This Week in Startups - Do startup employee stock options need an overhaul? Softbank's failed Arm sale + Growth University's Craig Zingerline | E1387

Episode Date: February 16, 2022

Catalyzed by a Ryan Breslow viral tweetstorm, we break down the arguments for if companies should loan money to employees to allow them to exercise their stock options early (1:42). Then, we briefly cover Nvidia’s attempted Arm acquisition falling through and what it might mean for the SoftBank-owned chip designer (30:21). Finally, Molly interviews Craig Zingerline from Growth University, a LAUNCH Accelerator founder (38:00)! (0:00) Jason and Molly tee up today’s topics: Bolt CEO strikes again, Nvidia’s failed Arm acquisition, interview with LAUNCH Accelerator Cohort 24 founder Craig Zingerline (1:42) Jason breaks down employee stock options and how equity works at early-stage startups (10:29) OpenPhone - Get an extra 20% off any plan for your first 6 months at https://openphone.com/twist (11:27) How has Bolt CEO Ryan Breslow changed equity options for his employees? Is this new model smart or way too risky? (21:19) RealGoodFoods - Go to https://realgoodfoods.com and use code TWIST for $15 off! (22:41) VC response to Bolt’s new stock option plan, Jason’s final thoughts (30:21) Nvidia’s failed acquisition of Arm, is this another SoftBank flop? (35:21) Teeing up the Craig Zingerline interview (36:50) Ourcrowd - Check out the deal of the week at https://ourcrowd.com/twist (38:00) Molly interview current LAUNCH Accelerator portfolio founder Craig Zingerline about his startup Growth University Check out Growth University: https://growthuniversity.io/ FOLLOW Craig: https://twitter.com/craigzingerline FOLLOW Jason: https://linktr.ee/calacanis FOLLOW Molly: https://twitter.com/mollywood Ryan Breslow's Tweet in Question: https://twitter.com/theryanking/status/1493390167461224451

Okay, everybody, we have a huge show for you today. First up, Bolt CEO, Ryan Breslau, is back in the news again. Today, he's talking about stock options, which will break down the arguments on both sides. Then we're going to briefly cover there are so many, by the way, and so many Twitter dunks. Then we will briefly cover Nvidia's arm acquisition falling through and whether that is another big soft bank bet that might need a repricing. And finally, Molly's going to interview Craig Zingerline from Growth University. This is one of the companies in our accelerator currently. We're going to be sharing with you a couple of those companies.

You can get to know them early. It's going to be a great episode. Stick with us. This Week in Startups is brought to you by Open Phone. As a startup founder, a lot of mistakes are easy to roll back. But using your personal cell phone as your company number isn't one of them. Open Phone makes it easy to get business phone numbers for you and your team. Right on top of your existing devices.

Visit Open Phone. dot CO slash twist to get 20% off your first six months. Real Good Foods is modernizing frozen foods and has become one of the fastest growing food brands in the U.S. Everything Real Good Foods makes is low in carbs, high in protein, and made from real food ingredients. Go to real goodfoods.com and use code twist for $15 off. And our crowd helps you invest in pre-IPO companies. companies alongside professional VCs. If you're interested in investing, you can join Our Crowd for free at OUR-CROWD.com slash twist. All right, we're back. We are so grateful to Ryan Breslo for his continuing contribution to the content of our show. Of course, we are referring to Bold CEO,

Ryan Breslo, who rocketed himself into the news recently by taking on the Stripe and PayPal Malfia outing, breaking that story to the whole entire world. Then maybe like stepping down as CEO and I think maybe he's got like a new company that he's trying to build and then blew up the internet, at least BC internet yesterday, by tweeting about how he wants to innovate on Bolt's stock option program, which he believes is designed to be more employee friendly. And I feel like this is a good chance to get some of J. Jason's knowledge in here on how this stuff normally works before we get to sort of like what

he's trying to do in his weird, can I just say very telemarkety sounding tweet thread? Yeah, he's kind of selling this stuff hard right now, but we do appreciate the content. We've talked about the issue of stock option. I mean, he's kind of like the fourth producer here. Thank you for you. He really is. He gives us like a story a week. It's great.

I didn't have like an obvious headline today until boom. Yeah. Thanks. Great. So there's a lot to unpack here. So for people who are new to stock options, when you go work for a startup, you get paid very well, typically,

unless it's in the bootstrapping phase when there's no money. And those people get a lot of stock. They bootstrap, they maybe take no salary for six to 12 months while they try to raise money, or they might take a small draw if the company's been funded with 100K or something by friends and family

or the founders. So when you, you start hiring employees, you make something called an ESOP, ESOP, employee stock option plan. When you create an ESOP, there are standards for an ESOP. So when a board starts having board meetings at your startup, a VC joins the board, a seed fund joins the board, you want to retain talent. They're coming for the adventure of a startup to have great responsibilities and be a leader and a company that's starting with just 10 people. And there's some lottery tickets given out. Those lottery tickets are called stock options. If you were lucky,

enough to work out Google, Apple, Facebook, Twitter, etc. Those lottery tickets paid off. My friend Chamath, Polly Hoppitea, was a venture capitalist, had worked at AOL, and the way he became Chimah was he got the lottery ticket of Facebook stock options, right? So how does it work? You're granted a certain number of shares from this ESOP, and ESOP is typically 10% of the shares of a company taken out of the founder shares. So the two founders own 80%.

They sell 20% to angels. Then a venture round comes along. They dilute another 20%. Maybe they get down to 70 or so percent. And then they give 10% of their shares to the employees, typically. Or sometimes those shares can be added and everybody takes the 10% dilution at the same time. Generally speaking, Molly, the VCs who are buying 10% of the company do not want to add the stock option for the next day and go down to 9%. It seems kind of unfair, right?

So usually it comes out of the founder shares. and it could be refreshed over time. The company gets bigger. They might add 5% more shares, 2% more shares. An employee vest those shares over four years. If they leave the company, they have to do something called exercise, which means they have to buy the shares. Because when you're getting these shares, they're not just gifted to you.

In big companies like Facebook or Google, they might give you RSUs, restricted stock units. They actually just gift you the shares, you pay tax on them. And they're literally just giving you the shares. They show up in your e-trade account. account or Robin Hood account or Morgan Stanley account. And you pay tax on them. You get a $100 share, you pay some tax on it. And I think those get treated as income.

Now, if you have stock options, the option to buy them, there's a strike price of a penny a share at the seed round. It's a dollar. At the Series A, it's three. And let's say at the Series B, it's five. Or let's say it's even 10. You had a strike price of a penny for it. That means you were given that with the option to buy the share for a penny.

if you sell it at the $5 price, you have a gain of $499, yada, yada. If you, what he's talking about here in his tweet storm, then that's all fine. Right. When people leave a company works. That's the way it works generally. Currently.

And it's been through some iterations, which we'll get to. There are some iterations. The number one iteration is the exercise window. Typically, when you leave a company, whether you leave or you're fired, involuntary or voluntary, that doesn't affect your shares. They don't get to take them away because they fired you.

So maybe let's say you did all four years and on day one of year five you left. Now you got four years worth of the stock options. Let's say they're now worth a million dollars. You hit the jackpot. It's a lottery ticket. You have to exercise them, which means you have to pay whatever that strike price was. Now, if it was a dollar, you know, you may have to come up with and you had a million of these or 10 million of these shares, whatever it happens to be.

You would have to pay that money to the company to buy your shares. but these are illiquid shares. So you're basically paying, let's say it was $10,000 to exercise your shares. You pay them, but you can't sell them. In other words, you come out of pocket for them. And so sometimes people come out of pocket with them. Other times, people just let them expire because you have 30 to 90 days, depending on how they set them up. Typically, I think, 90 is 60 to 90 is the standard.

So you have a little bit of time to get the money together, you have to sell other equities or whatever. And you have to make that determination. A lot of companies are now making the exercise window three, five, or two, 10 years. In other words, if you came to the company, you got a full 10 years at any point to exercise them. If the company goes public, you would just get issued your shares. If the company were to sell, they would give you the difference between the two. But what he's saying here is he points out that some executives do something funky, big executives who are joining the company later. They, if they're sophisticated, they're already millionaires, they may want

to get long-term capital games. Long-term capital games is when you sell shares that are older than a year old, and you may want to start your tax treatment when you buy those shares. So they'll do something called an early exercise. So let's say it did cost $10,000 sometimes, or it maybe it costs $100,000. The company will give that CEO the $100,000 in a loan to buy it, but they don't actually give them the $100,000. It's just done with paperwork.

And they will give a loan to buy those shares now. That loan is collateralized by that. that individual, the CEO's, you know, home, whatever. If the company goes out of business, it's probably no recourse. In other words, they're not going to go try and get it from you. And that usually doesn't happen. But then you are on a personal basis and the company has on their books this loan. It's hard to manage.

It's a bunch of paperwork. Typically, less $1,000, $2,000 to do the paperwork for this. And you do it for senior, senior executives who want to be able to early exercise their shares to get better tax treatment down the road. And partly, we should say, you know, it's it's yes so that they can get better tax treatment down the road. We should also clarify that when you're talking about those early executives, it's usually a very large amount of stock, right? It's a big chunk of options compared to what you might be giving your everyday employees. It could be $10 million in shares for a company like Bultz if they were going to hire a CEO.

CEO might get one to five percent of the company in shares. So let's say it was a $500 million company. They give them them a $25 million options package to stick around for four or five years. You know, for a world-class CEO, that's not crazy because they could start their own company or join an earlier stage company, get 10% or start the company themselves and get 70%. So boards are dealing with competing offers. Or if it's somebody that senior, they could get a senior vice president job at a Google or Facebook for a couple million dollars in options a year, right? So you have to compete for those elite employees who have been to the dance before and done this. So yeah, that's why they do it.

And so he kind of took that and was like, hey, everybody should have everything. Problem is, if you can't afford the $10,000 or $5,000 to exercise your options, should you really be taking out loans? And then these loans really do affect the balance sheets of people personally. I think you would have to disclose this if you were going to go buy your first home or something. and I'm not sure you would get canceled for that, but you would also, the company has to, my understanding is the company has to keep track of all these

and it's a liability for the company. Listen, lots of founders are Lucy Goosey with their personal phone numbers. We know that they put it in company documents, they use it for sales calls. They use it for everything, including all their personal usage. And that makes things messy because you won't know who's calling you, a sales prospect or somebody from your kid's school

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free. Just head to O-P-E-H-O-N-P-H-O-N-C-T-T-E.com slash twist today. Let's back up to what he's proposing because we have jumped ahead to analyzing the proposal. So his problem statement, basically, is that there is this issue where an employee leaves and they might not have the money to come up with the cash to exercise the option, one. And that two, it's not fair that executives at companies get this treatment, this loan up front and this ability to, you know, reap the tax benefits of their options right from the jump. So he is proposing. So he is proposing. that it bolts, they're going to fix this by allowing every employee, if I understand this correctly, to get this early exercise option, which is in fact alone from the company that allows employees

to exercise their options earlier. If, though, and this is the drawback, and he says as many times throughout his tweet thread, if the options end up underwater, when the options end up underwater, when the employee wants to leave, they're still personally on the hook for the loan. Yep. Right. I guess the company could theoretically forgive the loan. I think that's what would happen in that situation.

And there are some things in law that, you know, like are liabilities or there could be edge cases, but they don't normally happen. So in the course of, you know, these things happening, a board would typically, if somebody left, they were underwater, they might, just forgive the loan or something like that. But it's, he does point out it's a liability.

I'm not saying it's bad that he is offering this to folks. Like I wouldn't say it's bad. There might be somebody who has enough money that they feel comfortable taking this. Maybe it's their second or third time at the rodeo. But this is largely solved by giving a longer, you know, window to exercise, right? So people don't lose it. And if you're affluent, you could always just buy the shares, right? As somebody else pointed out, you could just give RSUs to people and pay their taxes,

which is what the Google's and Facebooks of the world do. Also, I have kind of a dumb question. Sure. Maybe it's not that dumb. There are no dumb questions when it comes to tax law and stock options. Wildly complex. Stock options are something that you are given at a company either to incentivize them to stay there because you are paying them less than market rate.

You know, and you're like... That used to be why. Not anymore. But now it's sort of like, you know, it's an added bonus or whatever. And it engenders your loyalty and potentially because, becomes a golden handcuffs thing, but like, if you leave, isn't that just on you? Yeah. Like you left.

Like, I don't understand why these companies are bending over backwards to make sure that company that employees who leave have the option to buy their shares for like 10 years. Yeah. So the reason is you would want to imagine yourself in the situation where you hired somebody, they did a great job for four years, but they moved to another state. They retired. they started a family. Do you want to penalize them for four great years of service they gave you,

or do you want them to keep their lottery ticket that they can cash in later if the ponies happen to, you know, win place or show? So it's a loyalty to the employee to let them, you know, get the win and then build goodwill. People who didn't do this or were shirky about these kind of things, then the employees leave. They tell other people, hey, yeah, that founder, the board, you know, they're horrible people, you know,

I don't have my options. What options in these lottery tickets really do is they perpetuate the dream of Silicon Valley. 80, 90% of startups fell, one in 10, one in five, maybe these options become worth something.

That's kind of part of the dream of what we do in tech and in startups. It's our value proposition. You want to go to Netflix, you know, today in 2022, you get safety, security, RSUs.

You want to go to Netflix in 1980, 99 or 2002, you get massive unknowns, hard work, more opportunity, and these lottery tickets. So I think you want to be loyal to folks and give them that opportunity to still win the lottery. When people hear those stories about the receptionist or the chef or the artist at Google or Facebook, making $10 million or $50 million, one group of people, small-minded people think, oh, that wasn't worth it. And then the savvy folks say, yeah, but that got everybody to buy. into what we're doing here.

And the company became worth a trillion dollars. Who cares if somebody who didn't deserve it, who, or ostensibly didn't deserve it, who deserves anything, right? Like, does a chef deserve it for coming in and working 12 hours a day? Does the receptionist, or does the salesperson who is not a great contributor,

but still stuck it out for three years and became worth $10 million? Are they worth it? I don't know. Right. So Ryan acknowledges that, it is interesting, because one of the things he points out is that some companies have stopped. Like they tried to mitigate this issue by extending that window.

And then some have stopped, which he then hashtags the mob. There was somebody from Y Combinator who was pushing this as a theory. Like we should do extend the windows. I think actually Sam Altman was very public about saying extend the windows. Well, he's saying the mob actually pushed to then shorten the windows again. And so Scott Cooper actually from. A16 Z blogged that

in 2016, he blogged that, quote, a 10-year exercise window is really a direct wealth transfer from the employees who choose to remain at the company and build future shareholder value to former employees who are no longer contributing to building the business and its ultimate value.

Yeah, that's somebody who pulls the ladder up behind them. That's nonsense. If you put the time in, you earn the shares, it's not a trade on everybody else. You earned them. And you sign the terms of the deal or you got the shares. You should get them. Okay. So, well then, Ryan is trying to then avoid

that, but let's go back to this personal risk question because again, it doesn't, like, he's not, he really does think he's doing this really forward thinking thing for his employees, his employees, it seems, in his telemarketing thread. Yeah, again, I don't, I don't doubt his intent

at all. I do not, no. No. But when a thread is that sort of like promotional about how great it all is, it starts to feel like, is it so great though? I'm not really sure. And what are producers have wisely pointed out is that it feels like there's a specific risk for Bolt employees here that they could end up underwater. Yeah, again, I don't think the company is going to be chasing those loans if they do them. So it's probably a theoretical.

And maybe there could be like if you go to get other loans, depending on the size of this, could come up as a liability. Again, if let's say you were going to get a down payment on a house or you're trying to get a second mortgage or a home equity. line. I'm not sure, because again, usually people who are not yet wealthy don't do these kind of funky loans or margin loans or these kind of loans. This is kind of like when you've got enough cheddar that you could actually pay the loan if the worst case scenario happened. It wouldn't be fun, but it would be, you know, wouldn't be the risk of ruin. So I think that's the issue here is like, do you want to have a loan hanging out there? That could be called, right? The loan could be called theoretically.

So, you know, it's rich people have an affluent people who have their stack already. Think differently. Like this quote from Scott above to go back to that for a second of like, oh, the people who work four years versus people work 10 years. Well, you could say the same thing about people who own Microsoft shares who don't work at the company. Are they a drag? If I own Apple shares, am I a drag?

Am I a drag on Uber or Robin Hook? Because I own shares publicly? No, I'm a supporter. I'm a cheerleader. He's not talking about people who own shares down the road. He's talking about the exercise window. Like, should you allow people who no longer work there, the option to exercise and buy that 10 years later?

I'm not arguing that it sounds a little stingy the way that he phrased it. I'm just clarifying that he means the window specifically. Here's the stupid thing about Scott's comment. The people who are working their past four years, five through 10, they get more options for continuing to stay there. And the people who leave that startup and go to another one, get options in the next startup.

Everybody gets some options, you know, generally speaking, unless it's a company like MailCham. that said, or I think 37 signals, we just said, we're just going to pay you higher than market rate. We're going to give bonuses instead. And so you get the cash now. And for people who would like an extra 20K a year, that's a better option for you.

So again, Ryan, thanks for bringing up a topic that we've all rehashed endless times. And virtual. I mean, Ryan is becoming a virtue signal. He's becoming annoying because it's like, it's like somebody who just discovered startups being like, hey, guys, do you know there's an option window? And there's an issue around this.

It's like, yeah, I've been on this board meeting 50 fucking times when we talked about it. Like, yes, we all know about this issue. We've all hashed it out, dude. And he's like, I have a new idea. And it's like, no, you don't. He's like the annoying. The next generation has to learn the lessons all over again. He's the annoying kid in the back of like a screenwriting, like, class.

And he's like, have you guys seen Pul fiction? And we're like, yes. Did you guys ever see Samad Samurai? Yes, we know Kersaw. always, yes. We all know how hard it is to eat healthy when you're working crazy hours like I do. Startup founders do anybody in our industry. But thankfully, real good foods is here to help. They make nutritious foods more accessible to improve all of our health. And they're one of the fastest growing frozen food brands in the U.S. In fact, they just went public back in November

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Jeff Richards, a partner at GGB and a guest on Angel Season 4 episode 9 replied to Ryan with the following. For what it's worth, almost every private company in Silicon Valley did this in the 90s, which I do remember. He says it was an absolute disaster. Employees spent years paying back loans for worthless stock, tax bills for merely exercising, etc. I'm not in the mob, but unfortunately lived through it firsthand as a founder. Yeah, there are tax issues too, yeah, when you exercise these. I mean, I remember people getting hit with the AMT, the alternative minimums, back in the 90s on options that appeared to be worth more than they were worth.

And it was like it really came close to ruining some people. And then Ryan, because this is what the next generation always does, responded and said, over half of our employees chose this. Plus, I would strongly encourage my family and friends to choose this. But BC says it didn't work in the 90s, so it's a disaster. VC Twitter pumps the tweet. This is why VC-run companies are never able to make strides for employees. Again, you know, he's just a lobby.

He's the robin hood of CEOs. You know what, Ryan, if you're so, like, precious and amazing, like, take the 25% of the company you own and distribute it amongst your employees and keep 5%. If not, STF. Yeah. I mean, really with the virtue signaling every day, it's like, I was like, I invited him to come on the pot. I was like, this would be an interesting discussion with the mob stuff. Now it's like, please, somebody else have him as a guest because I'm finding Ryan increasingly, like, virtue signaling and annoying. And it's just the way he presents it.

Like, you could present this as a question, right? you could say, is this a good idea? Yeah. Or here's what we're doing. I'm looking for some feedback. Now he's kind of gone full bore that everybody's an idiot, except for him. Yes. And I think that's probably like he's overplaying his hand.

I mean, look, it's the kind of thing you can do when you're retired, right, from your Fortune 100 company that you built from the ground up and you, but I mean, eventually Ryan is going to have to raise again. One assumes. And Bolt has already raised at many multiples. If I understand that correctly, yes. high multiple, 61x and 183x $183x price to sales

and might be looking at a down round. He's ahead of his skis right now, for sure. He's ahead of his skis. That's a good way to put it. But a lot of companies are who raised in the last two years, so it's not unique to him in fairness. Yeah. I mean, it is very true that VC Twitter was not having it,

including you, yourself, and you. Well, it's more like, gosh, you know, when you literally, you have this conversation 50 times with 10 different sets of lawyers, from all the top people, and you literally come down to the same, you know,

dead ends, which is the IRS and tax law, if you get something of value, you have to pay your taxes. And this whole dream of not having to pay your taxes or pay less taxes, like when you're focused on this kind of stuff, the tax optimization stuff,

it kind of tells me you're not focused on the core business. That's the red flag for me all the time. Like, if there's really only one thing you can do to pay less taxes and, you know, there's really like a small subset of things move to a low taxate you know create trusts i guess also i mean honestly like i'm not trying to be or pay your taxes over here but pay your freaking

taxes or pay your taxes yeah i mean like every time i pay taxes it's like i'm like oh my god i you know like when i paid my first seven-figure tax bill you know you're like i i can't believe i'm paying this and then you're like oh but i get the rest all right yeah it's not the end of the world right like you just kind of i mean i i like the person who was like issue mrs us and their taxes. I want to do that. That would actually be better. That's better than sticking your employees with the loans.

It's funny because yesterday on the show I talked about buy now, pay later. And I was reading this and I was like, this is the buy now pay later of employee stock option plans. And it seems like you're going to end up in all the same trouble that you're going to end up with like if you can't afford it. Yeah. You shouldn't have it. You know, it's like people taking margin loans against their crypto or trading on margin on Robin Hood. like, listen, I'm fine with people getting educated about these things and doing it in a small way.

Like if they had a margin loan for 25% of their Bitcoin's value, whatever the high watermark of the last two or three down returns were. Okay. But this other way where you're, you know, leveraging up, two, three, four, five X on some funky exchange on a, you know, island somewhere in, you know, a sunny location with very few laws. Like, yeah, no. Be careful, folks.

Well, and when they wash out and they lose everything, it only helps hedge funds, right? So, like, at the end of the day, this loan scheme, if people can't afford to pay it back, it's not going to help them. Like, I'm going to say another thing. Like, if you like to gamble, like, you don't need to take a margin loan on your 25-dine bet on the Jets. It's like, I have a $25,000 bet on the Jets this Sunday. like you've already got a huge problem in your life that you bet on the Jets. Now you're like, I'm going to margin loan my Jets.

You know, like that's what the real problem here is the team you're betting on. Not, I'm just talking about the teams that have perennally have the worst luck, you know, like if I don't bet on the Knicks, like being a Nick fan is enough suffering that you don't need to add gambling on top of it. If I want to gamble, I gamble on the Warriors where like at least, you know, they pull miracles, you know, on a regular basis, not the Knicks who are just dream killers and the Jets. I mean, when I grew up in Brooklyn, there were bookies. And if Artie wanted to take your bet, you just tell them that I would watch guys, give me two dimes on the Jets, give me, you know,

give me five on whatever, the Giants. And you were on essentially margin. If you didn't pay, there was a Vig, 5% a week. So if you put a $5,000 bet, and you didn't pay, you just paid $500 a week in interest. Wow. 10% maybe the Vig, right? And you still have to pay back the principal. So, you know, this got a little hairy for folks.

If you're now, as we know, sports betting and wagering is becoming legal in the United States, yada, yada, I'm totally pro that. People should be able to do what they want with their money, Vegas or bet on sports. It's fine. It's entertaining. if you got a problem, make a phone call, get help, yada, yada.

But when you use these fantasy sports sites or your betting, you have to have a deposit for a reason. Yep. Because gamblers do get ahead of their sneeze, and they do something called Chase It. You don't want to be chasing it. I think Chase It seems like a good segue actually to our NVIDIA. This is why I don't gamble, Molly, except on startups.

I don't know. Your gambling rules, if I'm being honest, are a little bit all over the place. You're somewhat inconsistent. a way to gamble. That is net positive for the planet and for humanity. Bet on entrepreneurs.

Kind of a rigged game if you have good access, you're only need to hit one every 100 or 200 investments. The odds are basically stacked in your favor. That's why I was like, you know, if you're in my book, Angel, I was like, you know, it's kind of like I'm playing in a

card game where I get all the Aces and Kings and you don't. That's deal flow, right? When you have great deal flow, whether you're at YC or the mob or Adreson or Sequoia, kind of like somebody's like, here's all the aces and kings from the deck, go ahead, place your bets, because people come to you first. Yeah. All right, segue. Um, chasing things. Invitya has been chasing a big chip merger for a long time, in this case, with arm. And it seems to have backfired. And this, this deal fell apart a few days ago.

But what is interesting about it, I think, to us is that it's yet another soft bank story. So soft bank acquired Arm in 2016 pivoted the business by making this big bet on Internet of Things devices. So they just made like smaller and smaller chips to go into connected devices in homes, started to ignore the money printing markets. And it seems to have backfired. Now this deal with Nvidia and Arm fell apart over antitrust concern. and arm is sort of out in the cold. And Sop Bank is trying to figure out what to do with them. So this is a little bit of a yes, no IPO story, I think, as we dig a little deeper.

But what's interesting about it is that it was intended always to develop architecture for chips and processors and semiconductors. They don't manufacture chips themselves. They just designed the architecture. IPOed in 1998. Apple used to own about 15% of the company. And then in 2016, SoftBank acquired Arm for $32 billion because, you know, Masa was super into the IoT thing. He was like, this is definitely going to work. And then I think he took them private.

Now, like, who knows what happens? Who knows what happens? And I guess the question becomes sort of like, is this a whiff for SoftBank? Was it just a miss? And now they're going to have to eat this $32 billion acquisition on some level. I mean, leaving aside what this means for Invidian. it's just a super interesting to me, SoftBank and Arm story.

Yeah. And I guess NVIDIA was going to buy them. Yep. InVIDia was going to acquire them. Yeah. And they wanted to, they wanted to buy them for $40 billion in cash in stock. Yeah.

Meaning, by the way, that arms valuation would have gone up only $8 billion since SoftBank acquired it in 2016. InVIDIA has been crushing it lately, $650 billion company at stock prices up about 70% over the last five years. And they wanted to, wanted to become a chip powerhouse

with this. But they spent 18 months trying to get this deal done and it was just a huge antitrust you know. Yeah, I mean, this is one of the high stakes problems that we're going to see more of. If you don't have the save of acquisitions and mergers

available to companies when they stumble, then, you know, they could go into kind of a debt spiral or not that I'm saying they're going to go into a death spiral, but you're taking a major option off the table for an exit. it. So now they have to go public, but who's going to want to buy the stock in a company that's in decline or sideways? So what do you do? You then would have to manage it for profits and maybe cut staff and cut investment and then try to make profits off of it to try to make your money back. You see how this becomes a quick debt spile because you need investment capital in order to, you know, compete. And it's an arms race out there. No pun intended. with these chip manufacturers

and you see Apple making their own and, you know, this is not going to be pretty. But, you know, SoftBank can afford a couple of flops and these things are always a matter of price. So if the price gets low enough, somebody could snap it up, or if the price is low enough, there could be some sort of a buyout that occurs.

And so we saw that actually with WeWork, right? Sometimes you've got to take the medicine and reprice an asset. We start with Peloton, repriced the asset. Now all of a sudden, Peloton starts rising again because they repriced it. they reset everybody's expectation. Investors get wiped out.

So, you know, we'll see with this one. But I think the higher order more interesting thing for me here is, you know, soft bank swings for the fences. Sometimes they win a couple of billions. Sometimes they lose a couple of billions. Sometimes they make tens of billions. They'll be fine because they're playing the game slightly differently. They're doing this late stage, you know, try to make a couple of billion dollars.

But on a percentage basis, it might not be, you know, as juicy as being a Series A investor or something. thing. But yeah, if we're going to block mergers and acquisitions, if the company is in decline, then you have to start thinking about the employees of that company, the survival of that company, maybe taking away a landing strip for that company. Who's going to buy it now? It's too expensive for most people to buy. You know, what is Facebook going to buy it and start making chips or something? Like, who's going to buy this thing? If not another chip manufacturer or another provider of who's going to use these chips in some way to get an advantage? So like if Peloton, Peloton is small enough that an acquisition is tiny as a fraction of, you know, Amazon's capital or Apple's capital or Apple's market cap. And it's not like they're going to own all fitness equipment.

So it's a little bit easier to get through. But yeah, this is going to be a challenging one. And it could be painful for the company if they can't find a suitor. Yep. Well, we on that note are going to get to my quick interview with Craig Zingerland, someone who has yet to even suffer through. Has yet to even imagine having issues that are met come up when you get acquired, you know, by SoftBank for $32 billion. Craig Zingerland from Growth University is a member.

We're doing these quick interviews just so you are aware. You'll hear, I think, one a week for the next seven, five weeks, five weeks. Five weeks, maybe, yeah. Quick interviews with people who are currently in our accelerator cohort, which is cohort number 24. Craig founded Growth University and is a three-time. Accelerator vet. Yeah. He went with red tricycle

and then with his marketing company and now with Growth University. Votion was his company, yeah. Yeah. Which is still done. That is very cool.

Yeah. He's trying to, he is trying to, much like we're very aligned. He's trying to grow the entrepreneur universe and help more businesses succeed. More shots on goal.

Yeah. And you know, if you look at what trips up most startups, you know, after they get product market fit and they've got a product that people actually get some value from what separates companies at that point. There's another starting line, which is how good are you at growth?

You go-to-market strategy, acquiring new customers and those techniques. And that's what he's focusing on is teaching people how to learn how to grow their startup. So I'm really excited to hear your interview mom. Yeah, here he is. Craig Singer-Line. It's time for another Our Crowd Deal of the Week. Right now, you can join Our Crowd's investment in Future Family. According to the deal memo, Future Family provides millions.

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It's 24th cohort. And I'm going to sit down with some of the founders once a week and dig quickly into their business. It's going to feel quick to you about 10 or 15 minutes. Probably not to them because we're making them give a whole series of two minute pitches with some regularity. We're starting, though, with Craig Zingerline of Growth University, who is a three-time launch accelerator visitor with three separate companies.

In fact, Craig goes all the way. back to Accelerator Cohort number one. But he's now in cohort number 24 with Growth University. Let me start here. Seems like our accelerator totally works. Your accelerator's awesome. You keep coming back. Oh, I keep coming back.

I will continue to keep coming back as long as I'm invited. But no, it's fantastic. We're in week, I believe, seven now of the 24th cohort. And I've seen the evolution of the platform just grow over the last few years and was lucky enough to be in the first and third cohorts. And it's just, it's amazing how, um, how helpful the accelerators to the startups come in. And it's like an unfair advantage. Awesome. Well, we're not here to brag about our accelerator that much. Let's, um, brag about your company. Tell us what you're doing with growth university. Yeah. So, um,

we have honed in on the fact that most startups fail and trying to unpack, uh, first of all, why do so many startups fail and where are their pain points along the startup journey? What's preventing them from growing? And, what we've built is a platform that allows us to go really deep with founders in terms of understanding what's working and what's not working from a metric standpoint and providing training programs and mentorship to help bridge the gap for founders who maybe don't have a full-blown marketing team yet or if you've got a marketing team to allow us to get in and start to unpack what's happening with your metrics so that ultimately you grow and so you break this

approach right with founders into five components we could maybe call them okay ours or something along those line. Tell us about those five sort of key factors to success. Yeah, so I had done a ton of customer discovery before starting this. And what I learned over those calls and engagements was that number one, many startups and founders don't understand what metrics they're actually going for. So we call this kind of metric and goal setting. Number two, once they understand what metrics are actually important for their business, they don't really yet know how to do customer requisition. Even at some level of scale, they may not have a diversified channel view on how to do that. Number three, they often will struggle with kind of how to what we call activate users or kind of move them through that buyer journey so that they become customers.

Number four is once they get people in the door, can you retain them? Can you keep them around? And number five, how do you increase the velocity of your learning as a startup? I think as a founder, that speed to learning is really critical. We do that through experimentation. So those are kind of five buckets. How does this play out in practice? How does this sort of manual approach turn into a business? Yeah, so we had started, my original program that I put out there was, it was a six-week, just super deep dive into growth.

So I would spend basically a week on each of those five topics. And there was actually a sixth one that kind of lives in between acquisition and activation. And so the way that I turned this into a business was that I built content that was kind of startup stage and type agnostic. And what I thought was applicable to founders who were truly trying to. learn the components of each of those five areas. And I built a long-form series of content for that that originally was developed through a weekly live cohort style teaching and then eventually morphed into both that in an on-demand set of playbooks. And then we kind of grew from there. So each of those five pillars now or those five components have sub-programs within them for founders to

go deeper into. Okay. And then how do you make money? We're a subscription business. So we charge on a membership model. So our founders come in and based on what their needs are, they can get access to our on-demand programs for right now it's $149 a month. And then if they want a higher level of access with a little bit of that mentorship that I was talking about before with our team where we can help you really get into the weeds with some of the metrics that you may want to influence, then those plans are a lot more expensive and it kind of goes up from there. And behind the scenes, what we've been doing is we've been building an underlying platform because what we also found was that there was no standardization from startup to startup to startup.

We see dozens and dozens and startups and they're all using different tools in different ways to track their metrics. So we've standardized that whole process. So we've got a set of spreadsheets right now, but we're building the product version of that for the future for them to use. And then tell us, give us some of your key metrics. You are post revenue. You're making money, right?

Yeah. So we will cross 20,000 in monthly recurring revenue. in February. We have been growing about 25% month over month. We started the subscription business in January of 2021. And so I had run a couple just one-off courses before that. But when we got through those, we realized that this is a subscription model.

Founders wanted more context. They wanted more info. So I kept building more programs. We've had really incredible retention so far. But yeah, we're mostly monetizing on the membership side. And that's been going really well. How did you, you'd sort of mention in passing that you were doing a lot of founder mentorship.

I wonder how you got into that and then what, you know, prompted you to want to start, you know, a full-on curriculum, an educational program here. So I was an operator in a number of different startups, including two that had gone through the launch accelerator and a whole bunch of others. And these were anything from a bootstrapped startup where cash is kind of really constrained to, you know, I ran millions. of dollars in marketing budget per month at another startup. And as an operator, I saw that the same themes were holding up pretty much at every company that I had been at in terms of inflection points where the business starts to kind of lose momentum. And so what do you do in those situations? You have to kind of, you know, if you don't have a process, you're going to reinvent the wheel. So that was my first exposure to the problem. And then what I started to do was I realized

that I just needed to have a lot more context than just my own experience working within companies. And so I actually joined a platform called Growth Mentor. And I did about 200 free calls, 15-minute calls, 30-minute calls from 2017 through now. I still do these. Where I just get on with a founder and they literally just tell me all their pain points with their startup. And I was able to quantify all of those pain points into, I mean, I take notes on these calls. I started to see the same themes, and that was when I realized, okay, well, there's something here. And in fact, I've always been super passionate about helping startups, but I wanted to go out on my own again and run a business that had scale potential.

And I thought this could be the model. And that's what we've been digging into. Wow. That's, I mean, I would imagine that you'd meet plenty of people in the world who are like, I don't care if 80 to 90% of startups fail as long as mine wins. That's right. And so it seems very admirable that what you really want is for everybody to win here. Yeah, the aspirational vision or goal is that if we can just decrease the percentage of startups that fail globally, even by a fraction of 1% a year, there will be hundreds of thousands of additional startups that succeed. So if we can be part of that mission with them, then we will also win.

And talk about the net good of that, where we get a good economy. There are jobs available to lots of people. I mean, the startup sector employs so many people, and even the periphery around it employs so many people. And the services, we don't have to talk about that, a lot of obviously like high growth startups and the word service kind of don't mix. However, the service industries that are attached and adjacent to these startups is a major part of the ecosystem economically globally, actually. So we want more entrepreneurs taken on risk. We want more entrepreneurs to do it. But they also need a playbook.

And that's what we're trying to provide. All right. Last question. We're going to ask all of our accelerator cohorts, the same question. I know you've been asked this question throughout our program and will continue to be. what is your path to $100 million? So we have a plan to go both enterprise as well as deeper within startup. So we're going to sell multiple seat options.

And we're also selling access to the platform as we go along with an additional line of product-sized service model. And if you look at our customer lifetime value right now, it's at about $5,000 actually for the latest cohort of users that we brought in in January. And we think we can double that. So we get to 10,000 LTV, you know, 10,000 plus regular users, and that's our pathway. Craig Zinger-Lang is a three-time launch founder and founder of Growth University. Thanks so much. Good luck. Thank you so much, Molly. That was fun.