This Week in Startups - Google, Microsoft, and Snap earnings, plus the state of VC in the Middle East | E1834

Episode Date: October 25, 2023

This Week in Startups is brought to you by… Embroker. The Embroker Startup Insurance Program helps startups secure the most important types of insurance at a lower cost and with less hassle. Save up to 20% off of traditional insurance today at https://Embroker.com/twist. While you’re there, get an extra 10% off using offer code TWIST. CLA. Innovation takes balance. CLA's CPAs, consultants, and wealth advisors can help you get from startup to where you want to end up. Get started now at https://CLAconnect.com/tech IntouchCX. Looking for ways to make your startup more efficient? IntouchCX has a ground-breaking suite of AI-powered tools for end-to-end optimization to give your business the edge it needs to thrive. Get started with your free consultation at http://intouchcx.com/twist * Today’s show: Jason kicks the show off with a discussion on the state of venture capital in the Middle East (1:34). Then, he breaks down Q3 earnings reports for Google, Microsoft, and Snap (18:12), and much more! * Time stamps: (0:00) Jason kicks off the show (1:34) The state of VC in the Middle East (10:15) The founder ecosystem and adapting to EU regulations (13:57) Updates on "THE LINE" (16:45) Embroker - Use code TWIST to get an extra 10% off insurance at https://Embroker.com/twist (18:12) Google Q3 earnings (22:48) Microsoft Q3 earnings (28:21) CLA - Get started with CLA's CPAs, consultants, and wealth advisors now at https://claconnect.com/tech (29:57) Snap’s Q3 earnings (38:33) InTouchCX - Get started with a free consultation at http://intouchcx.com/twist (39:57) Snap’s Daily Active Users (DAU) (43:15) Frameworks for investing in consumer internet companies (44:56) Greycroft layoffs * Read LAUNCH Fund 4 Deal Memo: https://www.launch.co/fourApply for Funding: https://www.launch.co/apply Buy ANGEL: https://www.angelthebook.com Great recent interviews: Steve Huffman, Brian Chesky, Aaron Levie, Sophia Amoruso, Reid Hoffman, Frank Slootman, Billy McFarland, PrayingForExits, Jenny Lefcourt Check out Jason’s suite of newsletters: https://substack.com/@calacanis * Follow Jason: Twitter: https://twitter.com/jason Instagram: https://www.instagram.com/jason LinkedIn: https://www.linkedin.com/in/jasoncalacanis * Follow TWiST: Substack: https://twistartups.substack.com Twitter: https://twitter.com/TWiStartups YouTube: https://www.youtube.com/thisweekin * Subscribe to the Founder University Podcast: https://www.founder.university/podcast

They painted this as if Greycroft is like struggling or some kind of train wreck. I can assure you this is like a sign of actual strength. What they should be saying is, Raycoff has the Hootspah, despite having $25 million a year and fees on their billion dollars, they have the Hutzpah to let go of a couple people and refocus and add some people and, you know, make some trades for their team. This is like trading, you know, a starter, you know, on your team and like two of your bench, players, rotation players, to get slightly better, you know, a slightly better starter and a couple

of better rotation players. This is far from a sign of weakness. This week in Startups is brought to you by Embroker's 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 of traditional insurance today at embroker.com slash twist. While you're there, get an extra 10% off using offer code twist. innovation takes balance. CLA's CPAs, consultants, and wealth advisors can help you get from startup to where you want to end up. Get started now at clyconnect.com slash tech. And InTouch CX.

Is your startup entering a new stage of growth? Intouch CX offers AI-powered automated solutions designed to help you scale smarter. Visit InTouch CX. p.com slash twist to build your custom strategy. Hey, everybody, welcome to this week in startups. It's your boy, Jal, and I am here in the kingdom of Saudi Arabia. I am reporting live from the FII conference. You may have heard about my first trip, actually, to Saudi Arabia and have learned a ton.

I'll share some of those thoughts on the all-in podcast, episode 151, if you're wondering what it's been like over here. And I'm sure producer Nick, who's going to come here and read the news with me today, we'll have some questions. But let's get started while I've been here on my trip to UAE and to Saudi. There's been a lot of news breaking, huh, Nick? There has, yeah. Can I ask you a quick question about your trip, first of all? Of course. You get into anything? So when you went, did you take Emirates? Did you fly Emirates? I did. I did. Now, you're aware of Emirates. Yes, I've heard that Emirates first class, the highest level you can get a first class, is actually better and more comfortable and more luxurious than like chartering your own small jet in the U.S. I've heard that. That's the rumor. Yes, that is true. I flew business class. The first class tickets because there were two conferences going on. There's a Saudi conference, FII. And then there was essentially what's a CES of the region going on in Dubai the week before. So all the tickets have been sold out. And so I looked at a first class ticket. There were so few left. It was $25,000 round trip. And so that's a note for me.

Yeah, the business class ticket wasn't cheap either. It was $9,000 round trip. Usually I think it's more like six, but there's a direct flight from San Francisco to Dubai and it takes, I think, 15 hours. So, but luckily my jet lag was great. I've gotten used to this flight and, you know, I'm just learning a ton here in the region. It's interesting time to be here, obviously, with all the tragedy going on in this war. And I've been speaking with many people who are Palestinian. I've been speaking with many people who are, from both sides and it's been enlightening but the changes that have occurred over here in the region have had me have caused me to really underwrite everything I know about Saudi Arabia

now I know UAE and Dubai have been incredibly progressive and changed a ton but that's a 20 year story what's happened here in Saudi is like a four year story and what's happened here is nothing short of amazing the amount of freedoms the what's happened in terms of the economy and people starting companies and the social change.

They told me if I see it three or four years ago, there wouldn't have been music, dancing, women in meetings, and, you know, just the whole society has really changed dramatically in a very short period of time. So it was very encouraging. And the people here are some of the most hospitable, warmest people ever. they are almost universally listened to All In and all the founders and VCs listen to this week in startups obviously so I got an incredible welcome here. The food's been amazing and I've learned a ton.

We don't have any business interests here at the moment, but I'll make an announcement here, and this is you're going to hear it for the first time. I am going to build a partnership to bring this week in startups to the region. I'm so excited about the startups here, and there have been a number of unicorns. You may have heard of Kareem, you know, that Uber bought for a couple billion dollars. And the ecosystem is very strong between Egypt, Jordan, Saudi, UAE, Kuwait.

So it's really exciting for me. It reminds me a lot of the ecosystem I saw emerge in Stockholm and Australia over the last, say, 15, 20 years with Atlassian. We had Scott on recently, you remember. And then, of course, you know, Sweden with Daniel, Act, who's been on the program. From Spotify and Karn. Oh, yeah, we've been back and forth. Great guest. Okay, so anyway, any other questions about the trip or the region or are you way for

all in? No, nothing. I'm good. It sounds great. That's interesting. The big thing I've learned, Nick, is their commitment to venture capital is going to make them number two. I'm going to make the prediction right now here on the...

What the hell is going on with your screen? I put up the number two. I said, I'm going to make the prediction here. I wonder what that was. I did something with the AI and it made balloons go by. I'm going to make a prediction right now and I put up the number two. And two, I think the region, and when you say the region, Middle East region, Mena, I think this is going to be the number two player in venture capital within 10 years.

And that's a big statement. Now, when you say number two player, do you mean in terms of LP commitments or do you mean in terms of actual firms investing in startups? Yeah, I think it's going to be both. And that's a really astute point. You kind of got right to the heart of this. I've been meeting with a lot of the family offices here. So in Saudi and UAE, what you'll have is family offices. And these families would have built some incredible business 56 years ago.

And it's not just in oil and gas. It might be in money exchange. It might be, you know, in being the Pepsi bottler in the region, et cetera. And so you meet these family. offices and they were in these like grinded out absurdly operational businesses. Then they made money. And then these families will, they really are family businesses where generation after generation participate in the operating of these businesses.

Then they make a little bit of money and they maybe will open up Toyota dealerships, as but one example, McDonald's, Starbucks, whatever. They become the local partners of those. Then they might do real estate. And then they, the private equity people have been coming to the re-eastern. region to raise large amounts of capital to go buy other businesses around the world. So they learned about private equity. And then at some point, you know, if you go down the private equity rabbit hole,

you eventually like wonder where are these private equity come, but where are the companies coming from that private equity buys. Oh, sometimes they're public companies. Sometimes they're venture capital based companies. Then you watch the venture capital companies. Then they eventually will work with a partner like Stepstone, which is a consultancy that will help them get access to venture firms. It's traditionally been hard to get access to venture firms.

So they invest in venture firms through a fund of funds. Right. So they'll give money to a fund of funds. That fund of funds would give money to somebody like me or another venture fund. Like Sandana is a fund of funds. Yes, correct. A venture firm that invest in other venture firms. Exactly.

And so then they might directly invest in a manager like myself. And then they might do co-invest. So they would look at something coming out of Launch's portfolio or, you know, I don't know, Chimoth or Sachs' portfolio. And they might say, oh, we'll co-invest in that. So you invested in the A and the B, we'll invest in the C, right? So they get to make like a direct investment, get on the cap tab. Well, not join the board, not pick the company, the GP, an adventure firm that they're in,

given that guidance. And then eventually they start their own firms. And so Sonabille, which is a venture capital firm here in the kingdom, or a fund of funds in the kingdom and invest in venture capitals, and Mubadala have both opened offices in San Francisco. So then you kind of see the end game coming, which is they're going to be investing directly in startups alongside us. and, you know, we'll be in board meetings in the U.S., in Europe, and people in the region will be represented on those boards. And overall, company building is hope, right?

And I think when people build companies together, there's always that McDonald's rule, people who, you know, if you have a McDonald's in your country, they don't go to war, was, I think, something Thomas Friedman came up with. And there's something to, you know, companies and countries that work together, you know, being a, to collaborate on a lot of different things. And that's what I'm really excited about is I think, especially at a time like this time, if people are building companies together, it's pretty fantastic. And I think that kind of collaboration,

investing in companies, building companies. And so that's why I want to do like a 12 episode series of this week in startups in 2024 from the region, interview the VCs here, interview the top companies, and just educate people in the U.S. as to what's going on here and share information directly over podcasts, right? as opposed to through CNN or Al Jazeera or New York Times or Times of London,

like maybe just get people direct to the founders, direct to the venture capitalists and just create that bridge of understanding because it's no different than in the United States, if I'm being totally honest. Can I ask you one more question about the region? Sure. So what is the founder ecosystem like? Great question.

Because I read, and this is specifically just the other day, I was reading, there was a thread on Twitter on X about, how it is so hard to build and scale a startup with all of the EU regulations right now. And somebody basically took through the process. I think they were referencing like, okay, here's what it's like being a normal German founder. You get your advanced degree. Then you get a grant from your school, non-dilutive, and you're like, this is amazing. And then it takes you three years of building the product to get through all of the EU licenses

and everything that you have to apply for to even be able to sell a product to people. And then by the time you're done with that, you're like, okay, we can raise money. But then since you've had so little progress during that time, you raise like a really dilutive round, like a seed round. And then all of a sudden you're like six years in, you're 34 years old. And you're like, oh, my God, this is terrible. So do you think that there's going to be a pipeline of founders from sort of the Europe region that are like, wow, it's way easier to build a startup in maybe the UAE? So once again, you've made a great observation. And then to fill you in, in Dubai and the UAE, they have something called a golden visa.

They will give you a visa for 10 years, like if you're coming here and there's no tax. So people from Hong Kong, Singapore, Indonesia, Australia, and Europe are coming here and they're headquartering their companies here. So just think about how amazing that is no tax. Then to add to it, Saudis and Dubai and Abu Dhabi are creating programs where they'll give a founder who moves their company here or grant might be 100K or it might be a free office space and I'm actually in an office space here in Riyadh called The Garage, and this house is 150 startups.

This is like, take the three or four largest we works you've ever seen and put them together. That's the garage. It's unbelievable. I mean, when I say there's 150 startups here, it's nuts. And so they will give you free office space. They'll give you a grant, perhaps, and they'll pay for your apartment in some cases.

So if you're a founder, imagine basically having, you know, whatever, a quarter million dollars worth of expense, and then everybody gets a golden visa and you don't have to pay tax. So for startups, it would be like having Y Combinator and launch accelerator investing in your company and giving you an apartment. You know, like it's quite a loring for startups. And so it may not, maybe not for U.S. startups coming here, you know, that's a big trip to make. But for Europeans, for people in India and for people in Asia, it's a very easy trip. you know, Dubai is two hours away from India and Saudis made and Saudis two hours from Dubai. So everything is right. There's there's four billion people within, you know, a couple of hours flight of Dubai and Riyadh. So these are very, very close to a large number of people.

The customer basis here are pretty variable. UA.U is a tiny country. Saudis is 35 million. Egypt's 100 million. Egypt has a lower amount of revenue and income. per person, but they do adapt technologies quite quickly. And then Saudi is like unbelievable revenue per customer. UAE is unbelievable revenue customers. So the most profitable places in ride sharing and food delivery, UAE and Saudi. These businesses are profitable.

I'm at a buy now pay later company, profitable out of the gate here. So the companies here can get profitable very quickly because the customers are so well healed. And then they do have big average revenue per user, RP. One last question about Saudi. Sure. Since you've been there, have you heard any on the ground whispers of the line? There is Neum. Yeah. Which is essentially a new city they're building from scratch. They just opened the first hotel there. They invited me to go, obviously, I have to get back to my family and I've been here for quite a trip, almost two weeks. So the line is like second

decade of Neum. Neum is going to be a new city that they're building on the water. And this like beautiful ocean. So it's essentially going to be, you know, Saudi's Dubai or just a new city from scratch. And then they build special zones within these that are culturally more like the West. So as an example, in Dubai, they have a news zone, a media zone where media can go and operate freely.

And then in Dubai, they obviously have alcohol. You know, in Saudi they don't have alcohol yet. But there's rumors, and there's been a lot of talking read about in the press, that maybe in Neum, because that's going to be a tourist destination and tourism so big, maybe that would have alcohol or wine. Even in UAE, they're going to have a win casino outside of Dubai, like two hours outside of it. So, you know, it's becoming in terms of personal freedoms and culture, you know, this is more

change in the last three or four years than in a hundred. It's pretty extraordinary what's happening here. And so I'm really excited to see the massive positive change. And again, you know, not to be cynical or anything, I have no business interest over here. I just had an interest in learning, right? And I think the next step for me is to maybe do a 12 episode run here of podcasts and then, you know, share with you what's going on here. And so, and everybody's over here. Jared Kushner's here.

I saw him, you know, every fund manager, tons of startups are here. I ran into everybody while I was in Dubai and Riyadh. and it's pretty amazing the business deals that are going down and how active everybody is. That's great. Well, while you were doing that, I grew a mustache to annoy my wife. Oh, yeah. Well, and also your boss. So well accomplished.

I don't know who looks more ridiculous, me with these Bono glasses or you with that mustache. Put us together. Both our wives hate us. Yeah, I was going for Brad Pitt and Inglorious Bastards, but I think I'm more likely for Pedro. So, you know. No, I got the Brad Pitt one. I think I think you're pulling it off. Yeah, yeah, I think so.

You're definitely not Brad Pitt on the roof and once upon a time in Hollywood fixing the antenna. I need much more more. Much more. A lot more chiseled dry, much more blonde hair. Pretty gratuitous scene, huh? He's like, you know what? I'm up there on the roof. I might as still take my shirt off and have a beer.

Yeah, I think Tarantino was just kind of letting him fly on that one. He's like, let's just go be a movie star. And he did a good job. Yeah, do it. Yeah. All right, listen, we work with super early stage companies at my investment firm. It's called launch. I'm talking pre-series A, right?

We're talking seed stage, friends and family. And you know what? At that stage, maybe they don't have insurance yet. In fact, just recently, we have an amazing startup. They didn't have D&O insurance. If you don't know what D&O means that basically protects your directors and officers, directors, board of directors, officers, the people who run the company, your management team. So what do we do?

We send them right over to Inbroker. Inbroker is business insurance built specifically for startups. Inbroker's single application helps startups get four quotes for four lines of coverage in 15 minutes. They connect you with one of their expert brokers for unmatched service, and that goes beyond your policy, okay? We use this at all of our companies. It's easy, peasy, lemon squeezy. And if you're not getting insurance, you know, at some point you're going to have to get it. So let's make that point today.

Right now, this weekend, tonight, just go to Embroker today with the code twist. and you'll get 10% off their startup package. How do you get the startup package inbroker.com slash twist? That's E-M-B-R-O-K-E-R.com slash twist. Make sure you use that code twist for 10% off. That also more importantly than getting the 10% off. That shows them that you're listening to this week in startups. So we love in Broker.

They've been amazing in terms of supporting our founders for years. And, of course, this very podcast. Great job in Broker. Anyway, back to some tech stuff. Shout out, Q-T. We had, yeah, we had Google, Microsoft and Snap report earnings yesterday, yesterday being Tuesday. For Microsoft and Google, both had strong overall performances, but Google's actually down 8% on the day. And basically, it was a tale of two different cloud businesses.

So let's do Google first. Okay. Google beat on overall analyst estimates for both its top line and its bottom line. It had its first double-digit year-over-year revenue increase. And over a year, they were up 11% to $76.7 billion. dollars, but they missed on cloud revenue expectations. So the stock is right now down more than 8%. Market cap is still $1.6 trillion.

And if you just want to go through quickly, I'll list them off. Q3 revenue, $76.7 billion, up 11% year every year, up 3% quarter of a quarter. Net income, 19.7 billion, up 41% year over year, up 7% quarter over quarter. And specifically... So that is going to be based on lowering the staff size, the layoffs, cutting costs, right? Yeah, they're down about 10,000 employees from the peak. Sure. YouTube ad revenue.

So, you know, this is the important one, too, is the YouTube ad revenue, because YouTube kind of seems to have hit a bump for a little bit there, right? It wasn't growing as fast as they're going. It's been floating right around seven and a half to eight billion for the last like six quarters, it feels like or so. Yeah. Add revenue, again, $8 billion, up 12.5% year over a year, up 4% quarter over quarter and came in above expectations.

They turned it around. And then again, cloud revenue, 8.4%. billion up 22 and a half percent year of year but actually came in slightly below expectations. I just want to point out that this revenue is up 11 percent year over year, but the number of employees is down like 4 percent or something, 5 percent. So they're at 182,000 employees from a peak of 190. And so this is part of the overall story of getting fit in Silicon Valley, doing more with less. The number of employees goes down year over year.

by four or five percent, the revenue goes up 11%. So this is efficiency and this is what the street has wanted from them. So I'm surprised that the stock reacted negatively. Is this because Microsoft's cloud is doing better than Google? Is that the story here? It's basically a proxy for how they're doing in AI in their AI services. So I think that's really what it's all about. But there is one chart that I saw that I thought was interesting to bring up.

So the chart on the top is Google's total quarterly revenue. by quarter. And the chart on the bottom is it's year over year quarterly revenue growth. So you can see in the beginning of COVID, obviously for one of the, I think, I guess the second time ever, Google had a actual negative, it had negative growth in a quarter. And I think that was Q2 of 2020 when COVID first hit and advertising pause and everything. The whole world felt like it stopped. And then after that, you could see the insane revenue scale up to at one point Google had over 60% revenue growth year of year. And obviously that was because that was the quarter of the year before where revenue

crashed down. But if you just look on it on a cumulative basis, their revenue quarter over quarter, it's pretty amazing to think that they're scaling $70 billion of revenue. Even growing that 10% is amazing. These are big numbers. And I think that's a really good point. But you do see when a company gets to the scout, it's hard to move the needle. There's no acquisition they can make.

That's going to change this, right? There's what companies making $10 billion a quarter that could grow them 20%, right? You would have to get into something like Tesla, Uber, Airbnb. They would have to be able to buy one of those companies in order to like really jump this revenue up. So this is, you know, these are turning into value stocks in a way, if you think about it that way, as opposed to high growth stocks. And what they could be doing, though, is they could pull out of Apple's playbook buying back shares. So with all this cash, if they want to see that stock go up, buying back shares or issuing dividends, which is essentially the same thing when you think about it, buying back shares just gives you a cash-free dividend for the moment.

If you get the dividend, it's going to be double tax. The company's going to pay tax on it. I think you're going to pay tax on it. I think that's how it goes. So it's really going to be all this is going to be about, I think, at the end of the day, they're not high growth businesses. They might have moments of high growth. growth, but you're absolutely correct. When you start making $70 billion, it's kind of hard to

grow that significantly. Yeah. And then transitioning to Microsoft, Jason, you just mentioned buybacks. Microsoft announced that it bought back $9.1 billion worth of shares this quarter, which is technically it's Q1. They have an offset fiscal year. Microsoft beat on top line and bottom line. The stock's up almost 4% or it was as of, you know, noon. Yom. Yeah. 2.55 trillion dollar market cap. Q1 revenue, 56.5 billion up 13% year of a year, up 1% quarter of a quarter. Net income, $22.3 billion, up $27.000 year over year,

up 11% quarter of a quarter. Azure was the big winner, up 20, still growing, almost 30% year of year, up 29%. Intelligent cloud revenue as a whole was up 19% to 24.3 billion. Why are they put the intelligent cloud in front of that? Yeah, they group Azure in with the intelligent crowd,

so they don't actually tell you their exact revenue. they just tell you the amount Azure grew on a percentage basis year over year. And Satya in his comments mentioned AI almost 30 times in his opening statement. Here's a quote with co-pilots. We're making the age of AI real for people and businesses everywhere. We are rapidly infusing AI across every layer of the tech stack for every role and business process to drive productivity gains for our customers. So they know.

Perfect. Yeah, they know where they're going. They know what's up. Yeah. Yeah. I mean, co-pilot is the obvious. proof point here. Anybody who knows a developer

hears from them that they're 10, 30, 50% faster depends on the task and how unique your code basis. So if that can happen with developers, that can happen with accountants, it can happen with lawyers, it can happen with designers, it can happen with strategy people, people who make PowerPoints. Every executive, human resources are going to be using some sort of co-pilot

to make themselves really fast. And, you know, you and I, remember we did, we tried to this This Week in Startups Archivist and hire somebody to go through and transcribe everything and organize everything? Well, if you go to This Weekend Startups Now.com, we are using Podcast AI. They transcribe every episode of the show. They know who the guests are. They tagged it. And now you have a full index search. We were going to spend $100, $200 per episode to do this with 2,000 episode. That would have been about a $500,000 project. I was thinking about investing in it for the legacy of the show. And what, three years later, AI,

doing the whole thing, and it's just done. Yeah. And so this is a really important point. You and I were trying to figure this out. I think it was two years ago. Yeah. We had a lot of, what do they call that, technical debt with the old website? Because the old website had every single episode, it had it numbered, it had a small description

of it. But it was built on this old WordPress infrastructure that was so, I mean, you know, and for the time it was probably in 2009 when you started it, it was probably like the best out of Matt Mullen. Yeah. But my God, it was just impossible. to figure the site out. So we had to totally strap it.

And now a company we've invested in podcast, I just did the whole thing. And you guys shared a clip last week from, you know, there's about a hundred companies making, you know, make an automated clip from the podcast. And you yourself said,

not bad, like you gave it a B or something, a podcast clip recently from this. And I was talking to the founder about it. And I was like, you know, there's a bit, this is a whole other side discussion,

but there is a really, um, in terms of like podcast, TikTok, clip creator tools, there are like two ways that you can go, right? You can go the route of, we want to build a browser-based editor that's like really, really basic. And we're going after the sort of, I'd call it creator class, right? The individual, the indie podcaster, the solo person that wants to make a clip, it doesn't want to spend money on an editor. Or you can go after more

of like the enterprise class. And what that means is, you know, no real editor, I don't think is ever going to use a browser-based, like, sort of mish-mosh together solution. But what I was talking to the founder about, I'm like, if you want to go after like real editors, what you need to do, this tool is amazing. And it's amazing how you could basically do a cutout of the video, overlay it on stuff all automatically. That used to take a lot of time in After Effects. Now you could just do it like this, right?

Which is great. But if you really want to capture like the enterprise editor market where the real money is, I think, you have to make it exportable to premiere and exportable to other editors. software, right? And that's what this founder did. And I was like, this is, there's something here now, I think. If it's easily exportable, and you can drag it. A TikTok video with, you know, moving animations, putting the, the captions on top of it an interesting way. But if you export it, then you get all the layers and that you can then edit and refine and make it perfect. So you could polish. So say they get you 70% there. That last 30% is really the part that you need a

human to do, right? At least that's what I think. Maybe someone will figure out the solution soon, but that, I think, is where the money is right now, and that's what this founder is doing. So that's why I thought that was really interesting. I mean, it takes us two hours or four hours to make a good quality clip. What does it take now? Probably two. Yeah. Probably. Yeah. So if an editor, you know, full-time editor, or even if you were to use somebody offshore, let's call a 30 bucks an hour, I don't know, for like a decent editor who could do it. A freelancer might be 30 or 40, you think? So it winds up being 60, 80. Let's round it up to $100 a clip.

You know, if you take out 70% of costs, it's basically taking out $70 of the $100 a clip in cost. So you could either make three times as many clips or you can move on to the next thing on your to-do list. All right, everybody. Stephen Estes is a principal at CLA. Clifton Larson Allen. This is a professional service provider.

That specializes in CPA, tax consulting, and wealth advisory. Welcome to the program, Stephen. Thank you for having me. What are the big mistakes people make when they're architecting, their accounting, their cash management? What are the company killers that you see most often? Since we're talking about startups and things that break companies,

I mean, a lot of the things that I've seen out there can be around equity-based comp. One of the mistakes we'll see, and I've seen some pretty wacky stuff over the years, is founders, CEOs promising to, you know, some of the key people that they're going to get equity at a certain rate, or like their last 409A, but they've just raised a series A or series B. And now the value of those shares is up 10x. And now there's a $200,000 tax problem.

And we need to now go back to the board and try and get a bonus to this person to cover the tax. So I think that that's something that gets overlooked by a lot of startups and a lot of founders. And I think that it's important that all founders have a basic understanding of equity-based comp. I mean, they don't need to be a CPA, but they should understand the difference between a non- qual and an ISO and an early exercise or restricted stock awards would be the right thing. And if an 83B election would help out and what that is and what the implications are. Get started right now at cLA connect.com slash tech. Let them know your boy, Jake Howell sent you.

CLA connect.com slash tech to get started right now. Okay, you know, the thing I'm really excited about was Snap. I saw Mark Pinkis tweeting about Snap. He's got a big position. I was thinking about putting a J-Trayed. on for SNAP. At the end of this year, I'm going to clear out all my losers in my J-Trade portfolio so that I have all those losses to take against some wins I have in the portfolio. So there's going to be a bunch of cash coming in.

A little TLH coming in. And so we're going to just annihilate the losers from this portfolio. Shout out Disney. Shoutouts. Warner Brothers. Who else cost me money this year? Sitchfix. They're all about going to get clear it out. And then we're going to have to put some money into something. I'm looking at Snap. Okay.

So take me through it. Yeah, I just, I might have to talk you off the ledge here a little bit because snap stock was up slightly after initially jumping. Initially jumped almost like 20% in after I was trading. I saw that. Beat top line, beat bottom line user metrics, beat expectations as well. Their market cap is relative to their revenue pretty low. It's a pretty cheap stock. It's $15.8 billion market cap.

Q3 revenue was 1.2 billion, basically, up 5% year over a year, up 11% quarter over quarter. Snap's year over year, quarterly revenue growth had been declining for two consecutive quarters, but now they just increased it, so they're sort of back to growth. If you go with SNAP's trailing 12 months revenue, they're trading at a three and a half times price to sales. Wow. Yeah. Daily active users, 406 million up 12%. That's the thing that got me.

That's a lot of people. Yeah, I'm a little dubious about that number. I'll be totally honest with you. Snapchat Plus, which is their paid subscription. It's two bucks a month. Yeah, how's that doing? It has five million paying subscribers they announced, or they announced they surpass five million paying subscribers. So at least $10 million a month in revenue from that.

200 million users have sent over 20 billion messages using Snap's My AI tool. Net loss was $368 million, which was basically flat year over a year and slightly lower, slightly less of a loss. Why are they losing money? I thought they were trying to become a profitable company. I don't understand what Evans do. So this is the big thing with Snap. They've lost money in every single quarter that they've been a public company, except one, at the end of 2021, where they were profitable, on a net basis, they were profitable, like,

$22 million or something. It was basically they were breaking even. What is Evans thinking here? If the entire world would give him huge credit, like they did Uber and Airbnb for being a profitable company, why is he still living in 2020 in the ZERP environment he's got to leave ZERP he's the only person who hasn't gone post ZERP

Yeah so I don't know that answer to your question But what I do know is that I think Evan and his CTO The two co-founders Due to their super voting shares They control 99% Of the outstanding stock

Right They don't care Voting shares in SNAP So they can basically do whatever they want Here's the thing shout out to Evan and his partner for having

a Hootspa. If you're going to have super voting shares, you might as well use them. And so obviously they have some thesis here that losing a billion dollars a year or a billion two makes sense. I don't know what they're thinking,

but they, I think they're content having a $15 billion company. If it was profitable, it might be a $20 billion company or $25 billion, but I guess they don't care, maybe more,

but maybe they don't care about that. maybe they got some grand vision here and they want to keep growing the user base. Yeah, and they've been, they've done a ton of work on their like, you know, AR lenses, um, developer platform, which I think is,

is, that's great, but I, I really don't know how many people are using that. Like, it's a side quest. Yeah. And I have some of my own thoughts on Snapchat as someone who's used it forever,

but, um, just let me grow it. You get married and you have a kid. You're, I mean, I've, you're way too busy.

I probably was Snapchat's, first like real demographic. I think it came out when I was like a sophomore in high school. So I was really the first like group of users that were on Snapchat all the time. It was like all my friends and I. And by the time I think we like left college, most people were basically off Snapchat. I still have like one group chat on there that I will open it for. But for the most part, yeah, everybody's kind of cycled off of it. But they all went to Instagram. Yeah, basically everybody went. And like I message. Like I message groups just got so good that, Yeah, and who wants to get canceled or whatever?

Yeah, I message brought up. So their SNAP's cash position. They have $3.6 billion of cash, cash equivalence, and marketable to world securities. They just announced they're going to repurchase $500 million up to $500 million worth of shares using their cash and equivalence. And as of June 2023, they had about $3.75 billion worth of debt. Now, you can assume that that debt was mostly taken on during a very, very low interest rate environment. So they probably... If it's not variable, they might be paying 3% on it, 2% on it or something.

I don't know. Yeah, and it's corporate debt. And corporate debt always gets like a lower interest rate, right? No, I think it's opposite. I think it's higher. Yeah, like then a mortgage because you have the house against it. But who knows what they struck. You know, there were some weird things going on during that period.

So anyway, let's put it at 5%. If it's 5% and they think that they're going to grow more than 5% in revenue or whatever, then it's a good trade to make, I guess. but using debt to buy your stock back seems to be a little risky to me. That's like paying your mortgage with your credit card. So yeah, I'm off the ledge. I'm back inside.

Actually, I'm shutting the window on this one. I just shut the window. I didn't lock the window. I shut the window, though. I don't need to be on a ledge with these guys, especially not with the money losing. I'm off. I'm out.

I think clearly the stock is cheap if you compare it to its other counterparts and it has a lot of users. But I think just because something is on sale doesn't necessarily mean that you should buy it. And everybody that I see saying that Snap is such a good buy are like guys in their 40s and 50s. Are those Snapchat's users?

No. Is anybody banging the drum about how amazing Snapchat is? Everybody says teens are using it like crazy. Okay. As someone who's used it since its first came out, I actually don't think it's that good of a product. It's a bit of a mess, right? It's a hodgepodge of,

You don't really know what you're supposed to do with it. Like, is it for group chats? It can be the snap map is interesting, but it doesn't feel like that's been fully fleshed out. It seems like they're pouring all their resources into this like AR lenses platform. Didn't they start to de-deprecate that and cut some of the spending on that side quest? So they did, but they just mentioned on the last earnings call that they were like so proud of the work that they were doing in their AR development platform. You know, Evans, like very. cerebral product guy

who doesn't talk all that much and I don't think that this company does a great job communicating with the rest of the world what their vision is and the product is you know he's a product genius clearly yeah

and you know there 400 million people is unbelievable I mean this is like 5% of the planet or whatever use this product Daily active too that's not monthly active users that's daily active and that those street things

they really understand the gamification of all this. What I wonder is the governance issue here, where they don't have a board that controls it, I would think the governance should be such that they would say, let's be profitable, let's buy, if we're going to buy back shares, let's buy $100 million from profits and $100 million from the debt or something, you know, and make it feel more like what Uber's doing. There was a report that came out about Uber might buy something to the effect of like 20% of their outstanding shares.

Wow. That's crazy. I miss that. You know, of like the next five years. It was a crazy report. And so they just up their price target to $59. I think it was Goldman or somebody. And so I think they're reporting on November 8.

So I'm really excited about that. Obviously, I'm a long-term shareholder. And, you know, they've just done a great job. There's like five or six million Uber drivers now. I think there's two million people who work at McDonald's and like a million that work out. It's either two million at Walmart and a million at McDonald's or the reverse. In other words, if you put McDonald's in Walmart together or Starbucks and Walmart together, I think Uber is like twice as many people making money from their platform.

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with IntouchCX. Visit Intouchcx.com. com slash twist for your free consultation with an automation expert. Okay, that's in touchcc.com slash twist for a free consultation. I have one more question for you slash observation about Snapchat. Okay. So they define a daily active user as someone who opens the app. You don't have to send a snap. You don't have to open a story.

You just have to open the app. Not a notification. Not a notification. Just click on the notification. Open the app. That's it. Open the app. I yeah, not not not opening an email.

Actually, you have to open the app. I have been, but I will say I've been getting a lot of notifications over the past monthish, maybe a little bit more from Snap's new My AI tool. So they send you, they'll like populate notifications on your phone, but you can't really tell that it's the My AI when you're scrolling through your phone. So you'll just see that you have like, you know, five notifications on Snapchat and you're like, that's weird. or one of my friends for my group chats.

So you open it. But then it's just like, oh, look at our new feature set for my AI. But then I count as a user that day. You think they're goose in the notifications to get the users up? I don't know. I kind of just looking into it. Because I notice this. I'm like, why do I have all these Snapchat notifications?

Nobody's using it. I think that would be standard operating procedure. You could see, I could see people in a war room somewhere saying, hey, we want to show whatever percent growth. And then somebody saying, you know, how do we get more people to open the app? And they say, okay, let's do birthday reminders. You know, like, you know, a standard game of vacation stuff. Yeah.

And like, oh, what you were doing this day eight years ago, which is fine, I think. I mean, this is just classic ways to get engagement and to get people to reengage with the product. So, you know, here's your Spotify Rewind and that, oh, you want to share your Spotify refund. Other people get it. Oh, here's Nick Spotify. Here's J-Cal Spotify. You know, it just kind of gets you into the whole, you know, or like, hey, you like this podcast. Might you like this one kind of situation?

This artist you follow on Spotify is now on tour. So, yeah, there's a whole group of people who are working at these companies to shape that kind of stuff. And there could be an edict from on high, hey, we want this number for the earnings fall. You know, you can spam people a little extra, which, you know, I guess it's fair game. I guess. I don't know. If it's fair game if the feature doesn't make the person turn off notification. So the punishment for overplaying your hand here is the old.

unsubscribe turn off notifications. Which I just did, by the way. I just turned off notifications because I'm like, why am I getting this? So somebody clip this and send it to Ev and the team over there and let them know, like, don't overplay your hand because I've been turning off notifications like crazy. I think notifications are evil. I'm now like team focus mode and team sleep mode. And I'm been turning off notifications for almost every app.

I literally even turned it off for messages. I'm like, you know what? I open my phone enough. Turn off notifications. And for kids, I'm turning off notification all three daughters. No more notifications. I think on their iPads, notifications are evil. They create anxiety and stress in humans.

Totally. If you're at work and you're using Slack, just open Slack and look at your notification. So you don't need to get pinged about them. It's just anxiety producing. I turned off the slack. You know that slack noise? That goes, do, do, do, do, do, do. Yeah, yeah.

I turned that off a long time ago. Of course, of course. You know, it's anxiety producing. What if it's me DMing you? It's, ugh. Well. Some crazy idea for a new project. I have a framework, I think,

for investing in consumer internet companies. I think I want to run this by you. If a company has the governance and the capital situation that Snapchat has with a lot of outstanding debt, not a ton of cash in the bank, unprofitable, and the founders control everything, then you need to be, to invest in that company, you have to be absolutely blown away by the product. You have to be like early Instagram. Like, wow.

Or the growth. Or the growth. Something has to blow you away in order to ignore the governance issues. There's a great observation. And I think if you want to have the God King. Yeah. If you want to have the God King privilege, you better perform. That's it.

It's a great rubric. If you want those shares, if you want the super voting shares, you better be bringing it like Google has historically. Yeah. And, you know, listen, you know, it's just every time you want to fall in love with that stock, you look at the governance and you look at the debt. and you look at the fact that they are kind of saying we don't care about profitability. And you say, like, does this feel like Amazon and Uber and Airbnb? And honestly, it doesn't.

I would like them to show me four quarters in a row of profits and then I buy the shares. Maybe two even. Show me two quarters, you know, 25 million in profits and 100 million in profits. And I can, I'll buy the stock, then. Yeah, it's $9 a share, right? I could see being a good trade. I could see you'd maybe doubling your money. if something goes right for snap.

But if you're going to hold companies for 10 years, I just, I don't know. Yeah. All right. Anything else going on? Let's do the Greycroft, who laid off a couple people,

the VC firm. This is an interesting one because I saw the story. Basically, Greycoff, I know the folks over there. It's a very large VC. They got over $5 billion. And then there was a story

that they laid off five people. and the question was you know is this like some big you know thing that's you know indicative of a pullback in the industry and people are missing their targets and fundraising and it's this came in from the information which you know listen they're amongst the smartest of the journalists out there

but again they only have 20 as I always say like they have about 10 20 30% of the information so they're going to make a lot of they make a lot of jumps to figure out what this actually means. And so, yeah, tell me what's happened since because I know Axios did a report. I think the folks from Greycroft responded and then there might have been a follow-up. So I only know the first half of the story here. I think I set it up correct, yeah? Yeah, yeah, perfectly.

And in fact, the Axiost story that came out a couple of days after the information story sort of felt like as I was reading it, I was like, it feels like the Greycroft people wrote this for Axios. It was very like, oh, it's just a restructuring. The Axios team knows, you know, they're very, they're certainly not in the pocket or anything. But, you know, Dan over there at Axios knows everybody in the industry and is well respected in the industry. So if you were going to correct something, you would go to Axios. That would be, you know, and Axios is a really, you know, smart, savvy journalist.

You know, I put both of these in the top 10% of actual real journalism. Totally agree. But at the bottom of the Axios article, there was a footnote that was like, Gregcroft was an early investor in Axios, but it no longer owns any shares. Sure. Okay. So yeah, they got the back channel. Fine, sure enough. So anyway, basically they cut Graycroft, as reported by the information, cut five people on its investment team.

Two of them were partners, and I think three of them were principals. One was a partner who was in charge of their health tech investing team. Yeah. Another one was in charge of their FinTech investment team. And basically the information article said, they're really scaling back their health tech and their fintech investments. So this is sort of, you know, I don't know if it was, hey, restructuring. Yeah, you can leave or this or that, but the axiostarticle that came out later was basically like they were allowed to leave.

Yeah, of course. This is how it goes. Like you're just not invited to come back. Listen, I was pretty public about this. We got rid of our climate practice. I tried it for 14 months. It didn't work. And the person who was running the climate practice is no longer here.

It's not anybody's fault. Sometimes, you know, as a fund, you just have to make strategic decisions. Yeah. And it seemed like it was slightly due to some fundraising underperformance as well. So last year, according to the information, Greg Croft set out to raise about $1.6 billion between two funds, a growth front and an early stage fund. It wound up raising about 980 million, about 40% below its target. And they announced that going forward, they're not actively seeking investments in health care. in fintech anymore, as I said. And now it's shifting most of its focus into AI. And that was

sort of what the Axios article was about, is like, this was really a restructuring. Now we're pushing the chips on, all in on AI. Of course. It makes sense. I mean, you got to skate to where the puck's going. Health car's hard. AI is infecting everything. We just talked about it, you know, in so many different ways. It's every story is somehow connected to it. It's like cloud or mobile or high-speed internet. It just affects every aspect of business. So, you know, there's nothing journalists like more than like, oh, somebody didn't hit their target story or somebody laid people off. But the truth is, this is a sign of strength from Greycroft to, you know,

you know, I don't want to say cut underperformers. They could have been underperformers, but you would never say that in venture. But you'd say inventors, hey, listen, they're going on to their next adventure. It didn't work out. There's no website in saying, like, these people weren't good at their jobs, right? You just give them a graceful exit. It's a gentleman's restructure. That's it.

It's a gentleman's restructure. Nobody was fired. Nobody was laid off. We restructured. And, you know, there just wasn't alignment on that. The end, everybody moves on. But, you know, these journalists love to, you know, give themselves a bunch of high fives. I remember when the story came out, like, every information journalist was retweeting it and giving high fives to the journalist.

Oh, they found out five people were being laid off. You know, it's like kind of pathetic. I'll be honest. No offense to the information. I respect some of the folks over there. But, you know, like when they, I don't like the same. thing where they are like, oh my God, amazing reporting. And it's like, oh, amazing reporting. You found out like a couple of people who are no longer at the firm. It's not amazing reporting.

Let's be honest. Because you're not getting a Pulitzer for that. It's like the lowest form of reporting. You know, like, oh, somebody dropped the dime. Somebody told you like, look at LinkedIn. Like, that's really, that's not really like going to get your Pulitzer. Sorry, Jessica, the lesson. You know, I respect obviously the information. Great job. But, you know, everybody pumped the brakes. Like, 16 retweets. entire team is retweeting this thing. So this is why you wanted to talk about this story. I thought you wanted to talk about how maybe there's like a pullback going on at VC.

No, I'm putting my media hat on. I'm putting my media hat on for this one. But I will tell you, putting on my venture hat on here, one thing they got wrong in this story or they don't understand very well. And so you can clip this and send it to the information folks. When you raise these funds in the SEC, your lawyer says how much you're raising. So for example, for Fund 4, where I said, you know, I've been telling people the public targets 100 million.

I came out and I was like, well, we did $44 million in the last fund. I think this fund will be like $50 to $100. And so then when you talk to your lawyer, though, I was like, okay, $50 to $100, okay, we'll put on the paperwork like $100, $150. I'm like, well, I don't know. And like, well, you know, just make it like double because that's just like if something happened crazy, you change your strategy, you know, you just don't have to refile the paperwork. And then a lot of the journalists know way to get this paperwork.

So Greycroft may have put like the upper target. Right. Which is kind of like, it's not even a stretch goal. It's like the absurdity of one. So I think I said it at $150 for launch fund for just in case like, I don't know, some strategic incredible investor, Masayoshi-Song comes in and go, oh, J-Cal, I love what you're doing. You know, I want to be partners with you.

Here's a $50 million. You know, and I already raised the $100. I'm like, okay, well, you know, now it's a party. Let's go. So there's kind of like that going on here. And so then they're like, ha-ha, you know, like the kid on the Simpsons. Yeah, yeah. Oh, you didn't hit your target.

It's like, just so you know, they literally tell you, the VCs will tell you to double that target when you file it. So, and they've raised it, this is unbelievable that they raised a billion dollars between two funds in this environment. Yeah. It's absurd. So they painted this as if Greycroft is like struggling or some kind of train wreck. I can assure you this is like a sign of actual strength. What they should be saying is, Breikov has the Hutzpah, despite having $25 million a year in fees on their, their billion dollars, they have the Hutzponte let go of a couple of people and refocus and

add some people and, you know, make some trades for their team. This is like trading, you know, a starter, you know, on your team and like two of your bench players, rotation players, to get slightly better, you know, a slightly better starter and a couple of better rotation players. This is far from a sign of weakness. So shout out to the Greycroft team. Shout out Axia. Shout out Jessica Lazz and information. Yeah, I got you from all sides here on this week at startup. I can give you both sides of the table here and everything in between. That was good. That was a good breakdown. All right. Last thing before we go. And, um, you tweeted about your three D's,

the three days of how you, uh, I'm playing three dimensional checker. Yes, of how you evaluate. Yeah, Chumap had to get in there with a reply. I know. I don't even want to, don't even bring up. Reply guy, Chamath. Don't even bring it up. Yeah. Can you just go through. So this is about how you evaluate. Okay. So I'm, I am in LP investment. This is how you evaluate. Yes. I am in 20 venture funds plus four of my own. So 24 total. The way I like to manage my personal wealth is, you know, live in a nice house, buy a nice ski house, real estate I can use, the equities that get kicked off from, you know,

being an investor in private companies, I go public. So I have New Bank. I got Square, you know, I have Uber, obviously, you know, DoorDash. I like to hold those if I love the companies. And you see me publicly do a little like $2 million in trading on J trading. That was just for fun. But then I like to put my money into venture funds because I understand that business really well. And, you know, it's a 10, 20 year, but it should outperform the indexes.

And so venture is really, as I mentioned in here, three Ds. And, you know, this happened because I've been meeting with a bunch of potential LPs over here when I'm in the region, family offices, people want to meet with these Sarban wealth funds. And the three Ds that I look at is deal flow. Okay, so proprietary deal flow. how do you meet companies? If you're Sequoia, well, you're legendary. Everybody wants you on their cap table.

Oh, if you're a Ycombinator, you got a great reputation. If you're launched, I have two podcasts. They get 100 million listens combined. And, you know, that creates our deal flow. So deal flow is super important. If you're, you know, a Stanford graduate and you might be on the Stanford network, if you're an AI PhD, you have some knowledge and you're respected, you wrote some seminal paper in AI, you know, maybe people are drawn to you.

So that would be like proprietary. Terry deal flow. So that's what I look for. Then the second thing is your decision-making process. You've seen the database and our decision-making process. I have 13 reasons why we invest in a company. I've got 25 red flags. So that decision-making process is really important.

And so when you're talking to a fund manager, hey, how do you decide what you invest in? Walk me through the process. You look at a company. How do you figure it out? Some people might be doing like super deep diligence, you know, on like the technology, you know, whatever.

And then doubling down. You know, in order to your fund construction is the fancy term for it, it's pretty simple. If you got a great hand, you want to double down. You know, there's some hands in blackjack that you split because your odds are in your favor, depending on what the dealer is showing. I don't play blackjack, but, you know, if you flop a set of aces and there's no flush on the board or whatever, you want to get as much money into that hand as possible. So doubling down is critically important.

I didn't double down in the early part of my career. I was like one and done investor. Now you see me. If I like a company, they're having success. They went to the accelerator. We're going to investigate in their seed round and investigate it in their Series A. Those are my three. Competing for deals is another thing.

So you get out a C there, which would be, can they compete for deals? I don't have to worry about competing for deals. You know, in the seed stage is usually 10 investors in your company. So that was it. I thought I would share that. And I add one fund manager year. I added my fund manager for 2023. I'll add another one in Q4 of 2024.

four. Do you get the same like to add one of your, like startup tingle, you know, when you, when you meet a team of founders and you say you get like the whoa kind of tingle? Do you get the same thing with a venture? Not yet. With a GP or no? No. So this is way more about strategy, follow on strategy.

How do you get your deal flow? Okay, cool. And also like, you know, it's also like, does this person really need to win? like is this important to them or are they have they quiet quit you know there's a lot of like GPs I know who have basically quiet quit they're just collecting the fees they got people working for them doing the deals and they're just it's such an incredible um position to have in the world you make so much money that fuck it I'm just gonna you know I'm just not going to quit the job but I'm going to keep raising money and still be a GP so I got to like um you know filter against that right

I need people who really want to win, who have a competitive edge, because it's a very competitive business if you're doing it right. You know, fighting for deals, fighting for deal flow, trying to make good decisions, trying to fight for more allocations to double down. You really need to be a fighter. You need to want it. You need to have a really hard work ethic to win. Yeah, I saw that clip of you on the, was it the LP podcast?

I did a shout out to the LP podcast. Yeah. You talked about Doug Leone. You're like, I thought that guy's retired. I thought he's retired. He's still there every time I go into the office. Doug, what are you doing here? It's like Carmelo, Anthony.

sitting on the side watching a Nick's game, the ball inadvertently hits him, and he immediately gets out of a seat and hits the three-point corner three. He's like, I'm in the game, put me in. You know, some folks just can't quit. So shout out, Doug is the only fan of the show. All right, let's wrap. All right, everybody. It's been a great show. Thank you, producer Nick, and we'll see you all next time on this week in startups. Go check out the new website. This week's startup.com. Shoutup podcast.com.