This Week in Startups - HeadSpin accused of $80M fraud, housing startup irks NIMBYs + Not Boring’s Packy McCormick | E1272

Episode Date: August 26, 2021

In the news segment, Jason covers unicorn SaaS Startup called HeadSpin has been accused of a massive fraud by the SEC and DOJ (2:06), and Pacaso real estate startup offering fractional ownership of vacation homes is causing outrage in wine country (17:35). Then, Jason interviews Not Boring's Packy McCormick (34:41), about his time at WeWork competitor Breather (36:14), turning his newsletter into a venture fund (59:12), and Packy's vision for crypto - it's one of the best explanations we've heard (1:03:17).

Okay, we've got an amazing interview for you today. Not Boring's. Pachy McCormick is on the program. We cover his time at Breeder, competing with WeWork, at the peak of Adam Newman's craziness. And we talk a little bit about how he borrowed a little bit from my playbook and turned it into his own playbook by combining a newsletter, a venture fund, and doing really interesting advertorials in it. It's a pretty crazy model. And I was actually taking some notes. But first, I want to cover two news stories, both of them very interesting.

interesting. A unicorn SaaS startup called Headspin has been accused of a massive fraud by the SEC and DOJ defrauding investors, allegedly out of $80 million. I'm going to break it all down. There's a lot of startup lessons here around diligence for investors and how to not bend the truth and get yourself in trouble as an entrepreneur. And then the second news story we're going to get to is a super innovative real estate startup that's offering fractional ownership in second homes, aka vacation homes, and it's causing an outrage in wine country, which means it's probably going to be a tremendously successful startup. Stick with us. This week in startups is brought to you by Vanta. Compliance and security shouldn't be a deal breaker for startups to win new business. Vanta makes it

easy for companies to get a SOC2 report fast. Twist listeners can get $1,000 off for a limited time at vanta.com slash twist. Indochino makes custom fitted suits, shirts and casual wear at affordable prices. Shop for your next best look or book a virtual style consultation at Indochino.com. Right now, you can get $50 off any purchase of $39 or more by using code Twist at checkout. And market a hire. Need expert marketing help fast. Hire vetted marketing specialists this week from the company that's already used by Netflix, Allbirds, and more. Get $500 off your first hire at marketa-hire.com slash twist and use code twist. Okay, our first story today is a unicorn SaaS startup called Headspin has been accused of massive fraud by the SEC and the DOJ. This is an amazing

story. Headspin's co-founder and former CEO Manish Lakwani was arrested yesterday on charges of securities and wire fraud, according to the DOJ press release. The charges and arrests stemmed from an investigation by the DOJ and SEC after Lakwani allegedly defrauded investors out of $80 million, according to the SEC complaint. Now, we'll get into what that fraud was, and did he get that $80 million or did he get other benefits? And that is a key here, I think, when you look at these fraud cases is, you know, sometimes there's a fraud where it's a Ponzi scheme and the person is sweeping the cash. Other times it's founders who get ahead of their skis and maybe they get themselves in trouble or they're delusional. We'll see what happens in the Theranos case, which I think was supposed to start in August, but it's starting in September.

And John Kerry Rue, who was on this podcast, right after he did the first story for the Theranos case, The Theranos investigation into Elizabeth Holmes is going to be covering it live on a new podcast. So I am going to try to have John Carrey Roo on this podcast and obviously we'll be covering the Theranos trial as well. So just real quick here about HeadSpin, they charge a SaaS fee software as a service to help optimize mobile app performance metrics like reducing in-app load times, increasing the speed of development cycles, etc. This seems like a pretty reasonable idea for a business, and apparently they did make money and they had a certain number of customers using it. They have three pricing tiers, 50 bucks a month, 200 a month, and some customer enterprise tier. Okay, this all sounds good. Sounds like a company I might invest in.

And according to Pitch Book, which is a cool database run by a friend of mine, John Gabbert, who started it. We knew each other from the Venture Source days. We had, which he ran Venture Source back in the day and had sold. one of my companies to Dow Jones. Pitchbook says headspin has raised over 90 million from investors between 2015 and 2020. Their data is generally right on. Sometimes they'll be missing a round or two because not all this data is available, but it's private company data.

They do a really good job over Pitchbook. So in February of 2020, headspin closed. They're $60 million series C, and this valued them at $1.1 billion. They had a bunch of notable investors in this, including, Tiger Global, which people have been talking about, is throwing, throwing, throwing cash at later stage SaaS software companies. Some people are a little bit upset about that, maybe thinking they're not as thoughtful as they should be, and that tiger is just splashy, cashy, throwing money everywhere. Iconic is also in this round, GV, which is, I think, Google Ventures, and then Dell Technology

Capital, and that was their series C. Now, it was the fundraising of this. this round where Lakwani got himself into hot water, according to the SEC complaint, and I'll read from the complaint right now. From at least 2018 through 2020, Lakwani engaged in a fraudulent scheme to propel headspins valuation to over $1 billion by falsely inflating the company's key financial metrics and doctoring its internal sales records. Okay, that last part is critical. They must have him dead to rights that he actually changed documents. Now, this is where even doing diligence, if somebody doctor's records, you might think, I'm doing pretty good diligence here. I looked at their sales numbers and they look good.

Well, what if they changed them? What if they went into a spreadsheet? What if they went into a bank statement or, you know, Stripe account or whatever, took a screenshot and then actually changed the numbers? That is what I think happened here. There was some changing of internal documents to raise money. According to the DOJ release, quote, in materials and presentations to potential investors, Lockwani reported false revenue

and overstated key financial metrics of the company. When they say materials and presentations, their meaning the startup's deck and probably an appendices or due diligence documents. So, when you sell securities, stock in your company, and, you know,

you change and you lie about, your metrics, what you're doing is called securities fraud and it is deadly serious. So here's what they allege he did in terms of cooking the books. And this is a quote, he was instructing employees to include revenue from potential customers that inquired but did not engage headspin. Okay, so that would typically be called your pipeline. And I've seen this before in Dex and I've literally instructed my founders. Please, with the pipeline, nobody cares about your goddamn pipeline.

Talk about reality. We all understand you have some pipeline. But people like to get obsessed with the pipeline because it's a precursor to actual revenue. In other words, the targets your sales team tell you they have, who they're engaging, who they've emailed. It really means nothing. Continuing the quote from past customers who no longer did business with that spend and from existing customers whose business was far less than reported revenue.

In other words, this idiot, criminal, moron. was lying three different ways, at least that's how they caught him. So he was telling them, telling people that the pipeline was actual revenue, that past customers who churned, did not churn, and that existing customers were spending more money than they were. So think about those three things. That is, sounds like, to me, a very deliberate scheme. Remember, I just told you to be careful with A-R on yesterday's show.

And, you know, you really do need to be careful that when you present information, you present reality. That's why I like, here's our revenue from the last three months. That is so indicative of where you are as a business. Anything other than the last three months revenue, three different numbers, we're at 100K, we went to 120, and then we went to 1042, whatever it is. Just be straightforward. When you start putting in your projections and you start putting in your projections and you start putting

in your pipeline, where you start talking about, you know, at the same rate, we'll hit this amount at this pace. Forget all that. Just tell the truth. Investors are mature enough to understand the truth and where that could lead. We understand that companies can grow double digits and double every three to six months. That's why we're in the business. You don't need to lie.

You need to just present reality. Hey, everybody, I thought I would bring Christina Casiopo. I pronounced it correct. I'm hoping, Christina. You got it. Yep. All right. You're the founder of Vanta. People have been hearing your ads on the pod for the last year. And I thought it'd be fun to have you on and you to explain why you created Vantta and what SOC 2 is and why it's important people get it right. So let's start with what is SOC 2 for people who are just realizing they have to become SOC2 compliant? For sure. So SOC2 is at a high level. It's sort of a customer asking you to prove your security.

Now, these audit firms that you partner with, you prepare everything, but you still need to have an auditor. So who gets the order? You or the company that is engaging Vanta? Yeah, absolutely. So one part of what we do at Vanta is we've built a network of audit firms, and there's a couple dozen we work with today. So we're happy to broker introductions, help companies kind of choose what sort of auditor or firm would be best for them. And then the other part of the pitch is, you know, that auditor knows Vanta understands and trusts our data. And so the audit will be faster and cheaper if one of our network firms are used. All right.

Fantastic. Well, thanks so much for coming on and telling the audience why you should get your sock, too, when you should get it, and how you should do it. And you've been very nice to our audience, giving them $1,000 off, which is a really significant and generous offer. Go to vanta.com slash twist. V-A-N-T-A-com slash twist to get $1,000 off your sock, too. Thanks, Christina.

Appreciate it. Thank you so much. Cheers now. So here's another quote. Lakwani provided investors false information that overstated headspins annual reoccurring revenue, ARR, by approximately, wait for it, folks, $51 to $55,000. This was not a tiny exaggeration. This was a colossal exaggeration.

So how did it all happen? According to the SEC complaint, Lakwani's fraud was unraveled after the company's board of directors conducted an internal investigation that revealed significant issues with headspins reporting of customer deals and revised headspins valuation from 1.1 billion to 300 million. In other words, the board caught him at some point and then lowered the valuation. Now, what happened here and how the board caught this? That's actually the question I have. I have two theories. One is, somebody who's on the board did math. When you're on a board of directors, you know, you kind of can zone out, you know, product is being shown. Here's our hires.

here's our projections and here's our revenue. You just assume the person you're working with is telling you the truth. What I do when I see these numbers is I do meth. I say, what was the revenue last month? And I just want to see if the founder actually knows that. And then I asked them, what was it in January and what was it in the January before that? And I like to have founders who know their numbers crisp enough to do that or, you know, have them at their fingertips to look them up.

And then I'll say, what did we spend that month? They tell me what we spent. And then I look at it, okay, so we had $10 million in cash. We're burning $150 a month. We've been burning 150 a month for 10 months. We started the year with 10 million, so we have 8.5 million in cash, but I see here we have 6 million in cash. What's the difference?

And then they'll say, oh, that revenue is future looking. Oh, we had this one-time expense. Oh, we bought this company. You get the idea. So just somebody on the board doing basic math might have figured this out that something was wrong by comparing one set of information to another. The second thing is, and the more likely thing is somebody who works at the company emailed the board member and said or called them or DM them and said, hey, listen, I was asked to do

X, Y, and Z than the board, because they have a fiduciary responsibility, and they could be legally liable. And this is why you always get directors insurance, because now this is going to result in lawsuits because you have criminal activity. It makes the lawsuits that much easier. If you remember when O.J. Simpson got, even though he had a criminal case that he got off on, he was guilty in the civil case, right? So the civil cases typically come after the criminal one. So here's the criminal. They'll be civil, I would guess.

An audit conducted in mid-2020 found that headspins total cumulative revenue from inception, not this year, from inception through the first half of 2020 was only 26 million. Instead of the 95 million they reported to investors. So this is a big, big gap. Gwani didn't forget, he didn't forget, allegedly, to wet his own beak either. in the SEC complaint. Lockwani enriched himself by selling 2.5 million of his headspin shares in a fundraising round during which he made misrepresentations to existing headspin investors.

So take a pause there. He sold secondary. When you are selling secondary, now you're taking chips off the table and you're lying and raising money. This goes beyond like, I was just trying to help the company or whatever ridiculous claim this idiot's going to have for his illegal behavior. your, now it gets a little bit deeper. He actually swept chips off the table. So you got to be very careful when you do that because that means he's taking those investors money and putting it into the company.

Yes, that's the primary raise. But then he did a secondary transaction apparently and how that would typically go, although I don't know in this case, how that would typically go is he, in fact, sells his common shares directly to those investors, right? So he would sell directly to Tiger or Iconic in this case. and they would pay him, and then the company would record on their cap table, these 2.5 million common shares owned by the founder go to this person, and they move over, whether they're using, you know,

cap table software or they're doing it on an old spreadsheet like many people do. If he's convicted of securities fraud, L'Kwanney faces 20 years and a $5 million fine, that's a max sentence. And if he's found guilty of wire fraud, he fences, he faces a max sentence of 20 years to a fine of 250. I bet you he gets five to ten. It feels like a five to ten type of situation in low security. Maybe he gets off in four to seven, who knows.

You know, people tend to let these white-collar criminals out early, which is kind of crazy when you think about it. If you went into a department store and stole $5,000 worth of merchandise or $2,000, I bet you you get less than or the same as this cat who sold $2.5 million of his shares. Lillia Sukar, a general partner at Matrix Partners and angel investor in Headspin, had a pretty funny tweet. Not my best angel investment, not my worst either, but one of the best learning experiences. And he literally posts the Robert of Justice's, you know, a PDF case on it. So I have had, my producers ask me in the notes here, if I've ever had these kind of experiences.

I've had people do their books wrong, but never intentionally. So I've had people make mistakes in their books, but not intentional mistakes. I have had people do self-dealing where they gave themselves extra shares in a company. I've had people pay for their apartment or give themselves a $50,000 or $100,000 wire to cover expenses, not pay taxes on it. And, you know, that stuff could be looked at as bad hygiene or bad judgment, you know, expenses that would not pass mustard. And so in those cases, you basically try to clean them up. You do a little investigation and you either have to fire the executive or sanction them in some way. And it's just messy.

So don't ever do anything that's not approved by your lawyers and accountants. For example, don't pay yourself a $3,000 draw. That's not a financial concept according to the IRS or the Department of Justice or anybody. you know, just pay yourself a salary and don't pay for your apartment, you know, and your, you know, vacation, you know, you have to use common sense here. If you have an office in your house and you talk to your accountants and they say, yeah, it's 20% of your, you know, living space and it's dedicated for that. Yeah, you can deduct that or something or you can charge the company. But just be super clear about it. What I do is anytime I have these is,

I have a CFO in the company, actually documented, and I have them be super careful about it. Okay, an innovative real estate startup offering fractional ownership of vacation homes is causing outrage in Sonoma and Napa. And I'm really interested in this company. I thought it was a brilliant idea. Before we go into the crazy neighbors, let's first understand Picasso's startup and how they work. It's spelled P-A-C-A-S-O. I found out about it because I was listening to stay tuned with.

Prit and some other, you know, highbrow, left-wing podcast. And I put together that they were doing this advertising to really high-end affluent people on the left in all likelihood, like people in cities, and that they were also getting dogged in the press and this big NPR story was out. So I thought that that was kind of ironic. And I looked into it and I found out the backstory here. So Picasso was founded in October of 2020, according to my notes here, by two former Zillow executives, Austin, Allison, and Spencer Raskaw, if I'm hopefully pronouncing his name correctly. And I actually did invite him on the podcast before I knew about this brouhaha, this Donnybrook. Their main objective is to make second home ownership, i.e. vacation homes, more accessible by utilizing a fractional home ownership model according to NPR and their website. It's sort of like time sharing, but very different.

So in time sharing, you pay a company that owns the asset. They give you two weeks. Everybody knows time shares. Kind of a scam. Feels a little multi-level marketing boiler room. In this case, when you work on Picasso, you pick five of your friends, like say, five other families or eight other families, and you each buy one eighth share in a Picasso home. And you can pick the home you want, or I think Picasso has some of the same. the homes, you know, listed and you can join in and jump in with a different group of people.

So the owners are investors. They're not renters. It's not a vacation home. It's not an Airbnb. It's not a, you know, essentially a hotel. It's just a group of people who own a home together in the form of an LLC. So Picasso will buy the home. They refurbish it. They make it nice. They do the interior decoration and they create an LLC. And then the ownership is divided in to eight equal fractions and they sell it. So you are charged 12% of the initial purchase price along with some monthly fees. And then you have to hold on to your shares for at least a year and you can sell it after that point and you then can stay 44 days a year, but only 14 consecutive days.

And you have the ability to access an app and that helps you with the logistics of booking. So if you did this with eight people and you worked with four of them and four of them where another one of your friends, family members, everybody gets to stay, and you can gift the space to other people. So if I had an eighth in a ski place in Tahoe, I could allow my brother or my nephew or a co-worker to stay there,

which is kind of cool. If you divide 365 days a year by 8, that's 45.6, so the math year checks out. And then what's key is Picasso oversees the property management maintenance and, I believe, the cleaning of the property, So if you were to do this with your friends randomly,

somebody out of the eight people would have to take the burden of doing all this. So essentially, Picasso is not the equity owner. They are a service that does all this management for you. I think you pay them an upfront fee to set all this up, and then they make a little bit of money managing it for you. So I love this model. I think it's brilliant. Why is it brilliant?

We have a supply problem. And second homes don't get used that much. So if you have a second home, you wind up either not using it and having this massive expense and feeling like an idiot because you use it for 30 days a year, 20 days a year, 40 days a year, and then the rest of the time, nobody's in it, and you're paying all those expenses. And it's breaking down and nobody's maintaining it. So you could have stayed, you know, at some incredible hotel for the same amount of money. Here, you get to have 44 days and you have no overhead and you have ownership. So you could have you're not throwing the money away. Now, here's where it gets interesting. According to NPR, Picasso claims to be the fastest American company to receive unicorn status is something that seems to be important to founders these days in the market. According to Picasso CEO Austin Allison's LinkedIn, the company was founded in February

of 2020, 11 months later. In March of 2021, they closed their Series B, which valued them at $1 billion. So obviously housing is hot. Obviously, the overall market is hot. obviously these are zillow executives that would lead to a crazy funding moment and it seems like they've raised 341 million so far including VC money and some amount of venture debt and uh you know vacation rentals were absurdly priced this year because of people coming back from the pandemic who knows what the long term you know situation will be given the never ending a pandemic

listen i know you're going to feel anxious buying an expensive suit and oh my god what if i get stain on it and can I afford it? All of those worries and fears are going to go away right now. Because if you go to Indochino, like I just did, you will get a perfect fitting. You go in, they've got a great staff. They show you an unbelievable amount of fabrics, all beautifully organized. And then they measure you perfectly. It takes like 15 minutes, all your measurements right into a computer. Beep, beep, beep. Then they tell you the price. And I'm like, wait a second. Is that the price for one suit?

Or that's just for the pants? Or that's just for the vest or just for the jacket? Like, no, that's the whole price, J-Cal. I was like, that's impossible because $3.99 for an incredible suit with all of this intricate choices. You can pick the monogram, the lapel, the linings. They make your suit perfect. Indochino is now open at Select Nordstrom's stores,

giving you even more ways to get a great fitting for your. personalized clothing and you can find your nearest location at indocino.com. I-N-D-O-C-H-I-N-O-C-I-N-O-O-C-H-I-N-O-O-C-N-O-C-O-C-N-O-C-T-O-C-T-C-E. And they're going to give you $50 off any purchase of $399 or more just by using twist. Again, Indochino.com, use the promo code twist. It's a really, really great experience. But there has been some controversy here and where else, but in wine country. So it turns out homeowners in Sonoma,

saw a drone flying around their house. And after talking to their neighbors, it would discover that a home in the neighborhood would be turned into an LLC after being sold to Picasso. So they denied operating the drone to film the neighborhood, but they basically claim they bought the photos after the fact. That seems to me like a little bit of revisionist history or splitting Harris.

If they flew the drone or somebody flew it on behalf of them, you know, it's basically the same thing. they wanted aerial photos of the house in question for their website, which, okay, who cares? If they're buying the house or it's their house, they can fly a drone over it.

I mean, this sounds like some weird, uh, claim that Pocasa is, creepy or spying on people, but the fact is, every time I look at Zillow or my preferred site, Redfin,

um, what I, I think Redfin's a better site and their, their interface. But when I look at those, uh, sites, they always have flyovers and it makes it wonderful to

that and you're allowed to fly drones over your own property. So I don't know what the issue there is. There have even been posts made to neighbors.com from the homeowners that mentioned the article who posted about a fundraiser to keep Picasso out. So there is this brouhaha starting where people don't want to have obviously Airbnbs next to their homes. They don't want a rotating group of guests. I understand that. If I lived in a community and there was a party going on next door, yes. That would be annoying if they had a party house. But Airbnb doesn't allow parties anymore,

except on the margins. And I think they are pretty strict about that. The number, and I operated in Airbnb for a little bit, a former house I had, which is a very interesting experience. Airbnb is a pretty cool site. We did have somebody break the rules and throw a party.

That was annoying. Police got called, all that kind of stuff because I live in a very, you know, I live in a neighborhood with old people who will call the police. for anything. And so this NPR article mentioned that they just didn't like the sense of, you know,

destroying their neighborhood. And so here is the quote that it would destroy their sense of community and turn their neighborhood into adult Disneyland. But you know what? I'd be totally honest with you. I don't think you have a leg to stand on here, you know, nimbie people in Sonoma. I know you'd want every single home to be somebody living there and to not be it out, but you live in America where people have property rights and they get to do what they want

with their home within reason. Now, they can't throw a 24-hour party and infringe on you, but how does it infringe on you that it's a second home that eight people own and only one of them there is at a time? The NPR article also mentioned that homeowners had concerns around increased wildfires and drought risk. I don't know what that means. Noise and traffic. Okay. I mean, calm down people. It's just a vacation home. Um, so they formed. an organization opposing Picasso, create an anti-Picasa website, and also circulated a petition

according to the article on neighbors.com. You can actually see a post someone giving out free stop Picasso lawn signs. These are people with far too much time on their hands. And I think really it's kind of long-term dumb because if you are an owner and

these Picasso homes work out, it's going to drive homes up in value. Because you're going to have a larger number of people who can afford a second home. If you have to pay, you know, if you only have to pay one eighth the price of a home, you might actually consider it when you wouldn't,

or it might be a, you might consider this like on top of your second home. So maybe you have a condo and ski country, you know, in some ski place. And you got this one, you know, because you're going to use it two weeks a year or whatever. So it's kind of silly. I would love to buy a Picasso home or use this software to manage it.

Or I was just thinking, like I could start an LLC myself, buy some piece of property in Tuscany, where I just got back from Italy, and share it with 10 friends, and we all use it two weeks a year, or maybe three weeks a year. It'd be amazing.

And then you could even put it into an Airbnb pool on top of that. So I think this is a great idea. I feel really bad that I miss this. And I think somebody should create a competitor to Picasso that just provides the software to people and lets them do it. So, or matches people together, like a marketplace, because this seems like a really viable idea.

I love this idea because it is more efficient. Just like Uber's allowed people to use cars that were sitting in garages for 96% of their lives and they used them for another 30% of the time, that's good for society. You don't have to make as many cars. That's better. And if somebody can use their personal car for deliveries, we don't have to have as many delivery vans, et cetera. So this efficiency of on-demand and fractional ownership is good for society, especially since in this society, we are not building enough homes and we have more affluent

people who have made more money in the stock market who are buying up all the second in their homes. I have friends who have three, four homes, and they don't use them. And that's really wasteful. In a different instance, Picasso bought a Napa home located two blocks from a high school for $1.13 35% higher than the other median home prices, according to NPR. I'm not sure if that's valid. We don't know if that home was worth 35% more. Maybe it had a pool or whatever. So, you know, when you get these journalists covering a story, when they're using the

median home price, the fact that it's 35% higher than the average price means nothing. I don't know what they're trying to say there that they overpaid or something. The MPR article also reported that Picasso says they only buy luxury homes and they don't compete with local middle class families in the housing market. okay, so here we go. Now you're talking about, oh, my God, is this taking away housing supply from other people? In a way, yes, if you put all housing into one bucket, if you take one house off the market for a second homeowner, yes, that is bad for the overall inventory. However, if five people were going to buy five homes there and now they bought one and they share it or eight people, that's better because you keep more homes in the market. because nobody needs a second home for more than 44 days a year.

By definition, it's a second home. So NPR reported, quote, so some Nappans were pissed. Pekasa says the house was the victim of trespassing and illegal signage. Picasso even claims it had to file a police report after a local who wrote to the company and said, I will burn down any home you buy in Napa. This is not a joke.

Man, Nimbia people are pissed. They could also be found being very vocal on the Twitter, and we'll pull that up here if you're watching on YouTube. Go to YouTube.com slash this week in and follow the channel, and then hit that little alert bell, and you'll get to watch these live from time to time when I read the news live for the audience. Picasso ended up selling the house to a normal home buyer

and, quote, pledge to beef up its owner code of contact to include decibel limits on all home sound systems, create a local liaison, dedicated to assisting neighbors, not buy any homes in the area under $2 million, and for each house sold in Napa and Sonoma counties, donate $20,000 to a local nonprofit dedicated to affordable housing

according to people. You know what I would have told everybody? I would have told them to pound salt. Like, just worry about yourself. You people are ridiculous, Napens. Just drink some wine and chill out. Like, nobody, you don't get to tell people what they can do in their home

and how many people can buy. it, you're being ridiculous. You've gone way too far. You're being super nimbies. This is uber nimbibism. So Picasso, I think you should ignore these idiots. It's just ridiculous.

And they're not timeshares. Everybody knows time shares. The ownership is owned by the company, which is then renting time. This is fractional ownership in an LLC. Sorry, if big companies can do it, if people are already doing it, you can do it too.

So for the nimbies in wine country, I know it's not everybody. You're being ridiculous. And maybe you should just do it with your house or maybe you should buy one of these and make your own competitor to Picasso. It is a great idea. I'm not an investor. I wish I was. And if somebody makes a competing startup or has a way to best this idea, I'm open to investing. It's a great idea.

Don't you wish you could hire a ringer to help scorn. your startup and get your marketing type. Well, with market or hire, now you can. Marketer hire gives you access to expert freelancers on demand with no long-term contracts or risk. You can hire experienced specialists across the most valuable marketing disciplines. Mink paid social, paid surge, growth, SEO content, and even fractional CMOs, chief marketing officers.

Again, there's no long-term contracts. And you can cancel at any time. If it's your first time working with freelance tax, you'll start with a no-risk trial. You only hire what you need so you can stay on budget with hourly, part-time, and full-time agreements. Every freelancer on marketer hire goes through a rigorous vetting process with their industry experts, and freelancers from marketer hire have been hired by over 1,500 companies,

including top brands like Netflix, Allbirds and Lambda School, which we're a little investor in. So get $500 off your first hire. That's pretty generous. marketerhire.com slash twist. Again, marketerhire.com slash twist for $500 off. You could also get started with a consultation call where they'll advise you on who to hire based on your needs and goals. That's five hundred.

One, two, three, four, five hundred right now. Marketerhire.com slash twist. M-A-R-K-E-T-E-R, hire.com slash twist. All right. Next up on the show is Pachie McCormick. and he is writing Not Boring. It's a newsletter. He's got a newsletter at notboring.com,

but he's also got a fund. And I think he's got like a podcast, so he's doing a syndicate and a newsletter and a podcast. Where have I heard in this playbook before, Bakie? Welcome to the pod. People are loving your newsletter and you started investing. So welcome to the program. I can't wait to hear all about it.

Great to be here. Yeah. Thank you for the playbook. book. Yeah. It's funny. I was like watching it and I was like, this sounds familiar, but I don't even know if we, I don't think we've ever met. Actually, it's small world. We know one time. Okay. This could go one of two ways, by the way. You were at a urinal. I said hi. No, I'm kidding. That does happen. I worked at a company called Breeder before this. And we sponsored a podcast one time. And I remember being, because I've listened to the podcast forever,

remember sitting on that meeting and being so impressed with how you were able to take the garble euk that we were sending your way and turn it into a clear message in like 30 seconds. It was very impressive. Oh, well, thank you for that. What you're referring to is anytime somebody's going to be an advertiser on the podcast,

I really coveted and I really feel grateful when people back the podcast because it means I can put more money into it, hire better people, hire more people. And so I'll always talk to people about their ad cop because I'm a writer. And I'm like, you know what? This could be a little better.

What if I said it like this? Or would you like me to, freestyle or not. Breeder was a cool company. What did you do there? So I was our New York City general manager. I was our first U.S. employee. I was in the office of the CEO for a little bit. And then kind of for the last couple years that I was there, I ran all of our real estate operations, a bunch of different things. And for people who don't know, because I had the Breather founder, I believe, on the podcast at some point, I can't remember what episode, but I believe the original concept was, we are going to, unlike Airbnb, have

perfect little rooms that you can rent by the hour. Is that still the concept? So the breather sadly sold for $3 million, I think, or something minuscule recently. So that is not the concept from the new owner is trying to figure out what the concept is. But yeah, over time it evolved from these small 100, 150 square foot office spaces throughout the city that you just pop into for a meeting to by the time I left, we had 15,000 square foot spaces. We actually had a couple spaces in the Star-Lei High Building.

where you live for a while. So, you know, 150 in New York, 500 across the world, different sizes. You could rent for a year. It was a good product that I think actually starting fresh clean cap table, clean balance sheet now would do fairly well. Who was the founder again? I remember I almost invested. Julian Smith from Montreal. Yeah, yeah, yeah.

This was like a really innovative concept at the time because you maintain the spaces. So there was some level of consistency, a lock on the door, et cetera. And this was during Airbnb. And I thought, this was like a really cool idea. Oh, I've just got a note. It was a Twist Live we had done out back in the day. So what worked really well about this and what didn't work? And what did you learn by doing being the VP of experience and general manager for whatever number of years?

You were there for what, like five years? Which is infinity in startup years. I think what worked well, to your point, point, we had kind of control over our spaces. And from the very beginning, the plan was, we're going to do three spaces, prove that this works, and then we're going to do the Airbnb model. We're going to do a marketplace. We're going to let people throw their space up. And it's very different when you're doing a vacation and you're going on an adventure and staying in a place. And if the pipe is broken or something is out of order, that's part of the charm of the vacation.

Whereas with breather spaces, people were using them for important meetings. There was M&A. People were firing people in breather spaces. There were routine. working there. And so it kind of had to just work perfectly. The internet had to work. People had to be able to get in on time. It needed to be clean. And so because of all of that, I think the fact that we have these well-designed spaces across the city, super easy to get into and book, made a ton of sense. And particularly by the end when you could book any amount of time, we had people using a core office space and a bunch of different spaces around the city for different types of meetings. And it was getting somewhere pretty interesting in making real estate very flexible. What we did wrong,

was that we expanded far too quickly. So 2016, 2017, we shared investors with Uber. And so they said, look, we know this model. It is all about acquiring as much supply and having it as close to people as humanly possible. Go out and acquire space. So in 2016, 2017, every single day, somewhere in one of our 10 markets, we launched a new space. Wow. The big difference is in commercial real estate, you're signing five-year leases.

you are doing construction, you are maintaining these things. And so actually, we were super ever supplied. We had negative gross margins. And that's why we added them monthly and kind of longer reservations onto the platform to soak up some of that extra supply. And so we turned the business around,

it went from negative margins to positive margins. And we figured out how to get that balance right. But then, you know, COVID hit and... Interesting. You had... Interestingly, you had... It looks like RRE ventures and slow ventures. of two good venture firms in it.

Who were the Uber investors in it? Menlo. Menlo was in it, yes. And so they came in in the second round and they just said, go, go, go. Oh, they went in the series C, it looks like. So they just told you hit the gas. Which was, yeah, at the time, also a valid point, right?

We're a company with autonomy and decision-making power, and we were like, okay, cool, this has worked for Uber before. And so let's analogize, but it's very difficult to analogize even across marketplaces. You had Venki on your board and then Sean Carolyn was the lead at Menlo who actually, no, Shervin at Menlo and then I guess Sean Carolyn took that over when Shervin left. You know, the difference is one is an asset light business, one is an asset heavy business. And the asset heaviness of breather means you have to be a little bit cautious because if you get out over your skis,

you can't constrict the supply side. you still have the expense. So when Lyft and Uber face the pandemic, it wasn't like they had to pay the leases on the cars of their drivers because those were those drivers primary cars for their life. And those were drivers and they didn't. We employed our full team of operations associates who cleaned the space and deliver it. So it was a pretty heavy model.

And it wasn't all, you know, the over expansion. But, you know, and it wasn't all external either. I think, you know, we certainly as a company, wanted to go to 10 markets around the world. And there was something sexy about planning your flag in London and all those things. I think for a business like this, again, if you do it over, I think we thought there were more worldwide network effects or kind of inner city market effects, network effects than they actually were. Whereas I think if you do it over again, you focus for longer than you expect on a New York and a San Francisco. Correct. get the density so that you just market and put all your efforts into those markets.

And then when you really have a playbook with margins that work and a scalable, repeatable model, then you hit go. So having five locations in 10 cities, not as good as having 50 locations in one city. That's exactly right. Because your marketing spend gets peanut buttered across a big slice of bread as opposed to being like a thick, chunky spoonful in one city. And less word of mouth,

than less, it just doesn't become the thing like it would if you were kind of just, you know, going hard after one market. I think the other thing that was interesting at the time was that we were upset this precedent where somehow in a real estate business, you were valued on a multiple of top line, which isn't how it should be and isn't how it is now. It's insane. But that's what it was. And so in that model, if you're looking to raise the next round and the next round and

the next round, going after top line does make sense given the market. And so that was an interesting. dynamic as well. And just competing against WeWork in Notel at a time when they had infinity dollars to go spend on bad deals was, I mean, the whole thing was a lot of fun. This is a really interesting business case when you think about it because, okay, you have marketplaces emerging and on demand as all the rage. And as an early investor in Uber, I was watching this and then Airbnb I wasn't in, but those were asset light. They're growing like crazy. Everybody then started placing bets on everything. And then WeWork comes out as on demand.

office space. But as you're correctly pointing out, you cannot look at their net revenue. You can't look at their revenue like Airbnb's net revenue. So explain why this is such a colossal mistake on the part of investors and stakeholders to conflate these two different revenue streams. Sure. So for something like a breather or a we work,

the way that works is let's say you acquire one building and you sign a lease on building. Maybe you pay a million dollars a year for that lease and OPEX and all in. And then somebody pays you $1.2 million to lease that space beautifully furnished and you'll manage it for them and all of that. It is a guarantee that you're going to be paying that million dollars out. You're taking a spread that $200,000 per location. And that should be kind of the revenue that you look at. That is the net revenue. But we looked at it and we worked at it and the market looked at it as revenue and then everything else went into your cogs. And so that net revenue really is what everybody in the space referred to as part gross margin. Oh, got it. Yeah. And then you have

some insane maniac who becomes this messianic figure that you're competing against. I'm not referring to Travis. I'm referring to the we were a guy who is insane. What was it like to go into meetings and be categorized with Adam Newman. And did you meet him when you were in New York? I did not have the pleasure of meeting Adam. I mean, he did an amazing thing, right? To get everybody to suspend disbelief about real estate in the way that he did was pretty unbelievable. For everything else aside, pretty amazing.

It's a great trick. That is a fabulous. I mean, why do you think he was able to do that? How did he, I'm sorry, we, How did we do that? I'm going to start referring to Adam Newman as we. I mean, I think to your point, you had Uber out there, you had Airbnb out there, you had these huge on-demand businesses that were growing, and then you look at a multi-trillion

dollar asset class like commercial real estate, and it's easy to get yourself excited about the fact that, oh my gosh, if you put a technology layer and an experience layer and a hospitality layer on top of this massive stayed industry and actually shake this thing up, there's clearly a ton of money to be made by doing that. And so I think that's what got people so excited. He did a great job of telling the story and then getting everybody at WeWork bought in and getting landlords to feel like they were missing out if they didn't work with WeWorks. So there was a lot of stuff like that.

But I also think there was some just real first mover advantage and someone with a huge vision for something to do with this major asset class that hadn't really been shaken up. yeah you know just riffing off what you said i think the playbook is one you put yourself in a race with other contemporaries who are absolutely crushing it you put yourself right between air b and b you know in uber and lift perfect that's step one uh and then step two you uh play a tam game a total addressable market game where it's like well real estate is this crazy thing and then you just absolutely

do not let anybody bring up, you know, union economics. Do not bring up margin. Do not bring up unit economics. That don't look over here. Reality distortion field. And this is the high stakes grifter playbook. It's so fucking brilliant.

Like he's such a grifter. And you have to put, see, the key thing you have to add to it is you put yourself in that race. You pick a metric that you have no business picking, like the Tam rather. You put yourself on that Tam. And then you just have to be a messianic madman who says, I'm going to take over the world. And the other thing is, like, in defense of everybody who thought it was crazy in hindsight,

at the time, like, you know, the argument was, look, we're growing incredibly fast. And in a business like this, if you get to scale, then all of your input costs come down, you have leverage over the landlords. There were rumors floating around WeWork, and they might have been true that they bought a forest somewhere because that would actually make the wood that they used in their flooring cheaper. And so they would tell these little stories that are like, look, when we get to scale, which we are,

and when we have masses money, which we do, there's a ton that we can do to bring down the cost. And isn't it crazy that it costs so much to build out of space anyway? We're going to change that. And so there are a lot of little things like that. That's the pixie dust. You got to spread a little pixie dust on it. That is such a good observation as well,

which is he was like, you know what? We will figure out margin later. So if you did bring it up, so he's doing all the diversionary tactics, it's about community, it's about we. But then if you happen to bring up, hey, it's a real estate business, why would he get this multiple? Why are you doing a multiple in the top number when that's bull-should-shund? It's so smart to throw the pixie dust. And you know what I have to say about them is it was a pretty great product. When you think about the original, the 1.0 product, it was perfect.

Like, here's a glass box. you can move in right now we'll hand you the keys it's month to month you can leave any time compare that to what you had to do before and even in my mind right now I remember that maniac comparing it to AWS I never met him I never on the pot but he was like oh it's like you know it's like the AWS of real estate

you know of office space you get servers you get servers you need servers you need space you get space you need less space you turn it off and in my mind I never was like oh yeah but one is like fixed cost business and this one is not a fixed cost business, you know? Yeah. And then, of course, the last, so the two last steps in that playbook are one, you look at mature locations for unit economics.

So there are a couple small locations that you did early that actually do make money and then you say like, look, wait to all the other spaces get to this maturity. The other is you just say technology a lot, right? Yes. Of course we're not signing leases forever. We're building this technology that landlords are going to use and that's pure margin. and so it was unbelievable that he pulled it up as long as he didn't. They were going to do an enterprise software and sell that.

Then they were going to sell the community. Then they were going to sell you're going to live there. And then they were selling a social network. And they said every single person, they want, I remember when we had our space, they were demanding that I be in their social network. I was like, no way, I'm going to be in the social network. I don't need any more friends. Like, no.

And like my admin was like, okay, I'll put you in, but I'll put it under a fake. put it under fake email, whatever. And now I realize what they were doing. They were probably selling investors on the number and the growth of the social network. So they said, anybody who comes to work in the building in your office at launch has to be in the social network. And then people were adding me on the social network.

I was never getting it because I just put it to a dummy email address. Yeah. Oh, my God. What a tremendously huge instructive scam that was. So you go become an investment banker, a Bank of America. Is that right after your work? That was pre-breather. Oh, that was pre-breather.

So what happens after-breather? So after-breather, I didn't learn my lesson. I was thinking about doing something that was also maybe physical space-based again, starting my own. That year, my last year of Breeder, I'd started this little newsletter on the side that I was sending out pretty much my mom and her friends. And then, you know, some of my friends. I think there were 400 people after one year of doing it.

COVID-hit wasn't going to do the in-person thing that I had been planning on doing. And I had this little newsletter on the side. So I was like, you know what, wife, please. Pusja, give me three months to write this thing and see if I can grow out at all. And so started writing essays every week and grew it a little bit, wasn't making money for a while, but I could tell that it was starting to grow. And so just kind of kept doing that until I turned the newsletter into a business. And the way you did that, I was looking at a recent episode and I was like,

oh, this is so brilliant. You basically do not care about the line between editorial and advertising, and you write the ad in your own words for, Masterworks as an example, it seems, and it comes above the sort of the newsletter. So you write like two or three hundred words on Masterworks, which is a really cool product, by the way. I've had the founder on here. And he's advertised and I've had drinks with him and I tried to invest in the company, but he owns all of it, Scott Linan. He doesn't want investors. So I'm like, ugh, this sucks. And I understand. I own all of the syndicate.com and I

would never take investors for it. Why would you do that? But explain to me how you came to that decision and how it's worked. For sure. So in the beginning, my plan was, if I can get this thing to 5,000 people, then I'll turn on subscriptions. People pay me $10 a month and maybe 10% convert. So I'll make $5,000 a month.

And then maybe I'll figure something else out to do so that I can make ends meet. We were having a kid. Also, our baby was on the way. I was like, all right, I can get to like 60, at least we'll be able to eat and maybe live somewhere. Kept growing, kept growing. I got a little bit addicted to the growth.

And so I was like, I'm not going to turn on a subscription. because if you make people pay, your growth slows down. And so I need to figure out another way. So one day in maybe last August, I put together a deck for somebody that was maybe going to I was thinking about sponsoring the newsletter. It was actually marketer hire, which is now a portfolio company and a continuing sponsor. What's it called market or hire?

Marketer hire. They're a talent marketplace for marketing people that has just absolutely exploded over the past a couple of years. I like that. So it's basically like Fiver, but for marketing. I think they would be unhappy with me if we made a fiber comparison. It's really like top marketers, people who are actually employed in CMO roles in places, but just want to do. Oh, you know what?

I know this company because they just bought ads on this rig and startup. Your investment's coming to me. You're welcome. Thank you. I remember looking at this and going, this is a really brilliant idea because here's the thing about marketing. When you're doing marketing and you're a small business, you can't afford to hire the best SEO. You can't afford to hire the best blogger or TikToker or whatever it is, ad buyer. And those people don't want to work for one company. They just want to get in and out and do

five hours, 10 hours. And they can do it in five hours. And then the person you hire takes 50. So it's just more efficient for everybody for this to be a marketplace. So is it like, it's a curated marketplace. And so they'll match you in the back end. They are on fire. They haven't raised a real VC lead round. They've done a bunch of kind of operator rounds because they haven't really needed to and they're just under the radar on fire. So wait a second. They came to you. You pitched them on advertising.

I talked to him in some Slack channel. He was like, all right, tell me about your audience. And I was like, what's Slack channel? What is there's some Slack channel for Hipsters in Brooklyn? This is the Lean Lux Slack channel. It's like a marketing and DTC community that I was in. So he messaged me there. I was like, I actually don't know anything about my audience.

Set out a survey to people, asked them what they were all about, put together a deck. And I was like, you know what? If I made this deck, I'm just going to tweet this thing out. and see, so I did a little thread with all the slides in my deck. And that filled up, that was obvious. I think that filled up the advertising for the rest of the year. What do you charge per week for advertising? Or per day?

Oh, man. So what did you charge at that time? And what's it at now since you're sold out? Yeah. So at the time, that was probably, I think, $2,000 for just the top of newsletter spot. For a week or for a day? For a day. And you do it once a week or twice a week in a newsletter?

Sometimes one, sometimes. So on Mondays, I'll do the top of newsletter sponsorship. and then every other Thursday, I take it a step further, the editorial and advertising line, and I just do a full, I just did one on Monday, actually.

I normally do them on Thursdays, but did a full deep dive on Solana that they essentially commission. They're not saying, say this. They're not saying you need to bash our competitors. They're just like, essentially they're moving themselves up the list of topics

that I would want to write about anyway by paying for it. What is Solana? Solana is a layer one blockchain. Oh, yes. Yeah. So wait a second. Your marketer, your advertiser said, we'd love for you to do a salana piece. Wait, is salana the person paying? In this case. Oh, my God. You're just straight up selling everything. Wow.

Journalists right now are literally like banging their heads on their desk because they're like, oh my God, this guy is investing in his advertisers and writing stories that people pay him to read. But it's, I mean, it's the trickiest balance, right, to get all. of this, right? And it took a long time before I actually started doing these. And I did a couple early. The first ones I did were with Main Street and ramp and pipe. And so I think like after kind of saying like, look, I think these companies are fantastic anyway. And then they've gone on to do what they've gone on to do afterwards. I think I've, you know, built up a little bit of trusted. What does the audience think when you, because you put a disclaimer up top saying, I'm being paid for this, right? Not only a disclaimer up top saying I'm being paid for this, but I link to a Google

doc that I wrote on exactly how I go to the process. Because probably, I think, I think, the number's actually grown. I think in that document, I wrote one out of every seven, six or seven companies that comes to me. I'll actually even consider writing about. So I'm pretty stringent about what I'll write about. It's only companies that I would invest in

or write about anyway, and they just pay to kind of move up. It's so brilliant. Dude, it's so brilliant. It's literally, you've literally made it impossible for like mainstream media to compete with you by doing this.

We had this controversy in the 90s when I was in the magazine business because people would do what's called an advertorial insert is where this all started. And then Kandahs at some point started doing them. And it was just like, it's a big controversy. And then even the New York Times started doing it. It was like, wait a second.

Can you use the journalists from the travel department to write something about, you know, going to Jamaica and then Jamaica's tourism board, we give them like a million dollars to do these? And then they just basically said, you know what? You will hire a different group of people. They'll be on a different floor and it'll all be separate, yada, yada. and then you'll look at what happened with podcast ads. There are people at the New York Times who refuse to read podcast ads. So they do things like Hiret, Kaira Swisher, who was a journalist who would never have read podcast ads in a previous lifetime.

And I probably wouldn't have either. But when I started this podcast 11 years ago, I just said, you know what? Here's the whitelisted advertising I'm willing to read. These are the products I actually like. So you can only buy them if I approve you. And to this day, we still approve each advertiser, although I'll let themselves. them, but I do turn down, I don't know, a dozen advertisers a year. I'm like, yeah, not my bag.

Sorry, we're sold out. Screw it. But it's pretty crazy. But the more interesting part is that you're also investing in some of them, which falls into when I, one of the first times I met Michael Moritz and Zagoya, he said something. I can't remember what the conversation was about, but he said, no conflict, no interest. Because I'd ask the question. That's what I hated about.

It's all conflicted, you know. That's the thing about, you know, coming from operating. and then starting to write, I was like, am I just going to write about? I'm super optimistic anyway, so I'm never dunking on companies. It's not like I go from being negative all the time to being like, actually, you know what?

This company that's paying me is very cool. It's the same tone. It's the same everything every time, but I want skin in the game. I want a way to help the companies that I'm working with. And it's a risk that I take in the model where the number one thing is that the people who read, not boring continue to like reading,

not boring, and that they trust me. And so it's a governor on, all of it because if I'm shilling companies that I don't actually believe in or that are going to hurt people or whatever, it all falls apart and it all goes away. So it's actually kind of nice. You're at 70,000 subscribers. You're making

a million a year off the newsletter. Am I correct? Directionally, correct? Maybe a little more. We'll see how things end up. All right. So you're at a million and a half. Then I find out that you decide this isn't enough. I'm going to start investing in the company. So start my own, I don't know if you started a rolling fund or a syndicate.

So I started with a syndicate last year. And all of this, none of this was planned. All of it came about because opportunities presented themselves. I had these friends who were these two Russian brothers who were roboticists. And I first met them when I was a breather because they were building robots that built walls and rooms. And the crazy idea, they never commercialized, but they sold their next thing to Airbnb. They worked on their backyard product. And then they went out and did their own kind of real estate startup called Apt.

And they, because. it was real estate and software, we're having a hard time explaining to people why it shouldn't be valued like a real estate company back to our previous conversation and why it should be valued like a software company. So when there are 5,000 people on the list, they were like, can you write this up? We're raising money right now. Send money to the syndicate if they're interested in the company. And it worked really well. And it explained the company well. And so from there, just a bunch of imbound interests led to, I think about 20, 25 SPVs over the first year and then decided to turn it into a fund back in April. Got it. So,

you then make all this money from the newsletter. You invest in the companies. You start a syndicate. You start invest or your fund and you start investing other people's money. And so the newsletter becomes a deal memo as well as an advertising generator. And you then, how many deals are you doing a month? How many you do in the first half of the year? This is just pure, pure J-Cal.

So I started in April, did 20 investments in Q2. and I think I'm on pace to do probably closer to 50 this quarter because I'm doing... 50, you're doing more than me. How do you do 50 in deals? Oh, you're saying you might put money in. That says you as an investor putting 10K in.

You're not leading. So this is out of the fund. So they're bigger checks. I write probably 50 to 250. But I'm not leading. How big is the fund? This is a rolling fund? How big is it?

Non-rolling $10 million fund. Oh, perfect. Okay. Well, you're moving fast for a $10 million fund. If you're putting in 100K on average, you're going to be done quick. Yeah. I mean, and you know, what's the rush. What I've learned with all of this is that if you're upfront with people and let them know what to expect, then it's good and people can make their own choices.

And so in this case, I told LPs that this is going to be a fast deployment. Keep the fun size small, deploy fast. And the model is fairly fairly scalable because the deal flow comes from the newsletter. So I'm not out there pounding the pavement. Yep. Like I get from my podcast, right. Exactly. A lot of the ways that you can help are things that I do anyway, like advertising and tweeting and all of that where I'm not sitting in a board meeting. So it actually scales fairly nicely, and I'm investing across stages and across geos and

industries. And so if that's the case, there are just a lot of good deals when you're looking kind of at everything in the market. Got it. Absolutely brilliant, dude. So what are you looking to invest in now? Do you have some trend or something you think is particularly interesting? Yes, I've been, I think I look back at my Q2 investments and it was about a quarter fintech,

which sounds probably probably right and in line. It's, you know, what I did before. I've actually done very little real estate. I think I was maybe a little bit scarred from that experience. But a lot of what I've been looking at recently is, you know, I've been looking at crypto more this quarter than last quarter for sure. I think there's just a lot of really interesting models. think we're past the early phase or, you know,

it's like the dot-com bubble where everybody just put dot-com on something for a little while, maybe 2017, everybody put blockchain. And I think now there's a lot of businesses that just realize that it's a fantastic way to scale network effects and align incentives. And so looking at a lot of things in that space. You think this NFT stuff is like a total grift and people laundering money? Or you think it's like knucklehead rich crypto people, you know, buying things because they're knucklehead.

had rich crypto people, or you think it's actually a real trend, or maybe it's all three. Yeah, I don't know as much about that. What is going on? Because Gary Vaynerchuk bought something for three million. And I was like, what? Like, Gary, you're not going to buy, I don't know, maybe Gary's going to, I was about to say, Gary's not going to be able to buy the Jets if he's spending three million dollars on a GIF, but maybe it becomes for $3 billion and then he does buy the Jets. I think, I mean, the floor prices, floor prices, which is the lowest price that you can pay to get a particular type of NFT have gone up significantly

since he bought that What is going on? So I think... What's your theory on these NFTs? I have one, but I want to hear yours first. So my theory in these NFTs, I think they're here to stay. And I think certain projects will go away.

Certain projects will stay. And I think that they're already seeing them be incorporated into experiences that are just non-purely NFTs. And I think there's something interesting. Example. Example. I talked to a company yesterday that is doing,

not a streaming player, but a music service where NFTs kind of prove that you've backed an artist early and potentially the NFT changes over time as they go platinum or as they get more popular. Is this a artist or something? No, it's not Audius. Audius is cool. Audius is built on both Solana and Ethereum

that has five million users worth a billion dollars. That one's really interesting, but less of an NFT play. This one is like you're almost just getting this digital asset that says, I was early on this artist or I was early on this song and I have good taste. So I liked you to, you know, before Joshua Tree, you know. Exactly. And you, you liked them on Actung Baby or whatever so I can dunk on you. Exactly.

All right. That's interesting. So you think it's the alternative uses of the NFTs. The one I heard that was interesting was maybe you buy this NFT for a gun in this game and you can bring it to the next game. And I was like, oh, well, that's super sweet. So if I start a game and I say all the NFTs, from Fortnite can be used in my game.

Now we've got this crazy economy from Fortnite and Fortnite be like, yeah, you can use our stuff because you can only buy our stuff in our game. So yeah, you want to use it in your game. Now people are going to be twice as likely to buy that blaster or whatever, you know, Canon.

I mean, what I think kind of a meta point on all of this is that I wrote this piece of wow, that called the great online game where it like really what we're doing online all the time feels more and more like a game. And there's a lot of dynamics and mechanics from video games. that are just infiltrating more things. So NFTs are like owning a skin or a gun or whatever in a game,

but then you can bring them anywhere else. And same with art that maybe you'd be in a community before and you showed that you had status in this one subreddit. Now by owning this NFT, you can take that status with you anywhere across the internet. There's this great Eugene Waypost called Status as a Service, and I compare to kind of NFTs to that, where he breaks down what makes a good social network. And it's a combination of social capital, utility, and entertainment.

And NFTs kind of have all three of those things. Within a certain group, owning a particular type of NFT gives you social capital. You got the crypto punk, right? You got the crypto punk thing. We bought that as a group of 320 people. There's an app called Party Bid where you can go in, get a bunch of people to contribute to buying an Netflix together. You're time sharing your NFT?

Your time sharing your crypto pump? And it's super interesting because it's a big on... Wait, so you get like one day of custody with your NFT? It's like you're sharing with 319 other parents. So you get, we get token. in the thing. So they give you tokens that represent partial ownership of this NFT. If you want to sell out your tokens, you can.

If the group can decide kind of on what the price they're willing to take for somebody else to buy it is. But the interesting thing that happens is now there's, I think, a third of the people who bought it are in a Discord channel right now writing a story for this Cryptopunk and figuring out ways to promote him and thinking about other ones to buy.

It'd be like if we all bought, you know, imagine we all bought, you know, the number one Tesla Model S that's in my garage. And we bought it. And then we could all like 365 people buy it for $1,000 each. And we all get it for one day.

Or we can all just geek out that we own it and put it in storage or something. Like Raleigh Road, which I had the founder on here. That's like super dope. I was like, it's kind of cool to own something together and watch it appreciate. Exactly right. It's so funny.

Like you explain NFT and crypto better than the NFT and crypto. people have out of the podcast who were just like struggling to explain their own business because I don't think they like to speak in plain English. Well, the interesting thing and why I started writing so much about crypto is that I think there are some really interesting things happening. And I actually think that there's, you can apply like just normal business analysis to these projects to understand if they make sense or if they don't. So when I read about Salana this week, essentially like it comes down to it's a platform. Like can they attract developers to build on top of

it, and can those developers attract users to come in and use their products and spend money? It's kind of like AWS or GitHub for creating crypto. Is that right? Like, if I wanted to create my own Ethereum or Bitcoin, I could make it on their platform. Is that the concept? So if you wanted to build an app that use kind of crypto dynamics, a lot of that has been so far just finance apps and people trading different cryptos with each other, but there are things like Audius that can let artists sell directly to fans without an intermediary.

and, you know, there are likes and reposts that all kind of accumulate different points. There's a token that supports it. And so some of these projects maybe could or could not be built on the blockchain, but by having that token, it kind of just locks in early supporters and incentivizes people to use it and share it and attract other people to the cause and all of that. And then some, I think some of the more interesting projects now really should be built on the blockchain and are incorporating functionality that really makes sense for being in a blockchain. Why people pay you, what do they pay you?

25 grand to write these posts? 50 grand to write these posts. A little higher, but... Really? You get paid 100 grand to write a blog post about this shit? Not 100 grand. I said 2550 and you said higher, so we're closing in here. So you're going to be over 50 grand to write a fucking blog post.

Why am I not doing this? Jesus Christ, I got to steal this from you. You took my playbook. I got to at least get something out of this. Can I steal this idea? Here's a new idea. If you've got to... No, you know what?

I think if I did it because I'm already, rich, then it would look like I was taking money from founders. So if I wrote the blog post about Solana for 50K, people were like, oh, Jake Allen's already rich, he's invested in Robin and Uber. He's taking 50K from a founder. Whereas you do it, it's like, oh, you're just a newsletter guy. Yeah, I'm just a newsletter. I mean, literally this time last year I was making $0 in my life.

I'm stoked for you. I'm stoked because if you get, if you get paid 50, I'm just picking the 50 number, you pay 50 grand and then somebody builds a project on Solana and it, generates a hundred grand for them. It's a no-brainer for them to give you that money. I've never had, I had one person who commissioned a sponsor Deep Dive who emailed me like an hour in.

And they were like, this isn't working. Like, nobody's showing up. I was like, it's an hour. Give me some time. And they're now back as a repeat advertiser.

Yum, yum. Yum. Yum. Yum. And Jakehouse speak. Yum, yum. My point being,

they work. And the audience really, like, I pick things that I think that the readers are really going to like and use and and be interested in and all that. You ever trash anybody in these like 50K blog posts? No. That I won't do.

So what do? You just say, I'm not going to write up your thing because it's dog. I mean, there's some that I just ignore because you get, I'm sure, you get plenty of DMs that are just random whatever projects. So if somebody asks you to do it and you think their project's garbage,

but you just don't even respond. I got it. Sometimes. Other times I'll have the conversation and I'll realize, one, maybe I like this, but I don't think it's going to be interesting to my audience. Or I think this is actually, kind of interesting, but I do not want to promote this.

And so in either case, then I'll just tell them that I'd rather not. How much of this crypto stuff, because you meet all these folks, like, how much of it is like grifters and scammers and dips, versus legit people versus just, you know, principal, like, wacky, libertarian, crazy people? Like, put them into buckets and percentages. Oh, man. Brifters, true believers, and just legit geniuses making real shit in the world. And then I'll let you go.

It got off the ground with true believers. It had to be a religion and Bitcoin was a religion. And really the only thing that matters is other people believe that other people will believe that Bitcoin is a certain thing. It's really true believers, got it. Exactly. So there's that crowd. There are certainly gripped. Like in my DMs every day, there's somebody like, you know, please tweet my new coin that has no value and has no value of the world.

Most of the people that I spend time talking with are really just people who were in regular startups six months ago. go and are now seeing kind of some of the tools that they can get by using crypto. And it really doesn't feel like a money grab as much as like, wow, there are these two things that we can do because we're building on Web3 that we couldn't do if we weren't. And so it depends on the product. It's cool that it's getting there yet. You know, because we went through the early true believers who were like, they could really visionaries, they could see where we're at now 10 years later.

Then you had this grift period. I would call it like the grift and dipshit period where like these people were just idiots or criminals or grifters. And then I think we're kind of coming out the other side now where it's like, yeah, you know, I actually want to build something that I think is cool. It's like a music service. And you can own the NFTs and it enables people to make money. And I'm not just trying to flip some shit coin, you know, like. Have you seen if you're into the gaming use case, you should check out Star Atlas, which is a new game coming out.

There's AXI Infinity, which is one. But Star Atlas, they released a new trailer today. It looks so cool. And everything in the game. Explain to the audience what Star Atlas is. So it's a massively multiplayer online game. They wanted to be AAA. like a normal game that you'd be used to,

except everything in the game is an NFT for the most part. So the clothes that you wear, the ships that you try. Oh, I know about these guys. Yes, they did the largest Kickstarter in history. Or was it Indigo? Yeah, they originally started an Indigo, but then they must have added this NFT stuff.

Yeah, so they added the NFT stuff. And then there's two types of coins. So there's Atlas coins, which you need to spend in the game to buy all the NFTs and to fill up your spaceship and all of that. And then there's Pallas coins. which let you, they provide both in-game political power,

so they let you control different areas of space and tax the people who aren't in your guild. But they made an entire world, so I guess they're selling the real estate in it. They're going to sell all the objects in it. You sell characters and scans is so brilliant. And the people who spent all this time playing this game actually had something to show for it at the end.

Dude, it's so brilliant. All right, listen, I haven't been able to pass judgment on what you're doing yet, because what you're doing is everything, and it's really fascinating. And I'd love to have you back on the pod in a couple of months and trade some more notes. I think like you're a fascinating dude, and I love the fact that you're trying new things. And I got to figure out what I can copy and learn from you because I love the fact that people, and thank you for saying you copied some of the playbook. But people build on it.

It's like I don't have this newsletter, like write something, get paid 50 dimes, then reinvest it back in the company. I love what you're doing. I think it's sick. Thank you. Oh yeah, and where can people find you? They can find me at notboring.com or on Twitter at Pack E.M. All right, perfect. We'll see you all next time on this week's service.

Bye-bye.