This Week in Startups - Best of This Week in Startups: Week of November 9th, 2020

Episode Date: November 14, 2020

E1136 featuring SEC Commissioner Hester Peirce: https://rb.gy/pndfna E1137 featuring Repl.it's Amjad Masad: https://rb.gy/ypwjd2 E1138 Ask Jason!: https://rb.gy/hzsutw Follow Jason: https://linktr.ee/calacanis

On episode 1136, SEC Commissioner Hester Perce responded to Jason's proposal to have his Angel University course be part of a test to become an accredited investor. Yeah, I mean, I think you've raised a couple really interesting points. One, I think is important to emphasize, which is diversification is a way to protect yourself. And so people who even may have opportunities to invest need to think about the diversification of their whole portfolio, including where you work. So sometimes you'll get opportunities to invest in the company you work in, but you have to remember you don't want to have all your eggs,

including your career and your investments necessarily in the same basket. So good things to think about. And you also want to think about how much money you can afford to lose. And I'm not giving anyone investment advice. I'm not recommending any kind of investments to anyone. But you do want to think about how much you can afford to lose. And you always want to ask a lot of questions of whoever is asking you for that money. So I think your idea of a test is one that others have thought of, and I have had

some initial inquiries about that. I do urge people to come in and talk to the SEC. The SEC has opened the door for people to come in with ideas like this. The notion of having some sort of capped investment amount is not something entirely foreign. That is what we do in the crowdfunding space. there are limitations on the amount that people can put in. Again, as a person who comes to this with the idea that people should be able to invest their money as they choose, I get very uncomfortable when we're trying to micromanage people's finances. But I can see that, you know, I have to work with colleagues who have, who are maybe more

conservative than I am in that regard and they would like to put some breaks in place. So I can see that kind of thing being attractive to people, and that gives you a little chance to practice maybe investing small amounts. I would say even if the government doesn't tell you that that's how you should approach things, it's really good idea to be cautious and how you approach things. Don't jump in with, don't empty out your bank account and jump in with both feet to invest in something unless you're really sure what you're doing. you really need to be careful. And there are a lot of people out there who are just waiting eagerly to steal your money. So that brings me to the final concern

that I would have about your proposal, which I think we will see something like a test develop at some point. But you have to be careful if you're going to be the consumer of one of those tests, then you've got to make sure that the person who's selling you that test is not just trying to sell you

on an investment opportunity, which means that she wants to run away with your money. So you've got to do your due diligence. A part of what I believe in is certainly freedom to invest as you want, but with that comes responsibility to ask a lot of questions. If your gut is telling you you don't trust this person, then you've got to run the other direction. And so I think that's part of the course material that would need to be covered, which is be careful. Be aware of some of the red flags for what a scam could be. But with that said,

I think I would welcome you, Jason, to come in to the SEC with the idea that you're thinking about. Come in and talk to our Division of Corporation Finance, which is the part of the SEC that is thinking about how maybe we could further expand this definition and share your ideas. And I welcome anyone who's listening who has other ideas to do the same thing. I think it's only collectively that we can really approach this problem. And I think it's right for you to point out that we need to think about this as a country. It's not just us, the regulators, trying to figure out what the right answer is here. We need to draw in the wisdom of everyone out there, people who have been in the investing world

and who know the kinds of information that people need to know before they invest. On episode 1137, Replit CEO Amjad Massad explained AI's immediate impact on developers, and if it could ever replace them entirely. I think the most immediate thing that AI will do is we'll make programmers more effective, more efficient, and will continue to increase the access to programming, kind of in the same way that Replit does that. We continue to look at it and invest in it at some point where we're probably going to build something there. But I don't see it. So if you replace programming programmers, that's the last

job you have to replace. Because think about it. If the machine can program itself, then you get into what AI researchers call intelligence explosion, because you have an AI that is programming itself to get better. And so maybe an AI programs, it's sort of the the next version that is better. Of itself. Of itself. And then the next version is programming the next version. And then you have a runaway explosion.

And then we invented God. So it is, if programming gets automated, it's the last job that's going to get automated. It's the end of human species. It is like Skynet, right? I mean, basically you would be Skynet. So, I mean, I hope programming doesn't get automated because I think it's a, it's, it's going to, it's going to be a very different and risky world

because it ends up centralizing power into the hands of the people who end up. How far off you think we are from that? Because you had your mind blow by GPT3, right? That kind of blew your mind. And that was unexpected? It blew my mind, but I still could see its limitations very clearly. and it's still, it's still not reasoning. Like, I don't think there's any reasoning there.

I don't think we're decades away, I think. We're definitely decades away. But I think eventually- Two or three decades go by pretty quickly based on my life experience. It felt like I was in the 90s just yesterday. And three decades, here we are, three decades later, two decades later, from the 90s. So it does go by quick. In 20 years, you could see that GPT,

being pretty darn good, huh? Yeah, I think there's still something missing. Like, neural networks work in a kind of like, you know, fashion, like you said, you throw more data at it, you throw more compute at it. It becomes this very resource-intensive thing that it just, you know, the more it grows, the better it gets. But I think there's a limit to that. And I think the next evolution in AI has to be some kind of reasoning.

and has to be some kind of different thing. I think neural networks will hit their limits at some point. And so the question will become, okay, when do we get to the next innovation in AI? On episode 1138, Jason answered a listener question about the stigma around solo founders. Hi, Jason. My name is Henri Kumar. I'm one of the partners and co-founders of Infect Digital. We are a growth marketing firm specializing with startups, helping them scale growth and so.

Our team's all ex-Facebook. But the question I have for you today is because we work, end up working with a lot of venture capitalists and so. And a lot of the feedback that we get is that they are wary of investing in single founder teams per se, right? They want to see like a group of founders and so coming together. Is that a consideration for you? Are you open to investing in single founder teams?

And if so, what kind of traction do they have to have? And are there certain verticals that you just won't touch if it's a single founder? And so I'd love to hear your feedback. Thanks. Great question. You're asking specifically about me. Here's what I care about. I care about making money, being successful, and dunking on everybody in the world because I got to a startup before they did.

To me, that's delightful. I love that. I'm kidding, but not. So let me give you a little history on the single versus dual versus, you know, three or four or five founders. And I'll give you some examples because everybody loves a good example. I met a gentleman named Raul. He had like five co-founders for a real. brilliant little app. And he got to the point where this little app called Reportive was

gaining steam. And LinkedIn came along and said, we want to buy your company. Now, I don't even know the other four founders of, I literally couldn't tell you the other four founders of Reportive because it's been 10 years. The company only existed for a couple of years before they sold to LinkedIn, and they sold for what would be the equivalent of, like, for me as an investor, getting a single, getting on base, like, because I got hit on the head with the ball. I put $25.50k and I got back like a hundee. You know, it's $4.X. I made $50, $75,000. It's not going to change my life. I know it sounds obnoxious, but to me, that's the worst possible situation. But there was a great thing. There's five co-founder. So if you lose two, you got three spares.

That was something that Paul Graham realized early on with Y Combinator. Why Combinator had a massive influence on the startup ecosystem. I give Paul Graham so much credit. I know people find him polarizing. The Overton window now is so tight that Paul Graham's tweets trigger people. And I mean, that's a whole other episode. He's a brilliant person who has made such an amazing impact on the technology industry. it really more, he's done more for the tech industry in the last 20 years, I think,

definitely top 10, maybe five. Putting that aside, he realized when he was giving people money, in the early days he had no money. So he gave 8K per founder. So if you had two founder team like Reddit, you know, he would give them 16K. If you had three people, he would give you 24K. If you had one person, he'd give you 8K. You can look it up. It was something in that sort of broad strokes. And the idea was you're going to work on it for three or four months. You're going to have three K each. It was ramen. He called it ramen funding. I'll pay for your ramen and part of your rent. You guys work for three or four months. If it works and it works out great. If it doesn't work, it doesn't work. So that's why you have this addiction to the multi-founder approach. I don't care because there are maniacal.

people who are exceptional founders, who are so good that for them to have a co-founder would only slow them down, what co-founder in the world is going to be able to keep up with Mark Zuckerberg? Come on. What founder in the world, what co-founder is going to be able to keep up with Elon Musk? You know, like Steve Jobs had was. That was actually a true co-founder because he needed a technical person at that time. And so in some cases, you know, in some cases, it's just much better for the to have to have co-founders. When it is it is good because it creates redundancy. It is bad because sometimes it creates a conflict and you know problems. The the number one killer of these multi-founder companies is infighting between the founders. You don't

see that typically in a solo founder. But with the solo founder, if the solo founder goes, you know, loses their mind, jumps the fence, now you've got a problem because who's going to run the company. So I don't over-optimized for this. I think it's stupid to over-optimized for it. I'm not saying Paul Graham's stupid for doing it. He had a reason to do it. It was like a mechanical, technical reason, and he was doing 100 startups. It makes total sense there. What I'm trying to say here is what I, there's so many more, there's so many more important things to think about with a startup. How good is the idea? How good is the idea? How How good is the execution of that idea?

In other words, how good is the product? How much did the customers love that product? Will the customers be absolutely distraught if the product goes away? Like, if Tesla went away tomorrow, I don't know what car I drive. I go back to driving a Corvette. I mean, I would be heartbroken if I couldn't drive my Tesla, right? And a lot of people feel that way about their iPhones or their Uber or their postmates or their Airbnb, like, that's how good the product has to be.

So focus on that. I don't care. You want to be one. The only problem I do have is when there's like five. Because then who's in charge and then how much equity is left? So then that becomes a math problem. Solo founder gets diluted 20%, 20%, 20%, 20%, 20%, okay, somewhere along the line, they own 20% of the company when it goes public, right?

Or something in that range. You get five co-founders. Okay, VCs come in and take 30%, five co-found. They give 10% to the employees, five co-founders have 12% each. Then they get diluted 20%. So they're down to 10%. They're down to 7%. And, you know, when you start getting founders into the low single digits,

you know what they start thinking? If I start over and I'm a solo founder, I can have 85% of this bleep in company. And I've seen it happen. And it's a real bummer. So you got to top off those founders. I have a little secret for that because I'm usually early in and I'm the early advocate. I'll just say to the latest stage founders, the latest stage investors, listen, this founder is at, I don't know, in one case it was like, I don't know, 11%.

I'm like, this kid's killing himself. He's got 11% of the company. The company had to raise money. It was a pretty hard situation. He doesn't have a co-founder. But I want to give this founder five points over five years. people were like, oh my lord, I'm like, well, he's almost fully vested. You want to run the company and we'll put the five points and we'll tie it to something like

performance or whatever. And I got everybody to do it. Then I was in another situation, happened to be a female founder. She was down below 20%. You know, I think it wasn't as acute as the 10% situation. I think she was at like 15. She wants to do the top off. She says, I want 10% where I went on 25%.

She had just taken a couple million dollars. I'm blurring some of the details here, so it's not identifiable. And I said, okay, I support you. But there's two other board members. You have to win over with this thing. And so she said, well, you talk to the board member. I talked to the board member. He's hardcore.

He's like, no, no. Hit your numbers for a year and then make a request. You still have 18 months left on your vest. When this investment, when you're through this vesting schedule, and you've hit this millions of dollars in revenue, then I think you can make that request. And I was like, okay, for me, I'm like, I just want to lock the founder in.

I don't want them looking over their shoulder. So great question. I gave you a little more information than he asked for. But no, Jason at calicanus.com doesn't care if you're solo or two or three. And my point about the Raul's story is, lo and behold, he started another company called Superhuman.

There are other partners there, but he's running the show, basically. And I think he's kind of a solo founder. Although there might be some folks who consider themselves like on the founding team. So there's a lot of like nuance to this as well. The way you know who the founder is, is there somebody who owns 30 or 40% of the company? That's like a solo founder.

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