What are your thoughts on the SAT software? Will we see some retreat in SaaS spending? Yeah, absolutely. So I have a portfolio company called Vendor, uh, which helps manage SaaS subscriptions.

And, um, yeah, the data is pretty clear on this one. People are very quickly like, well, like at the end of the day, like, I think people were spending like drunken sailors for the last five years because raising more money was so trivial. And one of the places that money got spent was in software. And you had it across the war, you'd have people signing up for all sorts of different random software that they weren't tracking and they weren't managing and didn't. It wasn't really organized. And, you know, the old IT guardians of this spend kind of were put to the wayside, which is good because they were kind of in the way for a long time. But now I think there's a

re-rationalization of that. Like, let's go back. Let's look at, let's look at where we are. Let's look at what's happening. And let's manage this spend up. the door. V-E-N-D-R.com. Is that the vendor? V-N-D-R. So basically, looking at how they do it, if you've got under a million dollars in Sass spend,

they charge you $36,000, which we almost 4%. If you have 1 to 5 million, they charge you 80, and if you have 5 million plus, they charge 120. But they're looking at everything you're spending, and then they're going to give you advice to manage that.

They'll save you that on day one. Like, literally, like, it doesn't matter. I don't, I imagine, I wonder, they should have this case study. But I imagine there's probably never been a customer who doesn't save more than they spend with vendor. Because one thing that's really cool is they can give you best in class pricing. So they can go in to all of your vendors and say, oh, guess what?

We know that you charge this to all these other customers that look just like this company. Guess what? You have to pay them that now too. And so best in class pricing in and of itself really brings the leverage away from basically the vendor and brings it back to the customers. They get to aggregate. and I think that's just so powerful. All right. There's a bunch of different ways that to manage that.

So let's take the next angle. And for the people who are in the YouTube room, YouTube.com, such this weekend, we're going to take your questions next. So get a couple of good questions for Zach and I. Hard ones. Hard ones. Yeah.

And just give us a thumbs up. We got 150 people of you, 150 of you watching 31 thumbs up. Yesterday we gave away two of the This Week in Startups, heated ember mugs. If we get to 100 thumbs up, we'll send you one. And we'll send you one to you, Zach, too, so you can keep your coffee warm.

It really is a cool product. It looks really sharp with the logo. Are you a investor? I'm not, but it's like my favorite, it's my favorite gadget of the last year, these ember mugs. You must really love it because you're, to hawk something that you don't have a little bit of the taste of it. I know.

People are surprised, exactly, exactly. The good news is we have swag.com as a sponsor and they make them. So swag.com slash trust and you can go make your own for your company. But, yeah, we'll figure out a way to get paid. At some point, Amber will, we'll, we'll sponsor. They should become a sponsor. I mean, listen, we sell out the show every year, so I'm not too worried about it. I think it'll be fun.

An extra special sponsor. You know, phone pays you even more. Yeah. Let's get these questions going from the audience. I want to ask you another question about the down market now that we're warmed up. Okay. We've been talking about, hey, take the medicine for six months. We've been advising, folks, you've got to have more runway.

Deals are going to occur at a lower valuation. And so first, our founders, if you had 10, 10 founders, how many of your 10 founders have actually taken the medicine and reduced costs and been thoughtful about runway? Out of 10, on average, how many have done a great job of accepting the reality and making the changes they need to make? And then how many, you know, fall into the other bucket of not making enough change and maybe sticking their head in the sand?

The only companies that are sticking their heads in the sand are the ones that raise giant rounds right at the end of, they can afford to. They've gotten more runway. and they're, you know, I think there was a bit of a head fake during COVID. Like when COVID hit, you know, a lot of us, me especially was like, hey, guys, get ready. This could be really bad. Be prepared. And by the way, this is a great time to lay off your underperformers and to like, you know,

really bring things back in line because like raising money could get very difficult for the next couple of years. Yeah. And then obviously the Fed was like, you'llink. Here's more money. Go for it. Here's a ton of stimulus. And everybody's going to be more effective because you can't go out.

Yeah, it was a huge head fake productivity and sales. went up. Yeah. And so some of my companies did lay off during that period and they were fast and they were aggressive and they regretted it. Wow. And so yeah, of course, right? Like, you know, I think in retrospect, um, uh, it could have kept those people on. Yeah. Because the growth was there. But now this could be the opposite situation. There's no question because there's, who's going to save us here? Like at the end of the day, when you print trillions of dollars and you hand them out for free out of helicopters, I mean, PPP loans and like all that. Like it will boost the economy.

That's how that works. But that is not going to happen here. And at the end of the day, like in a best case scenario, inflation comes back aggressively, which I doubt. And things kind of normalize again, but we aren't back to the boom times that we were in when money was given away for free. And so I think all these companies were operating under a free money environment,

and that's gone. And you just have to, they're going to have to change. and got it. So the majority, seven, eight out of ten, I would say, have taken the advice and taken the medicine, then maybe people who can afford not to haven't. If you had to put a number on it. The majority of the companies are raising flat rounds to make sure they extend their runway. They're lowering their costs and they're preparing for a multi-year slowdown in venture. Have you seen an uptick in people saying we're going to go into an M&A process? We're going to start the wind down process.

have not. My companies are not at that stage on average. We don't, we don't really have any that are really in trouble at this point. They're, you know, they're, they're all well positioned to raise more capital. But. And that's because why? Why is that unique to your portfolio? In your selection of them? I don't know if it's my portfolio. I, you know, I'm a relatively conservative investor in that like, I, I don't swing for the crazy, like, let's bet it all on black and hope we get there. I'm, I'm much more on like, you know, I get involved when there's real revenue, real runway, real products, so real business. And so you can dial your growth or your survivability relatively easily in that sort of environment. Like we, my portfolio generates

almost 700 million in annual revenue now. So there's like real meat on that, those bones. And so like, it's relatively easy for my companies to say, okay, let's dial it back. So as an angel investor, as an early stage investor, yeah, if you invest in companies that have products in market with some revenue, they are much closer to default alive, as Paul Graham would say. And if you are super risk-taking or you're running an accelerator where they're pre-product market, pre-product launch, pre-customers, pre-revenue, okay, you're going to have a lot more of these slowdowns. For instance, like one example that we saw a lot of over the last couple years is you had negative gross margin companies. So companies that were like, you know, the 15-minute delivery

companies, they would literally bring a product to your door and it would cost them more money they would And the argument that a lot of people were making was, oh, at scale, this gets solved, at which point they've become very profitable companies. But until then, we're going to lose a lot of money. And I always looked at that and I was like, there's so many more ways to invest in companies that are making money on day one. And they make money on each product. They sell, why would I go play in that world where at the point that the macro turns,

I'm dead. Now, some people made a lot of money doing that. Not my gem. Before we get to the ad, it makes our team so happy to see our partners celebrate big wins and I'm thrilled to hear about this huge funding round for our amazing partner, Odu. Really great stuff from Julian and the team there, especially in this crazier venture market. So congratulations.

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So go to Odo.com slash twist for $1,000 off. That's ODO.O.com slash twist. It's a risky bet to make because, like greater foolvary in crypto or other places or Pokemon cards, it has to be somebody who values this asset that doesn't generate revenue. Yeah. Or profits more than you. And this is why all the companies, whether there's DoorDash, Uber, Lyft, etc., have said Airbnb, okay, you know, we're going to move to the profitability phase here.

And, you know, a lot of those folks, Joker, Getter, GoPuff, great services, really interesting. It turns out, like, if your bet was, you know what, it's, we lose money when we do one, when the, when the person takes one bag of groceries out to delivery, we break even when they have two per ride. And when they do the third, you know, they can carry three bags when they take their e-bike out to delivery. Then we make money. It's like, well, how often is that third scenario going to happen? Yeah. And that's the efficiency that some people diluted themselves in. too. And then when you're talking about SaaS software or some of the companies in your portfolio,

you mentioned, they make money on the first transaction, right? They make money easily on the first transaction. Now, does that mean Uber or Lyft should get rid of Uber pool or Lyft line as a way to, you know, increase the number of drivers on the road and break even on that? Probably not. Like, I think those things could exist to just keep the network effects going and you could make money on X and, you know, food and on black, but on black cars, but you really got to think this through and be thoughtful about it, I think. And so it's very important for Angels to understand Zach's betting strategy. It's one I do with the syndicate.com. I don't like syndicating companies that are, that do not have products in market and do not have revenue because I kind of train young

angels, you know, don't try to invest in pre-product market fit companies or pre-launch companies when you're starting out because it's going to be hard for you to identify. What signal do you use? how charismatic the founder is. It's pretty hard to guess. Unless you've worked with the founder before and they have a track record. Now that you can make a bet on. That's easy.

But that's easy. But the most of them don't. So, you know, unless you have a vehicle like an accelerator like I have or founder university now, why are you making that bet? Because you need to make that bet at what? Like $2 million valuation, $3 million valuation? You can't make those pre-product market bets at $10 million, can you? Well, you can.

I mean, you know, when I'm a mod, when I bet a mod and Mercury, that was, you know, literally a mod's like, I'm going to start a bank. And I was like, God, I don't know anything about banks. Like, but you're a mod. I love you. You're a machine. So you based it on a founder knowledge. Oh, yeah.

Yeah. That was, so I've seen. exception. That's a caveat. Yeah. Yeah. If I've known a founder for a long time, I will bet on them purely based on who they are. But I have to have seen them at work.

Like M Particle, you know, the, you know, the, the, the, uh, my cats runs M particle. One of the best entrepreneurs I've ever worked with. He's the kind of guy where he starts a company. I'm like, here you go, here's free money. Or Jack Chow started Pace. And he was like, literally, this is a good example. So we were on a clubhouse room back when Clubhouse was a thing. A thing.

And it was me and Jack Chow and a bunch of young entrepreneurs listening to us talk about raising money. And I was like, hey, if Jack Chow ever raises money, I will give him money in a heartbeat. Because he was, you know, the head of product that are firm and Pinterest and like, he's just OG OG. And he literally calls me the next day. He's like, hey, are you serious about that? I was like, yes, I'm in for a million bucks. I don't care what you do.

Done. Here's the money. But I was like, guess what? I never going to call me back in the day and be like, uh, so then, of course, like a day later he calls me back. He's like, well, Max Lutcheon wants his piece and Brianne wants her piece and Tish wants his piece. And I'm like, I knew that was going to happen.

And then I then literally like a month later, he calls up. He's like, well, we're doing another round. Sequoia is going to lead, but there's no room for anybody else. I'm like, oh, like, so painful. I wish the best unfurals would just let me take all the money and not let anyone else in, but that's just unfortunately that how it works. You know, this is one of the hard things

about the business we're in is, you know, some of the elite founders can dictate terms. Yeah. And they have existing relationships. So the chances of Ev Williams, you know, you getting in on the next Ev Williams or, you know, Jack, Dorsey, startup, or zero.

Yeah. Because they're going to put their own money in first. Then when they raise a series A at 100, they're going to go to a small list of trusted folks who they want on their board and they probably don't want to announce the round they probably don't want to circulate it so it's hard right and so you got to

take a decade to get on those lists let's take some I will say in my portfolio I've had about a half dozen companies and we're talking about over 300 companies now who were let's say from the accelerator zone didn't clear market or cleared market

with modest you know raises in a seed round never got product market fit, but they were able to exist on the bridge round every six to nine months. And I think the perpetual bridge.

Yeah. You know, hey, we're literally going to put a section of the bridge out every six, nine months for you. That's gone. Unless you've got some, you know, benefactor who really has an affinity for you, I would assume that the never-ending bridges

are gone. You get one bridge maybe from your existing investors and it's going to be modest. So plan accordingly founders. Yeah, yeah. I'm seeing that right now. We have a number of companies who are raising what we're going to be very healthy bridges, like tons of runway. Like, like great.

And the demand from existing investors and new investors is like 60, 70, 80 percent down. So like they'll, you know, they'll raise enough money to stay alive, but they're going to have to like basically. They can't be back in the go go. Let's throw money at random stuff days. They're going to have to like, they're going to have to like, they're going to. going to have to cut costs and they're going to have to be more careful about how they grow because free money is gone. The free money is gone.

And I think people's betting strategy has changed. So you and I like to play the cards once in a while. I probably want to start another poker game. Like we should, maybe you and I should just start one because I have my loft. I got the poker table. I got the dealer or so in the city. We should have a little, maybe are you playing PLO now or no? Oh, sure.

Yeah. Maybe we got like a little low stakes PLO game for the fun of it just to break people's brains a little bit. Easy, easy, easy, easy, easy. So one of the things I noticed was one of the betting strategies, we were all watching Sequoia or Founders Fund plow money into their winners. So people said, oh, yeah, you own 5%. Try to get to 10. You own 10, get to 15.

Maybe you can get to 20 or 25. You can do some crazy old school venture bet, you know, like Tom Perkins did in the old days, you know, or, you know, whatever Sequoia partner did in the 80s to get to, you know, 30% ownership in a company, right? they used to get to 40% ownership in a company sometimes. That betting strategy has now been removed from the market based on what you're saying. The idea that you can go to your existing investment, like, oh, you know, you don't need to go to market.

Let's do an internal round. You know, the WhatsApp strategy that works so well for Sequoia, Don Valentine's strategy with Cisco and, you know, Atari and other places where they just build huge positions. I think that's off the table now. I don't know. I don't know. I was overused. Like we're, I mean, I mean, I'm actively doing. that now. So for my...

Under what circumstance do you do it? When the company's clearly winning, when they're well established, and I just want to own more and more and more of that. What would that look like in terms of revenue growth year over year or performance? It depends on the stage. A SaaS company, a consumer company,

a marketplace company. What would it look like in that series A? Early stage, you know, three plus X growth gets everybody super excited. You know, if you're growing over three X a year, people are going to get really fired up. But for me, mostly, it has less to do with growth rates in the later stages and more to do with market position relative to competitors. So, for instance, like one of one of my companies is very well established in sort

of the sort of SMB smaller space. And they've got 1.6 million developers use their product. And they're just like, they own that. Their docs are the best and their tools are the best and the pricing is the best. And like, if you're a small developer, you use this product. It's like game over. And there's a big company that owns the enterprise class. And that for me is a no-brainer. Like, I love that business and I want to own as much of that as I can get. Um, you know, but it really comes down to, you know, to trying to figure out who your winners are and being thoughtful. Whereas you're right, a couple years ago, every company was a winner because it would all get marked up and made us look also brilliant. Because everything got got marked up.

Well, if the valuation goes up, people were taking that as a proxy that the business was doing well. And now we find out that some people just had very large chip stocks. They needed to put money to work. And maybe they weren't being as thoughtful as you and I are. We're saying, hey, it's this 3x. We know everybody's coming to the table. My new move is, okay, I know everybody comes to the table for the 3X. Show me the 2x that's, you know, got the inconsistent performance, but still trending in the right direction,

but needs a little more gunpowder to kind of win the war. so they're a little underutilized. They're missing some key people, but I kind of like the, we're trending towards figuring it out, but we have a lot to figure out. That's when I like to come in and slide in my extra million.

Yeah, yeah, yeah. Because then you're, you're taking a little more risk, but not too crazy. You got a lot of outs. Yeah, yeah, yeah. I'm comfortable with that scenario. Let's talk about first-time fund managers in a moment.

I want to take a question from the audience first, Nick. So let's pull up our first question. Morty asks, How do you think about competition, big incumbents and other startups competing in the same market or solving the same problem at the early stages of a company? Okay, great question. We do get this one a lot. How do you, Zach, counsel, startups that are going into a competitive market? And can you think of one off the top of your head?

So I generally don't like competitive markets. Like, because when I think about it, like, I look back at sort of the competitive markets that like an ad tech when I was, or you really have to as an investor. You have to be one of the smartest people in the room. It's like when you go to the YST demo day and you look across the room and there's a thousand investors and you watch a pitch and you're like, am I the smartest person in the room about this? So it's an autonomous car?

No. Is it a new SaaS software for building whatever? No. And when I'm the smartest person in the room about that, so it's an ad tech company. And some idiot from Abu Dhabi marks it up 10X. I'm like, good luck with that. Some dentist is like, you get five, I mean, that was when I knew, like, the YC demo day was, they really stacked that audience because I was like, what do you do? It's like, uh, I might, and somebody was really young.

They're like, yeah, my dad's a dentist and I'm going to be an angel investor and I read your book. I was like, oh, that's awesome. So your dad's giving you money to invest. He's like, yeah. And I was like, great, awesome. And I'm like, well, I mean, you know, yeah, it's going to be hard for the first 10 investments and maybe they figure it out over time. So competition, if you're going into a space that's already been one and you're trying to win. and you're trying to win and compete against Google search,

if you're trying to compete against Google's ad network, YouTube's ad network, Facebook's ad network, it's going to be a, you're going to need to have a significantly better product. And then one has to ask, with 10,000 engineers working on whatever product it is at that company, is there a chance that you're,

you magically figured out something on the roadmap. It is possible. Google did beat 11 previous search engines. It's just not probable. Is that, I think, what we're talking about here? I think it all comes down to different.

So if you were to take the 11 search engines that Google was competing against, they are search engines, yes. But like at the core, search is a delivery of a product. And the question is, is how did they go about delivering that product? And what did they use to deliver that? So they all kind of played in a relatively similar sort of technology vector. And Google was saying, we're going to do something totally different that will result in a better outcome if we can get it to scale. And it was very early on, like when you looked at Google's technology, it was slow and janky, but it worked better. And so I think multiple times better, two or three times better.

Way better. Yeah, way better. So I think that that argument actually works if you're going to go into a competitive space. It's like we are doing something fundamentally different at some part of the stack that leads to a 10x better outcome for the actual end customer. Then, like, we maybe can have a conversation about why that might work. But like, if you're like, oh, well, we're just smarter than them, or we work harder than them or we're like, anything that sounds any bit incremental,

I'm just like, yeah, I'm not smart enough to make that. Incrementalism is not going to change consumer behavior or business behavior. People are creatures of habit. If you love your BMW, you're just going to keep buying BMWs. Yeah. Now, if a Tesla comes along and BMW doesn't have self-driving and it, you know, autopilot, it doesn't have a battery and you feel the absolute, you know, delight of driving a Tesla.

Yeah, you might change. But you're not changing for an Audi. The BMW person's not going to an Audi. The Audi's not going to a BMW because they're incrementally better. So that is the issue, I think, Morty. It's a great question. And, you know, there are vectors that you can go out things.

You know, the Slack was not the first group chat app. Plenty of other, you know, hip chat existed. IRC existed. People were using all kinds of solutions for that. I think Slack just made one that had a great user interface was much simpler and had great APIs. So if you look at why they won, it's probably those reasons. If you look at notion and Kota, wiki software existed. But if you compare Koda and notion to what, and actually

Google had like some sort of wiki thing. What was it called? Sites or projects or something. They had some wiki style knowledge base. And there were tons of knowledge based companies, in fact. Just notion and Koda made it so beautiful that people adopted them. So I think user interface can be the thing that makes you win sometimes simplifying a product. It's pretty incredible, but yeah, great question. And the other thing is, whatever the attack vector is, it could be verticals. You know, somebody creates something for a specific group of people that want something different, that could work as well. Yeah, we saw that with Hello Sign where they were broadly useful for digital signatures, and DocuSign was like focused on the enterprise and really focused on all the enterprise needs.

But there was a number of really good startups to said, okay, let's go focus in on real estate. and let's go focus in on a very particular use case and build all the technology around what those people need in that vertical. And they did astonishingly well. And so it's really differentiation is everything. Like if you can't, if you can't really cleanly argue why you're really, really different in some vector,

you're not going to make it. Young and bankrupt asks, what are the top, Young and Bankrupt? Okay. What are the top buzzwords you're staying away from as investors right now? So I'll expand it from buzzwords. I guess themes,

verticals, business models. All buzzwords. If you bring buzzwords to me, I run. I hate buzzwords. They're just so lazy. It is lazy when people can't explain stuff in basic English.

But let's go to verticals. For me, it's D2C, direct to consumer. I love direct to consumer products. And I guess an offshoot of that would be consumer electronics. I love gadgets. I talk about gadgets.

it's all the time here on this being startups. I talk about direct consumer all the time. I love a lot of direct consumer. But if you were to look at those two categories, direct to consumer, and you look at gadgets, consumer electronics, both of those are a race to the bottom,

both of those are low margin, both of those cost a ton of money. So I have really become less likely, maybe even completely moving away from ever investing in direct-to-consumer, and consumer hardware. Now, a consumer or a business hardware solution that enables a subscription I'm okay with.

So I think I'm not an investor in something like Woop, but I looked at Woop and it was like 40 or 50 bucks a month. And I was like, yeah, not for me for $600. I just want to buy my Fitbit or my Apple Watch and never have to worry about the subscription. But I do understand why Woop did that because Woop's got to make the money on a subscription. And so maybe they have a smaller audience.

But if you can buy a tracker and a heart rate monitor on Amazon for 50 bucks and going down or a camera on, you can buy cameras now for $25 on Amazon like security cameras, it just really sucks to be in the direct-to-consumer gadget business. So that for me is the buzzword or I'll just expand it to theme or business model that I hate. One time hardware sales, hate, hate, hate, hate. hardware enabled SaaS. I have a great company, density.

Dot I.O. That's just crushing it. And so, uh, and even CafeX moved to a subscription. And now they're actually, by selling the units to people out of profit and having a subscription, they have a viable business now.

So, uh, that's what I'm staying away from. Anything like as a theme or a business model that, you know, over the years, you've just said, uh,

not for me. I mean, you know, I've been a crypto hater since it was nothing. Uh, crypto web three, like that whole. Yeah, it's funny.

Like, I literally like, anytime I see like an email coming in from, you know, somebody pitching that says crypto web three, I'm just like, I don't even respond. I just hit archive. I'm like, read my user manual. If you knew anything about me, my user manual is all over my Twitter. It says I don't invest in that. And they still send me that stuff. And I'm just like, nope, nope, nope.

Like, yeah. Yeah. It's hard with the crypto stuff because I do see sometimes smart people. And I see enthusiasm. So you're like, oh, smart person, super enthusiastic about it. They drank the Kool-Aid. Okay, entrepreneurs are weird. They get passionate about things. They change the world.

I want to believe that. But then I look at, you know, what their behavior is showing, and everything is around the next grift, the next coin offering, the next NFT drop. And none of it's with the fundamental technology or delighting customers. It's all about how do we extract more investment, essentially, through these proxies for investment that orange shares in a company. And to me, it's just like, I mean, I just, I hate to do it, but I'm just like, I just, the red flags are everywhere for me.

And I just can't, I can't deal with it. I mean, sometimes I even get this like, I get it, I get two red flags in an email. And I'm just like, no, no, no, I don't want to do a, I mean, your product's not launched and your valuation's a hundred million. How am I supposed to reconcile that as it goes against every. tenant of investing for me. Where I'm trying to determine is this product real? Yeah.

And so it's very easy for me to archive those emails as well. And if my team takes one of those calls, I just tell them, you know, put in our CRM system when the founder said they would launch. Yeah. And then ping them two weeks before launch. Yeah. And actually, one of my producers make a note of that, I want to make sure that that's actually the best practice internally.

So Rachel, make a note, check in with the investment team. for today's call and make sure two weeks before they launch checking in with them hey you told us you're going to launch on this date

wondering if you're still planning on launching on that date because then that shows we're super proactive that we're anticipating the launch date and I got to tell you

nine out of ten times they don't hit the launch date and five out of ten times when you check in with founders they've pivoted yeah we're not doing that business I shut that business down I'm you know

so it's just is there anything anything under the web three umbrella that has just tickled you a little bit just a little feather tickle on your neck, Zach? Anything that just made you go, ooh. One of the smartest people I know in the world is starting a Web3 company, and I told him, look, I'm investing in you.

I'll invest in you no matter what you do. Antonio, yes. He's been public about it. And he will potentially prove me wrong. I'll bet on him. I bet on him. Yeah. It's easy bet to make.

Also be entertaining bet, too. The only thing that I really like, I've got to be honest. There were like two things I thought, I wish somebody would work on this, and then I said it publicly here for years, and nobody's actually made any progress. The first thing was I liked the digital rights management

around NFTs or digital objects, where I know stock photography is like a big deal. Yeah. Or stock images, you know, all that kind of stuff. So somebody started a platform where I could take 10 photos from my, you know,

camera roll. I put them onto a photo sharing, Getty kind of site. And I say, here's the rights. I want to sell the rights to this. I want to sell the rights to 80% of the monetization of this picture of Lake Tahoe to an investor for $100. And then I want 20% of however it's monetized in the future.

And then I as an investor could go onto the site and say, I just want to, or even as like Getty could say, I just want to own these 20 images because we don't have any images of, you know, Lake Tahoe or this, you know, people, you know, using a electric surfboard on Lake Tahoe. Okay, great. So now we got 10 pictures of Zuck using an electric thing. Yeah, yeah, yeah. And, okay, I bought the Zuckerberg picture or whatever.

Somebody got a paparazzi shot. That would be kind of cool to me, because I can see that marketplace developing and growing in weird ways. And just people told me, oh, yeah, there's 20 of them. And yes, there were 20 white papers. Everybody had the same idea. Nobody actually built it. Yeah, yeah.

It's a fundamental problem in Web 3. It's that nobody builds. Nobody finishes their products. Yeah, I don't know. We'll see. We'll see. One of my companies kind of became tangentially involved in the Web3 world, which is company called Entropy.

So they use computer vision and AI to basically identify fraudulent physical goods. So using a cell phone, you can basically like take a Gucci purse. And they says, oh, take a picture here, take a picture here, take a picture here, take a picture in this seam. And then because they've got this huge database of images of real purses and fake purses, they can tell you with really high certainty that that is a real or fake purse. that's called entropy, E-N-T-H-U-R, I can't spell. Great idea.

But the cool thing that they did, which is super powerful, is they now have built a technology where they can create a fingerprint, literally a unique fingerprint of any physical object. So basically, a pair of Nikes comes off the assembly lines, and they take basically using a high-powered camera, they take an image of a certain spot on the Nikes, and now they have basically a hash that they can attach to the N-F-T that goes with those Nikes.

And then the owner of those Nike's can be like, okay, they were manufactured on this date in this place. And then when you sell those Nikes, anyone with the cell phone can basically take a picture of that spot. They get the same hash. They can compare it against basically the NFT and say, oh, this is literally this physical product. And it basically enables Nike to basically say, look, if you're Nike's that you're buying, don't have an NFT attached to them. They're fake. So if you're a Lou Vuitton, every person now will have an NFT attached to it. They will say, this is a real NFT, a real person.

this use case, it's Providence, right? You want to make sure, and there's somebody who's a customer. You know, Gucci and Louis Vuitton, they have a vested interest in paying for this product. Consumers get it for free. You got an enterprise customer who's going to say, yeah, every time one of these things goes off the line, we're going to take a picture of it and it's serial number, and we're going to put it in the NFT, we're going to put it in the database, and now you have high-rest phones. Yeah, it seems like a perfect case. Now, does it need to be an NFT? Of course, it doesn't. It could just be in a database. But it doesn't hurt that it's published as an NFT because there'll probably be close to zero cost.

to that. Yeah, exactly. So, I mean, they basically use this to power. If you're an NFT company and you want to add this to your capabilities, you can use their technology. It's called BRIG, the product that they have that does this, BRIG. Or if you're Louis Vuitton, you can do it on your own blockchain if you want to, or you can do it on your own centralized database. It doesn't really matter. Yeah. So I get sucked into this world, whether I like it or not. But, but yeah. I get sucked into it as well. But I mean, it's like, as those kids are doing, the startups, an eight, but it has an ICO, it has a coin. Yeah. It's a six. Yeah, I like that. That's good. I mean, it just, I stole that joke from Rachel. Well done, Rachel. This is going to be my new Gen X, my new millennial, Gen Z poster. Thanks for producer Rachel. But I mean, StockX could be a, could be a customer of this software. I also do like the NFTs for membership in clubs. And that to me makes a lot of sense as well.

especially because then you could freely trade them. So I wanted to create a poker room, like a poker club. And so I want to create my own... And we talked about this. Soho House. Yeah, yeah, we talked about this on the pod. In San Francisco, it would be great. Yeah, and so I wanted to create my own poker club

where you could buy a membership for 10K. And then, you know, we try to get, I don't know, 200 people to buy it. And then we have $2 million. We set up a 500K space. Yeah. maybe have a 250k your operating budget. It doesn't have to be a crazy space.

It can be a 2,000 square foot space. We buy it, hopefully, pay the mortgage, whatever. And then everybody's got a share. Or maybe it's not a share because then we'd have to only have accredited. But they have a membership. The membership's last, I don't know, five years or 10 years. So we come up with some time limit on the membership. And then at that point, you do a smart contract to sell or whatever.

And then if it's going to get sold, somebody could buy the share. You could sell it first to the back to the group or somebody in the group. and then after that you can sell it to somebody else but the majority, they have to have 10 people support that person's membership or something. All those kind of smart contracts out there just working could be really interesting, you know, unless somebody tries to do a hostile takeover

and then all of a sudden it would be better as a centralizing. I'm not smart enough to play in this world. I just everyone, everyone, people start going down this rabbit hole. I'm just like, yeah, it sounds super awesome. Good luck. I'll make my money over here on simple stuff. Yeah, I mean, I saw Kevin Rose is doing his own club and then Gary Vaynerchuk did a club fry fish club in New York.

They raised, I had the founder on here, they raised like 15 or 20 million. Wow. Fly fish club. Yeah, frying fish, fly fish, whatever it is. And then there's somebody doing it,

producers, if you can pull it up, somebody's doing it, San Francisco by the Salesforce. So worst timing ever, but it's some sort of, they're so screwed. They're so screwed.

They're so dead right now. It's like, talk about zombie apocalypse. I want to drop 10K on an NFT to own a piece of, you know, Soho house. No.

in Soma? No, no, no. I don't know if those people live here anymore. Sorry. It's gone. The city has literally managed to just take the gun out, shoot itself in both feet, and then literally just shoot yourself in head.

I mean, the city. I don't know if you saw London Breed was like, we have to build back downtown. I'm like, oh my God, you guys went to war with the tech industry for five or 10 years. You blame them for everything. Yeah. They left.

Yeah. And now you want to break bread with them because they left. Like, yeah, this is like the crazy ex-girlfriend who's like, I know I lit your house on fire and killed your puppy. Yeah, exactly. I want to, I want to get back together. And it's like, yeah, yeah, you killed my puppy. Yeah. You literally.

You lit my apartment on fire. Yes. You shot in my bag off the, like, you drove my car into the bay. Yeah. No, I don't want to be back with you. No. It's so bad. It's so bad.

It's so bad. But it's, I mean, I do like that we have a new DA. So congratulations. Oh, my God. Thank God. And she seems to be taking the job seriously. Seriously, I'm rooting for her. Yeah, I'm a good, I'm a biggest fan right now.

It's like, I mean, she did, I mean, you did notice she cleared out all the public defenders who were in, who were, who were infiltrated the DA's office. Which if you were to write a novel, oh my God, about dysfunction. We can go all day with this. We should stop because we're just going to, we're going to, we're going to just like spin each other up ranting about. I know, I know. And there's not what we're supposed to talk about angel. Right. I do think, though, it does matter.

Like, it would be really good. I mean, okay, let's look at that as an investment. Sure. Okay, you're looking at San Francisco as an investment. Yeah, short. How close to the bottom are we? You're still shorting it. Sure.

Oh, we haven't even got started. I'm still short as well. Oh, yeah, think about this. So all the commercial real estate in downtown San Francisco, like we just showed in the earliest graph is like probably 30, 30, that's like 30% occupancy right now. All of those buildings are going to go bankrupt, all of them. And the tax base that supports that all of that is going to base. basically just grind down.

And it's a long, slow process. It doesn't happen overnight. And the city, the city has... Because leases are what on average? Those big leases are five years on average? Yeah, they have long term leases. And but they slowly come off. And so those buildings are going to go bankrupt.

The city has a $14 billion budget that it just literally just blows money on $20,000 trash cans. They're like literally like literally the city is now placing trash cans around that cost $20,000 because it's had so much money they could do so many stupid things. things and and it takes time for that to kick in. And then if you think about it like operating like a startup, this is the startup that won't recognize that things have changed. Like they literally will not take the medicine and say,

okay, nobody wants to come here. Yeah. I had a, I had one of the venues we love to use, beautiful venue, um, inside of the mall on Market Street.

Uh, bespoke, I think it's called, bespoke. Yeah, it's a beautiful venue. It loves using it. The incredible team over there.

And they're like, hey, J. Remember you used to do this stuff? I was like, even I, with as much charisma, as well as I could design an event, even I cannot get people to come to San Francisco fly to San Francisco. Why would you?

I get them to come to Napa. Yeah. I might get them to come to Palo Alto. Yeah. But I'm not getting them to set foot in San Francisco. You guys screwed it. Yeah. Like, and I'm really sorry, but I literally told them,

if you gave me the space for free, yeah. I couldn't make it work. Yeah. Like literally if you gave me $100,000 with the free space in AV, I still would say no. Yeah. That's how bad it is. So bad. And I don't think you won't realize is how bad it is. Yeah.

A Miami. Yeah. People go to. Yeah. Everybody's like, oh, you're doing something in Miami? Let's go. Yeah. And I'm like, do you want to know what it is? They're like, no, I just want to go to Miami. Yeah. Or Austin or New York or anywhere. Or L.A. or L.A., too. Well, you know what? Yeah, it depends on the area of L. But people might, Mike would L. L.

yeah. All right. So in breaking news, it looks like London Breed is releasing an ICO coin. She's going to be doing dollar sign SF grow and San Francisco is going to grow again. I'm still short San Francisco. I agree. It's going to take, they're not allowing the building of units. And Soma has five years of circling the, the trash can. I was talking to somebody who works in finance and their company makes them come in three days a week. Yeah. He said, I was like, what's going on with the traffic? He's like, well, it's really interesting. Traffic is not as dead as you think it would be, and he was talking about cars. And I was like, wait, I don't understand.

It's a ghost town. He's like, it's still a ghost town. But anybody who goes to the ghost town drives. Yeah. So there were a lot of people who would take barter out, but now nobody wants to get on bar. It's too dangerous. They're scared for their lives. Yeah.

So they don't want to get attacked by a junkie on the Bart. Sorry to use the term, but let's call it what it is. Like, these are people who are addicted to very powerful drugs and are not thinking clearly. Yep. And you just can't run a competitive city. in that regard. So, yes, I'm still short. Okay, let's take another question here.

So, yeah, so I do like the NFT as, I'm still liking smart contracts, still liking NFT, still liking the marketplace business, you know, but a lot of work left to happen. Let's take another question. How much dilution after seed rounds turns into a red flag? What's the lowest founder equity before it becomes problematic? I'll just, I'm going to clarify the question. question to make it easier for you to answer. What's a lowest founder equity that you would invest in a seed round or a VC would invest in a series A for, let's just say it's a solo

founder or two founders combined equity. So in a seed round, the minimum, minimum for founders. If they don't own at least 65% of the business, I start getting worried. Because what happens is, is let's say they own, like they come into the sea, they own 60. 60% of the business. And let's say we raise 20%, so they take 20% dilution on that 60%. So they lose 12 points. So now they're at 48% going into the series A. What's going to happen when the series A occurs is the new lead investor is going to look

at that and be like, oh, the next investor is going to be unhappy as well. So I need to re-up these founders today. So I'm going to create a new, instead of a 15% option pool, I'm going to make it a 25% option pool. And then I'm going to give basically, let's call it five or eight, points to the founders to re-up them so that I don't get diluted in the exact same way by the later investors behind me. And so the more dilution you have in that early stage, the new investor is going to either

say, I'm going to do the same thing. And I've had to do that where I'm like, okay, I need, I need you to be re-uped or basically like, I'm going to get screwed over by the next investor. And so that, and then I'm screwing the investors who came before me and everybody gets all pissed off and it becomes a really messy, messy situation. Because you don't want the founders to quit. If the founders start getting, you know, let's call it under 20% each. You have two founders.

They're under 40% collectively. They're under 30% collectively. It's fine for them to be at, you know, 20, 30% at the IPO. 10% of the IPO, great. If it's, you know, that's what Larry and Serge, you're at, what, 11% of age or something. Zuck at 20%. That's fine at the IPO. But you really don't want to get down to low single digits at the IPO or, you know,

I would say at the seed, I would agree, got to be over 50% at a minimum for the seed round. then at the series A, yeah, you're probably going to want to be 40, 50% at a minimum. Here's a follow-up question. Should the equity grant that's given to, you know, maybe give the founders a fighting chance here, should that occur during financings or should occur at a board meeting? Because the thing I found that I don't like is investors using the top off as a way to win the day. Yeah, yeah, yeah. The only way you as an investor can make sure that that doesn't happen is you have to make sure that there's a competitive financing.

You've got to make sure that there are other investors at the table so that those folks can basically bring good offers. And hopefully you have good relationships with them so that they don't screw you over. But yeah. Josie Martinez asks, as an angel writing small checks, one to three K, how to best navigate due diligence without being overbearing or annoying? great question. At one of the 3K, you don't get to ask questions. You're along for the ride. You're just placing a bag.

You get whatever materials they are prepared and you get to make your decision accordingly. I don't think that anyone really gets to start asking for new materials or new diligence questions unless they're investing at least 10% of the round. So whatever the round size is, unless you're a 10% or plus check, like you don't get to ask for like, you can ask questions to the founder if you, you get to talk to them. Like obviously ask whatever questions you want, but you can't be like,

I need you to do X. Because like when that happens and I'm leading the round, I just tell the founder, I'm like, tell them to go pound sand. I'll take their peace. Like, because I just don't have,

yeah. I don't have time for people who waste boundaries time. Yeah. So you have to be realistic. If it's a million dollar round and you're putting in, you know, 1K, you're not even 1% of the round.

You don't want to slow the founder down. And now, if you're part of a syndicate, Zach syndicate, my syndicate, any syndicate, or some group that's investing, you can always ask the lead

and read the lead ZL memo and what they're thinking is. But again, you know, I would say your diligence could be using the product. Your diligence could be looking at reviews of the product and your diligence could be asking questions. But you're basically using your syndicate lead.

You're using the other people who are putting in the 250K checks, the million dollar checks. You're using them as a proxy for your diligence. And if you're not comfortable with that, totally understand. You want to do first-hand diligence. That's great. But you can't, we can't have a hundred people asking 10 questions each and asking to see bank balances and, you know, legal documents. So you're relying on good faith when you're making small checks and everybody

else's diligence. I think it's a pretty good rule. 10% of the round, you can ask new questions. Sure, you're putting in 100K, 6-figure investment. It's not chump change of a million dollar round. Great. You're putting it 100K to a $25 million round. Okay, now that 100K is in the same position. We just don't slow everybody down. We've got to move fast here. And it's risk capital. You know you're taking a risk here, so you can't blend it in.

What kind of diligence do you find is the most effective for you? And when you're doing a large portion of the round, what do you focus on with your team in terms of diligence? Well, team is me. Okay. Team and singular. You know, my favorite hack is I ask for all the updates have ever written. Wow, what a great hack. Because updates, like, have been such a, I mean, if there's any indication of, like,

the companies that have most successful in my portfolio, it's the ones to write great updates. And then the ones that I don't get updates from, almost invariably have a lot of trouble. Yeah. And that's, that's the best. That for me is, like, I look for that always. If things are going well, you write updates. Things aren't going well.

You try to fix it and then write an update. You know, Travis used to send regular updates about Uber, you know. Alex would send updates about Com. Why wouldn't they? Sometimes the update was like, we grew 72% quarter over quarter. Yeah. The end. That's cool.

That's all you need to send. And that's good. I mean, I literally just had a CEO takeover a company from the founder. They sent an update with no numbers, no charts in it. You know, their personal bio, everything they've done in their career. And it was like, oh, my lord. And I just wrote them back this morning. and I said, listen, congrats on the new job.

Here's what we need. And actually, this would be interesting. I'm going to read you what I said to a founder. This will be like a first live read. I'm not going to say the founder's name, but this is my writing. So I'm entitled to do it. Let's see. So here's where I said.

Great first update, but a bit heavy on the text and no real metrics. I'm candid. I got a big, you know, seven-figure investment in this. Please send us for Q2. And going forward, number one, monthly revenue spend in burn in a chart and a table for the, year. So folks can see the trend.

Please include quarterly performance for the past eight quarters, again, so folks can see the trend. Three, please include our target for the quarter and year and how we are trending toward it. Four, headcount, five, cash in the bank, add a specific date and runway based on that. Very simple five bullet points there. Now, if you're running the company properly, you have, number one, the monthly revenue you and spend.

Your account just give it to you. Number two, you have quarterly because you do board meetings and you have to show that at the board meeting. Number three, you should have targets. If you don't have targets and you're a series A company, like, what are we doing here? Like if you're an accelerator, but, you know, you don't have customers yet, maybe you don't have targets. Headcount.

If you don't know your head count, you should be able to get that in 10 seconds. And then cash in the bank at a specific date, you just open up your Bank of America or Wells Fargo, whatever your jam is, and you take a look. Yeah. Runway, you look at your last three months burn. You average it. now you know your runway. This is simple stuff, folks.

Now, the update I got, I kid you not, was over a thousand words. So a thousand words, but didn't include any of that. And that makes you terrified as an investor. So that's the other thing as a founder, you do need to know when you're scaring the shit out of your investors. And that long, long email without any numbers means things are screwed in the mind of an investor. We could be wrong, but that's what we're thinking.

Yeah, because if you're going to spend that time writing that email, that's time you're not spending, growing the business, talking to customers, working with your team. And so, like, there better be, there better be a really good reason why you spent all that time writing all that stuff. And why are the numbers not in here?

Yeah. Number one, you don't know them. Oh, my God, you don't know them? Yeah, we have a huge problem. Number two, they're disastrous. Yeah. Okay, they're disastrous. Isn't that the time to tell us so we can help?

Yeah, totally. So if it is the second question, so if it's the first, oh my God, you're not qualified to run the company. We need to get you help, you know, C-O-O- whatever. Number two, if you're not cheering it with us because you're ashamed, I understand that gut reaction. You want to make it better.

Just tell us, because we might be able to tell you how to make it better because it's not our first time at the rodeo. Yeah. So really, founders, please take this in. You know, if you're not telling the investors, we are now in our head then playing out every scenario, just like Zach and I, if we're in a poker hand and Zach and I playing heads up and the board's got two hearts, you know, and there's no straight on the board, and Zach's raising and I'm raising. Okay, I'm going, well, I've got a set and I've got top set.

So either he's got the middle set or I hope I'm on a good draw here. Or he's on a flesh draw. Okay, and are we running it twice? Like, we're now handicapping each other's hands and I'm going, okay, I guess I got to get all my money in here. You know, and when we're trying to level each other, we're trying to figure it out. We do this for a living with the investments. So when that, Update comes in, know that Zach and I are saying, why did the founder not include the numbers? Is it bad? Do they not know them?

Do they need more support? And so, yeah, your updates have to be tight. And tight is right. All right, this is a great question. How do you know if you're good at investing? I'm investing my own money, one to six K, been out of three years. A lot of companies are doing very well, but it's all paper.

Money, is it just patience? What a great question, Eric Weiner. How would you assess yourself in year three, which if we do know the J curve and I'll ask my team to pull up a just do a Google search for Angel and J curve or pull up the Angel University slide with it. There's a J curve

in there. The J curve says you start investing money, your portfolio will be underwater in years two, three, four before the value start going up. That's the J curve. But how do you know in that specific sophomore junior year if you're any good at this? You're in sophomore year.

I mean, I think the short answer is you don't. Even if everything is going up into the right and everything is marked up and you've had like I had a billion dollar exit 12 months after I started. That meant nothing. There was not an indication that I was good or smart or knew what I was doing. And even now I look at my portfolio and, you know, the meat of the portfolio is a number of companies where I have large ownership stakes and they've become very large businesses.

But like, they're still not cashed out. They haven't gone public yet. We haven't taken them to the level where they turn into real money. So even eight years into it, it's pretty clear that I'm on the right trajectory. I'm like on the trajectory level, I'm very good at it. But until I return, you know, 5 plus X to my, to my, 10 X to my LPs, I don't know. We'll see. Here's what I would look at, Eric, just to give you some signals.

Now, the J-A curve will bring it up here. You start investing. You put this money to work. up the J-curve, the J-Cal curve again. You have management fees. You're deploying capital. There's not enough time for the rounds to go up. So you see here, the initial commitment is, you know, the bar.

And you have management fees. You're investing. You know, sometimes business is shut down. So you take those losses early. And that means your portfolio by definition is under water. If you were to invest in, let's see, he says he's invested in, he's been added three years. He's putting that in. We don't have the total number.

that Eric has invested, but I'm going to just say, let's say Eric's invested in 10 companies. So that's enough to have a little diversification. I would rather see you at 20, let's say. So let's put the number at 20. Yeah. You got 20. That means you got a good chance here. You got stuff spread around.

And let's say you're only investing in companies that have products in market. And let's say half of them have revenue, half don't. But half of them have products market. Okay, let's say you get to year two or three here where you're at, maybe three or four of the companies. and let's say you put, you know, 5K into each. So 20 times 5, 100K. All right, you have four companies that went out of business.

They shut down. They had seed funding. It's year three. They couldn't raise another round. They raised a bridge. Then they went out of business. So you have negative 20. You can write those companies off.

Now, let's say three of the companies have raised up rounds. And the other ones are still deploying and have some revenue, but they haven't raised their next round. Very hard to know what's going on here. You know for sure that you have negative 20. So you're down to 80K. of live investments. The top three have raised up around,

so on paper they doubled in value. So the 15 of those turned into 30. So you're plus 15. So you're at 95 on paper. How do you know? Well, here's how you know. You don't, but you can look for signals of,

is the revenue in those top companies growing? Zach said before, I have 700 million in revenue for my investments. Zach is looking at his companies and just saying, what's the revenue of the companies? Not the valuations, the revenue. So there's a proxy.

You know, just start looking at the revenue of the actual companies and know about power laws. When this J curve here has that big spike towards the end, that's representing one to three companies out of your, yeah, probably two companies out of your 20. So that's what you need to know is focus on the winners. And what does a revenue look like to do a callback? Sack said earlier, hey, I like to plow more money into a company. And I said, well, what's the metric for that? And he said, three X year over year revenue growth. So that's what I would be looking for.

You got any three Xers in there. Somebody had 200K this year. They have 600K this year. They had 600K last year. They got $1.7 million this year. That would be the early signs of winning. But truth is, you don't. This is why VCs don't get fired, but in their second or third funds when the chickens come home to roost in year 10.

Great question. And Eric replied, he had 35 companies about $60K total. So you'll know, you'll know. Just stick with it. And the more you can invest in, like Zach and I. I like to do of companies that have launched products and revenue, the less zeros you're going to see. So that would be a healthier portfolio. Now, some people love to invest pre-product market fit. I had some friends who do that. God bless them. The world needs them. But my best advice when you're

starting out is to play, you know, play the, this is poker. Play good cards in position. It was the best advice I ever got, Annie Duke, was like, why are you playing 810 suited under the gun? Like, are you really going to defend this position when you get a raise and a re-raise? you're probably going to toss these cards, so you just wasted that blind. So just think that through. Play better cards, play less cards, play in position. That's what we're talking about here.

Anything to add to that? Zach, it is great. Let's take another question from our amazing audience. What's the best question we got right now? Zeb asks, as a founder, when should you provide prorata to angels and when not? Okay, so this is not from our side of the table. This is in the founders.

I like the way you phrased the question, Zeb. As a founder, should you give prorata to angels or not? Yeah, so I argue you should, giving pro rata, you should only, you should only ever agree to giving pro rata if you're forced to. In best case scenario, no one should ever have pro rata. But basically, you should as a founder, you should have, you should always have some amount of the allocation of the next round. Usually I would argue 10% or more that you get to allocate however you want to whoever's most useful and most helpful to use the company. And I see this all the time where a new VC will come. come in and they'll say, no, no extra allocation for any of the existing investors. And when that happens, I send them an email. I'm like, look, I've done this amount of work for this company.

I brought in this and directed engineering. I brought in this salesperson. And from now on, I'm done. I am no longer working for this business and you will get no more help for me. And by the way, I'm never going to send you another deal again. And so, you take you take a wartime stance. Oh yeah. Yeah. Like when you do that to me, like if you cut me out of the round that I've been in from the beginning, let's go. I'm, you're dead to me. And, we're done. Sorts out. Let's go.

By the way, this company, and I make sure the founders on the email, like, I love you, but like, I no longer have an incentive to keep investing in the business, my time and energy if I don't get to keep investing my capital. And so, like, you, and I think every founder should have the ability to reward the useful angels. And if you're free riding, like, if they, if you're an angel and you come on board, you write a check and then you just, you're done. You're not helping at all.

Well, you shouldn't get any more allocation. So I don't think it should be contractual pro rata. I think it should be rewarded for. earned pro rata. I like, I like your approach. I think as a founder that's in your best interest. And for me, as an investor, I take a very simple approach. We own over 5%. We get a board observer seat. We have pro rata. We own over 10%. We get a full board seat. That's basically where I've wound up with what I think is fair. And I make it an option. I'm unique as a early stage investor. I know my value. I know I can bring value to label. And then every time I've had this come up where somebody tries to take away our board ride or whatever or take away our pro rata, I just get on the phone. with them. In fact, I'm doing one of these calls today or tomorrow where some new investor, you know, they're putting in 10%, we own 9% or 11%, and they're like, yeah, we don't want

them on the board, they're, you know, whatever, no prerata for them. And then I just talk to them. And I say exactly what you just discussed. Hey, and I tell the founders this. I actually give the founders a preemptive discussion about this. Hey, know this. When we get to the next round, somebody might try to screw us. If they screw us, there's only one person left to screw. That's you the founder. We are in this together. We're always going to have your back. So therefore, when people come to screw us, you should fight for us because having us on your board, having us as a major shareholder means we're going to fight for you. And then every subsequent investor should be joining that philosophy. We fight for each other. So the seed round lead

and the series A fight together to find a series B who respects the series A and the C. And then we all build consensus. And I got to tell you, one of the beautiful things is looking at density or other winds calm, everybody has been respectful. And you know, you're able to have this great board dynamic where the seed investor, the series A,

the series A, the series A, the series A, the series A, the series A, people come up with all these, and the series A people come up with all these, you know,

rules. And it's like, a board can be seven, it can be five, doesn't matter. But a board of five, where it's three from the series A or two from the series A,

you know, is not as good actually as one from the Series A, one from the seed. I would argue the seed investors who've been with the company longer might have a lot to add here. So therefore, like, everybody chill out and think about the value. I love your framing. It's great framing.

Who's providing value and give them the reward? And, you know, the no free rides is great. Now, if you're an angel on the other side of the table, if you're not a major investor, you can try to get, you're within your right, to ask for pro rata. But if you're under 5% or 10% of the round, should you really get it? I like when they get it, but I understand that they really don't have the standing.

And then just have the debate on what a major investor is. The major investor rights generally start at 25% of the round. So if it's a million dollar around 250, if it's a $2 million around 500, it seems reasonable to me. A 250K checks a lot of money. So maybe it's 100K, maybe it's 250K. I think you really should negotiate that in good faith. And I love your approach to that. Anything to add to that?

Oh, the only thing I would say is that like, It, like, if you can help the founder in the fundraise process, like very early on, help review the deck, help with introductions to other investors, help listen to the pitch and give them feedback. That keeps you in pole position to be useful as that round progresses. And so one thing I will often do is when they're getting ready to raise, the first thing I'll be like, I'm in for a million bucks. And it's on an email. I'm going to let you know right now. And by the way, you can tell all the new investors that I'm in at a million bucks already. And so that helps them when they're going out fundraising because basically they know they're like, hey, I'm raising money and we already have

Zach's in and these other investors are in. And like, so this is, we're already going to be a competitive round. And that helps in the process to make sure that then I don't get screwed by the new investors. So ball control, you're never going to have ball control. The founder has ball control. But if you're there ready to help them and support them in that process, you're going to be in a much better spot. All right. Tom asks a question. That's a really hard one. Have you ever advised a founder to leave the CEO role? Have you ever advised a founder that they should give up the CEO role? I've had the discussion with a founder multiple times

when either they were being pushed by a board or they were considering it themselves. So I have had the conversation. And I'm trying to think if my advice was ever to do it, have you ever advised the founder to leave the CEO slot? I've never had to proactively do it, but I've had the conversation with people about it. I've not.

I've not. What would it take for you to advise a founder that, hey, maybe the CEO slots not for you? What would what we'd have to look like? Just incompetence. Okay. But I have told the companies that I've lost faith. And I'm like, just let you know, I no longer believe in the directions you're going and I don't believe that you're going to be able to achieve it. That doesn't mean I'm right.

I'm not, I don't have my hands on the metal. I don't have full visibility and everything's going on. I don't understand your space as well as you do. it doesn't mean I'm right. But it does mean that I will no longer be investing in the business. I have become a passive investor and I'm along for the ride. So you'll be clear with them about that. Why do you do that?

For people who don't understand why you're taking the time to be that frank, that candid with the founder, why do you do that? Because I strongly believe in my view of where they're at and what they're doing and where they're going. And I'm like, I don't think this is right. And I'm now going to tell you how strongly I believe this. and so that you can understand that when you take my opinion into your calculus. Because at the end of the day, they're the ones making the decision.

They have more information than I do. They're closer to the metal. They have to make the best decision they can make. And so me putting sort of my stake in the ground there, I think is helpful in that process. And when we had to do it a couple times. Do you ever ask them to buy you out in that situation or offer that? Like, hey, listen, I don't want to be dead weight on the cap table. If you want to buy me out on the next round, that's available.

I have done that, yeah. I have a round where it was. was David Sacks was competing against another VC firm. And the other VC firm was really, came in with a bunch of like really silly ideas, but they overpaid. And I was like, I was like, look, I think this is a big mistake.

I'm not participating in this round because I don't do like the direction these guys are going. And I don't think this makes, I don't think it's a good idea. And by the way, if you want to buy me out, I'm okay with that. I think you should go with Sacks. I think the direction he wants to go with you is better.

Yep. but they made the choice they made. They didn't buy me out. I'm along for the ride. The company's doing well, but I think Sacks would have taken them further and faster. But, you know, we'll see. Yeah, I mean, hard to say no to Sacks.

It seems like the guy you want on your team. Yeah, this perfect company for him too. He was literally personally going to join the board. I was like, what are you guys doing? Like, that just doesn't make any sense to me. It's very rare to get a legendary guy on your board like that. It's kind of a hard one to turn down. Have you read the new?

book about PayPal called The Founders. I haven't read it yet, but Sacks bought the rights to it for a movie. You guys are a good book. And Sacks is a book. Oh, you know what I'm reading right now is. He's like, I wonder if he, um, if he, uh, pull some nefarious to make sure that he got the hero card in there because he looks so good in that book. History is written by the victors.

Exactly. And for the people who underwriters, we did buy the book rights. So it's kind of hard. I don't know what happened there. If you buy the movie rights of the book, do you get a little extra shine in the book? Maybe. Maybe. Because he looks like a geniuses all the way through that book.

I mean, he is fantastic. Capriol playing David Sacks and the fact of the past. Well, it's interesting. I'm reading a book called The Power Law, which I'm almost done with, as I recommend to everybody. It's a good listen.

It's got one of those, like, really professional folks. It basically goes through, like, the history of venture capital. It feels like it wasn't primary research. It feels like they took all of the existing books out there. And they just made a nice package. It's almost like a history channel, like overview of the industry.

but it's a good one and it's very simple and it's very to the point and it really explains like chapter by chapter each of the seminal moments in the history of the valley you know, Kleiner with Ellen Powell

but Kleiner before that with Tom Perkins and his reign and it really goes into the dynamics of founders fund and how it was formed it goes into the Facebook Michigana showing up in pajamas it's all rehashed stuff

I didn't find anything new in it for me, there were a couple of stuff in the early days of venture that I was aware of, but the fact that they streamed together in like 15 chapters, each of the moments in history was very reinforcing to me. It was like somebody making an abstract on the history of venture capital and being like, here's what you need to know. These are the 15 important stories. So it's kind of like a best of. You know, like one of those like, you know what it reminds me of is like the 90s, you know, like VH1 does the 90s. And it's like if you weren't there for it, here's Nirvana. It's what you need to know about Pearl Jam.

But his hair smashing pumpkins. And it's a good book in that way. So I recommend it to anybody who's starting off in VC as a good book to catch up. And they do go into the whole formation of Founders Fund and the whole fight between Moritz and Sean Parker and Ruloff coming in. I haven't finished it. Somebody told me I mentioned towards the end. And they also go into the forming of Y Combinator, which I knew. But it was good to sort of hear even more about it.

and remember that moment in time. I think they had a big impact. They don't talk about Angel List, which I guess maybe, you know, they kind of stopped talking about stuff in the 2010 range, but I think Angel List has such a profound, and syndicates is such a profound impact that it's changing. But they talk a lot about angels and super angels,

so they talk a little bit about Ron Conway and his role in all of this. So I think it's pretty great. In terms of back to the original question of advisor, the CEOs, the reason I bring that up is because they talk a lot about removal of the CEO, And that ended with Larry and Sergey. That was like kind of the last time it happened.

And then Founders Friends said, we're going to just let the founders as awkward as they all run these companies. For me, what would it take? Malfusants, like doing something illegal. I've had this situation a couple of times where, you know,

founders would do something with the cap table that was like, whoa, that's maybe illegal and certainly Delaware law would pounce on you. Like, we're going to all get sued situation. And in those cases, I do ask, buy me out and get me off the cap table.

In one case, I just said, you know, this company is now two years old. You can buy me out at cash I put in. And I'll move on. Literally don't need to have a gain on it. Mazel Tov, I can put the money to work somewhere else. And so I think that's what I try to do is if I really disagree, you don't need me, or I can become, I'll sell half my shares, get me to under 5%. Don't need my board of server seat.

Just semi-quarterly updates is what I ask. And then I try to make that contractual. That will get quarterly updates on the way. way out because you really do want people to live up to that expectation as we heard. Let's take a final question because here we are. We got Zach is, Zach, you're in the zone today. Really appreciate you. Just drafting off of you, bro.

You're always in the zone. It's easiest for a living, but you're pro, obviously. That's it. That's it. I enjoy our time together because it makes me a little mentally sharper. Thank you. Thank you. You're so generous.

Let me ask you a question. How long do you think the down market is going to be and what's your strategy as an investor? as we go into, let's just say the first two quarters were, let's say if we are in fact in a recession, we're close to it. I think we all agree that that's the likely scenario. So first half of the year,

two sequential quarters of either of down market in all likelihood. We'll find out what Q2 is. Crazy interest. Obviously a pullback, late stage, investors are gone. What is Zach Coleyas' strategy going into the next six months, the second half of 2022, and then more importantly, into 20?

23. What's your strategy? We're playing in a high-stakes poker game. Yeah, yeah. Yeah, no, I mean, it's, it's, uh, I've got $100 million of capital I got to put to work. That's a, that's a very high-stakes poker game that I play in. Yeah. Yeah, it's much higher stakes than I can afford to play with real money with my, I don't always my, my cash money. Um, for now. Yeah, we'll see. It's, uh, so far. Turn that 100 into 500. You get 20% of the game. You know, you can be 7% of the game. So far I'm doing very well. We'll see if it keeps going that way. I got to love this game.

I got a couple of companies I want to see IPO, and then I'll be... Such a great feeling. Let me tell you. Let me tell you. Such a great feeling. So I think about all these things as a duality. Like, and there's two approaches to this, and they're both, they're kind of kind of separate. From a macro perspective, I feel like there is a ton of dumb stuff that got done over the last 10 years that is going to get rung out as interest

go up that's going to lead to a recession. I think it's like it's just so much like just silly expansion and just dumb investment that is going to lead to significant downturns globally. So like you look at the Chinese real estate market like I mean that they're going through that workout process and it's going to be long and slow and painful. When you have Jamie Diamond, who I think is literally one of the smartest people in the world saying, hey guys, the pain is here, is coming, I listen to people like that. And like when the best capital allocators in the world, Bezos and Musk were selling at the end of last year, I was watching that being like, uh-oh. Yeah. So I was right. So, yeah, I personally believe that like we have a lot more pain

coming. I just finished reading Paul Volcker's book about sort of the late 70s and early 80s. And like it was just really eye-opening to me the amount of pain that they went through during that period. And it's funny, like, you look at San Francisco. which one is that changing fortunes? It's called keeping at it. Keeping at it. Yeah. Good good book.

And it's funny. If you look at basically like San Francisco, it's very analogous to New York in the 60s, New York and Detroit in the 60s, which is that it was like boom times. Everybody was rich and everyone was just building big buildings and everyone was just feeling how awesome they were. The nifty 50 were on fire. And so you ended up with this very progressive leadership. in both of those cities that as the general market downturn in the coming into the 70s

led to the hollowing out of both New York and Detroit in a significant way. I mean, San Francisco is following that to a T. I mean, absolutely to a T. And so I feel like we could have a lot of pain in front of us. That said, I'm an early stage investor and I look for companies that are doing new, new things that it's not going into an established market. They're trying to basically bring push a button. We get a car level sort of like, oh, my God, I want that immediately sort of new stuff.

And that's a 10-year play. And so, and it's rare for me to see those companies. They don't come along very often. And when I find them, I'm going to back up the truck and buy as much of them as I can. Thankfully, now at much lower prices than I would have had to pay, you know, a year or two later. But I'm very, very, very scared about fall on capital. Two years ago, a year ago, there was no such thing as fall on capital risk. everything was getting funded.

Like, you know, across my portfolio, I have over 60 businesses. We only had one bankruptcy. And that's because everything kept getting funded. It's just like money, money, money, money, money. And now I'm scared of that. I think we're going to see a significant number of these companies will raise a seed round and that will not be able to raise series A's and that will go out of business.

And so that is where I'm spending a lot of my time thinking about, which is like, can the fall on capital support these guys as they go forward? because me or someone else because I'm not depending on the next investor. I have a similar strategy. I'll probably deploy more capital or I'm hoping to deploy more capital into more deals in the coming year than I have ever done in my career. And my thinking is the valuations will be reasonable once again. And the founders who are operating and able to get to, you know, their first customer,

not zero to one in the peer-teal sense, but zero to one in zero paid customers, one paid customer. That is a huge dumb. Like getting somebody to put their credit card in, huge dump. If I can find those companies, they've got the one paying customer,

two paying customers, they got the $5 to $15 million valuation, they've got the three to 10 employees. And I make that bet in a down market when other people don't want to, I've got a founder who's resilient and clever enough, resourceful enough. So resourceful and resilient founders

who have their product in market with a customer, that's where I'm putting my energy. And if you don't have a customer yet or you're still working on your product, that's fine. But I have some people who built a no-code solution and got to five customers. Okay, so they literally have no coding experience, but they took bubble or web flow or notion plus Zapier, plus if this than that, plus air table, whatever glue they did and they duct-taped something together and they delighted three customers, I'm going to take that person. Yeah, totally.

Over the person who theatrically gives me. the best pitch in the world. Yeah. I just need people who can build and are resilient and resourceful because you're, you're literally going out into the open ocean in a shit storm. Yeah. I mean, you're literally going into a maelstrom. Yeah.

And I need a MacGyver out there on that boat. I need people who can look at the, the rations and say, here's how we're going to ration this. Here's how we're going to get to the new world. Here's how we're going to survive. We know how to get water from the sails. We know how to kill seagulls or how to fish. Yeah, yeah. I need you to survive.

If you don't got survival scales and you go try to do a Shackleton type thing, you're going to be on day two, and you're going to be curled up in a ball on the lower deck asking for your mommy, right? And I can't have those founders. I need the resourceful ones. All right, this has been amazing. Everybody follow Zach on the social media, Zach Collius, amazing job, as always.

And he's pretty active on the Twitter. That's a great place to find him. He likes to invest in companies like I do that have resourceful founders or build great products that have some amount of trust. action. You know, email us both. Email us both. If you got, you know, what we just described and, you know, we'll co-lead you're around. You got a SaaS company. You got 25K in revenue. That's, that's, that's, the kill zone for Zach and I, right? That's what we're coming in hot. We're coming in hot with an

offer. So let's get a deal going here. Let's get a deal. Every time we do this, we're trying to find a deal. So email us, what's your best email that you like to give out? Z at colis.bc. Okay. And I'm Jason at calicanus.com. email the two of us and say, hey, here's a, here's a JZ deal. Get a JZ deal going. That would be awesome. Hashtag us JZ deals. All right, we'll see you all next time on this week and Star Wars.

Bye, bye, Zach. Thank you.