This Week in Startups - From the future of flight to brand building, insight from Liquidity Summit 2024 | E1969

Starting point is 00:00:00 I'll walk you guys through science ventures. We are a studio. When we think about brands, we think about fans. We build entertainment companies that monetize their entertainment through products. We want you to feel something. We want you to be offended. We want your brain to be like, what is this tension? So the story of liquid death, which is a story of even the name science, is there's a tension. It's not a fantasy. This is a Joby flying in Manhattan a few months ago. We went to the downtown Manhattan heliport. We're working with the mayor. the city. We're electrifying it because we need a lot of electricity. Kind of like building a Tesla supercharger right there. And here it is. And it's real. This week in startups is brought to you by Koda. Koda empowers your startup by bringing words, tables, and teams together. Strategize, plan, and track goals effectively with all your valuable data in one place. Go to coda.combo.io slash Twist to get started for free and get six free months of the team plan. Open Phone. Create business phone numbers for you and your team that work through an app on your smartphone or desktop. Twist listeners can get an extra 20% off any plan for your first six months

Starting point is 00:01:13 at openphone.com slash twist. And Vanta. Compliance and security shouldn't be a deal breaker for startups to win new business. Vanta makes it easy for companies to get a sock to report fast. Twist listeners can get $1,000 off for a limited time at vanta.com slash twist. Hey, everybody. Welcome back to this week in startups. My name is Alex. I am not Jason, but I am his co-host here on the show. And you may know that earlier this month, we hosted an event in Napa, California, called the Liquidity Summend, 2004. It brought together a lot of general partners from venture capital funds and also LPs, the folks who actually invest into those venture capital funds. We had events and a lot of talks and the good news for you is that we are picking two of our

Starting point is 00:02:01 favorites from the event to bring to you. So even if you weren't there, you won't get left behind. Now, there was a lot of competition, a lot of great talks, but the two we've picked today are one, Sky Dayton. He's a partner over at Dayton Family Enterprises and his talk was entitled Aviation Safety, Air Taxis, and the Future of Flight. Now, if you travel a lot, as we all do, you may have read some news about Boeing or maybe traffic control and gotten a little bit worried. The good news that Sky brought to the audience and now to you is that there's quite a lot of hope and optimism for the future of flight and it won't all be Boeing jets flying you to random places. No, it's going to be local, electric, and vertical. Then for our next talk, we have Mike Jones. He's a general partner over at Science Inc. You may not know science by name, but you do know some of their brands.

Starting point is 00:02:49 for example, Liquid Death, my personal favorite, or the very popular Dollar Shave Club. He gave a talk about how to build a brand. So if you're in that world, well, here is the talk for you. We also had three sponsors at the event that I do want to shout out because they helped put it on. So big thanks to Eventus Advisory. They do on-demand finance and accounting support. Then there's Venture, V-E-N-S-U-R-E. They do in-d-dend solutions for payroll, HR, benefits, and risk management.

Starting point is 00:03:17 And then finally, Forge Global, a well-known secondary market for startup shares. You've heard of them. I've heard of them. Great to meet them in person. All right, two talks, just for you. A special treat. Let's go. So, as Jason said, I haven't always been a pilot.

Starting point is 00:03:31 I've been a founder and entrepreneur for a long time. And I try to bring first principles thinking to everything that I do, including when I decided to become a pilot. And along the way, Jason has asked me many times over the years. I've sort of become the guy that all of our little group goes to. Whenever there's a thing, whenever a door flies off. plane or something happens. They're like, Sky, what does this mean? Or even I'll get live, sometimes text from flights. Hey, the pilot just came on and said, we have to go around and we're

Starting point is 00:03:57 landing on a different runway and it was super bumpy. What does this mean? Literally in the air. So the first thing that Jason wanted me to talk about was aviation safety, because it's something that's near and dear to all of us. We experience it every day. And then I want to touch on the future flight and then we'll end with a little Q&A. So first regarding safety, despite recent headlines, just to set the record straight, commercial aviation is literally the safest mode of transportation. It's safer than walking down the street. It's safer than driving your car. It's safer than trains. It's incredibly safe. In the past 15 years in the United States, there's been one, one commercial aviation fatality. It's just incredible. That said, there have been a recent spike in headlines.

Starting point is 00:04:41 All right, we see this. And I think this is something we can't take for granted. We got here. here a certain way, and I want to make sure we stay here, and I want to prepare us for what's coming next. I'm going to talk about that. So, you know, we've had airplanes pull on runways that other airplanes are landing on. We've had airplanes literally run into each other as they're taxiing. You know, there have been miscommunications between air traffic control and pilots, and there's been a lot of issues around this. Okay. So we've seen this, yet it remains very safe, but how do we keep it that way? Well, it turns out that every time there's been an accident or incident of any kind in the air, whether it's the door flying off or a design problem, whatever, manufacturing issue,

Starting point is 00:05:25 when that accident or incident happens, we do an incredible investigation, and then we go upstream, we find out what, how it was designed, whatever, and we change it. To the point that everything you see in a modern airplane, literally the fabric on the seats, the way the seats designed, the way the wings design, the way the tails design. everything is the result of an accident or incident. It's pretty crazy. We've had this recursive loop for 100 years and as a result, our planes are incredibly safe, incredibly reliable. And that's really where the core of the safety is. But when you look at the things that have happened recently and continue to happen, it's actually much more increasingly about the pilots

Starting point is 00:06:10 and the air traffic controllers. It's the humans that are in the loop that are increasing the issue. And when you go upstream of that, you look at training, you realize that the same kind of feedback loop doesn't exist in training. So how do pilots get trained today? So the gold standard in pilot training is the full motion simulator. It's a giant apparatus. It takes up a three-story building. It costs up to $20 million. It costs thousands of dollars an hour to, operate like almost as much as an airplane itself. But these simulators work. They're actually incredibly effective. A pilot will do about 1,500 hours of, that's the minimum requirement, 1,500 hours of aviation experience, and then they'll get in one of these, and then they'll get in

Starting point is 00:06:58 a 737, and they'll be able to fly as an airline pilot. But most of those hours are done in little single-piston airplanes, like the one I flew J-CalA into Vegas. that are not representative of what pilots will ultimately fly, and that's an issue. So this is actually the machine I went and trained in in France. I spent two weeks in this thing, and it looks like the real airplane on the inside. This is actually, it's a foggy day out, but normally you can see everything outside. And it works. After two weeks in this, I actually got in the airplane.

Starting point is 00:07:33 That's the plane on a refueling stop in Iceland, and flew my wife back to the United States from France. Simulators work. They're incredible. The limitation that we have, and this is where it comes full circle to staying safe in aviation, is that these simulators are so expensive. They're only used at that tail end of a pilot's training journey. They're not used constantly and at the beginning and in the middle and everything. They're just sort of like the finishing school. It's a little like if you were trained to be a doctor, you'd spend, you know, eight years working on and learning about animals, and then in the last, like, few weeks, you got a training course on humans, and then they call you a doctor. That is how pilots get trained. It's kind of bizarre. It does work,

Starting point is 00:08:19 but it has failure points. So what if we can make these simulators way more ubiquitous? And this is a first point I have today. So I thought about this problem, having gone through this training myself in multiple airplanes, realizing how powerful simulators are. And I thought, what if we could make them smaller and have them be just something that pilots do all the time. And I came across this little company in Zurich. They had figured out how to take VR. It's actually the first application of VR, I think, that makes a ton of industrial sense and combined it with a full motion platform. And we decided to start with helicopters because helicopters are actually hardest thing to simulate because they move in multiple axes that airplanes don't move in.

Starting point is 00:09:07 You put the VR goggles on, and you can see the avionics are actually just pieces of plastic, but all the haptics are there, the knobs and everything. You can see in the little circle that what's actually happening, and you can see what the pilot sees. You can see that it's vibrating, just like a helicopter vibrates, as the pilot's going and adjusting the knobs and everything. And you can simulate pretty much everything in this. It's incredible. The first time I got got in this simulator in Fluit, as I was landing, I could actually feel the asphalt of the runway I was landing on. I could feel the skids grating against the asphalt. The resolution of the motion is that good. So this is not only the best VR simulator ever built. It's actually the

Starting point is 00:09:51 best simulator. It reminds me a little bit of the Tesla story. It was the best car. It just happened to be electric. This is so much better and builds on the state of the art that we've used over the past decades. We have all the weather. We have, you know, here you are flying in mountains. We have you flying in cities, full digital twin of a city that you're in, landing and taking off at, you know, dusk, creating different scenarios. So the idea here is to take every accident or incident that happens, and instead of just fixing the plane, have it be something that the pilots fly to. So you fly every possible scenario. and when a new, like, for example,

Starting point is 00:10:33 airplane loses two engines departing New Jersey from ingesting a bunch of geese and has to land in the Hudson, well, Miracle on the Hudson, we should have every single pilot fly that scenario. And the way we'll get there is by making simulators like this much more ubiquitous. So that's kind of the first idea

Starting point is 00:10:54 that I want to get to. I think that if we do that, we will ensure that we have this incredible safety record that we continue to have. Listen, I got a lot on my plate. You know all the stuff I'm working on. Founding University, the Accelerator, this week in startups, the all-in podcast.

Starting point is 00:11:11 How do I manage it all? I use an incredible all-in-one collaboration tool. It's called Coda. And it combines documents, spreadsheets, and apps. And that last piece is what I'm currently obsessed with. I've been doing documents and spreadsheets forever. But my team likes to use Coda to superpower that data. So every week, my team at Founder University,

Starting point is 00:11:31 gets a report from all of the founders who are building their MVPs. And they put that into CODA, and we have automated reminders to the founders. Hey, you didn't put in your update this week. We really love to see what you got done with your startup. Then the investment team looks at it, and they track it. And it's got built in charts. So we see charts of their revenue, their customers, if they've raised money, and all of that allows us to quickly make decisions on who to invest in. If you got an investment firm, you should do what we're doing and you should do it with CODA. There are 100 templates waiting for you to use from product romats to OKRs to mapping. And once you start going down the rabbit hole and you start learning the powerful features,

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Starting point is 00:12:33 That leads to the second thing. More of better pilots. And I'm thinking about that for today, but also for what's coming in aviation. And the next thing is pretty nuts and pretty mind-blowing. So we all experience this on a pretty much daily basis. Our cities are clogged with traffic. We cannot build the physical infrastructure to keep up with demand on roads. near our, where you used to live in LA, they spent, I don't know, billions to add a single lane to the 405.

Starting point is 00:13:05 And it was going to be this wondrous thing. No impact. No impact. Zero impact. In fact, it got worse because the latent demand all just comes rushing out from the shadows where it's waiting. As soon as there's a little more supply, boom, it chokes the traffic again. Right.

Starting point is 00:13:21 So this is not a problem we're going to solve on the ground. Traffic has gotten worse by double or triple over the past 30 years in terms of length of commute in our largest cities. It's just horrible. So, okay, I love this quote. It says so much and it's true, right? This idea of flying cars, been around for a long time. People have talked about it. Crazy idea. Been on the cover of popular science and popular mechanics like 50 times more than any other topic. It's, you know, since the, the 30s, people have talked about this Jetson's dream of a flying car. This is my favorite. This is from the early 90s, the sky car. And it never happened. It's never happened, right? And it's just this thing. It'll never happen. Forget it. It's just a dream. It's a pipe dream. Well, I'm here to tell you that it's going to happen and why. Okay. So because of what Elon did with cars, with Tesla,

Starting point is 00:14:21 there was a drive to get incredible energy density per weight and per volume and cost to a level that had never been before. We have the rise of composite materials. In fact, most of those airplanes that you fly on, you get on a southwest airplane or whatever, have tons of composite parts, have whole composite planes now. It's well understood, which is lighter and stronger than steel. We have fly-by-wire controls, which means instead of having the pilot move a control yoke, having a pulley or cable control a flight surface like an aileron or flap or rudder or whatever, we actually have just a little computer that sends a signal to a little actuator that causes that thing to move, which makes it way lighter, way more precise and way safer. We have the ability to

Starting point is 00:15:07 model in computers, very complex physical systems that we didn't have before, distributed propulsion, which means we can put electric motors on wings, which are, again, way, way lighter and ultimately way quieter, and I'm going to talk about that. So this company that I got involved in many years ago, 15 years and more than a billion invested, thankfully most not for me. And we have been working at this vertically integrating because none of this stuff existed, building flight computers that are the size of iPhones or iPads incredibly light, building the highest power to weight ratio motors that have ever been built on planet Earth.

Starting point is 00:15:53 Incredible torque and power from these motors. Working with robotics and composite materials, the most advanced level. And we have built it. This is it. This is the Joby S4. This is a vehicle that takes off vertically, flies on a wing. So it takes off, and then the rotors tilt forward. and by flying on a wing, it's able to get incredible efficiency.

Starting point is 00:16:22 So here we continue to do a ton of testing. We have flown 32,000 miles in this vehicle. Here it is that it was taking off vertically. And you can watch the rotors, the propellers, and as it begins to accelerate, they will tilt forward, and then it will begin to fly on the wing, which again gives incredible efficiency. So this is a vehicle that will fly,

Starting point is 00:16:49 will carry four passengers and a pilot, 100 miles on a single charge, plus in that a reserve on top of that, at 200 miles an hour. So here you can see it transitioning. Now it's flying on the wing. And it's an airplane now. So it takes off like a helicopter,

Starting point is 00:17:11 flies like an airplane. Full wing-borne flight now. full fly-by-wire, which, by the way, anyone in this room can learn to fly this in a few minutes. It's incredibly simple. We radically simplified the flight controls. You can take the stick and just crank it over one side of the other, and it stays in its safe envelope. So here it is coming around to land, and you can see the rotors beginning to tilt back to the horizontal position. So now it's becoming a helicopter again, and coming in for landing. This is where we do testing in a remote military base,

Starting point is 00:17:51 Hunter-Ligate military base in California, which you can see from space. It's so huge. Coming in on final approach and coming in for landing. So you're seeing the future. This video was from three years ago. We have been testing this quietly testing, testing, testing, iterating, building multiple versions of this vehicle.

Starting point is 00:18:12 We are the only company in the world that has fully transatlantic, positioned a vertical take off of land electric aircraft at full scale. So an incredible team, over 1,800 of the brightest engineers they've ever met. And I'll touch on the last topic here, which is why this is such a big unlock. And it has to do with noise. So I was having lunch with Jason Chang, and he mentioned this to me, so I decided to throw it in the presentation last minute. This is Jason Chang.

Starting point is 00:18:51 Jason, raise your hand? Where are you? Okay, cheapishly raising his hand. So he made news in the Daily Post trying to get a helipad installed, but official says residents won't like it. Why don't we like helipads? Noise. It's a huge issue, right? So the Joby is designed from the ground up to be incredibly quiet. And I'm going to actually play you the difference in sound, including the aircraft that we flew of Vegas and other helicopters so you guys can hear it yourself. This is the Cirrus, Beachcraft Baron, Robinson R44, Bell 206, that's the Joby. Basically, I mean, that's basically background noise you're hearing. If you just turn a microphone on on a day with the wind or whatever, that's basically what it would sound. You don't hear it

Starting point is 00:19:50 flying overhead. So it's incredibly quiet. And that opens up a time. of applications. You think about the noise signature in cities, you know, the light helicopter on the right, a Joby on the left. On a decibel scale, it's a hundred times quieter during crews. So here we are flying into the South Manhattan heliport, and we're coming in for landing, and you can just see all that noise on the, you know, light helicopter. Joby comes in, and this is another really interesting thing about Ajobe versus the helicopter is that when it lands, the motors go off instantly. Helicopter has to keep the motors running.

Starting point is 00:20:31 You can't turn an internal combustion engine like that on and off instantly because of heat. Heat's got to dissipate. So it takes off, motors come off, passengers come in, out, and it takes off again. So incredibly light. Okay, juggling multiple devices and apps to run your business is a mess. We all know that. Open phone is here to make that simple. I have an open phone number. I use it to communicate with founders and it really works for me. I have a desktop app. Boom. I can go in there. I can do voiceover IP in this beautiful elegging app right on my phone or on my desktop. I use it a

Starting point is 00:21:05 lot of my desktop. I'm being totally honest because I have my headset on and sometimes founders want to do a call. They don't want to pop open a video conference. My sales team loves it. Why? Because they get to keep their private phone number for their private phone number. And then they have all of their business stuff track in one location. So if they need to make a phone call to somebody they talked to last week, they can see their call history, click on it, send a text message and start a phone call with that person. And the ops team uses it. When we have people calling, they have questions about their investments, LPs, etc. We have a round robin phone number. So it will forward the call to two or three people on our team because we like to have really good customer support. And all this is easy to do

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Starting point is 00:22:09 We've got some incredible partners. Toyota on the manufacturing side. It's been incredible Uber, Delta. Delta is actually building vertiports on their terminals. It's going to be incredible. And this is what the experience is going to be like. This is a rendering of a vertiport. They're going to be these beautiful facilities, and this is how you're going to do it.

Starting point is 00:22:30 You're going to pull up your Uber app, so it's being integrated in the app. You'll pull up your location where you are. So you're in New York. You want to go to JFK. You select your flight, your route, et cetera, it's a degree, start trip. It's multimodal. So it knows that needs to send an Uber, typical Uber, to go pick you up. And it picks you up.

Starting point is 00:22:51 And this is your trip. So it picks up the riders that are going to share that Joby. And it takes you to the downtown Manhattan heliport, as you saw. You're going to JFK. Seven minutes. Seven? Wow. Seven minutes.

Starting point is 00:23:11 Look at that. Going around the Bell Parkway past Bay Ridge, where I come from. That's about 50 minutes. There you go. At least. On a good day. And this is not a fantasy. This is a Joby flying in Manhattan a few months ago.

Starting point is 00:23:25 We went to the downtown Manhattan heliport. We're working with the mayor in the city. We're electrifying it because we need a lot of electricity. Kind of like building a Tesla supercharger right there. And here it is. And it's real. So it's coming. And our plan is to begin.

Starting point is 00:23:44 in commercial operations by the end of next year. Wow. Amazing. That was Sky Dayton. I really love his vision for the future because I have spent way too much time going to and from the airport and I hate driving. So the whole idea of EVTOLs sounds perfect to me. Sign me up.

Starting point is 00:24:04 Strap me. Next up, we have Mike Jones from Science as discussed talking about how to build a brand in today's market. No matter what you're working on, this is critical. Let's go. I've known Mike Jones for, wow, we both sold our companies to AOL almost 20 years ago. I met him there. And the idea of doing a studio model is the worst idea in venture, I tell everybody.

Starting point is 00:24:31 And they say, why? I say because I have seen this pitch no less than 100 times. And there are two people who have made it work. John Borthway from BetoWorks, and I think he retired. because he was exhausted from doing it. And then Mike Jones and Peter Fam from science. And they're like, well, I'll just do what they do. And I'm like, you can't.

Starting point is 00:24:55 Because those people are unbelievable product, go-to-market, and betters. And to have both of those things has only existed in Bill Gross from Ideal Lab, which was where we all got this idea from, I think, right? Yeah, originally Idealab. He was the OG guy, which I was Idealab. with IDELAB in LA. And then you figured it out. John figured it out. John retired, I think, and you're the last person standing. So I said, come here and explain to us what you figured out. Please welcome my good friend, my John. Thank you. Jason and I, I think we met in 2005 because we

Starting point is 00:25:30 both sold our companies to AOL at the same time. Within weeks of each other. And I remember being at the first AOL executive meeting, which was essentially my first job. And it was all these EVPs and the head of Time Warner and all the stuff. And Jason stood up in the middle of the meeting was like, this is terrible. I can't believe you guys operate this way. And I remember distinctly having deep respect for your ability to kind of throw it in their face. It was pretty cool. Okay, so yeah, I'll walk you guys through Science Ventures. We are a studio. We do focus on brands, and I'll touch on both here. So there's kind of four core components, and I'm sure you've touched some of our brands. Someone here probably was a subscriber at a Dollar Shave Club,

Starting point is 00:26:06 which was a company we essentially co-founded with Mike Dubin. And right now, our biggest business business is a business called Liquid Death, which maybe some of you guys enjoyed yesterday on the bus. So we work at the very early stages, meaning that when people are pitching us, it's typically a person with an idea. They may have a prototype. They may not. They may have zero team. And they're literally like, hey, I want to spend the next 10 plus years of my life building a canned water company or changing the way men buy razors. So we're working with people, they may not even have a corporation set up. They've never even filed. Like they haven't taken dollars. So they are looking for us to co-found a company with them. And so we're really, really

Starting point is 00:26:46 with them at the earliest moments. And so it's a different stage and even angel investing. The second piece is when we invest, we invest pre-market pricing, which just to be transparent, it means that we typically cut checks at three and a half million to four million pre. So that's our entry price. We're like, great. We're going to co-found this business with you. We know how to do this. We know how to get it to scale. We'll give you guys a million dollars, but we're going to put in at 3.5 million pre. So we're very, very price specific on when we enter a business. You know, we work with daily visibility with the company. So when they launch, we have direct access to their sales dashboards. We're in their Slack channels. We get updates on

Starting point is 00:27:24 absolutely everything happening. Board meetings for us are absolutely routine. Like we want zero surprises. We want the same visibility into the business as management. So I run it like you would run a private equity firm, complete transparency into the daily operations. And then we typically control the follow-on rounds. So when these companies start getting up and going, and we're going to go raise them at 20, 30, 50, 100 billion pre, we typically select the investors. We construct the cap table. And in most cases now, we do most of the follow-ons as our pro rata. So we end up with 20, 30% of these companies as they get to scale. We basically stay involved for the very, very long journey. And as you're hearing from so many people talking, like, this is a long journey. So for us,

Starting point is 00:28:05 for instance, dog vacay, which became Rover, that was a 12 year to two and a half, billion dollar exit. We got really lucky we dollar shave club. We sold that for billion dollars in four years. Totally epic. So as I mentioned, we kind of go through these phasings. When we do the initial stage of company set up and structure and kind of initially working with the team, we typically haven't cut a check. So the way we construct our deals, we say, hey, we think we want to build the business with you. We want to see some co-founders. We want to do some market testing. We're going to give you a term sheet to put a million dollars in at three and a half million per. But we might not execute that term sheet, we might not fund into it for six or 12 months. So we're going to start

Starting point is 00:28:42 working with you to see if you're the kind of entrepreneur and this is the kind of business we want to be involved in. And when we cut the first check, it might not be the full million. It might be a quarter million. So we actually phase our investments because at this stage of company formation, it's just absolutely so risky that it's better for us to do a quarter million and then be like, you know what, this founding team isn't right? The market's too tough. We want to pull back. So we have a lot of safeguards around those early stage moments. And then, you know, we kind of go through the journey with externally priced founding, and then we typically fund the later round.

Starting point is 00:29:14 So after we do our first seed, we look for somebody else to price the next round to kind of validate the business, get good people around the board. And then we typically will lead the fall one rounds beyond that, obviously up until next. We only focus on three business models. So we've done 130 some companies. They all have narrowed us down to being really good at three specific things. So for us, what that means is marketplaces, which obviously Rover is our largest at-scale marketplace, mobile and social media, and then fast-moving consumer goods.

Starting point is 00:29:42 These are the things we're good at. They all three have different ways of selling. The first one's going to basically make money through transaction fees. The second model is really making money through advertising, virality, in our purchases. And the third is a direct-to-consumer model, or retail model. So it's obviously selling goods. So our team is wired for these three specific things, which means that if you pitch us and you don't fall in this, we don't really have any interest in you. It could be the greatest deal in the world,

Starting point is 00:30:06 but if we can't be experts in your business model, we're actually not going to work with you. It also means that if you're in these business models, you probably find your way to us because you know that basically we're the ones that kind of are the architects of these models. Listen, a strong sales team can make all the difference for a B2 startup, but if you're going to hire sharks, you need to let them hunt, and you can't slow them down with compliance hurdles like SOC2. What is SOC2? Well, any company that stores customer data in the cloud needs to be Sock 2 compliant. If you don't have your sock too tight, your sales team can't close major deals.

Starting point is 00:30:38 It's that simple. But thankfully, Vanta makes it really easy to get and renew your sock two compliance. On average, Vanta customers are compliant in just two to four weeks. Without Vanta, it takes three to five months. Vanta can save you hundreds of hours of work and up to 85% on compliance. And Vanta does more than just SOC2. They also automate up to 90% compliance for GDPR, HIPAA, and more. So here's your call to action. Stop slowing your sales team down and use Vanta. $1,000 off at vanta.com slash twist. That's vanta.com slash twist for $1,000 off your sock, too. These are some of our brands. Maybe you've consumed some of our products, use some of our services. There's tons more, obviously. You know, when we look at our targets, I will tell you, we look for old, tired sectors.

Starting point is 00:31:21 Like one thing that brought me from building software to moving into specifically, we'll talk about CBG and brands, is CPG and brands are a very healthy M&A sector, right? These businesses, S.C. Johnson, Unilever, Coke, Pepsi, Kyrig, Dr. Pepper. These are old businesses that are at massive scale with tons of cash by their innovation. They aren't held up through FTC restrictions. So you can build things and there's pretty much a known exit. Like when you breach $100 million in revenue, quarter billion in revenue, there's buyers, full stop. And you're not going to get blocked. So these sectors that we go into, we feel really confident that M&A is on the end of it. When Jason I first started after we sold our businesses in 2005 and both started angel investing,

Starting point is 00:32:04 it felt to me like I could sell any six-person engineering team to Google. I could offload a 10-person group to AOL. There was always an exit point. I think as time gone on, we basically see this stratification between the super big companies that get out and then a lot of really small things. And I think there's a lack of M&A. So we started basically moving the strategy of the firm five, six, seven years ago into areas where we knew there was clear M&A, which brings us back to somewhat traditional

Starting point is 00:32:29 industries, which is funny because as a guy that built software companies and ran MySpace, I would have never expected to be thinking about water production or razor manufacturing in Korea. So it was a huge shift for me, but I will tell you from the exit perspective, I find it much more predictable, and I feel much more comfortable spending time into it. So we look for these old tired categories. We look for things that are obviously shelf stable. On founders, we've heard it today, I look for people that are just absolutely, they will live and die by this problem.

Starting point is 00:32:55 They have a personal motivation for going into whatever they're going into. I have sometimes founders to say, oh, you don't like this idea. Well, what would you fund? And I'm like, not you ever. Because if you're telling me to tell you the strategy, this isn't going to work. You know, starting a company, as you guys have all probably seen through your investments or individually doing it, this is a labor or love. People tap out if they're going into it because they read a business case study and they

Starting point is 00:33:18 think it's an open market. It's just they're not going to survive. They have to be here for a bigger purpose. So we want those founders. It also happens to be the liquid death, Dollar Shave Club, and myself, our three guys named Mike that are both born in Philadelphia. Super weird. So that's the other qualification for us. The third piece is process. We do a lot of smoke testing on whether or not we think consumers will resonate. We are not looking for things that are relevant or five to 10 years. We

Starting point is 00:33:41 look for things that are relevant and can generate sales in the next six months. And if it's going to be too hard, we pretty much move on. So it's a very fast process. We've generally found that if you don't find consumer demand today, you're probably not going to find it tomorrow. So our winners show up really, really early through the kind of lens of the consumer. When we think about brands, we think about fans. So we build fandoms. We don't really build brands, right? And I would even go a step further saying, we build entertainment companies that monetize their entertainment through products more than we build actual brand companies. So we want you to feel something. We want you to be offended. We want your brain to be like,

Starting point is 00:34:21 what is this tension? So the story of liquid death, which is a story of even the name science, is there's a tension. So when you think, oh, well, Angel Investing's an art. Why is this firm called science? It's because we think it's a process. We want you to question it. When you think, how is liquid death that sounds so tragic and like some murderous beverage actually good for you? What is this? Why am I touching it? Same kind of thing. We want your brain to question, why am I touching this? Why is somebody consuming this? We need to find a way to stand out. So we look for things that are hyper differentiated. And we look for experiences that are naturally social, which we saw really early days. So when we,

Starting point is 00:34:55 originally founded Liquid Death with the team. When it was out at an event and someone was holding it, people tell me, oh my gosh, everyone asked me, like, what's in that camp? Like, what are you drinking? What is this thing? And so we look for products that are naturally social, right? And that's a way to get true virality with product and expansion. So we're going after this feeling. You know, I think you probably, most people hopefully saw the Dollar Shave Club commercial. That was one of the first kind of breakouts. You know, I actually had to play it, but we don't, I don't want to, you know, you guys have seen it probably a million times. I've seen it 10 million times. But we want things that basically will basically, you know, push you to have that feeling. And Dollar Shave Club nailed that

Starting point is 00:35:29 early days through their original commercial. And they kind of started this D to C movement. I will tell you now that although we are direct to consumer on many of our launches, we obviously move into retail, right? I mean, it's like 95% of America is within 10 minutes of a Walmart. If you're going to do anything in fast moving consumer brands, you're going to end up in retail. You have to have a path to get there. But you want to launch DTC. And DTC gives you immediate feedback loops, whether people are evoking that feeling and they're connected. of the product. They have to stand out. We literally do shelf testing. So if I put that product on a shelf of a Walmart, will you walk by and be like, what the hell is that thing? Like what is the,

Starting point is 00:36:05 how is that there? We want things that basically will, you know, distract a consumer and get them to kind of pay attention to us. So it's a big deal. People typically don't think about this, but this has to do with packaging. It has to do with branding. I will also note that if you think by putting products or your companies think by putting products in a Walmart, Walmart's bringing you customers, they are not. So Walmart deals with hundreds of millions of people. at the end of the day, they want you to bring your buyers to them. They feel like you need to do that. And by them giving you shelf space, you have to bring the audience to purchase on their shelves.

Starting point is 00:36:35 They're not in the business of bringing you customers. They're in business of giving you shelf space. And if you move, they love you. And if they don't move, they leave you. So you need stuff that really stands out. You need your customers to be able to find you. The consumption experience is social. I didn't put up all the pictures of liquid death tattoos, but there's a lot of them.

Starting point is 00:36:52 So people want, they want products where when they're consuming the product, when they're sharing the product, it ends up on Instagram that's being talked about on social media, and this is how you find virality. And if you find companies that are pushing the cacta LTV story, the pure paid media conversion with no virality, the reality is that will probably burn down over time. So if you can't find a way where customers are consuming your products, using your products, talking about them online, you're probably going to be a paid media game. And that's basically a race to the bottom on margin. And it's really, really hard to scale. And trust me, we've tried it. And we have an epic team as it relates to growth marketers

Starting point is 00:37:25 we now find things that basically have to find their way to social to grow. We do massive brand collaborations. I will tell you, and maybe we've seen this before, but if I have a three-person team and I introduce them to a major partnership with TikTok, it's probably going to fail because they can't really stomach the partnership. So as a longtime executive, you know, we all have connections to massive businesses in the industry. That might mean something we're doing special with Taco Bell. That might mean something we're doing special with Walmart.

Starting point is 00:37:50 It might mean a special relationship with TikTok. But we basically phase those relationships. when the companies can really handle it, right? And that's a big issue with a startup, because if you're like, hey, I can help you to transform this industry, but you're a two, three, four, five person company, they'll probably script the relationship.

Starting point is 00:38:05 So we build up those teams, we build up their scale, and then we get to a point where we give them transformative moments where they can kind of blow up their scale and get up to really, real large scale. And for us, like, just to note, like, we did a big off-site with Walmart

Starting point is 00:38:16 just the other day. I brought a bunch of our CEOs. I brought a bunch of our team. We did basically a two-day walk-through of Walmarts and Sam's Club with one of the head merchandisers to kind of show us how they think about shelf sales base and understand the American consumer mindset when they're buying

Starting point is 00:38:28 average everyday products. It's not what you expect. Most people in this room probably have not done that experience. It's different than what people anticipate. And so I'd highly recommend that if you have startups that are going to working their way into grocery, into retail environments, they spend time there and they really learn of what really is happening, not just the kind of West Coast, East Coast bubbles of what we think people want. Right. And I was telling Jason the other day, we're walking through the cereal aisle and the head of Walmart's like, oh my God, there's so much innovation in cereal. Oh, wow, that's great. What's innovation? And he's like, well, here are the boxes of cereal. But recently, we just started putting cereal in dog food size bags. And I'm like,

Starting point is 00:39:05 wow. And he's like, yeah, and it's $4, and you can get a dog food size bag of cereal. And this is incredible innovation. Right. No one's thinking about keto when they're walking through that aisle. Again, we push everything through massive scale. I will tell you, you know, every three years, we end up moving through platforms. So when we started, it was all about. YouTube. Then we moved our way into Facebook paid. Then we moved our way into Instagram. And I will tell you now, we are all about TikTok. And when I say we're all in on it, I'm telling you we have a studio set up. We have bays of people live streaming and selling through TikTok shops. And early days when I took over MySpace, all the advertisers on MySpace with the banner ads were erectile dysfunction,

Starting point is 00:39:46 diet weight pills, trashy dating sites. I mean, that was the majority of MySpace's banner ad revenue. and then it took a long time before major brands found their way to banner advertising. If you go to TikTok right now and you go to TikTok shops, you are going to find people that are selling half a million dollars a month, a single person of weight loss products, of Viagra knockoffs, of dating solutions. So it is an early platform with major scale. And what we should look at as investors as an opportunity is it means there's cheap at scale traffic right now on TikTok with TikTok shops,

Starting point is 00:40:18 assuming it does not go away, live selling through TikTok shops, which is finally the QVC online solution we've all been waiting for for so long, whether you dominate it through TikTok, it's eventually going to move to Instagram and live video selling this and become a massive platform. So our company is now focused on selling through TikTok shops

Starting point is 00:40:35 and the numbers every day, because I get the stats, rival what they're doing through Amazon. So on a single day, they sell $10,000 to Amazon, on a single day, they might sell $10,000 through TikTok shops. And no one seems to be talking about it. I'm telling the opportunity is way bigger than I anticipated. Again, we have a live data platform to give you a few lessons. One thing, you can read some of these, but one thing that's really true to us, and I'm curious

Starting point is 00:40:58 if other people have found this, single person founding companies typically fail for us. I will tell you, we are now at the point now where when someone comes to us and they're a great idea with a great founder, we're like, find a co-founder. I want someone that's vision, sales branding. I want someone that's operations finance. And I want that pairing, and I want it day zero. And so we're stopping investing until we see that right two-person team. Someone said earlier, did they grow up together?

Starting point is 00:41:23 Do they play basketball together? Do they do sports together? Do they have a relationship? I love that. But that two-person founding team is absolutely critical. And more often than not, we basically have one founder that has a great product, but they flame out over time because they don't have the support of a second co-founder. So it's a big takeaway for us.

Starting point is 00:41:38 Again, we start companies from scratch. We do really cleansed cap tables. So we're very specific about our ownership. We basically construct it along the way. As everyone mentioned here, you know, you're only going to end up with one, two, or three winners in a portfolio of companies. If I have 30 companies in a fund and one's going to be my liquid death, the one thing I can't do is miss out on my pro rata.

Starting point is 00:41:56 I've got to basically lever in. And everyone has the exercise that Jason went through yesterday. What happened if you had cut that additional $250,000 check? What happened if you put a million dollars in before the public round? I'm telling you those numbers are dead heart numbers that you'll take them to your grave. So when you go into these companies, and for our case, we're getting live visibility. If it's working and if it's scaling, we're going to be the first. to dump in another $2 million and buy more ownership. It's a big deal for us. A few other notes.

Starting point is 00:42:21 We hate founder secondaries. I think they're terrible. I think they corrode the industry. I think it's one of the reasons why crypto essentially imploded with basically way too much liquidity for early stage founders. So we try to prevent them forever. You can read some of these points. Nothing critical. And then Jason was asking about like what do our actual dashboards look like. This is something we might be seeing. So, okay, we're getting data out of the company. We have month-over-month date at the top. We have daily data at the bottom. Suddenly, one day, we're like, wait, how do you have a 35% conversion rate?

Starting point is 00:42:51 What happened yesterday? Why is that special? And there's a few reasons why we do this. One is, I want our team to get smarter. And so if at the end of the day, a company's doing something epic, and it's basically completely changing the way that people are interacting with their product, installing their app, converting, etc. I want to make sure we get that knowledge.

Starting point is 00:43:09 And as a board member, I don't get that knowledge, right? Because they don't see it on a day-by-day basis. you get some quarterly report, it's fine. But when I get daily data, I can go to the team and say, hey, what happened here? Oh, we opened up a new system. We changed our methodology for X, Y, and Z. Then my team can get smarter. My biggest concern when I was an independent angel is I wasn't getting smarter.

Starting point is 00:43:29 I was cutting a lot of checks. I was getting some exits that I was super happy about, and the returns were wonderful, but I wasn't getting any more intelligent. And so if something failed, I didn't know why it failed. And if something succeeded, I didn't know why it succeeded. It really bothered me. And so one of the constructions around why we set it up as a studio and to have this level of visibility so that I get smarter as an investor, beyond just pattern matching with a person

Starting point is 00:43:52 or a founder type, how can I actually see what's working so that can inform how I guide and strategize with other founders. So for us, these kind of daily visibility is a big deal. The other thing this does for us is when something starts to work and it starts showing a breakout moment before other investors have knocked on their door, before they go to raise around, we give them more money. So, hey, it looks like your sales are growing. we're really, really excited about you.

Starting point is 00:44:14 Before we go raise you that 10 on 30, why don't you let me do 2 on 10 right now? Let's postpone that raise by another six months. So we preemptively buy more equity. And I'm telling you that preemptive equity slot for us is a huge driver of our returns. A big thanks to Sky and, of course, Mike, for their talks. My name is Alex.

Starting point is 00:44:33 I'm Alex over on X. I'm also on LinkedIn and everything else. Jason and I will be back to break down the news before you know it. In the meantime, stay close to this weekend startups because we have so much more coming. I'll see you soon.

This Week in Startups - From the future of flight to brand building, insight from Liquidity Summit 2024 | E1969

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