This Week in Startups - E1062: News Roundtable! Acquired.FM Co-Hosts Ben Gilbert & David Rosenthal on Clubhouse’s pre-launch $100M valuation, Joe Rogan to Spotify, Uber layoffs, food delivery wars, Facebook buys GIPHY & more!

Episode Date: May 20, 2020

0:31 Jason intros today's news roundtable guests Ben Gilbert & David Rosenthal 6:54 Clubhouse raises Series A from a16z at a $100M valuation pre-launch 11:12 How do $2M in secondary shares play into Clubhouse's situation? 14:08 How Clubhouse achieved "VC-Market Fit" 18:49 Was this investment worth it considering massive former outliers in the consumer social space (Facebook, Twitter, Snapchat)? Or did a16z pay too high of a price? 26:08 Bull/bear cases for founders selling secondary shares pre-launch 33:29 What impact did raising $100M for Mahalo pre-launch have on Jason? 37:18 Joe Rogan to Spotify, guess the acquisition price & macro-impact on the podcast industry 46:09 How massive is this for Spotify's position in the podcast industry? Did Apple drop the ball? 51:28 Jason to Dara: Uber should buy Dominos 52:16 How much podcast market share will Spotify have in the coming years? Will this be viewed as the landmark deal? 57:03 Uber layoffs, potential GrubHub acquisition, does the food delivery business model work? 1:04:57 Why the on-demand food delivery industry has a product-market-price fit issue, should life-long bureaucrats impact capitalist policy? 1:12:03 Who emerges victorious from the food delivery dog fight? 1:15:28 How being too reliant on one revenue stream could kill many ad-based media publications 1:24:38 Facebook's GIPHY acquisition 1:25:55 Twitter thread by GIPHY crowdfunding investor who never received their return, why Syndicate/Crowdfunding leads need to stand up for their investors to downstream firms THREAD: https://threadreaderapp.com/thread/1262574661239312384.html 1:37:20 How GIPHY's weak relationship with their DAUs led to little negotiating leverage 1:39:05 Predictions for Clubhouse's eventual business model

This Week in Startups is brought to you by Squarespace. Turn your idea into a new website. Go to Squarespace.com for a free trial. And when you're ready to launch, use offer code Twist to save 10% off your first purchase of a website or domain. And Fiverr. Find the perfect freelance services for your business. Go to Fiverr.com and use code Twist to receive 10% off your first order. All right, everybody, welcome to this week in startups. It's our news roundtable. You guys love to talk about the news. You like to get my unvarnished opinion on the news. I recently had somebody call me and admonished me because I was talking about the news on Twitter. And I said, have you not been paying attention? They said, I don't understand. Why do you share your opinion? I thought about that. I thought about that. I thought about that. I thought about that. We are.

now in well into month two of quarantine shelter in place. If you're watching this as a historical document, it is May 19th, 2020, and we are deep in the coronavirus, COVID-19 pandemic. And it's an absolute unmitigated disaster. We won't get into that. Today, we're going to talk about the news and try to give you a break from talking about politics and the pandemic. Of course, it will come up, I'm sure with me today. Two really just great podcasters who I discovered who have a great podcast called Acquired.fm. And I was recently on it. And they are the co-founders of Pioneer Square Labs, which is like a startup studio VC fund in Seattle.

And I'll have them explain what startup studio means in this context or if they're mainly just investing. But I was recently on their podcast and we did two hours and it just had great chemistry. So I said, hey, let's see if we can recreate this and have you on the roundtable. Ben Gilbert is with us. He is Gilbert on Twitter. Ben, how are you doing? Thanks for having me, Jason. Doing well. And Ben, you are the co-founder and co-hosts of Acquired FM. How long have you been, let's start with you giving the background on Acquired FM. How long have you been doing the podcast? What has it done for your business? What's the goal of the podcast mission? Yeah, we're coming up on five years. It's been five years a side project through two different companies that I've been at, two different companies that David's been at. the goal has been to... Five wonderful years.

Yeah, yeah. Spoken like a true married couple. That's right. That's right. Five. Well, my wife, you know, kind of gets jealous sometimes. She says that I text with Ben more than I text with her. And she would be right.

And David Rosenthal is your partner, of course, Ben. And he's got the radio voice. He's got us both beat, Ben, with that. Soothing David Rosenthal, public radio voice. David, why... I'm the voice guy. Ben's the intellect. Yes, exactly. You know, you said it, not me. Tell me what is Pioneer Square Labs. Are you a startup studio like science and

Beto works, or are you more of a VC or a little bit of both? Yeah, a little bit of both is the right way to describe it. We started purely as a startup studio, which means we co-found companies with entrepreneurs. Big dev, design, data science team, come up with ideas. And sometimes, you know, there are ideas. Sometimes other people bring us ideas. is, but the thing that's common among all 20 VC-backed companies we've spun out is that we sort of co-create them, co-found them with entrepreneurs. And then we've got an early stage venture fund that we use to invest in all the Pacific Northwest

companies that we don't start. David, when you start a company with Ben and some founders, how does that economics work, broadly speaking? The criticism I've heard of, you know, the science or the beta works is that they take a very large portion of the equity. And then they give a small portion to the founders and then they try to raise money. And so they get basically higher gun founders. How would that economically work out if I were to join you and work on an idea you had?

How would that work? Well, that's a better question for Ben. Although Ben and I have started multiple companies together. I am not part of Pioneer Square Labs. I'm just a investor. Got it. I didn't realize that, actually. Okay.

So David, you're just drafting off Ben. Got it. Ben. Yeah, exactly. You explain. That's been my plan all along. it's worked out beautifully. So, Ben, how does that wear a cap table math-wise, just for people listening who might want to become CEO of one of your companies or maybe want to come work with you?

Yeah, totally. Well, certainly every situation is different, but the commonality is that we look like a co-founder on the cap table. So obviously, a meaningful amount of equity, all in common so that we sort of participate and get diluted down the same way the founder does over time. And the bet that you're making by starting a company with us is that that sort of massive amount of acceleration early, building out a great team, validating a product, not feeling around in the dark for a long time is worth sort of that co-founder amount of equity. Got it. And then you might also put in money. Of the 20 companies, if you've done this, which one would objectively an outsider say, hey, that's the most successful, raise the most money, largest number of employees,

large amount of revenue, any of those vectors. Yeah, a few that people might have heard of. One is jet closing and the title in escrow business just did a $20 million. series A from Tiro Price. Another might be boundless, which did a series A from Foundry Group, helping people immigrate with confidence. So there's a few out there that are maybe well known by consumers. How did downstream investors think about you? Do they look at this co-founding thing as an asset on the cap table to have you there,

or do they look at it and go, huh, we've got to buy some of those shares out? Because that's what I've heard is kind of what happens with some of these startup studio companies is in order to keep their funds evergreen or keep the money coming in, they're structured sort of as evergreen funds. So if you were to take the company to TRO, you might sell them 10% of your shares, get more money to start the next company and to balance out the cap table. Is that what actually happens in your case? I could see that happening later. Hasn't been a big driver for us to date. The way that the downstream investors that we've sort of chosen to work with look at it as they know us, they know that we're sort of valuable.

as co-founders of the company. You know, the reason why we raised from 14 venture firms when we put together the initial capitalization for the studio was to basically say, hey, who select in, if you're interested in sort of funding companies that we start. And obviously now there's dozens of companies that have been involved in raising from external VCs that had nothing to do with capitalizing the studio itself.

But initially we did start with a core group of VCs, just, you know, for that reason of knowing that we had a group that was sort of bought in on the model. All right. So let's get into the news. Clubhouse is a audio phone. I would describe it as social audio. Social audio. That's a great way to describe it. Yeah. You basically open up the app. You see a bunch of talking heads. You see folders, basically. In the folders are conversations. In those conversations, you will have, you know, maybe two to 10 people talking simultaneously. like on a conference call. So it's a little bit of bedlam, but people tend to figure that out pretty quickly, unmute themselves or direct the conversation

to the next person, like with a handoff. Like I would say, like I'm doing here in the podcast, hey, Ben, what do you think of this kind of thing? And then below it is an audience, and you can upgrade people from the audience, like in Turntable FM or some of these other services where they get to become speakers. And the founders of that company did an amazing job

having venture capitalists and founders use the product. It's not available yet. It's not yet in the app store. I got an invite to it, started using it. I was like, hey, this could be an interesting investment, reached out to the founders. And then lo and behold, news broke, I think on May 15th, so a couple days ago, that, I think it might have been Friday. And Drison Horowitz had invested $10 million at around $100 million valuation in a series A for a company that likely, when I've been in, it has 200 people maximum, but typically more like 50 people using it. And the reason I'm kind of laughing is this is just an extraordinarily ridiculous valuation.

Obviously, happy for the founders with that. And Ben Horowitz came on the app. I interviewed him actually on the app and asked him some questions about it. And a benchmark had an offer around $75 to $80 million for this. and the reason stated in a story, I think, in Fortune or Forbes for why Andreson Horowitz got the deal was that Mark Andreessen called Kevin Hart, who, you know, is basically in all these internet circles, seems to have his hands in every circle is in the poker circles as well, to come on the app and make jokes. And the founders were blown away by that. and this was the controversial part, $2 million in secondary shares,

$1 million for each founder, two injuries in Harowitz. So, Ben, what are your thoughts on this, you know, clearly an outlier in funding? And have you been on Clubhouse? I have. First, I just want to clarify the Kevin Hart thing. In the Forbes piece,

you know, I think that was one of the sort of sweeteners that they pointed out may have won the deal, just in conversations with the, the founders in the app. It doesn't strike me that they're the type of people that, oh, my God, Kevin Hart gave us a phone call, therefore we're going with this VC firm. I have to imagine there was a lot, lot more. Yeah, oh, yeah. So it definitely wasn't like, get us Kevin Hart to come on for five minutes. We'll get you to be up. But I think they wanted to see who could hustle. And the founders have said, I've been in the, I've been in the sort of conversations where

Paul says, I really think stand-up comedians will do well in here. And they could have like a paid version where you can kind of do a stand-up set or a test new material. So he seems to be obsessed with that concept. Yeah. Well, I think there's a few very interesting trends going on here. I mean, on the valuation front and on the $10 million invested in a not a pre-revenue, but a pre-launch pre-app store product. Yeah, pre-approval. Pre-approval by Apple. Superhuman is still a pre-app store product. There you go. That's a good point. What we're seeing here in the funding environment, I think, is this bifurcation where, you know, the prices haven't come down for the,

the hottest companies. So the deals that we're definitely going to get done are still definitely going to get done and kind of at the same valuations. It's more of those ones that were they going to be able to raise a round or are they going to fall up. Those are the ones that are having sort of the problem raising the rounds. And so it's no surprise that the very hottest company in consumer social raises 10 million at a $100 million valuation. If you had asked me two weeks ago, what's their round going to look like? I probably would have thought it was something like that. I'm not sure I would have realized that the $2 million secondary would be in there as well. Explain to me about what the $2 million secondary is and why that is so notable.

Yeah, David, you've been a venture investor longer than I have, so you may be able to better articulate the mechanics. Well, you know, it's just, it's super controversial because it just gets back to, like, the big question is psychology and motivation. Like, it's pretty simple, you know, on the surface, which is like they, the founders, you know, had, presumably somewhere around 100% of the equity of the company before. They sold, if it's a $100 million valuation, they sold an extra 2%, 1% each of them at a million dollars. They still own a bunch of the equity. Why shouldn't they be motivated?

But it's just not something that you, I can't think of a case where this has happened early. Maybe you guys can. And the company ended up working out in the long run. Jason, you've always seen... Well, Secret was the big one that had a very similar pattern, so that gave people a lot of pattern recognition. Secret was an app that allowed you to basically slander,

and he won anonymously, put a statement, like a tweet out, and it would share it with everybody in your phone book, but you would know that they were in your orbit, but not, and so people were just started posting like all these salacious things about people. Anyway, the founders, in that case, I think so, $3 million each, and these dipshits bought Ferraris drove them to work. That's right. That's right. And obviously, like, presumably that's not going to happen here.

But I think, like, you know, if Nassim Telibu here, he would be all about skin in the game here. And I think that's kind of what it comes down to. It does. And usually if somebody is selling in the series B, when the company's at, you know, $100 million or $200 million valuation, has $10 million in investment. What you're saying is, I'm going to reward that founder with a million dollars or $2 million. million dollars buying their shares. They have to give up the shares, so they're selling something. But it'll keep them in the game longer because now they can take the idiot insurance,

put out a down payment on an apartment, or buy a dope house in any other city but San Francisco and New York, and maybe it takes the edge off. But, you know, we don't know everybody's individual circumstances here. As somebody pointed out, one of the founders has a very sick child. And so, you know, there could be other dynamics at work, but it does signal, I think, to other founders. And I saw some founders bring up, hey, I am a underrepresented founder. And these, you know, white founders get this craziness. I'm not sure if that's actually valid here. But it does, in fact, I don't know that that's valid. I can understand people having that feeling. But the other thing that was interesting is it does trigger in other founders. Well, I have a million dollars in revenue. And I'm having a hard time

raising at a $10 million or $15 million evaluation, this is not fair. And what people need to understand is what these founders did better than anybody is they got VC, as I call it, VC product fit. And when you get VC product fit where VCs become addicted to a product, well, then they just, it sets something off inside of them a spark where they- Psychology, yeah. It's a psychology thing. And Uber had this as well where who took Lincoln Town cars, V-C. and VCs were like, this is better than my assistant calling and getting me a $150 car because it's only $90 and I can watch it come and I don't have to talk to anybody. So I think that's what they had is VC product fit. Lux, the valet for Tesla's in San Francisco also had this be you can pull up to any.

Infinite VC product market fit. Infinite VC product fit. And when you have that, VCs will do irrational, and this is irrational in terms of a bet. Let me take the other side of this, Jason. Go ahead. Yeah, please. So, calling it rational. So no enterprise company in this sort of era of technology in the last 15, 18 years has become as big and as successful as consumer companies. Consumer Internet companies have zero distribution costs, zero marginal costs.

They don't have to pay for the content if they're Facebook or Instagram. These companies have all the characteristics of... And if they've a successful viral loop for a lot of... long time, they don't have to do any paid customer acquisition either. Totally. And the network effects are unbelievable in these businesses. And so we haven't seen, you know, there's only been a handful. There's been Facebook. There's been Twitter, which sort of plateaued a little bit, Instagram, Snap, TikTok. MySpace, Friendster. Yeah. I mean, there's been Twitter is totally having a moment, by the way. That's true. But to the extent that that you can buy, you know, win the lottery

ticket to be in the next one of those, like the upside potential is so high, 200 billion. 300 billion, $400 billion of potential future market cap, that to be a material early investor for the low, low price of $100 million valuation, like, I get it. If something's already showing the signs that it can de-risk some of that, then I don't know. After this commercial break, I'm going to explain why Ben's wrong on this being startup. Stick with us. Hey, do you have a great idea? Do you want to turn it into a beautiful website?

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sport waiting for you. Go to Squarespace.com for a free trial, and when you're ready to launch, use the offer code, Twist, and you will get 10% off your first purchase of a website or domain. Thanks again to Squarespace for supporting the podcast for years and for making amazing, amazing software, an amazing platform, and having just that incredible wherewithal to just release feature after feature. Great job over there at Squarespace. Okay, let's get back to this amazing episode. All right, welcome back to this week and startups Ben Gilbert is with us. He is the co-founder of Pioneer Square Labs, which is a startup studio VC firm in Seattle, and he's the co-co-co-host of Acquired FM with David, who is the co-host of Acquired FM. Do you have a day job, David, or do you

just do voiceover? Mostly I just do voiceover. No, I'm an investor. I've been a VC for over a decade. Where are you a VC? Well, so I was at Madrona for, uh, up in Seattle for, uh, which is where Ben and I met for many years. I worked at Meritech. And then a couple of years ago, I co-founded a seat stage fund called Wave Capital. But now I invest on my own. Great. Okay.

Solo investor. I like it. So, Ben, your position, I think, is understandable, right? If this is in fact an outlier and do we have enough evidence here that this has the viral loops that would result in a $10 billion outcome? A $10 billion outcome, if you invested at 100 is 100 X, 100 times 10 million. If there was no dilutionary, you kept up with your pro rata, it could be a yum, yum investment for a VC firm. In the case of an Andreessen Horowitz, it would return probably that entire fund.

I think they do like $750 million to billion dollar funds. I'm not sure which one this came out of. But if it was a $750 million to billion dollar fund, this one investment could get the fund to the hurdle, right, to the actual breaking. point. So that there's, it's not illogical. But the number of people who've made it to a $10 billion market cap in social is four or five companies right now, right? LinkedIn, Facebook, Twitter, Instagram didn't make it. Snapchat did. I think that might be it. So, if you didn't have other deal flow, this deal would make sense. However, Indrisen Horowitz has exceptional deal flow. Some might

argue, I would argue they're like somewhere between the sixth and tenth best venture capital firm and maybe in terms of profile top five, but it's in terms of track record. They're, you know, probably like second tier. And that's just math and statistics. Maybe they'll become first year later. They're not the Jason Calacanus Empire. No, I mean, listen, I've gotten lucky, you know, if you take out the top six investments, you know, it's a different story. Well, hey, that's any of that your firm. I know. That was kind of the joke. Thanks for getting it But anyway, my IRA is easier to have higher because I do smaller dollar amounts. It's harder when you have larger ones, obviously.

But in their case, if they could invest in five companies, $2 million each, at a $20 million valuation who have more traction, they would be investing further down the line in five companies. That's why I think this investment does not make sense and was an emotional and a competition that got out of control. because there's a lot of bad blood between the benchmark team and the Andreessen team, and this founder did a better job of manipulating and creating a marketplace that any founder I've seen in a long time. What's that?

He created a flashpoint. What does it mean flashpoint? Just is there a- Well, like, given his story, this particular company, the nature of the company, his background being a benchmark EIR, the nature of that bad blood. Oh, Paul? Was it in EIR? perfectly. Yeah, he was an EIR at Benchmark before he started Highlight, which was his previous company.

Oh. And he gave the deal to Andresen Horowitz? Wow. What do you think about that, David? That's kind of dirty, isn't it? Well, this is your point about this psychological competition that happened. I want to come back to real quick to psychology and the secondary. But did Paul also sell a company to A-16 or had a previous company? Well, Pinterest acquired highlight. I think that was the connection. Oh, okay. Maybe Pinterest was. was an AC company or something. So anyway, he's probably, but anyway, what was your point about the secondary? Oh, my point was, you know, it all gets back to psychology. Like, this is, you know, to your point, Jason, this is, uh, there is something interesting and potentially special here about Clubhouse, but this, like, the national anthem hasn't

even played yet. Like, they're not even in the first inning. Right. Like, there's a long, like on our show on Acquired, we tell the histories of, you know, great companies that have made it to an exit or near an exit. There are so many ups and downs. Like, it is a frickin' roller. poster, as you know. And so, like, getting this huge valuation, getting all this capital,

getting this secondary before the national anthem is played, it just, like, it does super weird things to your psychology as a company and as founders. Oh, to them internally. I want to unpack that in a minute, but let me ask you this. You heard Ben take the side of, hey, this is a good deal. I think, I don't want to speak for you, Ben, but Ben, you think it's a good deal and you would have done it. Suffice it to say if you had the opportunity. Yep. Okay. And I think I would rather go with five bets. Now, that doesn't mean if the founder calls me now and says, hey, we got a slice for you. I'm not taking it. So let me be clear. Let me be clear. There's the real answer. Because now there's so much motivation here slipping in 100K just to be

on the cap table and take a flyer. It could be worth it for me because it's small. Wait, wait, unpack that though. What do you be doing? Also, that is the exact same psychology that a $750 million venture firm should be taking on something that has this kind of potential outlier returns. Yeah, for me, what I would look at here is now that Indrisen, I would never, if they said to me we're doing an angel round at $100 million, then we want you to be one of 10 angels. I would say no. You want a momentum trade it. I would momentum trade it on Indreason Horowitz is now all in. And literally Ben Horowitz, his wife, and their like entire network of celebrities. He 40 was on it last night. Yeah. So now it's like this is going to become for Ben Horowitz and Indreason since they've been mocked by the crazy valuation. it's going to be a point for them to bring this over the finish line or really work hard to do that.

So there's that like leveling. It's going to be like when the sports writers were telling Jordan or we're saying that the Bulls were going to be out in, you know, in four and five and six. And he does that. It took care of you. I took care you. Yes. It's basically like now they've given them the fire in their belly. So now Indris and Hart is going to pour money into this and get every, they're going to pull out all the stops, which is great.

That's the job of venture capital. I love it. But let me make sure I got the straighter. David, you would do what I said. wait until they're in the second inning, third inning, and make five bets, or make ten first inning bets, or five third inning bets, right? If you had the same amount of cash, I would I would view it a little differently. I would say for the stage at which this company is, at that valuation and with these dynamics, I would have dropped out of the bidding.

For sure. Long before it reached this point. Why? Why would you have dropped out? Because of this, because like there's just so much still unknown. like we don't know we don't know the retention of these users we don't know the actual like nature of the network effect and and how strong it is and like how this works outside of covid right does this work outside of i mean we can always make a long list of reasons why things don't work so

oh of course no no like i'm not saying this to to throw shade like this is awesome like these experiments should be run these things should be happening this act should be built these founders should raise this money but like there's just there's so much unknown that is unknowable right now now. Now, two to three years, they've been, from now, they've been operating, they've started to figure this out. They know what the user lifetime is. They know there's more of a view on the intensity of a network effect. Like do, right now, again, Ben can probably, you guys can say more than me. I've spent very little no time in the app. You care about who's speaking. Do you also, is there any reason to care about who else?

is in there who's not speaking. All right, this is good. We should, okay, so I think we got through the, why the investment is notable. Now we're into the intrinsic. Yeah, let's go to the intrinsic value. But Ben, I want to ask you one question about the secondary. What's the most charitable view of the secondary?

What's the most cynical view of the secondary? And then where do you land? So what would be, when you're talking to people in the background and, you know, you're a very connected and candid guy. That's why I like having you on the pod and I like being on your pod. What would be the least charitable and the most positive, the most cynical and the most charitable version of giving $2 million to founders in a company that has 2,000 users, let's say. Yeah, so the most cynical is just saying, look,

it's not a bribe because it is a transaction, you know, providing shares in exchange for cash, but it is to say, look, those other guys aren't going to give you cash right now. I'm going to give you cash right now. So do the deal with me. So basically a bribe. A pot sweetener. that a cynical person might say you're basically paying off the founders to get the deal, which is what people said about the secret deal. And again, it's a, it's a transaction. You know, the shares are worth that because that the fund is purchasing those shares for those price. But yeah, the charitable one, and this is pretty much where I come down, is I don't blame anyone for doing this. If you look at each actor in the equation here, you look at the venture fund of why they would do this. It's to win the deal.

And then you say, well, that's only bad if it's bad for other people. Could it be bad for the LPs or bad for the founders? For the founders, I think it's perfectly reasonable. I mean, this really for... Oh, if I'm a founder of a company that hasn't launched yet and you can buy 1% of my shares for a million dollars, let's go. I mean, every founder takes so much risk ahead. Obviously, it's great for them, but I think it's reasonable for the VCs to give them that

because I think, you know, the situation that you described before, it's an opportunity to put a down payment on a house or, you know, pays a medical bills or do something that basically puts you at ease so that, oh my gosh, you can go and focus all of your attention now on running and scaling this company where, you're not, your incentives are with the VCs to go make it as big as it possibly can be rather than being, you know, try and do a small exit. something so that you get your cash, even though the VCs didn't get their multiple. And so I like the incentive alignment there. So that's why it makes sense for the VCs, for the founders. And then I kind of talked about the VCs again. I think it actually makes sense for LPs. Yeah. So the people who give the venture capital firm their money to invest, like an endowment.

So now an endowment like Harvard, let's say, or a retirement fund, like Halpers. Let's take a retirement fund. A retirement fund just gave paid 20% to invest $10 million. They pay $2 million to invest $10 million in this company. Yep. So let's suppose that this company can go and be a half trillion dollar company at some point. Then what you're doing there is paying for access to an investment vehicle that no one else has access to. Lots of people do that.

It's very common in the finance industry and it takes many forms. But this idea of... What would it be on a percentage typically? And what's an example of that? Access to something that's not available in the finder's fees. Oh, like management fees. Yeah. Like when you pay a hedge fund two and 20, 2% management fee and 20% carried interest or three and 30 in a lot of great venture firms cases or great hedge funds cases, then yeah, it's.

So they're paying that already. So let's assume they're paying the three and 30 to Adreason Horowitz. Now they're paying another 20%, which would be in the fee bucket, essentially. So they're paying 23% fees and 30% carry. So, yeah. So you could effectively look at it as a higher fee. the other thing to note is like the venture fund does get to hold those shares. So there's a possibility to win.

It's not primary capital into the company that's going to help them grow. But now Andreessen Horowitz does get to own another 2% of this company, which their LPs hold. So, you know. Okay. So David, where do you fall on the cynical or charitable, on the cynical to charitable spectrum, where do you fall? I fall pretty far on the cynical side. Now, to be clear, I don't blame the founders at all. Like you said, this is a, this is a no-brainer proposition to that.

We all agree. Yeah. Founders get the best deal they can. To me, I fall much more on the cynical side for two reasons. One, like I was saying earlier, like, I think a lot of people have justified this kind of stuff very rarely as early as this. But still, like, this has been creeping earlier in companies over the last 10 years that this is happening with the, oh, it aligns incentives. Like, it takes, it takes the pressure off of founders, allows them to go for the big win. I actually, like, this sounds harsh to say, but I am a big believer that like when your back is

against the wall and you have to make something work, like you have no secondary options, you have no exit plan, you have no 401K, that is often when, you know, you are forced to make things work. and especially this early in a company where, as you say, Jason, you have VC market fit, very unclear if you have product market fit, way more even unclear if you have, you have, you know, an advertising model, a business model, let alone defensibility in that industry. There's a long road to go. Yeah.

See, this is an interesting point, I think, is this is why people were against secondary period. And it was like, well, if the companies are going to have, if you want the companies to go for a 10-year IPO, you know, IPO in your 10, 11, 12, like Airbnb and Uber are giving some secondary opportunities in the five to 10-year window. So people who are fully vested have something and they don't leave the company, makes sense. right? But even then, you want them selling 10% or 20% of their shares. And you want to mitigate.

Well, and in that case, I think so that's my, that's my, that's my, that's my, that's my, but it gets into my second point, which is you touched on Jason. Capital going to the company, Ben, you did too. Capital going to the company versus capital going to the family. Like the point of raising an early stage financing, if you're a founder, if you're like a purely rational founder is like you are taking on capital, you are selling equity, which is painful to you to get resources that you need to build the company and grow it so that the value is greater in the future that you own. That's not what's happening here. And like this use of capital, if anything, is neutral to the business and potentially long-term detrimental to the business.

Yeah. There's double upside that an investor gets by investing. They get the upside of now I get to own a material amount of this company and this company just became more valuable because now it's capitalized. And in this situation, it only has the one benefit of now I get to own shares in the company. Yeah. And, you know, this is one thing that I think we can't, you can't discount is that when Indrice and Horowitz's name or Sequoia's or benchmarks on a company, it does get more valuable. I would say generally speaking, those companies become twice as valuable with those names on it.

But having been to Sequoia. Well, you've lifted as a Sequoia founder, right? Yeah. And what happens is after you raise that money, your phone rings off the hooks from all the series B folks. Like there are companies, there are firms. I think DAG is one. and others that were known in the valley as, you know, looking at the top-tier firms and then providing the series B. And, you know, they were kind of constructed that way to be the follow-on capital before those funds actually had follow-on funds before anybody realized, put that all under one roof. But the problem is, and having raised $100 million for Mahalo right before we launched, so I was in the exact situation. You have to then go fill in that valuation. I didn't mean to flex. It's not meant as a flex, but I did the same. thing. I raised R Series B before. So what are you hating on this for? Oh, I'm not hating on it.

I'm bringing it up as a topic of discussion, right? And that's why I, how did that impact the company doing that, raising that much money before? It basically gives you five years of runway, which is dangerous and amazing. I think it did take a little of my focus off because I worked on too many concurrent things, right? And so having less capital might have increased the amount of success. But it did give me the ability to take three swings at bat and try three different businesses, the third of which is inside that I'm still on. We basically did the web startup. We did the YouTube video stuff, and both of those didn't really work out. One, we got clobbered by the search engine changes that Google made. The second one, YouTube just didn't seem like a great

business to be in. And then inside is still going. And it's doing moderately. Okay. So we'll see. But it is a dangerous thing to do in terms of you have to fill in the valuation. So if you're confident, that's not really super dangerous for the founder. It just requires. a lot of discipline, which they seem to have. These are not first-time founders. So giving them $10 million doesn't mean they're going to go buy a huge office space and, you know, Ferraris with their secondary. I get the sense these are much more mature folks who will put that to good use.

All right. When we get back from this final break, we'll talk about Facebook buying Giffy, soft banks ginormous loss, and Uber's layoffs and the Grubhubbubb acquisition, as well as Twitter and Square, saying the Jack collection of companies, the Jack cohort, saying work from home forever. And maybe AMC is going to buy a movie there chain. That's an interesting idea when we get back on this video. All right. If you're a business owner and chances you are, since you are listening to this weekend startups,

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Use the code twist for 10% off your first order. It's a really great service. We use it here, and you're going to love it. Okay, let's get back to this amazing episode. Breaking news as we're sitting here. Joe Rogan's podcast is becoming a Spotify exclusive, which is a massive gain. Reading from The Verge here, Joe Rogan, comedian, a comedian host of one of the most popular podcasts in the world.

No duh. He's taking a show to Spotify, Joe Rogan experience will soon be a Spotify exclusive, meaning episodes, full audio, and video will only be available through the platform starting later this year. I'm a bit of now Rogan's show has never been available on Spotify, let alone exclusively to any platform.

The show will become available on Spotify globally starting on September 1st, and it will become an exclusive sometime after that point. Listeners wouldn't have to pay for access the episodes, but they will have to become a Spotify user. Spotify Center Pressways that Rogan retains creative control of a show.

It didn't disclose how much it spent on the deal. The company will also work with an ad agency to jointly sell ads against the program. Morgan said last year his show reached 190 million downloads a month. Rogan's YouTube channel will remain live, but it won't contain full episodes. There might be clips and other stuff. Wow, that's a big loss for YouTube. This is a massive get for Spotify, according to the Verge. It's huge.

It's not going to be in the YouTube recommendation algorithm anymore, or it's not going to sort of bubble up to people who are watching other. That's amazing. I think the clips will be there. Clips. Clips are the value of YouTube. clips. That's the value of it and that'll just drive more people to the long-form episodes, but I'm going to guess. If we had to guess this deal, it will come out eventually because Spotify is public. I am going to, everybody starts thinking about a number per year in value. There have been public reports of 30 million or so. Somebody did like a back of the envelope

and said the podcast was making 50 million, which should be a million a week, which would be like a quarter million per episode. I don't buy that. I would say if he was doing a hundred K an episode? Is that even possible? I think the ads are probably 25,000. Maybe he's got four ads. The ads are still happening, right? You said it's... Yeah, so the ads are going to happen here. They'll be sold. I'm going to say this is a... Well, maybe they're paying him a guarantee on the ads. So maybe they took whatever's advertising is and doubled it. So if his advertising was in that 30, 40 million year range,

I'm going to guess they're giving him 75 million a year for five years. So put the total deal value at 350,000 for five years. And we don't have the duration of it, but I can't see them doing this for less than five years. So I'm going to say five years at... What's Stern's deal with the series? I think it was $200 million a year at the peak,

and then he went to three days a week, and so they lowered it. So I'm kind of using that also as a possibility. So I'm going to go ahead and just say, I put this at $75 million a year, which is $375,000 over five years. So I'm going to put the duration at $5. I'm going to put it at $375 for the total value of the deal. You guys want to take over or unders or make your own speculation of the value of the deal?

I'm going to go under. My original thought when I saw the news flash was that it's in this $200 million category along with the rigor. Which was bought and owned out right now, right? Exactly. Yeah, this is an exclusive partnership. I think it's less than three years. your price per year is a little high. I think it's 60 million a year and I think it's a three-year exclusive deal. It totally depends on how the deal was structured, but I bet it's, I bet there's a

guaranteed cash payment of, well, probably a cash payment on top of everything else. I bet in the 10 to 30 million a year range just for like being exclusive. Well, that's what I'm thinking. Like if you had 35 million in ad sales, now they're taking that over. Now we have the 3.30 million. Now we have the $30 million. Well, yeah. So then I think on the on the ad upside, well, there's two interesting things here. So on the ad upside, I bet they're they're doing revenue share on the ads. And the promise is they're going to pour a lot more resources into it.

And Spotify has, this is what they've been building for the last couple of years with their podcasting strategy is an actual coherent ad platform for advertisers. Yeah, we're Spotify. Hey, man. Where's my fucking phone call? Let's go. Let's make this. Let's start up to Spotify exclusive.

Let's do it live. See, we can get it out on here. Come on, Daniel. People don't realize Spotify has been doing this with podcasts of all size. Like, even tiny podcasts, they're taking them. They're taking them exclusive. Yep. I'll be a Spotify exclusive.

Sure, why not? It started if I could still own my show and I still control. So that's the thing is they don't want to, I think the reason they did this podcast this way and they bought out the ringer is the ringer is controllable. and it's PG-13, and it doesn't have... It's also a network of shows. It's a network of shows. It's a platform. It's more than just a single individual.

But in this case, the single individual could be so polarizing. The guest could be so polarizing. And you're not controlling Joe Rogan, right? And he's going to say things at some point in a comedy show that'll make people try to cancel him on Spotify. Well, there'll be a moment where Spotify will, they'll try to cancel Spotify because he has Alex Jones on, right? And so this is... That's only going to be good for Spotify. I mean, like the same way that Stern is only good for...

Spotify's just bought a huge headache, like the same way Sirius XM had to manage the Stern relationship. And maybe Stern actually toned it, I don't know if he toned it up or down ultimately. I think he's definitely become more enlightened over the years. Well, yeah, I mean, I think he, that's his personal journey. I wonder if that is because Sirius wouldn't want to have the ad backlash,

but their subscription base, so that doesn't make sense. Well, okay, so here, though, here's the, I don't know if this happened. And I'd be super curious. I wonder if there's a part of this deal that is tied to incremental Spotify subscriptions that are attributable to this. Which is what Stern probably had. How do you do that attribution, though?

That's going to be a right there. Well, it's very simple. If the person listens to more than five hours of Joe Rogan and then subscribes, but they weren't previous to subscriber, you give him the first month for two months of that subscription. Very simple. I mean, the subscription business, like this is at some points. But like, Ben and I know one of the companies we've started together is glow with

with PSL and the team there, and we run our LP show on it, subscription businesses, subscription business model and the podcasting as a media model go together like peanut butter and jelly. It is shocking that the big podcasters have not done this yet. Yeah. I don't know if Joe Rogan would work as a subscription-based product, but I do think they could do do. No, do what we do on the LP show. It's like half-free, half-paid.

I don't think that really works that well. I think you have to be majority. Oh, you're half and half? Yeah, I think it has to be a majority. Like, I don't know if you watched Sam Harris, but he's at, I think he does 30 minutes free, and then the next whatever, it's typically, you know, over an hour's podcast, you get sent to the paid feed. And he controls it all himself. He's not on Patreon anymore.

He's his own subscription dedicated. He's a personal friend of mine, and I actually pushed him into podcasting, long story. But didn't he come on your show as like his very first? Yeah, I mean, I basically was like, he was like, how do you? Well, no, we were having dinner one night. And Sam was like, what do you think about me doing a podcast? I said, you're built for it. Like, you're an incredible conversation.

So you and I and other folks have sat there until two in the morning talking about like really heady topics. Like, you know, we have the same book age in John Brockman. So myself, Sam Harris and some other folks all like kind of run in that same circle. It's like a bunch of like really smart scientists and then dipshits like me who get to tag along. Anyway, long story short, I wonder if they're going to make a run at Sam Harris. and those people next. And then we've got to see how Spotify is going to handle the backlash.

100% they already have. Yeah, they're probably doing this through CIA. CAA represents a lot. I talked to the CAA guys about reppping me. And I don't really do enough, I think, to make it interesting. But we're sold out as a podcast. So I mean, we're low millions of dollars

as a podcast. What I do. You all advertising? All advertising. We did a Patreon, but you know what? We produced so much content. Oh, typically three episodes. I just tested it, you know,

and I'm thinking about shutting it down. We did like an ad-free version. and I like what you're doing, but for me, I want to make my money by finding the next Uber, not off the podcast. So I keep putting, I think we spend 10% of whatever we make promoting the show. So we've been doing advertising of the clips on LinkedIn and Instagram and other places,

just to get more people into the show. So I'm looking at this long term, but I already made my nuts. You know, I'm in my bones. Like, I think Joe Rogan, like this is like his big score.

This is his Uber. Like, this is, I mean, this is, uh, this is very much like, Ninja going exclusive with mixer.

It's basically, yeah, it's, it's Joe Rogan's exit where he's taking sort of a big cash payment instead of the podcast one did this with Adam Corolla. They gave Adam Corolla, I think, 20 million a year for his show. This is huge though. This is so big for the industry, David. Spotify is so much better position than any other podcast player. For sure. And they, because the business model is total, well, hey, Apple, this is like Apple's

biggest strategic mistake of all time. Back into firing Steve Jobs. Well, they controlled the whole ecosystem. It's called podcast because of the iPod. Yeah. And Apple controlled everything, and they just refused to show any interest in it. We're a hardware company. This is not core to what we do.

And we won't buy companies. They had music sitting right there. Like, they could have bought companies. They bought a podcasting company that was an investor in called Swell, which was like the best podcasting app of its time. And, you know, I think we doubled our money in like a year. And I beg the founders not to sell. But they shut it down right after they.

They shut it down. Yeah, Swell was just brilliant. They used the card metaphor, sort of like Tinder on your app, and you would swipe forward. It would just show you a podcast. You'd start listening to it. And then you'd swipe forward at some point and get the next one. That was the next most interesting to you. And if you were on Joe Rogan and you got two minutes in and you went forward, but then you were on acquired and you went till, you know, the end of the episode, well, they're not going to give you another Joe Rogan, MMA, whatever.

general interest podcast, they might send you to the speaking startups, right, as the next one in that stack. And then if you listen to that one for a long time, they might send you to 20 minute VC or whatever. You know, they would take you down the rabbit hole. And what a mistake. And this is why Apple is going to fail on TV as well is because they don't want to ever be associated with

controversial content. And this is where I think Spotify can actually hold the line because they're independent. If people don't like it and they don't like Joe Roggett's content, Spotify would just be like, yeah, don't buy our service. Just like Sirius XM, like as an independent company. Don't listen.

So here's the way I think it's different. The problem in podcasting, everybody kind of like, Swel thought it was a breaker and lots of other folks, thought the problem in podcasting was a discovery model. There's no discovery problem in podcasts. Like, how many people do you know that are like,

oh man, I wish I like I knew, I listened to more podcasts. If anybody. I can't find a podcast to listen to is something I've heard from nobody. Nobody. The problem is monetization. Like there's no.

interface for advertisers other than email and you guys and email and us. Making it sustainable. Yeah, making it sustainable as a model. And this is YouTube. It's like, this is a stupid move on YouTube. YouTube should have just said, you know, here's some Google shares. Yeah, they should have made it work. They should have just made it work. But here's the problem for YouTube. And any of these big things. This is why startups have a much, startups and independent companies have such an edge over the big conglomerance. If you're Apple or Google and Alex Jones as the best example has been very, banned on YouTube, and then he comes on Joe Rogan's podcast. Now you've got senators, congressmen, presidents and politicians, as well as advertisers and nonprofits, going to ivory soap and saying

don't buy on YouTube. And then you might have, if you're Apple, a bunch of right-wing folks saying Apple ban Joe Rogan, don't buy iPhones, go Android, right? And it's just not worth the adjective for a big company with bigger revenue streams. Now, for Spotify, this is a lot of, is the revenue stream. So Joe Rogan increases that revenue stream so they can just say mission accomplished when people start coming at Joe Rogan for being controversial. We should talk about for just a little brief side moment here, what a better business model podcasts are for Spotify than music is? Because they get no operating leverage on music. So Spotify gets a dollar in for music and then they have to pay whatever amount of cents out to the

the labels. They never get any sort of additional upside. With podcasts, you know, first of all, most of the ones on there are free. So people who are joining to listen to content, you know, is only upside. The ones that they own outright that they don't have any sort of variable costs with, like they should promote the crap out of the shows because they get all the upside on top of the fixed costs that they paid the podcast. So this is like they're switching from one of the worst business models ever that they've

sort of made work because, the product was just needed to, and they executed really well there, to actually finding a really, really good business model here. So there's a person, our official number one acquired superhero who deserves probably the lion's share of the credit for this year. And that's Barry McCarthy, who is now the former CFO of Spotify. He just retired and is now just a board member, but he was the CFO of Netflix. And through all the run of like the transition, well, I think from the very beginning. Right.

But he knows that transition, so his fingerprints are on original content. And then the transition to streaming. And then the transition to original content. You know what the other really interesting insight here is? Spotify going public, doing that direct listing and having this currency and being independent makes them so able to withstand this and make bold moves. And you look at a company like Uber now, which will segue to in a moment, being able to potentially make a run at Grubhub or Uber could buy Domino's pizza.

Like, I don't know why we're talking about Grubhubhub. If I'm Uber, I'm buying Domino's for $15 billion. You know, like, I'm not kidding. Call up Dara. I'm not kidding either. No, I mean, this is, make a clip here. Hi, Dara, you don't know me. We ran into each other in the Warriors games in the courtside club.

Anyway, just, you know, we'll drop that there for a second. And I introduced myself to you and you really seemed like you were completely not interested in the fact that I was the third investor in Uber. Totally reasonable. I'm not your problem now. However, forget about Grubhubh at $6 million. We're seven or eight or whatever they want. We need to buy as much. dominoes and do a hostile takeover dominoes now.

They're at a $15 billion market cap. They have a clunky app, but you make pizza that if you eat it when it's hot, that thin crust is damn tasty. And I hate it when it's cold, and I hate the regular one, but that thin crust can work. And people like the 24 hours, it's already got a footprint. Let's buy that. And have Uber drivers making the delivery times even shorter.

In 2018, slightly over 50% of podcast listens came from Apple Podcasts app. don't know what it is today because Spotify I think started to you know gain ground after that what do we think in 2020 I think Morgan Stanley just estimated Spotify just passed Apple they did so let's go to 2022 what does Spotify's percentage of podcast listening's equal what do you think if it's 50% now let's say it's not 50% now it's not no it may it's it's past 50% and lots of countries, but it's definitely not 50% in the U.S. I think it's something like 18, 19% in the U.S. Okay, so let's say if it's 18, 19 in the

U.S., what is it in five years from now, 2025? Five years from now. You've got this aggressive positioning. Five years from now, I think they're over 50%. Yeah, I think they're Google Chrome. Yeah. I think they're Google Chrome, they're Android.

Today is the landmark deal. This is the turning point, yeah. The first one was buying Gimlet and Anchor. They did the second one. The Gimlet and Anchor were like, those are singles and doubles, but the Simps is, Bill Simmons was like the landmark deal that just got surpassed and this is the actual

landmark deal. Right? We'd agree on that. This is more important than Bill Simmons. Oh yeah. This is this is landmark. This is like, I don't think people understand how important, how big and how just like what a behemoth audience

Joe Rogan has. It's almost unfathomable that a single person. I assume he's probably bigger than Stern. He copied the Howard Stern playbook. I mean, he literally runs the podcast like Howard Stern runs the show, which is I'm going to go three hours and I'm just going to talk about every topic. And there's no sacred cows and the more controversial.

controversial it is, the more we're going to lean into it. He nailed the clips, too. He nailed clips. For sure. So, will Bill Simmons then move exclusive? Because Bill Simmons has, they never brought up the exclusivity thing with Bill Simmons. But why wouldn't they make Bill Simmons exclusive? And does this mean, if I have the RSS feed of a show, they're going to just take down

the RSS feeds of the show? So I can't use it in Overwatch either. I'm in overcast. They have done this in cases. See, there's this interesting nuance here, though. I'm curious to see what they'll do because they still, because of the way podcasts work, like they still win if they let some content out there in the open, right? Because if they own it, then they're still monetizing it on other platforms.

Yeah, and it's customer acquisition. Right, exactly. They need a front door for people to come in and be like, oh, hey, you can listen to this on Overcast, but if you want to hear Rogan and all these other great podcasts, why don't you just jump over and listen on Spotify, too. I think what they'll do is this is how I would execute it. I would just copy Sam's model,

Sam Harris's model. The RSS feeds have the first half hour of every show. And at the end of that, they say, to listen to the rest of the show, go to Spotify. Can you imagine how infrequently Apple will feature

Bill Simmons podcast? And, I mean, it'll literally be like every time. I bet they'll still feature it. Like, Apple is asleep at the switch. I really like, it is a this is one of the confounding things about Apple as a company and I said this last year when I was like

listen I think Tim Cook did a great job of managing I said this on CMC he did a great job of managing Apple through the transition but they need to get somebody in there with a bolder vision who will buy stuff because they have the cash the iPhone business franchise

is now having challenges they don't report the number of iPhone sold anymore for a reason and they're leaning into like talking about services revenue, like App Store revenue, for a reason, because people do not see the need to upgrade their phone as much. And it's just not as like, it's not as a luring of a business. It's a deprecating business now. So they should buy things. This would have been the crown jewel in the services narrative. Of course. Would have been subscriptions and advertising from podcast.

The problem is they can't do, they'll never be able to compete with Netflix or HBO doing racy content, nor will they be able to compete with SiriusXM or Spotify now doing edgy content. Let's just put it as edgy. You're not going to have edgy content on an Apple device. Yeah, and they're not going to compete with Disney doing family-friendly content. No, and this is why Disney passed on buying Twitter. I don't know if you read Bob Eager's book or listened to it. Yeah, so good.

And they're like, he just called Jack and he's like, yeah, you know what? We were going to buy Twitter, but sorry, no. My gut says I don't want to deal with hate speech. I don't want to deal with policing any speech. right, misinformation. And Jack was on the Twitter,

on the Disney board. Yeah, I mean, that's got to be kind of a bummer for him. Uh, just going quickly through this, um,

let's go with, uh, go to, go to Uber, uh, Uber. I know, I know Rosenthal's got some good dirt.

Yeah, here we go, here we go. Okay, so, uh, everybody knows we've talked about this,

uh, and you've read about it. Um, Uber is laying off 3,000 people closing 45 offices. Those are massive cuts. Um, stock,

it's very sad. Stock went way up, obviously. people want to see these things become more sustainable. Rides are down 80%, which is what people thought would happen. But Uber Eats is up 52%. And obviously they're said, you know, they've been seeing green shoots and last three weeks, things have been going up.

And in Hong Kong and other places where the pandemic kind of, they're on the other side of it. Hopefully they see things rebounding. But the potential Grubhub acquisition has been a lot of talk. They've been negotiating AOC and Elizabeth Wurke. Warren came out very publicly swinging, saying we can't, for any reason, allow these companies to merge. There hasn't even been proposed deal yet. Like, there's no idea on terms.

This is like so much. Anti-capitalism is crazy. Let's put a pin in that for a second. Overall, what do you think of the deal, David? Should they do it? Should Uber do it at $6 billion? You hit the nail on the head. This whole thing is a quagmire.

This is like a land war in Russia. Like, you know, you're dealing with regulators. You deal in with the government. Like, for what? get Bill broader in here. It's red notice. Yeah. For a business model that is very challenged.

Super challenged. Super challenged. Like, think about it. Like, consumers don't want to pay more than five or ten bucks more than the price of food to get it delivered to their door. Right. For the price of the food plus five or ten bucks, now you got to do all of this stuff. You got to get somebody, you know, 45 minutes to an hour of their time plus transportation to go drive to the restaurant when the order comes in. sit there, wait for the order to be ready, mob the restaurant. So like if you've got a dine-in

in business that's going on and now you've got 50, you know, DoorDash and Uber East order, you know, drivers sitting outside. Good luck retaining your dine in customers. Not to mention, now you've got to employ somebody else at the restaurant to deal with all this. The business model doesn't make sense. So for a restaurant to do this themselves. Domino's makes sense. Yes, but for a restaurant to do it themselves, I've been getting pitched. I'm sure you guys have well on companies that are building software. White label. White label.

Totally. And I looked at that, and I'm going to invest in one of these. I think if you have one of these companies, email me, please, because I would like to invest in one. I think that this is going to be the backstop, and people are going to have roll your own app. And if you have more than 10 stores or you have a loved store, people will download your app and they'll want to use it. I think it's going to be a good business and they'll make 500 bucks a month or whatever it is, you know, as a SaaS fee. Yep. But for everybody else, their business is not going to be able to sustain rolling their own

app, enterprise software, etc. They should, and they, and they probably appreciate paying 30% to have this available. This is what Grubhub and Seamless were

before all this craziness happened. Like people don't remember, Jason, you probably remember Seamless back in New York. It was, it was this. It was just an online ordering platform. They didn't do any of the delivery.

Like, that was all up to the restaurants to figure out the right way to do that for themselves. They had runners at the restaurant. So what they would use is, they would first use, they might have one dedicated, because I grew up in the restaurant business

and I'm from New York. Typically the way a small restaurant would do this is, they would have somebody who would sit at the bar who would do deliveries for, you know, five bucks plus tip. And they would just hang out there. They were kind of like the original gig workers. And it was typically like somebody

who was kind of out of work. They just got paid under the table cash. So the restaurant, the bartender would give them five bucks to make the delivery. If they made an extra three or four bucks, and then they would probably spend another bar having a beer. And they just hang out there. And it was just like,

side cash. It was a side hustle. Then you would go to the dishwasher or the busboy, the waiter or the owner, if that person was out making a delivery. That's how deliveries kind of worked. You had your own, like, mini-gig economy going on at the bar. And, yeah, now, it's really interesting. I had the founder of the slice. He has a service that's super competitive. And what I thought was ridiculous about trying to stop this deal is if you look at the market caps of these companies, it doesn't include pizza. It doesn't include dominoes or slice. So they're talking about these four companies and the market cap of these four companies as if that's the Tam. This is why people like AOC or Elizabeth Warren trying to opine and come up with a rulebook for capitalism is so insane.

They think that these, they're so uneducated on topics of business that they think the Tam is those four players. So they're like, we can't have those four players go to three. It's like, only 30% of people have probably ever used these. apps. Yeah, so there's an issue here where not only is, and this is the same argument that Zillow made when they got to merge with Trulia, it was, hey, the world is not online lead generation for real estate agents. The world is lead generation for real estate agents, of which we are this tiny little

percentage of it. And so for restaurants, you know, it's not app-based food delivery, it's all food delivery. Yes. The issue with this whole app-based food delivery concept is, David, you're exactly right. what Seamless and Grubhub were doing before the money rushed in seemed to be a sustainable business model. I mean, these companies were profitable, they went public, but since SoftBank has rushed into DoorDash and since Uber has done their Uber thing and raised the money they raised and launched Uber Eats,

like we now have a product in market where we don't know if it has product market fit because it has never been available at the price where the business can continue and cover their costs. And so, like, the experiment has not been run in the last five years of do consumers actually want app-based food delivery in this way? Because we have no idea of-dom-hosted. Well, so the Grubhub, the Grubhub CEO in Q3 of last year, they can't, I think they canceled their earnings call. And he wrote a letter to shareholders instead. And he laid all this out. And he says in there, he says, like, look, we've been doing this for over 10 years.

the, we've always concluded that the logistics portion of this, like what, what Uber and DoorDash brought in, married on the logistics, is a commodity. It is not possible to operate profitably while doing that. We are going to do it because we must to respond to the competition. That's interesting. And then at the same time, you've got Domino's sitting over there, which is architected soup to nuts to be a delivery business. We, we, yeah, I invested in this company called Private Chef Club that came out of Uber, early Uber folks, that is this. It is architected soup to nuts. Private chef club?

It is, yeah, it's like good eggs for groceries. Private chef club is for dinner. And it's exactly what it sounds like. They have some of the best chefs in San Francisco. They have their own kitchens. They have a hub and spoke model. They order, they get all the orders coming in advance. There's no food spoilage.

And the delivery instead of, you know, the grubhub or the Uber Eats driver, they go to the restaurant, they wait, they pick it up. It all happens in a line. So it's like you go to the spoke, you pick up 10 meals and you drop, drop, drop, drop, drop. Yeah. And it works. Yeah, we had a company like that bento. It didn't work.

They were trying to do the on-time delivery, but then they tried to do scheduling. And there's been a ton of swings at bat here. And there were also, what were the other, like, single-meal delivery ones? There were like three or four other ones. Sprig. Sprig. Spoon rocket. Oh, what was the other one?

Spoon rocket. It's worth calling out. And David and his research for this last night pinged me and was like, if this was an acquired episode, I would totally talk about how Uber Eats actually started as a Sprig clone. It did. Yeah. Do you remember that, Jason? They used to drive around.

Oh, they, yeah, that's right. They put a certain number of meals in the trunk, and they would drop them off. Kept them warm. Kept them warm and dropped them off. Yes. I do remember that. Yes, that was Travis's original experiment. And then DoorDash arrived on the scene, and then they were like, oh, no, we can grow way

faster if we just do delivery from restaurants. I mean, it's pretty clear people will pay for this. You might lose the bottom 10% if you charge what it costs, but... Wait, I want to dive into that, though. I think that our whole industry has a problem where... It's not product market fit. It's product market price fit. Product market price fit. Okay. Yeah. Unit economics work is basically what you're saying. Right. And that is not being tested right now. We're testing product market fit without the third missing component.

Well, I mean, if a restaurant made it work and Grubhub made it work, there's a way to make it work. The question is how many consumers have access to it? It might be a little expensive. It might be $10 to deliver your food, in which case picking it up makes more sense, right? Right. And I guess my argument there is like it's a different market then. Yeah, it's a different product. It's just like ride sharing, right? Like if there's only one company, it's not Uber and Lyft, well, then prices are going to go away up. What's that going to do to demand? We don't know. Right.

And it might be, actually, the experiment here, to your point, might be Uber pool and Lyft line sharing the car just might not work as businesses. It was a worthy experiment to try for a while, but it actually may not work, right, Ben? Yeah, exactly. But we know the ride chairing does, and we obviously know Lincoln Town cars do so. for high-end people doing delivery and paying $10, 20 bucks in fees, it doesn't matter. But I have to say, I look at the fees and we have a cloud kitchen across from our office, and I walk over and get my Bel Campo burger myself. And I'd pick it up from a locker because it doesn't make sense for a car to drive around the corner.

Well, this is, I mean, Travis figured this out, you know, years ago, too, right? Which is that like the Eats DoorDash model is not the right, not the most evolved food delivery model. You need to have a hub. Yeah. You need to have a hub and spoke. And he got in on the real estate side of things. Like, there are going to be tons of, I think, I think actually Sequoia wrote a big piece about this. There are going to be tons of new companies started that are restaurants built on top of this infrastructure.

Right. So what private chef club is. That are their own companies and brands that are just architected soup to nuts to do this. And this is why it's so idiotic for a bunch of politicians to come in and say, let us put our thumb on the scale. Let us try to pick winners. Let's put some regulation on this. When the free market is so cutthroat and. hyperactive that consumers are getting services below cost for five to ten years to then make

these systems so efficient that they can actually exist in the world because they're at scale. If politicians had their way, they would have stopped Amazon Prime. They would have said, we are going to stop anybody from having two-day delivery and we're going to stop Costco from not charging a profit and just having a membership fee because those things are anti-competitive with local stores. Do you want consumers to live in a world where they don't have a access to Amazon Prime and Costco? I don't. The reason we have much more food security in the world is because a company like Costco can provide massive amount of calories. And I think they sell their food at a break-even, right? And they make money off the membership. Isn't that the business model?

I'm 90% sure that it's like, you know, we make money in a bunch of different places. But if you look at their 10K, like roughly subscription revenue equals net income. Basically. Yeah. And so I mean, This is why we have to really think as Americans, I was on CNBCO this week, and I kind of went off. And I was like, as Americans, we have to decide. Shocks, Jason. Well, I was like, listen, we have to decide. Do we want to have a free market and let all these entrepreneurs creatively battle it out and see what's left after a decade-long dogfight? Or do we want to have a bunch of socialist maniacs who've never worked a day in their lives to find the rules of capitalism from the bleachers?

They've never been on the field. They've never done this. They've never built these companies. They've never innovated. And now they're going to say, let's come up with a new form of capitalism where nobody can be capitalists anymore. And there'll be no more free market for people to battle it out. This is a vibrant, amazing market.

Let these companies consolidate and be sustainable. Look what happened when San Francisco said they were going to cap fees or whatever. And Uber's like, yeah, we're not going to Treasure Island anymore. Not profitable. I don't know if you guys saw that. Did you guys see that? I didn't see that. Yeah.

It was like when they were in Austin, they were like, if people were going to be driving ride sharing, we're going to make it impossible for you to do that. You have to go through all these hurdles. And Austin lost ride sharing from Lyft and Uber like, okay, we opted out. And they made Austin ride chair. This is going to be your Chimoth moment on C&C.

No, you know, honestly, I mean, it did go a little microviral or whatever, but I think I don't want to, the easiest way to go viral is to do what Chimot's doing, and he does actually believe this, which is if you just champion the poor and you champion the downtrodden, you'll just go viral. But this is a much more nuanced conversation that capitalism ultimately leads to gains for everybody. I believe that. If you don't believe capitalism ultimately provides a better result for the human species, well, that's a different conversation. But I think all of us here agree that capitalism, as flawed as it can be on the edges, ultimately results in products and services that are cheaper, better, and more accessible.

I think the problem is a lot of, it's so tempting. Even VCs and entrepreneurs fall into the mistake. It's so tempting to look at markets and be like the way things are is the way things will be. Like, no, there's always going to be change. Like, and as long as there's always change, whatever, you know, like it wasn't the DOJ that killed Microsoft. It was the web that came by and Microsoft back better than ever. Like, you know, it was mobile.

Yeah. And they missed it. I mean, look, we started the whole first half of the show talking about this crazy outlier funding of a startup that's not even launched yet to the public. And then here we are on the back end. Like, we have to create rule sets. Like, this is a vibrant crazy market that takes insane risk to change the world. That's why we punch above our weight as America. And that's why we're super innovative. That's why we're not getting demolished by other countries. That's why most of the companies that change the world come from America. Because we run the most experiments. We take the boldest action. We try the craziest ideas. And we're not afraid of failing. And we don't create a game with so many rules that the second you get on the court, you get a ticket. Right?

Like, you ever watch a basketball game and they're calling fouls every two seconds? And you're like, guys, just let them play. And the announcers are like, they just got to let them play. Like, that's not a foul. Like, let the entrepreneurs play the game. Let them play the goddamn game and the magic will happen. Well, I think what we need is, is we have to a certain extent, but we need more of a kind of safety and ironic, given, you know, what we were talking about with the secondary earlier, but it kind

of safety net underneath. Like, how many companies have you started, Jason? Four or five, six and food. Yeah. Oh, six or seven, I think, yeah. Because I include some project. Not all of them were successes, right? No, like two or three.

Yeah, right. I mean, same for, you know, Ben and me. Yeah. Like, but that's the way the, the clubhouse guys, like, they started highlight. Highlight wasn't a success, you know, but they're back at it. Yeah. Keep going. That's what you need.

Absolutely. You don't die if you fail. Who's going to win? If we had to pick a winner, five years from now, give me the ranking. Let's just, I'm going to, we have four major players. Grubhub, DoorDash, Uber Eats, and Postmates. Those are the big four. Which one is most likely to not exist to get subsumed and then rank the other three?

Well, Postmates will get subsumed or continue as a small business. At some point, someone will make them a takeout offer that they're interested in. Sure. Uber Eats will win because I don't believe the three-sided marketplace of restaurant, rider, I'm sorry, restaurant, driver, and food orderer can work without the sort of like available spike capacity on the driver side that Uber can offer. So if you think about DoorDash's model, if a whole crap ton of people suddenly want food at once, but then for many hours nobody wants food at all, like they don't have any way to absorb that cushion in the same way that sort of Amazon uses UPS for cushion.

But Uber conveniently has this other set of drivers that are sitting around willing to go from point A to point B. So I think Uber has the superior business model. So Uber, DoorDash, and then Postmates and Grubhub maybe get acquired as you're thinking. I think so. Okay. I think it probably all consolidates down to one, especially because most of, yeah, well, I mean, one of the other topics with SoftBank, right? Like, I believe SoftBank is the largest shareholder in DoorDash. No, they were pushing like a $10 billion merger.

with Uber and DoorDash, which for I think it's a 16 post on the last round, so ridiculous. Yeah, haircut. Yeah, that would be a super haircut. So assuming that there's no more no more funding of that scale available

for DoorDash. That seems like a given. That's a given. And to continue operating on the status quo, their runway is, you know, measured in low single digit years. That's not sustainable. Right.

No, DoorDash has got to. I make a move now. So what do you think? Who wins ultimately? Who's number one? Who's number two? Which brand at the end of the day is left standing? Number one and number two?

I think it's probably Uber unless for some reason they decide that actually it's better to sell consolidate under DoorDash. But that doesn't make sense to Ben's point of like they have a supply. So Uber DoorDash is yours? Your order? Oh, no. I think DoorDash. I think everybody gets acquired into Uber.

Grubhubbhub. Postmates maybe do pivots or does something else. Here's what I think happens. Uber, Grubhub, number one. Then,

I think Lyft and DoorDash Merge number two. That makes sense. And then you have two players with both, because Lyft is learning a hard lesson right now about having a single dependency

as a revenue stream. Lift and hundreds and thousands of other companies are at the U.S. Yeah, of course. Of course, right. Yeah. The world.

Well, you know, we always say focus, right? Stay focused. And then you realize like, oh, shit. You know, I was so focused on advertise. BuzzFeed was focused on advertising. New York Times was focused on subscriptions and advertising. And now BuzzFeed is going to, I don't know, I think they're going to lay off half the company in the coming weeks. That's my best guess is that there'll be half as many people working at BuzzFeed by Q4 than there are at the Q4 last year.

Half as many, maximum. Because they're an ad-based model. I can tell you, just looking at the ads, you know, across the board, if Facebook and Google ads are 30% off right now, I don't know if you're hearing that from your portfolio companies. Yep. That there hasn't as much demand, so there are maybe 20, 30% off. If that's happening to the top two players with the best aid, the best platform, the best tools,

et cetera, the ability to scale, what is happening at BuzzFeed? What's happening at Vox? Like, those places are not subscription-based. They don't have content that's, I'm not saying this to be mean or anything, but it's not content that people would pay for. It's not architected in the right way. It's not architected to me, though. So the whole architecture of the business,

and vice I would put in that as well. Like I think vice, Vox, and BuzzFeed will be half the size at the end of this year than they were at the end of last year to survive. I think they'll survive, but man,

there's got to be some consolidation there. What happens there, do you think, in those at-scale media companies? I think consolidation's the right way to put it. There's a chasm. I mean, there's just a chasm in the media business model

where either you're a kind of indie shop or you make it to New York Times, you know, I'm not saying you have to be that big, but the other side of the chasm, and there's no room in the middle. I think Vox has the best chance. I think VICE has the least chance. So I say Vox.

Vox is the best run. I think Vox will roll everyone up. I know Jim Bango, if he bought Weblogs, Inc. For AOL for AOL for me. And so Jim is just a good dealmaker, and I think a good steward of capital. So I could see Jim Bankoff.

We should get him on the pod, by the way. Let's do that, Nick. Let's invite Jim back off on the pod. I think he'd be a good steward of capital, and I think he's been able to manage multiple brands, which is what he basically learned from Weblogs Inc, because we used to have a lot of conversations about this, is how do you keep the Engadget team,

the joystick team, the blogging baby team, the Twa team, all these different teams producing great content, even if there's overlap. And I was like, just do what content asked. Did you give them their own floor in the building? Like they have their own culture. And Vanity Fair might have, have a take on George Clooney that, you know, Vogue has a different take and the New Yorker has a

different take. And they might all want George Clooney for an article and they might all get him different times in a year. But you don't want one person writing the George Clooney article and syndicating it to all three brands because they all have different takes. And it was like, ah, you know, we used to have these like long conversations. Yeah, I don't know how Vice gets out of this. That seems to be done. Well, I mean, like everything, all the trends are just accelerating and like how many consumers are going directly to web properties to consume content anymore. It's really tough.

I mean, I'm moving inside more into the research side. So, you know, we're like, the idea behind the newsletters at inside were always to be very focused, not a lot of span, a lot of data, and worth paying for. And we really have been leaning into getting people to pay for it. And then I'm just like, you know what? Journalists all want to write, like, all the journalists now, this like previous to Gen X, they all want to do a, like, what do they call, advocacy journalism, right? They want to pick a position and then they want to just work at MSNBC to take down Trump

or they want to work at Fox or some right wing, Breitbart, to take down Hillary, right? Like, they all have this very, you know, pick an angle and then go out at it hard and, you know, facts, whatever, you know, like anything else, you're going to build your case. And none of them want to actually do hard research. None of them want to do like the middle of the road stuff. And so I'm like, you know what? I'm just going to stop hiring journalists because this next generation of journalists, they care more about who they're attacking or who they're taking down or who they're pumping up than they do about the search for truth and knowledge and understanding. Yeah. I mean, there's a generalization in there that I don't think is totally fair.

No, unpack it then. Please. Well, okay, so here's what I think is going to happen to all the talent in journalism. The best people at all these publications that are not on the crossed side of the chasm that are in sort of this like, uh-oh, we raise money or we grew our headcount and crap, we're not going to make it. The very best people are going to get offers from the New York Times. They're going to get cherry-picked until these companies whose value is really based on what's the future stream of content that's going to come out. And without those writers, it's not going to be high. So you'll have people getting picked off the same way that Axios picked off some of the best people to build that institution.

Yeah. Although I do think Axios is in the middle too. I just think they're better run than some of these others. If you look at them, they're definitely not trying to do opinion. If you look at Vox, they have a very, like, strong opinion-based advocacy. I would put Vox in advocacy journalism. I put Axos in, I'll call truth journalism. Like, let's report the truth as opposed to, or middle.

Middle, yeah, what would you call it? Like, just people who want to report the truth or knowledge-based journalism. I don't know. Journalism that makes you smarter. Like, I think the other one's Vox, like they have a position they want to take. BuzzFeed feels like position journalism at times to me. Yeah. And then I think the other thing that's going to happen is that you're going to see more and more of these people who've built a personal brand go indie.

And so you look at Polina from Fortune who wrote term sheet for a while, like, started her own email newsletter. Substack. Substack. substack? Yeah, and I think that's going to start happening more and more and more, where you're going to get this bifurcation of the best people are either going to flip to Indy if they have the personal credibility and the runway personally to be able to pull that off over the course of the next year. Otherwise, they're going to get picked off. And then you're going to have, you know, B&C players that are left. And not all BNC players. That's a sort of broad generalization. But in general, the talent's going to wither at those. Non-branded, right? Non-branded talent, right? So it's sort of like the podcasting space. If you want to do a podcast, from your bedroom or whatever and you don't care about making money, great, go for it. But, you know, it's going to become a hit space business. And you don't need to have 50 people's take on, I don't know, the tech industry in China or, you know, you don't need 50 strategies.

You need a really good strategy and maybe a second, right? But if you look, the information, axios, hopefully what I'll get done with Inside, where I just hire researchers and teach them to write if they need help with writing. but no more writers and teaching them to research because the problem I've had is I find journalists and they haven't read any books about business.

You know, you and I would be like, if I just listed top 10 business books right now, if I said, oh, did you guys read Lean Startup, Bad Blood, Crossin-Catism, to Great. It's like, yes, yes, yes. Poor Charlie's Almanac.

Like, all of them. I've read all of them. Yeah. Seven powers. Yeah. I try to, I literally ask a journalist to read one of those books. And they're like, will you, literally I asked journalists to read like Lean Startup and they were like, will you pay me to read it? And I was just like, holy fuck.

Like, you're literally doing not. Like I bet if we call up Bradstone at Bloomberg. Oh, no. That's right. That's a Gen XER. That's amazing. Right. I'm talking about this next generation.

They literally are anti-capitalists. They're anti-business. And they don't read business books. and they hate business. But that's the thing is like, you know, and what makes your show, what makes our show work is like, we're the journalists now,

but we're also the practitioners. Yes, the experts, it's sort of like Bellagie was sort of pointing out about what we do is an expert having their own medium and unpacking for 90 minutes like Sam Harris is doing

or Joe Rogan does for comedy of UFC. Like, it's not citizen journalist because citizen journalist connotes as a citizen who does acts of journalism. This is expert journalism. Expert, yeah. And it's an expert saying, I'll learn how to be a host.

I might not be the best journalist. I might not be the best host of a podcast. I may talk over the gas, whatever. I may be rough on the edges. But I do this for, this is my day job. So I have better access and better insights than. Tim Ferriss has done this better than anyone. Yes.

And there's a cycle. Like, then they do it for a while. They get better at it. Then they don't talk over the guests. Then they're able to weave narrative in. Then they become an imaginative storyteller. Like these things can be learned on top of a base of domain knowledge. learning the domain knowledge much harder than learning the skills of a journalist or a host of a podcast, basically.

And you know what? Who said this was Jason Pontin, who was running MIT's technology review, said he gave up hiring journalists and trying to teach them science and hired science graduates and taught them how to be journalists. And that's why he was able to cover nanotechnology or biotechnology is because he was like, it's just too hard to teach a writer to do, you know, to know some vertical. Okay, going around the horn really quick. Any thoughts on Facebook buying Giffy for $400 million? Dan's got a story. Nice bailout. Okay, explain.

I just think, I don't think this is a super hot take. It's not this like data acquisition that is this amazing silver bullet that, oh my God, now Facebook has these deep data hooks into all these organizations. If you really dig into what they got there, the data wasn't really anything they didn't already have. but Giffy provided a valuable service. Tenor was really only the other competitor out there. Facebook had effectively taken a dependency on Giffy and as had many other services. So if it went away, that would have been bad.

They didn't have a sustainable business model, even though they'd done a lot of work trying to do sort of license content, promoted content. And, you know, when I think they were either raising their next investment round or in talks with Facebook about whatever their normal partnership discussions are, I think it just sort of became something where Facebook figured, probably a good thing for us to own this so it doesn't die or get owned by someone that we don't like. Yeah, and they had raised... Their last post was at a 600, so it was a haircut for the last round investors. And somebody was tweeting, they had been part of a crowdfunding site that was like an angelist competitor that went under. So Matt Hoggy, I think is how you pronounce his name.

Anyway, Giffey was bought by Facebook. I was surprised since I participated in their early investing experiment. through Alpha Works, which was like a, I think, an angelist competitor. But never got any emails about this. In July 2014, I invested the minimum of 2,500 in Giffy. I want to show you how this investment panned out. Congratulations, you're now an investor in Giffy. Giffy did another round in 2015, and in total they raised $72 million,

but sold to Facebook for $400 million. Tech investing is like Hollywood accounting, because something could sell for 10 times or 50 times what investors put in, and investors can barely break even. The top 5x, the 5x multiplier means I make it. little back. I know someone that put a few grand into the friends and family investment in a company that raised an angel, single digit millions, but sold for half a billion dollars. I thought it would net them at least a million out of such an incredible return, but they only got

five X what they put in. AlphaWorks changed their name in late 2015 and the Twitter account associated and is updated. So anyway, they got acquired and it's a long tweet stream that we'll put in the show notes. What do you guys' thoughts on this and explain to a a layperson who might be on Angelus or the syndicate what happened here and why the early investors got ghosted, never got any information, and then in all likelihood got host. But we'll see what the eventual outcome is. Preferred stock. So explain it in layman's terms.

So the market price, at least in the early stage investment, is a 1X, which means that the liquidation preference on any of the first money out will go to the investors up to the exactly the amount, hence the 1x, that they put in, supposing that they decide not to convert to common, which basically means if the deal is for less than the amount that they previously raised at, then the investors are going to get their money back first. Their last round was a $72 million raise that valued them at that $600 million. I don't know the total amount that they raised, maybe in the 100, range, which means that if this early investor didn't see anything, then there was a multiple on the liquidation preference somewhere along the line, likely in that last round, which meant

that those investors would have gotten their money back over earlier investors and especially over the common. In this case, it would have had to be in a 5x or something, right? Because if they bought it for 400 million. I'm curious about that. Depends how much total capital they raised. If they raised 100 million and that last round was 72, if they had a 3x liquidation on the last round, which would be incredibly high.

But also it might not be that, you know, 400's the reported price. You know, maybe there's an earn out. Maybe there's a carve out for the founders. Maybe that, you know, you know. Right. So if there was an earn out, let's say it was 200 million cash, 200 million earn out. And they had a three-x liquidation preference.

The last investors would get all of it. They would get all the money. And then maybe somebody, if there was an earn out, we get that. This is why it's important for you to, number one, trust the person who's the syndicate manager. And I think in this case, there is no manager. They sold the company twice. And I think a shore fund management, which were investors in, which was the back end for Angelus for a long time and a lot of other platforms like Seed Invest, they do the SPVs.

That company, I think, became the stewards of these investments. That doesn't mean they were actively managing them like a manager like us. But that's the active manager's job is to make sure that the capital gets preserved as best it can. We did two things to avoid this type of tweet storm, which this could. have happened to me for an early investment or two in my syndicate. We had a company video pixie that refused to send updates. It was like a YC company, so they were super entitled and they wouldn't send. I shouldn't really talk out of school about companies. But anyway, this one was such a disaster. I had like these fights with the founders over and over again because they wouldn't tell

the investors how much revenue they were making. They wouldn't tell me unless I would meet with them in person. And they're like, well, we talk to YC's lawyers and they said we don't have to give you information. I'm like, you might need more money. Dipschats. You don't have to. But yeah. You want me in your corner? You don't have to. I guess I'm like learning the documents as well. It was like one of my first five investments as a syndicate. I was like,

yeah, but I gave you money like a quarter million dollars. Why wouldn't you want to tell me how my investment's doing? And these guys were such idiots. They like wouldn't give basic information. Then the company went out of business. They were like, oh,

this is why why combinator's like me. They're like, I breathe down these guys' throats. I was like, you damn right, I breath breathed fire down their throats. Like they wouldn't tell the investors how their investment was doing. That's why we put into our documents,

a side letter that says, you will give us monthly updates as part of this investing. Now, would we sue a founder and do we get 12 updates from them? No. We probably get on average six, seven, eight updates a year. It's a lot more than zero. And if they hit three months without sending us one and I call them and say, we haven't got one in three months, I can point to the side letter and say, you know, you did agree to monthly. It's been three months. Can you try to hit monthly for the rest of the year, right? I can be reasonable about it. And the reason we want the monthly update from you is so that we can invest more. Then I said, if we own over five percent, we have the option of abort C.

and or 10% is what we used to do. Now I say 5%. And people want me on their board. But that's an aggressive term that I started putting in. I said, listen, if you want... Do you personally sit on the board? What I do is I do a team approach. So I'll have Ashley, who is one of our managing directors.

We have 20 boards that were on collectively. And one of the two or three of us will go to that. So Prash and Jackie are starting to come to them with me now. So the four people on the investment team, some combination of them will be at the board meeting. Some people only want me there. I'll have a discussion with the founder about like that might be unrealistic, but okay. And then we don't take the option every time. But at least you have that.

Then you have the protection of knowing that a deal is coming. And you have a seat at the table to protect against something like this. And you can communicate. Because if these investors had a chance to be in that round and said no, that would have been great. Then they could say, like, listen, you had the opportunity to be in this round. You passed. It was pay for play. If Matt had put $2,500 in that round, he would have got triple his money.

and his first investment wouldn't have gotten money, but his last one would have. So those are the protections just for people who are wondering, and we'll take a deeper dive into this and something else. But what do you think? Do you know the other interesting other previous cap table thing? After they raised the $17 million at an $80 million valuation, I'm sorry, just before that, Facebook actually tried to acquire them. This was back in late 2014.

So this is the second go-around with Facebook. So if Facebook had bought them. for 80 million, that first group of investors who invested at 10 million would have had a 7,8x or something, which they would have felt great about, right? The nice investment, 7X in five years. So anyway, buyer beware. These are high risk investments. The later stage investors do beat up on the earlier stage investors. And that's why you have to have a strong manager to be able to mitigate against that. That's why I've spent the last basically five years doing is building in triggers for me to protect the investors. You can't do it every time. A big investor can come over the top.

Like, you need only watch billions or any other sharp elbowed show about, you know, if you watch billions, like, yes, people are doing nasty swinging elbow shit. But if you got somebody who can swing elbows like me too on your team, I've had to swing elbows at people. Like, I've had this happen. Have you guys had this happen where people try to cram you down or block you after you've made initial investment? Screw your LPs? I was involved in a, like a total recap scenario once. that was, yeah, I mean, like, if there were any, you know, quote unquote passive folks in that situation, like, they, not only were they just getting run over, like, nobody was even thinking about them. Like, it was only people who were active at the table. Did they even inform them that they were about to be washed or did they tell them retroactively they were washed? Yeah, yeah, they got informed, you know, but it was like, it was after the recap was already structured and agreed upon. Yeah, I've seen a handful of pay to plays and everybody gets the notice that you're going to have to pay to play and it sucks to see that, but like, at least they told you. Yeah, pay to play is, I always tell my founders, like, when you do that pay to play stuff, just understand that now you've ruined your relationship with all those previous investors. You're never going to be able to raise money from them again because they're going to feel screwed unless you've really communicated to them. And you can say, listen, I talked to 40 investors. They all said no. The 41st said, yes, if we bring the company from a $50 million market cap down to a $20 million valuation, which means that we're going to recap. And in order for you to have shares, you've got to put more money in.

I'm sorry that it came to this. We tried everything we could. Here's a list of everybody we, you know, reached out to. But, you know, very few people do it that way. But I've told people, if you choose to do that stuff with us, you know, I had one founder who just as part of a down round re-up themselves to like some, you know, massive amount of equity. And they said, well, the person doing the investment forced me to take more shares. And I was like, well, that's a good one.

Yeah. And I kind of had that reaction kind of laughed. I was like, well, what about all of us who put money in? Yeah, did you push back on that at all? I pushed back on it tremendously. No, no, no, like your question to them. Well, I said, like, okay, well, you know, we put all this money in. Do we get, if you want us to continue, do we get more shares or whatever?

And, you know, they were like, well, you had no choice. And, you know, so then I was just, I disengaged from the company. I said, you know, we'll monitor our investment here. We'll consider every round. I said, but after you gave yourself a massive reward for failing to grow the company, that makes it hard for me to tell my LPs and my syndicate to invest more money, right? And I had this like very candid discussion with them. They still didn't understand it. But I had no choice. Was it a, was it a pivot to a new business? Or was it a continuation? No. It was a down round because, you know, they got a couple bad beats. That happens. Yeah. But I said, well, how would you have done it? I would have said to the existing investor, I would have said, I can't take this, but I'm willing to discuss it in a year if I hit these targets, getting a new grant and if the board approves it. They're like, no, the new investment. would never do that. I was like, okay, I'll talk to the new investor. And he wouldn't let me talk to

the new investor. He's like, I think you'll kill the deal. And I was like, okay, I won't talk to the new investor. You know, like, there's only so much I can do. And the winds are so big. I don't want to be up in a founders grill about this stuff. But founders do need to know, and that's why I talk about it. And I'm creating a composite here. Nobody would be able to be able to figure out the company. But I talk about these composites on the podcast so the founders know what's going to happen if you screw previous investors. I think there is a, there are two scenarios here. One is like what you're talking about is is definitely bad.

Like you're continuing the business. The other is like you're like the business didn't work. You're shutting it down and you're pivoting to a new business. That is a little bit of a different scenario. Sure. And actually the best thing to do in those cases I've found is actually brain damage is just just kill the company. Yes, less bad feelings. Less bad feelings.

Fred Wilson has like an amazing blog. post on this that Jason I'll send you, so you can put in the show notes of why it's better to just end the company in that situation. Yeah. I mean, the thing I've seen is giving warrants to people. So you keep the valuation where it was, but you give people 10 war, if the company became worth one-tenth the price, the new investors buy a share at the last price and they get nine warrants they can buy any time in the future at this. So if it does work, you essentially keep the valuation where it is. There's all kinds of creative things to do. But always think about your investor's big picture. One quick point here.

I want to make on Giffey before we move on. And I know we've killed Lightning Ground here. We killed Lightning Ground, yeah. Switching from deal to intrinsic. We like to go long on Acquired. Yeah. One reason why Giffy didn't have any negotiating leverage here is they didn't have a material business.

They weren't obviously a sustainable business. But why didn't they? You know, they're this, they have a crap ton of daily active users. I don't know what it is. High million, high hundred millions. And so what's the deal? Well, they don't actually have a strong relationship with those daily active users. Most people, I think more than 50% of the Giffy traffic actually comes from Facebook through

APIs, which means if you think about Slack's API and all these other APIs, most people are not going to GIFI.com. So if they were going to have an ad-based business model, they don't really have an opportunity to sort of say, hey, what about this GIF? You know, they really are at the mercy of who's calling the API. And unless they're just going to like load, um, sponsored images into there, you know, they don't have a big canvas to work with there. And so I guess the moral of what I'm saying here is, and this really ties it all the way back to the clubhouse thing is think about if you're one of these consumer companies who kind of has a tiger by the tail, but you need to think about business model at some point. You kind of need to think about like, okay, what type of relationship

do I have with the user? How strong is it actually? How much time do they spend with me? How much do they remember the name of my brand, how much are they coming directly to me, not through another tool, and then make sure that your canvas is broad enough that whatever your business model is at or asking for money or whatever it is, like make sure you can actually do that. Because in Giffey's case, there really wasn't a way to do it. Yeah, there was no business model there. I mean, it's really challenged. What do you think the business model would be for Clubhouse? We were, we teased that a little bit early on, we will wrap with Clubhouse. What do you think the eventual of the product? We all like

the one point of the product. What do you think that product ultimately is to consumers at scale in terms of business model? Well, one thing I would try if I were them is promoted clubhouses. So right now, the UI is literally just like, here's a clubhouse, here's a clubhouse, or a room. And each room sort of is just a set of people. And that's not going to scale, right? That's going to become a really tall list, really fast. And so discovering your rooms is going to become either rooms where your friends are in it or rooms where someone notable is in it. And you want to discover one of those two paths. So you open up the app. It shows you the two rooms your friends are hosting. And the third room is a talk show or, you know, a QVC talk show type thing or a promotion for Google.

Or even exactly what's going on right now where you've got some celebrities hanging out. But assuming that lots of celebrities are going to want to do that, you could open up a sort of event style model where you pay for placement and say, hey, like if you want to reach this huge audience that's in Clubhouse, And you want to do a clubhouse with them. Like, cool, we'll build you a stage here and we're going to charge you for it. So if you're Star Wars, Moominoloreans coming out, you have, you know, the director or John Favreau comes on and does a fireside chat and Disney pays for that and gets a link to Disney Plus to sign up for it.

And it does a promotional thing. Yeah, I would try it. I think there's lots of other, you know, advertising or sort of influencer-based. What's your favorite model for it? Well, I mean, I'm biased, but, you know, the LP shows worked pretty well for. us. And like, you know, I could imagine running that on Clubhouse. You know, you've got some influencer has following. And it's a subscription service or a pay-back. That's what I think. I think that's what they're going to do. I'm with you. Behind the scenes. I think it'll become like,

you remember fan clubs? People would pay to be in the Britney Spears fan club or, you know, whatever. Grateful dead were kind of like this giant fan club. But people used to have like a paid fan club and you get a newsletter, I guess, was you would get like every month a newsletter, but then it kind of became a phone call. Like you would call into a phone number and you would get some artist. So imagine you're Tim Ferriss and you have Tim Ferriss's clubhouse and Tim says, I'm going to just go on there, you know, five times a month. And you can be a member for 10 bucks a month or five bucks a month. And it's sort of like a Patreon model and, you know, have you guys, what do you think the previous best iteration of, clubhouse was and then have you seen anybody kind of pivoting towards clubhouse as we often see in this kind of space house party i guess was sort of like clubhouse for video yeah i mean the

closest thing is actually the thing that that the founders also started inside of their little incubator that was their shell entity for this called talk show it was live podcasts and i think like simil shah had been on a bunch of them um but you can kind of see how they jumped from this sort of like tune in to someone talking now to tune in and maybe we can all talk to them now. Right. So I think, yeah. The serendipity is kind of the strength of it right now. I'm interested to see if this thing wears off.

Like I got a little bit of clubhouse fatigue the last couple of days because when I went on, I noticed. Is that because you didn't get into the deal? No. I had noticed it even before the deal was announced that when there's somebody notable in there running it, or a couple of friends, it's really interesting. So when I was on there, I was interviewing Adam from Cora, and I interviewed Alexis from Reddit and initialized. They just happened to be on there, and I just did a mini-interview.

And then Ben Horowitz came on, and I just took over the microphone, because there were 20 people who had the microphone time, and I said, oh, Ben Horowitz is here. Let's do a mini-interview. Ben, and I started asking questions. I just took the thing over. And in both of those cases, the rooms just grew and grew and grew because you had some professional moderation.

other times they come in and people are just like screaming and talking and then you get these lulls and they're like, what next? And they're like, I don't know,

let's all change our avatars and it's like really boring, right? Like that's what people were doing. They were changing their avatars and then saying three to one refresh and I was like that's kind of interesting but I do think you're going to have

just like there's YouTube stars or podcasting stars. There could be clubhouse moderator stars like mods who are just like this Reddit moderators. I will tell you it's a different skill set. Totally different. I thought my podcaster skill set would translate

but like the thing that makes acquired great is David and I go do a crap ton of research, crawl down on internet rabbit hole, and then turn a narrative and turn it into a narrative and pull out key themes. And like in Clubhouse, the skill is you have about half a second to come up with like the wittiest most clever novel thing you can to the last person that someone said. And it's a totally different skill set. And so I think there's going to be new, new creators in there that thrive in that new format. It's like a salon for, it's like you have to be good at the salon format of the news roundtable

format, which is you have to be able to state, well, no, it's true. And think about what we did today in a news roundtable. You know, I've got two really smart guests with a lot of experience. I put stuff up. I put myself out there and I try to be vulnerable and like, here's my opinion. And I'm showing you that I'm going to be totally candid honest, hope to get you candid honest. And then when you say something interesting, I try to loop the other person in and you'll

see me say, oh, that's great, David. Ben, what do you think of that? Or Ben, where do you fall on the cynicism to your most cynical? But, you know, that took time to do and, you know, Blockland Group. You're a thousand episodes in, right? Yeah, and probably a third of them are roundtables or 25%. It's called passing the ball. And so when you're on CNBC, if you really want to be good at that, what you have to do is at the end of what you're saying, like they bring me on as an expert or Schmoth on a single bird.

But what's really good is if there's a sentence to be another person on or passing it back and saying, well, Carl, you know, what do you think? I mean, are you going to upgrade to an iPhone 11 or are you fine with your iPhone 10? I mean, just look at yourself, look at your family. What is your pattern? Do you line up? Would you even think about going the next day to get the iPhone? Or are you going to wait? That's a fair point.

Yeah, you know, we actually wait now. We do it every other time. That's when you can pass the ball like that and get an assist. It's kind of like LeBron who, you know, or like Michael Jordan passing to Steve Kerr or LeBron passing to somebody and like they hit the three-pointer. It makes them just an even more dynamic player. Yeah. So the people that have compared themselves to Michael Jordan in the last two days include Masa Sone and Jason Calacanus.

And Chris Saka. No, I compared myself to LeBron, to be clear. But no, I do think passing the ball is like really the scale. Yeah, that's a great point. It is. You guys do a pretty nice day. How good is the last dance, by the way? I can't watch it because of the PTSD from the Knicks.

I was at all those games. But now that is it done? And how many parts is it? It's 10. I'm on episode six right now. Is it completed? I think 9 and 10 just came out. My plan was to wait and then I am, 10 parts just finish it.

I am so exhausted from this goddamn coronavirus shelter in place. Jason, you're going to love this. I've decided, I've decided to making an announcement today that I'm going to take a month off. Whoa. Nice. Yeah, and when I say take a month off, I'm taking a fucking month off. Because my brain is fried. Now, I don't know if I'll make it 10 days, but my intention is to rent a beach.

beach or a lake house somewhere. And I am going to reset my brain for 30 days the summer or over Christmas or sometime in the next six months because, I mean, how are you guys doing through this? I love it. I just tried to do this. And actually, I ended up being successful, but it's hard. I had like two false starts. I've taken breaks.

And you did two weeks, right? Yeah, I did two weeks. Yep. And I wasn't totally off. But like the first time I tried to do it, first and second times I tried to do it, I'd be like, okay, yep, I'm taking a break. But then nothing changes. Like, you know, like, oh, I'm still doing, I'm still doing it.

I'm still doing it. My idea is to find something I can do with the family. That's off the grid and that takes like attention every day. So I was thinking about maybe a whitewater rafting trip or maybe driving across the country. You know, yeah, check my email at the end of the day or whatever. But I'm thinking about like doing something like that where I do like a two week or something, you know, maybe a month. And then, you know, I'll still, I'll probably phone in for the accelerator, probably the only exception. and I'll just book eight episodes of the podcast ahead of time,

do eight great interviews, and then, you know, and bag them, which I could do in a week. But yeah, just, how are your brains? How are your brains right now through coronavirus? Is this impacting you guys? Like, psychologically, how?

This is weird. Like, it's weird. And, you know, there's like such a, there's such a quest for certainty right now, because it's uncertain. But the end of the day is like, nobody actually knows what the fuck is going to happen. You have to surrender to it, right? Like, it's a really scary thing to think this thing could mutate and the next wave could kill children instead of old people.

Well, and it's not even this thing. Or any other permutation, right? The craziest thing is we're actually very lucky that either the viral coefficient wasn't higher or that the fatality rate wasn't higher. Like, what if this thing had been as fatal as SARS? And like, the next thing could. It's wild to wrap the mind around that actually we're luckier that it wasn't worse. Yeah. To see 30 whatever percent the unemployment's going to wind up at 20 percent, 35 million people, whatever it is.

Like to see all of this happen concurrently and then still not know on a disease basis exactly what's going on. Because, you know, again, it's not a political show. But when you look at execution and leadership, it really does matter. Like your ability to have great leadership, to have people in office who can. execute. And from top to bottom, I mean, this is not a political show, listeners. It's not a political show. I mean, we did bring up Elizabeth Warren and AOC, but I kind of, it kind of proves my point. Like, they shouldn't be evolved in entrepreneurship. And then when you look at their job, they're doing, I mean, the job that's been done here has been executed so poorly,

we can't even get people to wear a goddamn mask. Like, this is the most, the most basic request that from top down, top to bottom, every single political person should walk up to the goddamn podium wearing a mask and say, I'm now going to lower my mask to speak to you for 30 seconds because everybody is 10 feet away from me. And we know that when you were within six feet, if I were to cough on this microphone,

it would need to be sterilized, da-da-da-da-da. And we need to have everybody comply and just wear a mask. And we need you to wash your hands. And we have masks and chlorox wipes that will be delivered by the U.S. Postal Service to every mailbox every month, and the government's paying for it. So you do not have to worry about your clerics wipes or your hand sanitizer or your masks. And if you have them, please give them to your neighbor or keep them for the next pandemic.

These three basic things, washing your hands, using the antibacteria, wearing the mask, is your national duty. I'm Jason Calacanis, you know, president in the United States. Like, why can't the fucking president say something that simple? Why can't every leader say something that simple? and why can we still fly on packed planes but not work at a factory why can you go to Bart and Trader Joe's but not build a test?

None of this makes sense and nobody can seem to explain it in plain English to everybody like what's your explanation Ben like how would you explain to people they can go on a packed United flight with 300 people in a canister for five fucking hours

I see that assist there that was nice. That was nice I mean well look I think how do you explain this? Part of the reason I think that we're in sort of this like, it's confusing. You can do one thing, but not the other right now is, you know, the purpose of shelter in place when it started was not everybody stay in your house until there's a vaccine.

It was everybody stay in your house so we don't overwhelm the hospital system. Now that with the exception of a few cities, we didn't overwhelm the hospital system, or at least maybe we did, but we're sort of like back below those thresholds. Every single place has had extra beds. Nobody hit capacity. In some places, there was, but like there were lots of. places in New York that were actively doing triage on which life to save. And that sucks. Is that correct at the peak? They were they were triaging like that? I thought they didn't run out of

beds, but okay. Or at the very least, they had enough beds, but like there was, there were constraints. Maybe not enough doctors and nurses. Yeah. And so now we're in this interesting place where like, we are starting to open things because the purpose is not to stay in our houses until there's a vaccine. However, some people totally can stay in their houses till there's a vaccine. Like, I'm one of those people. And, you know, my life is adversely affected in lots of ways, but like, could I tough it out? Totally. And so you're seeing some people who are like, well, I may as well just do that, or I may as well only break a couple rules, but everyone else is saying, look, the floodgates are open. We did it. We crushed the curve. Now we're out. And so you have this like wild.

Do you feel because your job is not impacted in a dramatic way, you can still work. You haven't been furloughed, obviously. Do you feel that you have more empathy or less empathy for the person who has no revenue and needs to actually go to a place to get work done, that they can't work on a keyboard? I think there aren't natural, there's not natural empathy created there, but you've got to find ways to think of it. Like, my life is so different than that person's life. Do you think they should stay home, or do you think they should go be a gardener or go be a waiter or go be a bartender or whatever it is? I think, I think everybody should do the thing that they need to do to make ends meet and take care of their family and do these things. And simultaneously, I think that if you don't have to go to work, you shouldn't go to work yet.

So now, the way you just said that is so plain English and easy. Why can't a politician say it just the way you did? Who is beautifully stated. And you do not hear that narrative from any politician. Politician should be saying if you can say. It's hard. I said two things that conflict. So what's the policy out of that? The policy is. It's very simple. I'm about to tell you something. that sometimes in life, you will have conflicting thoughts and conflicting instructions. Just like we can, this is a lose-lose situation. The pandemic is deadly for certain groups of people. We know that. That's confirmed. And it spreads like wildfire if you don't take precaution. And we know that people die if they're unemployed and opioid abuse and suicide.

And we understand you have to feed your family you don't want to starve. These are two lose-lose situations. If you can stay home and if you can see less people, that's helpful for everyone. Everybody because it keeps the coefficient down. And if you have to go to work, we understand, please take these precautions. And it's very important you take these precautions and you don't interface with people who are risk. These are conflicting, but these are complex nuance issues. And I don't know why the goddamn politicians and the media that are so polarized can't just tell it straight to the American people.

All right, Jason, bring us home. David, what do you got? Do you have any thoughts on that? That whole thing. Do you have any thoughts generally, David? No, I realized that he didn't pass the ball to him, so he got frozen out on that one. So just want to make sure.

No, well, I appreciate it. You know, I have, the only thought I have is, is the old Charlie Mungerism by way of Ben Franklin, which is if you had persuade appeal to interest and not to reason. Like, you actually want people to do stuff? You got to figure out some way to, like, create an alignment of incentives that it's in their interest to do stuff. Otherwise, you know.

Here's a very simple one. Don't kill your grandmother by not wearing a goddamn mask, dipshits. Yeah, that's good. I mean, do you love your grandma? Then wear a goddamn mask and wash your hands. It's that simple. All right. This has been a great episode.

Thanks for tuning into this weekend startups. Hey, thanks, Ben and David. If you guys don't get the Acquired FM podcast, it's absolutely fantastic. And you can subscribe too. They have their LP show, which is really fantastic. And I did a two-part with them recently. you go buy that, give it a shot. It's well worth it.

I think they only charge like $100 a year, right? Yeah, but the main show is free. Come check it out. Comprehensive history of every company you care about, lessons learned along the way in any podcast player. All right. Then thanks to my team working really hard, remote. Thanks to the investment team, Jackie Presh and Ashley doing a great job.

Thanks to the sales and operations teams, Marine, Charles and Nick. And thanks to Laura and Heidi also on operations. and to my sales and business development team, Luke and Matt keeping the lights on, and it's not easy to sell right now, but you guys are doing a bang-up job. Did I miss anybody in that, Nick? I think I got everybody, right?

I think I got everybody. If I left you out, it was not intentional. But really, one of the great things, great joys of my life has building this team at launch and also at inside. And, wow, what a great job. The launch team has done stepping up during this time of crises when our founders really need us to step up.

So I appreciate all the hard work. People are working 20, 30 percent harder than I think they do on average. And we already are a hardworking company. If you want to chop it up and talk about it some more, Acquired FM has a Slack room, which I got inspired to turn ours back on. Ours is at this week in startups.com slash Slack. Is the acquired one? Do you have to be a paid member to get in the Slack or is it for everybody?

Nope. Almost everything we do is free. It's just the sort of like... How do you get in the Slack? Is it Acquired.com slash Slack? Yep, that's it. Okay, great. Button on our website.

All right, yeah. So go join both of those slacks. I'm in the Acquired Slack once in a while. We'll see you next time on this week and start us. Bye, bye.