This Week in Startups - Elon buys ~9% stake in Twitter + Freestyle Capital's Dave Samuel | E1426

Episode Date: April 5, 2022

First, Jason and Molly discuss Elon buying a 9.2% stake in Twitter (01:50). Then, Dave Samuel of Freestyle VC joins (23:18) for a discussion on early stage investing. Freestyle invested early in startups including Airtable, Patreon and Intercom. We talk about how fund size dictates strategy, how to give feedback to founders (especially when it's a no) and more.  (00:00) Jason and Molly intro today’s show (01:50) Elon takes 9.2% stake in Twitter, TWTR stock up ~28% today (11:09) Masterworks - Skip the waitlist to invest in art using promo code TWIST at https://Masterworks.io/twist (12:250 Do we want more people to take stakes like this? (20:58) Ourcrowd - Check out the deal of the week at https://ourcrowd.com/twist (23:18) Interview with Dave Samuel of Freestyle VC (30:13) iTrust Capital - Visit https://itrust.capital/twist to create your Crypto IRA today (31:27) Dave’s lessons for other capital allocators and founders FOLLOW Dave: https://twitter.com/dsamuel Check out Freestyle: https://freestyle.vc FOLLOW Jason: https://linktr.ee/calacanis FOLLOW Molly: https://twitter.com/mollywood

Hey everybody. Hey, everybody. Welcome to another episode of this week in startups. My friend Dave Samuel is on the program today. He's launching his new fund for Freestyle VC. Freestyle has invested in companies that you may have heard of, Airtable, Patreon, Intercom. And we're going to talk a little bit about how your fund size dictates your strategy and giving feedback to founders, especially the no.

And how do you say, no, we're going to pass on your company? Dave had some great thoughts on that. Yeah, it's a good conversation. but first, it is Monday and there is breaking news, the massive SEC disclosure this morning. That my pal Elon bought 9.2% of Twitter two weeks ago. You know, he was shopping and he just decided to pick up some milk and some Twitter. So we'll take a look and discuss if he is going to become an activist shareholder or not. I'm just laughing because the or not seems so unlikely.

So we're going to break all of that down. It's going to be a great show. So stick with us. This week in startups is brought to you by Masterworks is the first company allowing investors exposure into the blue chip artwork asset class. Twist listeners can skip the 30,000 person waitlist by going to masterworks.io and using promo code Twist.

Our crowd helps you invest early in pre-IPO companies alongside professional VCs. If you're interested in investing, you can join Our Crowd for free at Oh, UR-C-R-O-WD.com slash twist. And I-Trust Capital. Did you know that you can invest in crypto through your retirement account and still get the same tax advantages as a traditional IRA?

Visititrust.competal slash twist to start investing today. To that news, SEC regulatory filings this morning, Monday, as we're recording this, have revealed that Elon Musk has taken a 9.2% stake in Twitter. The stock is up 28% today. I think that it was determined that that 9.2% stake was worth close to $3 billion. Was that right? Yeah, it's about right. The company is trading up $40 billion today.

That's after it went up about 28% or so. So if you take a third off, it was probably trading at around 30. And that's when he bought his 9.2%, which would be $2.7 billion or something in that range. All right. Back of the envelope, that was a test. I was just testing. And he passed. So Musk evidently purchased the shares on March 14th, becoming Twitter's largest individual shareholder. What we now know as a result of this disclosure is that recently when he was tweeting, does Twitter need to be better?

Is it adhering to free speech principles? Do we need to start a competitor? He had already evidently purchased these shares. Yeah. So floating a trial balloon, seeing what people thought and making the savvy purchase. I think it's a savvy purchase because Twitter has gone sideways in terms of as a stock. And most would argue as a company in terms of growth, the only real growth they had over the past five, six years, I think was the Trump bump, you know, like every other media or social network. They got a huge bump when Trump, you know, became president for better or worse, in my mind worse, much worse. So maybe a savvy purchase because I would say arguably there's few people who are as good at Twitter as Elon, obviously, through having 70 million members. I think he gets it and, you know, not to make myself anything about the story, but I was literally there when we convinced Elon to open his Twitter account myself and DeLie were encouraging him. Really? So this is all your fault?

I don't want to, again, I myself part of this story, but. I mean, I'm just saying. If you drop a bomb like that, you're going to hold you responsible. Elon said it on another podcast. He was either on Joe Rogan or something. And he was like, yeah, Bill, or maybe it was when he did Lexington, he said, oh, yeah, Bill Lee and Jay Cowell were like encouraging me to do it. Because he thought it was kind of silly. But, you know, he's got a silly sense of humor.

And he's done really, he really understands the medium. And who better to run it than a power user who is great at entrepreneurship. This is going to make more people want to work at Twitter. more people are going to obviously want to own the stock if Elon's doing it. And if you look at product velocity, I'm just looking at it like unemotionally, just if Benny Off, because Mark Bennyoff, your member, wanted to buy it as part of Salesforce, he wound up buying Slack. So if, you know, Bill Gates or Microsoft or who's a good buyer for a company, well, somebody

who uses the product and who understands the product is a good person to buy the company because they're going to wake up every day and say, hey, these are the things that I think should be better about the product, right? What is it that you think that Elon Musk wants as a result of this state that's going to make Twitter better? Yeah, I don't know. I haven't talked to him about it, to be totally honest. But based on what he said, he said free speech and that it's the de facto town square. So, you know, having more free speech on the platform, I think.

What does that mean? Yeah, I don't know. Right. You know, it's a private company. I don't know that this is anemot. If it is unemotional, I think it's unemotional on the back end, right, that there's savvy that is not the same as what's being said on Twitter, which is like I want this to be more free speech,

which I always put quotes mark, quote marks around because that's not what free speech is. Like, right, from a First Amendment perspective, what do you think? Right. We've had this discussion a billion times. Right. So what is the end goal as a, I mean, he is successfully made a bunch of money by announcing or having the SEC announced that he is right.

So if it's just a pump and a profit taking, then boom there's that. Better to focus on Tesla to, if you want to make money or SpaceX, right? Those are huge. Those are much better opportunities than a social network. What is the business opportunity here? I think he loves the product. I honestly think that that's what it is.

He loves the product and cares about it and thinks it's important in terms of the world and, you know, as the big communication town square. I mean, that's what he said, right? It's important. And I guess the, you know, the instances of free speech that are not being allowed on the platform would be the question. And I don't know what those are. probably the free speech around COVID comes to mind.

Like you weren't allowed to talk about the masks or masks not working or certain topics. I don't think that's true. I think you weren't allowed to disseminate disinformation about the Metscale. Well, and then you weren't allowed to disseminate disinformation. And then but the W.H.O. disseminated some amount of, you know, disinformation as how she said. Listen, I'm not like, I'm not a conspiracy there. But he said, like, go buy the masks, you know. And so I think that a lot of people feel like an open discussion,

rather than the WHO being the, and I'm not saying this is my position necessarily, but I think there is definitely an important discussion to have around who gets to pick what discussions happen on YouTube or Twitter. And I guess people said during the COVID, we'll let the WHO decide, right? Like, they'll be the benchmark.

And like, do we trust the WHO? I don't know. Who are they funded by? You know, are they giving the best advice? I have some of those questions. I probably disagree with others. I guess my fundamental question is, is it okay that Elon Musk maybe just has the money to decide for us?

Well, I mean, it's but one of... Like, is that what's next? Because again, none of this is about free speech. Or Zuckerberg. Or Zuckerman. Right. Or Zuckerberg. Like, so Zuckerberg also gets to make these decisions.

And so what's free about that from a, you know, I mean, again, none of this is the First Amendment to be clear. But I'm just saying like, oh, I don't know. We should be asking questions about this. Always everybody should be asking. asking who controls this stuff before Elon bought 9% of Twitter. And, you know, Zuckerberg has, you know, the much bigger footprint by a factor of, what, 10? I think, you know, that's the real, if you want to look at who has control over the social media,

swear, Facebook and that group is 10 times bigger, I think, nine times bigger than Twitter. So, you know, this is an issue that's already existed. And for private companies, they get whoever's running the company. And here, at 9% ownership, you don't actually run the company. So who gets to decide where the free speech line is, I guess, is ultimately the CEO of the company in the board. And with Facebook, they have board control. So Mark Zuckerberg unilaterally has control. In this case, I would say at 9% you have influence and maybe you'll have one of 12 board seats.

I don't know how many board seats Twitter has right now. I don't know either, but there is a really interesting sort of business aspect to this, which is that, I mean, there are lots of interesting business aspects to it. But one of them is that Twitter does not have board control in the same way. And that's been, that's why they had to, you know, make those changes with Jack Dorsey because of the activist investors. Yep. On the board, like they're very, they're almost like a Dow in the sense that they're very vulnerable to a takeover by a major shareholder. They don't have super, like, you know, the CEO doesn't have, like Jack doesn't have super voting majority. Probably better said would be they don't have the super majority.

so you don't have a god king, queen over here making all the decisions. But it's also not a takeover candidate where you can do a hostile takeover because it's got proper governance. So I guess the real, the assessment I would make is they have proper governance at Twitter

where no one board member can have too much influence. And I think the influence that the activist investors owned probably over 10% as a group and they just said we want a full-time CEO. No, but that took six years, probably. So maybe. Did they then sell? Because now, according to Bloomberg, at least, Elon Musk is the single largest shareholder.

But maybe that is not, not counting like a group of activists investors. Elliott management owned 4 to 5 percent. Right. And then they also had, yeah, but they had also gotten other one or two percent holders to join their voting block, which is, you know, how proper governance works actually at its best is you get groups of people saying, hey, this thing is underperforming, we'll take a 4% stake and then try to convince the 1 to 4% stakeholders to join our vision of what the company should be and how it should be run. Like maybe this thing should have a full-time CEO, which I think was their position and

they eventually won that. But again, it took five, six years. And Jack, they actually didn't vote Jack out. He resigned. So they kind of forced his hand and I think made it uncomfortable for him. So that just shows how proper governance works. Like the United States governance, it takes time and it's messy. Largest shareholder is an interesting headline.

Minor shareholder is the reality here. Like, very minor shareholder with no super voting. Like, you have 9% of the votes. Like, yeah. It's not like you want to come in and say, like, give us an edit button. I think you can be like, maybe I'll buy more. Like, maybe, I guess that could be the, you know, the future of it. So who knows?

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But I do think it's great that somebody cares enough, independent of me being friends with E. I think it's great that, you know, a influential person cares so much about a product or a platform to invest in it, right? Like, I'd like to see other people do this. Like, what if Bill Gates really liked something and he?

I really would not. like to see other people do this. No, because the number of people who can do this is vanishingly small. So, like, if you, I mean, you're assuming that he's doing this because he loves it. I mean, that is, like, the reason. He does love it. Right. I don't know.

But what if he doesn't love it? What if it's like a Peter Thiel move here? Like, I'm just going to come because at 9% you might. What is the Peter Thiel move? Like a Gawker move. I don't like how this product has treated me. I don't like how it's treated my friends. I'm not happy with, you know, what I perceive to be.

censorship of these opinions and feelings and thoughts and whatever. So I'm going to come in here with 9.2% and I may not be able to demand an edit button, but I can certainly commit a lot of sabotage. Yeah, no, I don't think that's what. I don't think people would put $3 billion on the line to sabotage something. I think it's more enthusiasm for the product and thinking it's an important thing. So, I mean, the devil's in the details. We'll see what happens over the coming years.

We won't know until we know. We're mind reading now. I mean, I think, you know, the Peter Thiel story was one of like being outed in vengeance for being outed and, you know, having... And then shutting down free... So, Dusty Green puts it the right way, I think, in the chat, which is, is this a hostile takeover or a liberation? And I guess we will not know until we know. I mean, it's...

Twitter is sideways. And so having Elon involved, I think, you know, if he does stay, if he does stay involved and engage, I think it would make the product. It's been sideways in terms of like, I mean, they have increased the product velocity, but as a company, they haven't grown. it's been very modest growth when compared to contemporaries. They've always trailed all other internet companies.

I think they're trading still at a fraction of their peak valuation. I think they probably hit 50, 60, 70 billion at some point. I'm trying to remember what the peak was. So just as a business, it's been a slow growth.

I mean, it hasn't declined, which is good. But it certainly hasn't grown or they haven't solved like the anonymous problem and the bots problem. So I think there's like a lot of, simple problems they haven't been able to get their hands around.

Like, why can't they handle bots in these anonymous accounts and harassment? They should be able to do better on that, I think. Because every time they try to handle it, someone says they're suppressing free speech. I don't know. Well, I mean, I think there are a lot of issues of Twitter. I think we have seen more product velocity since Jack Dorsey left. Like, it's possible that it could have been the split-focused CEO all this time. We don't know.

I mean, I think it's, I think all of those things are true. It's a little strong to say that it's sideways as a business. when we have seen spaces, we have seen Twitter blue, like there has been innovation. Yeah. The last year has been. Yeah, the last year has been great. They have. Seems like the only thing people are really mad about is like booting Trump.

And I mean, the ongoing, I mean, to be fair, anonymous harassment, the trolling, the bots. Like it all really, it really is issues that are legitimate and drive people away from the platform, all kinds of people away from the platform. That's true. Content moderation is really hard. I think the bot issue is because everybody. who's been CEO is scared to block the bots because it would make growth look stunted. And so, you know, I think that's something where a board member who is a patient board member who says,

yeah, you know, I know we're going to take a short-term hit because of bots going away and it will look like growth is muted, but it's not real growth anyway. So let's just, you know, pause here. So, yeah, Twitter's revenue, that was an interesting chart. Twitter's revenue has, you know, grown slowly, you know, since, you. you know, in the shadow of Facebooks. You know, that may not look slow, but if you were to put that growth next to Facebooks, it would be dwarfed or Googles.

And then, you know, if you had user growth up there, it's been slow and steady. And then who knows what the bot problem is. So I don't think it has much to do with Trump. I mean, I always felt, I don't know how you feel about Trump, but like, you know, if he was going to, I felt like Trump, as the president,

needed to be allowed to be on social media. And then when he did January 6th, it was acute and there was a chance that people could get hurt. So he kind of gave them the golden opportunity to take him off the platform. And then for what period of time, you know, like I think Facebook gave it to their board, their outside board to make a ruling. And I think the outside board kicked it back to them. So like. So many topics are wrapped up in this one topic. I think Trump's the worst human being on the planet.

Like it's been very clear. Like this person's a sociopath. he would give himself a third, you know, he would become the God King and he literally tried January 6th to overturn an election. I believe all that is true. Sorry if you don't. But, you know, there is a reasonable amount of time to give somebody a suspension on these things and then let them back on and then ban them again. I think that's probably where I would have landed like a two-year ban, a four-year ban, something like that. But then if he did actually, if January 6th commission finds out he did incite the violence, then I think you could make it permanent, right?

But that's the hardest issue in the world to determine. It's the hardest issue in the world. Like, unquestionably. Like, I agree with everything you said. It's still the hardest issue in the world because how do you ever decide that? And how do you and do you want a private company to decide, okay, the danger's over now? Right. Like, no, no, no.

America's doing fine. These divisions aren't continuing. We're not seeing a massive increasing partisan divide. It's totally a good time to let Trump back on. Like, those are not, there are a lot of questions about whether those should be the call. Yeah. And people are making a... CEO or private company to make it. And people are making a big jump that this has something to do with Trump.

I don't think it does at all. I don't think this is like buy this and put Trump back on. I don't think that there's some like direct line here. I think people are making... I just think fundamentally, like I don't like the idea that somebody can come in, that a small, small group of people with an extreme point of view can come in and be like, I don't like how this business is running, right? Like, I don't like the fact that the SEC has to review my tweets.

I don't like the fact that I can't, that people can't just, spread all the disinformation they want, so I'm going to buy a massive stake and who knows what. A minor stake. A massive stake on a relative level. I mean, he's got a much bigger stake in the other company. So, I mean, in terms of public, in terms of influence, it's going to have minor influence at this level. I think there is no universe in which Elon Musk has minor influence on anything.

Well, I mean, it does have a lot of fans, like 70 million. But I'm just saying on a governance basis, it's just the reality is 9% does not mean you get to pick what happens, right? It means like even if you wanted to remove the CEO and you would have to build a block and it would take years. So it's, I think people are probably overestimating exactly how much control. I mean, influence is different. I do agree with that. Yeah, yeah, I'm just talking about influence.

I mean, the thing about this whole free speech is you, I don't know how you feel about this. As somebody, we're both liberals, I think. Some people say I'm libertarian. I try not to define myself. I try to be common sense. But I guess I'm somewhere between moderate and libertarian. and you're definitely more liberal than I am, but only slightly. We used to be the party of-

You registered independent? You registered independent? Okay, great, yeah. So, I mean, anyway, yes. But the tool, I'm trying to remember, but freedom of speech was a liberal tenant, and the Republicans were the ones complaining about it all the time. And then now it's like, wait a second, now that liberals are the elites and they're anti-free speech, and the Republicans are pro-speech speech,

And they're the party of the working class. Like that, really? What is happening? Right. It's, it's, it's, I, what is happening to the parties that we, they don't stand for what they were stood for just 10 years ago. Yeah. Like, should, everybody should be for freedom of speech. And then there should be ramifications, you know, in these sections and these online platforms, like, you know, some people can run them as walled gardens and with real names.

I chose real names for inside.com's new social network because I was just like, I don't want to deal with spam. So I'll have less members, less content, but better signal. You have to use your real name, period. Yeah. You know, and it's like, will it work? I mean, it worked for LinkedIn and Facebook. And there might be less engagement. I mean, you know, I think some of this is about growth hacking too and cheap engagement.

And it's not about speech at all exactly. I don't know. It's just, it's a mess. Hey, it's time for another Our Crowd deal with a week. Right now you can join Our Crowd's investment in Ciabra. According to the deal memo, Seaabra's AI powered SaaS platform, analyzes billions of online conversations to help companies gain authentic consumer insights while fighting disinformation in real time.

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Like, we're now into a potentially nine-hour discussion, and we have a guest wait. We have a wonderful interview. Well, let's do it. A guest waiting in real life and also a wonderful interview to get to Dave Samuel, who just raised $130 million for freestyle fund six coming up next. Add an edit button, Elon. Can we get the edit button and Twitter below?

Also, can I get the edit button? Just show the previous version of the tweet. As long as you're at it, just give me an edit button. Can I get an edit, but I'm paying for Blue. Does this one thing? Do you play for Twitter Blue or no? No, no, you like keep me to sign up and then I never have time. Yeah, there's no real compelling reason to do it other than to sort your buttons at the bottom.

Like, this is where, like, you know, like Elon's product brain is going to really help. Like, he might actually have some product suggestions that might actually be good. I mean, I'm endlessly curious. Endlessly curious to see how it's going to happen. The simulation is still happening. It's definitely a simulation. It's still unfolding. It's for sure.

It's a simulation. All right. Enjoy the Dave Samuel interview. Again, I don't like to talk about my friends too much on the program, but I had no choice in this case to it's going to be entertaining at the very least. Yes, you love to the line. Today on the program, Molly, we're having one of my older friends in the industry, co-founder, general partner of Freestyle VC.

Dave Samuel was with us again. It's a six appearance here on Twist. This includes an interview I did with him years ago. And he's helped me on four pitch sessions. giving great feedback to entrepreneurs. You can watch his first appearance, episode 768, back in 2017, and he's here today on the announcement

that Freestyle has closed their sixth fund. Welcome back to the program, Dave. Thank you. Thanks, Jason. You guys are so organized. We're pretty organized. This is your sixth fund. Things have gone great for Freestyle. Everybody knows you were an entrepreneur,

you sold your music startup to AOL back in the day. Chimoth Polly Hopatia, my bestie worked for you. I think for a moment in time. How is that? I just want to start with that for a moment. Tell me your first, the first time you remember meeting Chimoth and hiring him for his job working for you in BD, I believe. Yes, he was BD. It was still called Spinner at the time, right?

Spinner. I don't know if you guys remember Winnamp. And winning. Yes, of course. Yes. They're in school. So one of the first MP3 players, founded by Justin, a 19-year-old kid. Flashback.

For both. You know, honestly, my memory with Chamath was actually at the felt, playing poker with him. And just, you know, I actually remember doing that more than necessarily business. Wait, wait. You in Dallas? No, well, playing poker actually at my house in 2000, in the year 2000. And so that was really my first. first memory that I really have. Yes, we hired him, but I don't, you know, I don't exactly

remember all the business things, but I do remember his aggressiveness at the table. And I think, Jason, you know that. Yeah. Still very aggressive. He was, he was super aggressive back when he didn't have a lot of money. And now, he has a lot of money. And he's still aggressive. Yeah, maybe there's some correlation there. I think so. Wow, Winna. Yeah, Winna. Yeah. I'm just sitting on that one. like, damn, it's been a long ride. It's been a long ride. I think the thing that's notable is you've done extremely well for yourself, and it would

be very easy for you to retire or maybe, you know, hand off the firm, but you're incredibly hands-on. And with Jenny, your partner, you have chosen to raise the similar size fund as you've done previously and stick to your knitting. Talk to me about your intentionality of raising. this specific size fund, I believe it was $130 million. And why you think it's important to have a thesis on the amount of money you raise and the size of your fund? Great question.

I first go with, I think, both you and I love startups. And so it's just what I love doing. And so when you go back to 2010, when we were raising Fund 1, there was a lot of education about what is the seed fund? They used to actually be called micro funds back in the day. And our pitch deck actually had to educate LPs about it because they were familiar with the $300 to $750 million sandhole road funds. And so we had a lot of education. And now you jump forward to fund six.

We still like the ability to have large multiples on the smaller funds. And so also the benefit of having a smaller fund is we work with younger startups. which is Jason, that's what you do with launch. I mean, you work right at the beginning, and that's, I think, you know, that's where I love to play. If it was all about money, I think, as you know, we would raise a much larger fund. We'd have much larger management fees, et cetera.

But Jenny and I love playing in the seed vertical. And I'll just say one other thing, which you mention about, is every time you raise a fund, you're kind of, you know, signing up for a seven to ten year run. And so Jenny and I each time kind of have like, you know, our wedding vows just saying, you know what, okay, here we go. You know, we sit down and make sure we're ready to sign up for another seven years. And I love what I do. Well, you know, it's interesting because even the huge funds we're now seeing find more and more and more and more ways to go earlier. Like, do you feel like

that thesis just gets validated it over and over, not only because it's really, fun, like you said, but also because it is sort of maybe where the money is. I do, you know, definitely we're seeing, you know, the large funds raise seed funds. Honestly, my gut is that like their main focus is being able to back the truck up and put in tens of millions, if not hundreds of millions. And so my gut is they don't really have the infrastructure or the experience to focus on seed. So, you know, the last 12 years, I've focused on putting money in when it's a team of two to five, maybe two to ten people. And that's where my experience has been for the last 12 years. And even, as Jason said, we were both fortunate to

sell kind of our first companies to AOL. And then I actually started a company called Crackle that we sold to Sony. And so, you know, I think we like being entrepreneurs, turn investors. And I think that brings a lot to the table. Yeah, and the larger funds creating seed funds are pursuing a strategy, I think, is what I'm seeing in the market, where they'll participate in the seed round, but they might not participate in the company mentoring and the management of it. So, sure, they've got this $100 million or $500 million fund for seed, and they're putting in 500K or $1K checks, but then they're going to somebody like Dave or us and saying, hey, you guys join the board.

We're not taking board seats. Right. We don't have the time to do this. It's an option where they can buy 3%, 5% of the company, and then later on try to put in 20 million and get to 10% ownership. So I think it's a little bit of that. And in a way, that's not a bad thing because a lot of times the rounds could use an incremental 500K or million dollar check, correct?

Yes, yeah. I mean, the other thing is, Jason, as you think about the Sequoia Scout Fund, I mean, this was going way back. It's like getting a foot in the door and getting the information early on. You know, I think it, I believe that to be a valid, you know, really valid decision. Listen, pretty much everybody knows someone who has invested in crypto at this point and lots of people have exposures to different tokens themselves. But did you know, you can now invest in crypto. through your retirement account?

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consult with a qualified legal investment or tax professional. Tell me, you know, if you're looking at what happened over the last five years where valuations went crazy, governance went away, perhaps some discipline on the part of capital allocators, and even maybe some discipline on the part of founders was less emphasized. Where are we today and what lessons do you have from this crazy five-year bull? It was, let's face it, it was a bull run since 2008. So we're actually looking at a bull run that lasted 13 years and is now over for tech. So the bull run for tech lasted 13 years.

That was an incredible run. But what lessons do you have for other capital allocators and that you've reminded yourself of? And then what do you have for the people on the other side of the table, the founders who maybe are now getting whipsawed? Hey, spend money as fast as you can. The next round will raise it in six to 12 months. And every round, it gets easier to raise at a higher valuation. Let's see. Well, first I'll just talk about kind of the seed market.

So, you know, 10 years, we called it seed. And then, you know, the seed, as you know, is kind of moved up to really the two to five million dollars raise. And now you have the notion of a pre-seed. So, you know, that's just in my view, just kind of different words of kind of, you know, similar structures. And I think probably the biggest thing that we give advice to our portfolio companies is, let's not get over our skis. And so as you talk about, there's a lot of late stage capital that is coming into the space. I think, you know, Tiger Global has been understandably like seemingly the fastest to put money to work. And it really is amazing the machine that they've put together.

And I think that, you know, the thing that we suggest to our founders is let's just be thoughtful about the amount of capital that you're bringing in. and what's the preference stack that you're adding to the calculation and just be, you know, be careful about that. The other thing that I'll say, which is beneficial for the early stage investors and the founders is your ability to take money off the table. And this didn't exist. This did not exist 10 years ago. But I think you're probably familiar with Jason that founders, many times, sometimes at the A,

many times at the B or the C are able to take some money off the table and I think that's a very great thing. You're talking about just to clarify for audience. You're talking about their ability to sell some shares privately, realize some liquidity, and then keep rolling.

Yes. And the benefit for everybody is that the entrepreneur is like, okay, I can buy a house. I've got like, you know, I've got something steady and then you can go, you know, you can go for the home run.

And so also, for seed funds, we're also able, because we've been in the company for a long time, we're able to take some money off the table. So I think that's, you know, a beneficial structure. I think, yes, last year was dizzying the pace. A pitch would come in. And if you didn't turn around within like 72 hours, it was like, you know, the deal was gone. And so thankfully, come this last quarter, I think probably the biggest thing that Jenny and I have enjoyed is it's just kind of slowed down slightly. Actually, it's probably slowed down, honestly,

probably by maybe, yeah, I'll go with significantly. Two weeks, four weeks to close around. No, it's back to a month to close around, yeah. Yeah. It's super nice because it was at a fevered pitch, and it's difficult to make decisions that quick because of timing. So, you know, valuations have definitely crept up,

But the biggest challenge for the last year was like, you hear the pitch and you've got to get back super fast. And it's just difficult to do due diligence that fast. Are you worried about follow on? Like, are you worried about these seed companies and what they're going to mature into in terms of mid-state? I mean, it sort of feels like, for one thing, it feels like there's a barbell in investing. It's either seed or like massive funds who just have to park a ton of capital. Maybe that's just in the climate space. because that's a conversation I've been having a lot lately.

But I wonder what you're starting to think about follow on, even if you yourself are being more responsible in how you're deploying at this early stage. I think one of the things that freestyle has been very good at is helping our founders go from the seed to the A. And so, you know, obviously each stage is important, but getting that seed to the A is understandably important for us and important for the startup.

And so my comments about that are just to talk about freestyle structure, we do about a deal a month. We're going to lead or co-lead the seed. And our focus is really during the first year lifecycle of the company. And then the important thing is basically, of course, finding the Series A investor. We have the ability to continue to take ProRata and invest in that company, but we call it the baton handoff.

So our ability to hand the baton to the next series A investor is an important, you know, is an important stage. And so we've actually, I'll just talk about two deals that kind of tie back with SAR from CRV. I don't know if SAR has been on here, but if you're not, you should have them. Sure. And so who is, Ian? What is CRV? I'm sorry. Charles River Ventures, Boston-based firm that now is based out here.

and Sarr Gur is a VC who works there. Gotcha. Yeah. Yeah, I think he toiled away for a while and then he hit, he hit something. It just took him a little while. What was the big win for him? I forgot. No, it will come to me.

Well, so our two of our biggest unrealized gains are Airtable and Patreon. And we basically hand, you know, handed the baton. obviously at each of those companies, Jack is the CEO of Patreon and Howie as the CEO of Airtable. I mean, obviously, they're the ones running it, but we were really helpful of handing that baton to the next stage investor. And in this case, you know, the entry into CRV was SAR and we've just been really lucky with that. Let's talk. I want to double click on the secondary options. One thing I'm seeing is maybe some firms using. an offer of secondary,

or maybe even topping off the founders with extra shares as a way to win a deal. This to me seems like a bribe and seems like a really bad idea. We are seeing it more and more. What are your thoughts on when a VC says, you know what, I'm going to beat these other two VCs, and I'm not going to do it based on my ability to help the company.

I'm going to just offer it to give each of the founders 5% more of the cap table. And it's going to happen before my money gets put in. so I don't get impacted by it, and they'll be able to take $5 million off the table each. Should these things be allowed to be combined, or should, for hygiene purposes, maybe they be done after the investment so that everybody who's investing is investing in a pretty pure way? What are your thoughts on this?

You know, great question, Jason. I guess my advice to any entrepreneur raising capital is it really is about the person that is most likely joining your board. And I think, as you know, as you guys interviewed folks to join launch, the way I look at a deal is 50% of the success of a deal is the team. And 30% is the size of the market. It's got to be a big market, as you guys know. And then 20% is actually the product that they're showing today. And the reason why the team is so important is, as you know, like, you know, you start this way, your bourbon, which was before Instagram, and then, you know, Kevin was like, we'll do Instagram.

What was the one before Twitter? The podcast one. Oh, audio. You know, audio. And then, you know, Twitter. And so, sorry for the barking dog. It's okay. But.

We all have them. And so basically many times, and even I was talking to an entrepreneur last night, I'm like, Mike, I think that, in the. In this instance, I really want you to think about taking the lower valuation for the board member that's going to join. And so that's my advice. It's really like it comes down to the person joining the board. And so, yes, we have seen the tactic of somebody saying, hey, you know, we'll buy some

common from you. And as I said, like, I've actually seen it in the A, which was early. But in this case, the person joining the board was chosen. And so I just go back to people, I think, and I think that, you know, that's, as I said, when we're interviewing and hearing a pitch, it's really like, okay, who is the CEO who's going to lead this because you're going to start this way and then you know you're going to have to navigate. And so that's how we, you know, that's how we think about it. Don't panic at a pivot. Love it. Would you say that freestyle has a thesis? I mean, I'm looking at some of these big names from your portfolio.

And like you said, there's Airtable and Patreon, SnapDocks, Intercom, Loop, Steasy. Like, it feels like you are not solely sass. You are in fact, freestyling. Yeah. I bet. You are correct. It's right there in the name. Yeah.

You know, I think it's one of the benefits of being early. So when you go back to 2010, you know, dating myself, they were really just like, you know, first round capital baseline. You had, you know, soft tech, which became uncork. You had Mike Maples, Floodgate. I mean, there were just a few. First round. You know, yeah, first round capital.

And so I think that we've been fortunate to be around for a while. And that just the word generalist is not like a really, nice term, but honestly, like, we're going to hear different pitches and the way that I like to think about it is, can I personally be excited about being, like, you know, kind of a co-founder of this company? And so, you know, that's kind of how I think about it. So, like, you know, Jason and I did quite a unique deal called Steezy, and that's, you know, a learn-to-dance platform. And I've got four girls that are like all teenagers now and they're TikToking and, you know, and I'm like, you know what? I think that building a platform that's unique to online dance is kind of interesting.

And so, you know, that's kind of how we think about it. I guess one other kind of important thing is we look at statistics of us being around for a while is, you know, I've been in tech dating myself since 95. That's when I launched Spinner. And so I, you know, I've just similar to, Jason have like a large network in tech. And 80% of our deal flow comes in from friends within the industry. So we've invested in 140 CEOs over the last 12 years. We get a lot of deal flow there. And then of course, the venture capital firms and just a lot of people that I know.

And so, you know, I think that's a great ecosystem to have a deal come in. And this goes back to it's like a reference. So somebody who's going to introduce me the deal, they know that they're kind of vouching for this company. And so that's understandably like a leg up. And I think as Jason have probably mentioned many times to entrepreneurs, it's like if you cannot come in the front door, if you can come in the side door with like,

hey, you should really listen to this. Understandably, that's a super big leg up. Yeah. I mean, the warm introduction is, everything in our industry. And I think that's why curating a relationship and building a relationship with your existing investors is so critical. If you're keeping your existing investors up to date and you're engaging them about the

challenges of the business, it's going to be easier for me to say to you, hey, here's Steezy, it's interesting. Or for you to say, hey, take a look at this company, because we've built a level of trust with the founder and we're going to introduce the founder to somebody who you know they're going to, I don't know, just do a great job representing you as an investor. Let's talk about the difficult part of the job saying no. How have you, and you got a big heart, you know, I know that from just knowing you personally for two decades and you work really hard.

How do you deal with the fact that most startups do in fact fail and that as a seed fund you do not have the ability to fund everybody forever? And, you know, when people do fail, they, the gut reaction is to go to their existing investors and saying, hey, we didn't get it done. Can you give me another six months? Can you give me another 12 months? I need your help. How do you deal with that very difficult, you know, dynamic and part of the job? When I started this, well, first of all, I think as an entrepreneur, in many instances, you're a yes person. I mean, you are, you know, getting out there doing something new, and in many instances, I consider a yes person.

And so when I started Venture, the way I actually started my fund was Josh and I started it, and we basically decided to put 100K into 20 deals. And so this was before, like we were investing as freestyle, but we only had our own capital. And we actually got this playbook from Saka, from anyway, his... Lower case. Sorry. His first fund, which was only $6 million, he took a Twitter and a few unrealized gains and actually put it into that fund. And so Josh and I did the same thing. So basically we took our 20 deals, put it in and on day one, our LPs already had a markup. But the reason why I talk about before we started the fund is we wanted to see, do we feel like

we're good at it? And the biggest one is that question that you just said, Jason, is how do we we feel comfortable saying no? And so, you know, yes, it was difficult making that change. And I think the main thing I do every time I say no is I talk a little bit about my own experience. So when I was raising capital for Spinner, I had 40 nos. And Spinner, as Jason said, was the first internet radio platform. And many of the VCs were like, why would I ever listen to music via the computer. Now, this was back when there was a 14-4 modem. So, I mean, it was early, but, you know, people didn't see it. And actually, the first person to invest in me was very visionary. And that visionary happens to be Chris Anderson, the CEO of Ted. And so he gave me 750K in 1997.

And that actually turned into 20 million for him. But anyway, I just bring this up that I basically tell entrepreneurs, guess what? I had to knock on 40 doors to get the one yes. And I know Jason talks about that within launch. And so it's top of funnel. And the only additional thing that I try to do is give feedback to the entrepreneur. So some instances, I just say, you know what, this is a gut reaction and it's just not a match for me. In other instances, I say, you know what, I'm concerned that this is a feature, not a product, thus not a company. Maybe it's like, you know what, I'm concerned about the TAM. And so, you know, and so I basically, I attempt when I say no to give them feedback.

And so that's, you know. Isn't giving feedback, though, the chance that you're going to hurt their feelings and then they'll hold it against you for the next round. There's a lot of people whose philosophy in our businesses, sugarcoat everything, everybody's unique snowflake in the world, everybody gets a participation trophy. And there's no upside for you to tell them the truth. Hey, I think you got a feature, not a, not a company here. you need to get a more fully featured product.

Now the person's like, well, Dave's being a jerk or Dave hurt my feelings. And then, hey, they break out, they figure it out. They pivot from audio to Twitter or Bourbon to Instagram. And now you're the guy who, you know, wasn't nice to them. And they get revenge on you by not letting you in the next round. Some people do think like that. Yeah. I actually, I don't think it's not nice.

Like, I will say that like one of the biggest things that most entrepreneurs appreciate is when I say no, I say it's super fast. And basically sometimes I feel bad, but I basically do it on the 30-minute intro call. And many times are like, you know what, Dave? Thank you for being quick with your decision. Because in many instances, and happened with me raising capital, is you're like, you'd pitch, and then you kind of wouldn't hear anything. And there was no closure. And I think, as you know, like, I don't like to use the word lemmings,

but basically many VCs are lemmings that are like, okay, I've heard the pitch. I'm kind of in line, but I'm not going to do anything until somebody else does something. And so I think the ability to make a decision fast I think is something

that many entrepreneurs like Dave, thank you, being efficient with our time, your time, thank you for the quick decision. So that's how I think about it. Fantastic. I wonder. So there's the saying no, and then there's also,

I wonder how you approach an entrepreneur when you think that there's a good idea there, But for example, especially at our stage and right now the way the market's been, how do you tell somebody like, you're raising too much money right now? You know, this is too much money too soon. Your business isn't there yet. Like, do you feel like it's your job to sort of say, let's rethink this strategy so that we can get in?

Or do you say, all right, this is enough for it. Like, I'm moving on. I think for the size of the raise, I mean, the main way I like to think about it is I want to make sure we get 18 months of runway. And so it's really just trying to figure out what is 18 months a runway. And so the way I kind of talk about a seed fund is I want to be able to confirm that we're able to create a small flywheel that gets going and demonstrating the product working, retention. And then really, how does marketing work? The main thing is basically having a small fire, and then you raise your Series A, and you're able to make that fire bigger.

In many instances, understand them from hiring more employees, but also getting marketing dollars to work. And so, you know, when a deal comes to us, I always say, you know, what's your target raise? And even if somebody says they want to raise six, I'll still hear this, you know, hear the story. and basically, you know, in most instances say, hey, you know, I really like this, but I think you should raise less and, you know, and then basically say, you know, this is the pitch. And so, and this goes back to what I said earlier, like, it's not all about the money. It's really about the money and the help that you're getting. And so beating my own drum, I feel good about the help them giving people. And so in many instances, I know that my capital is, you know, we're coming in at a lower valuation than other firms. Well, listen, Dave, continued success. What's the best way for a founder who wants to pitch you other than finding an intermediary to get your attention?

You know, in that cold email or the sliding into the DMs or replying to you on Twitter, what grabs your attention specifically and makes you want to double click, triple click, and then eventually, you know, hit the reply key? So I would say really two things. One is, you know, I think it's beneficial. It's definitely beneficial that there's a little bit of a personalization at the top that the entrepreneur has done work and says, oh, I see, you know, air table or the other, you know, intercom or other things. And so having some personalization demonstrating that the entrepreneur did work versus like emailing a blast of 100 VCs.

and then the second one is you really need to have the elevator pitch together. And so if I get like, if I get like an email that has like three pages, honestly, I'm not going to read it. Like I am too busy. I've got too many things coming in. And so you really need to be able to explain what you're doing

within a few sentences. And so don't send me like, yeah, really. And, you know, Jason, you're super good at that. And it's a focus that you have with your launch, um, accelerating program. And so it's like that.

And then additionally, I do think it's important to, you know, have a pitch deck as part of it. Really, some people are like concerned about maybe like, I mean, there used to be this notion of like signing an NDA. Like that was old school, you know, a non-disclosure agreement. I understandably, that doesn't exist anymore. And like, I think it's important to have an elevator pitch and then also attach the deck because I'm going to do one two. If I'm like, you know what, this is interesting, then I will look at the deck. And then I can make a quick decision on whether to schedule that intro zoom. Yeah.

For me, I just love when there's a chart and some traction. If you have traction, weekly, a monthly, a daily, any kind of chart shows that you have some dexterity or traction and understanding of your own numbers. I love a good product demo. And I do think the short deck is a critically important way to, to get people on the hook. You could have a deck that has proprietary information that's 30 or 40 slides that you do on a call or in person. But a 10-slide deck that basically visually represents

what your website tells us and tells the story to a VC in a very efficient manner. It just shows you are meeting VCs where they are. You're kind of... I also love when people send me a loom. I don't know if you've gotten any of these where the founder actually walks to the deck to you personally. This is like the height of customization.

So like, hey, Dave, I know you're in our table. We're doing something similar. We're making a word processor. That's 10 times better than the existing word processors. And it's, you know, if you use Microsoft Word or Google Docs, you're going to love this. Let me show you grammarly. Right. And, you know, like, that is so savvy to take the time to do that because people, if you're

going to do 100 outreaches a year to investors or during each fundraising, doesn't matter if it took one minute per or 10 minutes per. It actually doesn't. And the 10 minute ones are. 10 times the effort, but probably 100 times as effective or more than generic. So the founders don't realize

what's happening on the other side of the inboxes where people are sending 2,000 word short stories about their life. And we're like, what, it's pretty simple. Who is your customer and what do you solve for them? What's the product? Who's the customer?

How do you make money? Keep it simple. All right, listen. And I will just say, two other additional things is I think a competitive landscape is super important because we as VCs, we're getting lots and lots of deals. And so you as the entrepreneur, you understand your market understandably. But I used to think, like, why would I list the competitors in the pitch deck? But it's actually super important. And typically the best one, I think, as you know, is like,

you know, the one with the X and the Y, you're up in the upper right. And it just kind of demonstrates how you're sitting in the market. And so, I will just say, like, that one is important to me because it allows me to quickly understand, okay, who's venture backed in this area? Who are the big players that they're going to take real estate from? So I just mentioned that one also. Fantastic. All right. Listen, Dave, continued success.

You're one of the hardworking, honest, great people in this industry. It's good to know you and work with you on a couple of deals. And please send our regards to your partner, Jenny. And we'll have her on another episode. She always does founder, university for us. and she is equally awesome. And so a great firm for founders to consider when they're doing that $500 to $2 million check.

Yeah, I think that's a sweet spot. We're honestly, we've gone a little bit upstream. So basically, we're typically between two to four, you know, two to four. Okay, two to four. Okay, two to four. Can I get you two point five to five? Okay, is that possible? Can we go to four point two to four?

Two to four four. Two to four. I just have one closing comment, Jason. Oh, here we go. Well, 10 years ago, I was hosting. I'm not putting on a color shirt, if that's what you're asking. I'm not going to wear that shirt. Jason, you know what?

I know I sent you this. And this says it's black, but, you know, it has our new logo. So maybe I will wear that. I will wear that in an episode. I just said, I have one comment, which was 10 years ago, was hosting a dinner in Las Vegas. And I remember you standing up unprompted and you had a great comment about what freestyle does to support founders.

And I will return that because I appreciate. your hard work educating and helping founders and sometimes I say, Jason, why do you have to work so hard? And you know what? I know you love what you do. So I appreciate that.

It's if you, for me, it's just like going skiing or having a fine dinner. Like, it's equally enjoyable to me to be here on the podcast as it is to be on the slopes

and meeting with a founder, I find just as joyful as having dinner with my friends. So, you know, it's one of the great things in life. And it's a privilege. Let's be honest. It is a privilege to be a capital

allocator into, you know, the worst interpretation is we get to, you know, make the decision on who the winners are and anoint them. And I, you know, the truth is, we are lucky enough to place a bet and try to support people who are going to be successful with or without our money. Yeah. And that's the humility I know you come to it with and I try to come to with it every day, never get high on your own supply just because you got $100 million to deploy. That's not privilege as much as it is a responsibility. You have a responsibility to deploy it intelligently for those LPs and for society. So, you know, take that for all these new people who are capital allocators out there, yourself

included, Molly, like, it's heady stuff sometimes and you really need to be thoughtful. And collectively as an industry, we need to be thoughtful about who we're deploying this capital to and for what reasons. So it's top of mind for me right now, having dealt with some really gnarly situations. It's just very strange this, you know, this world we're in. the entitlement sometimes, the bad behavior, and then, you know, all of that, you know, kind of fades when you see somebody really hit it and change the world with a great product or service. That creates joy. And so it really is, like, I don't make this into the Oscars,

but I don't know about you. I just feel like a great sense of privilege and responsibility, really responsibility, that I have this job. Yeah. Because it's, it's really important that we get it right. I don't know how you feel about it, like ultimately this, this profession. Well, I, well, I guess, I mean, so I know you're a family man with kids and I have five kids. And, you know, I think we have family responsibility. And then honestly, we're a little bit older, Jason, than many of these entrepreneurs who are investing in. And so, you know, I think it's important that we help educate them and help them succeed, similar to what we do as parents. So, you know, I think it's just important

to kind of tie that together. Yeah, no, I mean, you have to navigate, you know, there are things that happen in every startup's life. And once you've seen it happen a hundred times, you're like, by the way, around that turn, that's where you could, you probably want to not speed and you probably want to be wearing your seatbelt and be a defensive driver, you know?

It's like you're giving these. It's like when you give the, Molly, you're going to go through this, right? I don't know if you're giving the keys to your son yet, but it's coming, right? It's coming, Molly. you're going to have to hand the keys. Molly's going to go like this. Molly's going to go like this.

You're going to be heading those keys over soon. What the hell of the self-driving cars is all I'm saying? Well, the other benefit is understandably Uber and Lyft where basically we as parents are able to kind of delay that slightly. That's what I said too. I'm like, I can't wait to get you an Uber account. Like it's going to be great. Yes.

Let's go. Yeah. All right, everybody. Dave Samuel. Dave, Sammas. Congratulations on the race. Thank you. See you next time.

Hey everyone, producer Nick here. I want to tell you about the SaaS Syndicate. If you're a founder of a SaaS company with a product and market, our investment team wants to talk to you. Head over to the syndicate.com slash SaaS, S-A-A-As to apply to raise from the SaaS Syndicate. And you can join Jason's syndicate of over 9,000 accredited investors at the syndicate.com. Producer Justin here, no cool startup? Check out openscouting.com, where anyone can refer a startup to our investment team. here at launch, even if you don't know the founder. If you're the first to flag a company for us and we

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