This Week in Startups - Cathie Wood's new VC fund, Bill Gurley's best insights, Girls Who Code on banned books list | E1571

Episode Date: September 28, 2022

J+M break down Cathie Wood's new VC fund (1:53), Bill Gurley's best insights from his interview with McKinsey (26:13), and Girls Who Code making a banned books list in a Pennsylvania county (0:00) J+M tee up today's venture-heavy topics! (1:53) Cathie Wood's new VC fund: Ark Venture Fund (12:34) Embroker - Use code TWIST to get an extra 10% off insurance at https://Embroker.com/twist  (13:42) Opening up VC funds and early-stage investing for retail investors, signs of the start of a recession (24:46) Revelo - Get 20% off the first 3 months by mentioning TWIST at https://revelo.io/twist (26:13) Reacting to Bill Gurley's interview with McKinsey (33:51) FanDuel Sportsbook - Sign up with promo code TWIST to place a $1000 risk-free bet at https://sportsbook.fanduel.com (34:54) More on Gurley's insights: short memories in VC, accepting reality, startups raising too much money, layoffs (47:32) Girls Who Code made a banned books list in a Pennsylvania county FOLLOW Jason: https://linktr.ee/calacanis FOLLOW Molly: https://twitter.com/mollywood Subscribe to our YouTube to watch all full episodes: https://www.youtube.com/channel/UCkkhmBWfS7pILYIk0izkc3A?sub_confirmation=1 FanDuel Disclaimer: 21+ in select states. First online real money wager only. Refund issued as nonwithdrawable free bets that expires in 14 days. Restrictions apply. See terms at sportsbook.fanduel.com. Gambling Problem? Call 1-800-GAMBLER or visit FanDuel.com/RG (CO, IA, MI, NJ, PA, IL, VA), 1-800-NEXT-STEP or text NEXTSTEP to 53342 (AZ), 1-888-789-7777 or visit ccpg.org/chat (CT), 1-800-9-WITH-IT (IN), 1-800-522-4700 or visit ksgamblinghelp.com (KS), 1-877-770-STOP (LA), 1-877-8-HOPENY or text HOPENY (467369) (NY), TN REDLINE 1-800-889-9789 (TN), 1-800-522-4700 (WY), or visit www.1800gambler.net (WV).

All right, everybody, big show today. It's Tuesday. Kathy Wood from Arc Investments has launched a VC fund. It's a little different, Molly. VCs in this case are allowing retail investors to participate in what's called an interval fund. We're going to explain what this is and how it could change venture. Yep. We're also going to cover Bill Gurley's insights from his interview with McKinsey, Uncle Bill,

deliver in the knowledge. I'm just going to warn you now today. There's some chaos in today's show. Just be prepared for some impressions. It's the gospel, according to Bill Gurley, and we'll go through the gospel according to Gurley in detail. Lots of really great nuggets inside this interview. And then finally, we're going to talk about banned books because the girls who code book

got banned by a bunch of wackos. Yeah. So, just a quick reminder that we need a lot of people in STEM and technology, including some girls. It's going to be great show. And don't ban books. Don't be horrible. That'll be horrible.

It's going to be a great show. Stick with us. Stick with us. Stick with us. This weekend startups is brought to you by Inbroker's startup insurance program helps startups secure the most important types of insurance at a lower cost and with less hassle.

Save up to 20% off of traditional insurance today at Embroker.com slash twist. While you're there, get an extra 10% off using Offer Code Twist. Revello. Looking to affordably scale your product development with global tech talent in U.S. time zones, hire vetted remote developers in Latin America with Revello.

Get 20% off for the first three months at Revello.com slash twist. And Fandual Sportsbook. Use code twist during signup to get started with the no sweat first bet up to $1,000. All right, everybody, it is Tuesday, Tuesday, Tuesday. And actually some good Got some juicy venture stuff going here We got a little Bill girl We got a little Kathy Wood

Let's get right to it Kathy Wood I saw it today Is debuting a private company VC fund If you don't know who Kathy Wood is She runs Ark Ark is named after the Ark of the Covenant You know from Indiana Jones

In the Raiders Law Stock Molly Is it actually? Yeah it was the Ark of the Covenant They were trying to have immortal life Oh yeah no I got that but that's what this fund is actually named after? That's awesome. I believe that's what, you know,

it's the most sacred relic, right? Yeah. Yeah. And basically they put in the ark the stone tablets, the Ten Commandments are in the ark. So that was like the whole pursuit was the Nazis were pursuing the Ark of the Covenant in Raiders of the Lost Ark.

Oh yeah, she really did. She is a devout Christian via Wikipedia. Look at this. If I had just looked at our show notes, I would know that you were not making this up completely. She hasn't publicly traded. fund. She's very pro-tech. Her fund has gotten absolutely demolished after being absolutely surging

for a couple of years, you know, if you're going to bet on, you know, high volatility tech stocks. But today, there was news that she's doing something called an Interful Fund. So maybe you could fill the audience in on this private venture fund. That's available to public investors. Is fascinating. It'll be called the ARC venture fund. It will live under this larger ARC investment family, ARC's first entrance into private investments, and it'll be available to U.S. investors, including individuals, is very different from, you know, venture funds, even publicly raised venture funds, as we know them, because you do not have to be an accredited investor. It'll be available to anybody, including retail investors, individuals, for a minimum initial

investment of $500. Arc plans to also offer access to the VC fund to family offices, high net worth individuals, institutional investors much more like a traditional venture capital fund. It's not all private. Apparently, the fund has a target portfolio composition of 70% private companies and 30% public companies. And it's this interval fund, which I have never heard of. Okay.

I can explain this. I've been pitched on this the last couple of years. People said, hey, J-Cal, you got a big following interval fund would be perfect for you. I said, okay, hit me. How does it work? They say you get no carry. I said, what? They said, no carry.

I said, I said, we, but, blah, blah, so you don't get the 20% carry. So in a fund, like we do, we're raising our launch fund for,

I just did the third, I just did the third webinar and we've done extraordinary with this. Probably have too many accredited investors and probably will, well, we'll certainly be over-subscribed because you can only have 250 accredited investors.

You can have 2,000 qualified purchasers. Folks can look that up. But usually two and 20 is approximately what venture funds get. Some of them, if they're high end like ours, get 25%, maybe 30 if we hit a certain hurdle. That's become kind of the new standard for the top firms. And you get 2% over the life of the fund per year

for managing the fund. Those are the fees. Now those fees, Molly, come out of the return. So if you put $100 million to work and you had $10 million in fees, let's say, for argument's sake, and you return $200 million, dollars in returns, you have to pay back those 10 million in fees before you get 20% of the

gains. So that really aligns the investors, right? If we don't take down the fees, we get to profitability quicker. Or some firms, as we read in Sebastian's Power Law during bad years, took their management fees, and instead of taking them as management, they took those fees and they invested them. So they took less management fees, put more into the companies to go. who's returns, right?

And so there has been a problem here in Silicon Valley that people raise really large funds. They're getting 2% change a year, 2.75 in the start. Maybe it goes down to one and a half towards the end. You know, it sort of slides down on a scale. You need to raise a billion dollar fund. You're getting $25 million a year for the first couple of years and then eventually $15 million. And that's a lot of money.

And there's even been this kind of inference and occasional outright accusation, right? that the reason that firms are raising these huge funds is related to these fees, which I didn't totally understand since the fees have to get paid back. It's basically in the short term, having a larger fund means you get more cash up front, so you're taking less risk.

The risk is, of course, on the LPs because you're getting that money. And yes, you have to give it back. But so if your firm returns, yes, it's a wash. But there is a little bit of sometimes hand-wringing of, oh my God, it's so much in fees. Oh, they have four funds going at once.

They're overlapping. There's fees from each fund. But this is what drives the venture industry to have great teams, pay people well, et cetera, right? Especially as the, not really in the, you know, under $250 million fund size, but in the billion dollar fund size, you know, start getting big offices and that. So anyway, in this case, you don't get the 20% carry. What you do is you just get a straight 275, 2.75 percent. over the life of the fund. So just every year,

if this became a billion dollar fund, Kathy Woodenor team would make $27.5 million. There are other fees on top of that, which are for like, I guess, legal fees and other fees, withdrawal fees. And so anyway, people online were saying,

hey, the fees will be maybe over 4%. Now you look at a Vanguard fund, that's incredibly low fee, like bips, you know, that they charge, fractions of 1%.

Right. So, but the way interververts, funds work is they're kind of evergreen. You buy a bunch of companies, you sell, you distribute, but you have to offer up to 5% is redeemable. So every quarter people can redeem up to

5% and then get back 25% of their money, which is why they need to keep 30% in liquid assets like a stock. And then they can also take loans against the size of the fund of like 30% to kind of put more money to work with the idea that if things collapsed, you would sell some equities to go for that. So this is incredibly expensive. Is this, how is this, if at all, meaningfully different from like an index or an ETF? I mean, you're putting your money in, like if it's me. Yeah. And I put my $1,000 in. And I pay $47 in fees. But at least Kathy is investing my money. That just seems like,

that just seems like managed. You know, I could do. that through my bank if I wanted. Like I could just have a managed investment portfolio. But it would cost less. But this would be in an asset class that those mutual funds don't typically invest in. Okay. So it's very much like a managed investment fund, except as more expensive because presumably the theory is you get to invest in these private companies, so you're going to get better returns. Yeah. I think the idea here is to give people access to the venture companies, which if you did have some hit companies in there, I think they're going to do, they said in their prospectus basically that they're going to do

25, 30 private companies and I think 15 to 30 public ones. So they'll be like somewhere in the range of 50, 60 names in here between public and private companies. 70% private, 30% in dollar amounts in private versus public. Right. But this is all powered by a company called Titan, T-I-T-A-N. I looked them up. And they started

with like a crypto in fund, basically. And they do this for real estate. This stuff has existed for a while. And I guess the idea to get consumers, retail investors to participate. I don't like this because... Really, because you've been talking about this. Like, you've been saying that retail investors should have an opportunity to participate in private markets and it sort of feels like this is that.

I've been pitched on this for a couple of years. I didn't do it. I don't like the incentive structure here. The incentive for the GP, the general partner here for partners, is not to increase the value really of the, I mean, it is, theoretically, but because you're not getting that carried interest, I don't feel it's as aligned as it should be. You're getting this management fee,

but you're not getting the 20% carried interest, a split of the money paid out, which I think is a little bit more intellectually in line as an incentive. You feel like the people on the ARC team aren't as incentivized to go hard, empower law dynamics. Exactly. They're not as incentivized to get a 20, return for these investors because they are not,

but they're probably going to get paid like huge bonuses and. I guess they'll chop up this thing. Right? Yeah. So if they get 12 million in fees a year, they chop it up if there were, you know, I don't know, if there was a team of,

I would say you need a team of 15 to sort of manage this, 20 maybe. So they got 15, 20 people. And I'm talking about back office people who maybe aren't as expensive and then, you know, maybe you need three partners running this. So if you have four partners running it, they chop up 10 million,

year each, they make two million each, a million each. I guess it could work. But yeah, it doesn't have the alignment that, hey, we're trying to find an Uber here, we're trying to find an Airbnb, we want to make a 3x, a 10x fund. We want to turn 500 million into $2 billion, $3 billion, and then take 20% of the gains there. I think what they're going to do here is they'll just look at whatever the top companies are that are private, you know, look for the billion dollar companies, two billion dollar companies and buy secondary shares and be done with it.

That's what I would do if I was them. You know, like, you want to give people the least risk here so that the fund goes up modestly each year and you can just collect fees. So what would you do? You would look for like the figmas of the world that we just saw gets old or you would look for whatever other private companies were hanging around the rim, so to speak, you know, in basketball. Just people who are close to an exit. You just buy those shares. Maybe you double it. Maybe you go up 50%, maybe you triple your money.

And you just, it seems like not the right format. Now, I would love, love, love, love, if I could create an entity with $100 million in it, that 100,000 people could put $1,000 in each and let anybody in the audience participate in venture. That would be very cool, I think. But that doesn't exist yet, and this is not that yet. Okay, interesting. I'm going to quickly explain one of the crucial types of insurance. Every startup needs E&O insurance.

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All right, thanks, M-Broker. You do a great job over there. They do my insurance. That's all you need to know. This does feel like a nice stair step to that, though, for retail investors who themselves might be too risk-averse for 80% of their investments to fail. Yeah. But interested in returns that are better potentially than public market returns.

Although public market returns have, A, been insanely awesome over the last decade and no returns are going to be good for maybe the next decade. So, like, I don't know how this is going to be. Is this sort of like launching into a storm on purpose and saying, listen, public equities are going to really be terrible for a while here. Because we're in a recession. So this might, I would just wonder if that's part of the pitch around the timing happened. I think the this was probably underway for a year or two.

Titan's been around for a little while. I'm sure Titan was trying to get somebody high profile to do something like this to get people onto the platform. So they're kind of like a Robin Hood. The app actually looks a little Robin Hood-esque if you look at it. and they're trying to get people on there who maybe have credibility. So they have a crypto fund on there. Maybe they have real estate already.

So you'll be able to, as a retail investor, instead of buying shares in Uber or Airbnb and Google, you would be able to say, oh, I'll put $1,000 into real estate, a thousand dollars into venture, a thousand dollars into crypto. And I'll let these fund managers do their thing. So, you know, I like the democratization. I think this probably started two years ago. I bet you they were talking to Kathy a year or two ago before the market collapsed. And so this was all set to go out.

And Kathy does know probably the companies that are going to go public because she's in the tech space. She probably is pretty good at evaluating them since she knows technology already. And so it's a great brand extension for her. It might make a little bit of money for her. And it's very interesting. I think now is the time to invest in the, paradoxically, now is the time to invest in the public markets and the private markets because everything is out of well. Right. And so this is weirdly, I guess, the converse of what I was saying, which is like it's a nice stair step into a riskier investment without it being incredibly high risk, is that it's not high risk enough, I guess. Yeah, I don't know. I'm, it depends on what she invested. What if she does series A's.

It's just very interesting. What if she does series A's right? Like, yeah, like, so there's 500 million here and they said 30% to public. So there's 350. Yeah. She said they're going to put it in 30 companies. So what if they're. they just do, you know, a series, they do, you know, $7 million into 30 series A's. That's 210. And then they hold back $140 million, you know, for the top five of those. And they put another, whatever it is, you know, $10, $20 million into each of those. That could be a nice structure.

But that's a lot of work. And I don't, I think they're going to probably just go for like the $500 million to $1 billion private company market and just try to buy a slug of capital. And maximum like a optimized. optimize for near exits, basically. Yeah, this way, the time between when they invest and the company goes public or has an exit is five years or less. If they start doing seed investing or series A, well, they're signing up for a 10-year journey. I don't know if a- They're not.

And these retail investors are not into that. Because that's the other thing that, you know, retail investors are unfortunately, everybody looks for like, get rich quick or figure out how to get. When they talk about returns, they're not talking about returns on the 40-year time horizon that most of us should be. considering when we're investing in public markets or even if we were investing in private markets through mechanisms like this, this is like you're supposed to be doing this for retirement. Not I want 8% returns, you know, this year, next year, and the year after and then I'm going to cash out or whatever.

That doesn't. Yeah. And you're modestly liquid here. So if you were to put $100,000 into it and let's say in two years you needed money for college or something or you get divorced or something happens. you get that 100,000. Okay, you can take out 5K a quarter for 5 quarters. You get 25K out of it.

You still got 75K in it. I think you're not allowed to redeem everything, is the kind of hybrid model here. Whereas in venture capital, if you don't make your payments, let alone redeeming. If you don't make your payments, you lose your entire interest.

So if you were to put in 75K of your 100 and you don't put in the final 25K, Molly, which I think happens, you know, very infrequently for these funds, in a venture fund you lose your entire interest, right? So you've got to complete your commitment or else you lose everything. It is interesting, though. To me, it's right, exactly.

To me, it's a sign of this conversation we've been having about how the venture industry itself is changing. We're starting to see, you know, even in the past couple of decades, right, just sort of like different, this drumbeat of slightly different fund structures. And now there's like raise in public. And then there's, I don't know, be a solo GP just, roll your own on angel list kind of like, and now there's this,

this mixing of public and private, or, you know, Sequoia doing like a, an equity fund or it's just all, it's just all merging in a way that I think is super notable. Yeah, this company Titan announced in March of 2020,

they raised $100 million at a billion dollar valuation, which is nuts. Because I'm trying to figure out their business model. If they enable 10 of these, do they extract 10% of the, fees? Can they get 20% of the fees or something? So in the Welsh trade journal story, they said they're not going to take fees from Kathy, which probably as a celebrity investor bringing people to the platform.

They decided to not do that. But even if they did charge fees, like what could they charge 20%? So if they charge 20% of what Kathy Woods makes, or maybe she would pay 500K a year for this platform or a million, I'm not sure what they would be able to charge. Maybe they charge your 5% or maybe 1% of the capital raised, which would be, million. I don't know how Titan becomes a big business, certainly not a billion dollar company.

My guess is if they announced in March of 2022, this billion dollar valuation, they raised 100 million, 10% for 100 million. I bet you that was closed in 2020, when the market was really hot. I don't know what, I don't know their business model.

In the winter, yeah. They say they have 750 million. They're getting the carry. No, no, there's no carry. I mean, according to the overall general tight. the quote carry. They, they, they says they have 55,000 clients and more than 750 million under assets under management on the platform.

So could they make, I don't know, 10 basis points of that? 750, 20 basis points, 1.5 million? Maybe. I don't know what they could charge for being on the platform. Or maybe they're going to do their own funds on the platform and have like their own white label, you know, their house brand, their Amazon basics brand on their own platform. So they have Kathy Wood. They do it for free for her to get her brand, get her on CNBC talking about it. Right. And then those people will, that's customer acquisition cost.

If Kathy gets 100,000 people to do this, they pay $0 for those folks. So, Mm-hmm. Interesting. Money, money moving is getting weird. I wish there was something simpler here. If the SEC did a test. I want to see where, I like where this is going. It's, it's slowly were, these things have existed, by the way, for a long time. So this is like taking some old concept, which this was used for debt. It was used for real estate, you know, and they just applied it to venture. But we are slowly climbing the mountain of democratizing access to alternative investments and just access to investment classes, whether it's Masterworks or Vincent or other folks

who are just giving access to different asset classes. I think it would be interesting here, too, is if the SEC could solve all this 100-question test, you got to get 80 right. It takes three hours to prepare for this test, maybe five hours. You take an online course. You do an in-person course. You read two books. Just make it like the double a driver's license gun or scuba test. Like the scuba test seems pretty analogous to me.

Like if you're going to go scuba diving and you're going to be 100 feet underwater, and risk dying and you have to have a thousand dollars worth of equipment. Yep. If you want to be an investor, an investment manager or a financial manager, there's a test that you have to take to prove that you know what's happening in order to do that.

And the idea, it makes perfect sense that somebody could take a test like that. Because what I want to do generally as a public, like I don't have a managed fund. No, thank you. I don't want that my bank's version of Kathy Wood to maximize. for fees and do extra trades that I don't need to make because they get paid on every trade.

You know, it's like this is, this is, this is, the Arc Venture Fund is a middleman here. Yeah. For retail investors who would love to have access to a portfolio that's 70% private and 30% public. So why have to have somebody in the middle? Let me just do that. Yeah, just let people take a test. It's so easy.

Just like people take a test. The Series 7, the Series 65, all those tests. there is a way to take one of those tests to become an accredited investor right now. It's not super clear, but the SEC has said, like, that will get you accreditation status. So some people in college, there was a group of women at a college who decided they wanted to be angel investors. They reached out to me at some point. I'll try to fund the link. But they all just took this test together in their little investment group, and now they're accredited investors.

Now, they don't have a ton of money to invest, but they want to put $500K, $1,000 into deals. And I was like, sure, if you're sure. sure the SEC is okay with you doing it. Okay, you know, maybe you could join our syndicate. So I think there is some, you know, this will happen in the next two or three years. I'm pretty pleased. I literally just ran into a friend who hadn't seen in forever who told me he did the exact same thing, that he bought a house. And so then because of buying the house with his stash of cash, right?

He fell under the accredited limit because your house doesn't count. And so then he was like, yeah, so then I spent like six months doing the tests and the legal work to become. accredited as an investment manager and start a company that I won't, you know, I'm not going to take on any clients. I'm just going to use that status to be an angel. Yeah. If you're an investment manager, I have no idea that existed. Yeah. It's kind of a backdoor, um, which is kind of silly, like, why would I need to set up an investment company and do this like ridiculously long task? It's absurd. It's absurd. I can play blackjack. I could scuba dive. I could shoot a gun. I can drive a car. I could fly a plane. I can jump out of an airplane like with a parachute.

Let me do this with my own freaking money. It's your money and let you do what you want. One fact that you need to know about startups. Finding engineers is super time-consuming and super expensive. It's the biggest pain in the net in startups. I would say raising money is easier than finding great developers. Well, if you're looking for qualified international developers without the crazy time differences,

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If you're not satisfied, you pay nothing. So head to, R-E-V-E-L-O-com slash twist and mention twist to get. get that 20% off. All right. Speaking of money, Bill Gurley was interviewed by McKinsey. And this interview is trending on the Twitter. So I thought maybe pull out some of the gospel, according to Bill Gurley, and discuss it, would be interesting for the audience. Yeah, it's fascinating. He talked about, and this was actually in, interestingly enough, also in the power law and Sebastian Maliby's book talking about benchmark, feeling the pressure to become a bigger fund over the years.

So one of the things he talked about is why benchmark has state early stage and not become a multi-stage fund like so many others, A16 Z, Sequoia. He said, quote, our firm has a very unique focus. Around 85 to 90 percent of our funds are deployed on first money and early-stage investment. And our approach has become even more unique because so many of our competitors have gone multi-stage. And once you start doing late-stage things, he says, the current environment has a drastic impact. but if you're doing early stage, like us,

these kinds of swings, he said, don't really put you off the next incremental investment, which that on its own, by the way, it was fascinating. Yeah, it's a great, great insight. Imagine you're working at a firm, and you've got a $150 million firm. That's $150 million fund. That's our target for launch for.

You know, we'd be happy with 50. If we go to 150 grade, anything between those two numbers, it would be a great success for me. So, now you introduce a growth fund. Now you got a $600 million growth fund sitting here. And you're going to make, I don't know,

five bets of $100 million in change each from that fund. Okay, you start betting on some big companies and you bet like in this Titan company, right? A billion dollar valuation. And I'm like, how does that make sense? Like how much revenue do they have? I don't know. But that did shock me as like a big number.

considering what Kathy Wood's going to make from, you know, her portfolio, her fund on the platform. So penciling out the math, then now you have this huge distraction. Oh my God, what do we do with this upside down portfolio? We invested at a billion the company's worth 250 now. We invested at $5 billion the company's worth $600 million, whatever it is. Now you've got to explain to those LPs. Oh, my God.

You know, we deployed 600 million of your money. It's worth $150. we're, I don't know if we're going to 4X from here and get your money back. And then you're doing great with your Series A investments. That's doing great. You know, your 150 is going to turn into 600 million. So now the person's looking. Okay, you triple my money here and you incinerated 75% of my money here.

I'm now even. I'm going to be exactly even between your two funds. I try to do the math that way. But let's just say, you know, you got destroyed on the late stage fund and you did wonderful in the early stage. Yeah, yeah. It just makes life complicated. And you have to get, we've been talking about this so many times, like the multiples get unmanageable. If you have a billion dollar fund and you have to return $20 billion, it's so much harder.

Yeah. It's really hard. It's really hard. So anyway, yay us, also staying small. Love it. He says, raise what you need is what I say. You know, not even staying small, but I think appropriate is really like, there's an optimal. number here. And if you go too far above it because you can,

yeah, you just be careful. I think is what Bill's trying to say here. So I just love this first concept here. Yep, exactly. So then he taught he's of course asked about the downturn and and timing, right? Timing your investments. He says, quote, there have been plenty of great companies started in the troughs to suggest there's no reason to stop investing. But he also points out the same thing is true at the peaks. There were firms that pulled out in 96 because they thought things had expanded too broadly and they missed three of the greatest years of returns in the history of the business. He said, we really tried to learn from our mistakes. We tried to expand internationally once, but it didn't work for us. So in about 2006, 2007,

we capitulated and went back. And our conviction and our focus was even stronger because we saw that we did better work once we refocused. We have that on our mind as everyone in the valley started expanding in more recent times. And I will tell you, he says, for the six or seven years prior to the past year, people would meet with us and tell us that we were stupid, that we were leaving money on the table. But in the past six months, that's all reverted. Now it's all, oh, you guys are still brilliant. To be fair, Jaycal always thought he was brilliant all along. Well, I mean, like, listen, I'm lucky enough to be friends with Bill and, you know, I get to ask him questions and I get to ask other people questions in the industry, rule off. I got to set a mentor that's second to none.

I don't know if they would consider themselves mentors to me, but, you know, when you get to ask these kind of folks questions, oh boy, does that a privilege? And, you know, when I read this and I read it twice, actually, just to get the nuggets from it, I think what you're seeing here is a great company can be built at any time. And great companies are built through up and down markets. So there is no better time for founders to start a company than yesterday or today. You should have started a yesterday, you'll probably start today. That is true in the up market, in the down market, and everything in between. If you've got a great idea and there's customers who want your product, there's no bad time to start, but there are differences to how things will work when you start. What he's saying here is great investors should do those early stage investments in the Dow market or the up market, right? Because the great companies will go right through those markets.

They're weathered those storms, the highs and the lows, high tide, low tide, everything in between. But it will be different in terms of the qualitative difference for a founder will be there. So he mentions like, you know, like in a, there used to always be this real estate problem in the upmarket. Oh my God, where are we going to house our people? Well, now you have remote work and there's more real estate available than ever. That whole, you know, hand-wringing and problem of where do we place the company? how do we find a developer within 20 minutes of our office? All that's gone now.

You can find an iOS developer anywhere in the world, and maybe they speak English, maybe they don't, their code's good, does it matter? No. So now you're seeing this embracing of 24-hour development cycles as but one concept and anybody being able to go anywhere in the world. And then you look at management teams. That was the thing he was worried about, like,

oh, all the management teams will be here in the Bay Area. So, you know, maybe that will be the thing that works. Turns out, you know, you can build a management team now remote, or you could have them all in Salt Lake City or Miami or Austin or other places. So things are just changing, you know, radically for founders, and it's getting cheaper, faster, better. It's cheaper to deploy capital in a down market. You can go faster because there's more talent available.

And you can do a better job because, is more talent available. The end, right? So it's really nice to operate in a down market. I will say, like, think about your marketing dollars. If you're buying podcast advertising in a down market where there aren't as much, isn't as much competition for podcast ads, you can maybe negotiate a better deal.

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The official sports book partner of? The NFL, that's right. They're the official partner. One other thing he notes is that, when they ask him about, you know, sort of this downturn and how painful it might be. And one thing that he notes that I think is really specifically valuable is that he says, this run lasted a long enough time that it may have erased some memories or encompasses like a generation of investors who have not known a downturn, those sweet summer children. and he says, and I quote, the collective venture community needs to get its head around the new reality as fast as possible. And the more people see what's really going on, the quicker that will happen.

He says in 2009, the response to the downturn was pretty swift, but you had the benefit that 01 was only seven or eight years in the rear beam mirror. There's some institutional memory around the valley, he says, but it's been a very long time since 2009. Yeah. Which I just thought was such a good point because honestly,

like, I tweeted this the other day. I was like, look, I don't have any reason to think this, except that I was there in 2000 when you just felt it turned. And I was there in 2008. And I remembered this dinner that some friends and I went to where we all sat around the table and we're like, yeah, this is going to be pretty bad. There's a feeling. And that feeling is right now.

Like this downturn, we've been waiting for it to start. We've been in the anticipation phase. The tide has gone out. on the tsunami, but now it's here. Yeah. It's here. You have to adjust. And if you don't adjust, you can die.

So this goes for investors and this goes for founders as well. I did a tweet just the other day, just saying like, listen, take this seriously because there are some companies and founders maybe who are straggling and hoping we're going to bounce back to the way it was. And we're not going to. And if we do, it's a 10-year journey to get to that level of insanity. if we ever get there again. Yep.

Like the distance between the dot com mania of 2000 and the 2021 mania was 20 years. Literally 20 years. Pause for a second. It took 20 years to rebound. Do you have

240 months of runway to wait and 20 years of your life to wait for this to rebound? This is not coming back. I'll be retired when this comes back maybe. Who knows? We don't know how fast these things

come back to. there is no more time to pretend that it's coming back. You just have to accept the reality. And the reality is, yeah. Yeah. It's bad. The reality is bad. Here's another bananas quote from this interview. He talks about these companies raising insane amounts of money, right?

He goes, some have raised 500 billion, three billion. There was no precedent for sums like that. And some of that money says Bill Gurley might be dead money. You want to start a podcast to? today, by the way, about the recession, call it dead money. That's an incredible name for a podcast. Yeah. So wait, wait.

He's saying people raise venture funds, raise that or companies? He's saying companies raise that. There's been a huge volume of capital on the scale of the companies is radically. 500 million. This must be a typo in this story. Yeah, exactly. Some of raise 500 million, three billion. But so he's saying that these companies have huge amounts of revenue, but some with massive losses and companies that maybe have raised three billion dollars.

You always wonder if he's secretly talking about Uber? in this case, I don't think he is, but he's like, some of that might be dead money for VCs, I assume. He means for those investors. Yeah, I mean, if you put that amount of money into a startup that doesn't truly have product market fit and is not growing,

you put so much money into that company. That company should really buy back the shares from investors and then have a smaller amount of money to go forward. And I don't know how you even begin to have that discussion. I do think like there have been some companies buying back shares. I think I may have read that TikTok in fact was buying back some shares from early investors to lock in a win for them because they had

so much money in their coffers. So if you have a ton of money in your coffers and the company's valuation has come down, just like public companies will buy some shares back. It's not a bad concept is to set up a facility to maybe buy back some shares from your early investors and reduce the number of shares in the company maybe. But this is definitely going to get weird because if you have that much money in the bank account, it leads to weird behavior like, I won't do the layoffs. Now, this article, I think,

I think this interview was done on August 2nd because he does mention in the first question, oh my God, Robin Hood just did a riff, reducing workforce. And so they laid off 23%, and he asks him about this. So I think that this article is six weeks old, which means, you know, things have gotten.

Or last Friday when it really started? Well, we had a double bottoming out process, right? So the market bottomed in June. I did a bunch of J-trading over the summer. And remember I said, I think it's going to bottom out again, maybe another two times,

and it'll be like this sort of, and that just was last Friday. So I'm actually thinking of buying equities again and starting the J-trading train up again now. Yeah. You know, that we're going to sink for a little while longer. It's just that the cycle, we're going to report in 10 years that the cycle started Friday.

It's possible that you could, yeah. Maybe sideways. I mean, as we've been talking, it's been dropping more and more and more. So, like, we've still got to, like, a freak out. And we're still way above, I think, 20, 21 levels. Like, we still have more to fall. We could. Yeah, I have a feeling that the cash on the sidelines is going to want to maybe not be in cash for much longer.

So all that cash that's sitting on the sideline, people are eventually going to say, well, these are the winning companies that are undervalued. And I'm going to buy my shares now, whether it's Disney or Amazon or Apple, people are going to just start. place, I think people are going to start placing some bets now. The thing that I do think is going to happen, and I think it's related to this reduction in workforce, he says, in this story, Bill says, like, hey, listen,

the thing I hate about these reduction in workforce is doing multiple ones, because if you do 5 to 10%, I don't know if you have that quote there, but this is a very important one that's worth reading. This was amazing. He was like, I hate that. Let's see, let me find it. He goes, I hate the 5 to 10% layoffs. You don't get any material

impact to lowering your expenses yet you get all the cultural negatives of having done a layoff you get a hundred percent of the pain and very little gain and then you're in retweet land you end up with two or two or three of them which i can't tell you i mean i have a friend who's at this company right now who keeps doing these little drib drabs and and it's and then it causes good people to leave because it just is like this constant like get it over with yeah i agree so much with this You know, when you do it two or three times, and it's hard to do layoffs, it's hard to face the music that you may have overbuilt. Now, I think a way to get through this, Molly, psychologically, for founders who are struggling with this is, I decided to hire a year or two in advance.

And I had this talk with Toby from Shopify just this last Friday. And it's an episode worth listening to because he says, listen, I made the decision to hire a year or two out to have this extra capacity. things reverted, I need to take ownership of that. So if you think like Toby does and he's pretty successful, thoughtful founder, okay, you made the right decision then. Compete for talent, get people in the door, and you know, you know that you're going to have work for them in the coming 12 to 24 months. Now, because either revenue is compressing or you don't need as much or you need to show

more profitability or you need to extend your runway, the situation has changed. And that's what Bill keeps saying in this piece. situations change and he was specifically referring to Robin Hood, which did multiple rounds of layoffs. And I really like this idea of the material impact. You know, five or 10% cost savings isn't going to do anything. But when you have 25% cost savings, okay, well, now you can, you know, if you lost 10% of your revenue and you cut 25%, you know, like maybe you're going to maybe even increase your earnings or extend your runways. And that's really what you're looking to do here is make a material balance sheet decision. Five or 10%?

Not material. 20% material. I've been very lucky in both companies. I mean, I looked at inside. I looked at launch. Okay. I looked at the dashboard. I looked at the amount of cash.

Look at the amount of revenue. I was like, oh, I underspent in both companies, kept them both profitable. Therefore, you know, if we don't do anything, I guess we could come back down to break even. Okay. That's a risk. That's worth taking for me. I don't need to make cuts.

But I did look at it immediately, not to scare everybody on the call. But obviously, I did if I'm talking about here every day. I was like, oh, I understand. I said, let's keep our expenses loan, be profitable and keep cash in the bank. Okay? Good for me. I got it right, but I probably missed some opportunities by not going faster over the last five years. So, you know, pick your poison.

That is, I think, so much of the conversation that's happening now is like, did people go too hard and were they irresponsible? And should companies have raised so much and should venture have put that much money in the, you know, but like you play a different game depending on the rules on the field. If it's an up market, the rules are different. It's a different game. That's what he says. He says that.

Play the game on the field. He literally says play the game on the field in this interview. That is hilarious. Unconsciously. I probably just like absorbed it. What do they say? Make hay while the sunshine. Is that the term?

Something like that. Yeah. There's like a make, make hay while the sun shines. Yeah. It's like a famous expression. He literally says you have to play the game on the field. So I was just looking at this paragraph.

I bet I did. I bet I like psychically absorb this. But it's really true. And what I like about this, what's so great about this too is that. This is just like Bill Gurley is like the Valley's dad, right? Like he's just Uncle Bill is out here telling you you need to wise up, take your medicine, get out of denial. Yep.

Quit trying to kid yourselves here. Drink a glass of water. Put your seat up on. Exactly. Hydrate and do the hard work. Pee before you leave. Before you leave. Just old old pee before you leave.

Good old pee before you leave. Hold the door and the air conditioners on. Eat your vegetables. Get a good night sleep. Were you born in a barn, close the front door? You know, like that, yeah. I mean, all these things. Uncle Bill.

Uncle Bill is basically out here just being like, why's up? This is, it's very Eckhart totally. It's like, look, that was then. This is now. Now is now. The only thing you need to worry about is now. Here's the thing. He says, responding to a question on if a company could ever be too aggressive with life,

as Bill says, gospel according to Gurley. Gourley, Gossip. Girlie gospel here, okay? Girlie gospel. I've never seen that in my history. Everybody says, we're going to the bone. We're getting to the bone. Everyone says that.

And I know it's a touchy subject because people are losing their jobs in all. I added to the in all. But companies, even small startups are way more resilient than people realize it's the norm that you cut 30% and everything keeps on going. You don't lose your customers. And some people find, oh, wait, we're moving a little bit faster. No, that is my bill girl at the poker table. It's amazing. It sounds a little.

And now everybody does it. Chimot does it, Sax does it. Really? Oh, yeah, it's pretty funny. He hates report, I think. At the beginning, I got a little Bill Clinton from it. It was giving a little Bill Clinton, but it came back around. It did, yeah.

Sometimes things get better. I mean, yes, eventually some companies go bankrupt, but I've never seen someone do too much. You can always hire back. I think 95% of the time the failure is the other way of not doing enough. Gospel according to Gurley. Amen, praise Jesus. Pee before you leave.

Hallelujah. Pee before you leave. leave. Amen. Praise Jesus. P. Before you leave is beautiful. I want that to be like, I want that to be just girly merch. Like it's a mug. We should really make. Curly gospel. Pee before you leave. Amen. One layoff. One riff. One riff. P before you leave. Absolutely. Invest in any market. Bring a protein bar. Oh my gosh. We're a helmet. All this stuff. Yeah. Oh, it's lovely. But yes, I think what we're trying to say people, it's changed.

Things have changed. Things have changed. Not in crypto though. Crypto is still doing crypto. This being bananas. It's like, I know we have the crypto roundtable tomorrow. I know. So I don't want to waste it all.

Maybe let's, you know what? I really want to talk about this Girls Who Code story. Can we skip ahead to this? All right. Now, I saw this come across my feed. So I saw this because my homie Rushmae Sajani posted it, who founded, of course, Girls Who Code on her Instagram.

and it appears to have in fact been the case that in the midst of a huge shortage of workers and education around STEM and coding and technology that the central York School District of York City, Pennsylvania, which serves 40,000 people, banned among many other books, Girls Who Code, removed the Girls Who Code series and quote a range of other children's children's. books with any tincture of off-white diversity from its classrooms. This ban is not currently in effect. It lasted 10 months between 2020 and 2021 because local activists lost their GD minds and were successful in reversing it. But it resurfaced this week after a group called Penn America published a nationwide index of banned books from the 2021 and 2022 school year. And this included once again, girls who code. A book series in which the protagonists are black, Latina, Asians, and Muslim,

and I believe also white girls. These activists convinced this school board, this conservative group, convinced the school board to ban about 300 books that they thought were problematic, like Malala, my story of standing up for girls' rights, a book about Pele,

the soccer player that's in Spanish. Yeah. A book called Who Are Venus and Serena Williams. and then I would like to reiterate girls who code. Wait, I am Rosa Parks also on this list. Yep. Yep.

Yeah, I don't think you need to ban that. Who are Venus and Serena Williams. Yeah, I don't need to ban that. Yeah. I think like if we're at the point where we have a truly catastrophic, I mean, listen, setting aside,

everything that has to do with, oh, we banned a bunch of books because they have brown people in them. Yeah. Right? which is 100% indefensible. The point at which you're saying, not only do we want people not to be brown or black,

but we don't want girls to have careers in technology is just like, I'm sorry, tell me again what your goal is here because you're just, at that point, you're just kind of hurting America. We need girls in stuff. This is notable because this is so obscure and insane. Like, there are these last pockets of insanity like this that exist in the world.

And oh, they're growing, though, is the thing. No, I don't think so. Come on book bands. No, book bands are way on the way back. All right. Well, maybe. Maybe I think for, okay, so I think there's this, ones that involve gender and sexuality I would agree with. Because there is a reasonable debate to be had of when do you introduce sex education or gender in schools, right?

Like, I think you could have like, I don't know what the ages. I was listening to Sam Harris and some other people talk about this. I don't actually. I probably should study this, like, since I have kids, like, at what age do you introduce gender? At what age do you introduce sexuality? I don't actually know, because when I was in school, when did you get sex in? Sixth grade, seventh grade, eighth grade? I think it was seventh grade for us.

Do you even remember? I don't know. I mean, honestly, I don't really know. We, yeah, I don't know. Early in my household, probably later in school. Right. And then who should be responsible for introducing it? The parents.

Banting efforts are on a record high trajectory for 2022. For which type of books? Because I think this one for people of color makes no sense. That's just dumb and insane. But I do think there's a reasonable discussion to be had around gender and sex of when those happen. Oh, this is Fox. Yeah. Yeah.

That's what I'm saying. Well, who knows what the... Well, no. They're talking about how it's mostly some of the most targeted books include My Echo Bobby's graphic memoir about sexual identity, gender. or queer and Jonathan Everson's lawn boy are coming in. This is just an actual news story from Fox. They once in a while

still do this. Yeah, irregular. Sometimes they actually will do like a Reuters. So this could be like a newswire story too. The website. So who knows? Like when you were looking at these websites, just to find, just for media literacy folks, there's a thing called Reuters and AP. Those are like news feeds

where journalists who are you know, center, will write a story and then both New York Times, Wall Street Journal, Fox, anybody, MSNBC could rerun them, but they can change the headline. So they'll frame the headline differently in the story.

So just for your awareness, look for if it's of Reuters or AP byline. In this case, their sourcing is from the American Library Association, which put out a report saying. Oh, so this is like a byline article by somebody. About a report that came out. This is news reporting about a report that came out.

I know this is what Fox has done to itself. I think I nailed it. This is really about. gender. This is like the hot bun issue for parents. It is not really about gender. Like it is just the first two books were gender. Yeah. Okay. It is about gender. It is also about race. It is also just dangerous and bizarre. Okay. Yeah. But I mean, I don't want to. I mean, this is not the show for a step. The conversation about when people should be taught about gender. Like, come on. Well, I'm, I'm just bringing up this insanity of the girls who code is truly insane.

And then I think this other one of book banning with gender or sexuality, there is definitely a reasonable discussion at what age to do that. And do parents get to decide or, you know, and just disclosing that to parents. I think this is like another one of those issues where people should just talk about it in normal terms. Like what age? I don't know the answer. I'm not like a psychologist. Why are you? Why am I what?

Go ahead. No, it's okay. The reason I brought it up was because I think that this one stands out because when I saw this, I was like, this sounds like a crazy group of racists, right, on the side. And I have seen the other book banning, but all the book banning has to do with gender and people are really tweaked about trans or people transitioning or even bringing up to kindergartners or first graders. Because they're tweaked about that is why they're saying there's this reasonable conversation to be had about when kids learn about gender and sexuality. but the truth is like that's just that's the phrase that everybody uses to introduce the idea that like I don't want my kid to know about this when in fact I feel like is it has there ever been when in fact that just leads you straight to book banning has there ever been a downside to too much information? Has there ever been a downside to too much information? Yes, you wouldn't you wouldn't have kindergarten. and first graders learn about the Holocaust or murder. Actually,

mouse is on one of the books on the band list. Well, Mouse is very graphic. I've read that book. It's incredible. I would recommend it for maybe 7th or 8th grade. I don't know if it's appropriate for a first grader to be exposed to what happened in the Holocaust in such a graphic way. Right? I mean, I think that's, you're asking me.

So there is an age in which more information is probably not good. Murder, serial killers come to mind. Like, at what age? people learn about those things? Like, you don't want your kids having nightmares. Now, gender, sexuality, like, what is the age? I mean, I'm not a prude, but, yeah, I would definitely, and then there's the outright asking people what gender they are.

That seems to be a trigger for a lot of parents. Like, asking a kindergarten or first grader to identify is, I think, what is making people uncomfortable. That's what I've read. What do you think? I think that's a separate conversation from banning books. I just always hear that particular question come up in the context of like, this is why it's fine to ban books. And yeah, there's a difference between banning books and when to introduce them.

Sure. And librarians, for example, have been great at having that conversation for hundreds of years. Right? Like, we're pretending that there's this some sort of like material being placed in front of children that's not developmentally appropriate. Like libraries have age groups. There's, you know, teachers are trained in development. appropriateness. Like, I just think every time that conversation starts, it's not in good.

It's like that particular question has been used not by you necessarily, but not in good faith. Yeah. I mean, when to introduce books or when to introduce topics and banning books are two different things. Right. It's two different. I mean, and also, the librarian in Berkeley or Oakland or San Francisco might have,

and the community there might have a different view than the one in Texas or Florida. Right. what is an appropriate age, right? And so I kind of default to like having an open dialogue of us and have parents have a say in it. But I do think like, then you could have these edge cases where the parents have a say. And they're like, yeah, my say is no black people and no books about black people. I mean, exactly. This is what this is what.

Like everybody's like parents should decide what happens in schools. Like you have a school board. We have a representative democracy. You have an elected school board of officials who have studied things like, child development, behavioral, hopefully, you know, psychology,

like, hopefully. That was that has been the theory. Some of these school boards are getting hijacked. They get stacked with people who want to like ban books. Or either way. They get stacked either way, yeah.

But again, even this idea of like parents should have a say. Yeah, they have a say. That's why we have school boards and principals and teachers and experts. And you're supposed to be able to in a functioning society outsource those decisions to people who know about them. Because in fact,

you do not and may be a racist. And then in San Francisco we had a bunch of lunatics running the school system and they all got repealed by the parents. Exactly, because that's how the system is supposed to work. The parents were like, look, that got out of hand. Yeah, they're like, yeah, maybe you could educate our kids instead of renaming the schools.

We focus, please. We had this big recall here, right, in San Francisco. Anyway, listen, we're not going to solve this year in this weekend, start us, but you don't need to ban books about, you don't need to ban the car. I think we could say you don't need to ban any books. The Malali of it.

book. I don't know about any. Maybe. I don't know. Books about explosives, I think are on the list. You can make editorial decisions as a library, but like this, I mean, well, I mean, uh, in certain, I mean, uh, in certain. Bending books about coding because there are little brown girls in them is just like beyond the pale. Like this is like we can agree. Yeah. This is like some weird group of like crazy racists. Um, this is not like the discussion of should you allow Nazi books or Nazi documentaries? Like, that was a very interesting one for me. Like, like, Lini Reefinstral, I had read her autobiography, and I watched her films. They were like seminal works of film. They also happened to be propaganda for the Nazis. And you could watch Olympia. You could watch Triumph of the Will. You could watch the blue light.

You could watch her films, which would be at film festivals. I saw them actually at the film festivals in New York. Because they used to be into independent film. And like in some countries, like, you know, in Germany and France, they don't let you even sell those. Yeah. So you could own a DVD from the Criterion Collection in America. and it's banned in Germany and banned in France for obvious reasons. They have a different sensitivity to it. Yep. Actually, it's happened to,

I think, do you remember when Yahoo auctions got in trouble because somebody started selling Nazi memorabilia in France? Oh, yeah. I do remember that. You could, listen. They took it down,

and that was like proto-radical free speech freak out. It's weird how much overlap there is between, anyway. Well, I mean, you think about it, like, you might have a different sensitivity in Europe to the selling of not to rememberability because you might actually still have Nazis. And different laws.

Right. You have different laws because there's still Nazis there and they're still like a Nazi contingent. You know, and there might be Nazi bloodlines. All right. So anyway, we got to Nazis today. Anyway, goodwood's law. Exactly. And it happened. And seen.

And time to end the show. And time to end the show. We got to Nazis. Tomorrow we'll do crypto. Yeah. Unrelated. Unrelated topics. But we are back with another crypto roundtable with Sunny and any which is fast becoming one of my

Like, this is such a fun segment. Those two are great. And there's tons of news. Tons of news. I'm sure it has been a little bit of a chaotic day. And frankly, I expect that to continue throughout the week. I mean, we got to book bannings, gender, Nazis, and Bill Clinton impersonations. This episode, we'll see what we got to it tomorrow. And has it all. See you then. Okay. Bye. Thank you so much for giving us an up vote. And Hillary, she's here. Give us a thumbs up and do what's ride for the American people, Mollett's so ill. It's so upset.

I just want to say I was watching this week in startup and I watched you and the work you did at Marketplace. I'm so uncomfortable. And how we survive, Molly. And I asked myself, I was talking to Chelsea about how we in fact survive.

And I said, Chelsea. How are you not upvoting this? How are you not smashing that leg button right now? Smash that like button. And I don't want to I watch you smash that lag button. Like I smashed Putin.

No, no. I smashed Putin back. What I said? I smashed Putin. Oh, Lord. Why are you raising a reflund? Because this is your Bill Clinton. It's always going to go bad.

Molly, I just want to say, you know, when we were in office, we took an approach both sides of the aisle. Let's lower the deficit and let's meet halfway. And if you meet halfway, you know, I consider some people on the side of the aisle. We disagree. We disagree. A 25% riff, 15% riff, 20% is in between those two numbers. Let's just get the riff done as Girlie says. I'm not.

I was a improv on this one who said, I'm going to pee before I leave. Thank you, everyone. I hope that works. I hope we got some up votes out of that. Hope you smash that. I got 20 of us out of it. My Clinton. Boom.

Bill Clinton always works. I used to do my Bill Clinton a lot in the 2000s and 90s. That explains why the girly like starts there and then settles. Oh my goodness. I know. I met Bill Clinton once and we watched an old Simpson's up a bus. I asked him about the carrot interest and I said Mr. President, that carried interest is a real big part of what makes the economy go. No, Bill.

I agree. I agree that you should get that carrot interest. But I just want you to see you invest in education and health care for the American people. We can all agree on that, can we, Bill? Well, I don't know, Mr. President, but I can't go back and forth between the two. It's too hard. You can't. I know, totally. Bill's a lot of work. That was impressive.

It's a good bit. It's a good bit. When Bill met Bill. When Bill met Bill? Bill on Bill. I'm just a bill. Mayday. I'm only a bill

And I'm sitting here on Capitol Hill Conjunction, Junction What is your function?