This Week in Startups - NEWS: Nvidia’s insane earnings beat, Arm’s IPO filing, and more! | E1797

Episode Date: August 24, 2023

This Week in Startups is brought to you by… Crowdbotics. Great ideas can change the world, and Crowdbotics is the fastest way to turn those ideas into code. Get a free scoping session for your next big app idea at crowdbotics.com/twist OpenPhone. Create business phone numbers for you and your team that work through an app on your smartphone or desktop. TWiST listeners can get an extra 20% off any plan for your first 6 months at openphone.com/twist Fitbod. Tired of doing the same workouts at the gym? Fitbod will build you personalized workouts that help you progress with every set. Get 25% off your subscription or try out the app for FREE when you sign up now at fitbod.me/TWIST. * Today’s show: Jason breaks down Nvidia smashing its quarterly earnings (3:58), Arm filing its F-1 (26:38), how founders should vet accelerators (56:10), and more! (1:03:53) * Time stamps: (0:00) Producer Nick joins Jason (3:58) Nvidia obliterating their Q2 earnings (8:33) Crowdbotics - Get a free scoping session for your next big app idea at crowdbotics.com/twist (10:01) The earnings report’s effects on stock, induced traffic, and the “sell the news” strategy (16:02) Breaking down the numbers and the market cap chart (21:31) Overcorrection in big tech companies, the rolling recession, and Nvidia as a momentum stock (25:07) OpenPhone - Get 20% off your first six months at https://openphone.com/twist (26:38)Arm filing its F-1 and SoftBank’s deal with Vision Fund (34:39) Arm’s business model and the risks of whale customers (37:53) Fitbod - Get 25% off at https://fitbod.me/twist (39:22) Arm China’s risk to Arm (46:17) The role of startup accelerators (49:36) The constant complaints about YC valuations on YC demo day (53:40) How raising at too high a valuation can lead to getting caught in a valuation trap (56:10) The Fulcrum venture accelerator “scam” and how founders should vet accelerators (1:03:53) The greatest bag securer of all time! (1:13:41) Ryan Breslow’s “corporate wrongdoing” * Read LAUNCH Fund 4 Deal Memo: https://www.launch.co/four Apply for Funding: https://www.launch.co/apply Buy ANGEL: https://www.angelthebook.com Great recent interviews: Steve Huffman, Brian Chesky, Aaron Levie, Sophia Amoruso, Reid Hoffman, Frank Slootman, Billy McFarland, PrayingForExits, Jenny Lefcourt Check out Jason’s suite of newsletters: https://substack.com/@calacanis * Follow Jason: Twitter: https://twitter.com/jason Instagram: https://www.instagram.com/jason LinkedIn: https://www.linkedin.com/in/jasoncalacanis * Follow TWiST: Substack: https://twistartups.substack.com Twitter: https://twitter.com/TWiStartups YouTube: https://www.youtube.com/thisweekin * Subscribe to the Founder University Podcast: https://www.founder.university/podcast

Apple would rather buy Apple. They want to invest in themselves. And I think Nvidia, buying Nvidia, is going to be absolute chaos. That's the reason, like, it could continue to be a momentum stock. If the percentage growth stops, but the earnings get better. In other words, they can keep selling these things, these H-100s for the same price or higher. They don't have competition. And more gets thrown to the bottom line.

That's a crazy setup. There's two ways to increase earnings per share. You make the earnings go up or you make the amount of shares less. And if you're doing both, your Apple. Yep. Reduce the denominator. Right. That's math, baby. A big setup for them. It's math, baby. It's all math. This weekend startups is brought to you by

CrowdBotics. Great ideas can change the world. And CrowdBotics is the fastest way to turn those ideas into code. Get a free scoping session for your next big app idea at botics.com slash twist. Open phone brings your team's business calls, texts, and contacts into one delightful app that works anywhere. Get 20% off your first six months at openphone.com slash twist. And FitBod.

Tired of doing the same workouts at the gym? FitBod will build you personalized workouts that help you progress with every set. Get 25% off your subscription or try out the app for free when you sign up now at FitBod. slash twist. All right, everybody. It's time for the news. Yes. This week in startup,

since Molly left the program, we've been doing a lot of interviews. And so I wanted to bring back news. Get more news going here. Now, we're not going to do woke news. We're not going to argue about Trump. We're going to talk just about the news. No Giuliani.

No Giuliani. No Giuliani mugshot. Throw that in. Oh, God. And my favorite is Michael Rappaport. It just is going insane. saying on social media, red flag. Anyway, there's important tech news.

Invidia just dropped the mother of all earnings reports, obliterated everything. And I thought I'd have producer Nick, who's very famous from the All In podcast. Come on, he does a great job now that he's been producing the Swinging Stratus for a couple years and all in for a couple of years, but with me for four or five years. He's just great at doing the news. You guys love him. So here he is. Nick Callicanus, also known as my brother Josh's.

I appreciate that. Yes, I appreciate that. What's that? I said, great, feels like a stretch, but I appreciate that. Oh, no, you're great at it. Okay. Well, we'll see how I do today. I do today.

Nick is, of course, my nephew, my brother Josh's son, a firefighter, and he worked at, people don't know, but he worked at MLB. He was editing the World Series before I poached him from MLB to come work with me. True talent. Nepo, baby. All right. Let's get into it. What's on the docket for today for this weekend startups?

So today we're going to talk about Nvidia, obviously. How could you not? We're going to talk about Arm filing its F1, not S1, it's an F1 to go public on the NASDAQ. We're going to do and do a super deep dive into Arm and some potentially major red flags about that business and its relationship with China. We're going about accelerators and Jason going, what is that company that you threatened with a machine gun 10 years ago? That was Koretsu for. Yeah, Jason's going keretsu for him on some. Got it at AK-47.

I think that video's been deleted off YouTube. I believe that video. We're going to talk about, yeah, I think so. I can't find it. We're going to talk about what the hell is going on

with our guy, Ryan Breslo. And to wrap, maybe my favorite topic ever and maybe my favorite person ever, we're going to talk about the greatest bag secure of all time,

anywhere in anything ever. Number one bag secure of all time. I won't. This is the best bag secure I think since Adam Newman. I think it's him and Adam Newman.

This one might be better. this one might be better. All right. Let's get to it. Invidia, Nvidia. They just obliterated their Q2 earnings. Cued up for us.

So just anecdotally, to me, and I don't know you can answer this too, Jason, this has felt like the most anticipated earnings report in a good way, in a positive way, since Zoom in 2020 when everybody went remote and they were like, oh my God, 350% growth and it was crazy. And the reason why is,

last quarter, Nvidia reported pretty good earnings, but what made people go crazy in last quarter's earnings report was that they projected $11 billion revenue this quarter, which would have been 52% quarter over quarter growth. That was $4 billion more than- quarter over quarter. Quarter over quarter is the key here. We're not saying year over year. A high growth company in the stock market is 20, 30% year-over-year.

50% year-over-year would be El Fuego. Snowflake. Smashing. Snowflake, smashing. 50% quarter over-court. quarter just simply does not happen. That's like a series B startup, right? Yeah.

Well, I mean, even then, you know, they tend to be doubling revenue year over year, sometimes tripling. This is an unbelievable idea here is to go 50% quarter over quarter. But let's get into it. So last quarter when they reported this crazy projection, the stock immediately jumped 25% from 305 to 380 a share. Earlier today, before they reported, it was trading at 470. So it's still going up.

And this growth is sort of being priced in because everybody's kind of feeling like, oh, my God, they're going to smash these. So $11 billion was the number they set. They reported $13.5 billion of revenue, up 101% year over year, up 88% quarter over quarter, well over the highest analyst estimates of $11.2 billion. Unbelievable. Yeah. Okay. And this is because this really impressive company that made graphic cards that call of

duty nerds would install on their computers to get the extra frame rate so they could go 120 frames a second while playing Call of Duty at the highest resolution possible on their gaming monitors. All of that then led to AI jobs being done on GPUs instead of CPUs and A100s, H-100s, all of these now are becoming essentially the infrastructure of the AI boom. And every company feels an existential crisis, Nick, that if they don't get this infrastructure set up and start doing large jobs on it, they might be outrun by Microsoft and OpenAI or, you know, Claude or barred. And so if you have hundreds of billions of dollars or hundreds of millions of dollars laying around as Apple, Google, you know, pick your company, Amazon, you're going to just start

buying these and putting them into infrastructure, Twitter, et cetera, and not to mention startups. And so we saw all these startups and the venture community back startups. So you've got a customer base that has unlimited deep products. You said every company. I would say every entity. We're seeing sovereign wealth funds, governments, everybody is getting in on this right now. UK is buying a hundred million dollars worth of GPUs. I think Abu Dhabi and the UAE and the Saudis all said that they're going to buy and they're building their own LLMs. This is like, serious. Yeah.

And that doesn't even bring the issues around China, which we'll put aside for now, them wanting to buy these. And the question I have in all of this, because I don't think they're giving out granular information on when these orders and the money is being recognized. So if Microsoft, let's say, for the Azure Cloud and Google Cloud and AWS, each buy, you know, a billion dollars, let's say. say, they put a billion dollar order in. When does that revenue get recognized?

Does it get recognized monthly as they deliver each one? Or if each one costs $100,000 or $50,000, do they, as they deliver them, they get the money, which means the money we're seeing drop in this quarter that was just reported would have been money orders that were putting years ago. Yeah, or more, or maybe a year ago, who knows? So then what does that mean for future quarters? And I don't think we have the insight into that of how. they do revenue recognition. And, you know, if somebody is an analyst on this and they can,

you know, provide some clarity on that, I think that's going to be the next most interesting thing to try to understand here. All right, we all know the one thing that separates great startups from the good ones is product velocity. What does it mean? Product velocity. Fancy term, right? You got your product and you have velocity. Speed. The speed in which your product improves. So can you ship updates? Can you release new features. Can you do bug fixes? Can you iterate on the interface? Can you solve problems for your customers? And can you do it quickly? Because you're not alone. You have competitors and your customers have choices. They may solve their problems by writing their own custom code or they might use

your solution. This is what startups are about. How fast can you get that product velocity going? And so, you know, how do you supercharge it? Everybody says, okay, yeah, we want to go faster, but you got to go faster intelligently. And CrowdBotics is going to help you do that. They're your CTO as a service. Basically, they provide you with the most optimal architecture to get your product to market as fast as possible. You'll have access to an on-demand product manager and developer talent, and they will help get your app into production 10 times faster than conventional development. CrowdBotics can work with your in-house dev team, or you can just have them work independently. And you own all the IP, you own all the source code. Let the folks at CrowdBotics supercharge your product velocity today,

no more waiting. Get a free build plan at crabbotics.com slash twist. That's a 499 value just for the twist listeners. You get that for free. That's C-R-O-W-D, B-O-T-I-C-S dot com slash twist for a free build plan. The run-up happened already. I don't think the stock went crazy on this news. No, about up between 5 to 10%. It hit like 9.5% then it came down to 7, then it came kind of down to five. So, you know, have you ever read that, that like, I think it's a Reddit post about, on like Wall Street bets about how everything has been priced in? It's like your birth was priced in. Your father was priced in. Yeah, yeah. Somebody put that in here. It's all priced in, right? And so we see that all the time. The hype was there. I was on Fox yesterday, a Fox business

this week, and they were asking me if I thought NVIDIA was a buy. And I was like, well, I wouldn't be buying it unless you've got a 10-year window here. And I do think competition is coming for this company. Whenever you show this much revenue, this much growth, you know, you got to think Intel, Arm, you know, and new entrance into the market, everybody's looking at this, TSM, everybody's saying, hey, wait a second, is what they're doing so unique that we can't replicate it or make something better? And so you're going to see R&D budgets go into this. And this is where competition and capitalism is at its finest. A company discovers an incredible opportunity. and let's face it, this is an opportunity they didn't expect.

Invidia was trading, and the biggest most exciting thing about Invidia two years ago was, not video games and not AI. Two years ago, the most exciting thing about Nvidia was cryptocurrency and that these were being used for Bitcoin and mining. Now that's over. And so everybody thought, oh my God, Nvidia, after crypto collapsed, what's the future of Nvidia? And CoreWeave, a company that has now has some crazy billion dollar valuation, which all they do is

purchase and then rent out Nvidia GPUs was originally a crypto mining company that was offering like mining GPUs as a service. Now it's AI GPUs as a service, the smartest pivot of all time potentially. So this is the theory of inducing traffic.

If you build, you know, a four lane highway, you're going to get a certain amount of traffic and a certain amount of delays and you expand it to six. You would think like, oh, it's going to reduce 50% the delays. And then all of a sudden the delays stay the same. And then sometimes you get longer. Why? People see a big, beautiful 4.05 freeway in L.A. or the 10 freeway or whatever it is. And they're like, oh, I should go take a ride to San Diego. I should just zip down the 405 and check it out. So you can induce traffic. What's happening here is, I think these chips had so much power and they're sitting around. They induced developers. They induced technologists to come up with a use case. Crypto was a use case. AI, VR, AR, and of course now, AI being the ultimate use case.

So this is incredibly exciting for the industry. This is the, you know, I think the path out of the last bubble. I think this will be the path out of less bubble because all of this infrastructure is going to be built out. And just like dark fiber, which I'll explain in a second, I think there's going to be an overcapacity soon. And when there's all this extra capacity, the cost of this computing is going to get collapse. Invidia's going to have all kinds of challenges. and at the same time, you can mark my words, in two years you take this clip,

other entrants are going to come in, everybody's going to have bought all of these, and the software's going to be optimized, and then the relays between the software and how you stack these things into supercomputers, that's all going to advance. When that all advances,

we're going to have a glut of compute. This is exactly what happened during the dot-com era. Everybody started laying fiber, and they went so crazy investing in fiber that they over-invested. Then that fiber became like, free and there was so much bandwidth available that YouTube and Netflix and all of those emerged. Same thing happened with storage. Storage became, uh, you know, incredible. You had, you know,

really great, not kind of like Moore's law, but you had good advances in storage and the cost went down, manufacturing, figured it out. And then all of a sudden, Flickr offered free storage. And then you had Google, unlimited storage of photos. We take for, you know, we take for granted unlimited cloud storage. And you very rarely pay for it. I think the only storage I'm paying for right now personally is my Apple ICloud. And it's for my family and it's like cost nothing. And it's whatever, tons of storage in the cloud. So I think in two years, you might see a glut of this compute. Other competitors come on board. And then that means people are going to be throwing jobs at these things that they wouldn't have, they wouldn't do right now because it's too expensive. So you are

subscribing to the sell the news theory on invidia? Absolutely. Totally. Totally. I think this can go up. When momentum stocks happen, people can lose their minds. So that doesn't mean the momentum is stopping here. But I do think if you were looking at this as a five-year hold or something, like I think there's going to be some up and downs here. I think they could, you know, you could have, you know, somebody like OpenAI or AWS or whoever, Google say, okay, we got enough.

And you could have folks who we have enough compute right now for the jobs we have. and we'll see. But I think a lot of these language models, people are starting to run them on their laptops. They're running them on alternative hardware. And it might be that the software becomes sophisticated enough. The idea that you would buy 500 million of this

to run some language model on it, a generalized... Or smaller, tighter models become in vogue that need less compute entirely, right? Yep. And constraint drives innovation. So the constraint of bandwidth led to all the JPEG and GIF compression.

The video compression we see today was because we did not have fiber to people's homes, we didn't have Starlinks, we didn't have gigabit connections at home. So they spent all this time trying to, you know, compress data. Now it's like, you probably don't have to compress it.

People are like, send me 4K from Netflix, uncompressed, I want to get every beautiful pixel. Right. So the idea of why compress it if I have all this extra bandwidth. All right. So just to finish up on Nvidia, so $6.1 billion in net income in Q2,

up 843% year over a year, up 203% quarter over quarter. And then just in terms of forward looking, Nvidia is expecting revenue of $16 billion in Q3 plus or minus 2%. That would be 18.5% quarter over quarter growth from this quarter and 2.7-mast year-of-year.

Yes, slowing, but still a big number on a big number. But on big numbers, right? These are big numbers, folks. And hardware. And hardware, yes. And the thing that I find fascinating is that they're able to deliver hardware and scale the demand. The fact that they can get, they can ship these things, I wonder if we're going to be sitting here six months or a year from now. And people say, I gave you a billion dollars.

You took my cash because you could. Like, what are the deal terms here? Like, if you don't, do you have to pay in full? I have a feeling you have to pay in full for this and then get your, your, your, you know, a product a year from now. That I do not know. Sort of like, you know, I'm sure of it. Because why wouldn't they take your full deposit?

You know, like if you have a car, if you're selling Ferraris, you put your full deposit down and they give you a farie, Nick, I'm not kidding you, two or three years later, and they sit on your $400,000. That's how it works. You don't pay when on delivery. You pay now if you want the spot. I'm guaranteeing they're taking the money now. You might have people complaining like, hey, where's my product?

The fact that they can deliver these is absolutely. Absolutely stunning. And what do you do with all this free cash flow? That's the big question. This is a lot of money sitting around. So are they going to start buying companies and, you know, what's the plan with all that free money? We know they've been investing in a bunch of companies, right? They've been investing in a ton of AI companies with some.

We mentioned this the last time I was on with some little side deals where, hey, we invest in you, but also you're getting a ton of GPUs. They just did that with inflection, right? They gave them like 20,000 GPUs. They also invested in the company. We don't know how much of the mix of that is actual equity. versus just getting GPUs. They also,

Nvidia's board, approved $25 billion in share buybacks, which is about six times higher than what they were currently allotted. So I think very smartly, the board is like, let's get this going. This is going to turn into,

if they start putting this money towards stock buybacks, this company is going to start to look like Apple. And right now, this is fascinating to me, but if you look at the largest market cap companies in the world, world. You can pull this up on the screen there. Apple, $2.8 trillion,

$1, Microsoft 2.4, Saudi Aramco selling oil above $2 trillion. I kind of take that one out because that's just like, you know, here's somebody with a pile of diamonds. It's not an actual company as such. In my mind, it's just a natural resource. Fourth company, Alphabet, aka Google, 1.6, Amazon, 1.4-ish. And then right behind, I'm at 1.2-ish, or 1.1, actually, Invidia. Bigger than Berkshire Hathaway, the next one drops off at 776 billion. They're going to pass Amazon. Will they pass Alphabet?

I mean, if they start buying back shares, that sounds insane. That sounds insane. What you're saying. That Invidia is going to be worth more than alphabet, potentially, in like, a couple quarters. That's crazy. I mean, that's pretty crazy.

and what I love about looking at this market cap chart, and this is where like the guys on All In, give me a hard time that I'm so pro-American and I'm an American exceptionalist. You know, Saudi Arabia is the number, Saudi Aramco is number three for their natural resources. Take that out of the list. What's the next largest company?

What's the next largest company? That's non-U.S. LVMH. Viva la France. $450 billion LvMH. Is that a massive upset that the next largest is a French company? Isn't that surprising? Yeah.

And then who's next? My favorite. Ozempic maker, Novo Nordic. Nordic? Nordic? Nordic? How do you pronounce that? Nordus?

No idea. 425 billion. That's soared. After that 10 cents in China number 20. So, you know, of the top 20, one, two, three. Oh, I've got TSM, C four or five. You know, we're 15 of them, you know, 16 of them. It just tells you everything you need to know about capitalism.

unconstrained capitalism with the greatest entrepreneurs in the world. And remember we shared that chart on All In of income disparity and the different lines. And this is the result of it, is that we get to lead the world in having the largest market cap companies. And that's why Nvidia is here. Invidia, you can't have these kind of companies in China. You simply can't because they would get so big, Xi Jinping would see it as a threat, right? And so congratulations to the invidia.

video team, congratulations to America and congratulations to humanity because I think all this compute the problems where to wind up solving are going to be a lot more than, hey, can you write me a blog post or can you write some code faster for me or make me an app? I think we're going

to start to all this infrastructure that's being built it's going to be very similar to the internet where we couldn't predict what would happen. Couldn't predict what would happen. Can I ask you a question about... It's going to be pretty amazing. Yeah, sure. So how much of this year's sort of big tech, mega cap tech stock run up, right? Everybody's up big.

I think as of last month, seven tech companies, Amazon, Apple, Google, Meta, Microsoft, Nvidia, and Tesla made up 55% of the NASDAX gains in 2023. How much of that was just a wild like overcorrection on the downside in 2022? Because for big tech, almost all of big tech is still relatively high growth and massively profitable. So, you know, some big tap companies being down 20, 30, meta, even more last year, was that just like an overcorrection on the downside due to people being nervous that we were going into a serious recession? Yes. It was how bad those companies looked going into a recession because their spending was out of whack with the opportunity. And as I correctly predicted,

and I got a little bit laughed at by a couple of besties, I said, well, listen, if you just cut costs and you get more efficient, wouldn't the earnings then stay the same? Couldn't you want the earnings issue by just, you know, laying some people off or cutting investment, R&D, whatever? And that's exactly what meta did. They said, let's not spend as much on these, you know,

crazy headsets and let's just get rid of 10,000, 20,000 people. And people forget the layoffs. We are now, I mean, the layoffs happened so fast, so furious in 2022, and you haven't seen as many of them. If we're seeing them in media, They're hitting other parts of the industry. And this is why I think we had a rolling recession,

which I've never seen in my lifetime. The recessions usually hit, boom, two or three quarters of chaos. This one was like, we're still in it, it feels like, and it's six quarters. Now we're in the seventh quarter of recession, but we didn't have negative GDP for two quarters, but each industry got its ass kicked. And it was like a rolling thing.

Tech, banks, media. and I think real estate's next. I don't know who else hasn't been taken, you know, to the woodshed, but I think each company got its chance. Oh, I think its retail is getting taken to the woodshed right now, right? The low-end retail is getting absolutely destroyed this week.

So everybody's taking the medicine, and you're right, it was an overcorrection. The Magnificent Seven are amazing. And if they control costs and buy back their shares, that's the setup for money printing machines. And it creates a virtual cycle. Okay, I cut 20,000 employees. I saved all this money.

The company's more efficient. We are more profitable. We're more innovative. Okay, let's buy back some shares. We don't have anything to do with the money. LenaCon won't let us buy anything? Okay, you know, LenaCon can't stop us from buying our own shares? And that's what Apple does.

You know, the biggest purchases Apple has made are like beats by trade. The largest company in the world does not buy big companies. They could have bought Tesla. They could buy all kinds of interesting companies. They could buy Disney. There's still speculation about that. Disney would be nothing for them. to buy $150 billion. It's easy.

Apple would rather buy Apple. They want to invest in themselves. And I think Nvidia, buying Nvidia is going to be absolute chaos. That's the reason like it could continue to be a momentum stock. If this, the percentage growth stops, but the earnings

get better. In other words, they can keep selling these things, these H-100s for the same price for higher. And they don't have competition and more gets thrown to the bottom line. That's a crazy setup. There's two ways to increase earnings per share. You make the earnings go up or you make the amount of shares less.

And if you're doing both, you're Apple. Yep. Reduce the denominator. Right. That's math, baby. A big setup for them. It's math, baby. It's all math.

Are you still using your personal phone number for your startup? It's 2023. It's time to stop. It is a huge mistake that founders make. Why you're just getting started with your company. And you don't think about phone numbers as being an important part of the IP collection of your startup with open phone, you can totally solve this problem. They've rethought everything about a modern business phone and how it should work. It's super easy. You just download the app on your phone or your

desktop and you pick a number and you're done and you do it for just such a low price. It's so affordable and think about it. If you have your sales team using their personal phone numbers, a salesperson leaves and goes to a competitor, you don't have any insight into what phone calls occurred, what people's phone numbers are. That's your company's database. And if you, if you're a salesperson leaves and If you allow the sales team to run them up or the customer support team, it's just unprofessional. Be professional. Use open phone. And we use it for things like event communication.

So we get one phone number, but it can go to multiple people, like a round rob and then we have a shared phone number. Do that for customer support. And open phone is rated number one on G2 for customer satisfaction. And I trust G2's ratings. Open phone. It's ready. It's affordable.

Starts at just 13 bucks a month. But twist listeners can get 20% off any plan for the first six months. at openphone.com slash twist. And if you have existing numbers with another service, no problem, easy, peasy lemon, sweezy, open phone will port them over at no cost. Head to openphone.com slash twist

to start your free trial and get 20% off. All right, you want to talk about Arm? Yeah, I mean, Arm is a very complex one. I saw Chamoth went absolutely crazy. I don't know what the difference between F1 and S one is. So F is very simple.

Foreign company. Yeah, you got it. F is for foreign company. company? Got it. I don't know if it actually stands for foreign, but yeah, F-1 is foreign companies listing on U.S. exchanges. Arm is a UK-based company, obviously. Do you know Arms history, by the way, Jason? Are you familiar with? I'm not. Tell me. So they were founded in 1990, actually as a joint venture between Apple, a company called Acorn Computers and a company called VLSI Technology. They went public on the London Stock Exchange and the NASDAQ in 1998.

Obviously, we all know, SoftBank acquired Arm for $32 billion in 2016. And then in 2020, SoftBank was going to sell Arm to NVIDIA for $40 billion. Invidia agreed to the deal, but that was called off in February 2020 to a bunch of regulatory pressures. And can you just imagine if Nvidia not only had a complete stranglehold

on the GPU market, but they also were owned Arm and had 99% of smartphone chip designs too. It would be insane. Crazy. Well, and the other thing, if you just think about what would have happened with Masayoshi

Sons' position, he would have owned Nvidia at the bottom. So I think that might have been a three or four X. So whatever he's going to get out of it going public now, it could have been a yum, yum. And that just shows you how hard it is to be a capital allocator. Oh my God. I got offered 30 bucks a share for Robin Hood right before the IPO. And I was like, you know what?

I think this is a company for the ages. I want to keep it. The market corrects. And, you know, we distribute at $11 a share. Now, other trades I made selling in secondary, we sold shares of some companies at a billion that then became worth $300. million. So you just never know. It's very hard to clear positions, you know, in an optimal way. Yeah.

What I learned is they said, how did you get rich or how did you get great returns for your LPs and your fund? Selling too early. Selling too early is what happens. But this is going to be very interesting because their revenue is going down. Basically flat. Basically flat. Going public when things are flat, you say, well, why would you go public when it's flat? When I stay private and fix that. Well, we all know why that's happening.

Masayoshi's son needs liquidity. He needs to get a return. Who does he need to give the money to? The Saudis who gave them the money for the Vision Fund. So this pays off the Vision Fund. Softbank, the corporation, bought the Vision Fund's investment in arm. 25% of it. 25% of it.

So that gave the Saudis some of their money back. At a $64 billion valuation, by the way, which is higher than their IPO target valuation. Is that sketchy at all to you, by the way? Well, I think when that trade was made, it is definitely inside dealing. And the question is, like, will the people who are shareholders of SoftBank complain about that and file a lawsuit, yeah? So SoftBank, the corporate entity, buying out the Vision Fund, yeah, that is the definition of a conflicted transaction.

So there's a term, it's conflicted transactions. They have to go through a level of scrutiny. And, yeah, they can wind up in lawsuits anytime you have them. And so, but, you know, like we say here in Silicon Valley, no conflict, no interest. Conflicts are kind of the reason people do deals. And so this pays off the Saudis. And so companies are going to get pushed out public because they have no choice. And that's what's happening here.

You would much rather keep this private for a couple of years and make it grow 10% year over year, clean it up, have an AI strategy. It would be better timing. Yeah, they mentioned in the... Go ahead, sorry. No, as I said, that might be the opportunity to buy the shares. is that now this is low, expectations are low,

what is their AI strategy? And if you believe in the management team and you believe in their ability to produce new products, which I don't know. I don't know enough about Arm to know if they can make new competitive products and what the track record is at competition.

But if they can make competitive products, then maybe this is the time to buy. Yeah. They mentioned in their F1 that they are trying to differentiate because it, arm is 99% of all smartphones are built with arms chip architecture right two of their major customers are apple and qualcom qualcom makes chips for samsung they make chips for google pixel so they

dominate the smartphone market but they actually don't make any infrastructure for gpues so they are not in ai at all aside from cpus so arm basically said they're pivoting into building chip architecture for cpus that can be used for ai and for cloud computing and it's been pushing pretty hard to cloud computing over the last couple of years. They also mentioned that in their F1, that Amazon and Alibaba both use arm-based chips in their cloud data centers. So it seems like they are saying, we are not just smartphones. And by the way, the reason that their revenue was down slightly is because they are so concentrated

in the smartphone market that when smartphone sales are down like they were globally the last year, arms revenue basically reflects that. So they're kind of just like a proxy for the smartphone sales in globally, in a way. Yeah. In a way, and I predicted, I thought, like, it had to get Tim Cook out of Apple like five or six years ago because I predicted smartphones sales would slow down when they got to, like, iPhone 10. Because I was like, I can't tell the difference between eight, nine, and 10. And I'm their, like, tip of the spirit customer. I would buy the S. You know, I'd buy the intermediate model. I loved smartphone so much. And this is the first time, this cycle, you know, I think I have an iPhone. I don't even know. I have to think it through. I have an iPhone 13. iPhone 15 is coming out, right? And I don't even care. I now have gotten to the point where like a grandma or your auntie or uncle who has

like a five-year-old phone, I'm like, well, it works. And I really don't see the need to upgrade. And it turns out during a recession, I think a lot of young people or people who are on budgets are like, why would I upgrade? And I used to make fun of people who had, you know, two or three generational phones. You've been in the meetings when I've said that like upgrade their phone. I have, I have. Don't come to a meeting with a founder with a four, you know,

with an iPhone 4 when the iPhone 9 is out. Like, are you crazy? You look like an idiot. Now I'm kind of like, eh, I'm going to, I'll skip. I basically skip the 14. This first time in the history of the iPhone, I skipped a gen. Yeah. I'm actually more interested in the laptops.

I'm upgrading my laptop every year because the M1, the M2 is so impressive. And I just love, I just love this MacBook Air. I had an M2, you know, MacBook Pro, but I'm like, this M2, or had the M1. And I was like, I had the M1 with a big screen. I was like, it's heavy, this lightweight MacBook Air is delicious. Yeah. I'm getting a new. This is a challenging situation.

What are you getting? I'm going to get a 2 terabyte SSD M2 Ultra, I think, because we have an extra MacBook capacity right now that we're going to send back and we're getting a ton of credits for it. So it's only going to be like, you know, for you, for you know, for you, what is that going to cost? Three grand for the best one? No, it's like $4,500 for the best one. But with the credits that we have to allocate towards it, it'll be about $2,000, I think. Yeah, I see, I think you should go right to the $4,500 one. I'll be honest, because your time, if you are doing edit, oh, you are.

So you're literally buying a $4,500 left. Yeah, yeah, but it'll cost us $2,100 after the trading credits. Got it. Right. But I'll tell you why, I think if, I mean, I know I sound like a lunatic right now, but Nick does a lot of video editing. And if that gets the show out two or three hours early, whether it's this week and startups are all in, it's worth a $4,500.

laptop versus a $2,000 one, and then your time is precious. This thing's going to save you an hour a week or two hours a week? What do you think? I don't know. I have no idea. I have to try it first. I don't know. On the export?

Yeah. On the export, yeah. Hour or two, yeah. If it saved you two hours, that means they got a hundred more hours of Nick a year or 50 hours more neck. That's like getting one week out of you a year. That's incredible. Yeah.

That'd be great. All right. Let me finish up with some arm stuff. So they have a really unique business model, which I don't know that a lot of people know about. They make money in two ways. They have licensing fees where customers pay arm to license their design blueprints. That was about 40% of revenue last quarter. And then they have royalties.

So they actually take a percentage of revenue on everything sold using its chips that use its design infrastructure. 60% of revenue last quarter. But in their F1, they noted some like major, major red flags. and one of them is they have a huge dependence on China. And this is a little conflating. So I'm going to try and explain it really simply. So in the F1, they note that their top three customers right now account for 44% of its revenue. And I think this makes a lot of sense, right?

Smartphone chip giants like Apple and Qualcomm are known as major Arm customers. So you'd think that they'd be making up a majority of it because the smartphone market doesn't have that many major competitors. But it goes a little bit deeper than that. Arm's single largest customer is an entity called Arm China. This is an independent entity that has exclusive rights to distribute arms technology in China. And last year, Arm China accounted for 24% one quarter of Arms total revenue during its most recent fiscal year. So can you explain like the risks of having one whale customer like that? It's a huge risk.

when you have that, what you have to do is quickly try to increase your customer base so that the percentage goes down. So who knows what this has been over time?

And the way to do that would be to have Arm India, arm Singapore, whatever other large markets there are. So you can have this in SaaS software.

Sometimes somebody just buys a lot of your software. And the real challenge is they will someday wake up and say, well, if we're 24% of their revenue, is there a better way to do this? And when you think of Arm,

you know, they produce this architecture, like a blueprint, if you want to think about it that way, of like, here's how to build a chip. Okay, there's an open source version of it. What Arm is doing is proprietary. And what they're building is called an ISA, instruction set architecture is like a wonky term for it. There's an open source instruction set architecture called Risk,

RISC-V. So imagine open source, you know, MongoDB or some open source database versus Oracle. So the question is, and I don't know if they put open source ISAs as a risk factor in their F1, I've got to get used to saying that. But I think that's another one. And so let's say this arm China, well, what if you start using risk? And they say, you know what? We're going to make 10% of our chips with this risk architecture.

that's open source and free. Okay, so that 24% take 10% of that. That's 2.4% headwin of lost revenue. And then if they keep, you know, expanding, you keep losing revenue. You know, so this is a, it's a challenging business. And it's a dogfight. And that's what makes capitalism great. All right.

You know, I've been on a health kick over the past year. And you know, I care about data-driven solutions. And if you listen to this podcast, I bet you do too. So let me tell you about FitBod. This is a data-driven workout app that blends machine learning with exercise science. FitBod creates custom dynamic workouts programs based on your fitness goals, your experience, and most interestingly to me, the available equipment. Let's say you got a bunch of kettlebells, or let's say you're at some, you know, sparse gym at a hotel,

or you're on vacation. You've got nothing. Well, FitBod will maximize your fitness games by varying the intensity and the volume between your sessions and leverage the equipment you have or don't have, as the case may be. You can customize the length of your workout, what muscles you want to target, and so much more. So let's say you want to get a 30-minute workout in. And I want to do chest, triceps, and abs. But I'm staying at an Airbnb.

There's no equipment. FitBod can create a perfectly optimized workout for me based on these parameters. And it will do it for you, too. Check it out. It's amazing. The design of this app is extraordinary. I was able to invest in it. That's how impressed I was with it.

FitBod takes the guest workout of fitness. Just open the app and start making progress. You deserve it. Get 25% off your FitBod subscription or try out the app for free. When you sign up now at FitBod.m.m. That's F-I-D-B-O-D dot M-E slash T-W-I-ST for 25% off. Can we go a little deeper on ArmChina for a second? All businesses in China, by the way, are red flags.

It gets a little crazy. Yeah. It's a little crazy specifically. So Arm China is owned by a couple of different entities. Acetone Limited is one of them. That is an entity that's controlled and created by SoftBank. It owns 48% of ArmChina. And Arm, the original arm, holds a 10% non-voting interest in acetone, which represents

a 4.8% non-voting share in ArmChina. So they own a very small amount of it and they don't control it. 52% a majority stake of ArmChina is owned by a Chinese private equity firm called Hopu, Hopu, H-O-P-U, and, quote, other Chinese parties. So just the long story short, Arm doesn't have any material control of ArmChina. Furthermore, Arm noted its relationship with ArmChina as a significant risk in its F-1. Let me read you some of these quotes, Jason, and you just respond to them as you would, as an investor would.

Quote, sure, this is from the F-1. In the past, we have had issues obtaining timely and accurate information from Arm-China. we believe the underlying problems causing our past inability to obtain such information have been resolved, but we can provide no assurances that our access to armed China's records will not be inhibited again in the future. Quote number two, in the past, we have received late payments from Arm China and have had to expend company resources to obtain payments from them. Quote number three, Arm China. Did they say, Furia? Is that furia?

It's my best advice. You've got the B on your head. Quote number three, arm China has possession of, and this is the money one, Arm China has possession of or access to certain material IP and customer data pursuant to the IPLA. IPLA stands for intellectual property, license agreement, and other commercial arrangements with us, us being armed. Although armed China is contractually obligated to protect this IP and data, we are limited in our ability to monitor or influence the manner in which Arm China protects our IP and data

from theft, loss, or misuse. Does this sound like a safe relationship with a company that makes up 25% of your revenue? This is doing business in a frontier market. And, you know, or a banana republic, you know, pick what phrase you want to use, you know, third world might get you canceled. But it's a lawless place.

And this is why, you know, as crazy as it feels in the United States sometimes, you see Sam Bankman-Fried, you see Elizabeth Holmes, and you're like, oh, my God, capitalism is out of control. And the socialist arms of, you know, podcasts like tech won't save us. They kind of lose their minds. Oh, my God, capitalism, the United States out of control. Elizabeth Holmes, FTC, Sam Bankman-Fried. These are minor.

And those people go to jail. Now, you contrast that to China. And how do you know the accounting scrap? And when you say 52% is owned by other parties, might that be the CCP, the Communist Party? Which party? I mean, it sounds like a heck of a party. I'd like to be invited to it. I think it was 17%. 17% of armed China is owned by other Chinese parties. 35% was the Chinese equity firm. At the end of the day, like Putin's Russia or Xi Jinping's China, it's owned by the state. Everything's owned by the state. And the state can at any point in time tell you you no longer own it, or you own half of it. Just like in Saudi Arabia

in the kingdom, there was a renegotiation with the different families, came together, and hey, guess what? You don't have the esplanade jobs. You only get two no-show jobs and we're taking over the concrete. It's just like dealing with the mob. And what you have here is like some honesty, because if you're in the West, you must be honest about this. Now, you could say, oh my God, you know, this SPAC collapsed or this stock had fraud or this company was, you know, investing the client's deposits, all kinds of crazy stuff can happen with Bernie Madoff and Ron, whatever. But capitalism in the United States, we saw that chart we showed of like, hey, we're 15, 16 of the top 20. It's because we have a rule set. And at the end of the day, even though you might disagree with a call here or there, you kind of get the sense that the system is not rigged in the United States.

What this tells you is that system in China is absolutely rigged. If you want to play that game, you better have access. You better be ready to lose the money and you better have access to some people in the military, in a really nice military outfit, you know, with a lot of those badges on it. You need to have some of those generals in your corner. When I started going to China 15, 20 years ago, I remember them telling me, like, you have to have like, if you were in a gaming company, you needed to have a certain general on your board

because gaming was somehow when you had a gaming company incorporated, you had to check in with the military. And so you had to have some kind of military connection. It was very strange. So be careful. And this is why I think, you know, Sequoia is no longer operating there. I think they made the right move.

the United States is decoupling. The rules over there are crazy. The accounting could be completely fraudulent, and they could be selling more of your chips out of the back of the factory than the front. And that's just the nature of business in a corrupt environment. And I would also... That doesn't mean there's not corruption in the United States. It's just the percentage of corruption.

Corruption is the default there. Arm makes chip designs, and that is now a major national defense issue for every country in the world. It's even more high. It would be different if this was like a software company or whatever. This is like legit national defense problems. And this customer just happens to be located in China, generally accepted as the biggest adversary of the West.

Yep. I don't know. It just seems like a major risk that there were some articles about it this morning that I noticed. I was like, oh my God, that's crazy. I'm not a big fan. I'm not a big fan of doing business in China. and but I do think we the path forward should be for our societies to collaborate on you know important problems in the world and for us to do trade but I think we got I know people think China got the better of us I think we kind of got the better of China because we got all these low priced Apple phones and Apple's an American company and so I think we won and I think we'll continue to win and authoritarian countries are only as good as the psychological state of their dictator.

All right. You want to talk about some accelerators that might be predatory or might not be? Well, you know, this is an interesting situation that's bubbled up yet again. Everybody has issues with accelerators. Both the, you know, people talking about the valuations of people coming out of legitimate accelerators like Y Combinator or our accelerator. And then what Y Combinator will launch, you know, what. price we pay. So maybe just I could start off with just explaining why accelerators exist. There are a ton of companies. Accelerators allow those companies, the best ones, to be selected

from the overall pool of startup ideas, and then be mentored, sharpen their blades, get better at what they're doing, and help them network, raise money, and get advice. It typically occurs over 12 weeks. Our accelerator, we expand it 14 weeks, get a couple extra weeks in there. to introduce people to stuff and get product market fit. And they get a heck of a deal. 100K for 6% in the case of launch accelerator, Ycombinator, you get 7% for 125. Great deal.

That would be a valuation of about $1.7 million. When you graduate from our accelerator, you might be raising money at 6 to 15. If you graduate from YC, you might be raising money at 8 to 25, right? They bring 1,000 investors together. They hype things up. They put high pressure on folks.

But essentially what the people coming to Wycommeries demo day or ours are doing is saying, hey, JCal, can you sort through all this stuff, diligence it, and tell us what the best 1% is? That's all we're doing. We're sorting through the 1%. You know who else does that? Harvard, Stanford, any college. You know what does that? Like colleges, when they do it with basketball players, right? You sort through them or those combines, et cetera. Sorting, mentoring, and presenting that inventory of greatness has real value in the world. So that's why it exists. People opt into it. They get money. They give some equity, and it all works out. Now, the problem is some people don't have money to invest. And they

look at the long tail, the people who didn't get into the top accelerators. One percent of people get into, 1.5 percent of people get into the Y Combinator. Very similar for us. What happens the other, you know, let's say there's five great accelerators and we take up 7, 8 percent of the inventory. What about the other 90 percent? The 90%, either then bootstrap, quit, raise a seed fund, friends and family, any of those possibilities, or they go to, let's say, the long tail of accelerators. And those long tail of accelerators know that those people might be desperate. They also might be naive.

First-time founder, they don't understand what the equity in their company's worth. Giving up six or seven percent, that's a decent chunk of equity, but it's not going to kill the company. Giving up 10 percent, giving up 20 percent, 30 percent. That can cause all kinds of problems down the road because, the founders have given up too much. I'll stop there. And, you know,

you can ask me questions or tee up the next piece of this puzzle. Yeah, why don't you talk about... That's why accelerators exist. And if you're a second or third time founder, you skip the accelerator portion, typically. Because you might be able to fund the 100K to get started yourself, or you might be able to go right to a seed round of $500K or $2 million. Because you got...

I think every year on YC Demo Day, you always sort of laugh about how many people. people are complaining about YC evaluations. Yes. Do you want to explain kind of your thoughts on that? Yeah. So I have run an accelerator and we've learned a lot about what YC does. I have my own spin on it.

I like to do seven companies. We've done 29 cohorts of seven because I like to know each one and make it very intimate. We're not trying to scale the way they are. But if you don't want to do the work of running an accelerator and you don't want to have your own proprietary deal flow, in other words, you do. the work to go find companies outside of the Y Combinator ecosystem, then you're choosing to have somebody go to the orchard, pick the apples, polish them, put them in, you know, sullophane and paper app, and you ever see those gorgeous, you know, trays of apples in Japan

where they give you six apples for $40? And you're like, these are, that's $7 an apple. And you're like, yes. But I, this sounds fantastic. If you just say Japanese fruit, like literally there are $200. boxes of strawberries, and there's 10 strawberries in it. But this is a guy who literally throws away all the, you know, makes strawberry jam at a 98% and then makes the sweetest one, sells them in the market, pears, etc.

If you want to have somebody do all the work for you, you pay a higher price, let alone if you want somebody to build it, make an apple pie. And then let alone if you want somebody to make an apple pie at 11, you know, Madison Park or Gramercy Tavern. Now, those apples now cost a lot of money. You're paying $22 for this apple dessert or something. You get the idea. So what I always tell people is, if you don't like the valuation, start your own

accelerator or get your own deal flow. Only 1% of companies are going there. 99% of unicorns don't go to Y Combinator. So, and Y Combinator is like a tiny fraction of the overall market cap of public traded companies. Like Coinbase, Airbnb are the two big hits. Congratulations. These are amazing companies.

But, you know, Google, Facebook, you know, there's more companies that don't go there than do. It's basically saying, that's not a dig to them. How could, how, they don't have 100% of companies. And most great companies are done by serial founders who don't need the money and wouldn't go to an accelerator. So YsC is amazing. But people complaining about the valuations can't have a choice.

Like, we invested in three companies that are, incredibly promising at $5, $6, $8 million in the last month. Put those three numbers together, $5, $6, and $8, you get $19 million. We own significant portions of each of those companies. We paid a fifth of the price for companies that are coming at a YC that have less traction. So it doesn't take us that much work to go find them. We have a lot of deal flow. So it's just lazy VCs have made a business showing up a demo day, overpaying for startups,

and saying, well, we bet on YC startups, you know, uh, so, but they don't have to do any work. What work is it, Nick? Think about it. I go and I watch two days worth of demos. I meet with companies for two weeks. I make five investments and then I, I, I, fuck off for the next six months and then do it again.

That's literally how some people ran their venture firms and they're wondering, they overpaid by 10x or 5x, the entry price matters in seed investing. So these income poops who are running their first time funds or dentists or whatever are paying 20 times as much for the same apples, 10 times as much for the same apples, five times they just can't possibly make a return. And that's on them. I don't blame the founders for getting the highest valuation possible. There are some downstream effects if you raise too much money, and I've explained this because I was defending Gary. Here's what happened. Do you understand that piece of it of the orchard analogy? It makes a little sense to me. Yes.

Yeah. So here's the next piece. people point out if you raise money at too high evaluation, you can get caught in the valuation trap. How does that work? I raise $5 million at a seed round at a $25 million evaluation. I don't get product market fit. I run through that money. Now the company is not worth $25 million.

I have to raise another $5 million. Okay, now I have a company that's broken. People are only willing to invest in it at $10 or $15. And most people don't want to have that uncomfortable conversation of a downrun the previous investors getting screwed, all that kind of stuff. Make sense? It does. Now, here's the thing.

If you look at it from the founders' perspective, well, 80% of startups fail. So the default state is I'll raise that $25 million. I'll only dilute if I raise $2.5 million, 10%. And I got 80% a chance of failure. So that's probably what's going to happen. Or if I do get product market fit, I'll raise at the same valuation. In other words, I could have diluted 20 or 30% in the seed round, but I only to 10, and now I'm raising at 25 anyway, because I got to 2 million in revenue and I got

15 times revenue or I got a million in revenue. I got 25 times revenue as a valuation. Great. And then there's this third possibility, which is I was a tweener. I got some things done, but I didn't get true product market fit. But that might be 10% of the cases. So in 90% of cases, you did the right thing. And that's what founders are betting on when they go for those sky high valuations.

And who can blame them. And if you're a lazy investor and you outsource your diligence to YC, It's going to come at a cost. Right. And sometimes the cost gets a little high. And that's what people are complaining about. My best advice to founders, raise money from the best investors had a reasonable valuation. Don't go for sky high valuations because then you get unsophisticated investors.

You get the dentists and nothing more than dentists, but I'm saying that in like a, you know, like a term of art here. Like the dentist crowd means people who don't do professional investing. They don't do investing for a liver. They don't add any value besides, you know, giving you. veneers. So that's what you, you want to get the best investors. And the best investors are going to want a reasonable price. They don't mind paying a high price, but they want a reasonable price.

So if your startup just launched, you've been, you don't have any traction, you have no revenue, 10 million, 12 million, 14 million. That's a fine valuation. Raise a million. Dilute 10%. You're fine. That's my best advice. Better to dilute 10% raise a million than raise two million,

dilute 10% and have bad investors. Because you don't need that much money at the start. Yeah. Do you want to talk about this fulcrum venture accelerator or no? You don't even want to get in the time today. I told, I was getting so upset by this that people started sending me even worse predatory ones. So there was some venture firm or not venture firm, an accelerator asking for 2.5% of people's companies for free. I wouldn't say the name of the accelerator. And then they would put more money in and a note. That just strikes me the wrong way, asking for 2.5% of free equity to let you live in a hacker house. I hate that.

I'm not going to mention the specific firm I'm talking about but I will meet with that founder at some point of that accelerator and hear him out. He's blocking me on Twitter, but he's got a pretty good reputation but I don't think

taking 2.5% in exchange for room and board even if you're investing in as well is a fair trade. That's sort of the Erlich-Ebbemn model, right? It's literally the Erlich-Bachman model except on his he was taking 20% or something.

You know, room and board for 2.5% equity, no bueno. Because if you're valuing your company at 10 or 20 million, that's 250K or 500K,000, 500K,000, down payment on an apartment. That's not three months room and board. So let's just be clear here. The equity has value. If you're a self-respecting founder, do not give away 2.5% for free. Then people say, oh, well, what about an advisor?

Advisors should be two-year deals, 25, 50 basis points, maybe 75, even a full point. with an outline of exactly what that advisor is going to do for you, all the specifics, and it should invest over two years in 24 payments of equity, and then either party can cancel it if the person is not doing what an advisor should do. That's the proper structure. So I'd say one-fifth of what they're asking for for eight times as long. So don't give me room and board. Help me find customers, help me hire developers, help me meet other investors,

whatever an advisor should do. I have no problem with people taking 25, 50 basis points as an advisor over two years. In fact, I don't know if I encourage it, but it's kind of standard in the valley. And I was an advisor to a couple of companies. In fact, com, when I invested, I got like a little tiny amount, like, I don't know, it was like 25 basis points or 10 basis points as an advisor. Some people got advisor shares in Uber. Their advisor shares were huge compared to their dollar amount put in.

So this one, people started telling me about, yeah, can we, before we even get to this, or even maybe we don't even need to talk about it, but I think it would be good to like, can we try and codify some red flags that are signs for founders that an accelerator might not be in your best interest to join? Absolutely. So if they're high pressure tactics, that's really bad.

They should say, here's what we offer. If you're interested, let us know this is the date that we need to know by. But if they're emailing you every day, they're texting you at night, hey, we need you to sign and they're putting high pressure on you and you say, well, my lawyer read the documents, I have some concerns about this and they can't answer them, not good. If they can't give you 10 founders who went to the program and say nice things about you, not good.

And so that's what you're looking for. Free equity, never, never give away free equity. Equity in exchange for advisors is okay. And then the amount of equity and the valuation. So, you know, when you raise a friends and family round, it's typically a million dollars. Like if you're literally raising from your aunt and uncle, you take 50K for them and they get, you know, this tiny amount, you know, 5% or something. That's a lot of equity company, but you're kind of happy to do it because it's your aunt and uncle and you like to see them be rich. And, you know, they took this crazy risk when you had the literally a back of a napkin.

Here's my crazy idea. Can I get 25K for 2.5%? That's probably the right valuation. six or seven percent for an accelerator for 100K, 150K, that's fine. When you start to see anything get into double digits, that's not good. So no double digits, no free equity, with the exception of advisors as discussed, and no high pressure tactics, and you've got to have references, and then I think you'll do fine. What about charging cash to join? That is predatory. That's when you know you've got a true scumbag on your hands.

Think about this. you are an accelerator, you're supposed to help the person grow the company. You're supposed to be an investor in that company. You're supposed to be aligned with them that the shares in the company go up and that you are in it for 10 years. To ask that startup,

to give you their precious dollars that they could put into hiring their first employee or doing a marketing campaign or setting up their servers or incorporating, that is the most scumbag behavior in the world. Now, if you were to charge for a course, I don't think it's the end of the world. We charge $500 to come to Founder University.

If you come to all 12 weeks, we charge your card back 500. So we just do that so people don't burn a spot. And 94% of people actually finish the program. And I think 90 or so asked for their money back. Or we actually can't return the charge. Some of them we can't return the charge because they don't accept it back where they ghost us. So, you know, if you took a course, I don't think taking a course on how to build a startup for $500 or $1,000 is the end of the world. But for an accelerator to take equity and charge you, that's the truest scumbag move I've ever seen.

And certainly I'm going to take a percentage of money I raise for you in your seed round. Like I'll take 5% of it being a broker dealer like that. True scumbag move or pay us $5,000 to present at our, you know, forum. to meet investors like Karetsu Forum was doing, and that's when I attacked Karetsu 12 years ago famously and caused a brouhaha in the industry and stopped this payola. I stopped the payola in the industry.

This was standard practice, Nick, that they would charge them. And I destroyed that company, and I destroyed all the people paying for it. If Kuretsu Forum ever contact you and asked you to give them five grand to pitch, you email Jason at Kalakannis.com, and you let me do the hard work, which is what I did here with the,

you know, somebody told me this company wanted to charge like $6,000 to go to an accelerator and then get a bunch of money from you. And I just, I called them out on it. I think it's just ridiculous. And then they wanted free equity. Just not cool. Not cool.

All right. That's good. That's good advice. Yeah, $6,000. They did mention in one of the things that if you're not satisfied, we'll give you the money back. So I don't know. Yeah.

But that is a lot. 6,000 is a lot. It's, I mean, that's what, you know what would happen? somebody who's in our circle of our extended family, who doesn't know how Silicon Valley works, would be like, oh, yeah, they told me they knew all these people and they had like Sequoia came to one of their events or they had, you know, somebody was here.

And I just thought, well, that's how the system works. They convinced me that's how the system works. Now, the founder since I tweeted that, told me, you know, he emailed me and said he was really disappointed. He's a big fan and all the stuff. And I told them, like, I think it's a scam. He's like, well, I don't think it's a scam. And I said, well, you can not think it's a scam.

Here's what I would encourage you to do. Raise a fund, put money into the companies like the rest of us are doing. Don't charge $6,000. Don't take a salary and do what I did. Be an advisor to them and take 25 basis points. But don't charge people $6,000. It's a scumbag move. It's a scam.

You want to sue me for my personal opinion, feel free. I'm allowed to have my opinion. I think it's a scam to charge founders. And I think it's the lowest thing you can do. Boom. All right. You want to do one quick fun story to end on? Oh, is there a fun story?

Yeah, there is a fun story. So in your opinion, Jason, this can be an athlete, this can be a criminal, it can be a founder, it can be anybody in the world. Who do you think is the biggest bag secure of all time, in your opinion? Well, in the NBA, we'd be Ben Simmons today, right? He secured a huge bag. He doesn't play basketball anymore. Pretty good. Because his feelings were hurt.

He won't put the ball in the basket. Yeah. Like literally refused in a playoff game to put the ball in the basket with a clear layup. Yep. You and I would have, you and I, non-N NBA players would have taken that shot. Yeah, I would like to think so. Hopefully, I don't know.

I can't promise I would have made it, but I would have taken it for sure. You would have taken the shot. So that's the bag holder in the NBA. I can't think of a bigger bag. Okay. Can I provide one person perhaps? Give me one. Mr. Johnny Bufrat,

the greatest bag secure, legally, I think, of all time. Of course. Okay. Do you know who, are you familiar with Mr. Johnny Bufrat? No, tell me. He is the CEO and founder of a little startup called Hoppin,

who you might remember, once pandemic, he was on the pod. No, I don't think he was. I think you spoke with him a couple times, but I don't think he was on the podcast. I spoke with him a couple times because I wanted the software. Yeah.

It's pretty amazing. So the reason that this is in the news, is because pandemic-era startup darling Hoppin just sold off its virtual events and sessions units to Ring Central. And Johnny Bufrat stepped down as CEO and he's leaving the company. But just to give a little explainer on Hoppin, they were one of those startups in the Panderek era, or I guess companies in the Pandaric era that got a crazy tailwind from lockdown, similar to Clubhouse, similar to Zoom. It was founded in 2019.

I think this is funny because it's just like so it's such a perfect storm. Isn't June 2019 the perfect time to start a virtual events business if you know COVID is going to happen in February 2020? Because it gives you just enough time to get a product built and have a little bit of a head start. Six months. Right before COVID hits. It's like, it's like perfect. Well, I mean, maybe he was, maybe he's the person who leaked it. He was working at the Wuhan lab before he started off.

He leaked it. So he started this company on the side to do. He's like, huh, if you couldn't leave your house, but you still wanted to do business, you'd still have. to have trade shows, so I'll leak the COVID virus. Anyway, but the software was... Yeah. What did you think about the software? You used it, right?

So I looked at the software, and here's what the software did. We're on Zoom right now. And instead of having, like, a Zoom call, you would get on the Zoom call and you'd be in a waiting room, which would be a lobby. And we'd all be in the lobby talking. And then it would say, hey, there's four sessions going on right now, and then there's a trade show area. And you'd have a little interface, and you'd say, oh, I want to go to one of these four speaking

slots. I go to the thing and I can hear somebody pitch their product or hear a panel discussion, or I can leave, and then I go to a room, and this would be a room for, I don't know, you know, some law firm. And the law firm has a room, and they're sitting there waiting for you. You come in, ding-dong, you talk to them, and it's their trade show booth. So imagine you look at an overhead, you see 100 trade show boots. It's kind of a brilliant idea. People tried this in VR, actually. I got pitched on this a thousand times with a company called Second Life and other ones, where you would walk your avatar around like playing a video game

and you could do the stuff. But with everybody having a great headset, having a great camera, the time was right to do virtual trade shows. The problem was the cost. I started doing some of these. Remember, I did like an NFT event. I did a bunch of like little webinars

with Inside. And I would get 1,000 people to show up for the webinar. It was crazy. But they wanted to charge us like $10 per user per day or something. And I was like, I'm not going to give you $30,000. I could give Zoom 500 bucks a month with the same product.

to the event? Yes, per attendee, or they would negotiate a $250,000 license a year unlimited. So they started getting these licenses

for $20K a month, $250 a year, and that's where they started printing money. So they went from zero in revenue to a million a month in revenue to $2 million a month

in revenue because all these big companies were like, what do we do? We have a trade show next week. And they're like, I don't know, is there a trade show platform?

It's like, yeah, this hopping. Great, use hopin. And all of the webinar features weren't yet in Zoom. Now, Zoom has an app store. There's Zoom webinars now, and you can kind of do these things on Zoom webinars. But it was like a skin on top of Zoom to do multiple Zoom rooms at a time.

Yeah. It was a clever idea. So just to give you- And I think at 500 bucks a month, I would have paid for it. Right. Just to give you some metrics on it, it must have had sick performance because it hop and raised a billion dollars over four rounds in 14 months between June 2020 and August 2021.

It's peak valuation. was $7.8 billion in a $450 million series D, which had closed in August 2021, two years ago exactly. The round was led by Altimeter and Arena Holdings. And at this time, Hoppin had 100,000 business customers and 17 million user signups. So they must have been generating some serious revenue if they were trying to charge you that much and they had 100,000 businesses using it. I think tens of millions of, they went from zero to tens of millions of revenue, is my guess. Yeah. So probably overnight. Right. So I would say the firms were paying like 100, 200, 300 X revenue multiple on evaluation, probably something like that.

Well, let's do the math. How many customers did they say they have? 100,000 business customers at the time of it's round. Okay, 100,000 at $10 is a million. $100,000 is $10 million. A thousand dollars is $100 million and $10,000 is a billion. So I'm guessing that people were paying thousands of dollars for the software per year. Yeah.

So it probably got to 100, it probably got to nine figures in revenue very quick. quickly. Yeah. Which probably meant, you know, Brad Gershom, was a very sophisticated investor, looked at it. And I don't think he put that much money into it. It might even like a $20 million check. I don't think it was like hundreds of millions. But they probably looked at it and said, hey, year one, zero, year two, $100 million, year three, 300 million.

This is going to be the next snowflake. It's going to be the next Zoom. Right. You know, let's get in here. Everybody's going to need to buy this. And now nobody needs to buy it. Or like 1% of companies need to buy it. Just like a Peloton.

Oh, I can't go outside. I can't go to the gym. I have to get a Peloton. So $40 a month, $2,000, $3,000 for the bike. I'm going to do it. I have no choice. So getting back to Johnny Bufrad, why he's the greatest bag secure of all times

during Hopin's valuation run up. And I don't know how anyone allowed this to happen, but maybe you can explain it. Johnny Bufrat cashed out $200 million worth of his shares in secondary. $200 million. And just last week, Hoppin announced it was selling its events business to Ring Central for an initial purchase price of $15 million after being valued at $7.8 billion two years ago. Exactly. Yep.

And Johnny Bufrock cashed out $200 million. $200 million. $200 million. You remember? It's incredible. Can we have, has Brian Chesky cashed out $200 million of Airbnb stock? Does anyone know? Like, that is an insane number.

I don't think in the private markets they did. Do you remember, St. Stefan from, um, do you remember Stefan from Saturday Live? Yeah, Bill Hader's

thing, right? Yeah, yeah, yeah, yeah. Yeah, yeah. He was great character. This,

this startup story has everything. It has secondary for the founder. It has Zerp-Raced environment. It has SaaS. And it has a billion dollar

valuation and lockdowns. Oh, my God. It literally is like the, it's the greatest startup story ever. He has everything. The guy, you're at the best. Legally, apparently, all good.

Like, he just, this is just, it's all good. Johnny, more power to you, brother. My God, I mean, it's amazing. Somewhere Doquan is like, huh, what did I do wrong? Doquan, you should have just done an events business, bro. Come on. Well, I mean, this is why the clubhouse guys, they were, they were at $4 billion. When they were at $4 billion, I would have just sold the company.

It's your two of the business. Twitter offered to buy them for $4 billion. They said no. I would have been out. Give me the $4 billion. There's no way I'm not taking that deal. I'm done. Boom.

Frees do not grow to the moon, folks. So I think, you know, here's the thing about the legality of this trade, if people are wondering, when you're a sophisticated investor, there's a term qualified purchaser. You have $5 million dollars in liquid assets. When you start getting into this rarefied air, which is like less than 1% of people in the country or entities in the country, you are sophisticated, you have the top law firms and representation in the world, you do deals like this all the time, you put a hundred million into this, a billion into that, you make trades, there is no way for you to say you don't understand the trade.

You're not grandma who somebody told to buy Luna or to buy an NFT in Florida and it's your first crypto trade and you've never bought an equity before and you got a 401k and you own half your house. Like, okay, yeah, we get it. You're unsophisticated. Somebody took it for granted. But you can't say, you know, somebody from a hedge fund got taken advantage of here. Now, if there were things that were not true and you sold secondary, which has been a couple of lawsuits around that, including one of our favorite people, I believe, you know.

I skipped that one for time purposes, but if you want to go there, we can go there. Well, I'm right. I mean, there is a lawsuit with Breslau, right? There is. Yeah, there is. It's not a lawsuit yet. It's a probe. It's a probe.

Oh, there's a probe Probe. Pro Probe. Not a lawsuit. Well, Ryan Breslau, remember, a friend of our pod here from the payment startup, Bolt. He's been subpoenaed reportedly by the SEC for corporate wrongdoing, including possible securities fraud. I guess he had a $30 million personal loan and he defaulted on it. Listen, you want to talk about red flags?

No founder should be taking more than $10 million out of a startup. 20 million maybe before it goes public. It's just not necessary, folks. The secondary does not need to flow that violently. $200 million, Johnny Bufrat. $200 million. That is insane. It's 10x anything logical.

It's 10x logical. If your company became worth billions of dollars and it had 100 million in revenue, which this company probably did, 10 million, sure, 20 million, maybe. You start getting into 30, 40 million. You're like, well, why don't just wait for the IPO? what are we doing?

It's a really negative signal. And so why would Bolt ever give a loan of $30 million to a founder? That is a recipe for disaster. I believe J.P. Morgan gave him the loan and he defaulted on it and then Bolt forgave the loan. And three Bolt board members were like, we're not doing this. This is ridiculous. And then Breslo kicked them off the board, reportedly. Reportedly, all reportedly, reportedly, allegedly, allegedly, reportedly, allegedly.

well, here's the thing. If you're a board member and somebody is doing this kind of alleged kind of financial engineering, this is like, you as a board member are like, I don't want to go to jail.

I don't want to lose LPs over this. I took some retirement funds money, gave it to this person, and they did this kind of, these kind of transactions, you're not going to get that retirement funds money again. It could be a career ender for a venture capitalists.

So when venture capitalists are sophisticated and they're cutthroat at times, sharp elbowed, whatever, very simple, very simple. Like, don't do crazy stuff. This is like, this apparently, if half of this is true, it's like deranged insane behavior. And I would have gotten off that board immediately just to not have the potential downstream.

lawsuits and you're going to get deposed and just craziness. Have you ever dealt with personal loan shenanigans with founders, like forgiving loans for themselves? Not the personal loan stuff. That very rarely comes up. The thing I've seen that is in this area is the founder finds an investor who they vibe with. The investor's like, I want to win this deal.

So I'll invest 10 million. but in my term sheet I'm going to put that you get 10% more equity in your company. So I want to give a grant to the founder. Now the founder owns 50% of the company. So why do they need to go to 60? 50% is plenty. Larry and Sergey own like 9, 10% when they exited. So why do you need to get 10% now in the series A, series B?

Well, it's the VC is buying the deal. So there's five VCs who throw in term sheets. And the fifth one says, you know what? I want to win this deal. The founder controls the company. company or has some, you know, exerted influence over the company, I'll offer them like a stock refresh grant. And what I always say is, let's handle that after we close this deal.

Let's have good hygiene. Let's not mix two different conflicts. The equity for the founder or the equity for the CEO, if they happen to be the founder, should be a compensation committee on the board decision. That's what I was told by like the top, I don't want to say which firm, but, you know, think Ernst & Young, Price Ware's good. The top people are like, for hygiene, have that separate. do that with a comp committee

when you're doing a financial transaction and selling shares in the company then do that but you don't want to mix the two it's really bad hygiene it looks like a bribe you use the bribe word I said conflicted depending on what perspective

you're looking at it from if you're the four other venture capital who didn't offer it and I don't disagree with the cynical take but the way I say it to founders because I never want to I don't want to say to like the new investor and the founder like why are you bribing

it's like it's too accusatory. What I say is, let's have great financial hygiene. Let's not get us in itself into a downstream legal issue. And that's not saying I'm going to bring up the legal issues, that there could be a downstream issue in the future. Somebody could sue. Let's have good hygiene. Let's separate these two issues.

Let's listen to the accountants and the lawyers and do this properly. And that's what I do. And then you know what? I'll be totally honest. I don't win that battle every time. I don't. because in in private markets, I don't want to say it's the wild west,

but it's kind of like the wild west. If people want to be cowboys, it's the wild west. You're basically, it's basically the founder wants to go cowboy, now you're in the wild west. Everybody's shooting their guns off and it's crazy and you got to get the sheriff and it's just a different type of,

it's kind of lawless. And what you're trying to do is make sure that everybody involved in the company who's in leadership are not cowboys, that everybody's just trying to be in sync and do things properly, right, and be Jedi's, you know, have a code,

be samurai, you know, you can still want to win, but anyway, shout out Ryan Breslo, fan of the pod. Former friend of the pod. I hope it works out for you with the SEC.

He's also raising a venture fund or trying to. Yeah. With the potential SEC investigation, yeah, he wants to raise a venture fund. I mean, listen, I am not an LP.

No, you're making that, Now, that's not true. How could you, I don't know, Jason, as if you were approached to be an LP in this fund, and this is the same guy who made like 1,400 tweet threads about how Stripe is a mafia, would you want to be an LP in this person's fund? Would you want to be involved with this person? No, no, of course not.

You're trying to reduce risk. LPs are super conservative. I'm raising money from LPs. the fact that I have two podcasts where I speak my mind, it's a benefit in some ways, but I'll tell you the truth. I'll tell you one story. I said on CNBC once,

like I had an LP who was lined up, and there's an investment committee, and they were looking at us, and then they said, you know, we're going to politely decline to be in launch fund. And I said, you know, could I ask? And they got the back channel was,

I had said, like, listen, I think Trump is like a bit deranged, and I think it's like an actual risk if he becomes president. And this person got super offended because they were a donor to Trump. And they said they called the president deranged or whatever. And I was like, well, I was describing his behavior being deranged.

Like we need to have stability in the country, not like this kind of crazyness. You remember the first year of Trump? He was doing all that trolling stuff. And I was like, this is kind of deranged. I was in college. I was not paying attention to politics at the time. I mean, he was basically causing all the chaos he's causing now. He was causing in year one of his, you know, reign of terror on the country where he was

just trolling people constantly. And, you know, people are at airports and, like, people are afraid about, like, they're doing protests in the streets over immigration. And I was like, you know, his job as the commander in chief is to communicate well and to not create chaos. I said, this is deranged, like, tone it down so the stock market and, you know, commerce can occur. Don't make it crazy where people, anyway, they'll be pest, right?

So I have to deal with that. Now, I don't have an SEC investigation, nor do, did I take on YC and call them the mafia, nor did I get ousted and fire three of my board members. If any of that's true, all those allegations are true. Any combination of that would eliminate 99% of LPs in the world. Like 99.9.9% of LPs, I think. I can't imagine, because the LPs are conservative. They're super conservative.

So, yeah, I thought you were joking when you said he was trying to raise a venture fund. No, Axios. Shout out Axios. Good scoop. Oh, Axios, great scoop. Yeah, credit to Axios. Not credit to the other. Oh, wait, wait. Can I say, not credit to the other group that constantly complains about me not crediting them and then. They do a good job too.

They do a good job too. The other ones. I love them. I just don't like the fact that they are like attacking me when I give them credit and they're like, you didn't give us enough credit. Yeah. Whatever. Shout out. I will want to say before we wrap, Breslo.

So according to the Axiote. article. This is how Breslo's fun, which he's calling family, is being pitched. I'm just going to read this. This is not Dr. Seuss. This is not a tongue twister. This is how Axios quoted this fund as being pitched. As the first explicitly founder first fund since Founders Fund. The first explicitly founder first fund since Founders Fund. Like that is how that like, are you trying to get, that's terrible? I'm like reading it. I'm like, what did that say? I thought, I thought my brain was short-circeting. Yeah, that doesn't make any sense.

Yeah, that's terrible branding. I think... The new Peter Thiel, Ryan Breslo. And I don't think so. I don't think so. Here's what I would say. There's a really great business movie that Lon is going to do.

Remember Lon and I did our business breakdowns? That was your idea. Great job. Yeah. Yeah, it's your idea. So business breakdowns we did. I want to do another business breakdown. I think this is a seminal business movie.

And it's one of the best pieces of advice I ever got. And I toned it down when somebody gave me this piece of advice. And you know, gave it to me. I think it was Rula. Who I was riding kind of high at one point. And actuary. Hey, uh, jacob. Yeah.

He said to me, um, I never get high on your own supply. And I said, yeah, fair point. Fair point. And that movie, the seminal business movie studied in all business schools is Scarface. Oh. And I think Breslo, somebody needs to pull Breslo aside. If I was just like, friend, if I was his bestie, I'd say, listen, I think you gotta like never get high on your own

supply. Like, why don't we tone it down? Why don't you build another company that people love that solves a problem in the world and just do some podcasts and be super humble and say you learned a lot and you really want to put it to use in the next company and you're really happy to put your own money to work and you really love your team and you're really focused on solving this problem for humanity. Like, that's the tone. When you F up like this, that's the tone. When you F up like this, that's the tone you got to come out with when you have this kind of track record is you gotta just come out

and be super humble hey I'm trying my best and it was after I sold Weblogs Inc I was kind of like oh I can do it again and I just decided to move to listen you know we got lucky on Weblogs Inc we hit the timing perfectly Brian was an incredible partner

I can't believe that Peter Rojas and Ryan Block did such a good job with Engadgett if I didn't have those guys behind me still kick it by the way right and Gadgett yeah of course it's crazy you can't kill the number one that was the number one blog

the world. People are like, oh, you have the number one business podcast in the world. I'm like, yeah, I also had the number one. I've had number one before. It's not like a new thing. So anyway, shout out to Ryan Breslo. Salute. Salute. And salute to our Mount Rushmore bag holder

or bag secure. Johnny Bufrat. My man, congratulations. Enjoy that 200 million, brother. Is he with the Jersey crew or is he with the Brooklyn crew? I don't know. guy seems like he's definitely from Stad Island.

No, he's from what he's Australia born. Australia born, born in Australia. What is he? I mean, he cleared with taxes, he cleared a buck 20. I don't know, man. Buck, buck, he cleared a buck 30. Where is he with that buck 30 right now? I, what is he doing?

I hope he deletes all of his social media. I hope he goes off the grid and enjoys that money. Go to Melbourne. Live life, baby. Build a house. Hamilton Island with Sundays. Hamilton Island did out, man. For sure.

Or get a jet, maybe some classic cars. Johnny, if you need a wingman, by the way. Yeah, totally. We're in. I'm here. Let's go. Find a music festival somewhere, and we're with you. Pull up the G650.

Let's go. We salute you. All right. We'll see you all next time on the swing of service. Bye-bye.