This Week in Startups - E1018: #AskJason! Avoiding first-time founder mistakes, causes of big-tech layoffs, participating in a Series A as an Angel, running a US-based startup as an international student, importance of having a strong lead investor & more!

Episode Date: January 14, 2020

1:39 Peter calls in and asks Jason the optimal check size if first engaging with a company in their Series A and general best practices while Angel investing 14:00 Sarah asks Jason why so many investors seek out a "lead" 17:30 Amrit calls in and asks Jason how to run a US-based startup as an international student 24:29 Jake asks Jason to identify some easily avoidable mistakes that first-time founders make 33:44 Spencer calls in and asks Jason about some of the recent layoffs in the tech space

Hey everybody, hey everybody. We've got a great ask Jason for you today. I've got somebody who's coming into a series A as an angel investor and they want to know how to shape their bet. Should they put in 510 or should they go jump the fence and put in 2550? Huh? I answer that question. And somebody is running a company as an international student. They're trying to figure out how do they deal with their visa issues. We solve that one. A lot of commentary on these big tech layoffs has been going on on the soft bank crises with all these companies like we work. Somebody asked me, is this the new normal? And is this a trend beyond the soft bank companies? I answer that. And a really great question. What are the first time mistakes that founders make over and over again that I can avoid as a founder? I answer that question as well. And another angel investor asks me, why are investors such lemmings and look for a high quality lead before they invest? There's three reasons, and I give them all on today's.

All Asked Jason, This Week in Startups, stick with us. This Week in Startups is brought to you by Zapier, the East. easiest way to automate your work. It connects all your business software and handles the work for you so you can focus on what matters most. Right now through February, try Zappier free for 14 days by going to zapier.com slash twist. LinkedIn. A business is only as strong as its people, and every hire matters. Go to LinkedIn.com slash twist and get a $50 credit towards your first job post. And Health IQ. Take as little as 20 minutes to save up to 41% on life insurance premiums compared to other providers at health IQ.com slash twist.

All right. We got another ask Jason caller. This is from an angel investor for all you founders. You get to listen in on angels talking in the room where it happens. Peter from Seattle, you're back on the show. Hey, Jason. Good to hear from you. You and I invest together.

You're part of the syndicate.com. And you called on the last episode, and we talked a little bit about Angel investing. You have another question for me. Let's hear it. Sure. Do you size your investments based on the round that you initially invest with a startup? For instance, if you typically put 5,000 in at Seed and 25,000, if it's doing great at Series A, how much would you invest with a company if you start with them at the Series A? Yeah, great question, great question. So I am a big fan of starting small, and then doubling, tripling, quadrupling your bet on subsequent rounds,

depending on the performance of the company. Now, there is one mitigating factor here, which is your overall bankroll. So if you've decided that over the next five years, you're going to invest $250,000 in startups, I might suggest trying to put, let's say, $5,000 into 30 startups each, that's $150K, keeping that last $100,000 in reserve, For the top five companies, four companies, six companies, something in that range, which means that last 100,000 would be divided by four, five, or six. You might be putting in 15 to 25,000 into each of those companies. Now, why would you do this kind of bet, these follow-on bets in this fashion?

Well, most startups fail, and so you get to know the 30. Probably only out of your 30, six will make it 20% to Series A, maybe even just 10%, three. And so if they make it to Series A, then you want to bet more because you've proven that this is a winner. And the people who invest that Series A in a winner, they do really well, not as good as the seed investors, but pretty much the same. It could be pretty close because the valuation when you did your seed investment was likely $6, $7,000 or $8 million, and the Series A is likely $12 to $20 million. Am I, in this specific instance, are my numbers correct in terms of the valuation?

You went a little fast for me to be honest. Okay, so your valuation for the series, the angel round when you invested was $6, $7, $8 million. Sure. That's typical. Yep. And then the Series A, typically $12 million to $20 million, correct? Correct. Great.

So if you just think about it, if you put $10K into each of those rounds, you're going to be in a similar place at the exit. You're going to have made a multiple on that and you've done well. So I think four to one, five to one is what I'm comfortable with. So if you put in five, you go to 25. But let's say you just missed the seed series. And now you're coming in at the A. Yeah. So if you're typically putting in, let's say, 510K at the seed and you would be following on to the series A, 25K or something,

you might take that same strategy and just put in 10K in that series A. I don't think you need to put more into the series A. You just want to make sure that there's going to be a minimum. So for a Series A, if you're doing a Series A, if you're from a syndicate, the minimum might be 5 or 10K. If you're doing it direct, it's likely a minimum of 25 to 50K. And so that is the one challenge. And the one piece of a hoist I have is you can go to the founder and say, hey, I know your minimum is 50K for your Series A. Is it possible?

I'm a value at an angel. Can I put in just 10? But I'm going to add a lot of value. Can you make an exception for me? I would say four to five times you're going to get that exception. So don't be afraid to ask because I have people do that to me when I raise a fund. And I'll have somebody who's a friend of mine and say, listen, Jason, I really want to be in your fund. I can't hit the minimum of 100K or something.

Can I put in 50 or 25? And I'm like, you know what? Of course. And they'll make an exception. Like rules are made to have exceptions. So I would still put in a small amount of money. And then if they do great, then in the series B, you could put in a little bit more. Okay, great. Do you have time for one more? Yeah, go ahead, of course.

Sure. Let's talk about startups that get a lead on a series A, but they're not the escape velocity guys. They're marginal. Yeah. What factors do you consider in that situation, whatever it is? They're going up 50% a year, year over year, but they're never going to truly take off. Yeah, so this is one of the biggest challenges in investing. is what I'll call businesses that are good but not great. The entire concept of angel investing and investing in startups is about having outliers, right? You want to hit that unicorn investment. You want to hit that outlier in order to have a 50 to 100 X, not percent X return. So you put in a dollar, you get 50 back or 25 back or $100 back for every dollar you put in.

Those kind of outcomes happen frequently in Silicon Valley, but it takes a lot of of misses to get there. And so if you know a company is only growing 25% 50% year over year, what the management team has likely proven is that they can build a good company, but not an outlier company. I very rarely seeing companies growing at 50% a year, suddenly have a breakout year of growing revenue 3 or 4x. It can happen, but most VCs will look at a business that's three or four years old. And if it's only growing 50% year over year, they'll say, you know, that's never going to get to $100 million. And what we're looking for as investors is companies in 2020, in case people are listening to this in 2050, and it's an

archival document, you want a company that can hit $50 to $100 million in yearly revenue. In order to get there, you can't start at a million and then go from a million to a million five, a million five to $2.5 to $4. It's just never going to get there. What you really want is to triple, triple, triple, double, double. So you want somebody who can get to a million in revenue, then three, then nine, then 20, then 40. And that's pretty typical. We see triple, triple, triple, double, double, many times in our lives.

And if they can't, it means they probably don't have very strong product market fit. And they don't have a great go-to market strategy or they have massive competitors or the founding team is just not moving fast and aggressive. So it can be some connection of reasons there. And then if when you're looking at a deal, if it is being led by a really strong series A firm, Sequoia, benchmark, Excel, et cetera, those companies, those firms are specialists in knowing high growth. So if they make a bet, they're going to make a bet on something that's high growth. They're not going to make a bet on something that's slow growth or no growth. And the people who might make those bet might be tier three, tier four firms. So if you're, if you're going with a new firm that's tier three or tier four, in other words, firms that haven't had unicorns, they didn't invest in Google, Facebook, Twitter, Tesla, whatever, they didn't, they've never invested in an outlier. You have to ask yourself, like, why am I following that person? Is there another

opportunity in the world for me that would be better? And there are enough companies that are doubling or better. So look for the companies that are two-xing or three-xing revenue in the early stage. Okay. Great. Thank you. All right. Remember, it's really about considering. consistently having a strategy of, you know, making those 30 small bets and then, you know, doubling, tripling, quadrupling down on the winners. Make small bets as you go and you learn. How many total bets have you made? 25, give or take. Perfect. So now you're starting and you've done that over two years? Yeah.

Perfect. So now you've got 25. How is your signaling now compared to when you started? I think I'm a lot better, but also. all I've seen are the dead ones, you know? Right. And that's the challenge of being in your sophomore and junior year as an angel investor. What happens in the first two or three years is all the losers, all the companies that are shutting down, they shut down fast, right? Because they only raise a year or two of runway.

So if it doesn't work, if the experiment known as a startup fails, you're going to find out in year one, two or three. So of those 25, you have 10 that are dead right now, 15, I would guess? Something in that range? Not even that. Maybe one or two. There's some zombie type things where it's, God bless, it's a matter of time. Right.

Perfect. So if you have two shutdowns and maybe eight zombies, you're doing pretty good. Because what you're looking at is the magnitude of the wins, not the number of losses. So let me just say that again for people listening. It's the magnitude of the win, not the total number of losses. If one of those 25 goes 50x, you've doubled your money. if you bet the same amount of each company. So that's what you're looking for is you're looking for the company out of those 25

or maybe even two companies or three companies that'll define your returns. In my career, my top three companies are over 90% of my returns. That's out of 200 companies. Let that sink in. At the end of the day, my career is going to be made by Uber, Com, Robin Hood, thumbtack, data stacks, wealth front, probably that cohort desktop metal. And there might be one or two other,

there might be another five that are going to break out at some point. But FitBod comes to mind, lead IQ. But really, those top ones right now on my book of business are 95%. And so what you have to do is just be very graceful in the losses and then bet as much as you can into those winners. I think you're doing it right. So keep out of it. Well, fingers crossed and thank you for the encouragement.

All right, man. Good job, Peter. I'll talk to you soon. All right. Talk soon. Bye. Cheers, fine. All right, we're back with another ZAP of the week. Remember, Zapier makes you happier. And at launch, one of the things we're looking to do is gauge interest in our events. And we're setting up ads on Facebook to collect leads.

For example, we have Angel University and we did a tour last year. So we set up lead ads and we targeted investors. We then set up a ZAP to collect those leads and sent automated emails inviting them to attend one of the available dates. multiple events. And as we did that, we sent notifications to Slack so the whole team knew what was going on. You do the lead gen ad, then you do a ZAP to send the email, and then you do another ZAP to let everybody on the team know. Whatever it is, we keep everybody up to date and in the loop. Zappier is the easiest way to automate your work. What you need to do as a startup, because you have limited resources, is analyze anything that takes more than an hour a month, anything that takes five hours a month, Certainly. And you look at Zapier and you start connecting stuff. You make the glue between Google Docs,

between AirTable, between Slack, between Salesforce, between Zendesk, between email, any of these tools. And we're talking about thousands of them now. You can instantly engage leads and send them a CRM or into your spreadsheet. And you integrate with over 1,500 business applications, build the exact solution you need in minutes without having to hire a developer. Your developer should be, working on your project, your software, not this operational stuff. That operational stuff, you can do it now with Zapier. So go to Zapier, Z-A-P-I-E-R-com, slash twist, and connect the apps you use most. And Zapier will take it from there. Here is your call to action, everybody. Join more than 4.5 million people who are saving on average 40 hours a month. That's 40 hours

you can put back into your customers, into your product, into your life and having life-work balance if that's what you're going for. Right now through February, you can try Zapier for free by going to our special link. This is right. You can get it for free right now. This is Zapier.com slash twist. That's Z-A-P-I-E-R-com slash twist. And they will let you try it free for 14 days. And remember, Zapier makes your happier. All right, let's get back to this amazing episode. All right, our next question comes from Sarah. And she asks me, why do so many investors ask for a notable lead in order to invest. What happened to conviction? This is a great question. Sarah, we as human beings are pack animals. We like to follow the lead. That's why there is a game

called follow the leader. Everybody here likes to follow a leader. And if a leader has proven success before, and they've done the diligence on a deal, Sequoia, you know, Ruloff, Doug Leone, Michael Moritz, Jim Gets, or Aileen Lee at Cowboy, or Bill Gurley at Benchmark or Chamath Polyhopatia, or Rick Thompson. They're going to look at those individuals and say those people have won before, therefore they do the work and they're likely to win again. And if you're a passive angel investor, you're going to look for leadership. People who have access to deals you don't,

and people have a rigorous process of selecting those deals from a massive. massive amount. So following a lead investor is a great idea for passive investors. There's another reason, the number two reason that people like to follow a lead is because a lead investor, once they're in the company and on the board, they're going to shepherd it. You get Bill Gurley on that board. You get Chimov on the board. You get Aileen Lee on the board. You get one of these great investors. You know that they're going to be in contact with the founder every day, week and they're going to be at those board meetings shepherding your investment. So there's two reasons that people like to follow a lead. Really, three, one human nature and then the two practical

ones. The lead has better deal flow than you and they have a better process for picking companies. And then two, oh boy, when they're on the board, they're going to start connections and people might follow them. So now you've got the leaders getting more investors following them. When I was invested in by Sequoia for my last company, I, had 20 firms contact me after the announcement came out saying, hey, you want to get coffee? Because they had anointed me. Now, I agree with you. What happened to conviction? Well, there's just a lot of investors out there who don't want to do the work and build a huge basis of deal flow, and they just follow them. So it is a challenge. I like to be a person of

conviction. I like to make my own decision. I take my own counsel, which means you could be, you could do worse than to follow my conviction because I got a good track record. And so there are people who lead. There are people who follow. There's a lot of capital out there that are not meeting with thousands of companies a year. They do what's called hang around the rim. What does it mean to hang around the rim in basketball? There are people who will hang around the rim after somebody else shoots in the hope that if there's a rebound or a putback that they can do. In other words, the shooter misses the shot, they can grab that basketball, put it back in the hole, or get the rebound, and pass it back out to the shooter. It's called hanging around the rim. You're looking for a winning

shot. You're looking for a winning shooter and trying to help them out. So it's a viable strategy to hang around the rim. There are late stage funds that all they do is hang around the rim. They wait for Sequoia. They wait for benchmark to make an investment. And boom, they try to just pile on into that investment. It's a great question. And yeah, there's a reason. And it's a real reason. Okay, let's take another caller. All right, we've got a caller calling from Syracuse. Snowy Syracuse, Amrit. Are you there? Yeah, I'm there. Okay. How much snow you got this season so far? It's not sewing right now. It's totally, it's like totally warm. Okay. It's cold, but so. All right. Well, we'll stay, stay warm in Syracuse. You have a question for me. Let's hear it.

Yeah, so the question is that I'm an international student here in the U.S. So the international students, we come on an F1 Visa and on F1 Visa, they can have generate income off campus. If they can generate income, it's on campus. So let's say if a student has a startup idea or a project, a side project, and they want to get out out of the market. And if they're generate income out of it, it basically gets considered as an off-campus employment and that generally are in a different status. So how can an international student, while being here in America on F1 visa,

How can they run this startup? And just like, how can they run the startup here? Yeah, it's a great question. Yeah. So unfortunately, we have very stringent immigration policy right now under the current administration. It's 2020. Enough said. So what a lot of people are doing is moving to Canada.

And Canada is more than welcome to bring in a lot of talent and start companies there. They really want people to do that. They want to increase their tax bases and innovation. and that I think is the unlock for a lot of people trying to come here. I do think there might also be a possibility for you, and you probably want to check with an attorney or your immigration attorney about this. But if you had a co-founder in a company and they started the company and you worked on the project with them, I wonder, I don't know for certain, if that would be a possible, I don't want to say loophole,

but a possible way to do this and stay compliant. The other possibility is since you're in school, maybe you should just do a project. In other words, make money one way, and then you look at your startup as just a project. It's not incorporated. It's a project, and you're building it not to make money, but maybe to just test your theories in a lean startup, you know, experimental way. And then when you graduate, you're going to go for that next visa, and then you can obviously do it totally legally and not have a problem. Does that make sense? Oh, yeah, that means.

Yeah. I mean, it's unfortunate, but right now we are not allowing into the country. The next Sergei Bren, Steve Jobs' father was an immigrant. Elon is an immigrant. David Sachs was an immigrant to this country. So we really have to get our head straight in America and understand that immigration equals opportunity, not just for those individuals, but for all Americans. Because the greatest companies, some of the greatest companies in the history of this,

This country have been immigrants. I'm curious, what kind of business are you building? So basically trying to digitize the college ID, the traditional college ID. You want to digitize a college idea. That is a brilliant idea. And if you did have the college idea on your smartphone, you could open up the doors on campus, you could check into classes, you could order food, you could order books, you could take out books from the library. What a brilliant idea. If you have this brilliant idea, here's a little idea for you.

Start it as an open source project. That would be a way for everybody to feel comfortable buying into it. Colleges love open source. So make the standard. You know how HTML is a standard. RSS is a standard. OPML is a standard. And there's tons of open source projects from WordPress to Linux.

Make an open source standard while you're working in school. You get credit for controlling that. And then when you graduate, you could create software and a wallet. and apps and the things that the open standard support, just like WordPress did. WordPress has org and com. So start the dot org version of what you're doing. And when you graduate, then you start the dot com once you've got some adoption.

And it'll be easier for people to adopt the standard if it's not proprietary. If they feel they can change the wallet or build their own or build it into their app, that would be even better. And you would do something good for the world. So I suggest you start with a dot org. Okay. And an open standard. You know open standards, right?

right? Yeah, yes, I do. Yeah. Embrace it as an open standard. It'll get bigger. And then you just try to extract 5% of the revenue from the open standard, as opposed to doing a closed standard that nobody adopts and you get 100% of a small pie. Why not try to get 5% of a huge pie? Oh, okay. All right, good luck, and we'll see you soon. And if you want to come to the Founder University, go ahead and go to founder.com university and point them back in the application to this call. and I will get you into Founder University.

So you can spend two days with me here in San Francisco. Thank you so much. All right. I can't wait to meet you. We'll talk soon. New Year, it's a new year. It's 2020. And the new year is about growth and change.

And if you are running a startup, like all the people listening to this podcast are, LinkedIn is going to help you find the talent you need. The right hires, you're going to set you up for a strong year. And let me tell you something. When you get that right person in that right position, oh, it's so great. Isn't it the best feeling when you make a great hire? Well, LinkedIn jobs screens candidates with the hard and soft skills that you are looking for. So you can hire the right person quickly.

I know. Usually you're like, hey, take your time. You know what? LinkedIn is so good. You're going to do it faster. And over 600 million members visit LinkedIn to make connections. And a lot of them are looking for new jobs. And some of them are passive, right?

You get both of those groups of people. A new hire is made. You're not going to believe this every eight seconds on LinkedIn. And that's why it's the number one rated platform for delivering quality hires. At launch, we've made so many great hires on LinkedIn. Our studio director, Sir Charles, our marketing manager, Mahline. She's amazing. And now we're hiring again.

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and tell them you're going to give them a fitty. So it's a fitty from me, J-C-C-L to you, and then you give them. and then you give the fitty to your friends. Let's get some fitties flying. Okay, thanks again, LinkedIn. You're great for supporting the podcast. I really appreciate it. Okay, let's get back to this amazing episode.

Here's a great question from Jake. He says, what are some easily avoidable mistakes that first time founders often make? I mean, how much time do you have, Jake? I'm going to just rattle off a couple. Number one, a lack of focus. The companies that succeed focus in on one product,

one service for one group of customers. that solves a very acute problem for them, a significant problem, a problem that they don't have a solution for or that you can build a solution that's 10 times better than a previous solution. Let's take an example. Uber, when it started, had one service, Uber Black. It was the nice Lincoln Town Cars. It was meant for executives going to and fro airports or from meetings who could afford $100, $50 to $100 ride black Lincoln Town Car type service. They did not launch with Uber X, Uber pool, Uber Eats, Uber Freight, Uber Work. They did, or Uber Vitol, flying cars.

They started with one thing. Now, why did they pick that thing? Well, because it was massively profitable. The most profitable segment of all of Uber services is the Uber Black service because it's the most expensive and it's targeted towards senior executives, CEO types, VCs, who can take a $150, $100 ride from the airport to their offices, and they want to be in a beautiful car. So, focus, focus, focus on a segment that really needs you.

The people who fail, conversely, try to do three things at once, and then they spread themselves then, and they don't build an exceptional product. So don't spread yourself then is a key, key thing to keep in mind. Number two on this list of things that will make you fail. is not understanding your customer. You want to build a product for a specific person. That's why people make personas.

And if you look up customer personas or ideal customer profile, these are terms in the industry for understanding specifically who you're building for. You want to build for somebody. Because if you build for nobody, guess what happens? You're building a product and you're guessing. If you're building a product, let's go back to that Uber example with Uber Black. You have to understand what are the problems that an executive coming out of an airport in a city they've never been to, what are the things when they come to San Francisco that they face?

Number one, they don't know the airport. Number two, they got bags. Number three, they got to get to their meeting on time. And maybe they need the person to come, meet them with, to get their bags. Maybe they need the person to have a quiet, clean car so they can pick up a customer. Maybe they need to make a phone call in the car. They certainly need a driver who knows where the heck they're going. They can't risk that.

And maybe what are the things they hate? They hate having to do tipping with cash. They hate having to fill out paperwork and do the payment and slide the card and wait 15 minutes. Those were the innovations that Uber solved. You knew where your car was on the map. You didn't have to call the dispatcher. Remember back in the day you had to call the cab company, say, where's my car?

Then they would call on some CB radio and be like, where the heck are you? clients waiting at gate 14. Like, oh, I thought you said gate four. No, they show you on the map. And the payment was built into the app. And tipping was included. All of those things made the friction come out of it, right? So number one, focus on a specific product. And don't dilute it by building three products at once. Number two, understand your customer. How do you understand your customer? You build that ideal customer profile. And you don't try to sell your product to people who don't need it. That's a third point that, oh my lord, people, if you don't pick who your beachhead is, who the tip of the spear is that's going to use your product, your go-to market customer base,

then how do you know who are you going to go after? If you know that people in New York, Los Angeles, and San Francisco love car service and you know that people in the entertainment and finance and music industry and publishing industry are the ones who love it most, guess what? You can find all the people who work at movie studios, who work, who work at magazines and newspapers who work at Goldman Sachs, and you can target them first, right? Know your customer and know your go-to market strategy. A fourth thing that you need to know as a first-time founder is you have to be able to move quickly. Speed is important. You have to be able to build products and iterate on them and run tests quickly. If you go too slow, you're not learning

enough, right? You're not learning enough. So if you thought your market was executives at Goldman Sachs, and you never tested it and never emailed 50 people at Goldman Sachs to get 10 to reply, to get five of them to do a survey or do a phone interview with you and do a listening lab, well, then you failed. Right? You failed. So those are the first things that I think are common mistakes. Another one, another mistake, is that people, don't do their legal documents correctly and they have to clean them up and they give away too much money on their cap table. You want to make sure that your cap table is nice and clean. This is like who owns what shares. You're going to want to make sure you have the right type of organization structure. That is what's called a C corp in the business. If you're going to raise money and sell shares, you want to have a C corp. If you want to own the business forever, just you or you and your partner, you go with LLC because of one-time tax treatment. And so you need to have a good lawyer. You need to have a good lawyer or a good understanding of the legal space and you get that through reading, going to Cora, listening to our startup basic series, talking to other founders, and asking questions super important. So find other founders and be

part of a startup group, maybe a mastermind group. So if you're starting for the first time, find five founders who you know and say, hey, let's have a weekly Sunday dinner and talk about our problems and talk about solutions, maybe get in a chat room with them so that you don't feel isolated and alone. And when you do have questions, you can get four answers from your friends and then debate them. That's one of the reasons to come to the launch accelerator is that I've got 200 companies in a Slack instance with a channel for accounting,

a channel for hiring, a channel for marketing, a channel for PR, a channel for technology, fundraising, and we all talk in that room about how to solve problems. And it's not just my perspective.

Listen, I've got a good perspective. I've got years under my belt. But that doesn't mean I have the best answer. I have a couple of answers. I have a couple pieces of information, but I've seen founders give much better answers than I could ever give.

in our chat room. So you want to build a little group yourself of people you trust and people you can have as a sounding board. And you can do that with an advisory committee as well. And why not do both? Don't be proud. Don't have an ego about it. If you don't know something, if you don't know a word, ask what's the definition of that word? Ask them how to solve this problem and get three or four pieces of advice. And then you can take those three or four pieces of advice and triangulate on the answer that's right for you. Great question. do you average eight hours of sleep a night? That's what I'm trying to do.

And you know what else I'm trying to do? I'm trying to eat more plants. I want that plant-based diet. I eat Gailon. I'm eating some broccoli. I got the broccoli. Rob. I'm trying to be healthy.

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It's 2020. Let's do this, people. All right, let's get back to this amazing episode. Hey, next on the line is Spencer. Where are you calling from, Spencer? Vancouver, Canada. Vancouver, Canada. It's beautiful up there.

You got Slack. You got Microsoft. You got Amazon. Lots of people up there, huh? Lots of people. Lots of people. Great city. And a lot of them do seem to be isolated to soft bank, but is there actually a lot more systemic risk than people realize right now?

Great question, Spencer. We have been living in a free money environment here in the United States and in some other countries around the world, where money is freely available at very low interest rates. It's a low interest rate environment. And when you have a low interest rate environment and when you have large late stage funds like SoftBank was and was the largest ever created, obviously, money can flow into startups at an alarming pace. And when you have large amounts of money, that money is being invested so that you can double, triple, or 10x. In the case of SoftBank, they're likely looking to double or triple the amount of money they invest because they're late stage investors. They want to put in a billion dollars and get back $3 billion, take 20% of the $2 billion gain and make $600 billion.

That's the game they're in. They're looking to put a billion dollars into a company and have it go two to 10x. they then get 20, 30% of that return and everything will go their way. But your question is, is this a larger problem? The soft bank companies had too much money put in. It was a big experiment to see what happens if you put $200 million or $500 million into a company. And what you've seen is Zoom Pizza and brand lists and a bunch of other companies that

received a lot of money realized that they were growing too fast and the union economics weren't working, and the public markets, as we've seen through Uber's IPO, Slack's IPO, they're not interested in unprofitable companies. Unprofitable companies are going for growth, which is what private market investors want. Public market investors are more risk-averse, and they want to see profits, and they want to know that there'll be free cash flow coming from this service. And that's why you saw Uber go down from maybe a peak of, what, $45, $47, all the way down to $25 and now it's coming back. It's now at $34 at the time we're taping this, 2020.

It's come back because austerity measures. Dara is cutting staff that are unnecessary or redundant. He's getting focused on profitability. So's Lyft. So are the other companies. I'm not seeing it across the board in other companies because those companies didn't overspend largely. But the reality is companies are now looking and saying,

the public markets want profitability, the investor of the future and growth at all costs era has ended. So you are correct that the growth at all cost era is coming to an end. People want to see positive unit economics. Positive unit economics means on each transaction, we are seeing a profit. So if you were to look at a business like Uber, obviously Uber Black is highly profitable, Uber X is profitable is Uber pool profitable? I'm not so sure. Maybe they break even. Maybe they lose a little. Uber eats and DoorDash and Postmates. They were all losing money. Losing $2 per order delivered is what I understand. And previously, people used to make $250, $350 per order deliver. So that competition made everybody lose money? What? So that's what happens. When people are competing, they're going for

market share and everybody starts losing money in order to gain cheap. care. That is a very dangerous game to play. You're going to want to pump the brakes on that problem and then get back to something sustainable. So it's not that people are being laid off across the board in these startups. I think people are just course correcting for profitability. And we live in the lowest unemployment of our lifetime. Anybody laid off from these companies is going to very quickly, whether it's WeWork or Brandless or any of these companies, they're going to find work pretty quick. So I'm not so worried about it in terms of of those individual employees, I'm sure 90% of the people who were laid off from WeWork

who wanted to find work afterwards have found it by now. So that's one of the great things about the current environment, the United States, and entrepreneurship and the economy overall are very healthy. But the lesson here is it's unhealthy to build only for market share for some extended period of time. At some point, you've got to get to profitability. And I think we've pumped the brakes and said, yeah, by year 10, let's be profitable. Let's have some path to profitability. And it's overall healthy.

Awesome. Okay. Any other questions for me? What do you do, Spencer? You're an entrepreneur? I guess I'm more of a tinker at the moment. I just finished Lambda school. So the last was somewhat relevant to me. Oh, great. Yeah. How was Lambda school? Lambda school is the code school, everybody knows. Yeah, it was a bit of, I don't think many people will really believe in it until I got a job, speaking of close friends and family. But, you know, I definitely feel well prepared to go find a job now. But I do have a few side projects as well. What is?

It's a six-month, it's a six-month program you went through? I went through, it's nine months. Nine months? So there's four months of curriculum, two months of labs. which is sort of similar to contract work. So you'll pretty much get put on a project and work with the team and sort of build from the ground up. Then there's two months of computer science after that

where you learn to sort of deal with some more theoretical stuff. And it's $20,000 or so, or you can defer payment. You need to pay up front or give up 15% of your salary for two years? Exactly. And when you give up 15% of your salary, it's capped at $30,000 or $40,000, I understand. Yeah, I believe so.

I think of my 20, or maybe it is 30. I'm not exactly sure. Yeah. So the people around you, your friends and family, actually thought this was not real, but you had the boldness to do it anyway. Yeah, you know, I was in business school, and I could, like, hardly wake up in the morning,

and I just kept on getting barraged on Twitter with this Lambda school, Lambda school. And I was like, oh, what the heck, look at this shot. And it's worked up pretty well for me so far. I haven't gone on a job yet, but a lot of the people I know have. How long have you been looking? I'm curious.

How long you've been looking? So the way the program works is almost from month two, you're actually talking to recruiters. So I've been talking to recruiters for months now. I have a few interviews lined up. Great. Where are you based again? Vancouver.

Vancouver, right. Well, there's a lot, a lot of people up there hiring, So I think you'll find a gig. Yeah, I know. I think it's probably a great place to set up an office. The lifestyle is pretty great. Cost of living are somewhat lower than the Bay Area. Yeah, 50% lower, right?

You can get a $1,500 a month apartment? Yeah, about that. Yeah, and San Francisco, it's three. So that's about half. Lower cost of living, and you'll probably get a job within 80% of what a salary here would be. So that's a nice arbitrage. And I think that's, you know, I'm advising companies now,

don't move to San Francisco. unless you really want to be here. And even if you want to be here, you're going to need a satellite office for positions that pay, let's call it 60,000 or less, 50,000 or less. It's just not sustainable here in San Francisco.

But, yeah, send over your resume. You know my email, Jason at calicatus.com. I'll share it with my LinkedIn with our 200 companies, and who knows, maybe we'll try to get you a gig. Sure, actually, can I bother you for one more question? Yeah, you can bother me for 10 more questions. Go ahead. No bother.

That's what I do for a living. The last few months, for the suite bank, sort of like a hotel suite. Sorry, I was like I said, I was originally in business school and sort of is a trend happening right now

where there's a big push for family offices. Obviously, they're quite expensive. Not many people can afford them unless you have X million amount of dollars. So I've been sort of tinkering at this idea of setting up family offices and managing them over the internet. I've been working on that.

working on the back end system for that for the last few months. Obviously, there's a lot to learn. I'm not quite a finance expert. But to get users, what I've been doing is on, there's a website called Indie Hackers, and there's all sorts of online communities where I've been going to these small businesses, online businesses specifically that are maybe doing six figures in sales. They're profitable, and their owners want to cash out. So I've been offering sort of brokerage services to these businesses,

just sort of as a way for them to asset their business if they want to. Yeah, it's a great idea. I mean, what you're talking about is iBanking, investment banking, but you're doing micro investment banking. So if somebody built a project that makes $100,000 a year, $200,000 a year, there are websites like Flippa is another one where people would flip domain names or small businesses. They tend to be a little janky, right? Some of them, but some of them might be real.

and being able to broker those and find a home for them, and you take 30% of the sale price or 20% of the sale price? What's that? I don't have to be kind of careful. So right now I've just been pretty much helping them write their documents. So say it's someone who's been working on a project for the last few years. And you just charge them an hourly fee, right? You charge them $100 an hour to do that?

No, actually, I don't do that at all. So I love most brokerages that charge 15 to 30%, like you said. Yeah. I'm doing it for free right now. I'm quite time-consuming, but in return, I just ask for a letter of intent. So when I've come further down the road, and I'll be able to sort of get my broker-dealer license and actually set up these offices and then hopefully hire managers. But right now, what I've been doing is I've been using this as a method to get letters of intent.

So let's say we sell a business. you pledge $100,000 out of the sale to open a sweet bank account. Yeah, I mean, I think it's a great business for you because you will learn a lot. I like those businesses, and it could scale. I also like the business of you creating software for family offices. That's a good business, I think. I know they have some family office software out there, but you never know. You might be able to find a niche there.

So really just study those customers. And if there are websites that are good at and you're a coder now, I just love the project of you creating your own website for people who are looking to sell their business and maybe studying the other ones out there and figuring out a niche for yourself. Perhaps you can say, I'm going to work on websites that are just subscription based, where I'm going to work on just consumer ones. And you kind of carve a niche for yourself and build that platform since you have a dual skill. You're a business head and a developer. that's a really wicked combination because you can conceive of a business and you can build it yourself you're like a you're like a double threat like you know in the in the entertainment business they have the triple threats they can act they can dance and they can sing you get that triple threat thing going

oh my lord like the opposite of justin beber right he can kind of sing can't dance and he's not a good actor so he's kind of like a 1.5 but you're like a 3.0 you know You can sing, you can dance, you can act like Lady Gaga or Madonna, right? Like those are the ones you want to be. You're like a Madonna to me, right? So you got that double skill. I mean, if you can sell too, then you'd be the triple threat. So you can build it.

You can conceive of it and run the business. And if you can sell it, oh, my Lord, you might be a triple threat. So, you know, I would just keep iterating on that concept. I love the idea of this mid-market kind of space for you. It's a good business idea. That's the hardest part and help the seller sort of get their docs in order, figure out their financials and such. But finding a buyer is actually probably the most difficult part.

Yeah, and that's the most sustainable part. So the way to do that is I would look for companies that are mid-market companies that have done acquisitions in the past. And so I would set up a Google alert for every time the word acquired or acquired this business occurred. And then I would get on LinkedIn and I'd find everybody who's in business development or acquisitions. and then I would just start adding them.

I would make lists of those people on Twitter and interact with them, maybe start a blog or a podcast about people who acquire companies. Here's an unlock for you. If you did the podcast called the M&A podcast, and then you, every week, call somebody on the phone and say, I have the M&A podcast. I wanted to talk to you about buying and selling of companies. And you do 100 episodes.

Now you've got 100 episodes of people who do M&A, and it costs you nothing to do those interviews. you get 30, 30, 30 minute interviews going. Now you're on a first name basis with people who do M&A for a living. And then when you send them a project, you're like, hey, remember you were on my M&A podcast? Maybe you want to, you know, do, you may want to take a look at this company.

You might know somebody, right? So building that networking community, you can do it through blogs. You can do it through being active on Twitter. Like you said, you couldn't, everybody was talking about Lambda constantly. Like the guy Austin, who was on the podcast who runs Lambda, his full-time job is Twitter.

That's all he does is interact on Twitter, and that gets some students. So the playbook is there. Media, community, about the topic with the leaders of that topic, then lead to those people being involved in your platform. It's a great question. It's a great idea. And if you email me, Jason at calicanus.com, I'd love to invite you to founder university or to audit the launch accelerator, which happens every Thursday here in San Francisco, except for holiday weeks. If you email me and you remind me you were on this episode, I'll host you at the launch

accelerate. You can see the companies we're investing in and how they're going. We'll have a burger afterwards and we'll keep the conversation going. Great job, Spencer. Awesome. Thank you, Jason. All right. We'll talk soon. Enjoy Vancouver. Sure, sure.