This Week in Startups - NEWS: Ackman's SPARC, Unity CEO steps down amidst dev revolt, AI operating costs skyrocket | E1827

Episode Date: October 12, 2023

This Week in Startups is brought to you by… Catalog. Stop wasting time and money with expensive design firms and unreliable freelancers! Get fast, 3-day turnarounds for a flat monthly fee with Catalog! Get $1200 off right now at https://trycatalog.com/twist Lemon.io - Hire pre-vetted remote developers, get 15% off your first 4 weeks of developer time at https://Lemon.io/twist Roots. Invest in the only real estate investment trust that creates wealth for you and its residents at https://investwithroots.com/TWIST * Today’s show: Jason is back to break down the news: Bill Ackman's SPARC (1:32), Unity CEO steps down due to developer revolt over pricing changes (15:33), the AI operating cost problem (32:17), the latest on SBF's trial (45:32), and more! * Time stamps: (0:00) Jason kicks off the show (1:32) Bill Ackman's SPARC (14:02) Catalog - Get $1200 off right now at https://trycatalog.com/twist (15:33) Unity CEO steps down over developer revolt, importance of getting pricing right (24:44) Lemon.io - Get 15% off your first 4 weeks of developer time at https://lemon.io/twist (26:05) Lyft looks to get rid of surge pricing (32:17) Big tech firms are losing money on AI tools due to high operating costs (37:10) Roots - Head to https://investwithroots.com/TWIST to sign up and start investing today (38:43) Google's Project Green Light: AI is helping cities like Seattle reduce carbon emissions from cars by optimizing traffic lights (45:32) SBF Trial Update * LINKS: https://www.cnbc.com/2023/09/29/bill-ackmans-spac-gets-green-light-from-the-sec-and-hes-looking-for-something-to-buy.html https://www.businesswire.com/news/home/20230929101720/en/Pershing-Square-SPARC-Holdings-Ltd.-Announces-Launch-and-SPAR-Distribution https://www.sec.gov/oiea/investor-alerts-and-bulletins/what-you-need-know-about-spacs-investor-bulletin https://fortune.com/2022/07/12/bill-ackman-liquidates-largest-spac-ever-returns-4-billion-investors-blank-check-era-fades https://venturebeat.com/games/john-riccitiello-steps-down-as-ceo-of-unity-after-pricing-battle https://unity.com/pricing#plans-individualsand-teams https://www.axios.com/2023/09/13/unity-runtime-fee-policy-marc-whitten https://twitter.com/InnerslothDevs/status/1701731398498013575

This feels like a rug pull. Whenever you make a massive change in terms of pricing and how you price, and this is why it's important to get pricing correct early in your startup. If you change pricing, people can feel like you've rug pulled them. And to go from flat rate pricing to, you know, a percentage of revenue, you're basically like becoming like the app store. So now you're a tax. Imagine if Airbnb charged $500 a year to put your apartment or your cottage on Airbnb. And then they said, okay, you know what, forget about 500 a year. We just want, you know, 10% of every sale. I'm like, wait a second.

I'm doing $100,000. That's $10,000. That's 20 times more. I can't afford that. Whereas if they do it from the start, you'd be like, okay, that's the price. They bring me extra customers, etc. This week in startups is brought to you by

Catalog. Stop wasting time and money with expensive design firms and unreliable freelancers. Get fast, three-day turnarounds for a flat monthly fee with Catalog. Get $1,200 off right now at trycatalog.com slash twist. Lemon.io. Need to speed up your product development without draining your budget? Hire vetted engineers from Europe at lemon.io. Go to lemon.com slash twist to get 15% off for the first four weeks.

And, Roots. Invest in the only real estate investment trust that creates wealth for you and its residents at invest with roots.com slash twist. Hey, everybody, welcome back to this week in startups. It's a big news day. We thought we would get a news program in because you all like to know what's going on in my takes on the news.

And one of the first stories I saw, and I watched a video of this recently, producer Nick is with us to read the news, is that Bill Ackman has a new kind of SPAC, special purpose acquisition corporation, but he's calling a spark. Yeah, Bill Spackman is back. So cue this up for us. Obviously, everybody knows Bill Spackman is a hedge fund manager.

Yes. So Ackman actually raised the largest ever SPAC back in 2020. It was called Pershing Square Tontine Holdings. It was a $4 billion vehicle. The ticker was PSTH. And if you remember, Jason, this was like peak crazy meme stock. Like there were rumors going around that could it be Stripe? Could it be SpaceX?

It wound up to be nobody. He failed to find a deal. And then he eventually returned the money to investors last year. But as part of returning the money, investors got what was called a tradable right to participate in a future deal. So Ackman gave this to investors and then said, I'm going to go to the SEC and see if I could get a new kind of SPAC formula approved. Got it.

So he wasn't able to find a company. He didn't want to leave those investors who I trusted him high and dry. So he said, hey, let's give you the right to participate if I do this again. And so he created this new conception instead of a SPAC, this spark. So I guess what is the difference? So how SPACs typically worked is a promoter raises a SPAC. It starts publicly trading as a shell company. If retail investors trust the promoter, they can buy into the deal or they can buy into

the SPAC before the deal actually closes before there is a deal. if the deal closes, it's announced, and then the new company releases what's called an investor presentation, which is basically like an S-1. But because the SPAC is technically a merger, not a traditional IPO, those investor presentations can have like really far-reaching, forward-looking statements, right? So if a company goes public via IPO, like Instacart, you never would see 2026 or 27 estimated expected revenue in Instacart's S-1. That's more like a venture pitch. So you have to take it with a grain of salt. They're, you know, the most creative, as my partner, Brian Alvey said, the most creative, the best

tool for writing. The best fiction is written in Excel. Yeah. Yeah. The best fiction is written in Excel, not Microsoft Word. So. Yeah. And, you know, listen, Chimov did a bunch of spacks, as everybody knows.

And some of them did great or okay. And then other ones didn't do so great. These were, you know, really, I would qualify a lot of the spacks that happened as, you know, venture rounds of funding as opposed to, you know, companies that maybe should be going public. And the argument that was for this is to give people access to earlier stage startups that are more risky but have more reward. And of course, with more reward comes more risk. And so if you want to bet on a veto like Joby, the flying quadcopters that humans are going to fly in, yeah, now's your chance. You can just buy and sell it on the public market. Of course, that can lead to,

you know, people coming in and out of a stock every quarter and, you know, you're really investing in private companies for a decade. So I think there was a bit of a mismatch. And I think it was during ZERP, so people were, you know, just going wild. They were almost, I think the big problem with Spax was they were too popular. Yeah. And sometimes illiquidity is a feature, not a bug, right? Correct. The fact that you couldn't sell Uber as an early investor, the earliest investors could technically, but most of the investors who were private market investors were not allowed to sell. And so, yeah, they had to hold on until the IPO, which means they got to value their shares at $60, $70, $80 billion, which was great. Yeah. So then anyway, the investor presentation would go out and then a D-SPAC process would begin. The D-SPAC would take four to six months, typically. And once that was complete, the ticker would change from the spec. ticker to the new company, and then that company would just trade as if it were any other public company. So fast forward to the present day, the SEC just greenlit, this spark, which is a special purpose acquisition rights company. In this model, potential acquisitions are revealed to investors

before they commit their funds. So instead of blindly betting on the SPAC promoter, investors now have a choice to engage with the deal or back out. And it's in the form of basically it's a short term option to buy the stock at the same price that Ackman is paying. Great. So you actually know, hey, we're going to be investing in Joby or Virgin Galactic or desktop metal. And so you can make a more thoughtful decision. Exactly.

They're not backing Chimov or Ackman or Reid Hoffman from LinkedIn. So how it works in practice, I'm just going to read directly from the press release. Spark will shortly begin the distribution of 61 million SPARs, special purpose acquisition, These are basically the short-term option tickets. Spark will not receive any proceeds as a result of the distribution and will not raise capital from public investors until after Spark has entered into a definitive agreement for its business combination. Once Spars become eligible to trade, they can be best understood as short-term options

to purchase the common stock in the soon-to-be public company at the same price at which affiliates of the Pershing Square funds are buying the stock in the company. Okay. The spars will be available for trading for 20 business days, at which time they can be exercised or they will expire worthless. Okay. So you have the right to them, but you don't have to take it. So more optionality for the investor. And it seems a little more complicated on the margins.

And then I guess the question is always, is the promoter, in this case, Bill Ackman, in sync with the retail investors? and so or the investors and it seems like they're slightly more in sync here if I'm reading correctly because you can drop out if you don't like what they've picked.

Yes, drop out without losing. You could do in a SPAC too, right? You could drop out, right? You didn't have to make the commitment. I'm not sure exactly. It seems like this, the benefit here is you know well in advance what the company's going to be.

Do you think that going back to illiquidity being a feature that if a company goes public too early, some of the incentives from the public market, depending on how interest rates are and just the state of things, can be short-term profits where that could actually hurt the long-term prospect of the business? Once you're public, you're getting graded on a report card every 90 days, and your team is

basically geared up to do quarterly reports. And so you need a business that has predictable revenue, and that has, to say it's strong product market fit. is an understatement. It has to be an established product with an established customer base, and you have the ability to improve that product, increase the sales of that product, and of course, yeah, maybe launch new products as well, but you're generally managing the growth of an existing product line. So Google is managing the growth of search, Uber, of rides and eats, and, you know, Apple, the sale of iPhones, and of course they have other lines of businesses. But generally, you know,

you get an audience of investors and shareholders who understand your primary business, how it operates, and if they see, oh my God, iPhones are not selling particularly well, they can say, you know what, I want to leave this stock. And that's where price discovery happens is people are looking at the news. They're looking at the metrics every quarter and deciding, do I want to be in this or not. And that's really dangerous in terms of short-term thinking for private market companies. You wouldn't want people like Airbnb, Uber, or Google or Apple on the early days having to deal with the public, making the stock go from $2 to $20 to $1 to $15. Why, the employees get distracted, right?

And the management gets distracted. Then they might do unnatural acts. And you don't want people doing unnatural acts. All right. Yeah, so wish him luck with it. And, you know, I don't know that we need to have too many of these vehicles out there, but it seems like this has captured the imagination of people like Bill Ackman and Chbath and other folks. So, you know, it's another way to get public.

And I think a little bit of innovation here is great. There was rumors that he wanted to take ex-public. I saw that on CNBC headline, that that was one of the targets. I'm not sure if that's correct. But, and I don't know the size of this thing. Did they mention the size? It was originally a $4 billion vehicle. Pershing Square can commit between $250 million to $3.5 billion as the anchor investor,

and they're targeting companies that are seeking to raise $1.5 billion minimum. So, yeah, if you were going to raise $1.5 billion and you were going to dilute 5% or 10% of the company, that would imply 10 times that amount, let's say, $15 billion company, $20 billion company, yeah. I guess Twitter X would fall into that and many other companies. So good luck with it. I think it's particularly hard to be a publicly traded company. And so hopefully this time around, either they'll pick more established companies that have predictable revenue or maybe over time. You know, there could be more innovation here where, you know, people are, I don't know, more patient.

But it just seems to me the ability to sell shares and human nature is human nature when things go down. you want to sell, right? Or actually, when things go down, people hold on sometimes too long. And then, you know, people don't sell when things go up and book the profit. They think it's just going to go to the moon. So people really are their own worst enemies when it comes to these kind of decisions because they have this like sunk in cost fallacy and they just hope and they hope and they hope that a company rebounds.

Whereas other people will, you know, look at a company in a very cutthroat way and compare it to other options they have. In a private market, we don't have an option. I can't take my shares in a private company and very easily liquidate them and then put them in another private company that I think is doing better. You have to kind of stick with it, which is a feature. Again, for the private markets, you want people thinking in a decade-long approach to building a business. Why would a tier one, you know, stripe-like company ever do a SPAC? Is there any path for SPACs to, because that was the big complaint about them, right?

Was that they were always kind of giving out B-C-tier inventory? I guess if you could go faster, get to market quicker, maybe have less scrutiny on the business. But then the scrutiny eventually comes. Right. It's always going to come. So, yeah, I think it's maybe people just wanted to get out quickly, raise the money. And it was a quick way to raise a growth round. I think that's how a lot of people saw it.

This is a way to raise a growth round. And listen, entrepreneurs are super positive. So the Jobi founders were maybe like couldn't clear market privately. They thought the public would be a better investor. They would get excited and stoked about this. but the Joby stock has gone up and down and that was the one I didn't understand and some of my friends were involved in that

why would you want that company to be public? You know, Joby is, you know, better off as a private company, I think. Yeah, Akman had an interesting quote too. I was reading his announcement from 2020 when he was announced that Perching Square was going to give the money back. And he said something like when we raised this in 2020,

the IPO window was still so close for companies that we thought SPACs would be a good way to get companies out. Sure. And then what really heard of, was that IPOs in 2021 became so hot that nobody wanted to spec anymore. Yeah, you had just too many ways to get public. Right.

Yeah, there were just too many people going public. There were too many options. So the market is not a logical. This one thing I've learned is that the markets are not logical or predictable. And so just build a great business. Go public when you have predictable revenue. That's my best advice. Yeah, it's funny.

And if you want to bet on this category of company, you really need to get used to the concept of losing 80% of your bets and 90% of your bats go to zero. That is not something that is in a retail investor's mind when they're buying public equities. Great. When I see a startup that's got bad design, it's hard for me to take it seriously in today's day and age. Why? Because having great design, having world-class design, it's kind of table stakes today with consumers, with employees, with partners. and of course with investors. But, you know, design agencies, they're very, very expensive.

And there's a lot of back and forth to figure out what you want. It's not for startups. You know, you can't spend a quarter million dollars, a half million dollars, getting some design agency to do your look and feel. And it's hard for you to hire somebody full-time because that's a full-time staff position. So let me tell you about an amazing service. It's called Catalog, a full-service design studio, tailor-made for startups. And Catalog does all of your branding.

They do UI and U.S. They'll do landing pages, pitch. decks, they'll do it all. It's half the price of a typical design agency, but they offer a full team, including a dedicated project manager and a design director. They've worked with hundreds of startups. So if you have a problem, chances are they've already solved it. You can stop and start back at any time. It's a monthly subscription. And catalog will never waste your time. They do three-day turnaround. Okay, that's more than enough. Stop wasting time. Stop wasting money with all these expensive design firms and unreliable freelancers who disappear,

which you want is fast, three-day turnarounds for a flat monthly fee with catalog, and you're going to get $1,200 off right now at trycatalog.com slash twist. That's $1,200 off at tri-catelog.com slash twist. What else is in the news, Nick? So remember earlier this year you had Steve Huffman on from Reddit after there was a massive moderator revolt when Reddit changed its pricing structure so that API calls were now going to be charged on like a usage-based fee? Yes.

And then some of the favorite Reddit apps wouldn't be able to afford that. And so people were upset that, you know, they had some habit of using a third-party app to read Reddit, take out advertising or whatever the features were of that app. And, yeah, Twitter had the same issue with people building apps that took out advertising, et cetera. So, yeah, I do remember. Something similar is going on with Unity or something similar has been going on with Unity over the last month or so. and actually just earlier this week,

the CEO John Rickettello stepped down in the wake of a developer revolt and he's been there for a while. So just a quick fill in on Unity, it was founded as a company called Over the Edge Entertainment in 2004 in Copenhagen. They rebranded to Unity a couple of years later. They make a mobile games developer engine

where devs can build and run games. Notable titles on Unity, Pokemon Go, Call of Duty Mobile, Beat Sabre among us, so very, very popular mobile titles. Sequoia led the Series A in 2009. Great investment, yep. So up until last month, the way that pricing worked on Unity was they had a free tier,

they had a $2,000 a year tier, and they had a $5,000 a year tier. So in September, Unity announced a new business model where developers would be charged per game installation, meaning more popular games would cost much more to operate. And the proposed changes they were going to make was basically with Unity's free plan, developers would be charged 20 cents per installation once their game. game hit thresholds of 200,000 downloads and $200,000 in revenue. And then developers that were paying $2,000 or $5,000 a year for the pro plans would have to hit higher threshold and would be charged lower fees. And the new fee system would start at the beginning of 2024. So three months from

when they announced it in September. Basically, they were attempting to transition from flat subscription based pricing to usage based pricing. Sure. And then developers flipped out. And so if you had, what were they going to charge? Is that public what they were going to? to charge for usage-based pricing? I didn't see what among us said they were going to leave the platform. They didn't say what they would be paying, but they said basically this is BS, we're leaving. So I'm assuming it's a multiple of $5,000. Yeah. I mean, it sounds like their product is phenomenally underpriced, given that big games can be made on it. I'm not

sure you can charge people, you know, a different price for a camera, one camera that, you know, records George Clooney and one camera that records you and I. And so I think for the creators, they look at Unity as a camera. They look at it as a tool. And if I can use this tool to make a million dollars, $100,000, or $100 million, why should I pay a different amount for the hammer? It doesn't make sense to them.

I understand their position. And it's a pretty radical change. And I guess the question is, what is the deal here? And it says, instead of charging per installation, you only one outlet developers choose for games that are subject to the runtime fee, we're giving a choice of either 2.5% revenue share or the calculated amount based on the number of new people engaging with your game each month. And so, you know, they want to be a taxed. That was actually in their update. That was after people originally flipped out, 10 days later, they sent an update and they said, listen,

we're still going to go through with the changes, but to try and subdue the developer outrage a little bit, they said, here are some little updates that might make you feel a little bit better, basically. Yeah. So I think there are open source engines and there are other options for folks. So I think this feels like a rug pull. Whenever you make a massive change in terms of pricing and how you price, and this is why it's important to get pricing correct early in your startup. If you change pricing, people can feel like you've rug pulled them. And to go from flat rate pricing to a percentage of revenue, you're basically like becoming like the app store. So now you're a tax. And, you know, imagine if Airbnb charged $500 a year to put your apartment, you know, or your cottage on Airbnb.

And then they said, okay, you know what, forget about 500 a year. We just want, you know, 10% of every sale. You're like, wait a second. I'm doing $100,000. That's $10,000. That's 20 times more. I can't afford that. Whereas if they do it from the start, you'd be like, okay, that's the price. They bring me extra customers, etc. So, you know, this is just, it's very hard to change pricing once it's set. And they should have come up with some additional features. I'm kind of surprised they didn't come up with a series of additional features and make this a very slow change. There is a corollary to this member, Adobe was charging $800 for all in, right? Yeah, you could get the entire creative stack for $1,200 or $800. You got a bunch of CD-ROMs.

You would install all the Adobe Photoshop, et cetera, on your machine. Then you'd give it to a friend. They would steal it. If they were on the Internet, you know, the serial number wouldn't work. You have to tell them to unplug from the Internet while they're using Photoshop. All these games going on. And then they just said, yeah, it's 25 bucks a month. Now, that was a change that felt like it was cheaper, right?

And it was easier because you didn't have to come up with an upfront payment. And so here, I think that that might be how they executed. It could have been the problem as well. And I'm shocked that the CEO just left because of it. But I think you have to float these positions too. So they should have just made a new tier called Enterprise. And they should have told, you know, their top five game developers, hey, we want to make an enterprise thing.

We need to make more money. Here's what we're thinking. What's your feedback? Would this be cool with you? Would you try it out? Here's what we're going to provide value. And I'm kind of shocked they didn't do that. If, in fact, they didn't.

Maybe they did. But you've got to be very careful with pricing. People get very upset. Unity has never had a profitable quarter as a public company. The stock's down more than 50% since going public in 2020. It's most recent fiscal quarter. Their revenue was up 80% year over year to $533 million. But on 190.

$23 million in net losses. And according to the New York Times, about two-thirds of its revenue comes from its ad business that allows games to insert ads in mobile. Have you ever played a mobile game and you see like there's a 15-second ad? Two-thirds of that of Unity's revenue comes from advertising and it has to give 30% of that that's on iOS back to Apple. So do you think that kind of caused this pricing change there, they're trying to increase margins? They're obviously want to extract more money from the developers and they want to do it from the people who have large games. And it's not an unreasonable position. But again, you know, when you change things after a long period of time, people have a hard time getting used to the new model.

People used to buy cars, then they started leasing them. That caused decades of people trying to understand what the difference between car payments and leases were, etc. So this is just the nature of the beast. This is how people screw up businesses is by not being thoughtful about the changing of prices. That seems to me what has occurred here. They should have been just more thoughtful about how they did it. Yeah. When a community becomes so large that it's almost like unruly and that the entity actually can't control it, is that like a existential danger for a business? Or do you think that unity has such lock in that it's not that big of a deal? Yeah, I don't know what the options are, but if you do try to extract too much, you will create other options. So if the take rate becomes too great, people do look for other options.

And if you look at something like Salesforce, right, really great product, but it's expensive. I got pitched a number of times for sales management software, CRM software, that was lower priced. And that was the go-to market strategy. So there's always an option to lower the price. Google Docs, right? And Gmail was, and that whole Google Office suite was a way to make Microsoft Office cheaper. So you can look at somebody's margin and lower it. So, yeah, it's really tough to change pricing as you go and you've got to get it right from the start.

And, you know, listen, if you're going to add some new, clever way, like, another clever pricing model was surge pricing, you're going to have to explain it to people over and over again. People were used to paying more for flights if they bought them at the last minute. It took decades for people to understand that. If they bought last minute, it was going to cost twice as much. And it's frustrating and people change their behavior. People will just not take the trip. They'll drive or they'll pick a destination where the ticket price is lower or they'll plan ahead. So people now plan ahead, right? You don't expect to go, you know, and book, you don't expect to book flights at the last minute at Christmas for Thanksgiving and get a deal. You know you have to do

six months at, you know, midnight or 1 a.m. on New Year's Eve. Exactly. And so Uber had to explain search pricing to people. So you just have to be really thoughtful pricing. It takes a massive amount of communication. But it looks like they're not going to back down completely here. Some concessions, but yeah, they said we're going through with this. Yeah, I mean, if they say any game that makes under a million in 12 months will not be subjective to the fee, that feels like they'll keep the majority of developers. And so all they have to do is have it be tiered. And I think people, if they get value from it, won't have a problem with it. But they will have to adjust. And so how you communicate this is critically important. It doesn't seem like they did

a great job doing that. Imagine this. You got an idea for a tech startup. You're going to change the world. I know it. But you got a problem. You don't have a any engineers. Engineers, hard to come by. They're very busy. They got jobs backed up. Well, you need to find great engineers. You need to find them quickly. And you need to reduce your burn rate, right? Because you can't be spending like a drunken sailor. You have a limited amount of resources as a startup. Now imagine there was a partner out there waiting to help you who had a thousand on-demand developers and they were vetted, experience, results-oriented, and passionate about helping your startup grow. And what if they charge competitive rates, you know, reasonable rates?

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or tech team in 48 hours or less. And Twist listeners get 15% off the first four weeks. What a deal. So stop burning money, hire developer smarter, and visit lemon.io slash twist. Easy peasy. Lemon squeasy at lemon.io slash twist. I have a search pricing question for you if you're up for it. In its last quarterly earnings, I believe Lyft mentioned that it was looking at actually

getting rid of search pricing to boost its rider numbers. And I think last quarter, Lyft's revenue per rider decreased about 5% quarter. over quarter. It's a really stupid idea. You think so? You have to, you have to understand a competitive landscape. The drivers want to maximize their earning potential. If you want to drive on a Friday or Saturday night, you have to deal with drunk passengers who might, you know, puk in your car or might be obnoxious and you have to give up your Friday and Saturday night with your family, your loved ones. And so in order to get people to give up their Friday and Saturday night to drive Uber, you need to incentivize them or lift. If,

Uber, if Lyft takes that out, you know what's going to happen? On a Friday night, the lift wait time. Lift might only cost $20 instead of $30, but you're not going to be able to get a ride where it's going to say 10 minutes. And then Uber's going to say two minutes and it's going to be 30. You know, most people are going to make the choice that their time is worth more than the money. And you might just not even get a car. I'm here in New York doing some meetings and I've been testing this Revel, R-E-V-E-E-L,

which is all Tesla's, I think, all electric cars. And so that's fascinated. it's a competitor at Uber and Lyft. And, you know, they're just not available. And when they are available, it's 10 to 20 minutes to wait. So I've used them twice. I wanted to try it and see if it's a better service. They pay the drivers hourly.

And, you know, you're going to make compromises. If you're going to pay the drivers hourly, you're going to need to have a high utilization rate because they're going to get paid no matter what, which means the wait times have to go up because you can't have people waiting for a ride with Uber because it's a marketplace. Frequently, I don't know if you've had this happen,

but when you live, in the suburbs, you'll get an Uber and it won't start moving for like three minutes. You're like, why is the Uber not moving? And then I asked the person, hey, do you live in the area? And were you waiting for a call while watching TV? And they're like, yep, I had to put my shoes on. And that's why I didn't move for three minutes. And so people will, you know, wait for an airport ride if they live near, you know, SFO or JFK. And sometimes drivers live near those places so they can get those calls. And so, you know, marketplaces just ultimately perform better because they price correctly. All right. Can I read you this quote from the

Lyft CEO real quick? Yeah, let's hear it. Primetime pricing, TechCrunch is paraphrasing there, is a bad form of price raising, said Lyft CEO. It is particularly bad because riders hate it

with a fiery passion. And so we're really trying to get rid of it. And because we've got such a good driver supply, our reliance on it has decreased significantly. Okay, number one,

they don't have a great driver supply is lying. And this is the hippie guy who worked in a nonprofit for like a decade? David Risher. Yeah, so no offense. but this like hippie-dippy guy who has, you know, worked at Amazon and took a decade to work in a nonprofit, is not cutthroat enough to go up against, you know, the modern CEO and the modern startup.

You know, the whole point of surge pricing was to get the drivers more money for them to drive at times when maybe they didn't want to drive, like a holiday, like a weekend. So, and I don't think people hate it as much as they're saying. You know, there's two things that are going to be certain in life. Customers want to pay less and employees want to get paid more. That's 100%. So if you survey any customer and say, hey, what do you think about the price of a cup of coffee? I want to pay less. Do you want to pay more, less, or do you feel this is a fair price?

They're like, no, I want to pay less. And then you've asked the barista, hey, do you think you deserve to get paid more? Like, yeah, I do. How much more? Double. Like, there's somebody who's advocating for a $50 minimum wage right now. I mean, that's absurd. You would have no jobs in the United States if you put a $50 minimum wage in.

The market has to do price discovery. And the sign of a healthy market is that the participants maybe have a little bit of tension there. Does that make sense? Yeah. Do you feel you should get paid more working for me? Yes. Do I feel I should pay you more? Maybe yes.

But the point is this is like the nature of work. And so this was, when the journalists came after Uber, they're like, Uber drivers are unsatisfied. They want to get paid more. It's like, that's an entry-level job in society. If you as dishwashers or people picking rice in a field, like, how much do you love your job? It's like, I'm on my niece picking rice in a field. It was backbreaking labor. I'm picking strawberries in the heat in California.

This is horrible. Yes, I hate my job. Like, really? Does anybody like making coffee all day? I mean, maybe some hipsters, but, you know, if you work at Dunkin' Donuts, I think it's the highest turnover of any fast food restaurant. It's hard work. It's hard work.

And people are cantankerous and it's hard. Just anecdotally, what I've seen from people driving Uber, especially people that have been doing it since like, you know, the 2011, 2012 range. It's almost sort of like what you said with Unity where, and this happened gradually with Uber, but do you remember the driver credits that Uber used to give when they were like, Oh, my God. It was, so I think a lot of the negative sentiment from drivers is actually like, hey, what happened to all those boosts we used to get all the time?

Because now Uber's trying to get profitable, and that doesn't happen as much anymore. I think that's really where a lot of the negative sentiment comes from from drivers. 100%. Yeah, they used to get these spiffs. Like, hey, if you do your 10th ride, we're going to give you 50 bucks. If you get to your 20th ride, we can give you 100 bucks. And that was just to keep people loyal to the platform and keep them playing the video game. And Travis is a genius when it comes to gamification.

he was into video games. He gamified being a driver. And it made people want to get that incremental 10 rides in. And if you get those 10 rides and those rides are cheaper, man, Uber spread so fast around the globe because, and everybody became addicted to it. And now, as I said, for five or six years, when people were like, it'll never be profitable. I'm like, they lost a billion. They did a billion rides. If you had $2 to each ride, they would make a billion a profit. Do you think that's impossible to do? And it's like, yeah, that's impossible. I was like, well, here we are. It's possible. Duh.

Give me another story. Nick, what else you got on tap here? So much news going on. According to Wall Street Journal sources, GitHub's copilot, which is GitHub's text code tool that's powered by OpenAI, users pay $10 a month for it. Microsoft is losing $20 a month per user on average on copilot. And some power users are costing them as much as $80 a month. But again, they're losing $20 a month on average.

The article is sort of essentially saying that the major problem with AI services right now is that there's no benefit from economies of scale because operating costs and user queries are sort of tied together. The more people are using your product, the more that you're paying for it, right? This makes total sense to me because if you're using a co-pilot all the time, like a developer, you're writing code for, let's say you're doing it six, seven hours a day, you're just pounding code. And it's filling in what it thinks you should do. it basically would be like me writing my next book and it's constantly giving me the next paragraph, right?

Because that's what it's doing. It's giving you a lot. And it's doing it in real time. So imagine you're a business journalist, you're writing seven hours a day. And every sentence, it's not guessing just the next word, which would be pretty lightweight.

It's guessing the next series of sentences. And it's just constantly hitting servers. I think that's what's happening with co-pilot. And so probably the difference between losing $10, $80, a month is the number of hours, somebody's coding a day. And it's just very simple to solve this. A developer is worth $100,000 in the world. They obviously, at $10 or $20 a month, that's way underpriced. This should be $100 a month product. Yeah. And so they probably were betting that over time this cost would go down. And they didn't want anybody to compete with them. So they just

underpriced the market, which Microsoft has an unique ability to do. And it's worth it. Because if they lose 10s and millions of dollars on this, but they get all that data from developers using it. Just think about how valuable that is over time. So it's probably an investment just like Uber in building out its network of drivers and its network of cities around the world. Uber becomes more valuable every city that comes online and then every service that then goes to every city. So if they release this task rabbit like they're rumored to do or train rides or planes or hotels or experiences, whatever they add and they try on the product. You know, if any of those things take off across the entire network, that cost can be spread

out against the $15 billion or something that was invested. The paid in capital to Uber, I think at one point was like $15 billion. That $15 billion, people were like, oh, my God, it's never made its money back. It's like it made its money back with a DD investment. That threw off like $6 or $7 billion. Each of those investments really quickly started to pay off that $15 billion. And then, over time, just like Tesla. you know, I don't know if there was 10 billion invested into Tesla and then they showed the J-Cerve or Tesla.

You know, when they all of a sudden you get to the millionth car, boom, now you're in full-on profit mode and the thing starts printing money. It's the paid in capital, the complete amount of money invested in the company. And just people got used to doing taking bigger risk, whether it's Amazon, Tesla or Uber, you know, and those all are hardware real world businesses. So that's a note, right? Those businesses can be more capital intensive because you're operating in the real world. Yeah. The art. was interesting though because it noted sort of the pricing strategies of different big like major AI players that are using it in their products. And one quote that I thought was really interesting

about Zoom specifically because remember we just talked about how Zoom is now doing these AI summaries that are dead on. So here's the quote from the article. Zoom has developed a smaller, cheaper software for its AI assistant powered by multiple models, including those made by open AI and meta. So they're using Rama, the open source model for meta for some things. quote, it only uses the most powerful AI and most expensive for the most difficult tasks. Right. So this is why the models that will run independently, we talked about this with Sunny, you know, maybe you can use Chan CPT3 or 3.5 to summarize a Zoom call. And it's powerful enough. And you can run it on commodity hardware. You don't need a H100 or A100 or some giant server farm of really expensive.

If you just put it on your existing cluster and, and you know, how much time does it take, right? Right. You know, if you're processing video files for YouTube and it's a free service, do the people who are getting free service care if their 4K file takes 10 minutes or two minutes? No. You know, if you're Mr. Beast, maybe you care, but most people don't. Yeah.

So that seems very smart. And so this is where, you know, maybe co-pilot will be on its own smaller, dedicated hardware or a verticalized language model that is able to run locally. Maybe you could eventually run this locally, right? And it would cost a lot less. Yeah. Hey, everybody. Today I'm joined by Roots CEO, Dan, welcome to the show.

Thanks for having me, Jason. Tell everybody here in the audience, what is Roots and what makes it different than the other real estate investing platforms? I'm a complete neophyte. Roots is a reet with a little twist. Sorry, how to do it. We are the first real estate portfolio that we know of that builds wealth. for both our investors and our residents.

And we've created a unique win-win model that creates partners and not tenants. So you're telling me instead of putting down a $2,000 one-month security deposit, you get $2,000 invested into the REIT. So you're day one and owner. Absolutely. And so it kind of goes against, you know, when we first started this two years ago, I wasn't really looking to build a product out, to be honest. I was looking to find a product that I could offer my residents

in my other portfolios that would help them get to homeownership or help them participate in this market. And all I saw was, you know, rent-a-owns. And in theory, those are great, except for the fact that less than 10% of them actually convert into homeownership. So you're kind of just putting a carrot out in front of your resident and you're not really actually impacting. So we wanted to really develop a program and a model that said, hey, we believe in you.

You're a partner from day one. help us take care of this thing and we can all win at the end. Head to invest with roots.com slash twist to sign up and start investing today. That's invest with roots, no spaces, no dashes. dot com slash twist to sign up today. Google is using data from Google Maps to help certain cities optimize their traffic lights. In Seattle, drivers weigh an average of 20 seconds at red lights. And these delays result in over 1,000 metric tons of CO2.

emissions daily, according to Wired. Google's AI software is aiming to reduce both the environmental impact and delays for drivers. And the initial results are really good. 30% reduction in stops and 10% reduction in emissions for 30 million cars every month. This has been the holy rail of AI and also IoT, Internet of Things. So the original idea of how to solve this problem was to put in every car a beacon. And airplanes have these. So if you get too close to each other in airplanes, like some alarm goes off, that there's traffic near you, and then you have to go visually go find the other small plane.

So imagine every car had a beacon in it. And that beacon knows I'm going, you know, north, I'm going south on Broadway and you're coming across 14th Street. And the grid knows, hey, it's 1 a.m. and I'm going to get to the intersection of Broadway and Union Square before you. therefore I get the green light. But it knows you're coming, and there's nobody else coming north or south on Broadway. Okay, let's switch the light. And, you know, if the lights are typically timed based on, you know, just alternating, you know, one minute for north south and then 30, one minute for east-west, that's suboptimal. And so what they're doing here is a different, instead of putting IoT in every car, which is how we thought this would work, they're just saying, hey, the traffic patterns are showing. There's a lot more people going north-south right now than east-west.

Let's just give 45, let's give a minute 30 seconds to north-south and give 30 seconds to east-west traffic. Let the east-west traffic bulk up and wait and let's just keep going. You know who also does that? Remember when they would have a person in New York at an intersection, moving the traffic by flow and just keeping people going and they still have that in some places to keep people from blocking the box and doing gridlock. So yeah, these are gains that are just obvious. And because they have that weighs in real-time data, you can probably, yeah, it looks like they can solve a third of wasted time.

And then you add to that a lot of electric cars and hybrid cars. And I have one gas power car. I only have one ice car left, my suburban. My suburban, when I'm at a stoplight, turns off. Yeah. And so I don't know what they call that technology, but that technology is pretty cool, too. So even if I am waiting, maybe it's 10 seconds with the engine on and 20 seconds with the engine off. So all this stuff helps better.

Yeah, my car has a too. It's called eco mode on my car, I think. Eco mode, yeah, that is what they call eco mode. Just turn the car off temporarily, turn the engine off and then start it back up really quick. This is where I think the hybrid technology is awesome. With hybrids, the original idea was you could just say, I'm going to use my battery. I can press a button, use my battery for the first 50 miles. I think that should be regulated.

every car should have a 50-mile battery in it just as a default, and he should just use the 50-mile battery for the first 50 miles of every ride. I don't know why that's not mandated. And I can't see anybody getting upset about that because you would just save so much money, right? That would be an easier mandate than getting rid of ice cars is to just say, you got to at least have the hybrid technology. And people were putting that in post. There was a whole movement before Tesla where people were taking Priuses,

putting extra battery packs in, and then there was some software, and these hackers had made it so you could override, and you could pick, use battery only, because the way the Toyota Prius worked was it would just dynamically switch, right?

But then people said, wait a second, I only use 10 miles a day, my battery does 50. I just want to be 100%, but it wouldn't let you. And then they put this ability to switch, and then you put an extra battery pack in,

and they basically people made their own Teslas before Teslas were widely available. Really clever idea. So awesome job to the team at Google, and there's probably a million other opportunities like that. And that's what we see with airplanes too, right? People are now flying airplanes, not to maximize for speed,

but to maximize for fuel consumption, right? And it's very smart. Why wouldn't you do that? It makes total sense, and this is a really clever idea. Also, probably there's some safety issues here, too. That's going to be the super exciting part, as we talked about with the cruise non-crash, you know, the collateral damage of crews being included in a hit and run. So many of the safety issues we're seeing, like, why do people run red lights?

Like, I literally was walking in Manhattan last night, and I swear to God, I almost got hit. A Jeep just full-on blew a red light. Had to be somebody drunk. You can't blow a red light like that without. And when I say blew a red light, you know, he was speeding and went through the red light and didn't even attempt. Could have been texting and not even have seen it. I think that's what it was. And, you know, in my car, the Tesla, it does give you a chime when the light turns from red to green to remind you, like if you were texting at a stoplight, hey, dummy, it's a green

light. You can go now. Let's go. Yeah. It's like the honk. You know, instead of getting a honk for the guy behind you, you get the chime from your car. Yeah. It should also warn you, you know, red light, red light, red light.

If you're, if you're going to come to a red light, I don't know why it doesn't say red light. red light, red light, red light, or something like that. Yeah. And so I think all cars should have that. When I was in Vegas, there was a time period where they had these, I guess there were so many fender benders that this cab company had put in a smart device on the dashboard that showed you the number of feet between your car and the next car. And when it got to 10 feet, it would start, you know, doing that little alarm.

And I mean, I was driving it at one time. This guy kept tailgating people and the alarm kept going off. And I was like, hey, guy, like, the alarm's there for a reason. But I guess that cab company decided to put those in. I think that should be mandatory too. Like an early warning collision, it's a no-brainer to have that in there. That would also save so much money with insurance, etc. So this is better living through data, big data, IoT, AI.

And they could probably even tell them where you need stop signs and where you need red lights. I've always wondered about that decision. Why does some places have stop signs? Why do some places have red lights? And why don't we dynamically change between them? Maybe there's like during rush hour, it should be a light and then it should be a stop sign at all other times at night. Like, shouldn't we have a dynamic way of changing that? So we should, there's all kinds of places we can innovate.

And I'm just really, I saw that story in wire and I thought, good on the Google team. Keep thinking like that. No waste of it. All right. Last thing real quick. Oh. For you. Just this is very, very short.

Very, very short for you. Yeah, just one little hot take that you can give off. So Caroline Ellison had her second day of testimony today. I read through some of the stuff. Nothing that was that shocking or crazy that you haven't already heard, you know. One thing, though, I thought was interesting. So SBF sort of like operating mantra was effective altruism, right? Yes.

And it was alluded to today. And she mentioned that he, SBF, justified his stealing, his taking customer funds, all of the illegal actions by practicing something called utilitarianism, which basically means that all of the means, the ends justify the means, if you maximize the amount of good that you can do in the world. So that was sort of his mind-staking. That's deranged and sociopathic. And it sounds to me like, if it was, if that literally was his operating principle, that would explain the Michael Lewis position. So maybe Michael Lewis knows something we don't from spending that time with them. I'm always open-minded when people were dunking on Michael Lewis. I was kind of open-minded to his position, which was

It was like he saw something that everybody else didn't, and that maybe his quotes were being taken out of context. I think it's quite possible that that's true. Like maybe SBF was so deranged, and he was like this latchkey kid with these really weird intellectual parents. And he obviously, the people at Jane Street who hired him thought he was off. Oh, yeah. They had some, like, really like he was kind of scary off. Like maybe this guy would go postal or something. And so, you know, you have a kid who's, you know, let's say, I don't want to say,

he's neurologically divergent, I think might be the way people say it kindly these days. So let's say he's neurologically divergent. He just thinks different. He's on the spectrum. Maybe he was raised weird. He's peculiar. Maybe he's got ADHD and some severe, you know, Asperger's or something. Maybe in his mind he did think like that.

And that might explain the behavior of why he just thought it's a video game. It doesn't matter if you. cheat in a video game, who cares? It's just, I'm speed running life. So I'm going to speed run, as the kids say, you know, becoming a billionaire. And it doesn't matter how I get there. This is the wrong lesson. This is the wrong lesson. For anybody who's watching, it does matter that you act ethically and morally each step of the way. Now, if you want to reinterpret the law, like Airbnb at Uber, we've talked about countless times here, if you want to try to change the law and you want to, you know, kind of take some risk, just be sure that the risk you're taking

doesn't have the risk of ruin for the participants in the game. So if, you know, Airbnb wants to operate in New York and they want to pay the penalty and then fight in court and try to get this overturned, they can take a little bit of risk there. You know, nobody's getting hurt. But if you're theranos and you're, you know, giving people their cancer diagnosis or their diabetes, you know, or whatever blood tests they're doing, you've got to be more thoughtful. And if it's customer deposits and you're stealing them and you're like, you know what? Yeah, but I'm going to cure cancer.

And I'm sure one of my bets works out. If Sam Bankrupt fee was this talented, you could have just raised a venture fund. I understand he basically announced a $2 billion venture fund and his LP was the deposits at FTX. That would be like Bank of America saying we've got a $200 billion venture fund we're launching today. It's a $200 billion venture fund. Yeah. And by the way, everybody with a Bank of America account, you're our LPs. Surprise.

Guys. Congrats. Yeah. Congrats. We get itthropic. It's a 20XER. Yeah. We got a 20 bagger. Everybody's up.

It's going to be one of the great performing. I mean, that's the irony of this. I was just curious. I was looking through Alameda Research's crunch-based investments list. There's like 270 investments. Startupon. Sam before. Shout out.

Semaphore. Way to go, Ben. There's like 50 ICOs. There's like all these like Series A crypto projects. I was like, oh. And I was thinking to my head how many of these were just customer deposits? How did I miss it? How did I miss getting him as an LP?

I always like to deal, see, this is why I'm an idiot. I always think like each case, like what's the moral character of this person should I be in business with them? I made a huge tactical error, apparently. I should have just gone to the Bahamas, hung out with him, secured like a billion dollar or $500 million LP commit to my next fund and just be done with him. You'd be on the stand right now, probably. Yeah, I probably would be on the stand. Actually, there's, yeah, I think I know some people who might be. be on the stand, or will be on the stand. And this is just, he's going to jail forever. I set the over

under at 30. What do you take? 30 years, sentence. Well, it depends. Because I kind of feel like if he is this, if he is this smart, then I kind of feel like we should give him some sort of, you know, the movie Catch Me If You Can with Leo and Christopher Walken. How at the end he gets the, he gets the deal from the FBI where he's like, he does check fraud and he like helps them forever and he gets a reduced sentence or whatever. We should give him that some sort of deal like that. Because it doesn't seem to be like SBF is some like evil mastermind. Oh, look at you. You've got full Michael Lewis.

I just, you know, if he could be an asset to us potentially. Serious crimes. But okay. All right. No, I don't care. I mean, put him in jail. Whatever. I'm just saying if you're asking me to take an over under, I think.

You should make him, you're saying make him an FBI profiler. Yeah. of like crypto crimes or something. I don't know. Yeah, you could be like Kloris-Sarling of crypto crimes. It's not a bad idea. I would shave 25% of his sentence. If he served his sentence at Quantico,

we should give him a room at Quantico. And just let him rip. With internet access and just say, for every hundred years of sentences you give out, you get one year off your sentence. That's how I would do it. It's his carry. He gets years off his sentence in Carrie.

So you go get the tether. guys, we'll take 10 years off yours. You can prove the tether guys, whatever they do. Yeah, what's that North Korea group? Lazarus, Lazarus group. Yeah, you take them down. You get them 10 years off. Yeah. Perfect. But over under, where do you set the one? My 30 plus is everybody's taking the over. I haven't had one person take the other. Yeah. I mean, so that's the wrong line. I don't even know how you, I guess I'd have to see every single, what his like total sentencing is from all of them, then I'd probably just take like 80% of that. Because every single person has flipped on him, all of the testimony is like, it was his fault, it was his fault, it was his fault, it was his fault.

And I even read an article yesterday about the judge is like telling his defense team to like shut up because they keep repeating themselves. So it seems like the judge even doesn't like his defense team. Everything is pointing terribly for him. I don't know. Whatever the highest amount is that he could possibly get, I'd take 80% of that. Yeah. Well, I mean, I think it's like Bernie. made off level sentence, like multiple life sentences then, is where this could wind up. It's a big crime. You know, like the numbers are unfathomably large when... Because it's crypto.

Yes. And you put it into real dollars and you're like, oh, wow. This is a great lesson for how a mania can spread, right? You hear about that tulip mania and people were paying thousands of dollars for a tulip bull and you're like, how stupid could people be? You remember people paying $30,000 for a JPEG? $3 million for a JPEG? I do.

That was two years ago, Nick. Two years ago, we were sitting here on this very podcast talking to Doe Kwan trying to figure out who was paying the interest on the staking. And he couldn't explain it to us. And then I was saying, well, why would this NFT be worth $3 million? I could understand if it's $50,000 and it's a membership club to fish fry or whatever, you know, Gary Vaynerchuk was doing some kind of private club. Okay, yeah, Sowell House has a thing. And maybe you can trade the JPEG and the NFT could have the, you know, the member. membership go with it. I tried to be as open-minded as possible, but when people started buying

those like board apes for $400,000, $500,000, it's the brand, Jason, it's the brand. You don't get it. You don't get it. It's the brand. What don't I get? Like it's, no, I'm joking. But yeah, I didn't get it either. There was no value. That whole time was silly. I remember club, I knew Clubhouse was going to be a nightmare when, remember how it was like only VCs originally. Yeah, yeah. The first time I opened the app, it was like, there was one room and it was like two VCs from like the 18th best most notable VC firm in like New York. Like it was like basically no buddy. Whatever.

B tier VC. Yeah. Yeah. I don't even know if B tier. To them. Yeah. But they were like giving. They were in a room and it was like founder advice from two VCs.

And I just listened in. I'm like, is this interesting? And it was just the most generic. Like they would be better off just going and reading like the last 10 Bill Gurley or Fred Wilson blog. post or Paul Graham blog post. Like, what are you even? It was just such a waste of time. Like, this is so stupid.

I feel bad for these founders right now. I want to jump in and be like, get, go read. Well, it showed you the power of like live call in radio. And call in radio has been a device that's existed for a long time. People like it. Great for sports. Great for live events. Great for breaking news.

Probably that's it. Yeah. Like, we've been down this road. Like, when do you want to do a live call in show? like there are financial ones, there are sports ones, there are political ones. It's typically around news or advice, you know, relationship advice, love line. We already know. Like, and the problem with that company was just the valuation. You know, if it had just been a $100 million company, it would be fun. But when you put a billion dollar, then a $4 billion price tag on something,

that's when you can never reach that valuation. And then what's the outcome for that company? you know like could have $4 billion from Twitter man I would have remember I said it at the time like just grab that bag and run like literally just be like yeah you know what you can give us a billion and then give us the $3 billion in equity

we don't care like we'll just take the give us I tell you what give us 500 million cash call it a day you know we'll get an earn out for the other 3.5 I would have just run run yeah grab that bag it's an important lesson now that we're on the other side of this now you as a first time

you know, young person, like watching the industry, when things get too hot and it doesn't make logical sense, the logical thing to do is sell some of your shares, right? And to take a win. Book a win, right? Get that dough-ray-mee. The dough. Get the dough in the do-ray me. Buy a house. You know, that's my best advice for you. To figure out a way to buy a house. Strange times. Strange times. All right, everybody. Praying for peace in the Middle East and thoughts and prayers, obviously, out to the people of Israel. and it's just really hard times. We are going to carry on here and talk about stuff,

but it's on my mind just so people, if they're wondering, prayers for peace. All right, everybody. We'll see you next time on this week's service. Bye-bye.