This Week in Startups - FTC antitrust revision, 5G rollout pause + David Rosenthal's $2.8M fund: Angel S6 E2 | E1364

Episode Date: January 20, 2022

First Jason and Molly cover how 5G rollouts are causing problem with airlines (2:03) and Lina Khan’s remarks on reworking antitrust regulation to not only consider deals inflicting consumer harm, but those lessening competition (10:10). Then, David Rosenthal for Season 6 Episode 2 of Angel (29:00) - David’s been a VC for a while, but he just launched a new $2.8M fund part-time with Nat Manning - We get into why his small fund size is actually so significant and represents new possibilities in venture - How he uses his podcast and community to get dealflow - What he thinks you need before starting your own VC fund (00:00) Jason intros the show (02:03) Verizon and AT&T are running into 5G rollout challenges with airlines and the FAA  (08:57) Ourcrowd - Check out the deal of the week at https://ourcrowd.com/angel (10:10) Lina Khan's new view on antitrust (18:51) Embroker - Get an extra 10% off insurance for your business at https://Embroker.com/twist (20:10) Revisiting the $MSFT - $ATVI acquisition through the lens of "game share" (22:07) Lina Kahn is considering expanding the view of antitrust for its impact on labor (27:28) LinkedIn Marketing -  Get a $100 LinkedIn ad credit at https://linkedin.com/thisweekinstartups (29:00) Welcoming David Rosenthal to the show (31:57) Size & mandate of David Rosenthal's new fund, Kindergarten Ventures (34:47) How the Acquired community fuels David's investing (38:37) Can you start a fund without brand? (41:06) How to navigate pro-rata as a small fund? (42:40) Using SPVs to lead follow-on investing (44:18) How a part-time investing is Kindergarten's secret weapon (47:02) Choosing 506 C vs. traditional fund structure (52:59) Raising Kindergarten VC (54:48) "AWS" options for venture funds (55:45) Why a $2.8M venture fund is finally possible (1:02:31) Investing with a fund vs. being an angel (1:05:45) David's take of the crypto ecosystem and how he evaluates crypto deals (1:10:14) What aspect of investing has been the most difficult to learn? (1:15:34) Best way to pitch David FOLLOW David: https://twitter.com/djrosent FOLLOW Jason: https://linktr.ee/calacanis FOLLOW Molly: https://twitter.com/mollywood

Today we have an amazing interview for episode two of season six of Angel. Yes, this is the series where we're talking to first fund GPs, the general partners at first time funds. And David has been a VC for a while, but he just launched his first $2.8 million fund with his partner, Nat Manning. And we get into why they went for such a small size fund when he could have probably raised more and using his podcast and community to generate deal flow and to help his companies. But first, a lot of news is happening. And we're talking about the 5G rollout. This is not a conspiracy theory. This is not fake news.

Causing problems with airlines and planes landing safely at airports. It's a super fascinating discussion between Molly and I. We then move on quickly to Lena Khan, the head of the FTC, who is only 32 years old and incredibly well-spoken and a great thinker, apparently, from these clips that we saw today. She talks about remaking antitrust laws, not looking at consumer harm, but looking at actually downstream competition and does a merger result in less competition in the future. It's going to be a great episode. Stick with us.

Season 6 of Angel is brought to you by Embroker. The Embroker Startup Insurance Program helps startup secure the most important types of insurance at a lower cost and with less hassle. Save up to 20% off traditional insurance today atmbroker.com slash twist. While you're there, get an extra 10% off using offer code twist. Our Crowd Our Crowd helps you invest early in pre-IPO companies alongside professional VCs. If you're interested in investing, you can join Our Crowd for free at OUR-C-O-WD.com slash Angel.

And LinkedIn Marketing. To redeem a $100 LinkedIn ad credit and launch your first campaign, go to LinkedIn. com slash this week in startups. So in the news today, a story that actually we've been walking by for a couple days because it has been the most bonkers tech and everything else news week in recent memory. But I don't want to sleep on this kind of ongoing story about American telecoms, specifically Verizon and AT&T, wanting to roll out their 5G networks, having all of these issues, though, with airlines saying, no, no, no, that's going to crash our planes. In fact, Emirates, the largest airline in the UAE, the United Arab Emirates, indefinitely suspended flights to nine U.S. cities because of this recent 5G rollout.

Yeah, because they're so worried that 5G cellular service near airports is actually going to impact their altimeters specifically. This is like, you know, harkening back to way back to using cell phones on planes, but like kind of worse. Verizon and AT&T were about to roll out. new 5G service and they actually rolled it back. They put it on delay briefly, but then also basically said, what the hell FAA? Like lots of other countries have figured out how to roll out 5G without having to ground airplanes, what's going on here. Yeah, I watch a channel on YouTube called Blanco Rilio, Blanco Lirio, B-L-A-N-C-O-L-I-R-I-O.

I got to have this guy on. And I think he's up in the mountains in Lake Tahoe, according to his channel. And he is awesome. He literally went over the Kobe Bryant crash, every crash. And then once you start going down that rabbit hole, you know, YouTube shows you more. So I watch every one of his videos. It is so informative of why planes crash, always on the way up, the way down, always pilot error, always compounding errors. It's amazing.

And so avoidable because he knows the whole history of this stuff. And as he explained it, it turns out the FAA has no money. they rely on a bunch of volunteers. Sounds about right. Pilots and radio experts who basically, the radio in order to land a plane automatically in under like half a mile of visibility, there's a system on the plane that 5G interferes with a lot. There's a bunch of airports now.

There's the FAA's unfunded. And then all the greed from the Verizon's at 18Ts of the world, they are so hungry for bandwidth that they bought all. this extra bandwidth. The C-band frequencies is, I think, what they're called. And it's very high-powered, and they don't care. They're just like, we need more bandwidth. By the way, the United States sold them. They sold for billions of dollars. Exactly. And lots of people were saying, please don't sell this specific spectrum, United States government. And then United States government was like, you know what, though, Verizon writes a lot of our checks. So we have to. Yeah. So this is

crazy. The buffer zones for airports are just like basically for the last 20 seconds of these flights. The power levels are just bonkers. And so what Blanco-Lirio said is, like starting at midnight, like this all could have been

avoidable if the FAA had proper funding or, you know, the, I guess the FCC is responsible for this. Yeah, the FCC ran the auctions. Yeah, but they didn't run the tests. But they didn't run the tests. And nobody took any responsibility.

So it's basically, this is the diffusion of responsibility. You know, when there's multiple parties responsible for something, it makes it less likely that anybody's responsible, paradoxically, right? You think, oh, there's more people who have responsibility here. That's good. No. You need to have a single person, single-threaded leader. So if there is one person on train and another person is being attacked,

that person will take action. What the study showed was when there were three or four people, nobody took action because they saw other people not taking action. and the continuous nature of non-action, then reinforce it. It's related to the tragic comments, but basically it's diffusion of responsibility. You can look it up in psychology.

That's what happened here. Yeah. And then as a result, and the reason it's relevant, I think, I mean, it's relevant no matter what. It's a huge tech story and also kind of a safety story. Ha, ha, ha, ha. But also, I mean, if you look at what 4G enabled

in the startup ecosystem, right? You don't have Uber without 4G. There is an entire industry, an entire economic driver, like massive revolution that was enabled by 4G, and people are hoping that 5G is going to enable that as well. I mean, what we talked about in terms of the Apple headset, the idea that you could have this kind of like constant high bandwidth connection to be experiencing AR everywhere you go, that's not possible without this rollout. rollout, and if it just sort of continues to get botched or delayed or crashes planes, I mean, let alone all the other weird conspiracy theories about it, I mean, it's just sort of like a rolling disaster in terms of 5G. And it just means like, I feel like I can hear you saying

this already, Jason, like other countries are going to get there first. Yeah, I mean, if you, if you look at this, like, there's an interesting graph that our producers found. This is the buffer zone. And so also Blanco-Olerio. and we'll link to it in the show notes. He explained that when they're really bad conditions, the plane can land itself. It's essentially like autopilot for landing. And it knows on a very fine-tuned basis,

exactly where the runway is and where the plane is when it hits the runway that it's in the center, et cetera. Now, if we pull up this graph, you'll see we only have like a 20-second buffer zone in the landing to not have interference. And France was like, you know, maybe that should be 96 seconds. You know, I just, I don't know.

Maybe we go find that or something. I don't know. Like, let's, you know, let's not interfere with the planes with 300 people on them landing. Uh-huh. And so, you know, this reeks of incompetence, stupidity, and greed. In other words, our government. I was just about to say that. I was like, oh, you mean the American story in a nutshell?

Yeah, exactly. So like, just get your shit together. People. It's a big story. Yeah. Get your shit together, people. We all want faster phones, but like, we don't want planes dropping out of the sky. certainly don't want people diverting their flights.

I mean, that's embarrassing. We're going to have to monitor this story. Yep, I agree. But this is real stuff. Like, this is not conspiracy theory. I know we said 5G, everybody's like, oh, here we go. Brain cancer, conspiracy, whatever. Like, this is in the literal, not a conspiracy theory.

Somebody didn't class from the Noda gang said, I sure hope this doesn't slow down the rollout of the 5G microchips and the vaccines. Ha, ha, ha, ha, good one. Please, dude. I'm not helping. Not helping. But no, I mean, none of this is conspiracy theory. And in fact, 5G could be a massive economic driver and improve, you know, broadband access for people who don't have it. Like, there are a lot of benefits here that are just getting like flush down the toilet by this bull hockey. All around the world, tech companies are innovating and driving returns for investors.

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And speaking of economic opportunity, American, America winning. Alina Khan is now in charge of antitrust. She's very young, considered very visionary. I think she's 32 years old. And today on CNBC, Kara Swisher and Aaron Ross Sorkin, I get that right? Yeah. I guess interviewed her.

And they talked about reframing, as we discussed with the Microsoft acquisition of Blizzard Activision yesterday. Yep. You know, the definition of antitrust. And we were speculating that this was a definition that was going to change because there is no consumer harm when Disney buys Star Wars and puts the entire Star Wars archive in Disney Plus and doesn't raise the price. But we said, hey, what about future competition? And Molly, you pointed out counterfactuals. Well, right on cue.

And we'll play this quick clip here, 13 minutes in. the new framing will be, does it reduce, does the acquisition reduce competition in the future? Here's Lena Hahn. You know, for enforcers, the real question is, is this a deal that could lessen competition? And in hindsight, I don't all deals to some degree, all deals to some degree are going to less in competition. Yes, substantially less in competition or tend to create a monopoly. And there's also indication that Congress wanted enforcers, not just,

to act when, you know, the third and fourth companies are merging or the first and second, but actually in the insipiency, when you said see trends towards concentration, that those can also be important moments for enforcers to jump in. We, the FTC, has a lawsuit currently against Facebook, in part alleging that the Instagram and WhatsApp acquisitions were unlawful, that those also were designed to maintain its monopoly, in part because, as the lawsuit alleges, there was this moment of transition to mobile, right? And Facebook saw that it wasn't up to the task and it really needed to make this acquisition to survive that transition. All right. So yeah, great coverage there. Molly, what do you think about this new lens and specifically looking back a decade to the Instagram acquisition?

Yeah. I mean, I think there's no doubt that that's going to be an uphill battle. It's going to be hard to unwind things that were already done. However, it is super useful to look at those things holistically and then figure out what the landscape could. have looked like. When you're trying to prove a counterfactual, that's the only evidence you're going to get is the past. And they are absolutely able to, I mean, for one thing, point to emails, right, from Mark Zuckerberg and internally at Facebook that we're like, yeah, this is, we got to, we need to shut that down. We need to catch and kill that mofo. So that is obviously helpful when you look at future mergers, but I do think like it's a massive and probably long overdue conversation to have about reducing competition and that that being harm enough, right? That it doesn't have to

translate into higher prices because what it means is you only have six companies. And when those six companies stop caring about you, see also Comcast, right? They don't have to because they're so big that that is a consumer harm. And there are lots. And in fact, they're starting to look at data and privacy as a marker for consumer harm. Can a company use the amount of data that it has about you to push out other competition, which obviously we're saying you're having all over place? And listen, the goal of business is to kill your competitors. Yep. So what we're talking about here is not bad. We're not saying don't try to kill your competitors. If you're, you know, Google, don't try to beat Yahoo. If you're Microsoft, don't try to beat Apple and

vice versa. Right. We want competition. We want people in a dog and fight to win. That's good for consumers ultimately. What we're talking about here is, does an acquisition result in less competition? So that's the framing. Is this a deal? We're talking only about deals here. Not when you make a product internal. If you make a product and you do it on the playing field, that's fine. Now, there might be some bundling and some other strong price fixing. There are other things that lowering the price and losing money on something to drive out a competitor. There are nuanced, anti-competitive practices that you can bring up on the battlefield. But that's in the game, right?

That's in the game on the court. What we're only talking about here is in acquisition. So if this was the NBA, listen, if you are great at three-pointers or steals or setting picks, that's all part of the game. What we're talking about here is if you interfere with another person's contract and you, you know, get Chris Paul to leave one team to create a super team and there was some malfeasance there. It's only in the acquisition phrase here and that are deals.

And I think this is an interesting lens. to look at because I think anybody who is looking at a market share, you've got to take numbers out of this because it wasn't a big acquisition, a billion dollars for Instagram. What you have to look at is in social networking, how many users did they each have, what percentage of users in the United States did they each have, and it was both very high. And that's really the lens to look at. Now, if you look at the Microsoft lens right now, is there like, is there, is there, is there, in terms of GameShare, and I don't know where we'd ever get this data,

and maybe somebody could email producers at this week at startups, and we can continue this thread, Molly. But when we look at GameShare, is there with Call of Duty and Diablo and Candy Crush or whatever, do these make up 60%, 50% of GameShare? I don't think so. I think if we look at the totality of gaming, this probably Blizzard and Activision are 10% or 20% of gaming hours played or gaming users. I don't know the exact number.

It doesn't feel like it would not pass that lens. You have to take, I believe you've got to take money out of it, look at market share. And I like this lens to look at it because as an investor, I want more competition. And I want companies to go long. The investors were very upset when Instagram sold. The inside information was they were throwing money at them. Please don't sell. Kevin Sistram and his partner regret selling as much as one can when you make a lot of money.

but obviously there's a lot of regret there. And so those are my thoughts on it. If I was a shareholder in Instagram, I would have preferred they keep going, preferred they keep going and growing the business. You've made that point about YouTube also. Like YouTube, I mean, it's so interesting that YouTube in many ways, like flies under the radar

in these conversations, but that was an acquisition that unquestionably, $1.6 billion, you know, consolidated a lot more data and information inside of Google, but also maybe reduced how big YouTube could have been. Or the counterfactual is maybe YouTube would have gone out of business because of the lawsuits and the bandwidth bills. From the inside, my friend, Ruloff was the person who did that deal at Sequoia. And so, you know, just based on the best deal memo ever. Best deal memo ever. Yep. Pretty good one.

If you look at, you know, the YouTube deal, you know, they were in such a huge lawsuit at the time. The money, the smart money predicted it was going under because of the bandwidth bills, which were significant. Because every time something trended like Lazy Sunday was the first one, somebody had uploaded Lazy Sunday at S&L short. The bandwidth bill was greater than the money they made. And they couldn't monetize that because it was stolen content and they were being sued. And the lawsuits were crazy. So you get the idea. Totally.

Not so much of it. YouTube could be wrong. YouTube might be the wrong example. But I do think there's, I mean, I think there's so much value in looking at acquisitions in looking at the idea of what the competitive landscape looks like and why acquisitions happen. Right? Because we know they happen to catch and kill.

And in the case of Microsoft, once you finally get to Activision and Blizzard, you already, you can't examine that without looking at the like 15 other game studios that Microsoft bought over the past like two or three years, right? being a monopoly is not illegal. Like, you can have a monopoly. Yeah, if you earned it. If you, well, even if you didn't earn it, it's not illegal to be a monopoly, but there are specific actions that we determine monopolies cannot take.

Those are unlawful. And that includes like the bundling that Microsoft did. And increasingly might include, like, are you buying competition to take it off the market so it doesn't compete with you? Yeah. Which, great. Do that. Love it. I'm going to quickly explain one cruise. type of insurance that all startups need, E&O insurance. That covers errors and omissions, and it helps you scale your business, because any

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Once again, is directionally correct. Here is a, from the Wikipedia, the number of players in various games. as of particular dates. And I think if you look at game share term I just came up with, if you look at any game share here, you know, Candy Crush Saga,

says 500 million, um, free to play and, uh, call of duty. I'm trying to find on this list. I don't see it on this list. I don't even see it on this list,

because I think some of those title games that were very expensive do not have as many where casual games or free online games have a lot more. Look at that Pac-Man Google Doodle. You see that? Number six are in the list. list. One, two, three, four,

five, five million peak daily players as of May 2010. You want to talk about a monopoly, Google Chrome over a billion users, Google search, many billions of users. You put a game on the homepage of Google, you now have a top 10 game. Yep.

So literally the Google doodle of Pac-Man is number one. You want to talk about like if Google's wants to win gaming, all they have to do is put a game on the homepage every day. They win gaming. I don't know why they, They don't do it. I know what they don't do. They don't want to have more red flags for... Oh, yeah, that's right. Peter Nodibon points out that PubG sued Fortnite. I don't know if you call it PubG, but we do at my house, but player unknown, sued Fortnite for night for sale for Royal mode. I remember. That's why I was like, that name sounds so familiar.

Protectable? That used to be called free-for-all mode. That used to be called free-for-all mode. Even when I was playing video games 20 years ago, there was free-for-all mode in Doom or some quake or something when I would go to lamb parties. I mean, I'm dating myself here, but to play these games, you went to land parties at pseudo in New York in the 90s, and they would set up an Ethernet router and put 10 computers around. It was pretty fun. Oh, I remember that land gaming. We played Unreal, an Unreal tournament. Yeah. Here's the part of Lena Kahn's discussion

with Karas Swisher and Andrew Ross Sorkin today, and another lens on antitrust that I hated. 17 minutes in, consolidations impact on labor, a.k.a. unions. So the Justice Department, including in the last administration, started looking at no-poach agreements, more closely, instances in which employers may be colluding to suppress wages. Both agencies have been looking at the ways in which mergers in particular may lessen competition for labor and have downstream effects on workers in ways that are harmful and that also needs to be on our radar. So I think this is an ongoing conversation, but

increasingly the question is, you know, how we implement some of these priorities and not, you know, whether they're important. But this is the first time you've included labor. This is something labor's wanted for a long time, the idea of looking at antitrust through the lens of unemployment, essentially. Yeah, there's an interesting history here. I mean, you know, there were cases in which, you know, unions were supportive of transactions because they thought they would lead to more downstream benefits. But I think we started to see through retrospective studies, instances in which, you know, murders actually ended up having a harmful effect. And so I think that is what's significantly contributing to this reassessment. What do you think, Molly?

You don't like it? I hate it. But I want to hear your initial thoughts because I don't want to lead the witness here. And it'd be good if you had a difference of opinion. Not that I'm saying you should, but I'll explain, but I'll explain, maybe I should explain if you don't have yeah. Yeah, why'd just tell me why you hate it. Because I don't know. Well, I don't think I hate it. I think I'm grocking it. And I also think that there is value in saying when I mean, it's all sort of part of the exact same question, right? If a company gets too big to have any competition, it can do what it wants. Now, we have seen in recent years, as you pointed out many times, Amazon and Walmart have to respond to criticism of their labor practices and raise prices and start paying for college.

But they're still not paying, like, living wages to their warehouse workers, right? There still is, I mean, $15 to $18 an hour, like, not really. Depends on where you live. pretty great salary if you live in a it depends on where you live, but like we have a national massive housing cost spike. Like it still is, people could be making a lot more money.

Yeah, but I mean, then those jobs would get automated. So that, I mean, that's the balance. Like if you literally double those salaries, they doubled those salaries already.

If you double it again, then it's like, oh, well, here's a great incentive to automate it, right? So, which is what happened in the restaurant business.

And so that's my point on this, which is companies need to be ruthless about efficiency. and if you put on top of an acquisition, what's going to happen to the employees? Well, there's employment law already, and companies can do that independent of the acquisition, you know. And so I just think it's a lens that doesn't make sense here in terms of the consumer. The company's going to do what's in the best interest and efficiency of their business.

And if they don't, they're going to get beaten by other businesses. So then to say, oh, if you do this merger, you can't fire anybody. Well, the whole point of a merger is, we're going to have one accounting team, one sales team, you know, and the infrastructure. So if we buy, you know, Zappos as a great example, or diapers.com, Amazon looks at that acquisition and says, hey, we can get rid of the accounting legal, back office, and the computing layers and have them use the Amazon infrastructure for that and warehousing. That's why this makes it more efficient, better for consumers. That's the whole premise of a lot of acquisitions. So you can't

But on top of that, well, you can't get the benefit of the acquisition. Yeah. No, I think that's so. I actually think that's totally fair. The part I'm not clear on is so they're talking about how acquisitions impact labor specifically as opposed to how size impacts labor. Because that's a different, that's a whole door dash and full-time employee and there's that conversation.

But yeah, I mean, if you're talking about how, yeah, that does seem like maybe a little a bridge too far. And it looks like just unions inserting themselves to try to get more power. an influence to, you know, increase wages or whatever, which is fine. That's why they're there. But I don't think they should have anything to do with it. It's like too many, too many factors here. I think we have to look at competition, which is the overriding issue here. Like, if you want to have a great playing field, you can't have one team break the salary cap, you know, or go so far over the salary cap, which is why in the NBA, they said, you know what? If you spend over,

I think it's like if you spend over $5 million, the salary cap, they charge you double for that $5 million, the next five million is triple and then every dollar after that is like quadruple or something I mean it gets super punitive a lot even the biggest teams are like we can't do this

we can't go over and they come up with all ways of why you can't exactly rules work like you can't you know nobody's talking about getting rid of capitalism

on this show ever what we're saying is unregulated capitalism is suicide you can't just grow forever depends on if I'm holding the shares it's like a let me be

be honest. Jason's like, well, I don't know. How bad could that tumor really get? We just let it grow a little more. I don't know any Facebook shares break it up. All right. That is more than enough news for today. That's a lot of news.

Hey, Tom Eshbacher is here with us again. He's a senior sales manager at LinkedIn Marketing Solutions. And we're talking about their amazing report today in startup marketing, as well as how to use LinkedIn to grow your startup as an angel investor. I like to see revenue early. and often from startups, how can LinkedIn help with that? Yeah, the short answer is LinkedIn forums. 89% of our startup advertisers utilize them.

And I'll tell you why. Think about all the effort that goes into creating interest within a prospect. You have to nail the value proposition, create compelling content, find them, and then message them with enough frequency so that they engage. You do all that. You get them to your sign-up page, and you know how many of them are going to convert?

Just 2%. That's so much value that marketers are failing to capture, a big reason why LinkedIn marketing and specifically LinkedIn Forms are so popular with startups. So people know a lead gen form lives on LinkedIn. They click one time and boom, the email is sent to the company. By using LinkedIn forms, you're ensuring they're coming from an audience that you care about.

And then we're pulling the information right from the member's profile. So it's great. Your SDRs are going to be thrilled with that info. They're going to want to follow up. That's the improved lead quality. And as you say, Jason, it all takes place in just two tabs. in the LinkedIn Newsview. And so if you would like to get this incredible report,

you can go to LinkedIn.com slash this week in startups. And not only can you get the report for free, you're also going to get $100 off your first marketing campaign from Tom at LinkedIn. Way to go, Tom. All right, everybody, welcome to another episode of Angel. Yes, a special series where we talk to Angel and venture capitalists and capital allocators.

It's our season six, and we decided to do for season six, first time fund. first-time fund managers, right? And so we're really excited about today's guest. And as a special pot sweetener, Molly Wood will be doing the interview with me. Welcome, Molly. Thanks. Glad to be here.

This is David, I warned him already that this was the first two-on-one interview. So, like, I figured out who's good cop and who's bad cop, but it might just, like, flip-flop throughout the show. And how are you feeling, Molly? You were pretty public that you got the, you got the Rona. Where's the voice? The pipes sound good. The pipes are okay. Yeah, we're hanging.

I'm at about like 90% today. If I were an iPhone battery indicator, I'd be at 90%. Fantastic. Not mild. Not mild. To be clear. So when it started mild, you had two of ten. Where did you peak on one to ten where ten is going to the emergency room with the flu or, you know, calling your primary care doctor.

to get an IV drip or something. No, I mean, if that's 10, I probably peaked at like six, but I will say that there was some like trouble breathing and some, it's like such bad sinus pain that I was like, this is the aneurysm, it's here. I read all about it. Did it go into your lungs? No, it started there, which was weird.

So it started in my chest, and then the first night or two, I did, I was a little short of breath and I had a cough and sort of lost my voice for a couple mornings in a row. And then it just moved up into my head. I wonder if you had Delta. This is enough about me. Yeah, but enough. But enough about me.

Let's talk about David. That's not me and my coronavirus. David Rosenthal, of course, is the co-host of the acquired podcast and a frequent guest on this week in startups. But he's here today to talk about his new fund kindergarten ventures. Welcome to the program, David. Thank you, as always. Honored to be here with both of you. Did you get the Rona yet?

Did you get the Omicron? No. Fortunately, we, my wife and I have a three-month-old, so we are trying to be extremely careful right now. I mean, we're still, like, stressed about it, but a little less. Three months, she's a little more robust than when she was two months. We were like, this is scary. But yes, fortunately, everybody's okay. Also, congratulations.

Oh, thank you. Congratulations. Babies are amazing. We have a number of them. Okay, so try to avoid it. And for folks, if they want to check out the Angel podcast, you can either get it here on the This Week in Startups Feed or you can just search for Angel and you'll find the Angel podcast as well. Episode one, we had Mac, the VC from Rare Breed VC. So just starting off, tell us about your first fund.

Yes. Well, it's funny. I'm trying to decide if I officially qualify for this segment or not. This, we, I and my partner in the fund kindergarten ventures, Nat Manning, not been my co-hosted Acquired. Nat is my partner in kindergarten. We are investing out of our first fund, but this is the fifth fund I've been investing out of as a VC, but first with kindergarten.

It's a very, very different experience. Kindergarten, we closed fund one in July, I want to say, July or August of this past year, So about six months. How big is the fund? And do you have a thesis and who are you targeting with this fund? Check size and verticals. And how did you get that name? That is the best question.

That is the best. I'll start with that. It's called. Sorry, Jaycal. Sorry, Jaycal. Molly's like, oh, I'll just put up three. It's okay, Jake. She's like, I'm not even looking.

I was going to get there. I had that on my list of questions. Here we go. But it's like, Rends the Nance the title. Yeah, you're right. You're right. It should have gone there earlier. I should have drove the lane.

No, now you have four questions to answer. Go. Okay. Okay. Can I remember them all? Kindergarten, because Nat and I met in kindergarten, you can believe that, way back in the day. So cute. Let's see.

Fund size. Fund 1 is 2.8 million, which we can talk about is an experiment fund, a proof of concept fund. Oh, that's two out of four. Now I'm blanking. J. Cal. And the theme, are you going after sure? tie up a company and maybe the check size.

Yeah, so your thesis is a check size. Check size, max check size out of the fund in Fund 1 is 100K, our average, at this point we're most of the way through the fund. Average has been about 75K. Thesis and theme is interesting.

None. And one thing that I think used to be a belief that we are explicitly not doing is that small funds and angel investing was about super early stage. We do plenty of seed, pre-seed. We've done about 50% of the companies in the fund are seed and pre-seed, but then 30% are series A and 20% are B, C, D, growth. We do everything. The thesis is a combination of companies in the acquired network broadly defined. We've invested in sponsors. We've invested in guests. We've invested in folks. We've met in the acquired Slack. And then my partner Nats networks in climate tech and in fintech specifically. insurance, which obviously kettle is. So to be clear, the podcast has created a big community. And that gives you deal flow. Other investors are involved.

You have a Slack that's pretty vibrant. I mean, it's not giant, but it's vibrant. You have good discussions going on there. How many people are participating in the Slack? And what type of companies have you been getting in terms of stage? We are coming up on about 11,000 people in the Acquired Slack. Oh, that's huge. Okay.

My information's old then, because I was on that. when it was like a thousand. That's a, well, I think you brought the other 10,000. How big is the twist slack now? You know, it was like 30 or 40,

but we deprecated it. I basically turned off every channel, except for the cities. And we just said it's for book club and the cities and for doing meetups because it was too much spam and too much to manage and not enough,

like, focused discussion. And I really think any community you have has to have a purpose. So we said, the purpose here is to talk about this weekend startups,

do book club for this week at startups and then set up local meetups and meet other founders in your neighborhood and that's it because the focus was just getting out of control and people were spamming it like crazy. So how do you manage 11,000 people in a Slack channel?

Well, a couple things. One, we've been super lucky, I think the whole life of acquired that our community has been very, very friendly, generous, you know, low drama. We aim for that on the show, and I think we've been luckily attracted that community.

So we've had almost no problems. But once you get to that many people, just like managing messages in the scale of it is tough. So we just, we kind of gave up on managing it. And to borrow a phrase, open source, to the fans. So we have a few subcommunities in there, probably the most vibrant of which is the digital assets community that we give over to specific folks in the community to manage. So Austin Federer, who's awesome. He runs marketing at Solana.

He runs the digital assets channel in the acquired Slack. So it's kind of become this like fractal thing. We've got a fintech channel. We've got all sorts of different stuff. Does that mean you made him an admin in the Slack to like bounce people and delete stuff? Yeah. So the tools are so not robust in Slack for managing a community at scale. We just were thinking about that as well, maybe deputizing people, but it's just so much work.

Are they all paid members then? Or do you let people in who aren't paid? No, everything's, we're just on the free plan, the Acquired Slack. No, I'm saying paid members of the acquired community or just anybody can join the site. No, anybody can join. Well, we have big news too. Oh, we haven't caught up in a while. So the acquired quote unquote LP community confusing, given what we're talking about now.

But that was our paid program for Acquired. It still exists. It's awesome. We love it. We got so many folks, thanks to you, plugging it for us all the time. We kind of realized we had the wrong business model, though, and it's relevant to kindergarten. So we, while we still have the program and we do fun stuff for our LPs, the LP show, our second show, we made a free. And it's open. It's just a second show on any podcast player of your choice now.

And we change that to an advertising model. And the biggest reason was that we have, we'd have guests on there, like a bunch of founders of companies kindergarten invested in and the like. And then they'd be like, great, this is awesome. Where can I share it with my team? Where can I share it with folks? Well, you know, sorry, it's this thing. We can create a page for you. And then we're like, this is not a line.

This doesn't make sense. Like, we want to get great founders. We want them to have as much reach as possible. We want to invest in these companies. like, well, let's just make this cleaner. Yeah. I mean, and advertising is going really well for podcasting. Once you get into the top 100 in any category, you'll have advertisers, you know, basically trolling you and reaching out to you. So that makes sense, Molly.

I wonder, I mean, this is a model that we're somewhat familiar with here, which is, you know, a media empire and some investing attached or the other way around, depending on the day. Do you think, though, like getting to this idea of a first-time fund can you now be a fund if you're also not a brand? Oh, interesting. Well, here's how I kind of think about it. I think being a brand, doing what we're all doing is hugely advantageous. So many trends are at our back.

The wind is in our favor. Mix that up. But anyway, you get what I mean on right now. So it's going great. So I was super lucky when I was in business school to take, one class. He was only teaching one class with Andy Ratcliffe, who's, of course, one of the founders of Benchmark. And, um, and Wellfront. And, uh, one of our, like, most frequent guests on this program. I think he's been on five or six times, almost on your level, David. Oh, man. Got to,

got to keep going, beat Andy. What class did he teach? So he was on sabbatical, because you remember he went, he left, he stopped being the CEO of Wellfront, then went back as CEO. So when I was in business school, that was when he went back. Back. Yeah. So he was. So he was. He was, he was, he was he was, He didn't, he ordinarily full-time teaches one class. He didn't teach that my year, but he co-taught the venture capital class that Peter Wendell, who founded Sierra Ventures teaches. That was an amazing class. Eric Schmidt also co-taught that was such a cool experience.

So Andy taught a few classes of that course. And I remember asking him when I got to take his course. I was like, what's the secret to be great VC? Like, how do you start a firm? I mean, you start a benchmark what do you do. And he just had the best answer I think I've ever heard, which is that you got to have a reason why a great founder is going to take your money. And like, it's so simple, but you got to have a good reason. And, you know, what we're doing is a great example of that.

Acquired is a great reason why founders should take kindergarten's money. Or if they're in insure tech or climate, you know, Nat kettle and Nat's work there. likewise for you guys and launch and twist and all in. Those are really, really good reasons. There are other good reasons that have nothing to do with being a brand. Could be that you're like super deep in an esoteric field that very few others are willing to invest in. Could be lots of things, but. 2.8 million small fund.

How do you deal with pro rata rights and follow-on investments? Because if you're under 100, if you're 50 to 100 K per bet, 75K.K. on average. You don't hit the typical 250k major investor rights. So you're at a disadvantage. You explicitly ask founders, hey, even though we're smaller, can we get pro rata or do you just rely on their good graces to allow you to have prorata? And then what's your follow-on strategy in terms of, hey, you hit a winner and you got an Uber, you got a Robin Hood, you got a grin, or a com in there. How do you double down? How do you 10x? We should be so lucky like you. Um, explicitly for this fund, we just kept a super simple.

No strategy on any of that. Like with this first fund, this is a proof of concept fund, this is, you know, we were testing a couple of things. Like, would Nat and I enjoy working together? One, would we be able to invest in good companies, would be able to get allocation in rounds at all? Like, we're not leading rounds. We're participating in rounds. Would founders want us in? What other would lead VCs make room for us?

And then, two, what was the right check size to write? But so we explicitly said, we're not going to try and figure out pro rapsing. we'll figure all that out down the road. So for companies in this fund, of which I think we've got some, you know, it's early, but I think we've got some really good ones. We will most likely, assuming it all works out and it's possible, invest in them out of future funds that we raise. We may also do SPVs.

We've done one SPV thus far, but. Explain what an SPV for the audience who doesn't know and what that does for you. So there. SPVs are good and bad. It's a special purpose vehicle. You can do things like, say, we're a small fund, say a company we invest in is raising their next round. It's a much larger round. We could put a larger check in. We can't do that out of the fund. It would maybe be larger than the whole fund size. We can put together this vehicle with our LPs or with other people to invest for this one special purpose. And so we could, we've done this. Our average check size, like I said, was about 70K in Fund 1.

we did one SBB for 500,000. We couldn't write a $500,000 check out of the fund, but easy to do with an SPV. But the problem with SBVs is you've got to go fundraise for each of them. And even if you have LPs lined up who want to do them, it's just hurting the cats to get all the docs together. And usually, you know, these rounds are coming together fast and closing. You've got to be like, wait, wait, wait, I'm still getting all my ducks in a row.

And it's difficult. Don't I know it? So tell me, I mean, everybody in the audience knows I'm new here and learning at the same time and this is like the best opportunity ever. But how common is it for someone to be in a position? Setting aside the sort of the media part of it, right? But you're like, we've raised this fund. It's a pretty small fun.

There's no real thesis. We're not that stressed about pro rata. We're just going to sort of like experiment and take it as it comes. How do you get lucky enough to be in that position? Like is that a common place for first time fundraisers to find themselves? No. No, no, no, no. Definitely not.

And this was only possible because of everything we had done before. And honestly, not even really before, just concurrently. Like, this has been something, a surprising number of LPs had trouble getting this. We thought this would be a harder message. And we've been very pleasantly surprised with lots of folks just get it easily. Like, kindergarten works because of Nat and my full-time jobs. We are not full-time on kindergarten. We do other things very much full-time.

Kindergarten runs 100% on Angel List. We don't do any of the back office. Angelist is amazing on that front. We couldn't do it without them. But we're not. We don't have an L-PAC. We don't do regular calls. Like, this is not professionally made.

Explain what an L-PAC is. Yes, please. That was my next experience. Yeah, yeah, of course. An L-PAC is like the rough equivalent you could think of as a board for a venture capital firm. It's usually the biggest LPs. It's called LPAC is short for a limited partner advisory committee. And you do quarter.

calls with them and walk through just like kind of a board meeting for the venture firm. And they have certain governance rights. You know, and like that's great. And that makes sense for a traditional venture fund, but it doesn't make sense when the only two people running the fund have full-time jobs doing other things. But Molly, to your question, kindergarten works and all this works because of the stuff we do in our day jobs naturally yields great deal flow for investing in. And I guess the follow up to that is like, are there parts of what you're doing that

could translate to an angel who's trying to become a first-time fund who doesn't have a full-time job as like a really well-known podcaster. Yes, absolutely. I mean, I think it gets back to the, what's the good reason why a great founder out there who is going to have no trouble filling their round or if you're trying to lead rounds could get Sequoia and Drieson benchmark, you know, you name it to lead their round. What's the good reason why they're going to choose you or let you in? And there are a million good reasons out there.

you know, obviously, Packing McCormick is doing a similar strategy as us with not boring and not boring capital. There are plenty of solo operator funds out there. There's, you know, Rahulvora and Todd Goldberg, I think is this part of it. Oh, nice. Yeah. Or in the first one.

I don't know if they've done a second one, but I'm in the first. They have, I know they've done two core funds and then a follow-on fund as well. Yeah. So, you know, it's got to be something. I think, like, that's the, you know, to your question and it doesn't have to be a brand, but this is, you know, Andy's kind of simple way of putting this is he's so eloquent about this is like, you need a reason and it has to be good. I can't tell you what it is. There's no formula for what the good reason is, but, you know,

you'll know it when you get a good reason. Did you do the 506C designation when raising your fund, which means you could publicly talk about it, obviously as a podcaster with an existing audience, some percentage of width would be accredited investors. If you do 506C, you can publicly solicit. You know, there's 5% of the country is accredited. In a podcast like acquired, you know, it might be 30%. Probably a lot more than 5%. 40%, who knows, half might be.

So this would be a huge advantage. So how many unique LPs do you have? And then did you choose to do 506C yes or no? We, first question, unique LPs and fund one. We have just shy of 50, I believe, somewhere around No, we did not do 506C, which we can talk about in a sec. Our LPs in Fund 1, we have a few sort of family office offices, real, real family offices. The majority of the capital, though, is GPs at other venture funds, primarily large venture funds.

So they're using you as a feeder, ostensibly? Yeah, feeder. It's more, I think, about the relationship than specifically as a feeder, if anything. This is ironic. I did not predict this. It's a feeder the other way. So we track our sources of deal flow. The first, as expected, is the acquired network and the kettle network.

Our second largest source of deal flow is GPs at large venture firms who are leading rounds. And when they're leaving, you know, folks, you know, and plenty of folks listening, Sequoia is leading around or Andreessen's leading around. They're going to do maybe 70% of the capital into it, but then they leave 30% open for value add. There you go. And so we're just as often. Basically, we'll give you a slot if you can get us a slot on your pod. Maybe. It's not explicit.

It's not quid pro quo, but it's close. It's a, uh, uh, is it quit pro quo? No, definitely not. It is for me. I'm just putting it out there right now. You get me a slot on that cap table. I will guarantee you a slot on this podcast. Well, you're on five day a week pod.

Six, but it's an easy guarantee. Yeah. Six? But who's counting? We make it seem like a favor, but really, we got, Got to fill every day. Exactly. But, okay, I got one follow-up question.

Was it a mistake, since you are well below the $250 and $10 million limits, was it a mistake to not do 5060 and will you do 5060 on your next? Like, can you explain that what that means? Oh, making me do all the hard work here. Let's see. No free lunch, buddy. Take this in order. Well, Molly, as well, I'm going to go with yours first because that's the best we

question once again. What is 506C? They go together. What is 506C and why didn't you do it? And was it a mistake? So, yes. 506C is a,

if you choose that designation, then you can raise venture capital. You can raise publicly, which take out, to be fair to you, I think you did say a minute ago. You can solicit publicly. You cannot solicit publicly,

i.e. on a podcast as an example. If you are not 506C, we chose not to do it. It was not a mistake this time. We will likely, I think, not do it for our next fund, but very open to doing it in the future. And things continue to go well, we probably will do, I think, at some way, shape, or form. The reason we chose not to and why I don't think it was a mistake was we just wanted this to be simple.

And, you know, we are, that is a full-time founder of a very full-time job, you know, running a hot company. I am a full-time podcaster. Like, we have no team. There's just only so many hours in the day. I've got a three-month-old. He's got a three-year-old. So we wanted to kind of move slowly into this and walk before we crawl. There's one technical little detail here.

And obviously, in the last episode, Matt, the VC, with Rarebreed, did do 506C and got a lot of his Twitter followers. But here's the technical difference, Molly. When you do a general solicitation, you have to verify that. everybody's accredited. In other words, you can't just take their word for it. And there are companies that do this where the person who's going to be the LP, instead of just filling out the LP agreement, they have to then have their accountant, lawyer, basically verify that they are, in fact, an accredited investor by sending their tax returns or a letter, et cetera. This creates friction. And sometimes that friction could result in 10 or 20%

less LPs because they don't want to do the work. So in the attorneys for the last 30 or 40 years, you know, have just said, like, if you're a VC, never, ever, to a journalist or anybody, ever talk about raising a fun, which is why Molly, when you were a journalist, if he said, hey, you're raising another fun, they were like, I can't talk about that. Please don't ask me about that. That's me.

You're saying about that. Yes. And you're like, we know you're raising a fun. Ten people told you, they're like, please don't ask me. I can't speak to that. That's why there was all this hand-wringing. But now, with the Jobs Act, 5-0-6C is very much in favor. Because you can shake the trees and find out people who maybe you didn't know

It is totally doable. And again, like I said, I think there's a very good probability. We will do it at some point in the future. We just, we thought even with that paperwork aspect aside, the idea of managing hundreds of LPs versus 50 LPs felt like a lot to bite off for the early, early days for us. Yeah. Well, talk about, I'm sort of loving this vibe that you're like, we're podcasting on the side. We have this venture fun.

So, you know, by comparison, Mac the VC came on the last episode and talked about having, like, what was it? Something insane. I mean, a thousand meetings a week or something like that. He did 1,100 meetings to close his fund is what he told us. And he was doing 20 a day for 20 minutes each. He was doing it from 6 a.m. to 11 p.m. Just get on the phone with anybody. Yeah.

I've been there and done that. And it is. I mean, tell us about that and how different it is now because it sounds like the bulk of your meetings are like, come on my podcast. which is awesome double duty. It is so different. I think it just gets back to what the goals are, what the intentions. Like we, you know, I've been part of firms that have billions under management. I've raised, you know, 10, 50 plus million, you know, on my own as a first time GP.

We set out, we're like three. We actually set out to raise one million as a brief concept. We ended up with close to three. It was just about setting that as the expectations. You know, Mac's experience is very common, as you know, and probably a lot of your audience knows, for a first-time fund, first-time GP, raising what looks like a traditional fund where you go to the institutional LP community. And that makes sense.

And, you know, he, I'm sure, had to say, just like everybody does. And I've said in the past, I'm full-time on this. I'm so dedicated. I need to make this work. And I think part of that process is the LPs and the institutional community, you being like, all right, let's see how serious you are when you go a year with no salary and doing nothing but taking 20 minute meetings all day. And if you're still at this in a year, like, okay, maybe I believe you'll, you're dedicated enough to make this work. But that's,

you know, again, there's nothing against that model. It's, it's great. And I think it will continue to work. But there's this whole new world that Angelist enables for folks like Rahul and Todd, for folks like me and Nat, for folks like Pack. to say, no, no, no, there's a different path. There's a different way we're going to do this. And the work they do is they just abstract away all the legal and accounting and just all of that stuff. And they do that for a small percentage of the carry and some cash, correct? Well, I should make two points.

One is day-to-day-wise what you're saying, yes. We don't have a team. We don't have a back office. We couldn't run this. Angelis does all that for, I believe, oh, don't call me on the percentage. It's a small percentage of the fund capped at $250,000 over the life of the fund.

$250,000 in carry. I think they take 5%. So if you had a 20-point carry, they would take one of the 20 points. That is if they bring LPs. If you bring all of your own OPs, LPs like we did. You just pay $100K in fees or whatever

over the life of the fund. It's really, it's like a roll your own fund. Yeah. That's what you're saying. It's AWS, just like Assure, which we're investors in. So Assure, Carta, and Angelist,

all provide AWS for your fund. Pop up your fund and don't need to have, you know, like we have on our team, you know, a Heidi and a Ashley and all these people doing all the back end stuff. Yeah. And we still use the short for some of it. Here's what's amazing about it. That's all the nuts and bolts of being at AWS for venture,

enabling firms like us. But it's actually more powerful than that. We have a $2.8 million fund. You would never raise a $2.8 million fund in the old world. The economics wouldn't make sense. You wouldn't have enough management fees. Even if you took a management fee on that to support the team members that you would need to make that fund actually function. Explain that math.

Most people get two and a half points as a management fee. So walk us through that math over the 10 year or life of the fund. Yeah. Let's take a, oh gosh, let's make it easy. You say it's a $2 million fund, total fund size. over the life of the fund you're getting in a typical structure, 20% of that fund in management fees, you know, over 10 years. So 20% of 2 million is, what, 400,000? Is that right?

But that's over 10 years. So 40,000 a year. You're going to pay a back office with $40,000 a year? And not to mention yourself, like, if you're, because it's expected you're doing this full time. You're fully committed to it. It's like, come on. Like, there's, it's just a total non-starter. Right.

But now you can scale, uh, down to like these small sizes, do proof of concept funds. And I think a bunch of people are finding like us, you know, I, I know, you know, Packy, we're good friends with him that he found this with the first not boring capital fund that he did. There's actually this whole other way to do venture that works with these small funds. And then if you prove the model, they're like, okay, well, maybe we'll try. Adding a zero next time. Microventure. Basically, it's the same thing that happened,

if you think about it, with the internet. It used to cost a million dollars to set up your servers, set up your T1 in 1993 to 1998. And if your website was gonna make, you know, 500,000 a year or 250,000 a year, it made no sense to spend a million dollars and then half a million dollars a year maintaining it. AWS comes out or spot,

or actually a better example would be Shopify and Squarespace. They totally abstract everything. And now you could have a million different little sellers, you know, eking it out to make five or 10K a month in profits. And it's a great way to sort of get going. And actually, okay, get there's one point. I'm such a geek about this, but it's completely changed and enabled us to do this. The third aspect of this is it's like it's a same dynamic as when convertible debt and

safes entered the startup funding ecosystem. With a traditional fund, you've got to have a close of the fund as, I'm sure you've done with most of your funds and everybody used to do. Well, to get to a close, that's where you round up all your LPs who've said they're in. And you're like, okay, no, no, you're like, you're really in. We're doing this. You're going to give us the money now. And all the LPs usually kind of look around and like, all right, is there enough money?

Are we doing this? Is there enough money around the table for this fund to be viable? That's why it takes a year to get going because you need enough capital to get over that hump of like, everybody's like, okay, you may not be done. and say you want to raise a $20 million fund, you're at 12. Okay, I think you can make this work with 12, even if you don't get another dollar in.

That takes a long time. But with Angel's, it's just rolling. It's like a safe. So when we got going and we're like, great, we're standing up kindergarten. We talked to some folks.

They want to invest. Angelus throws up a fun page in a week. They log onto the page. They commit. They link their bank account, monies in the bank. We just start investing. And it's all happening in real time.

It's sort of like Apple pay. Like, I don't know if you guys have had this experience recently. but you know I am now like getting onto you know you're at a restaurant or you're you know going shopping and like have Apple pay and you're just like beep with your watch or you are on you're in a you know you're filling out the form and it's like oh we have Apple Pay and it's like oh well I'm done I'm obviously using Apple Pay so it becomes like Apple Pay for for venture funds let's look at that let's let's double click on the dynamics of fund size okay you're doing your first fund

let's go with the same two million dollar fund most funds do uh two or three times cash on cash in 10 years. Let's just come up with a four X, cash on cash, two million turns into eight. How much money do you make and how much does that wind up, you know,

how does that wind up working out well for, you know, people who you're average, you have 50 LPs and a $3 million fund, so they're putting in 60K on average. Let's walk through that. I love when Jason's like, please do math on the fly.

Oh, boy. I do is, you know, instantly in my head now. It's back of the envelope because I'm a gambler. Can other people do this? Let's find out. Well, I can. I do it at the poker every hand, every hand at the poker table. I don't need to do math to answer your question, J-Cal.

It doesn't move the needle at all for any of our LPs. That's not why they gave us money. It was much more about relationships. And I think for a lot of them also, you know, just seem like seeing this starting. And I do think, again, it wasn't intentional. I think we were pretty early in the wave of this dynamic. starting to emerge and being like, huh, that's interesting. Let's see what happens here.

Let's run this experiment. And if it works, then it'll be a bigger fund next time. But yeah, to your point about the math, say we four X, let's say, we'll call us a $3 million fund. We four X that's $12 million total. Now, that's a lot of money to an individual. And, you know, for us as GPs, like, that's meaningful. Like, we're early er in our careers. Like, that's fantastic.

But to our LPs, you know, net minus our carry. Going back to them, that's what, not even $10 million to 50 people? Take out the three. You got to give the three back. You got nine left. 20% of nine. Well, 10% of nine is 900. So it's double that is $1.8 million.

So you take the $1.8 million out of the nine. And you got, what is that, 7.2? 7.2, boom. You know, they're going to wind up getting roughly 3x their money. And you're going to make a little bit. Right. Great. But to none of them, you know, I think our largest LP invested maybe $300,000, you know, our next largest $250,000.

They make, you know, these are large folks, $750,000 back to them. Not going to move the needle. Not going to move the needle. So they're doing it for that relationship building. Okay, let's, Molly, I think we have some questions from the live audience who's watching it. YouTube.com slash this weekend. I have one final question before we move to the YouTube. here we go.

Questions, which is it. This series is called Angel, and it's about first-time fund raisers. And I wonder when you describe this model and considering how easy, for example, angel list is, why raise a fund instead of stay an angel? Or is this like a way to do it if you're not rich enough to be an angel? Well, I think it's two things. One, I was in a fortunate position where I was able to be an angel, but I was rating 10K checks on average. And now with this fund, I got to write 70K checks on average. But the bigger thing

was about pulling on this thread to see where it goes. That was what I was really interested in and in Nat too. Can we write 70K checks, 100K checks? Will founders want us in those rounds? Would VCs want us in those rounds? Well, the answer is pretty resoundingly yes. And also through conversations and when we did the one SPV and talked about doing others, we're pretty sure we could put 250K checks, 500-k checks into rounds. I think that would still work. And so that's kind of the whole, also to, you know,

why would LPs bother with this when it's not going to move the needle for? It's about running this experiment. Like, could we do this with another zero in our fun size? I'm pretty sure we can. Could we in another few years do it with two more zeros in our fun size? Well, did them baby. Let's see.

Same reason to put a man on the moon, basically. That's what you're saying. Yeah. Because we can. We're doing God's work here. And if you think about it, Molly, in terms of gambling or if you're skiing on greens and then you want to go up to squares

and then you go up to diamonds. Like, you graduate to these things that feel very scary at first. So, you know, when I started, I put 650K as a scout into whatever it was, 17 companies over two years. This year, I think as a firm, we're in 2021, I think we put 75 million to work.

And so you start thinking about that difference. 350 in year one, here we are 11 years later. You know, it's a considerable amount more. It's 200 times more, I think. And so, you know, you've got to get comfortable writing those bigger checks. Yeah. And when you write the bigger check, you're going to have a lot more responsibility. You know, I have sometimes emergency board meetings, you know, two hours long, you know,

got to push a podcast back. Molly gets inconvenience. For example. Yeah. For example. And, you know, there's no choice because you're on the board and you're on 12% of the company, 15% of the company. You're in the very lucky position of you don't have to go to board meetings.

things don't work out. There's no lift for you. And then that's really what you're going to have to get more comfortable with when you add a zero. Because you add a zero to this. Now you put it in 700K. You're going to own 5 to 10% of these companies. And you're going to be doing follow-ons. Your responsibility goes up.

And that's really what you've got to be ready for, right? That's interesting. One, I've got to say, Jake, you totally, we've said this before when you've been on Acquired and when we've been on Twist. You wrote the playbook for all of us on this. So thank you. Keep going. Seriously. But okay, commercial for Jake Ellison, but I mean every word of it.

I think things have changed a little bit, or at least we're taking a different approach. If we add two zeros, I think we got to do what you say. If we were to add two zeros today. But we're doing plenty of seed and precede, but we're doing a lot of series A and series B too, where we can add a zero and we're not going to be on the board when, you know, Andreessen is leading a $25 million series A and we're putting in even 500K. Yes.

The scale has gotten a little crazy, hasn't it? Yes. On these deals. All right, let's go to some questions. Molly, we've got to get good questions from our amazing live audience. If you want to sign up for the live audience, go to YouTube.com slash this weekend. You hit the subscribe button right next to it's a bell. You hit the bell.

Now you get live notifications. We go live randomly. Some guests want to do it. Others don't when we do news. And then you get to join the Notie gang, the notification gang. And we know your names and we take your questions. Let's go to the audience. And David's brave enough to dive on in since time is short.

Thank you for doing it. I know, thank you. You guys are like the Taylor Swift of, of VCs and podcasts. It's great. You got the Nody gang. It's like you got the Swifties. It's great. Oh, I was like, how do we feel about that? Is that a good?

Taylor's the best of all time. Totally. Just like the Swifties. Okay, good. I'm glad you met it that way. Well, then I'm going to go to the topic that everybody's talking about since time is short with you. BeardScript wants to know what is your take on the crypto ecosystem.

after everything that's been going on lately, do you see real value coming out of it? You couldn't avoid talking about the crypto ecosystem. Come on. Totally can't avoid. I think it's great. I think it's wonderful. It's new frontiers.

All of it, right? Like, it's just, I don't see, you know, all we do unacquired is we dive deep into history of, you know, tech history and investing history and company building history and nerdery and industries. It's always the same. You know, there were,

57,000 oil companies after oil was struck in Pennsylvania. What was the name of that town? I can't write it. You know, standard oil emerged, but like the same with the auto industry. Like, it's a new birth of a new industry. It's great. Tons of scams, tons of fraud. People will lose tons and tons of money, but people will also make so much more money than

they ever imagined. So kindergarten is going to be, you know, this like $3 million size, 75K. You're going to do about 40 names, 40 companies. in there. How many of them will be cryptic or crypto-related? Not as many as we've wanted so far. I think, let's see, I can tell you, we, just about 10% so far, web three and crypto. So four or five of them, yeah, got it. Yeah, we would like it to be more.

How do you make your determination that it's not a scam and that it is something worth placing a bet on? Because we both know it's filled with scams, grifts, and a lot of people talking, but not a lot of code being written. How do you make those decisions? Well, ironically, I know there's a lot of debate about this in crypto and Web3 land right now from Jack and others. But ironically, I think VCs still have like full-time big VCs still have a pretty important role to play in Web3 and crypto. And it's related to this. Like say what you will about Andreessen and everything they've done and not done and mostly done in Web3 and Crypto.

they are a great and others like them are great taste makers, both tastemakers and diligence doers of like what's for real. So we do, well, almost exclusively we invest alongside folks like that. That's not to say we just totally outsource our diligence. We know these founders too and we connect with them through the pot or other means. But like we wouldn't we wouldn't just like lead us. aft in a company that nobody else is coming into. Like, no, no, we're going to come in alongside True or Adreson or, you know, Kevin

Rose or like, what have you. That's interesting. It's, it's fundamentally risky capital, but they make it safer. Yeah. When they're bringing, because it's such the Wild West, it's not just capital. Sorry, if you wouldn't mind you could define SAFT for us. Oh, sorry. Simple agreement for future tokens.

Same as a safe with equity. And, but because it's the Wild West, it's not. just capital that these folks are bringing. It's gravity to these startups of like, no, this is for real. And if you are, you know, developer talent, like everything in the ecosystem, you should coalesce on this. And there is absolute value to that. Anointing is a thing. When you are a brand name, you put your name on something, whether it's YC, launch, Indrice, and Chamath, whoever, you know, there is a halo and people are going to pay attention and, you know, that's a double-edged short because if it turns out to be, you know,

a scam or a fraud or it turns out to be brilliant, you know, you get, it goes both ways. Molly, any more great questions from our noty, nody, nody gang? I think the perfect place to end, actually, is OG Bobji, which we should probably make the question for everybody as they go out, which is what aspect of an, I swear this is not self-serving either. It was Bob's idea. What aspect of investing has been the most difficult to learn and what skills are you most focused on improving? That's a great OG Bobji question. Right?

Wow, wow. Getting down to basics. Okay, I have two answers. One easy, one easy and one hard. Oh, they're both hard. One is just Andy's question of like, do you have a really good reason why good founders are going to take your money? And for large swaths of my career, you know, I did not.

You can feel it because like you don't get into good rounds or, you know, you feel lucky if you get into good round. And then, you know, it's like traction at a company. Like once you have a good reason, it's like, oh, wow, I get into like a lot of stuff now. And it takes a long time to build that, or at least it did in my case, you know, a decade plus from starting in the industry until acquired being a big enough community that this made a difference. I think the other answer to that is like where it fits in my life investing. for the longest time I defined my identity as being a professional VC, both that Madrona and then when I had my own fund.

And that was like, anybody who met me, I would say, this is what I love doing. It's what I was born to do. This is my calling. And now obviously, it's not my day job. And yet ironically, I'm doing better than I ever have at it. And so just like understanding that that personal journey has been quite, the journey for me. But yeah, that's my answer.

It's a, it is a very rewarding job. And you get to hang out with some of the most positive people in the world who want to change the world and who are hardworking. But it is a grind. And it's a never-ending grind. And so you can get burned out on it. You see it many times, you know, people, you know, Jeremy Lue at Lightspeed, I understand, retired. Obviously, Bill Gurley isn't at the next fund. You kind of to get to a certain point and you're like, well, checkbox, checkbox, checkbox, and then you really have to look in the mirror and say, do I actually like taking these meetings? Do I actually like going to these board meetings? Do I actually like dealing with, you know, the car flipping and going off the side of the road and dragging it back out of the ditching, you know, redoing the suspension? Because that's basically what happens constantly, isn't it? And I think it starts to, even when you're successful, I don't want to say that I had that experience myself when I was a professional VC of being successful. But I think the movie just starts to look the same and play over and over again. And, yeah, it's really fun.

I never would have said I wanted to go be a founder or start something or operate anything. But like running acquired and building that business has just been this great joy in my life that I never thought I would have and ironically has made me a much more successful investor. And yeah, I'm just glad I get, you know, both of you like, you invest, but you also do these other things, right? And that keeps it fresh and industry and you're building something. It is one of the great privileges in life, if you get successful at either of these pursuits, broadcasting or investing, that you get to pick what you do. And I think it's very important, especially for young people who are watching, you know, we're all in our second, third, fourth decades of working.

And it's important at some point to just really think, what do I enjoy doing? What am I great at? And then what is the world need? And if you start doing those circles together, somewhere in the middle is just pure joy and bliss. The world needs this. Yeah. Yeah, I love what you're describing too, David, about not only deciding where things fit in your life, but essentially hacking, raising a fund, right? Like, I have always been a big believer in hacking your job.

There's the job that they tell you you have, and then there's the job that you actually want. And you just, like, work until you figure, until they realize what job you want to do. And you have essentially said, like, there was a way that people did this forever. Lovely. Turns out there are a bunch of new. tools to do this as I mean, who would have thought there would be a low lift fund that didn't have to be your full-time job. Like, that's a great realization, actually. Yeah. I mean, if you had said that to me or anybody three, four, five years ago, we would say that's insane. That would never

happen. Yeah. The whole thing, you know, if you just think about the innovation in the last decade in investing from syndicates to microfunds and SPVs and accelerators, All of these things, you know, 20 years ago seemed crazy. And now they become standard and everybody thought we'd run out of companies. And it's like, yeah, we're still not running out of companies. And we're still not running out of ideas. We're still not running out of problems to solve. I think it's one of the great fallacies of human existence that, oh, we're going to run out of work to do.

We're so industrious that humans that we keep finding things to keep ourselves busy. The fact that YouTubers, you know, and influencers can make a living, or crafts people on Etsy can make global livings. We just keep inventing new work and creating new projects. And we wish all the success in the world. If people want to pitch you, what's the best way to get to you to get that 75K? Great question.

Well, the best ways come on the acquired podcast. The best way to come on the acquired podcast is to build a great company. Barring those two things, the acquired slack is by the best part. There's a little hack. We never heard that one. Yeah.

So being a meaningful contributor to a community and then maybe making a great MVP or, you know, and like you said about Andy Ratcliffe, it has to be something. It's got to be, it's got to be something. And sometimes it's a journey too. Like Austin, who I mentioned, who's at Solana, he joined the acquired. He was one of the first folks in the acquired Slack, you know, years and years and years ago. I think he was right out of school. He's had three jobs since then, you know, ends up now he's still young.

He's running all of marketing at Solana. like it's just been amazing to watch his journey and plenty of other folks along the way. And so we meet folks like that. We're like, holy crap, whatever you do next, we want to be a part of it. This has been hacking VC with David Rosenthal, aka the Angel series. Thanks so much for the time and the insights. I think there are going to be a lot more trying to do what you're doing right now. All right.

A lot of 10 years of the world. Thank you both. We'll see you all next time. Bye bye-bye. Bye.