This Week in Startups - FB Whistleblower’s Senate testimony + Scorpion Capital shorts Ginkgo Bioworks, claims fraud | E1298

Episode Date: October 6, 2021

In this all news show, Jason covers Facebook Whistleblower Frances Haugen’s Senate testimony and Mark Zuckerberg's response (2:22). We also get into the fraud claims made by Scorpion Capital against Ginkgo Bioworks $DNA (1:01:35), we had Ginkgo CEO Jason Kelly on E1239 https://bit.ly/twiste1239.

Okay, everybody, we've got an amazing show for you today. It's a big news day, and we are, of course, going to get into the Facebook whistleblower hearing. Facebook's PR team's dirty tactic response and Zuckerberg's response to all of this brouhaha and the Donnybrook that has ensued. I'm going to opine a little bit on what is the reasonableness of the whistleblower's outcome that she's looking for. And I think she's quite credible, quite moderate, and I think her suggestions are pretty obvious and banal. They're not very controversial at all. And we probably are all going to agree on them. But it's a really interesting set of clips that we're going to play for you today. Then we're going to get into a bombshell that dropped this morning.

Scorpion Capital has done a short-seller report on Ginko Biowork. You may remember, the CEO of Ginkgo Biowork was on This Week in Startups, Episode 1239, and we got into his business model. which I thought at the time sounded really clever. However, Scorpion Capital is claiming that that business model is a giant fraud, a scam, a hoax, and that Ginko Biowworks is their big short and they're down 20% today. This is a really dicey one that involves a concept called round-tripping that you should know about, that AOL was accused of 20 years ago, and we're going to unpack it all on today's This Week in Startups. Stick with us.

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sent off coupon at launch.co slash Dell and disruptive advertising. Sign up for a free marketing audit at disruptive advertising.com slash twist. Plus, if you go into business with disruptive, you'll receive a $250 gift card and a free Friday to Sunday ski trip in Utah. In our first story, Facebook whistleblower, Francis Howgan went before the Senate yesterday and did a great job. I think she was well-spoken and I think moderate in her proposed solutions for the challenges of social media. Facebook circled the wagons and came out swinging. And in fact, many of the Facebook surrogates, the people who are one or two steps removed from Facebook. were out there attacking her, including their PR team.

So let's break down the hearing before we get into what's going to happen to the whistleblower because it's almost like a classic playbook to discredit and attack, diminish the, and maybe even try to demoralize these whistleblowers. And that is the strategy and it's happening, you know, which we knew it started happening after Sunday. So on Monday show we here at This Week in Startups, we did cover Francis's 60 Minutes appearance. That was the warm up, obviously, before she went before the Senate subcommittee on consumer protection for about two hours. And we're going to break down some of the, you know,

key moments here and maybe talk about some of the insights. Before we do that, we should be clear about what her goals are. And I think that's part of this. We are obviously now entering the phase of attack the messenger and let's figure out what the messenger's motivation is, right? And I guess that's valid, right? You do have to think about who is making these claims. Why are they making these claims? Why are they making these claims now? And maybe what are they hoping to get out of this? Sometimes you will see this and somebody has got an axe to grind. Maybe they were fired. Maybe they didn't get their stock options. They didn't get a promotion. Or sometimes it's virtuous and they are doing this because they believe it's in the best interest of society or maybe they have

some ideological position. But let's hear it from Francis herself. One minute clip and I'll talk to you on the other side. During my time at Facebook, I came to realize a devastating truth. Almost no one outside of Facebook knows what happens inside of Facebook. The company intentionally hides vital information from the public, from the U.S. government, and from governments around the world. The documents I have provided to Congress prove that Facebook has repeatedly misled the public about what its own research reveals about the safety of children, the efficacy of its artificial intelligence systems, and its role in spreading divisive and extreme messages. As long as Facebook is operating in the shadows, hiding its research from public scrutiny, it is unaccountable.

Until the incentives change, Facebook will not change. These problems are solvable, a safer, free speech respecting more enjoyable social media is possible. But there's one thing that I hope everyone takes away from these disclosures. It is that Facebook can change, but is clearly not going to do so on its own. Congress can change the rules that Facebook plays by and stop the many harms it is now causing. We now know the truth about Facebook's destructive impact. Okay, this is, I think, critically important. Number one, she believes the problems are solvable. She's credible and believes the problems are solvable. So she is not asking for Facebook to be broken up.

She is actually saying we can make a social media landscape that is less polarized and that is safer for everybody. And that maybe doesn't have downstream effects on mental illness or politics, elections, misinformation. She's an expert on the subject. She's highly credible, and she believes it's solvable. I actually think it's less solvable. I think this is just one of these problems that we've never had as a society, I don't know, billions of people on these platforms. Even if it was tens of millions of people, there's never been a town square that's 10 million

people and that one tweet or one TikTok or one story on Instagram or Snapchat could become the number one media object in the world. Same thing with YouTube. This has never existed in the history of humanity. She thinks it's solvable. I actually, I think it's less solvable, I think, than she does. And her solution for solving it. Let's talk about that second piece.

So A, she believes it's soluble. B, her solution is not breaking up Facebook. It's forcing Facebook to be more transparent and to publish all their research. So that is very interesting to me. This is not the AOC, Bernie Sanders, Elizabeth Warren. All rich people are bad. All capitalism is bad. Giant conglomerates are bad.

Break them up, regulate them, tax them, shut them down. She's clearly not part of that camp. You do not get the Bernie Bro, Elizabeth Warren, AOC squad vibe from her, do you? You don't get an anti-eastern. tech vibe from her either. The vibe I'm getting is let's work together to solve this. So when she gets more specific, she says, listen, Congress should have a regulatory body where people like her can work on making algorithms safer. Anybody disagree with that? Anybody disagree that something this powerful and unprecedented should have some regulation? I mean, I'm not for over-regulation, but we're in a situation

where there's no regulation. And you've got to remember with Facebook, Facebook is, I wouldn't say left or right leaning. They're Peter Thiel leaning when it comes down to it. Zuckerberg and Teal and that whole crew are very much in favor of no regulation. And they're kind of Anne Randi and their objectivist. You can look up those fancy words. It basically means people should be, you know, talented people should be allowed to do what they want and not be stopped by people in their ivory towers like politicians or the media or professors, right? They are anti-cathedral and they're, you know, more about the marketplace and the, yeah, the bizarre. Not bizarre as in strange, but the bazaar is in the marketplace of ideas. But I think for the rest of us, yeah,

cigarettes, yeah, maybe we should regulate those a little bit and the vape pens. Yeah, there should be some regulation there. Those are pretty bad for society. Yeah, you know, social media. It's having some weird effects. We should definitely think about it because the Russians are using it to screw with the elections. We should definitely have some regulation there. Her second idea is just publish all the research. I mean, is anybody against that? I mean, the only people who I could think would be against that is people who want to frontrun the research, like the internal people at Facebook.

I mean, I think the reason Facebook is doing the research is twofold. One, they care. I do actually think that they care about what the research says. But two, I think they want to control the research and they want to control the researcher. So this is like, you know, keep your enemies closer kind of situation for Facebook. If they bring the researchers in house and they're funding them and they work for them, well, then they can keep this from escaping and they can control it and they can front run it, which is exactly what they did with this research.

They are front running this research. They are massaging it. And that is why this person felt like they needed to front run or they needed to leak the front running of the information. Does that make sense? I think we can all kind of see what Facebook is doing there, buy the researchers, bring them in house. And yeah, it's not great that you're paying for research that is working against you,

which was Zuckerberg's reply. And we'll get into his response. Like, why would we pay for this? You know, like, why would we pay for research? if we didn't care. It's a pretty good defense. I'll be totally honest. And it's half true, I think. I think they do want to know and they do want to pay for this research because it is helpful for them. And I do think, you know, they do have, you know, I wouldn't say they have the users and the citizens' best interest in mind. I think they think first about the size of

their company and the growth of it. I think second, they do think about the customers. But, you know, it's in that order. So this is a very interesting strategy. and a highly effective one, clearly, because here we are, Facebook has reached critical mass. There's no way to stop it. It would, it's going to take decades, like literally two or three deck. If you really wanted to stop Facebook, it would take two decades, probably. You know, because look at what happened with AOL and Yahoo. People are still, I went to Yahoo Finance yesterday. Some people are you still using the AOL email addresses? Like, these tech companies, when they hit scale, take a decade or two to come in for a landing and get below, you know, whatever number of

users or revenue. And third, she wants Facebook to reinstate something called soft interventions. What's the soft intervention? You remember where before you retweeted a story and say, hey, why don't you take a look at the story and read it? Dummy? Before you tweet it? To kind of get people to be more thoughtful. And I would think warning labels would also fall under soft interventions or for more information and linking to a credible source would be another soft intervention. I think another soft intervention would be saying this is disputed information. This person has been suspended this many times for these things. So these kind of soft interventions are a way to steer things maybe and to throttle how quickly

misinformation would spread. So the second somebody starts talking about, you know, vaccines, if it said, hey, here's a link to people studying vaccines, there's a link to the CDC, supposed credible sources, obviously. We can have a really vibrant debate of, we could have a really vibrant debate of what is a credible source in the world

or a credible institution, right? After we've seen some institutions, phallus or there's corruption in institutions. So who are you gonna link to? I mean, some people trust the Wikipedia with its anonymous editors or editors using pseudonyms and everything in between. There are people out there

who trust the information on Wikipedia more than they trust the information from the government. In fact, I could ask my live audience watching here. Which do you trust more? A Wikipedia page or a politician? You got the same information. Would you trust the Wikipedia version or the politician's version on average? Just on average. Wikipedia page through anonymous process or politicians?

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and the Good Face project work with Drata for their compliance needs. Twist listeners can get 15% off and waived implementation fees at drada.com slash twist. D-R-A-T-A-com slash twist. So these are pretty simple ideas and not all that dramatic or controversial. In fact, Mother Jones, which is like, I think it's best described as a socialist publication. I think they're kind of like that Jacobian or whatever that socialist publication is. like they're the far left of the far left. They thought Hogan was going too soft. The Facebook whistleblower doesn't have the solution. Revolving door regulations never make anything better.

If you believe that Facebook is producing significant harm, the solution that follows should probably be significant as well. As Evan Green, Deputy Director of Fight for the Future, told me rectifying Facebook's invasive privacy practices could require a privacy law strong enough to effectively kill Facebook's current business model. So they're kind of jumping the fence. It's not like 90% of people aren't having a, you know, decent or good experience on Facebook, you know, seeing their family's photos.

It's a little ridiculous to think about like doing something as draconian and a shutting down Facebook. I think, you know, the algorithm being more transparent, the studies being transparent would be the next logical step here, right? That is the next logical step. And there are things you can do to make things more transparent that solve problems. I'll give Facebook some credit here. The Facebook ad library, if you just type in Facebook ad library, you can see every ad and

the creative placed for every different company or organization. They did this for politics to make sure that people didn't do these crazy Clinton ads again, that the Russians were buying to try to create more strife here in our country on our original sin, racism, you know, probably the worst part. of American, America's history. I think most people would agree. And this database has now made it really hard to do smarmy ads on Facebook because it will be revealed.

If you're doing something really crazy on Facebook, it's right there in the database. You can't place ads on Facebook without them being public anymore. Well, if that's the case for ads, let's do it for the research. Let's make all the research public and have a town square where we debate it. So if Howgen is getting hate from Facebook and pro-Facebook surrogates, and then she's getting hate from the anti-Facebook crowd, I think that means her position is pretty moderate, I would say. And Senator Amy Klobuchar, who I am increasingly impressed with, I think, you know, I don't know her exact politics, but when I see her asking questions, she tends to be well prepared. It seems. And so here's the Democrat from Minnesota. And she starts her questioning with an impassioned statement. These things are also performative about big tech lobbyist in D.C. And this to me was

quite informative. 30 seconds see on the other side. We have not done anything to update our privacy laws in this country, our federal privacy laws. Nothing zilch in any major way. Why? Because there are lobbyists around every single corner of this building that have. been hired by the tech industry. We have done nothing when it comes to making the algorithms more transparent, allowing for the university research that you refer to. Why? Because Facebook and the other tech companies are throwing a bunch of money around this town and people are listening to that. Yeah, I would love to see her name names there. Did she take money from these lobbyists? Does the person sitting next to her take money from these lobbyists? The fact that there's, you know, hundreds, thousands of

folks lobbying and our privacy is not being protected and there's not new privacy, legislation when you compare what's happening in California and in a Europe. You know, privacy is a serious issue. We should have some legislation around that. Is there anybody here who wouldn't want more privacy regulation so that their information was kept more private and not recorded? I don't think anybody listening to this stream right now in this podcast wouldn't want to see more privacy protection.

So here she is asking Hogan about Facebook and Instagram's impact on teen girls and body issues, which this is the reason why I think Facebook has now hit a very different moment in time. This could be the Icarus moment for Facebook, where they just flew a little too close to the sun. It's one thing, you know, to ban Trump or not ban Trump or to have Russians buying ads, you know, we can debate. Those issues, they're super hyper-political, but there's nobody. Nobody who wants to see young, teen girls have body issues, bulimia, anorexia. These are like the worst things in the world, right? Like, nobody wants this to be increased in the world. And the fact that now there is a link between Instagram and teen girls, anxiety, depression,

body dysmorphia is pretty damning. And this really does, I think, lean people more towards the cigarette, cigarette company analogy or metaphor or in their mind framing versus the car metaphor that Mossari, I think, the leader of Instagram was sort of pushing. So here's 65 seconds from Globuchar and Howgan, I'll see on the other side. Another major issue that's come out of this eating disorders. Studies have found that eating disorders actually have the highest mortality rate of any mental illness for women. And I led a bill on this with Center's Capito and Baldwin that we passed into law. And I'm concerned that there's algorithms that they have pushes outrageous content promoting anorexia and the like. I know it's personal to you. Do you think

that their algorithms push some of this content to young girls? Facebook knows that their engagement-based ranking, the way that they pick the content in Instagram for young users, for all users, amplifies preferences, and they have done something called a proactive incident response where they take things that they've heard, for example, like can you be led by the algorithms to anorexia content? And they have literally recreated that experiment themselves and confirmed, yes, this happens to people. So Facebook knows that they are leading young users to anorexia content.

Yeah, so this is the perniciousness of the algorithm. when we build algorithms here in the technology industry, you're not really saying, here's what I want the algorithm to interpret the world. That's not really what's happening. It's more outcome-based. So you're telling the algorithm, run a series of experiments,

look at all the data. And if somebody were to click on X, would they click more? If they click on Y or Z, do they click more? Okay, after clicking on X, if they click on Y, do they stay on the service longer? It's just might is right. The length of your session is what matters. The frequency at which you come back is what matters. We're just looking at outcomes with

these algorithms. We're not looking at the journey, right? We're not looking at how you got there. We're looking at where you wound up. And if where you wound up was on YouTube, the intellectual dark web or, you know, worse, that's bad, right? And there was a specific case with Ben Shapiro. And if you watch Ben Shapiro's content and listen, he pushes the envelope on being anti-trans and, you know, edgy sort of positioning socially, you might then get like Milo Yiannopoulos, who went from being, you know, like a kind of a cheeky blogger when I met him in the 2000s to being like straight up like hanging out with white supremacists, you know, and just crazy. All of that kind of algorithmic shaping of your behavior and leading you down rabbit holes has been

proven over and over and over again. The Wall Street Journal, the New York Times, the studies, they all show an algorithm will lead you. down the path of incredible Mark Knopfler and Dyer Street bootlegs, or it could lead you to white supremacy, anorexia, body dysmorphia, or, you know, some obscure sexual preference or niche sexual preference that maybe you didn't want your children to be looking at on TikTok. Literally, there's a Wall Street Journal article about that. There has been entire New York Times series on the YouTube, you know, rabbit hole and where that will take you. And of course, now Instagram. So if you look at that, three different platforms, what are they have in common?

They're all algorithmically generated content and social networks. TikTok, YouTube, and Instagram. All three of them rely on the algorithm to increase your time on site. They all worship at the altar of the algorithm and the outcome. Algorithms and outcomes are a great way to build a large business. It's not a great way to build a high functioning society. So that is what the world is coming to, something we've all known in the tech industry for a long time. I'll be totally honest. We all know this. And I've been there when the conversations occur. The algorithm, we don't know exactly what it's doing, but it's working and things are going up and to the right and everybody's in the board meeting, woohoo, up and to the right, we're all going to be rich.

And, oh, we're winning, we're succeeding. And it's kind of secondary to people to know what the fallout is. Or, you know, we'll see what the fallout is when the fallout happens. And we'll clean it up then. I mean, I do actually think Zuckerberg's belief is, might is right. He has a Peter Thiel kind of approach to this, which is no regulation. How dare you try to stop people who are building stuff in the world? and it's like that objectivist,

and Randy and I'm going to build it. You can check me in the review mirror because I'm going. And if you want to try to stop us, feel free, but we're going to just keep building. And this sort of defiance you see in their response to all of this scrutiny. Dell for entrepreneurs wants you to stay connected

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So go to launch.com slash Dell to get connected to Marcus and manager at Dell for entrepreneurs for more info and to unlock exclusive discounts like 5% off. Once again, launch. Dot CO slash Dell to get connected and save that 5% today. Thanks, Del. Clobetcher finished with a question about Facebook's election safeguards. These are critically important. Everybody around the world has been talking about this.

It's not unique to the United States. Everybody in a democracy where there's elections is concerned about, you know, what happens when everybody's on a instant content sharing machine with algorithms that will surface the most crazy, electric, dynamic tweets. And sometimes those are misinformation. according to this whistleblower, the safeguards were turned off after the election and then turned back on during the January 6th insurrection. I think this is going to be one of these political issues that we're not going to get consensus on. I think the Instagram with teen girls and the body dysmorphia issues are the more powerful ones in terms of actually creating change around how Facebook does what it does.

But let's listen to Kovach one more time. I'll see on the other side of this one minute and two second clip. On 60 minutes, you said that Facebook implemented safeguards to reduce misinformation ahead of the 2020 election, but turned off those safeguards right after the election. And you know that the insurrection occurred January 6th. Do you think that Facebook turned off the safeguards because they were costing the company money because it was reducing profits? Facebook has been emphasizing a false choice. They've said the safeguards that were in place before the election implicated free speech.

the choices that were happening on the platform were really about how reactive and Tupachi was the platform, right? Like how viral was the platform? And Facebook changed those safety defaults in the run-up to the election because they knew they were dangerous. And because they wanted that growth back, they wanted the acceleration of the platform back after the election, they returned to their original defaults. And the fact that they had to break the glass on January 6th and turn them back on, I think that's deeply problematic. Agree. Thank you very much for your bravery in coming forward. So this is interesting. I don't think we actually understand this breaking of the glass and this safeguard. We really need more information on it because the safeguard could be a good thing. Before the election, they put on a safeguard, which would, it seems, it seems, which we don't exactly know. Again, this is where transparency would be very helpful. but it seems that this ability to throttle, it seems, I'm inferring something here, I'm guessing,

it seems like they are able to throttle the virality of the platform. In other words, you put out something that, you know, is a pizza gate or Russia gate or, you know, pick the gate. It doesn't get amplified as fast. It doesn't go into everybody's feed as fast. This would then mean when you're sharing. information, it gets shared amongst your, you know, a smaller group of people, but it can't go viral. And if it can't go viral, well, that's going to decrease the time on site because it might be that

that, you know, pizza gate that, you know, or, you know, the Clintons are aliens and all this wacky Alex Jones stuff on one side. And then on the other side with the Republicans that Trump is a Manchurian candidate, those things could just go right to the top and impact the election. So they could also be Gangnam style. It could also be Squid Game. It could also be, I don't know, this celebrity is dating that celebrity, stuff that drives people to the platforms, right? If you were to throttle these things, then the Kanye crazy tweet storms that we see every, you know, nine months, they wouldn't surface for you. You'd have to have search for Kanye to see those.

Does that make sense? I think that's what this is doing. Now, when January 6th happened, what, where do they? do? Oh, my God. Now we're going to have other people start driving to the capital with their guns because they think we're in the middle of a revolution and that they could win it. Like, here's the thing. One percent or two percent of either party's base is mentally ill, right? What's the acute mental illness percentage of any population in the world? It's just a law of big numbers. My fan base, as modest as it is here and brilliant and engage.

good looking generally speaking you know like there's going to be some crazies in that any group's going to have some people who are deranged the people who showed up on January 6th some percentage of them were truly deranged and they brought guns now that stuff starts trending on Facebook or Twitter or whatever platform what if some person suffering from mental illness who's a two hour drive away just says you know this is a great

opportunity for me to go out in a in a you know, blaze of glory to, you know, be famous forever in their deranged mind and I'm going to go shoot up a building. This is what happens. You have to be careful with these tools.

And now we know they have a circuit breaker. So the question is, why is that circuit breaker not built in? Like, if we know that these safeguards keep things from going viral and, you know, keep things from getting out of hand, maybe that should be the default.

And defaults matter intact. We have a saying defaults matter. How you set up the system by default is really what matters. So if you by default, you know, ask people if they want to invite their friends and then upload their address book, you're going to grow really fast. If you say by default, we're not going to upload your address book to use this service to find your friends and you have to go, you know, three clicks into the interface to do it, 1% of people are going to do it.

And if you make it part of the standard onboarding, you might get 80, 90 or 99% of people to do it. or you might get 100% of people to do it if you make it defaulted on and it's a requirement of the service. So maybe that's how we should be thinking about this. Senator Brian Schatz is a Democrat from Hawaii. He asked Howgan what changes she would immediately make if she was Facebook CEO. Always a great framing of a question.

If you were CEO, if you were God, if you were the President of the United States, if you were the supreme ruler of the universe and you could wave a magic wand, what would you fix? It's always a good question. So let's hear how. is answer to that in 52 seconds. I'll see you in the side. I would immediately establish a policy of how to share information and research from inside the company with appropriate oversight bodies like Congress. I would give proposed legislation to Congress saying, here's what

an effective oversight agency would look like. I would actively engage with academics to make sure that people who are confirming are Facebook's marketing message is true have the information they need to confirm these things. And I would immediately implement the, quote, soft interventions that were identified to protect the 2020 election. So that's things like requiring someone to click on a link before resharing it, because other companies like Twitter have found that that significantly reduces misinformation. No one is censored by being forced to click on a link before we sharing it. All right. So recapping some of the stuff we talked about earlier, again, these seem like they're telling her if she was CEO, what would she do? She's not saying,

I would shut the company down. I wouldn't let teens use the product. She's not saying there should be an age limit. She didn't say there should be a separate service just for kids and you should have to sign up for it and pay for it. I mean, there are much, much greater interventions than the ones that she put forth. In fact, the ones she's putting forth are very soft. In fact, one category of them are soft interventions. Okay, Shats then finished up with a question about why Facebook is so focused on hooking teens and kids into the service. I think it's pretty obvious why you want to get young people into your service is because it's competing products like TikTok and Snapchat and, you know, if you get them young, you keep them for later. So here is

Howgans' 42nd answer. Facebook understands that if they want to continue to grow, they have to find new users. They have to make sure that the next generation is just as engaged with Instagram as the current one. And the way they'll do that is by making sure that children establish habits before they have good self-regulation. By hooking kids. By hooking kids.

I would like to emphasize one of the documents that we send in on problematic use, examined the rates of problematic use by age, and that peaked to, with 14-year-olds. It's just like cigarettes. Teenagers don't have good self-regulation. They say explicitly, I feel bad when I use Instagram, and yet I can't stop. We need to protect the kids. Yeah. And again, this is the most powerful argument. We all know kids don't self-regulate. I mean, we were all kids at some point. Kids do stupid stuff. There's a speed limit. Kids will exceed it. There's a rule. They're going to break it. There's a boundary. They're going to push it. The frontal lobes are not yet fully developed.

That still happens into their early 20s, if you look at the research. So having kids make any kind of a critical decision, you really, you want that to happen when they're 21, when they're frontal lobes, and they start thinking about long-term ramifications of their behavior. This is by binge drinking so dangerous on college campuses, because if you're not a fully developed individual and know the ramifications, you might decide to chug an amount of alcohol that could give you alcohol poisoning, right? This is why For Loco and some of these brands, we looked at them and said, hey, we need to regulate these or stop them because giving kids

an insane amount of caffeine and a same amount of, insane amount of alcohol in one can, you know, that could be problematic. You know, if it's a glass of wine, you know, you're probably puke from drinking too much wine before you have enough alcohol in your system to really do damage, but kids were literally getting caffeine poisoning and alcohol poisoning from some of those crazy drinks. And as a society and as entrepreneurs, I think that's pretty good analogy for social media. It's kind of like for loco, you know, like, is a kid really, should they be drinking alcohol at that young age?

No. Should they be drinking copious amounts of caffeine? No. Should you put both together and put a funky logo on it and make it fun? Should kids be using vape pens? No, should you be marketing it to kids with peanut colada flavors? No. It's like, there is a group of entrepreneurs who will just say, you know what?

If there is another use for it and kids happen to get it, well, you know, so be it. We can't not let adults have this peanut calotta flavor. It's like, well, you could put it in a black box with just like, you know, and put it behind the counter, peanut calotta flavor, let, you know, be regulated a little bit more, right? It would be better for kids. Okay, everybody. Let's take a moment to talk about growth marketing and all the tactics and hacks that are out there with me today, Jake Badsgaard.

He is the CEO and founder of Disruptive Advertising, which you can visit at disruptive advertising.com slash twist. So some questions for you, Jake, when is too early to start marketing your Cyber Monday or your Black Friday? What's the right time to engage people and how do you engage them? Yeah, you know, that's going to depend on the audience. but the cheapest customer is the person that's already bought from you before. And it's time today to start warming up the audience that bought from you last year.

With custom audiences on social or email, it's time to get on top of those right now and getting them warm and ready to engage. As far as new audiences are concerned, there's a lot of opportunity to explore new platforms outside of the traditional Google, Facebook channels, like Instagram, TikTok, some of these other ones, LinkedIn, YouTube. Let's get some new audiences in place and test those out and find what's working so that we're ready to scale when game time comes.

All right. That's great advice. So if you want to sign up for a free digital marketing audit with Jake and his company, Disruptive Advertising, just visit disruptiveadvertising.com slash twist. And if you go into business with Disruptive, you will receive a $250 gift card and a free Friday to Sunday ski trip in Utah. We'll see you on the slopes. It's going to be a great season.

Let's do another 75 second clip here of Howgen answering a question from South Dakota Senator John Thune about Facebook's engagement-based ranking. And what I love about this moment in time is that we're seeing a more sophisticated discussion as a society about social media. We were having this discussion five years ago, 10 years ago on this very podcast about is this good or bad for society and the algorithms. Well, guess what? The politicians might be slow. You know, the research might be slow, but it's caught up now. And we're having a pretty granular discussion here, aren't we? 75 second clips on the side.

I strongly believe, like, I've spent most of my career working on systems like engagement-based ranking. Like, when I come to you and say these things, I'm basically damning 10 years in my own work, right? Engagement-based ranking, Facebook says we can do it safely because we have AI. You know, the artificial intelligence will find the bad content that we know our engagement-based ranking is promoting. They've written blog posts on how they know engagement. based rankings dangerous, but the AI will save us.

Facebook's own research says they cannot adequately identify dangerous content, and as a result, those dangerous algorithms that they admit are picking up the extreme sentence, the division, they can't protect us from the harms that they know exist in their own system. And so I don't think it's just a question of saying, should people have the option of choosing to not be manipulated by their algorithms? I think if we had appropriate oversight or if we were formed 2.30 to make Facebook responsible for the consequences of their intentional ranking decisions, I think they would get rid of engagement-based ranking because it is causing teenagers to be exposed to more anorexia content.

It is pulling families apart. And in places like Ethiopia, it's literally fanning ethnic violence. All right. So this is very simple to understand. I think everybody's getting a great education. we all know this, engagement-based ranking. The more clicks, the more comments, the more shares, the more shares with comments, the more replies or threads that emerge from a piece of content.

Well, that means share it more, surface it more, get more engagement on your platform. And what she's saying, very clear, I think it's easy for anybody who's listening to this show to understand is, hey, you don't know if the reason that is doing so well is because it's racist or it's hate speech or it's misinformation or its political lies, lies will have a higher engagement-based ranking than truths. Things that are logical and simple are not worth sharing, right? If I tell you, like, if the sun rises, you know, and the sun sets and, you know, there's the population is X and, you know, the weather is Y. Is there any reason to share that? No, it's just a fact. It's just, you know, very simple, you know, truth.

don't get shared like that. For those of you who don't know what Section 230 is, I'll just read to you what it says. No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider. It's a fancy way of saying if you run an online service, you're not responsible.

If you run an open platform, they're not responsible of what people say on it. They're responsible, right? And this makes complete logical sense. Section 230 is, I think, pretty solid in terms of as a rule, because we do not make Verizon or paper companies responsible for what people write on paper or what Verizon users say over the phone. Now, there are some differences between what Verizon is doing and what paper and journals

in the world do. They don't have an algorithm, surfacing things. and putting it on the top. So if a paper company said, we're going to watch all million letters written and we're going to take the one that's got the highest engagement ranking and we're going to send it to everybody in the world, well, that would be different.

So when you have an algorithm, then I think Section 230 needs to be revisited and you need to say, listen, if you're going to rank things, if you're going to promote things, and you're going to have your own algorithm, then you're going to need to rethink it. And a possible solution there would be

what Jack said about Twitter, which is maybe people will bring their own algorithm. And we'll go back to reverse chronological order. Reverse chronological order just meant whoever you follow, we give you their content in reverse chronological order. The newest stuff is up top, the oldest stuff is below it. And you can in fact set your Twitter to that. And I think there's somewhere deep in the Facebook interface, the ability to just say,

show me everything and show it in reverse chronological order. That's how these systems worked originally. And then they found out when you did an algorithmic, a surfacing of interesting things, people came back more. So if you had 100 posts in your feed, and post number 98 was, you know, a wedding, an engagement notification or a bar mitzvah, or a sweet 16, or a baby announcement, or a graduation announcement, man, those things would go viral. Everybody would place comments.

Oh, congratulations on your engagement. Oh, my God. What a beautiful baby. So that you go up top, right? As opposed to the last 10, the first 10 posts that you looked at chronologically might not be that interesting, but that 98th one was, that was the virtuous version of this. And, you know, that's long gone. So if we go back and, you know, we look historically back on episode 1132, had the acquired FM boys on, and we talked about the Section 230 hearings during those, Jack Dorsey proposed this exact solution.

So let's just go back to October of 2020. And Jack with a strong beard game talking about Section 230 and B.Y.O.A. Bring your own algorithm. 33 seconds. See you on the side. And finally, much of the content people see today is determined by algorithms, with very little visibility into how they choose what they show. We took a first step in making this more transparent by building a button to turn off our home timeline algorithms. It's a good start, but we're inspired by the market approach suggested by Dr. Stephen Wolfram before this committee in June 2019. Enabling people to choose algorithms created by third parties to rank and filter the content is an incredibly energizing idea that's in reach.

All right. So I think that's just a great summary of, you know, sort of algorithms and all the different approaches to it in 230. We'll get into in a moment how Facebook's responded to all of her thoughts. And before we do, I got a comment here from the Notie Gang, the people who watch me take. the podcast live at YouTube.com this weekend. Somebody with the handle tech says JCal you should talk about the individuals using these platforms to at least take

some responsibility. Apologies if you previously mentioned this. No, I think it's a very valid point. If you're an adult and you decide you want to smoke cigarettes or you know, eat fried chicken or pints of ice cream, like you have some agency over your life. Fine.

You should be allowed to do it. We're not going to stop you. But if you're going to you know eat pints of hog and das it should say on the back how many calories and fat it has shouldn't it say that and if you're going to smoke cigarettes

maybe there should be a warning on it and I think that this has been very helpful I don't know anybody who is upset when they go to a city where they post the calorie count on the menu I know at the beginning people were like oh this takes

you know this doesn't feel right to me, it feels weird to see the calorie count. Um, you know what? The calorie count may help me lose weight. Because I didn't know that goddamn maple frosted scone. I thought I was making an intelligent choice, right? It's a scone. That sounds like it's got some good grains in it. There's a little maple frosting on it, but that can't be so bad. And I'll have a mocha, sometimes I'll treat myself or, you know, maybe I'll have a latte. Oh, Jesus Christ, if I was eating, if I was drinking a black coffee and a croissant with 250 calories versus the 500 calories, 600 calorie maple scone, and the 7,800 calorie latte,

I mean, I was eating 1,200 calories every morning for breakfast. No wonder I got fat. I then started drinking black coffee in a croissant like a French person, I started losing weight. I could never have done that. I would have never looked at the goddamn calorie count, but I saw the calorie count there and I said, okay, five calories versus 300 calories from my best. I'm going with the five calorie. I'll learn to like black coffee. Oh, $250 for a croissant. I like quassants. I didn't know a croissant was less than a scone. It makes sense, though. The scones covered in sugar. And the scones got all those dense grains in it. It was obvious for me after I saw that. So I think that's the analogy here.

Facebook comms director, Andy Stone, decided to get into it. And, you know, watching the Facebook people do this is just gross. I think this is the moment for you to be humble, be collaborative with society, given the crack record of Facebook. Now, Facebook has consistently done horrible things with our privacy and their product decisions. And this absolutely terrible executive, Andy Sown, decides that instead of having a really intense, intelligent, humble discussion about the actual issues, he decides he's going to attack the messenger. This is the stupidest approach you could take. If this person is in comms, if Andy Stone has got a comms degree, this is the worst possible person you could ever hire to do comms because this is textbook, bad communications.

Look at this tweet. He starts with just pointing out, you ever have a friend say that to you? Just one thing. Oh, can I just point out that is such a weasily way to start a tweet, right? Just pointing out the fact that Francis Howgan did not work on child safety

or Instagram or research these issues and has no direct knowledge of the topic from her work at Facebook. just pointing out that's like when you know when somebody says to you don't take this the wrong way

you know what's coming right something you're going to take the wrong way something that's going to be incredibly hurtful what a moron seriously like Andy you were in the wrong line of work and man he got ratioed 25 to one replies to quote tweets

to likes it is just bonkers yikes I don't know if I've I mean that's a ratio that I've rarely hit personally attacking Howgan is not the right communication approach here. He's not talking about what she said. He is just attacking her character. That's not what we want to see at a Facebook right now.

So I replied with simply, how much money have you made from your stock and cash comp at Facebook to date? Because that's really what's driving these comms people. You know, somebody was telling me I gave a hard time to the other Brett who's defending them. If you're a comms person, the ability to make $10 million does not come along, period.

Like, there's no PR people who get to get secure a bag, 510, $25 million. These cats, they've secured the bag. The reason they're behaving like this, the reason they're attacking the messenger, the reason why they have no credibility is because they secured the bag. It's about money.

And I hate to tell you exactly what you think is correct. I'm guessing Andy Stone's, made 10 million bucks. I don't know. I wouldn't be surprised if Nick Clegg took down 25 to 100 million bucks in stock in a decade, if he's been there for a decade. You know, like a couple million bucks a year. Stock doubles or triples. It's just their sellouts. That's it. That's all you need to know. They sold their soul to secure the bag. Well played if you're a PR person. You know, the idea that you could even make a million dollars a year is crazy. It's kind of like when a journalist or a PR person goes to work for some bad actor, they're just going to secure the bag. They're taking their skills

to a place where they can actually get paid the largest amount of money. It's kind of like being, it's not just similar to being a lobbyist, right? If you want it to be a tobacco lobbyist, I think that's how people, society will look at Nick Clegg and Andy Stone. They're going to look at them as like tobacco lobbyists or tobacco PR people, like just the worst possible humans you can imagine. Like, they're defending kids having body dysmorphia and anxiety using these platforms. Like, just talk about the issues. Bob Pickard, a PR industry veteran with a blue checkmark, also replied to Steve with the following tweet.

The backlash to this tweet will prove useful in the new PR case study on how not to do modern crisis comms. These lower-end tactics from the political realm aren't effective here from the slick, Nick Clegg prebuttal on reliable sources to this sort of ad hominine sliming. Hashtag PR ethics. Hashtag PR ethics. Kind of an oxymoron, huh? But I think Bob is saying exactly what I'm saying is this is not what we're looking

for here, dummies. Like really dumb. And this is the problem. When you're inside of the bubble and you're in this wartime mentality, you know, I think Zuckerberg learned a lot from Peter Thiel, learned a lot from Trump, learned a lot from this sort of right wing, never apologize, go on the offensive. And, you know, it's worked to get them to this point, but this is the point where this is not going to work.

Why? Kids. Kids harming themselves. Nobody, nobody wants to see kids harming themselves. Once you get to kids harming themselves, you've lost, you must be humble, you must be contrite, you must be collaborative. This tactic works when you're talking about banning Trump or not banning Trump and political issues, fine, sure. But as Bob correctly points out, going on the offensive against somebody who's

making, you know, very reasonable recommendations, like if her recommendations were not reasonable, then you could say, okay, this person's hysterical and they want to shut down Facebook and break it up and they got an axe to grind. She's kind of got less of an axe to grind than I do, or many people do with Facebook. I think I've got a stronger response to Facebook's behavior over the decades. Zuckerberg decided he would respond. He was busy sailing, I think, when Facebook was down on his sailboat, which I think is called shenanigans because when I saw the clip, it said shenanigans on the mass.

So that was notable. Zuckerberg sent an internal memo to the entire company and then shared it. Some of the quotes. I'm sure many of you have found the recent coverage hard to read because it just doesn't It doesn't reflect the company we know. Okay, circling the wagons, get everybody internally. Hey, we're all in the same team. That's what that statement is.

Hey, this is not who we are. This isn't us. Kind of is, you guys. Let's be honest. You guys have always said move fast and break things. This is who you are. You're moving fast. You're breaking things.

Just own it. Next quote. I think most of us just don't recognize this false picture of the company that is being painted. Again, he's trying to use a very persuasive technique here like, this isn't who we are, right? The we here. This is not how we look at this. At the heart of these accusations is the idea we don't,

that we prioritize profit over safety and well-being, and that's just not true. Kind of is. If you're building the algorithm and you're just setting people down rabbit holes, that is the case. The argument that we deliberately push content that makes people angry for profit is deeply illogical. We make money from ads, and advertisers constantly tell us they don't want their ads next to harmful or angry content.

Yeah, now that, this is, um, this is an example of mixing lies and truth to try to convince people of stuff. Yes, it is true. Advertisers do not want to be some advertisers, brand advertisers, a subsection advertisers, uh, do not want to be next to political content. And they wouldn't buy, as an example, they wouldn't buy Rachel Maddo or, Tucker Carlson, right? They just wouldn't want to be on either side of that. There are many advertisers who don't care. They're CPG base. They just want to move product. They actually don't care. And if they can get angry content or racy content or controversial content at a lower price and bigger

results, they'll go for it. If you get those people selling gold coins, guns, rations to put in your end of days bunker, they're more than happy to sponsor Ben Shapiro or, you know, Russell brand either side of the aisle, they'll get in there and pick either side and do it. So he's not telling the truth here. He's telling a truth and leaving out the overall big picture. People do want to be where the eyeballs are, period. So the truth of this is, if you get more eyeballs on Facebook, yes, certain advertisers like Coca-Cola or Disney might not want to be next to political speech. They don't want to touch that, the NBA. They just want to appeal to everybody and keep it very milk toast. But that doesn't mean they're not going to be drawn to the platform overall.

And so this is basically the devil mixing lies with truth. I'm not saying Zuckerberg's a devil, but this is the devil's technique of communication. Mixed lies in truth to try to make your point. And once you deconstruct it, it's obvious what he's doing there. I've spent a lot of time reflecting on the kinds of experiences I want my kids and others to have online. It's very important to me that everything we build is safe and good for kids. Okay, he's pulling his own kids card. You know, great. It's a classic way to do it. Like, I would never want to hurt children. Meanwhile, your PR people are attacking the messenger and not talking about the real issue. We've also worked on bringing this kind of age-appropriate experience with parental crows for

Instagram too, but given all the questions about whether this would actually be better for kids, we paused that project, take more time to engage with experts and make sure anything we do would be helpful. So what he's saying is we got caught. We got called out for doing Instagram, kids and we pump the brakes. So you can be sure that they would have gone full, full blast ahead with Instagram kids if they hadn't been questioned. So again, I find that a little bit of a weak defense.

Like many of you, I found it difficult to read the mischaracterization of research on how Instagram affects young people. Yada, yada, yada. And it's disheartened to see that our work is taken out of context and used to construct a false narrative that we don't care. Frustrating to see the good work we do mischaracterized, especially for those of you who are making important contributions

with safety, integrity, and research, I'm proud of everything we do to keep building the best social products in the world and grateful to all of you. So what he's trying to do with this whole word salad here is to keep people from resigning. I think that's the big fear he has, is that he's not going to be able to keep great people at Facebook. I think it's becoming untenable to work at Facebook. If you're in Atherton or Palo Alto,

like every conversation seems to be about Facebook and everybody in Palo Alto and Atherton either has made money from Facebook or sold a company to Facebook. So the Facebook money is just sloshing around this town. And it's just very hard for people. It's so myopic here. Like, it's just, this is like an obsession of talking about Facebook is a good or bad for society while it's just, the money is just sloshing all over the place from it. I don't think any of this is a mischaracterization.

And, you know, as Nick Clegg is saying, and they're circling the wagons. we should wrap this up at this point. I think we've been talking about it for an hour on one. I'll just say, I think that this is an existential moment for Facebook. We knew it would come eventually. And I would think we'll see people resigning from Facebook would be probably the biggest impact this will have. I think regulation is going to be very hard. I think they'll self-regulate.

That's my guess. And self-regulation will, you know, it could be headwinds, just like the Apple, you know, anonymizing people's data and not letting them track people as granularly for advertising from Facebook. I think that these things are all just becoming headwinds, and the headwinds might be 1, 2% against Facebook, and they might be growing 10 or 20%. So does it mean the company's going to stop growing? I don't think for a while, but I do think that it's going to be tough for people to want to go work there.

I think it's going to be tough for people to see it as the stock you want to own. But many people bought the tobacco stocks even after a lot of those settlements because they just threw off a lot of cash. So Facebook's not going anywhere, but this is going to be something that people will talk about for the next couple of years. and the talent drain at Facebook is the, I think the number one existential problem. If you were at Facebook, does not feel good to go to work. I know Facebook employees.

I know former Facebook employees. I hear the buzz around the town. You tell somebody you went to work for Facebook, and people are just like, you know, like, you're, I want to say you're a pariah if you work at Facebook, but basically the entire conversation leads to people goofing on or upset at you and it just becomes like,

it's literally like working for a tobacco company, actually. It's literally like working at a tobacco company. People are like, I can be friends with you, but I kind of don't want to talk to you about your work because I don't agree with what you're doing in the world. And that for people who have made their money already or super talented and super talented, people have choices of way to work.

It's just not a world positive place to go to work. So I think the brain drain is going to be the biggest punishment for all this stuff. And what would be nice as an outcome would be have all of this research out there and to maybe rethink the algorithm and how quickly that circuit breaker should probably become the standard.

If the circuit breaker was the standard, I think we'd all feel a lot better about this. Okay, we'll talk about this a lot more, but let's do another story. Scorpion Capital, a short seller, released a short report on Ginko Bileworks. And the stock is down around 20% so far today. Remember, we had Jason Kelly from Ginko Bioworks on episode 1239 of this very podcast.

So that was this year. They are a synthetic biology company that claimed to have an interesting business model. They would develop products on a service-based basis. In other words, instead of them making the products, they would work with other companies. And they would essentially be the Amazon Web Services of Synthetic Biology, as opposed to other companies that were going to build the products themselves. We'll get into that in a minute. And Jason was well-spoken on the program. I did get a couple of DMs that, hey, this company's a little shaky.

Maybe they used other choice language. So I always take the approach here of let the founders speak on our podcast and let them explain their business model. And here we go. Here's Ginko CEO describing their business model in this 38-second clip. Let's talk about it on the other side. And by the way, the way Ginko's business works is we're like sell programmers for hire. Got it. Okay.

Right. So I'm sitting in front of like a 200,000 square foot compiler and debugger for genetic code here in Boston. It's like robotic automation doing what I did back in grad school. And then we use that machine to basically program a cell to meet a customer spec. And then we give it to them and we make money like, kind of like Apple would make money in the app store. Right. Like we get like a royalty or equity in their company or some reach into the value. Oh, wow.

That's a fascinating business model. So what's an example of a company that sends you on a mission like this? All right. So I'll get what I like. So there's a company called Kronos up in Canada. It's a Canadian cannabis company. All right. Altria owns like half of this company.

Okay. So what you see there is, he explains their business model. And I was like, well, that's fascinating. It's kind of like an incubator plus a service business. So this would be as if Amazon Web Services or Google Cloud or Azure from Microsoft said, hey, let's have you come in. And we will, you pay us to do your synthetic biology research, but we get some upside. It's a pretty good business model, right?

It's like an incubator plus service revenue. Kind of interesting. It would be like a development shop building your app and investing in your company. So we research Kronos, and it seems like they don't share similar investors in Ginko. And if you look at Ginko, and we'll get to that in a minute, why that's important. Ginko build themselves as kind of an app store or AWS for synthetic biology. This would be a platform that other people could build on top of, right? So they did a SPAC back in May at a $15 billion valuation.

And we officially started tracking the DNA stock. So if you do a search for dollar sign DNA on Twitter or you search for that, this SPAC was led by former head of MGM, Harry Sloan. I mean, that's a little bit of a mini red flag. I don't know what MGM has to do with DNA, synthetic biology. So we had a similar collapse for another synthetic biology company that we also had on the podcast on episode 1231. I had been hearing about synthetic biology from my bestie, David Friedberg on All In. I said, I said to my producer, what are the synthetic biology companies?

Let's get JCal and the audience up to speed on them. Let's have them on and let them talk. Well, that company, Zimergen, announced that they were way off their revenue prediction. They'd make no revenue in 2022, and they removed their CEO, Josh Hoffman, who was on the program. All right. So let's get back to Ginko. This morning, which is Wednesday, October 6, 2021, shortseller, Scorpion Capital released a report on Ginkgo's business model, calling it a, and then I'm going to put this in quotes, a colossal scam. Now, Scorpion is an activist shortseller, just like Hindenberg Research, whose reports we discussed on Nicola.

Niccolo also on the program. Also, you know, or I should say, not also, they turned out to be really, really seems like one of the biggest frauds we're going to see in a long time in Silicon Valley. Scorpion released their first shortseller. And isn't it interesting Scorpion and Hindenburg? It seems like all these short sellers have to name themselves some really scary, deadly name. Scorpion and Hindenburg. Wow. Very evocative.

Good persuasive name. I would say in good branding, really strong brands. You think about Hindenberg, you think about Scorpion. You don't want to be involved and you don't want to touch either one of those. So in April, they released a report on QuantumScape, the EV battery startup that had lost 85% of its value since peaking out $130 a share in December of 2020. Activist investors, if you don't know, take a large position. Then they disclose their rationale to the public in a PR move. The biggest examples would be Bill Ackman's Pershing Square and Paul Singer's Elliott Management.

I think Bill Ackman was the one who did Herbalife. That kind of blew up in his face. He wasn't able to convince the world that that was an MLM scam, which was his position. So you can read the following at Scorpion Capitals Twitter feed, which is Scorpion Fund, one word. And here's the six tweet thread they released this morning. Number one, we are short DNA. Ginko Biworks is a colossal scam. A Frankenstein mashup of the worst frauds of the last 20 years.

At $23 billion market cap, it is rare to see a related party scheme on Ginkgo scale in the U.S. market. It is, quite simply, the U.S. version of the China hustle in quotes. Number two in the tweet storm. And this is a really important one. Giko's business model, which I had talked about in that clip, is based on a dubious shell game. Most of its Foundry revenue, I called it the Foundry an accelerator, and observed 72% in 2020 and almost 100% of its deferred revenue are derived from related party and in quotes customers.

Investments into these entities by Ginko and its investors are round tripped back. And that is the key word in the sentence, round tripped back. What is round tripping? Well, let me give you a little, you. a history lesson. AOL, America Online, had controlled much of the internet in the early days. And you're like, how did AOL control internet? Well, there were 30 million people paying for AOL at the time. And that was how people figured out how to pick a website. People didn't have just like a DSL connection largely then. They would dial up into AOL. And then AOL would present them, like,

here's the choices of what's on the web. That's why they bought Netscape. And what they did was, They did what were called portal deals. These portal deals would cost $50 million, $100 million, a lot of money at the time. In today's money, there would be $500 million deals, let's say, maybe even billion. So they would sell a company, I think it was like CD now or music, something, the music category. They would sell somebody the auto category. So there would be somebody who was trying to make the Yahoo of autos or the Yahoo of music or CDs or movies. And they would say, okay, we would like you to pay us $50 million.

they might invest in the company at the same time, $50 million. So they'd say, okay, we'll invest $50 million into your startup. So when you take it public, we get the upside because IPOs were going crazy in the dot-com days. This was the accusation. Then the money would then the sales department would say, okay, give us $50 million in advertising. And it was like, they wouldn't have the $50 million if you hadn't invested the $50 million. And this is the shell game, right, that they're talking about here. is and round-tripping means the money takes a round-trip.

I give you the money, you give it back. So let's just create a scenario here. You work, your startup is part of, I don't know, an accelerator. A big accelerator. And it's a SaaS business. And you say, I need 10 people to buy my software. And you email that social network for that particular piece of SaaS software and 10 people buy it. but you charge them a small amount of money and maybe you buy their software.

And now you got 10 paying customers and you go to VCs and you raise money. Well, this is what one person accused Y Combinator of doing in the early days. And I don't know that that's true. I have no evidence of it. And it wouldn't be Y Combinator doing. It would be the companies within Y Combinator. So this was part of the playbook was, hey, let me get 10 of my friends to use my software. it wasn't too limited to, I think,

Y Combinator companies. If I was at TechStars or 500 startups, you might do the same thing. We're not big enough at launch to have it happening of 160 startups. But if you had a couple of thousand startups, you could go to the mailing and say, hey, can people start using my software?

Now you go and say, we have 12 customers. The value of those contracts is X. That's why when we do our diligence, we say, can you give us your first 10 customers? How did you acquire them? How much are they paying? And then how many times did they log into the software this month, right?

That's real diligence, right? Did they actually use the product? How did you meet them? And we will discount the first five or six people typically because it's the company where the founder worked previously. It's their cousin who did them a favor and trialed the software and it's three people from their accelerator class who used it, right? So there are all kinds of shenanigans that can happen.

And I think the framing of this is the problem. If you call people customers, you think they're paying customers and you earn them, you won your customers. In this case, did they win the customers? Does not feel like it doesn't. Doesn't feel like these were hard-fought customers. This feels like, okay, maybe they are joint ventures. If they said Ginko is running an accelerator of joint ventures,

we invest in companies, those companies pay us for services. We're all in it together. Yeah, sure, you could look at it and say it's conflicted, but it would all be above board. And I'm sure that will be Ginko's explanation of this. and Scorpion is looking at it and saying it feels differently. And that's why I asked to pull the clip from our podcast because I looked at it and said, that's a good business model.

But it was presented to me as, you know, one thing. And we'll see, again, these are all accusations. I would encourage people to wait and see what the response is in all these cases, because Scorpion now has a position that they want this stock to go down. We saw the same thing with Tesla, right? They said Elon would never deliver the cars and then he started doing it. living hundreds of thousands of them. And anybody who wrote in them said,

this is the greatest car ever made. And all of the people who review cars said, this is the greatest car made in the history of automotive companies. Like, this was not small praise. And there objectively were things like the NTSB or the safety rating saying, this thing broke the rating scale like this. There's never been a safer car than the Model X.

So the evidence started to come up that like maybe they were spreading fear uncertainty and doubt. So I would take Scorpion's claims. and I would say, okay, these are claims. Let's hear the response from Ginko and then let's look at what the reality is. And the reality, of course, is going to be between those two things. I think herbal life was another example of this. One person's multi-level marketing scheme and could be another person's entrepreneurial eBay or Airbnb, right?

It feels like all of these services that allow people to make money and make them into little entrepreneurs, micro entrepreneurs. Yeah, they could be framed as an MLM or they could be seem shady and they might be. And then in other cases, they could be world changing and totally on the up and up like Airbnb or Etsy or eBay. So let's read the third tweet here from Scorpion Capital. We believe that Ginko is concealing the true extent of its dependence on related party revenue. that it is even greater than it reports. We've uncovered a smoking gun that indicates that essentially all of its foundry revenues derive from related parties.

The allegation Scorpion is basically making here is that they manufactured their revenue. And so if you manufacture your revenue, you shape the revenue like this and you call them customers and they're really joint ventures, that seems to be not kosher in my mind. But again, let's wait until we hear the response. These are certainly blockbuster allegations. The fourth tweet, the actual truth is far more nefarious than relayed to parties and suggests that it is a hoax for the ages. Whoa, strong words.

Based on interviews with its customers, we believe that at least half of Ginko's reported foundry revenue is phantom. That is non-cash in pure accounting, pocus, pocus. Okay. Phantom revenue. That is crazy. So that would be if the round-tripping was occurring and the cash didn't move from one bank account to the other, but it just happened on paper where it said, like, okay, we're going to

invest $10 million in your company and you're going to agree to give us $5 million, but we're actually not going to run that money back and forth and pay taxes on them and, you know, have them, you know, be actually certified by accountants. Maybe that's what they're referring to here. We don't know because they're using very strange words that are open to interpretation, hoax for the ages, that the revenue is phantom. These are not actual words, you know, pure accounting hocus pocus. These are ad hominin, not precise accounting concepts yet. So we'll see when they release all this research.

We spoke with several former employees, ah, this is really interesting, who indicated that they had been terminated for refusing to play along with the scheme and who stated they knew of others pushed out for similar reasons. And I think when I spoke to Hindenberg, they alluded to the fact that these kind of companies that are activists and take short positions will very often just talk to former employees and get an idea that some company is a scam or is on shaky ground and they'll spell the beans. I don't know if they compensate those whistleblowers. They're kind of like whistleblowers in a way, right? They're not coming out, but they're giving information to these activists. So I don't know the legality of all this.

I'm supposing those former employees did sign NDAs, and if this were to become actionable, they would be revealed. So I'm not sure how that actually works. I'm interested if they have a financial interest, like to Scorpion or Hindenberg, say, to the people who leak this information, will give you part of our gains if you give us this information. And would that be legal or not? That's just a hypothesis there.

I wonder what the motivation is of people who leave for talking to activist investors. Like, do they have an extra grind? In the last two months, timed with. with its SPAC listing, Ginko, this is the sixth tweet, has announced a flurry of new R&D partners, a dog whistle that the scam is about to hit overdrive. We believe these partners are undisclosed related parties. We present several smoking guns. So what's the real issue here?

You know, the scale is the issue. If this was a $1 billion private company, I don't think we're having this conversation. They'd be saying, okay, you're trying to jumpstart the industry. When Google came out with Google Glasses, they gave $100 million to Mark and Drieson and I think Kleiner Perkins and some other folks. And they did a fund to invest in Jumpstar 3 ecosystem. TikTok paid creators to make content. YouTube had the creators program. They built studios for them to use to make better videos.

They gave them money in advance. You know, like injecting money into an ecosystem to grow it is completely valid, right? but if you were a public company and it is of a big scale here and maybe like they said they had 77 million in revenue in 2020, 10 times that would be $770 million and, you know, 100,000 million dollars and, you know, 100 times that would be $7.7 billion and they're at $15 billion. So talking about 200 times their revenue, top line is their valuation. the scale of their valuation, combined with being a public retraded company, combined with going public in a nascent state of the business, i.e. what Spacks in many cases are doing, that is the

problem here. If it was a private company, if civilians weren't investing, if you couldn't bet against the stock, then there would be no issue here. But you can bet against the stock. This is why people didn't want to go public to begin with. This is why stay private longer existed as a concept. Because if you go out too early, let's say everything Ginko is doing is on the up and up. And if it was a $1 billion private company, all these sophisticated investors who were buying it could have said, you know what, we buy in. Go ahead, juice the market. Let's get the market going.

Yeah, invest $10 million of our money and 20 different companies that are doing completely speculative stuff. We know that 18 of them are going to zero, but two could become, you know, our blue chip customers who prove out the model and then we'll go public. If it was done that way, this would seem completely on the up and up, and it probably would be no issue. But that's the issue here is the scale of these companies and the fact that civilians, the public, you and I can go buy them. Hocus pocus revenue. Really interesting way to say it.

According to Scorpion, a senior Gnomatica employee told them that they never paid Ginkgo cash for R&D services. They just used R&D credits, which were provided from large investments from Viking Globe. who is also a large investor in Ginkgo. That is the smoking gun here. So Vikings an investor in Ginko, they make billions, let's say. I don't think we know how much of Ginko Viking owns. That would be good to know. If Viking Global made a billion dollars from there,

I'm just making a number up here, but let's say a Viking Global made a billion dollars in profit from their Ginkgo position. And then they said, you know what? We think we can make 10 billion. We want it to 10x from here. Let's invest hundreds of millions of dollars and our profits. We'll bank, I don't know, we'll bank 750, but we'll take 250 and we'll invest in a

company, GOMATica and 10 other ones like it, so that they can then go use Ginkgo services and we'll jumpstart an entire ecosystem. Well, that would be fine if these were private companies and there were no civilians buying the stock and if it was presented as such and it was super clear. I guess the issue is going to come down to here is, you know, are you counting R&D credits and Are you propping up the stock price of one company by investing in others? And then was it done transparently? That's all going to be the issue here. You know, like, if you were an investor in Airbnb and you decided to invest in

10 property management companies, let's take that as an example. So let's say Airbnb is worth a billion dollars and they're doing $50 million in revenue. And you're a rich venture capitalist who owns 10% of that company. you have a $100 million position. You say, you know what, I'm going to invest in, I don't know, 10 property management companies, so I can give $5 million each. Half of my returns or, you know, on paper returns from this incredible Airbnb investment,

and they're going to buy with that $5 million, you know, 10 apartments in, you know, these 10 different cities, and I'm going to make a profit off those, and it will also be good for Airbnb. Well, okay, you're not propping it up because it's a real business. renting those apartments. You're just making a savvy bet based on insider information that you have that the model works and that, but it's also helping your other investment. Well, that would just be investing like in a movement. You're investing all across the board, which is kind of what

we do here in Sloken Valley. If you are investing, if you believe in cloud computing and you have an investment in Slack or Yammer before that, and you see other opportunities, oh, you know, Zoom and is similar to Slack and, oh, this other notes. kind of works well with Slack. You're just investing in a theme, right? So the question here is, is Viking global investing in a theme here? Or are they propping up the company as Scorpion is kind of alleging they are doing? So very interesting case. We'll watch it. And synthetic biology might be such an emerging technology that these companies shouldn't go public. And this is the sort of Achilles heel, I think of the entire movement of SPACs,

which is companies that are nascent need time to figure out their business model, not be under scrutiny. And, you know, I'm not saying that they're cutting corners, but they're doing things that are things you do when you're trying to manifest a market. So there you have it, folks. Maybe this company shouldn't have gone public.