This Week in Startups - News! China bans crypto transactions (again), Zillow & iBuyers impacting Real Estate + Ask Jason | E1290

Episode Date: September 24, 2021

Jason covers China's latest crypto mandate (0:59), a TikToker's conspiracy about iBuyers and the Redfin CEO's response (17:17), then takes a bunch of Ask Jason Questions (31:42) & more!

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Save up to 20% off traditional insurance today at imbroker.com slash twist. While you're there, get an extra 10% off using offer code, Twist. Okay, in our first news story, China has declared that crypto transactions are illegal, according to the CCP's statement and a bunch of news coverage. And this is part of the continuing crackdown on, obviously, cryptocurrency, virtual currencies. And early this morning, the CCP released a proclamation titled, quote, notice on further preventing and disposing of the risk of hype in virtual currency trading. Any quotes we're going to provide from the CCP in this new segment were transcribed by Google Translate,

so take it for what it's worth. People are doing this online and trying to translate in real time, and it's kind of a breaking news story. So, quote, recently virtual trading, virtual currency trading, hype activities have risen, disrupting economic and financial order, breeding illegal and criminal activities such as gambling, illegal fundraising, fraud, pyramid schemes, and money laundering, surely endangering the safety of people's property. To enforce these rules, China has created a new coordination mechanism across 10 government organizations from the Supreme Court to the cyberspace administration. The CCP will be investing in additional resources to be able to track on-chain activity

for a rapid response mechanism for early warning information, transmission verification, We've talked about this over and over again. China's an authoritarian country. They can change the rules anytime they want. There is no democratic process. And I have been saying this over and over again for the better part of a decade now. What people don't understand is if China is going to ban student uprisings, certain publications, social media platforms, and religions. Right?

Just look at all that evidence. religion, freedom of speech, freedom of religion, freedom of assembly, all of these things are our constitution as critical to what we do here in the United States. Why would you think they would leave out money? Money is really important. And so here we are. China let cryptocurrency kind of exist in a gray zone for a long time. And we know they banned all the Bitcoin miners. Bitcoin obviously survived that, so that's great for the Bitcoin community, even though all those servers had to be removed. And now we're seeing actual transactions. Now, they didn't say that holding cryptocurrency is illegal yet.

Obviously, that will be the next shoe to drop. And we've covered this for a while. What you can take away from this is the authoritarian governments will be able to act quicker and without much of a process than democracies. So we're going to see this across many different aspects of society. Let's take the aspect of society of wealth disparity. We've seen great wealth disparity because of Alibaba or Amazon, right? On two different continents, two different countries, same situation.

One individual, Jeff Bezos, the other individual, Jack Ma, both accumulate massive power, both accumulate massive wealth. Here in the United States, we have people complaining about it. We have people complaining about capital gains, tax treatments, people taking loans against their equity. And it's a big, massive discussion and a process. In China, they just said, you know what, you can no longer be that rich. We need to have, we need to spread the wealth around. And they basically just decided to do wealth redistribution and they pressed the button. And that is something we're now seeing with privacy. In America, we're having a vibrant debate about our privacy and, you know, Amazon versus Google and Facebook. And China just decided to press the button. No longer can you collect this information

and the government has to have the information and you have to go through a cybersecurity audit. You get the idea. Then we look at cryptocurrency and they did the same thing. We look at kids on social media. They're just going to ban kids for being on social media. We're going to have a messy debate between Facebook executives, researchers, are elected officials, the public, and the press about should we allow kids on Instagram, social media, TikTok, etc. They just push the button. No more.

That's it. And if you look at video games, another example, they think it's bad for kids. The study show too much of it is bad for kids, of course. A little bit is probably not a problem. You can make your own decision. They just said, hey, these are the new rules. And you can look at this one of two ways. You can look at it and say, well, they're going to get.

to the right answer quicker. But if you dictate to people this is the right answer and they don't get the chance to process it and be part of the debate, it's kind of a crummy feeling, right? It just makes you a slave to the state and the government. And this is going to backfire in a major way in China. If China keeps squeezing their own citizens, you can't play video games, you can't use social media, you can't do cryptocurrency, you can't practice a religion. These are the things that ferment a revolution. And I actually think what's happening in China right now as they crack down and they crack down

and they tighten their grip. The more they tighten their grip, the more of the freedom fighters and the more of the rebels are going to slip through their fingers. And it reminds me of something Fred Wilson said in a documentary called banking on Bitcoin back in 2016. Let's just play this 26 second clip

and I'll give you my comments on the other side. The lesson from the internet is anything that China bans invest in and that's a joke, but the U.S. allows Google to operate here, allows Twitter to operate here, allows Bitcoin to operate here, allows Facebook to operate here. Chinese government doesn't allow any of those companies to operate the way they operate in this country, or at all. It's about freedom, ultimately.

Yeah, Fred's exactly right. Friend of the pot, friend of mine, Fred and his wife, Joanne Wilson and I work together at Silicon Valley Reporter. back in the day. We built that company together and had a great experience. I was actually a consultant for Fred Wilson at Acme Ventures back in the day, the precursor to Flatiron, and I read two business plans. One of them was for Beverly Hills Internet, which became GeoCities, which they invested in, was their first big unicorn. And the other one was for American cybercasting, which produced the spot. And Masayoshi-San, back in 1995, 96, when I was 24 years old, read my coverage, spelling errors and grammar errors and all that I gave to Fred Wilson and

Jerry Colon, and they said he really appreciated my insights into those. I don't know where those documents are, but I almost became a venture capital instead of a publisher back in the day. Shout out to Fred Wilson and Jerry Colonna. Two great mentors and friends of mine. So this is what's happening right now, and I think that's the big picture. Now, as we narrow down what's happening here, I think, again, two different types of countries have two different approaches to changing the rules or setting the standards for society. In an authoritarian country, it's top down, they're dictators. I know a lot of people are neophytes to, you know, the arc of history and world history. But, you know, I've been around long enough to know that in a dictatorship,

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startups or art. Unless you're like really done your diligence, I like to have a nice balance portfolio. Okay, let's get back to this amazing episode. Now, here in the West, how are we going to deal with cryptocurrency? It's going to basically be regulate, tax, and perhaps ban in some cases. And that's really what's going to happen in the United States. That means cryptocurrency is going to go from being the Wild West, to being regulated in the West, into being banned in the East or replaced. Right?

So this is the process. You're going to see bans in authoritarian countries. You're going to see bans of people who are bad actors. Some people would argue tether is a bad actor or just sloppy. Maybe sloppy would be the most generous way. Some people would describe them. Criminal is how the Attorney General will describe them in New York, Canada, took an approach of banning them.

So you're going to see the banning of bad actors or the registration and the licensing of the good actors, people like Coinbase and the SEC, see their little spat that we saw recently over the lending product. That's part of the democratic process of saying, hey, let's protect people because what China said in their statement is true. There are people who are doing illegal securities using cryptocurrency. There's pump and dumps. We all know this.

There's literally rooms on signal where it's called a pump and dump. We know that these projects are not worth what's going on there. We know that there are insiders trading at OpenC and buying the NFTs before you, the suckers and the public get a chance to buy them. We know about all this market manipulation. Every system has manipulation. And something like cryptocurrency that's distributed and there's no central authority makes it particularly challenging. And then you add on top of it, okay, there's no central authority and it can be hacked.

And there's a lot of money at stake. Whenever there's a lot of money at stake, whenever there's a big poker game, there's going to be somebody who tries to get an edge in that poker game. Some people might do it by plying another person with drinks. another person might do it by outright stealing, right? Or angle shooting or two or three players playing against one player. So that's the big picture here. In America, I think what we're going to see is a lot of these crypto projects are going to be regulated and taxed. Now, cryptocurrency people are saying, hey, this is about freedom. To a certain extent it is, but with freedom comes responsibility, and we need to see cryptocurrency companies in the West take all of this very seriously if they

want to not be replaced by the government's competitive products. And I think that that's what this is really about. The United States does not want to give over the U.S. dollar to a decentralized project, whether it's Bitcoin, Ethereum, Tether, U.S.D.C., any of these projects, the United States does not want those projects to then have more leverage over politicians and the centers of power, you know, and that would just be disastrous for the United States. At least that's, I think, how government, people in government feel is that this is an existential risk. Therefore, we'll have a cryptocurrency, we'll have a U.S. dollar that is pegged, you know, to a coin, et cetera, and all this regulation.

And then they could just disincentivize people from buying crypto by taxing them. And I think the regulations and the taxing is going to be what we'll see next. They're already starting to tighten the noose a bit and to put some guardrails in place. And I think the SEC stopping CoinBases lend program, is really the most acute example of it. Why did they stop that? You know, I'm looking at it, and I'm going to see him very pro-crypto. I think they see it as a threat.

If a bunch of people see six, seven percent return on their money just sitting there, they're going to say, you know, why would I have U.S. dollars and get, you know, 50 basis points from Bank of America when I could put it in my Coinbase account, buy a basket of crypto and then loan it out. The crypto might go up, and I'm going to get six or seven percent. So, yeah, if somebody had 100,000 in the bank, you could see them putting 50 in Coinbase and 50K in their Bank of America and see what happens. That is terrifying to the United States that all of a sudden the US dollar seeds to Bitcoin.

And that's really what's happening here. And China gets to push the button. It's going to be a pretty entertaining and interesting future. I think China is going to have a revolution. That's my prediction. I think this type of behavior that they're exhibiting and squashing so many things that people their own country love and taking away freedom and taking away CEOs. I wonder if they can put the genie back in the bottle where I wonder if people are going to say,

you know, I kind of like that direction we were going in. I kind of liked Hong Kong having the ability to protest. I kind of liked being able to play video games or use social media or express myself. I wasn't into any particular religion, but, you know, I didn't have a problem with the Uyghurs practicing. And I don't know why they're in a jail. this stuff could build up. And so it's going to be very interesting, and regulation in the West is coming.

And we'll have a great debate for the next couple of years. And everybody knows clearly that China is going to launch their e-REMB. The rem&B is basically their dollar. So they've been testing the rem&B, and as my friend, Mark Jeffrey, one of my oldest friends in the technology industry, crypto expert now, as he explained when the digital remand-be was being tested, that will replace basically. Bitcoin in China for sure. And it can be used for all kinds of, you know, nefarious ways and interesting ways.

They could tell everybody, hey, listen, you have to spend X amount of your money, 10% of your money, 5% of your money, by the end of the year or else we're going to tax it. Imagine that. Like, the United States could say to all these rich people, hey, you're sitting on so much money, you have so many gains. We have perfect insight into your bank and your wallet. Go ahead and spend some money. or else we're going to tax it.

So use it or lose it. Well, that would drive massive economic gains, which at a time when Evergrand and other things in the real estate space are imploding in China, that could come in real handy. It could be like when we sent our stimulus checks, we say to people, hey, here, you have some stimulus money in your account.

It's on this credit card. Imagine it was a debit card. There'll be $600 on this debit card until this date. So use it or lose it. Or you could use it at these follow. places. You could actually see that as being a feature, not a bug, but you could also see, oh, you said something against the state.

We're now going to find you, and we're going to freeze your bank account. Not just freeze your bank account. We're just literally going to take your money out of your account, and that's it. You're done. So the central currency is going to give even more power. And this type of Fed coin, which is, I think, what people refer to it in crypto, Fed coin, will launch in the United States at some point. It will not have these characteristics, but it will be traceable.

And I think that's going to become a big discussion. We'll have maybe in two years, I'd say in 2023, we're going to have a big discussion about the Fed coin and U.S. dollars in crypto on a blockchain. And do we have the right to privacy with our money? And then you might see people go back to like holding actual physical cash or something or holding some combination of cash in crypto because they don't want people having their hooks into their Fed dollars. Okay, let's go to our next story.

A real estate TikToker is causing a bit of a star on social media after explaining a conspiracy theory he has about the housing shortage. Let's play the video. I've been a real estate agent for about 11 years now. And let's talk about the housing crisis. And let's talk about some what ifs. What if there was a company that everybody used, everybody used, everybody knew of to look for houses. And everybody goes on there and searches for houses when they're bored and stuff.

And so that company, they just sit back and they just collect all the data. They just know what zip code is looking at what zip code and how much those people can afford. Everyone's looking at this one zip code. Everybody seems to be able to afford this certain amount. And let's say that billion dollar company uses that information to go into that zip code and start purchasing houses. Because the people that are selling their houses, even though they sell it for a little bit less sometimes than what the home could actually be worth and they pay these high fees to this billion dollar company. It's a convenience factor. So this company is scooping up houses less than what they actually could cost. And let's say that that company, excuse me, Canoe, that company buys 30 homes within a two-mile radius. And let's say

the price is 300,000. So they buy all of these homes for 300,000. And then on the 31st home, they buy it for 340. Even though they know all of the all of the, all of the, because most people have to get a loan. If you get a loan, you have to get an appraisal, which means the appraiser is going to look at what homes have sold in the area for that size and that price per square foot. So they're paying cash. They don't need an appraisal.

Why would they pay $340 for this 31st home whenever they've only paid $300 for these others? Well, what that just did is create a new comp. So when they go to sell these other 30 homes, That extra $40,000 that you could say this one sold for $3.40 just made them $1.2 million off that one neighbor. Because they know from their research how much people can afford in that zip code. Weird. And let's say that then they're going to come in.

They bought that home at $3.40 that still needs work. So they're going to come in and do the good old paint, spackle, and change the carpet and call it a remodel. So now we can sell them for $360. Because we know, off of our data, that's how much people can't afford. Wouldn't that be weird if a company did that? And then say that this company. also starts letting you use their own lenders and their own title in escrow company and makes you write your contract on their... Okay, I love this guy. Incredible, incredible take. He's obviously talking about Zillow because that is the company that I believe is buying all these homes. And he's phrasing it as a hypothetical. And I like the way this guy's thinking, because as I've been saying over and over again, assume that,

that you're being manipulated when there's a lot of money at stake and there's a lot of players involved, right? So where could that happen? At a poker table? In crypto, in venture capital, when buying and selling stocks, and in real estate. So assume that you're the sucker at the table and that you are being manipulated. Now, we had Picasso's CEO on the podcast. I think some of the Napa Nimbi folks who've been in my replies for three days straight since that episode, come out. I think they're going to come on the pod soon and we'll continue that discussion. There's a lot of sake when it comes to homes. There's a housing shortage. We had a bunch of people move around the country. And now what we're seeing is because there's so much money in homes

and because things are accelerating so quickly, people are getting a little edgy. And here, one of the things that has been super inefficient in the marketplace is agents. Agents are a massive drain on real estate. And most people do not want to pay 6% to a buyer and seller, 5% of the cost of a home. Most people think that's outrageous. And that's why people are using services like for sale by owner and Redfin and other services. Now, do real estate brokers provide some value? Sure, of course they do. Are they overpaid? I think we all agree, sorry to real estate brokers out there that in many cases, they're taking too much money. A million dollar house. getting $60,000 for doing the transaction.

There should be competition for that. They should crack the absolute triangle hold that real estate agents have. So while Sean Gotcher, I believe that's his name here, this Las Vegas real estate agent who's going after these eye buyers, which are sort of the internet buyers of homes, they're collecting and buying homes and then reselling them to make the market more efficient. He's actually threatened by this because if Zillow is buying all these homes, then why do you need a real estate broker? Eventually, that whole process and that whole constituency is going to be disintermediated,

and you'll be able to buy a home and sell a home without real estate brokers. And that will put 6% of a very large number back in play, or 5%. I know you can negotiate with real estate brokers, but there's really very little transparency and competition in the space, and now we're seeing massive competition. So he does have an axe to grind. Real estate brokers are feeling very threatened. by these group of people. Now, I'm not saying I dislike real estate brokers,

but I have had my issues with them in the past because all their incentive to do is close a deal. And I feel that you're not the customer when you're dealing with real estate brokers. The customer is the other broker, and they're just trying to close deals because the quicker they can close deals and make transactions happen, the more money they can make.

Now, that doesn't mean they're bad people. That doesn't mean they're not looking out for you. That doesn't mean they have good intent. but you have to understand if there's an incentive, the incentive is going to largely determine the outcome, and the incentive obviously is to sell homes and to sell them in higher prices. As founders, investors, and executives, we spend so much time building up the companies and products that we love and care about. But at the end of the day, life is fragile and it can get taken away at any moment. You know that. So it makes sense why people get life insurance,

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ladderlife.com slash twist. Again, L-A-D-D-E-R-Life.com slash twist. That's L-A-D-D-R life.com slash twist to see if you'll get approved. Do it now. Now, I believe folks are coming out saying, hey, this isn't true. So his hypothetical situation here, if it's a hypothetical situation, I think it's a great thought experiment. But he is, uh, you know, sort of, I guess, teasing that he believes this is actually occurring. I don't know what you thought from the video if he was trying to protect you with a hypothetical or he's trying to leak actual information. So I don't know that he's got an actual example of 30 homes being bought and the 31st being popped up in price. But that's the kind of market manipulation.

We were talking about in NFTs on previous episodes or that we've seen in other mania like investing in startup companies where, you know, you have the equity crowdfunding platforms out there. You have syndicates like the one I run. Everybody is sharing deal flow. The prices are going up. You have to wonder like, okay, who's got skin in the game here? And is there market manipulation going on here? Who's the sucker at the table? So, friend of the show, Glenn Kelman, who did a great episode of This Week in Startups, episode 1261. He responded when this jumped from TikTok to Twitter, as TikTok videos often do. He says, where Redfin's concerned, this is untrue. So, you know, he understands it's about Zillow, and I don't think he's any big fan of Zillow,

but he's coming in saying this is untrue. We offer every homeowner a choice of a cash offer or a brokered sale. Sharing the data we use to price the home, we tell the owner he or she will net more money via a brokered sale. We would rather sell the house without owning it, right? So all of these giant sites, whether it's Redfin, Zillow, etc., are now getting into the home buying and flipping sort of space. and then he also says we'd never intentionally underpay or overpay for a home.

It's madness to overpay for a single home in order to set a high watermark for other sales. There is a conspiracy between eye buyers, but it's to pay lower commissions to the brokers representing the buyers of the homes we sell by about 60 basis points so far. This may be the reason some brokers dislike iBuyers, which is what I just pointed out. What the video is right about is that iB buyers are counterparties. When consumers are used to dealing with brokers acting as fiduciaries, iBowers sit on the opposite side of the table from the owner, not the same side. This is why Redfern could never be a fewer eye buyer. Our best value by far is a brokered sale at Redfin's listing

commission of 1%. I've been as surprised as anyone that even a fraction of home buyers prefer the convenience over net proceeds, but about 5% do. He then replied and says he wasn't talking about anyone specific, interesting, which ones felt the need to be part of the conversation. Zillow also push back against this in an email to paid real estate publication inman. Zillow characterized the video as an example of misinformation of falsehoods. Quote, the simple truth is that through our services and tools, home shoppers have more power than ever before at their fingertips when buying, selling, or renting their home because of the information we make available to them. We pay market value for every home we purchase. The statement added, when we looked at homes that sold traditionally

after they declined a Zillow offer, we learned that on average, those selling traditionally sold only 0.09% more than the Zillow offer. So basically 10 basis points, one-tenth of 1%. So not even 1%, 1%, one-percent. One-tenth of 1%. And on every home that Zillow buys and sells, we are transparent. The purchase and resale prices are publicly displayed on the property page on Zillow, which is great. You know, there are some places where you have to report what the transaction was. So in California have really good insights. I've been looking at homes in Texas, this we'd be considering moving there, and they don't have to report homes there. So trying to get information and comps is really hard in Texas. And that's something they need to change in Texas. Texas should

force people to report what homes were sold for because the market manipulation in Texas is crazy. I had people high pressuring me on like crazy homes. And I was like, but I'm looking at these homes and these comps sold for 800 and 900 and 900. Like, oh, yeah, yeah, those are wrong. I'm like, but they're in the database. Like, oh, you don't know the other ones. ones. I was like, yeah, I'm getting worked. Zillow released an iBuyer report earlier this year, which revealed that iBuyers like Zillow and Open Door, Keith Rowe's company, purchased over 15,000 homes, which was 1% of U.S. home sales. So this is a trend. These eye buyers are going to be 10, 20% of the market I predict. And that's going to give them a lot of power.

It's going to displace the real estate brokers, I think, in all likelihood, according to inman eye buyers in places like Phoenix are as much as 5% of home purchases. And remember, back in April, the Wall Street Journal published an article telling how firms like BlackRock were buying up entire suburban neighborhoods for well above asking price. So when there is a shortage of supply, a lot of people are going to try to get in the action here. I do think this could be causing a bit of a bubble. And so I'm wondering if this could cause a bubble where these eye buyers buy a bunch of homes,

rates go up, people are not interested in buying homes, maybe they want to rent or something. and all these companies get caught owning thousands or tens of thousands of homes and then they're forced to rent them or something. You know, this feels like a lot of change in the space, which I think change is good and competition is good, but I think it's something worth monitoring. And in all cases, transparency is absolutely critical. They should list on every one of these sites what the brokers get paid when the home got sold.

So they should just put their broker, sell this broker got two and a half percent, this person got five percent. They never really show that anywhere. the percentage. And when you list a home and you work with a broker, there should be a thing where it says, what would you like to pay? One percent, two percent, three percent to the seller of buyer. And people keep telling me you can change that and negotiate it. And my experience with brokers is they never tell you you can negotiate that. And then as I grew up and I started buying homes, I used Redfin to buy a home. It was awesome. I saved money on the commission. Another time I did

an off market transaction. That's the only way I'm going to operate in the future, I think, which is I hired a law firm to buy a house. and the other person who was selling it, we did an off-market transaction, used the law firm, the bill, and this is a not insignificant home, like it's a very expensive home,

was $12,000 in legal bills, zero commissions. So we're talking about saving hundreds of thousands of dollars in commissions. So I think people should just hire real estate lawyers, pay them great fees, and just do direct sales with each other. I think if I ever sell the homes that I own a couple, like two,

if I ever sell them again, I'm just going to, Email my friends. Say, anybody interested in this? I'm going to do an off-market transaction. I'm not going to public list them and just try to sell it direct to like 10 people. I think it's a much better process. So, Vila deference.

More competition is better for everybody. I'm curious what you think. You know how to get in touch with me. I'm at Jason on Twitter. Slide into the DMs or go to this week in startups.com slash slack. And you can meet the producers, Rachel, Nick and Justin. They're all hanging out in the general channel. You can talk to them about the show.

And give us more information. What do you think? Tell us if you think, There's something nefarious going on here. And if you have any tips, maybe you could tip us off as to something that's going on here. But we're going to keep covering real estate. If you know of any other interesting real estate startups, I'm interested in investing in them. You know how to reach me, Jason at calicannis.com.

Okay, question from Bob Gee. Hey, Jason, what are your thoughts on Netflix potentially getting into gaming? This is a no-brainer for Netflix. If you look at Apple, I have like some Apple super subscription that gives me two terabytes for my family. and we have music and we have Apple News and we have Apple Arcade and Apple Arcade is delightful

and we also have Apple Plus and we watched I don't know if anybody watched Ted Lassau last night but man that episode got me I was a little teary-eyed at that episode another great great episode of Ted Lassow I could watch that show every year for the rest of my life I think and we might

that could be like a I think Ted Lassow could last 20 seasons and it should it's just absolutely fantastic I love the characters I love the acting love the writing So all of these services are going to have like some sort of singularity where you're going to buy a media subscription.

So Disney Plus will include games and music eventually, Apple Incudes music and Apple TV. So it's all going to be a singularity. And Netflix, sure, why not have podcasts? Why not have news? Why not have games? Games is a no brand new for them. So great question. If you don't have business insurance, you failed one of the first steps of being an entrepreneur.

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The process is transparent with no opaque pricing. So let's talk about two very crucial types of startup insurance. You'll know that these are very much in the news, especially the first one. cyber insurance. You have to have cyber insurance, which covers acts. And they happen more than you think. A lot of them, you don't hear about publicly, right? Because people are ashamed to have them happen, and they should have done a better job, but mistakes happen. And sometimes software is imperfect, right? Or a human is imperfect, and they make a mistake. They use a weak password. They forget to put two-factor on. Well, you want to have cyber insurance just in case that happens, plus

DNO insurance. This helps if your directors and officers do something dumb and you get sued. Very simple, very important to have cyber and D&O. So to instantly buy custom built insurance for startups, go to inbroker.com slash twist, EMBR-O-K-E-R dot com slash twist. While you're there, you're going to get an extra 10% off by using the offer code twist, TWIST. Okay, let's get back this amazing episode. Eniak 78 asks me, why did Coinbase fold so easy in reference to them saying they're not going to do their lend product? I think maybe

Brian Armstrong came on very strong with the SEC in that tweet storm and maybe the SEC said listen we're on the same page here we both want to protect customers we both want innovation

and Gensler and whoever said let's work together and maybe we could tone down the rhetoric and work together and that would be a better process so I'm guessing somebody came in could be a venture capitalist could be a politician, could be an advisor to Coinbase, could be somebody in the SEC and said,

hey, can we just sit down for a second and discuss this? We heard your criticisms publicly. We'd like to address them. But if we're going to have this, you know, addressing and erring of grievances, can we agree that we're going to tone things down and not make it a public spectacle? Because a public spectacle like this probably doesn't benefit either party. It makes Coinbase look, you know, confrontational, maybe a little defensive. on the margins. It makes the SEC look like they've got maybe got some nefarious reason for doing what they're doing. And that might actually not be the case. It could be, and I suspect, the SEC wants to pump the brakes and not see consumers get hurt. And Coinbase wants to move fast

because they're a startup. These are both reasonable positions. What's not reasonable is to air it out publicly. It's like you ever go to a dinner party and like some couples fighting and you're like, we're just here to have a dinner party and you guys are having a public disagreement about your kids' education or where you're going to vacation or something on the margin. Like, you're not in couples therapy. This is a dinner party. Like, please stop fighting mommy and daddy. That's kind of what I think it happened here.

And so part of that would be the SEC coming to the table and talking to Brian and the team at Coinbase in good faith and saying, yeah, we'll meet with you. Because remember, Brian seemed to be a little upset and frustrated that they weren't meeting with him. That's kind of a reasonable position for Brian to have. like, you know, as critical as I am of cryptocurrency, I think Coinbase has done a pretty great job of making it secure, safe, and playing by the rules.

So if Brian's frustrated that they won't even meet with them, well, that's completely reasonable. Like the SEC is there, and Coinbase is the number one player. Like, they should be meeting every month, shouldn't they? Shouldn't they be trading notes and discussing stuff? Why should they be in a standoffish position? And so Brian's right. They should be sitting down with him and clearing things up.

The SEC's right that people should not be launching these products willy-nilly and that there needs to be a discussion of what are the safeguards, especially if we want to be a lender. And if you're lending and it's a security, like this is a very important discussion that everybody needs to have. So that's my take on it, is we don't have complete information. It's like in poker where you're trying to figure out what your opponent's hands are, or let's say you're in a three-way pot and somebody's raising, somebody's re-raising,

and then you've got aces and you're like, what's going on here? and it's like, oh, that person's an agro player. They might have, you know, tens or jacks and they're overplaying their hand, or maybe that person hit like two pair and they're on some crazy draw as well. And they've got 15, 16 outs and, you know, they're jumping the fence and going crazy. Like, you have to kind of figure out what's going on here. So when I see a news story like this, there's probably some other party involved, some lawyers who said, you know what, maybe if we say we're going to take,

the LEN product off the table right now, then the SEC would come to the table and have a discussion with us and we could build a relationship with them that would result in us being the first, you know, sanctioned, front of the list person. So I think it's, you know, a good idea on their part. J-Cal, what is something unique about your morning routine?

I don't set an alarm. I just wake up naturally. So that is, I think, the thing that I learned was I no longer want to set an alarm at this age of my life and at this, like, I worked hard my whole life, was like always setting alarms to get up earlier and earlier and get more done. Now I'm just like, fuck it. I'm waking up when I wake up. And the first meeting is at 10. And then if people don't see me, they start calling.

But it's very rare that I sleep past 7 or 7.30. So that is part of my morning routine. And then always spending time with the girls before they go to school. I always love to hang out with them and joke and laugh and see them off to school and give them hugs. and that's really the best part of my dad. I have to say, well, actually, I've been listening to Lord of the Rings with the girls every night, Hobbit Lord of the Rings, the audiobooks. And that is like, I got to tell you, if you want to have a peak experience,

just laying in bed with your two daughters, the twins, and listening to 45 minutes, I put the sleep timer on for the Hobbit of Lord of the Rings and great performances. And my daughters always fall asleep within like 15 or 20 minutes. Then I go to get up. I'm like, oh, no, no, five more minutes. Five more minutes, you promised. I'm like, okay, five minutes of overtime.

I sit at the side of the bed, listen to Moore Gandalf and, you know, Sam Wise and The Hobbit and Frodo and Bilbo. It's just absolutely peak experience. Audio books is how I really helped my daughter, who's 11, my older daughter, London. She's got like something like she's in the 98th percentile in vocabulary, 100% because we wrote stories together instead of just telling stories at night. and we listen to audio books constantly. And I always did audio books that were two or three years beyond her.

So, like, I'm with the five-year-old twins, I'm listening to Lord of the Rings. They're just drowning in words they don't understand. And so we have a rule. Pause. Just say the word pause. I pause the audio book. Can we talk about words or we rewind and listen to things? So hope you enjoy that tip.

Audio books with your kids, J.R. Tolkien, great way to bond. And then you watch the movies and it all fills in and they get a 360 experience. Okay. Francis Santora tweeted at me and he said, a question, you're moving to investing at earlier stages in SaaS, software as a service. In your book, Angel, you suggest choosing syndicate deals with six months of revenue track record. Has your thinking evolved? Thank you. My God, Francis, you are an astute one. Yes, in my book, I give the advice. You as a new angel, please, investing companies that have six months of track record because 90% in my estimation of companies never get to dollar one.

Now, if you get to dollar one, you get to customer one, they give you 500 bucks a month for your SaaS software, my lord, it means your product got complete and somebody put their credit card in. You had to have some base level of dexterity in that product. It had to speak to a person just even a little bit. So I gave that advice to new angels. Now, for me, J-Cal, I'm a bit more sophisticated. I've invested in over 300 companies. I can look into the eyes of a founder.

I can hear their pitch. And I can say, I know if that person is going to be successful in their life. Maybe not on this startup, but I can read people. One of my superpowers, might be my only one, to be totally honest. My superpower is being able to read people. So my thinking has always been, I can read people. I don't think new angel investors should attempt to do that. they should take a more stable path and reduce the risk of product market fit and behave over there.

Now, in SaaS specifically, software as a service, it's massively competitive when you have a year of data. By that time, you hit 25K, 50K a month in revenue, you're going to have seed funds who want to invest. When you get to a million in ARR, you're going to have VC firms, the earlier stage ones who want to invest. So what I've decided to do is we started a new syndicate called the SaaS Syndicate. I'm building a team. I'm building a squad. I'm building an open scouting process where anybody can tell me about a company and we give them $5,000 if we invest in that company or carry in the company.

So what we decided to do with this new SaaS syndicate. Which is at the syndicate.com slash SAAAS. The syndicate.com slash SaaS. That's for accredited investors to invest alongside me. I said we would invest in companies before they launched their product. I want to put the first $500,000 in, but there is a little secret that I'll tell you, since you gave me such an astute observation.

We are going to look at other signals, not just my gut, but who are these people who are building the product? Did they work at a SaaS company before? Were they the number 17 person at Asana? Were they the 27th employee at Slack? Do they have any bona fides? Do they have any related experience? Are they a developer, designer, U.S. person,

a sales executive who sold Salesforce for 10 years? What do they do in their life that makes them qualified to do this? And we as a collective of angel investors can take more risk. So here's my thinking. If we give you that first 500K check for 5% or 10% of your company, you haven't launched, but you're like J-Cal, I'm building the SaaS product. I'm credible for these reasons. Here's the mock-ups.

We're not launched yet. We're working on the product. we want you to invest. We can give you $500,000 that represents, let's say, 250 investors who put in but $2,000 each. For accredited investors, you know, making a 2K bet in Vegas, no big deal. We put 5K on the giants. Some idiots are putting 5K on the jets. I mean, think about that.

So if you can make that quick 2K bet, and we make 10 of those 2K bets out of $5 million valuation, and nine of them go to zero, but you lost $18,000. 2K times 9, 18,000 losses. But in the 2K, in the last, the 10th one that worked, well, if it works, SaaS companies, you know, tend to have pretty great multiples. So we need only 1 in 10, 1 in 20 to work to make up for the misses. And so getting in earlier means we can start to build a position. And we were lucky enough to build positions in lead IQ, grin, you know,

companies like that over the years, FitBod, Steezy, you know, these ones I've invested in the last five years or so that have started to break out density that falls into that group. So great question. Thanks for paying attention. Many hands for light work. That's why I love this group approach to investing. And yes, if you're starting out an angel investing, investing, invest in people have a product in market so you can talk to the customers. Great idea. I still stand by that. Also, remember, the book Angel, I just got off the phone actually today with my publisher Hollis over at Harper Business. And I read her the introduction to the new book. She loved it.

So I haven't sold the book yet. I got to go to that process. But I would very much like to do it with her again because she was just, Hollis was just amazing at Harper Collins' business. Greatest business published from the world, but whatever. But when I wrote Angel, it was 2017 when it got published, which means I wrote it in 2016. You know, it's five years later. The market is significantly different now than it was then. It's a much more competitive market. Valuations are much higher.

So, yeah, sometimes you have to maybe take more risk and go earlier in a market where there's many players fighting for the Series A. And so, yeah, I might be making some bets a little bit earlier. Certainly our accelerator is accepting builders, people who actually build products before they launch their product. So you will see in the accelerator now launch accelerator, we've accepted a number of companies and it's worked out pretty well. If they're developers, designers, UX experts, not business people, salespeople who need to build a team, but in that early stage, if we find builders, we're willing to back them before they launch. Because you've taken out the risk of finding a developer, taking out the risk of finding a designer, taking out the risk of finding a great UX product person, you know, user experience person. So great question, Francis.

All right, producer Nick has a question for me. It's based on an audience question, but he has a little bit of a punch up for it. Go ahead. Nick, tell me. Yeah, so someone in the audience asked you how your book, too, is coming up. And I think it's interesting if you could try and compare and contrast it with releasing an album. You know, a lot of times they say that when an artist releases their first album ever, right, a musician like Jay-Z with Reasonable Doubt, I think he was 27 years old, Nas with Elmatic, he was 19. he was 19. All of their life's work to that point is put into that, right? And then, you know, a lot of times you see the second album is a little bit of a flop, right? Or a little bit of

less interesting than the first. Is that how it works with a book? Are you just so dialed into the process now after doing the first one that you've learned from it and you're like, this is way easier and here's where I can improve upon it? Yeah. So it's a great question, actually, and I've been thinking about a lot. When I wrote the first book, obviously, I'd been a journalist, but I'd never written a large, you know, 60, 70,000 work book. And so I was learning how to architect a book. And, you know, luckily I had HarperCollins business as my publisher.

They know how to do that. But I insisted on writing the whole book. There were a lot of people who offered me in the process, hey, would you like a ghost writer? And I was tempted for a minute like, mm-mm, but I was like, you know, I'm a writer. I want to do this myself. And so looking back on it, the one thing I learned was I speak like I write. And when people read the book Angel, which, you know, it sold over 50,000 copies for which

which prefer a niche book is absolutely fantastic. It's an 11 language. It still sells great. It'll sell hundreds of thousands of copies over time, I'm sure, because it's timeless. But it was very narrow in focus. It was only for angel investors or people who wanted to be angel investors or 4% of Americans are accredited investors. The next book is for everybody.

It's for the world. It's literally the topic everybody's talking about right now. It is big picture. It is not narrow. It is the opposite of narrow without talking or giving away what I'm writing about. And so I have focused on the process of writing. In the first book, I studied my own writing style and people tell me they hear my voice when they read my writing, which is not a coincidence because when I was learning as a journalist,

I used to record myself because somebody told me, hey, listen, if you ever got writer, block, just record yourself, transcribe it, and then use that as a starting point. And so when you're a subject matter expert, the words flow easy, which I am. And in this new book, I'm a subject matter expert with a lot of experience. So it's flowing very easily in terms of the knowledge I'm sharing. But what I'm working on is the crafting of the words, Nick. And what I'm doing is, because I just read the introduction, I've read the introduction to three people, my publisher, Chamoth and my wife. And with Chamath, there was a couple of other people around the table at dinner.

And they all responded so amazingly to it. When I write now, when I was at the beach in Italy writing, as you saw on my Instagram, I had a technique. I would write, jump in the water, I would listen to it. I'd have the computer speak it to me, right, highlight it, right, mouse click, text to speech. Then I would take my phone, this is my big secret. I would perform the book as if I was doing the audiobook. Because when I did the audiobook, I wanted to change so much about the prose, but it was

too late. The book was locked. Now, I'm thinking about the audio book first in your experience, listening to my voice, because I will do it again. And when I would go for a walk on the beach, I go walk two, three miles, I would put my headphones in and I would listen on repeat to myself reading what I wrote that day or what I wrote the day before. And then I would take notes, I got to punch this lineup. There's a better way to say this. So I'm actually thinking of it more like a one-man show, if you will. That's something that doesn't, exist anymore. But if you think about Eric Bogosian, you can look it up, talk radio. He did a bunch of one-man shows that I was lucky enough to be exposed to when I was in New York as a kid in a teenager

in the 80s and 90s. I'm looking at it in a Bogosian kind of way of like if I perform this on a stage, if I were to say it and look somebody in the eye, when I say this line, does it actually get you? Do I get you on the fuck to get to the next sentence? And when I get you to that next sentence, when you go to the next paragraph, when I finish that chapter, do you want to like go watch TV or play a video game or go eat food or you need to get one more chapter in. And I'm thinking about that. So it's really for me about the pros and the writing. The subject matters, great. But it's not an autobiography, but it includes a lot of autobiographical moments. So that's my new thing is I'm writing a book about a very wide topic, but I'm including autobiographical moments

of mine and my network, if you will. Good answer. I'm also working a lot on sentence structure. So, you know, there's the performance of it, but then there's also sentence structure and words and how to phrase things. Yeah. I can't wait for you to read it. It's going to people are, I think this book is going to, when I talk to my publisher, they're like, you realize the heat this book is going to bring on you. And this is the most, I don't want to say politically incorrect, but this is going to freak out certain people in a major way. because it is I think this book

has a bit of categorization right you're categorizing things yes I am categorizing things yes I'm building a framework in the book yes using a lot of examples yes I don't think that's given too much away right

okay no so in that sense it's not fiction yeah rather than writing it almost seems like you're the narrative arc of the book is I'm curious how categorizing things changes that rather than writing it like Angel

where it was, you know, how to? Linear. Yeah. You know, what I learned from writing Angel and Brian Alvey helped me a lot with this is, you know, there was a bunch of how-toes, but then it feels just like somebody's pontificating.

If you don't have examples and you don't have case studies, I've always found those books like, I'm like, well, you're just saying words. Like, where's the proof? Whenever anybody would say something to me when I was an editor of Silicon Island Reporter or when we're doing Engadgetter

or auto blog. When I read stuff and I saw an opinion, I'd say, well, what's the proof of that? Give me an example. And it would infuriate writers because they would say something, I'd say, well, according to who? Who's saying that? You're saying that? If you're saying it, do you have any evidence to back it up? And so I hold myself to that standard, which is if I'm going to make a statement and I'm going to say, hey, this is the way the world is, I want to convince you. And you hear me talking about persuading people when we do these live streams and convincing people and explaining topics to people. It's something I've liked to really do on the podcast.

I like to do it all in and I like to do it in my writing, which is if I'm going to take a position, I really want to really present the best case and get you to buy into what I'm saying or at least consider it through real world examples. So, you know, this,

I don't want to say too much about it because we're going to tip too many cards, but I'm, I will say this. I am as excited about this as I've been about anything in my life, you know, professionally. So I think it's going to be like, this might be like when you look back on my career, like this actually might be the most important.

This book might be the most important thing I do in my career. I actually feel that way right now. Like I think this is what I'll be known for. Like literally the first line of my Wikipedia page will change to this. That's what I believe. I don't want to hype it. That's, yeah. I don't want to hype it.

But I think this is on my tombstone, author of, Beep, beep, beep. Great question. Thank you for that.