This Week in Startups - Meta, Scale, and the Future of AI Labeling: Did Zuck Just Kill a Category? | E2139

Episode Date: June 17, 2025

Today’s show:Meta just took a 49% stake in Scale AI, and the shockwaves are hitting the entire AI ecosystem. In this episode, @Jason and @alex unpack the deal’s implications: Google ($150M customer!) and others are fleeing Scale, worried Meta will hoard its RLHF infrastructure and cut off competitors. Startups like Labelbox, Turing, and Handshake are already seeing a demand surge. Is this smart vertical integration or anti-competitive overreach? Jason shares tactical advice for founders on how to capitalize when incumbents stumble—hire ex-Scale talent, build “Scale AI alternative” SEO pages, and hit the podcast circuit. Don’t miss this deep dive into AI’s shifting power dynamics.Timestamps:(04:01) Is Jason becoming an AI doomer?!(9:52) OpenPhone - Streamline and scale your customer communications with OpenPhone. Get 20% off your first 6 months at www.openphone.com/⁠twist(13:47) PostHog, and when is it okay for founders to break the rules?(20:56) Vanta - Get $1000 off your SOC 2 at https://www.vanta.com/twist(25:50) Why the Navy is recruiting startups(30:12) Pilot - Visit https://www.pilot.com/twist and get $1,200 off your first year.(39:09) Did Zuck buy Scale in order to keep it from competitors?(56:08) When does incentivizing customers turn into burning capital?(1:04) How raising too much money could KILL your startup!Subscribe to the TWiST500 newsletter: https://ticker.thisweekinstartups.comCheck out the TWIST500: https://www.twist500.comSubscribe to This Week in Startups on Apple: https://rb.gy/v19fcpFollow Lon:X: https://x.com/lonsFollow Alex:X: https://x.com/alexLinkedIn: ⁠https://www.linkedin.com/in/alexwilhelmFollow Jason:X: https://twitter.com/JasonLinkedIn: https://www.linkedin.com/in/jasoncalacanisThank you to our partners:(9:52) OpenPhone - Streamline and scale your customer communications with OpenPhone. Get 20% off your first 6 months at www.openphone.com/⁠twist(20:56) Vanta - Get $1000 off your SOC 2 at https://www.vanta.com/twist(30:52) Pilot - Visit https://www.pilot.com/twist and get $1,200 off your first year.Great TWIST interviews: Will Guidara, Eoghan McCabe, Steve Huffman, Brian Chesky, Bob Moesta, Aaron Levie, Sophia Amoruso, Reid Hoffman, Frank Slootman, Billy McFarlandCheck out Jason’s suite of newsletters: https://substack.com/@calacanisFollow TWiST:Twitter: https://twitter.com/TWiStartupsYouTube: https://www.youtube.com/thisweekinInstagram: https://www.instagram.com/thisweekinstartupsTikTok: https://www.tiktok.com/@thisweekinstartupsSubstack: https://twistartups.substack.comSubscribe to the Founder University Podcast: https://www.youtube.com/@founderuniversity1916

and they rewrite it. They would literally go into the answer and change the answer and polish it. And they would send that to two finance people and then look for, okay, is it clean, right? You do a double-blind kind of situation. Yep.

That's what scale A.I was doing all this time and they were making more and more money from it. So now the question is, is meta going to just turn that off and just say, we're not going to provide that to other people, we're just going to use it for our own needs? And that would make sense for them to do it,

but it would also be super anti-competitive. and I'm sure this, I don't know what's going on with M&A. We talked about it, I think, last week, on Friday, maybe even. And, you know, as I said, I just look at the game on the field. Everything's, all these things are happening. So maybe they're just going to get a pass. But that would be a thing to look at. Did Zuckerberg buy this to kill it?

This weekend startups is brought to you by Open Phone. Streamline and scale your customer communications with Open Phone. 20% off your first six months at OpenFone.com slash. twist. 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 limited time at vanta.com slash twist. And Pilot, focus on your product, let Pilot handle your bookkeeping. Pilot provides the most reliable accounting, CFO, and tax services for startups and small businesses. Head to pilot.com slash twist and get $1,200 off your first year. All right, everybody, welcome back this week in startups.

He's Alex Willem. I'm Jason Calacanis. We do this Monday. We do it Wednesday. We do it on Fridays. And we have a ton of startup, big tech, little tech, everything in between news. And I am still on the road, Alex. I'm still on the road.

I've just given up you going back to Austin. I think you went to Texas. You had some barbecue, played some poker. And now you're like, you know what? I'm going to Asia. I'm going back to California. You know, here's the thing. It is brutally hot in the summer.

And your kids get out of school. the end of May first week in June. I think somehow related to the heat. And then they start up again in early August, which is crazy. You're like, wait, we're starting school in August. I said that school started in September. O'Contraire, it starts in August.

So did a week in Singapore. That was great. I've got, you know, we talked about my feelings about Singapore, thinking about bringing founder university to Asia at some point. And so that was like my little exploratory trip. went back to Los Angeles, spent some time at Lashify, the company I'm on the board of,

beauty company, and the family was out for two weeks doing a little vacay and seeing friends. We have a lot of friends in Los Angeles from our decade living there. Did the Disney thing. That was great. Then I went up to see some friends up in

Palo Alto, lost a ton of money playing cards. I'm playing bomb pots with Tramov and my friends. And got to see my friends' AI company and spent some time there Saturday he's crushing it. Actually, I have a picture of that. And I got to say, Jason, I did not know that all of our discussions about rucking and

enjoying the march, kind of around the ranch, had led you to this level of musseling. I didn't realize you'd gone WWE and less nerdy. So, yeah, an XAI on Saturdays, you know, we push code, we get the new models out, GROC 3.5, and then we lift. We left, but I met a bunch of great team members over at XAI. I spent the day there with Elon and some friends. That's the original from Roman. Roman's a great guy working on cool stuff over there at X and XAI.

And man, they're crushing it. It's just amazing the pace at which AI is moving. I was, I can't really talk too much about the meetings I sat in and stuff I saw there. But, you know, going to an office on a Saturday and seeing the lot full and seeing people there to eight o'clock at night building the future. I am so enthused about the future of AI. And also, I'm dipping a little bit into AI dumerism. Like, I'm really glad at the work they're doing. And then I'm a little bit concerned about how powerful this stuff is and maybe the wrong people getting their hands on this with not great intent. I actually now understand why so much time

and care was put into Open AI's original mission before they became closed AI in a corporation when they were like a nonprofit. Yeah. And I understand why some of these people are dumerous, you know, it's like, it's moving at a pace that I have never seen and I've been in the tech industry for 30 years. Without, without breaking confidence, what can you tell me about the pace of improvement that you're seeing? Is this multi-agent frameworks? Is this just smarter models with more context? Like, uh, which direction are you seeing this progress? I think it's everything. And I think the agentic stuff is super interesting because there's a lot of agentic stuff going on, and this is all public knowledge, but that you actually don't see. So there's one thing

for us, you know, we've been working on some agentic stuff here and we're like, oh, how can we look at what people are talking about in these different communities and surface interesting stuff? You'd call that curation previously. So could we have a bot doing that constantly and putting into our group chat and telling us, hey, here's an interesting startup. Maybe we could source an interesting founder in the build-in-public, you know, groups, you know, we track on the web, looking for cool founders. Anyway, long story short, I was like, they're doing some stuff with agentic that you don't see. And they are looking at some of the world's hardest problems, and they have, you know, groups of agents trying to solve those problems in like a competition

kind of thing, which is all public knowledge. Like, that's like a thing. But to actually see people doing it and how it's working and how thoughtful their approaches to it. It just makes me think Grock is, you know, I know it's top whatever it is, four or five in a very competitive race. You know, I think they have a really significant chance of being the winner. You know, whether they're in the final two, three, four, you know, depending on how you judge these things. But, you know, let's say it's pretty safe to say final four. I think everybody would agree. You know, in that final four, I think, you know, the combination of the social asset they own in Twitter combined with Colossus and their ability to build big iron and infrastructure very quickly, all of it's

just really inspiring. That was the pitch that Antonio Gracius made last year when we were all hanging out together up in, was it Napa, was it Sonoma? One of the two. He was like, look, you know, without proprietary data, there's no value in an AI model, essentially, was his argument. And so we're kind of seeing the fusion up. it. Just backing up what you said, though, Jason, you said top four, top five. It's interesting to look

at where GROC sits today. This is the old kind of legacy L.M Arena user universe, but it's pretty good. And if you take a look here, you see Google, OpenAI, and then right there is GROC. And right there, yeah. What you don't see here is much from meta in this top list. One deep seek, you know, a little bit from other companies. Yeah, Claude. There, yeah. Get GPT, Gemini. Yeah, I mean, that's, those would be my final four. Yeah. I think, you know, if you go open source, kind of have to go slow to go fast. So, you know, but to think we're living in a time when five giant, four or five giants in technology have all decided this is the prize and we're going to work towards it.

And then thinking about job destruction or displacement. That's the thing that's got me, I don't want to say staying up at night, but I keep teetering between it's manageable and it might not be manageable. I'm sorry to be a doubter at the start of the show, but when I saw people burning the Waymos, they were calling the Waymos during the, you know, riots, disturbances, whatever, ice raids plus riots. You know, I don't want to make this political show here,

but during those disturbances, when the bad actors were lighting the Waymos on fire, they summoned those Waymos there to light them on fire. So let's think about that for a second, people were like, I'm angry. Yeah. How can I displace my anger? Robotic taxi.

They didn't burn the police cars. You know, when the Lakers win, they find a squat car, they flip it over and light it on frickin fire. Yeah. They weren't lighting. I didn't see a police car on fire. I'm sure. Oh, they did see one get like rocks thrown on it, whatever.

But they decided they would call a deliberate act on their phone. they signed up the Waymo app and told them come to us and the Waymo's came to them Yes Like What are the animals That will like

Go on like a sacred march To their death Lemmins Well that's Lemmings Going off a cliff Yes that's But that's not a real animal in the world But like

Do the elephants Slowly walk To like some sacred place to lay down and die, you know? Lemons are real, by the way. Are lemons a real thing? Okay, sure. Just tell me doubting my entire audience.

Like elephant graveyards. Thank you, producer, Lord. Editorial director. So the elephant graveyard, you know, I felt like they were like these stoic creatures marching towards their death.

And then, so going back to the pace of AI, you got to think there's people out way more right now. And of course, Tesla doing their, dry run, you know, very safe, very small. If you're running a business, every missed call is losing you money. If I need a plumber, I'm not waiting for someone to get back to me. Of course not. I'm just going to call the next number on my list, right?

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open phone, we'll port them over at no extra charge. Open phone, no miss calls, no miss customers. Oh, and by the way, I got to drive in a Tesla cyber cab. That was the other big thing I did on Saturday. I took three rides in a cyber taxi, or the latest build of the cyber taxi software. And, yeah, it's good. It's better than my Model Y with the hardware four.

and it was really tight. I have to say, like, the things I've talked about before were it's hesitant, or it, you know, jitters a little bit, you know, going to a stop sign, pulling out, coming out of a driveway, making a left turn,

all of those kind of things. It made a U-turn at one point. That was... It was kind of a Brooklyn U-turn. I got to be honest. It was like, yeah, I'm going to make a U-turn. Bang, just did it.

And I was like, okay, this is what I'm looking for in a driver. So I think Tesla's going to have great success. I think they're going, based on the reports, I'm saying I don't have any inside information here, but based on the reports I saw of people trying to find those in Austin.

Yeah. I think they are going to do something safe and small in Austin and take their time, which I am in favor of. I actually think they should have a safety driver. I think they have safety drivers remote and in the passenger seat. I saw a picture today. I don't know what the reality is, but June 22nd is the launch date in theory. for the Tesla Robotxy thing?

They said it might move, but they're driving around. So, yeah, yeah, no, I'm just saying I'm excited to see what they come up with. And Jason, just a point of clarification, were you in one of the new two-seater cybercams that were shown off earlier? No. Or a, okay, you were a traditional Tesla

with new software. I was in the Model Y that they're using, and the model Y that they're using is for that specific robotaxy. So there's cyber cab, which is a two-seat thing. Robotaxie is a generic term. So I was in the cyber cab, not the robotaxie. Wait, wait.

I was in robo taxi, not cyber cab. Cybercab is the design of the two-seater that looks like the cyber truck. Right, that's how you remember it. It's cyber. That's the cyber one. That's not out. That's not what the test is going to be. It's model-wise, you know, the juniper release of the model Y, which is really beautiful.

We got a lot on the docket. I think we got to get some docket going here. So, yeah, I'm in, right now I'm in, uh, Santa Barbara for a big banks conference. I'm not speaking out, and just a guest here, but that was really nice of them to invite me. I would say who,

because I don't know if it's a public thing. And then Saturday, I got to go down to L.A. for the launch of the All-In Tequila. They're having a little launch party. Then finally, I get back to Austin. Finally, I get back to Austin for three weeks on the road.

Man, too long on the road. I hate being gone for more than two days. I don't know how you're holding together for three weeks, but points to you. All right, let's talk about some stuff. So first of all, I have a package of questions for you, Jason, about startups and best practices. There's a really cool company called Post Hogue. And the recent news item is that they raised a $70 million round led by

Stripe. That's kind of to the side. What's really interesting about this company is how it's kind of breaking all the rules that startups are often going again. So as I was just digging through their materials, it's all very public. But they are an open source software company, but they also offer very generous hosted free tiers. They don't do. outbound sales. They like to cut prices, not raise them. They do monthly pricing with no lock-in, and they don't really seem particularly interested in upselling you on pretty much anything. This cuts just dramatically against traditional SaaS growth techniques. And so I'm kind of curious, when should startup founders following the post-hog approach and go against conventional wisdom?

Great question. So yeah, I see this post-hog, Y-C-Back startup, raised 70 million by Stripe. It's very interesting that Stripe keeps investing in companies. I think that's like an underreported on fact that they are kind of like a venture capital firm at this point. I wonder how many companies they've invested in now. We could pull up that data, but it's definitely, I think, low dozens, like maybe a dozen or two. I would guess like maybe it's 15 or something that we know about, 10 or 15. So this is all in the category of business model innovation. So when V's, say, you know, hey, how is this innovative? Well, you could say it's a new technology. It's GPS. It's consumer GPS. It's built into your phone. And now Uber can go find you. DoorDash can go

find you. You can go find your DoorDash or etc. You can use maps. It all makes sense, right? That's a technological innovation, not a business model innovation. A business model innovation comes when something that was extremely, was priced in one way, is delivered in a different way with a different business deal. So let's think of one. If you were to buy enterprise software, and that would be before cloud, you had what was called client server.

So instead of paying by seat, you would pay for servers. And a server had a certain amount of capacity. So if you had a document management piece of software, like Google Docs is today, but they used to have dedicated servers for that before Google Docs existed

and Microsoft Word was in the cloud and all the stuff, Office in the Cloud, Office 360, I guess they call it. So what they would do is, you'd buy a server and they say, yeah, you can have 100 people, 100 lawyers can edit documents on it

and store their documents on it, and it's $50,000 for that. So you say, okay, we had 100 attorneys on there, $50,000, and it lasts for five years, and the server costs $50,000, So it's $100,000 all in between the hardware and the software. It's $1,000 per attorney. It's $200 per year.

And you would just take out a calculator and you'd do the math. Then they'd say, yeah, you know, and if you put a bigger hard drive in and you double the memory, it's going to cost you an extra $20,000, but you can put another $30, you know, attorneys on, so you kind of do that math. And then they, you know, some places were like, you just always have twice the capacity. So if one goes down, it's redundant. Then you had a revolution that occurred from Mark Benio. where he said, hey, it's all going to be in the cloud.

We're going to pay you just based on the number of seats. And there was another business innovation, which was instead of locking you in for two years, pay as you go pricing. So why would you, I guess is your original question, why would you do this kind of stuff? Well, if you're coming in and there's incumbents and you want to F with them and you want to disrupt them,

it's a really good way to do it. So when you see, I don't know, wireless plans come up and, you know, Verizon, you know, expensive, AT&T, super expensive. and then somebody's like, yeah, you know, we're not going to try to get you for $90. We're going to give you a family plan for $90 with five phone numbers. You're all in the same data plan.

You pay as you go, whatever. And, you know, it's $20 a person. But your coverage isn't great. So there's a little business model innovation there. That's all it is. Business model innovation. Probably the best one that we've talked about here would be the Epic Pass. You used to go skiing.

You could get a season pass at one resort. So if you owned a home and you were, you know, going to Deer Valley, you'd buy a season pass from Deer Valley. Vail Resort said, buy the Epic Pass at one resort. and we'll just start buying up mountains anywhere. And you could buy the local one for five mountains in Utah, the local one in Tahoe for five mountains, or you can buy the international one. And all you can eat,

all you can eat, all you can eat is the idea of a business model. What did that do? The mountains were filled up. Then people spent more money on food on the mountain. They spent more money on lodging at the mountain. They spent more money on rentals, and it got more people into it

because the big blocker in schemes, was, this is really expensive. Really expensive. You know, it's $200, $300 per day to go skiing in America now. Now, people in Europe pay 50, Japan pays 50, someplace is 75, 100 a day. So you don't even, why would you buy a season pass? You go 10 days, you pay 500. But if you're paying 300 a day and it's 900 for a season pass or 600, you know, it's

usually in that range depending on block out dates, you can be like, hey, if I do three days, I'm in the black. I do four days I'm in the black. And that's how people do it. Then they subscribe. don't ski this year, but they ski next year, they ski the year after, they don't ski for two years, they just keep their subscription going. That's the business model innovation. I really appreciate that, but investors are often looking for a particular thing when they're, you know, their conception

of the market and how startups should operate. So if you're going to cut against the grain, either in a technology sense or a business model sense, how would you go about conveying to investors that you're not being absolutely insane? For example, we're going to cut prices, not raise them. How do you get across their it factor by you going against commissionists? You just ignore them. Yeah, VCs are, you know, if a VC is smart, they are going to look at the entrepreneur and say, tell me you're thinking, okay, yeah, that's an interesting idea. Why do you want to cut the price in half? Do you think you can make up for it by having five times as many people? And yeah, when they started Uber Pool or Lift Line, a lot of us were like, is that a good

idea? Because that $5 or $6 a ride? And it was like, yeah, we're going to try it. The city's love it and it didn't work. It's worth trying, right? All right, founders, I know you're building something amazing and you're going to change the world. And now, hey, the big logos, they're taking your calls, right? But here's the catch. If you're not SOC2 or ISO-27-001 compliant, these deals won't close. Now, some of you're saying, I've never heard of those terms. Some of you're saying, I've heard of them, but I don't know what they are. And that's where Vanta comes in. They're going to be your partner, and they are the all-in-one compliance solution that helps startups get audit ready. And that's going to build a strong security foundation for your company, which you want,

but they're going to do it quickly and painlessly. Vanta automates the manual security tasks that slow you down, and that streamlines your audit. So here's your call to action. Whether you're closing your first deal or you're gearing up for growth, Vanta is going to make compliance easy for you. join over 8,000 companies, simplify your compliance, and get $1,000 off at vanta.com slash twist. That's V-A-N-T-A dot com slash T-W-I-S-T. Or Uber Bus, right? And now they have these routes in Manhattan where every 15 minutes an Uber Bus goes by and it's five bucks, you get it on and off, and you give up the last, you give up door-to-door, which you gain 50% discount.

And then everybody in New York City is talking about Uber shuttle. I haven't taken this yet, but I'm going to do it next time in there just as, you know, for a little product market research. The JFK shuttle, which is being advertised all over the subway system in New York, is, I think $15 to go to JFK. I'm looking at the page right now. I don't think it has a listed price that I can see. Ask Gemini or Claude or Grock or Chat Shepetea. I think it's 15 or, you know, our team should be. checking that while we're here.

So Lon or Sergio or Chris or Oliver, just feel free to dump the answer and twist taping for us. I think it was 15 I saw. It might be 20. It was, in other words, like if an Uber X would be $75, an Uber block would be 150,

that's basically. 25 one way. Oh, 25 one way. Yeah, so it's half price, a third of the price. Yeah, I take that night day, whatever, that's fantastic. Also, I got to say,

When Uber pool came out and Lyft Line came out, if you were in your 20s in San Francisco, that was lifeblood. That was the best thing in the world. We were all broke. We loved it. RIP, Lyft, Line, and Uber Pool. I miss you a lot. I think, you know, with the cyber cab coming, the two-seat, what they're reporting might

cost 15, 20, 25K, you know, eventually maybe 25K to start 15 at scale, and I think they're going to scale it. You know, that might be the kind of thing where it could go down to $10 a ride or whatever, seven bucks a ride again because those cars are so cheap to produce and they'll be utilized 20, 30 times a day. So yeah, you can ignore your investors or potential investors advice. I think you explain it to them. And if they don't get it, they don't get it. You know, it's just the nature of it. If people don't get it, you know, a great investor wants to hear your thinking, have a great debate with you about it. And then

let you cook. And so if Steve Kerr's like, I'm going to take 12 threes a game because they, and, you know, I'm going to let Steph Curry do that. You know, if you're the owner of the club, you're like, okay, yeah, you got a season. Let's see. Yeah, maybe two seasons.

You're looking for a little innovation, you know, and that's why the three-pointer revolutionized the game. And then that's why everybody's trying to get, you know, all five people to be able to shoot threes at a decent level. And then that's why the volume of threes went up. So business model innovation, You can see something like that in the NBA. There's an innovation in NBA.

And if you do that, you have a really good chance to disrupt, you know, people who are incumbent. So the reason really to do it is to F with incumbents and to like customers. One of those two reasons. People thought it was crazy to even consider, like, Spotify. Like, why would the music industry ever want to support something like Spotify when it was 99 cents to try? And 99 cents a track was a Steve Jobs innovation that they were like, why would we ever do 99 cents a track? We want to force people to buy the album for 15 bucks

to get the 12 tracks for a buck 30 each. Why would we ever do 99 cents? People were just going to snipe the best one. So there's three different business model innovations. The CD going to, yeah, the CD going to Spotify and then Spotify going to all you can eat, or CDs going to 99 cents on iTunes and then to eventually, you know,

being all you can eat. And then they're also on YouTube. So when I was in Singapore, I was shocked that the cars, you're allowed to, in the dashboard, LED, play video. I mean, I think that's illegal in all the United States. Yes. And 100% of them had YouTube playlists. They were playing. And so you're sitting there in the backseat watching a music video from YouTube. And I'm like, I was always wondering why these videos have a billion views. It's because every cab in Singapore. He's playing a YouTube playlist. A number of cabs in Singapore. I'm Googling that now. Six million people. I guess there's like one percent of the people, so 60,000. There were 14,000 taxis and 46,000 other kind of chauffeurs in Singapore back in 2020. You put those together. That's one

percent of 60,000. I nailed it. Once again. Notes. That's a lot of folks. All right, let's take a big pivot here and talk a little bit about the Navy. So the story is that in the Navy. Do you want to keep singing? No. Okay. I just never when you said Navy. I think of the I think of the village people. Ah, when I think of the Navy, I think of my childhood dreams of being a Navy fighter pilot

that were foiled once by being too tall and far too blind. Got it. Ah, rest in peace, Alex's Navy dreams. Anyways, so the Navy's CTO, Justin Finnelli, is working hard to make it easier for startups to sell into the Navy. And this is a couple of things at once, Jason. So first of all, they're trying to kill off the Valley of Death. which is the time between when the Navy

order something from you and when you actually get paid for it. If it's too long, startups can't float essentially paying for someone else's product for too long. So that's very important. And also they're trying to get the overall time from kind of selling to the Navy to getting something approved down quite a lot.

So one startup via went from a request from proposal to deployment in under six months, which I believe in government terms is light speed. And you know, we have a lot of defense companies on the Swiss 500. Vatten systems, Castellian, overland AI. There's a lot of names on there. But I'm curious, what can startups bring to the Navy in particular or the military as a whole that existing

defense contractors can't? So where should startups be focused today if they want to sell into the DoD? Okay. That's a big question. So there's a business model and a payment to segue from the last story. The existing model is cost plus. So we get a contract with you and we just make a percentage on top of it. I hate that business model. I'll tell you why in a second. The other model is, I make something, I'm a technologist, I make it better, make it faster, and I make it cheaper, and you buy it. And that allows me to make it better, faster, and cheaper, and then you buy more of it, and we just keep going. When you do cost plus, that never happens, because your incentive is to make it cost more. So the plus on top of it, the percentage on

top of it goes up as well because you want to increase your profits and your revenue, right? Everything's got to go up and to the right. Yes. There's two ways for it to go up and to the right. Charge more or sell more. So there's the tension. And what startups are great at doing, bigger, faster, cheaper. And, you know, smarter falls in there, right?

What's smarter, better, smarter, faster, cheaper, smarter, better, faster, you know, these are all the sort of variables that typically a technology product, beat an incumbent on. And so if you look at the category of products that are getting chosen, they tend to be in the drone category, the new faster, cheaper components or products that use off-the-shelf components. So what happened with battery technology, sensor technology over the years is people in Ukraine can build really effective, you know, offensive and defensive measures and they can do it with commodity quadcopter,

aka drone parts, even though they're not fixed wing drones, they're quadcopters, they get called drones as well. So this is an admission from the Navy that, what do they call them the primes? Defense contracting primes, yeah.

Yeah, so the primes are slow and expensive. They want to go fast and they want to go cheap and they want better. And that's the bet, America needs to make because our adversaries are now doing it. This entire offensive action by Iran, by the Israelis in Iran that happened, whatever number of days ago now, five days ago, six days ago. When that happened, it was, or it was Thursday night, I think, yeah. So when that happened,

and we started hearing about it on Wednesday, and I remember I did that quote, we read, are we really doing this when they empty the embassies? It's like, yeah, it's happening. We're not doing it, but the Israelis are. They had boots on the ground inside of Iran and they weren't sending F-16s in or any kind of complex stuff. I mean, maybe it was complex, but they were doing drones and small arms

that they had snuck into Iran over and Tehran. I think they snuck it in over a year and a half, two years. If you're a startup founder, you got a million things to worry about. You got hiring, product market, fit, customers, investors, board meetings. It never ends. And that's where Pilot comes in.

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twist. Great domain name. Even better product. The Ukraine attack on the Russian military base deep into Russian territory was a similar thing. They had been hiding stuff for six months there. So that is the adversary or that's the theater. That's how the theater will emerge and that's really plays into the strengths of nimble startups. People in Ukraine are building these things in the field. So if they're building in the field, what can you build in a factory, you know? And the payment cycle is a really great innovation by the U.S. Navy. So shout out to the CTO, Justin, on really understanding that startups have typically 18 months in revenue, a funded one, 18 months in runway, a funded one. And if you're going to, you know, if these things take four, five, six years,

yeah, the startup's out of business. So I love the idea of we're going to pay as we go. We're going to buy $10 million with the stuff. We're going to do 20% on signing, 20% when you hit these milestones and so on and so forth. And a lot of, I think, VCs now are like, maybe we'll just build stuff and then show it to the military and then say, how many do you want? Right. And that's like an even better model. If VCs can just say, hey, we're going to make the stuff whether you need it or the Israelis need it, you know, or Brazilians need it. I don't know what the rules are for startups. That would be a really good question. So we should have a defense investor on and talk to them a little bit about that.

I don't know what the rules are for who you can sell to, but I like the Ironman Tony Stark, Stark Industry style. We're going to make bombs. And if you want them, tell us how many. Well, we have a lot of allies around the world. I mean, Five Eyes, you know, Australia, UK, US as a collective, NATO. I mean, we have a lot of friends. And I think if you're building for the US, our allies tend to have access to things.

I mean, the F-35 is not a single nation project, right? Yeah. We do have a question, though, from Vaish over on. on IG, because we're allowed on Instagram, everybody. There you go. He wants to know, Jason, what are your views on agentic AI applications inside of defense? And the first thought that I had Jason was, well, Palantir is doing fine. But I'm curious what do you think.

Yeah, agentic inside the military, I'm assuming you mean, like on the battlefield. And that is, there are some United Nations laws against robotic, unmanned guns, weapons, robots, and I know that we have some agreements to not have those, but to have them for, you know, robots that are monitored, controlled by humans. Taking a human out of a loop in a drone means the drone can make a mistake and land on a hospital, like really bad. And I don't think any of us want to live in a world where you have optimist figure style humanoid robots or the dog one with a gun mounted on it. We've seen that on the show.

Yeah, we had the Chinese one with the, with the Chinese had taken one of those robot dogs and just mounted an AK-47 type assault rifle on it. You know, if that thing was just like, shoot people in a uniform, that is an American uniform, well, you know, that's not perfect. And it's going to make mistakes.

The one I did see that was really interesting. I saw a gun. I should have put it on the docket. one of the producers will find it, but it was a gun that will only fire when it has a drone, like a quadcopter, and it's 100% sure that you're going to hit it.

In other words, your aim is perfect. So imagine a rifle, and you put it up, and it's got computer vision, and when you have it squarely in, when you have the quadcopter, squarely in the crosshairs, it vibrates, or it says, okay to shoot, or it just gives you the green light,

you start firing. But if it's not in the crosshares, there's no green lights so you can't fire. And I was like, well, that's interesting. Why don't they just make it? So if you hold it up, you just move it around

and it says up, down, left, right, a little more right, a little bit left, or it just makes a, like a sound. Yeah. Like, you know, one of those metal detector sounds, increasingly higher pitch as you get closer to it.

And then when it's in the crosshares, it just fires itself. I think the reason they don't have fire yourself is because of these agreements with the United Nations. There's definitely a continuation, there from like you hold it, it tells you when you're in the zone, you hold it and it shoots when it's in the zone, to it tells you where to put it in the zone. And at some point, Jason,

I really do think you're just having a gun on an arm. But this is the brave new world there we're going in. This is not just drones, by the way. Don't forget that in systems, one of my favorite companies is building underwater drones. We also have drones that sit on top of the water. So warfare definitely is changing. One more question about the primes though, Jason. When I think about electric boat and Raytheon and these major companies that start up are taking on, I'm thinking about like literally building submarines. It seems like the shift in warfare has created a really great opportunity for smaller, cheaper, faster weapon systems like drones that we're talking about. So it does seem like the war fighting is moving towards the startup domain and away from

mega systems like aircraft carriers. Am I right there? Well, obviously, yeah. I mean, everybody understands it's going to be smaller things. Yeah, 100%. And these hypersonics, I don't know. Oh, look, they found the smart shooter. Here it is. All right. I have the video.

I'm pulling it up for us. Yeah. So we can see this in just a second. There. Yeah. So if this is the one, I think it is. I think this is,

like has the ability to, if it's in the crosshairs, actually fire. There it is, folks. This is so crazy. 95% hit rate. This AI weapon turns any rifle into a drone killer.

Smash 3,000 in action. So, He's looking through the site. Oh! And bingo, yeah, it just tells you, okay, to shoot and kill. And you take your shot. So you're not wasting it. Yeah, that's pretty neat.

That's pretty neat. That's pretty neat. Also, you, in friendly fire. Like, if you shoot a gun up in the air, the bullet comes down. Yeah, that could happen to you. That's probably why they're doing the test over the ocean. They're doing that Camp Pendleton. Yeah, I don't think the fish are going to mind too much.

All right, Jason, Alon had a question for you on this, which is, if you were a defense tech founder today, what would you be due? to ensure that you're locking up some of this Pentagon money that's up for grabs. More marketing, more pitching, or just as you said earlier, build it and they will come. Yeah, it's not a simple as build it, it will come. It's hire people who've been in the defense industry, number one, to work at your company who know how to navigate it, two, hire lobbyists who know how to navigate it, and three have VCs who have invested in the space.

I think all three of those, which is to activate your network, are the best advice. It's really the similar thing. You know, if you were building a consumer or marketplace app or a software app and you talk to me and you're like, hey, I'm wondering what Google or Microsoft or Apple or this person might be a partner or what we can learn from them or, you know, whatever, maybe an acquisition. Yeah, I can make the introduction. There are people who spent 20 years at the Defense Department who are now running venture firms or work with venture firms. So this is what investors provide. Money, advice, network. Money, advice, network.

Man, money, advice, network. I'm not saying it just because it spells out man. But man, that's what they provide. Can. Cash, advice, network. Can. So that is the nature of, I think, what you would be looking for. Good question.

All right. So let's move on and talk about some big news that's actually relating to how startups build and go against incumbents. Jason, we wrapped about the meta and scale deal, as everyone heard. It's a minority transaction. Metas buying 49% of scale and taking their CEO, the last remaining co-founder. The interesting kind of second order effect of that deal is that a lot of customers of scale are now looking elsewhere. Essentially, they don't want to go be a scale customer because they're Google or another competitor with meta. Reuters had a great story up about this. and maybe a good idea to explain what scale does,

since most people don't know about AI training and how deep this is going now. Yeah, I was going to, yeah, no words. So scale does a number of things. It was most famous for data labeling, helping companies get their data in an AI-friendly shape. It also does LLN evaluations. I believe they do R-L-HF,

which is reinforcement learning with humans in the loop. Yes, and this is all examples of this might be. You remember like the, Silicon Valley hot dog, not hot dog app. You know, in the early days, you would just have humans say what's in the photo. They would type five items in the photo. Another human would type five items in the photo photo. And if they got four of the same things, and they said, this is an orange, you know,

and it's a man eating an orange on a beach. And there's a seal. You know, they would say, okay, great, two out of two people are great. We'll put those tags. And it was called tagging back in the day. You put tags on, humans tag stuff on Flickr. And then people would use that Flickr data or Instagram data from those tags to train AI and do machine learning. But there were also companies doing it.

Then it became tagging was kind of easy. So then with large language models, what they started doing would be you asked a question about finance. Hey, explain to me the rule of 72. Sure. They would look at it. And you know when you're asked to give a thumbs up or a thumbs down, that's you giving some feedback. That would go to with a thumbs down or people complaining about it. an expert in finance, and over time it went from literally somebody who could tell you what was

in a photo, which is like any human being who can use the English language, and even poorly, they don't really need to even be able to put full sentences together, to being somebody who's a finance person who says, that description is technically wrong because of these little nuance, and they rewrite it. They would literally go into the answer and change the answer and polish it. And they would send that to two finance people and then look for, okay, is it it clean, right? You do a double-blind kind of situation. Yep. That's what scale A.I was doing all this time, and they were making

more and more money from it. So now the question is, is meta going to just turn that off and just say, we're not going to provide that to other people. We're just going to use it for our own needs. And that would make sense for them to do it, but it would also be super anti-competitive. And I'm sure

this, I don't know what's going on with M&A. We talked about it, I think, last week, on Friday, maybe even. And, you know, as I said, I just look at the game on the field. All these things are happening, so maybe they're just going to get a pass. But that would be a thing to look at. Did Zuckerberg buy this to kill it?

Well, I don't think we even have to assign motive here, Jason, because it appears that it's going to die on its own. For example, Reuters reports that Google did $150 million of business with scale last year. They were going to do $200 million this year. That's going to go to zero. And a number of startups are reporting an influx of demand for their services, which were competing with scale before because people don't just want to give meta,

essentially their data to show them what they're training. So a company called Labelbox told Reuters that they're going to, quote, probably generate hundreds of millions of dollars of new revenue this year from customers leaving scale. Turing and Handcheck also said the same thing. I pulled the list, by the way, of companies that are in the data labeling space.

It's in the Twist 500 newsletter today. We're going to put a couple of these on the list. But my question for you is, if you're a founder and the incumbent, whoever it is in your space, stumbles or becomes less marketable or just less attractive. What's the best way to go out there and ensure that you're going to absorb that demand that's not going to peel off from there?

I'm thinking like discounts or promotions. How would you go about it? I would hire previous salespeople who work there or previous employees to be consultants and tell them not to put their names on your LinkedIn page. If I was another labeling company and five people had left scale AI in the last year, I'd say, don't give us your database. but we'd like you to come be a consultant and tell us, hey, what would be great?

Help us do business development, right? And so if somebody leaves a company, as long as they don't take the database with them, if they've got 10 relationships and their kids go to school together and they made a friendship with the person at Google who spends this money and has this contract and they go to the Warriors games together. And, you know, they've had dinner at Miller & Lux a couple times

and had the, you know, the Tomahawk. Great. fine. They might be able to win that client. So that would be how I would do it right off the top of my head. But you know, you've got to be, you're going to have to rise and fall with the quality of your own company. You could put up a webpage, actually, now that I think about it. That says, you know, offering free consultations, offboarding, consultation and assessment and audit for people getting off of scale AI or scale AI alternatives. So when you type in like Slack alternatives or Salesforce or HubSpot alternatives, you get all the other SaaS products.

And sometimes the SaaS products will put on their own web page Salesforce versus sales hub competitor or whatever. And it's the sales hub, you know, web page, but they're doing a comparison of their two. Astoundingly, even though they did it completely objectively, did you know that sales hub actually turns out to be a better product?

Wow, shocking. I'm blown away by that too. Unbelievable that they would find themselves to be the market leader. It just was, you know, it's objectively the truth. So they decided to highlight it on their page and buy ads around it to send more traffic to it to drive the SEO. So yeah, I would probably do that as well. And then maybe writing some blog posts and maybe doing some press hits on podcasts, etc. Where you explain the space, you explain the deal.

So making yourself available to journalists and podcasts. podcasting is kind of the new journalism now or like the new place people look for information. So I would just go, hey, who's talking about this? Hey, we can provide a subject matter expert. Would you like the CEO of this company and this data labeling company come on your pod? Well, I mean, when these three startups, Turing, label box and handshake were in the Reuter story, they're the first place I went. Now, admittedly, I did go find another five. But I mean, that's a great way to get your name out there, build SEO. But my question is, is what's the ethical line. We talked a lot about the deal.

Don't steal the database. Okay. You don't steal the database. You'd never have anybody break their NDAs. You know, I've been in meetings where people have offered me information and I just stop them. I'm going to stop you right there. Don't tell me anything that your previous employer would be upset at you telling me. Don't tell me. We have an investment in Uber. Please don't tell me if you're doing something competitive with Uber or disruptive to Uber because I had tons of people

want to pitch me Uber competitors or adjacencies. I said, whatever idea you have for an on-demand company, they had it six months ago and they decided to move it down on their runway after getting to the 9,000, 10,000,

11,000 city, which is more important than your idea to do, you know, Uber for dry cleaning. I mean, I need Uber for dry cleaning right now. I'm wearing polo shirts. I've been on the road for three weeks. weeks. I need it twice a year. I don't need it, you know, every day of my life. Like I do Uber

eats and Uber rides. So I do miss that era, though. That, that era of consumer was so much fun if you were in San Francisco. Like my across the hallway neighbor in my apartment building, tried out every single possible Uber for dry cleaning and Uber for laundry because they all had amazing early discounts. And he just cycled through him. And he got essentially free service for like six months. I hope they didn't destroy his laundry. My favorite was Lux Valley. And I would pay for this again. Lux valet would have a valet meet you at any location in San Francisco. And they were wearing a blue jacket.

And they would take my Tesla and go park it in a parking lot for me. And they would abstract whatever parking lot they were putting it in. Because they had rented a certain amount of capacity in parking lots at a discount. So they would get 10 spots or 20 spots in this lot. They'd pick up my car. They would bring it there. Then for an extra 10 bucks. Oh, no.

for the same price, they would then come and be waiting for me outside the battery or wherever, and it could be different ends of the city. So I could go to my office at my car, then walk to the battery, have you drink with somebody, then have them bring the car over to the battery. And I'm like, for the same price, it was like $30 or $40, and my parking was $20. So, or it was $25, and then I would give a five or $10 tip. So it was like, it was a wash, but I got the person to bring me the car. And they were basically losing $30 or ride. Yeah, and that's why I'm looking at this headline that I just pulled up because I was

curious, what happened to Lux and Jason from 2017, valet parking startup Lux, latest casualty if on-demand bust. And there was another startup called Zirks that was doing kind of a similar idea. And it pivoted to the enterprise, which is a polite way of saying that our consumer business lost too much money. Yeah, yeah. And self-driving was coming and cars parking themselves is an individual. is an inevitability

and, you know, ride sharing is ubiquitous. Can I actually ask you a question about this? Because much hay has been made over the years about Uber's essentially taking a loss on certain rides to drive demand, subsidizing drivers, subsidizing riders, etc., building a marketplace.

When does intelligent subsidy go from marketing effort to, oh my gosh, you're just torching capital? How do you, as a founder feel a difference? Does the customer come back a second or third time or are they just there for the free pizza? So in the world of two for one, my dad would never, I was like, Dad, you know, I see all these places doing two for one entrees and we're not busy at 530.

We get really busy at 630, 730. He's like, yeah, those people will come in. They will eat three loaves of bread, put two loaves of bread in their pockets, still the silverware, and they'll complain and they're send their food back. And their coupon, it was a term for the, them. That was derogatory, but like coupon A-holes, basically, sweepstakes, jerks kind of thing. Those two-for-woners is what kind of Groupon eventually became. And I recognized that with Groupon

because there were all these stories that Groupon killed my business. People who had small businesses that were destined to fail would then be like, I need to get more customers. I'm scared. My whole life is riding on this yoga studio, this cafe. So they would do something where they lose money, to your point. Hey, buy a cup of coffee, get a cup of coffee free. Buy a croissant, get a cup of coffee, whatever it was. They would construct the deal that they would lose money, and then they would sell 100 of them.

So now they'd be losing $2 times 100. They would lose $200 when they were trying to make $200 to make their rent, and it would be a debt spiral. Yes. If the customer... So the... Which are you looking at as cohort analysis? Are these customers going to stick around?

What's their lifetime value in the cohort? So you have to make sure on the Tuesday, when you said we have yoga and you can come to this class for $5 instead of 20, you track that cohort. Do any of them come back? And does there any damage to the studio? And do they write bad reviews on Yelp or do they help? And it turned out they would like write bad reviews. So you get these cheap people who'd write bad reviews. You'd be like working against your business.

That's how you do it. Cohort analysis. Great question. No, I really appreciate that. I think the phrase was extreme couponing. According to what I can find. Sure. Frugality is good, but you don't want to attract customers that are going to give you the lowest margins and the most complaints.

So I'm with your doubt on avoiding the two-for-one people because my God. You know, some places have ways of managing this. So if you gave unlimited iced tea, the cost is contained. You know, some people might go crazy. If you do bottomless mimoses and it's like, you know, champagne, that's sparkling wine that's going to make you go. blind, it's really cheap and you buy it in like, you know, a two-gallon bucket or something. Okay, fine, you know. So there are times you can, I think, work around it.

But the problem is people in the industry during that time period, and perhaps now with AI, you know, if you're losing money on every search and you're providing massive amounts of compute, well, maybe those people would not actually use the product long term and they're not your ideal customer. So then the data coming in. is sending you in the wrong direction. So we're all doing these queries on a $200 a month subscription for an elite, multi-threaded, incredible AI product

that should cost $2,500 a year. And we start using it, and they burn $2,000 a year for you and I using it, and then we never convert to paid, and all the data they got from us were searches that are from people who are not their customers. So now you spend all this time thinking about somebody and trying to teach them yoga, and they paid $5,

and they don't want to do yoga. They're just there because I got a deal. So that's the other thing is, I think the data problem, and that's why cohort analysis is so critical. So many people just get customers, and they don't think, how did I source that customer? We actually know where all of the people who come to Founder University came from,

and we asked them in a survey, and we asked them on the call, when we do an introductory call with the founder, How did you find out about our firm? They say, oh, I listened to All In. Oh, I listened to This Week in Startups. Oh, do you listen to This Week in Startups? Who started listening to All In.

I'm an All In listener who then went to This Weeks Startups. I saw Jason speaking at a conference. I read his book. Figuring, I saw him on CNBC. And what I did over time was gave me the confidence to say, you know who the best leads come from? This podcast. The more I talk about startups and startup issues here,

the more people find it, the more they apply. Or when somebody does want an angel investor to come to a program, they say, yeah, you should talk to Jason. He, that's what he does. So you have to study where your customers are coming from. Also, it's good to look at cohorts over time. Jason, you talking about this made me think of this chart from the Chime S1 filing. And what this shows is new cohorts of customers based on, I think it's year and then

quarters since first active. And what they're trying to show here if you're listening to the audio version is essentially that their newer cohorts are having greater product attachments. so they're using more of Chime's products over time. But this is another way to take a look at cohorts and how profitable they might be. Because Jason, if they're having to hire a attach rate, you can spend more, I presume, on customer acquisition

because each customer's LTV, long-term value, lifetime value is going up. Yeah, this chart is great. If you just take a moment and look at it, the X and Y axes are the number, X is the one that goes up and Y is the one that goes across? X goes horizontal, Y goes vertical. Okay.

So the Y is that. the number of products you used each month. One, two, three, or four. And then the quarter since first active goes from zero, four, eight, twelve, sixteen, twenty, twenty, four, twenty, twenty, twenty, thirty-eight, thirty-six. So up to thirty-six quarters, which is nine years. It's a lot of years. And what you see is the oldest folks from Q1 of 2016 is the white line.

And it took them years to get to two, but they started at two products or so, took them years to get to three. Like literally took them sixteen quarters, four years to get to three on average. But then you look at the people who have been using it for zero, one or two or three, four quarters, even four quarters, which is a year, they're getting out of the gate to three products. They're using three products in year one. And then now you're starting to see people get to four products in year two. What this means is they're not unsubscribing. They're not going to churn.

And their efficiency in explaining their product and getting people to try the product and get value from it's going up. what that means is the quality of the revenue here and the quality of the startup and the management team is extremely high for chime unless there's some gamesmanship going on here. And so always look out for that. Remember there was a bank, I don't want to say which one because I can't remember, but banks were signing people up for four accounts and they only knew about one or two. And then all those banking legislation came out and they were like, yeah, the people sign me up for a money market, a check. I didn't sign up for that. I just wanted a savings account. They put me in these other things. And then I started getting these fees for it. That's an example of an incentive. There was an incentive for people to try to get people onto more products and they use dark patterns or just straight up lying, cheating, stealing.

I was going to say, I'm going to put them into two because they said they wanted to open an account. I was like, oh yeah, business savings, money market. And they said, yeah, I want a savings. And there was like, okay, they said, yeah, first. So that means all three. Like literally that was people's explanation of it. Now, they were getting a $25 spiff or something for each one they did. So show me an incentive. I show you an outcome. People cheating. So you have to, as an investor, when I see that number or a public market investor,

I would be like, okay, how often are they using those products? How much value are they getting from them, which would be a little double click. But this is a great trend lined. And that trend lined, most startups are not capable of doing that kind of analytics. where most startups don't do that kind of analytics until they get later in their life because, number one, they don't have that of data. Okay. Number two, they don't have a ton of resources. As tools come out to do this kind of analysis, cohort analysis and all kinds of metrics, and they become easier to use.

And you have chat, Chapti, and Grog and Gemini to teach you about it. And an accelerator like ours teaches it, people get better at it. In fact, we have a module at Founder University, teaching. people about cohort analysis, even though we know they're not going to use it because they're not even incorporated yet. We just want them to know cohort analysis exists, lifetime value exists. You want to start doing it right from day one. And right from day one means in your database, when did they sign up? What was the source? Did they come from a Facebook ad or a TikTok ad? That could matter. Maybe the Facebook people stick around and TikTok don't. TikTok's a

of Transcate. I have a friend. I think I mentioned it on a previous one. He has an AI app. And let's just say certain demographics, ages, genders, race, cities, phone types, Android versus iOS, newer iOS phones versus older Android phones show radically different amounts of cancellations. Uh-huh. And complaints, requests for refunds, bad reviews, and also people who buy it and never turned it off and have huge lifetime values. So all that granularity needs to be set up day one early in the life of your company. No, no, it was something in the news I wanted to talk about. Did you see this story trending on Twitter? Sorry to put this on the docket earlier, that somebody sent a fake email saying he had a term sheet to another investor to try to get them

to do a term sheet, a competing term sheet, and they sent them a fake email that they already had a term sheet. And then somebody was like, this is securities fraud. And I retweeted. And I said, you know, I've told people this over and over again. If you lie while you're selling shares, you could actually have this happen. So think about that for a second. I understand you want to get a term sheet. But if you lie in the process of trying to incent somebody to get a term sheet, I think technically that would be securities fraud, right? And so here it is. Yeah. Here's the tweet from from Nick Carter and just quoting the tweet here directly, faking an email from a VC saying they're sending you a term sheet while raising

is securities fraud, misrepresenting material facts in connection with a securities offering. And then Jason added it on top, this is an important thing for founders to understand. And I brought it up, quote, countless times lying when selling shares in a company is securities fraud. And Jason, this is a great example of the fine line between startups being a little aggressive

with the truth, a little bend, And breaking the law. But anyway, here's the original email. I guess this is the original email. We could just read the original email. Hi, Avi. We should have circled back sooner after our last conversation,

got caught up in some internal discussions around consumer timing, and had a few larger deals that needed immediate attention. Your round ended up getting pushed, et cetera, et cetera, et cetera. And then Emily NSF, a well-known kind of venturish Twitter account, says founders would rather commit securities fraud in public with the worst AI slop email ever instead of just working on finding product, market fit. But he says,

I'm attaching a term sheet for your series A. The valuation reflects current market dynamics and we're prepared to lead. So I guess the thing that's got people trying to figure this out is

you would ghost the founder then send the term sheet. So it doesn't make any sense. Yeah. Yeah. I don't. I, well, also don't, don't do this.

Like, don't do what this person is doing. It's not, what does this get you? You know, it's, it doesn't make you look cool. It makes you look like someone you shouldn't do business. Well, in Avi's replies, Avi Patel's replies here, if this is, or if any of this is accurate, I'm just putting a huge disclaimer here, I'm sending myself in a Pomerle-Logu-like situation. There's a bunch of people commenting, looks like it was written by AI, they just cold emailed your term sheet out of the blue. LP's asking why they didn't invest. That's the fake.

Part, so maybe it's all put on. Maybe, but it's traced. No matter what, the lesson here is, one, don't make it look like you're committing securities fraud. Oh, here we go. Okay. Sorry to interrupt. No, please.

I'm looking in the replies. If you look at the replies to his original one, there is a reply from Roy Lee, member from the cheating startup. Yes. Cluley, who we had on the show, the interview coding software that let you kind of cheat. and he's like always talking about cheating. He says, good mental. Avi replies,

chess, not checkers baby. And then Sean G replies, yes, fraud is chess. So I think it's a bunch of precocious founders doing funny things that they don't realize and trying to get zoomers and boomers to reply, which I just did.

So I guess it's all put on. It's not funny. That's the, thing here. Like, jokes are good. Yeah. Potentially committing securities fraud, but maybe not, but also maybe doing it is not funny. Like, I, look, I love a joke. I love a joke in anything, except for a highly regulated part of the economy where humor is

not allowed. Like, don't joke about workplace safety because people get killed and don't joke about securities fraud unless you want to become the next Paul Manafort. Okay, last one. Last one. Okay, Jason, a couple of options for you. How not to buy another company. How to shut down with grace. or quote, we almost killed our startup by raising too much money too early. Dealer's choice.

I got to go with we almost killed our startup by raising too much money because I was talking to somebody today who raised 50 million had a $300 million evaluation and a really interesting discussion with him. First time founder, million in revenue, like really great, amazing. And I said,

you know what? If they paid 15% for that 50 million, that means they, uh, if they want 50 million to turn into 500, which would be a 10x, 15% of your company's got to be worth 500, it's $3 billion,

or $4 billion, you know, maybe a little dilution, $5 billion. And if they really want a $50x or a $20x, like now you're talking about $10 or $20 billion. You know how hard it is to build a $20 billion company? Your $10 billion company would require at least a billion dollars in revenue

growing at double a year in order to sustain that valuation. Like, you have to $1,000x and still be doubling every year. Like, this is incredibly hard to do. it's never really happened except for like GPD and snowflakes. The list is, is, yeah, training. All right. So this is from our dear friends over at our slash startups where we spend a lot of our time

looking to see what people are talking about. And this is a post that I just, I really thought it came from the heart. And this person, kaleidoscope fast 7871, everyone knows them, was discussing how Jason, they started off as a very scrappy company. But then things picked up. VCs noticed what they were working on. they raised a $3 million seed. And then a month later, a $9 million round.

What? I think that goes to show that this is probably a 2020, 2021 era story. And then the funding he says made them dream big. But they got distracted instead of focusing on customer problems. They began to think bigger a picture, get a little broader, hire some more people, et cetera, et cetera, et cetera.

You know where this is going. They eventually launched. No one cared. And then over the next couple of years, they got back to their roots and they made things work out, but this is a story we've heard ad nauseum. So for founders, how to avoid raising too much too fast? Well, if you can get the money and you take it, I don't blame you. If it's at a good valuation and it's great investors, okay, it's reasonable that you took it. What you do,

once you take it, is you have to know, do I have product market fit and to what extent? If you have strong product market fit, that means your product's growing without any marketing. people are calling you on the phone saying, God, I love this product, can I have more? And they're emailing you, I can't stop using your product. Would you, you know, can we do a deal with you, whatever? Can you, you're like Amazon Prime, you know, like, perfect example.

I can't get enough of Disney Plus. I can't get enough of Netflix. Can you do another season of this, you know, daredevil? Sure. You put it all together. if this is a company that obviously hadn't even launched yet. So if you're pre-launch, you should really be focused solely on,

not the money that's in the bank account, just getting a small number of customers to do this and to engage with your product and to understand your product. And if you're doing three or four different things, then you might get moderate success at three or four different things. You know what the biggest blocker to break out success is, Alex? moderate success. Correct. And I say this to people all the time. I've had this happen so many times in my career. I do something. It gets moderately successful. People are like, that's really great. What they mean is that's really good. But they say great because people like to be nice to founders. So you're getting one of this input from the world. Nine, three million dollars. Ten days later, nine million dollars. Everybody loves you. You get a tech run story. You got a tweet. You know, you put out a fake term sheet with an AI written email and you get, you know, a bunch of, you know, a bunch of,

Don't do that. You get a bunch of followers. Like, all this stuff is happening. What's not happening is product market fit, understanding your customers. And what's great about this is the person's reflecting on it and learning. So this is my favorite type of founder to invest in. Somebody who, you know,

figured it out, had middling success, moderate success, and then they figure it out and had big success. You know, reportive, Rowell's first company was like, you know,

it was like a cool tool that people love, and got bought by LinkedIn, all that's like super successful. But then, lo and behold, reportive, people are addicted to that true product market fit

with a certain group of people. Here we go. Red swoosh. Interesting company. Sold for $30 million by a little founder named Travis. Then he did Uber. A generationally defining company.

Zip 2, a publishing CMS platform for the New York Times and other publishers. And then Tesla plus SpaceX. So, you know, you start looking at second time founders, third time founders who've been through this. So great. If you're one of those, Jason at calicanus.com, tell me about your next idea. Come to the accelerator. We'll love to meet you. So one last thing. And then we're going to close up for the day. But in a follow-up response from the same founder, he said that there's, he says,

essentially raising too much money doesn't correlate with success. But he also says, what I noticed is that second time founders, when offered $5 million, $7 million, as their first round, take $2 or $3 million. This tells you a lot. So is he correct, that second time founders tend to take on a little bit less capital early? Second time founders will self-fund the prototype. They'll work for six months, or they'll just raise from their friends and family, like pass the hat, $50K, 10 people, and they'll just quietly and not announce it.

Everybody knows the risk they're taken. They raise $500 at $3, $3, $5, $6, $7 million. evaluation, then they go out for the seed. When they have the product, the first 100 customers, first thousand customers for consumer product, they have some data, they show it to them, they have a product they can play with. Why?

It just makes more sense. It just makes more sense to go out at that time. Yeah. Yeah. Well, everybody, this has been another episode of this week in startups. We're back on Wednesday. We are back on Friday. We are always coming to you with the latest and greatest

from the world of startups. We're here for founders. He's Jason. I'm Alex. This is Twist. We'll see you then. Bye. Bye.

Bye. Thank you.