This Week in Startups - Next Unicorns evaluation + Ask Jason | E1590

Episode Date: October 20, 2022

New format! Jason evaluates some prior Next Unicorns company's performances since the CEO appeared on the podcast (2:06), and contextualizes the fundraising market throughout the past three years. Then, Jason wraps the show by answering listener questions! (48:18) (0:00) Jason tees up today's new Next Unicorns format! (2:06) Jason shares some thoughts on why he started The Next Unicorns series and tees up some of the most successful companies over the first three seasons (5:32) E971: Checkr CEO Daniel Yanisse (10:37) E987: Upgrade CEO Renaud Laplanche (13:59) OpenPhone - Get an extra 20% off any plan for your first 6 months at https://openphone.com/twist  (15:29) E992: former Expanse CEO Tim Junio (23:14) LinkedIn Marketing -  Get a $100 LinkedIn ad credit at LinkedIn.com/nextunicorn (24:51) E998: Benchling CEO Saji Wickramasekara (28:32) E1089: Insitro CEO Daphe Koller (33:26) Kalshi - Sign up at https://kalshi.com/twist and receive $25 after trading your first 100 contracts (34:57) E1098: Cockroach Labs CEO Spencer Kimball (38:19) E1113: Loom CEO Joe Thomas (43:02) E1246: Divvy Homes CEO Adena Hefets (48:18) Ask Jason: 2023's "Why now?", Jason's favorite qualities in a founder and person, greatest acquisitions of all time FOLLOW Jason: https://linktr.ee/calacanis FOLLOW Molly: https://twitter.com/mollywood Subscribe to our YouTube to watch all full episodes: https://www.youtube.com/channel/UCkkhmBWfS7pILYIk0izkc3A?sub_confirmation=1

Okay, everybody, we have a bit of a new format I'm testing today on this week in startups. You know, we've done three seasons of the next unicorns, and we had 30 amazing founders on. This is a series where we say, hey, this company's worth a couple hundred million. Will they hit the billion dollar status? Let's make a bet. So we went through and we looked at the startups who came on the program and which ones actually became unicorns or didn't or got bought or got sold. And you're going to see a lot of throwback clips here. A couple of them are from the pandemic era.

So that's super interesting. Just as an aside, you'll get some comments. for me on what's going on in the industry with these specific companies that raised money in that peak market in 2021. And what that means for the founders now that we've gone from a peak of a 13-year bull run down to what is inevitably going to be not only a recession, but it looks like a painful extended recession that we're going to go into, I think, into the first half of 23. And then just a little dessert afterwards, a little, a little present for you. We've got some Ask Jason segments at the end of the show. Just a little treat for you.

Thanks so much for tuning into my podcast this week in startups. Really appreciate you. Enjoy the show. Stick with us. This week in startups is brought to you by Open Phone. As a startup founder, a lot of mistakes are easy to roll back. But using your personal cell phone number as your company number isn't one of them. Openphone makes it easy to get business phone numbers for you and your team right on top of your existing devices. Visit Openphone.com. slash twist to get 20% off your first six months. LinkedIn marketing. To redeem a free $100 LinkedIn ad credit and launch your first campaign,

go to LinkedIn.com slash next unicorn. And CalShe. Wall Street has always been able to profit from the outcome of elections. Now a company called CalShe is changing that by bringing regulated prediction markets to the everyday person. Sign up at calshy.com slash twist and receive $25 after trading your first 100 contracts. That's Calsheet. K-A-L-S-H-I dot com slash twist. Hey, everybody. It's time for another episode of our next unicorn series here on

this weekend startups. What is the next unicorn series? Well, we created it a couple of years ago. And it was a way for us, since we're in the startup community, since we're in the capital allocator venture capital community, to say, hey, what companies are starting to look like they might become worth a billion dollars? When I started in the industry 25 years ago, the idea that any company would become worth a billion dollars was crazy. And then, uh, when I was an entrepreneur in the 2000 to 2010 period, it's very rare for a company to become worth a billion or two billion dollars. Now, it's commonplace. Why is it commonplace that companies become worth a billion dollars? Is it irrational exuberance? No. Sometimes we, we do have that here in the valley. We saw that in the

2020 and 2021 period in terms of funding of these companies. Maybe many companies that aren't really unicorns became unicorns, but this billion dollar, benchmark in terms of the value of the company typically means the company has $50, $100 million in revenue and, you know, some path to profitability. Well, if you think about it today, the internet is being used by billions of people. We have mobile phones. We have high-speed mobile phones. And we have the rails in terms of payments for companies on a very short period of time to become global phenomenons like we saw with Airbnb, Uber and other companies, Slack. These companies, Canva out of Australia, they can very quickly become a standard that is used by consumers

or businesses around the world. It used to be you spent a decade due in America, then you'd go to Europe in your second decade, maybe you'd go to Asia in your third decade. So you saw a company like Microsoft take decades to do this, Oracle, et cetera. Now the playbook's out there. We saw it with Google, going to every country in the world and starting a domestic search engine. Obviously, Facebook did that, started on college campuses, went to all college campuses, then went to every country. And this playbook now has been run by many companies. Globalization plus high speed internet plus high speed internet in your pocket were the accelerants to this. Of course, the embracing of advertising and subscription models,

companies like Stripe and Amazon Web Services have also allowed us as investors to invest in many more companies. If you invest in more companies, it's like giving a basketball to another billion people or soccer ball to another billion people in the world and saying, hey, here's the rules, here's a basketball court, here's a soccer field, go ahead and play. You do that, you'll get many more Michael Jordans. You'll get many more pales or whoever, you know, the top soccer player is today. And that is a wonderful thing for society. We have many more people trying to build companies and that means we have more chances

of people building a billion dollar company. And in fact, I think the new standard is kind of 10 billion. and that's what we're all looking to do as capital allocators. Invest when the company's worth $5 million to $500 million and then watch it go to billions of dollars. And again, what does it take to be a billion dollar valuation for a company, for the equity in the company to be worth a billion dollars? It takes, in my estimation, 50 to 150 million in revenue

and then some paths for profitability. So I thought we go back in time. We've now done three seasons of the next unicorns. Each season, we pick 10 companies. Well, what if we look back over those three, seasons and we check in on some of the companies. We thought this would be very instructive in a way for me to talk to you about those companies and what I think happens. So here we go. We're going to talk about a number of the standout companies. Let's start in the first episode of the next

unicorn series back in September of 2019. This was episode 971. Our first guest was Daniel Yonis and he is the CEO and co-founder of Checker. That's Checker without an E at the end, C-H-E-C-R. In plain English, they do enterprise software to allow people to do background checks. You can imagine if you're Uber, if you're DoorDash, or any company that's hiring people, you may want to check who you're hiring. And to have it as a service, like AWS, to do it cheaper, faster, better, on demand was a brilliant idea. And they can do it for 55 bucks. Pretty amazing when you think about it. And, you know, again, the customer list includes obvious people like Uber or DoorDash, but of course, Netflix, right? Just different companies who want to check that I'm not hiring a

felon or somebody who's been involved in a lawsuit, whatever it is, you might have some rules. And in fact, you know, in society today, we have in America such a small number of people who want to participate in the labor system that even if people have problems in their background, companies are now, thankfully, giving people a second chance, which is what we want in society, right? I think we can all agree on that. And so you just want to know so that when you hire the person, hey, if they did have some problems or challenges previously, at least we know that we can have a candid conversation with the person. So it's not just about de-kewing people, disqualifying them. It might be just also making informed decisions because, you know, somebody might have made a mistake

that's really shouldn't preclude them from being a DoorDash driver. So when Daniel joined the show, Checker had most recently raised $100 million Series C at a $900 million valuation. And so we didn't take too much of a risk here, if I'm being honest. And they only had to add $100 million to their valuation, just about 10%. And sure enough, shortly after they were on the program, they raised another $160 million in their Series D, hit $2.2.2 billion in market cap, and then in October 2021, the startup raised a $250 million series E now October 2021. That was the end of the party. The lights came on. The police showed up. Mom and dad got back from vacation, and the party was over. The market crashed the next quarter in Q1, and they really got, they snuck under the wire,

I would say, that $4.6 billion valuation there would probably be half given today's market. And that no reflection on them. It just was in a crazy moment in time where a lot of big hedge funds and big money growth funds were competing to put the last investment into these companies. And that last investment, who knows if that's going to be, wind up being a good investment in the short term. It might take a little while to build into that valuation. But congratulations to the Checker team and Daniel. I'm talking about obviously, you know, just broadly about companies who raised during that time period. It's not specific to Checker. Who knows, Checker could be on such a tear that they've blown past that valuation already.

But here's a quick clip of the highlights from that episode. Enjoy. I came up with the idea for Checker because I worked in other startups in the past. And so, especially in the gig economy, I was working in the early days of the gig economy before Uber and Lyft were at scale. And we needed to hire a lot of workers to do deliveries. And the background check was one of the bottlenecks in the process to do a background checks.

I looked at the different options and I realized that there was a pretty anti-quake. created archaic industry, more like service industry, not really software products available. And so that's how I got the idea. I was like, I think a lot of companies are going to need more background checks, more streamlined and automated background checks. I think that's an opportunity to disrupt an industry that hasn't been touched by software. And so that's how we came up with Checo, which was the first API for background checks. How many of this background checks are you doing every day, every month, every year?

We do a lot of them. We do about a million and a half a month. A million and a half a month? Yes. To have millions of people going through our system. Wow. And at $20 a pop, you guys are doing nine figures in revenue, put you on the sunicorn, almost a unicorn. You raised $100 million in the latest round, is that right?

Yes, that's right. This year. It was last year. Last year. As you start to get to nine figures in revenue, just founder to founder here and raise these large amounts of money, is there a problem? is there a pressure to go public now? And how do you think about the public markets

in relation to what we saw with Slack, Uber, Spotify, Lyft, going public recently? How do you think about it? Yes, so we don't have a lot of pressure to go public because we're only five-year-old company, which is quite faster than maybe other... Five years to two or three hundred a million, though. So that's fast growth.

Our investors also... What do you do in tripling, revenue year over year? Not tripling, but we have high growth. More than double. Yes. And our investors are long-term. So we definitely have investors that are long-term focused, that want to build a great large company that is defining its category and even expanding. We're thinking about expanding beyond background checks, because background checks, we're already becoming the leader. I see a lot of opportunity in the gig economy and the future workforce.

Later in season one of the unicorns, remember again, this is back in 2019, I was joined by Upgrade CEO and co-founder Renaud Laplanche. And Upgrade CEO, was featured in episode 987, if you want to go back and see it. You can just go to our YouTube channel and type this week in startups, episode 8, 987. Now, it was back in October of 2019. Now, Upgrade was founded in 2016. It's a consumer credit platform that offers more affordable loans and lines of credit to consumers. And so, Upgrade also offers home, auto, and health-focused rewards and provides educational tools

to help customers better understand credit and debt. That's a place for you to get loans, basically. And the startup's most recent round of funding before they came on the pod was a $62 million series C at a $500 million valuation. That was back in August of 2018. So in order for them to become a unicorn, they would need to double their valuation. And most recently, upgrade raised at $280 million series F had a $6.3 billion valuation. When did they do it? They did it in November of 2021. That was it. That's when the party ended. That was Q4 coming out of the pandemic. And it was led by DST Global. That's a 12. 12x plus since they joined the podcast. They're up 12x since they're on the podcast. And Renaud is still the CEO at Upgrade. Congratulations to him and the team. Here's a clip of highlights from that episode.

I'm an optimist. I wouldn't be an entrepreneur if I wasn't an optimist. But I really think that collectively we are learning a lot. And I think whether it's entrepreneurs or investors, the VC communities, we've all learned a lot from the dot-com bubble and the burst and then subsequent periods. And I think many of us now are a lot more efficient with capital. And sometimes, yes, there are some, there's too much money getting pushed into the system. And that creates companies like we work that feel like they can raise unlimited amount of money

and therefore can run very large losses for a very long time. But I think it's not the majority of entrepreneurs. I think the very vast majority of entrepreneurs are running pretty efficient operations. They're raising capital for good reasons to try new things, to innovate, to bring products into the world that did not exist before. Would you take the big money?

You've raised a lot of money, over 50 million, I believe. But you seem like a reasonable person. Would you want to take that billion? dollar check from him or $500 million dollar check from Masayoshi San and the Vision Fund knowing what you know now in the history you've had or would you be reticent to

take that money knowing that it comes with such outlandish expectations? Yeah, I think they I mean, too much, having too much, there's such a thing as having too much capital and too much money. So you wouldn't take it if you offered $500 million right now? I wouldn't as a current stage because I have

no efficient way to use $500 million right now. Right. But if you with 100, maybe we open a dialogue. I mean, we've raised 150 million with upgrade already. So, yeah, I mean, I think we're using that capital efficiently, again, to create new product, launch new products, and bring products into the world that are designed to solve big issues. On the program today is Darina Kulia.

She is the founder of Open Phone. Welcome to the show, Dorena. Thank you so much, Jason. Great to be here. You know, I've read the ads a couple times here. It seems like you're charging too little for this product. It's 10 bucks a month per number. How are you able to do this so affordably?

$120 bucks a year, $150 a year per person is nothing. So we're a very self-served product, which is why many of our competitors offer much more expensive tiers is that they rely on like a customer success rep or someone help you out to set things up. We are very self-served. Now, we do have customer success managers who are amazing.

A lot of our customers are founders and startups. They like things to just work without instructions without... Yeah, they'll read the men. manual. They'll watch the videos. They don't want to talk to a human. They just want to set it up and go. And you made the product so simple. Absolutely. That's where the cost savings comes. You don't have to have a sales team going out there selling it. And you know, the other big thing is that the way we also grow and I think it, you know, the way we get a lot of customers is that we have very strong word of mouth and people like tell others about us. And I mean, all of that contributes. Our business model kind of makes sense. It makes sense for us to be able to to offer it at a very good

price. All right, everybody. Here's your CTA, the old call to action. Twist listeners. 20% off any plan for your first six months, just sign up at openphone.com slash twist. And if you got an existing number, no problem. They'll put it right over. Openphone.com slash twist. O-P-E-H-O-N-P-H-O-N-E dot com slash twist today for 20% off. Later in that first season in 2019, we had Expanse CEO and co-founder Tim Junio on the show. Now, Tim joined the show on episode 992 in October of 2019.

Expans is a cybersecurity startup, basically. It was founded in 2013. They provide IT and security teams with visibility into basically internet attack services. What does that mean? You've got a bunch of stuff connected to the internet. Could be your employees, computers, laptops, phones, servers. It could be your door key card readers. It could be cameras, any of that stuff.

And you need to use software to figure out if you're being attacked. And the software that comes native into each of these platforms may not do a great job. So there's a whole business in looking at the surface area of attacks for any corporation. And as you add IoT devices, Internet of Things to your company, or you give your employees more devices, iPads, whatever, that's how these break-ins happen. That's why sometimes a company, as we saw with Twitter, lost a bunch of corporate information. They got hacked and it caused a lot of problems for them. It's typically they're not using enough software to reduce the surface area of attacks or minimize the surface. area attacks or even find out about them in time to stop them. At the time,

expanse had recently raised a $70 million series C at a $500 million valuation. And just over a year after joining the podcast, Tim sold this company to Palo Alto Networks. And they paid around $800 million in the form of cash, stock, and what's called Equity Awards. You're probably asking what's an equity award. Well, you want to keep people around, right? We saw this with Figma just getting bought by Adobe. When you buy a company, you don't want people leaving because they have all that cash and they just want to go buy a house in Kauai and chill. You want them at the company working and you want to make sure that acquisition is successful. So they will put the golden handcuffs on you in the form of

equity awards. The equity awards could be based on time. It could be based on performance. They could be based on revenue. Any number of things. And usually it's a combination. So they'll say, hey, listen, the management team's got to stick around. We're going to vest your, you know, we're going to give you these equity awards over the next four years. and if revenue hits these targets, you get, you know, double. So a great way to keep people engaged. Didn't quite hit unicorn status, but I'm going to say, close enough, they probably sold close to the top of the market.

He can't time these things as founders, can you? There's an expression we have here in Silicon Valley. Great companies are bought. They're not sold. So what happened here is they were probably on a tear. Palo Alto networks looked at it, said, hey, this company's got $50 million, $40 million, whatever it had in revenue, $80 million. we have a thesis that we could 10x that revenue.

Let's take it out before they go public. Let's take it out before other people find out about it. And so for the people who invested at a $500 million valuations who did that series C, it's kind of a bummer, right? Because they barely doubled their money. Unless in the documents, there was a minimum return for them. And I suspect there was. Depends on the terms, depend on the investor.

But they can put in the documents, hey, we get a minimum of twice our money back. So let's talk about what that means. They put in 70 million at this $500 million valuation, you know, and that gets them a certain percentage of the company, you know, 12, 13%, whatever it is. So they have that percentage. Now they sell the company for 800 million. Okay, that's like 60% more than they invested. So you would think their 70 million would be worth 60% more, or roughly just over 100 million.

Well, they could put in the documents. We'll invest a 70 million, but we get a liquidation preference. we get participating preferred. Some note in the document it can be structured a couple of different ways, but we want at least twice our money back. If that happened, then $140 million, double the $70 million would come off the top

of the $800 million, and then people would split it after that or they might get $70 million off the top. There would be $730 left, and then they would get their whatever, 13 or 14 percent, depending on the equity and how much the employees got. So this happens.

It's part of the game in Silicon Valley as investors. Sometimes you have a quick sale. And that investor who put the 70 million in, they probably didn't have the right to stop the sale. So this is where something called protective provisions comes in for companies and for venture capitalists. When we invest in companies, we get preferred shares.

And then the board has to vote. Are we going to do this? And you might have a blocker. So this investor obviously did not have a blocker. Or they had a ratchet where they got the full ratchet and they got double their money, and so they didn't need the blocker. And these are the late stage nuances of dealmaking. Sometimes I found it really wants to get a high valuation.

They give them the high valuation. They give her the high valuation. They give the team the high valuation. But they say, hey, listen, you get the high valuation, but we want at least double our money back, knowing that something like this could happen. And this is going to have a dramatic impact on the market now because, not for this company, but because you had all these high valuations in 2021, that might be down 60, 70, 80%. There's no hope for them to get back above that. There would be no hope for them to get above

the hurdle. This creates a very dysfunctional case. And some of those documents, from what I understand, from people who are deep in the game, did not have protective provisions. Not this company. I'm just talking about the industry writ large. There's a lot of companies that had many offers, late stage companies, and they just told people, we're not going to give you those terms. And so depending on how hot the market is, some late stage VCs may, in fact, waive those rights. Who knows? Maybe in this case, they wanted to deal so much they waive the right, and then they got dragged along, and they only made 50, 60% on their money, which, you know, it's good work if you can get it. I mean, if you think about it, they made that 50% in one year, so they didn't

have to wait five or 10 years. So they didn't make it to unicorn status. Sorry, but good enough in my book. Congratulations to the team. According to LinkedIn, Tim's, an SVP of product at Palo Alto Networks, I give them four years. It's typically what happens in these acquisitions. You get the golden handcuffs for four years. They make you vest some shares. And when you're ready to do your next startup, Tim, call J-Cal, save me a tiny little slice. You know, I always tell people, if you order pizza, I love it, you know, get two pies and save your boy J-Cal a slice, maybe two. You know, I'll take a pepperoni, whatever it is. I'll take a half a slice if I'm being honest in a founder like Tim's companies. He's a killer. So we had a great talk about conversations

around the threats from Russia and China for American companies. Check out this amazing clip. In a place like China, they could infiltrate even private companies with people from intelligence and security services to try and get access. So part of how to look at Chinese internet companies and why they're risky to American society and American business is we can't have the assurance that even if the leadership of the company doesn't want to conspire with the Chinese government, they may still be penetrated in a way that is incredibly difficult for them to detect and know about. And you have to

think about that for all of time going forward. So even if today TikTok is totally fine, has nothing going on with the government, super secure. Same with Huawei, pick any of these companies. Who knows, five years, 10 years, how that relationship with their government is going to evolve and whether or not they already have embedded employees of the company who are on the payroll and recognize they have corruption issues beyond all of these internet security issues. Right. So if you just paid somebody a hundred bucks a month or whatever, can you get them to walk out with a thumb drive that contains sensitive customer?

Yeah. I would bet a lot on the answer being over 80 or 90 percent that there's somebody there who can get you asymmetric information access. Hey, everybody. I'm here with my pal, Tom Eschbacher. He is the senior sales manager at LinkedIn Marketing Solutions. And today, we're going to talk about marketing. for startups. And LinkedIn did a great new internal report called today in startup marketing. Welcome

to the program, Tom. Thanks, Jason. One of the main topics covered in the report is validating product market fit. That's so essential. So how does marketing play a role in validating PMF? One of the challenges from the pandemic was it disrupted normal feedback loops that startups get, and particularly when trying to scale assumptions based on small sample sizes. You can't go to conferences anymore, you can't do events. And so we've seen a clever adoption of LinkedIn's free analytics tools here. And one that's become table stakes, and I mean, 92% of series A startups are using it, is the LinkedIn Insight tag. A feature here is the website demographics functionality that provides a valuable view on your site visitors' professional attributes. What's their job

function, their seniority level, what company are they at, the industry, the company size. This is all a bunch of actionable insight that you can use to back up your instincts around who your addressable market is and help inform early marketing strategies. We think your B2B marketing on LinkedIn ads and get a $100 credit on your next campaign. I kid you not, a hundee, coming to you in free advertising and marketing. Go to LinkedIn.com slash next unicorn to get $100 off. Again, LinkedIn.com slash next unicorn for $100 off. Terms and conditions do apply because they're giving you a Hyundai. Okay, and to wrap up season one, we had Benchling CEO and co-founder Saji,

Wikrama Seikara. I can't believe I pronounced that correctly on the podcast. My dyslexia is going crazy right now. It's interesting. Sometimes I get the really hard names correct and the shorter ones I have a harder time with. Benchling was founded back in 2012 and they sell cloud software to biotech research and development. Sounds really boring and sounds really profitable to me. Benchling's last round before joining the show on episode 998 back in November,

2019. It was a $34 million series C. That was back in July 2019 at a $415 million evaluation. Since then, they've gone on to raise $350 million more dollars across three more rounds of funding. Most recently, they raised $100 million series F at a $6 billion evaluation co-led by my friend, Brad Gersner, the fifth beetle, the fifth bestie on All In, from Altimeter Capital and Franklin Templeton. So congratulations to to Brad, Franklin Templeton, and everybody else involved in this amazing company. It's a 14x valuation step-up since joining the next unicorns. So what you're seeing here is if you come on the next unicorns, you're going to sell your

company where you're going to go up at least 5 to 15x. No, we're going to picking companies. We did a good job. Now, we didn't talk about all the companies here today, but we plan on doing at this week in startups.com slash unicorns. We're going to do some statistics on all 30 companies and look at our track record in terms of these. And it's making me wonder, maybe I should start a late stage fund.

Here is, Saji. Software was this incredibly collaborative thing. If I wanted to work with a team of engineers who might be distributed all around the world, I had the tools to do so to collaborate on code effectively. And if something about the process of building software sucks, well, you're a software engineer. Make some tools. And if they're good, people will use them. And the industry gets faster, better, cheaper, easier, you know, every year.

And more people get to participate in it. Exactly. And if I were to compare that to scientists. Now, scientists will really push the envelope when it comes to the methods and the techniques they use in the lab for doing science. The design of the experiment. Yes, exactly. Things like CRISPR.

Right. Those are amazing step functions that have, you know, come out since I was in the lab, you know, and they're wonderful and move science forward in a breakthrough type way. But more or less the way everyone works together in life science is based on paper, email, spreadsheets. So literally they're in Excel spreadsheets, typing information. Yep. There are paper lab notebooks at every biotech, you know, company, academic lab, and those

notebooks just sit there and collect dust. And so these are really, really important problems they're working on, and they're doing it with pretty lame tools. And so the complexity of the scientific work has gone up so much, and so the tools haven't kept pace. So if I were to describe the tool at Benchling, would it be Google Docs for researchers? Would it be a Salesforce, CRM or Slack for researchers? How would you describe it in a way that we would understand? Yeah. Actually, a lot of those metaphors are pretty good.

There are elements of all those different types of tools that we have. The thing, though, is that we built them in a way that is specific to the life sciences. Got it. And so we have applications that help. We have a suite of applications. They're all unified. So if you're scientists, you just get to use one tool to do your job. You're not jumping between 10 different things.

So it's like a suite, like the office suite. It is. Word, Excel. Exactly. Except Word and Excel, in this case, they're going to talk to one another. Got it. So you have tools to design your experiments, tools to document them, tools to track all the materials being produced, both logical tracking.

So think how you like model all the different things. stuff you're building and how it relates to one another. And then physical tracking. So like the supply chain of where all my tubes and how much volume is in them. So it's like a project manager. And instead of just dumping it all in Excel, you've got like a proper project management and product. Yeah. And then workflow tools to how you can place requests to your fellow scientists and how you can hand off experiments from one team to another. All right. Now let's go to season two of the next unicorns. We kicked off with the legend in Ed Tech, uh, Daphne Kohler. Now she was the co-founder of Coursera, if you're

in college or you're into taking college courses, you know Coursera. She joined us to talk about her new startup in C-Tro back in July of 2020. Now, they're a drug discovery startup that uses machine learning models to make drug development faster and better. This is a really important space. Drug discovery takes a long time and it's very expensive. And, you know, how accurate it is, obviously is important. By using machine learning, they can kind of get a hint of where drugs might work better. And this is an ongoing thing we're seeing inside of the biotech space. Machine learning, big data sets to figure out models as to which drug should be made next, which compounds, you know, and what the interactions would be. Really fascinating. Definitely

found it in Citro in 2018. And this is like, you know, crazy long ball, high-risk investing to do these kind of companies, right? Prior to join the podcast on episode 1092, they had raised $143 million in their series to be at a $623 million valuation by Ben Horowitz and Mark Andreessen from Andresen Horowitz, A16Z. Since then, they did a $400 million series C at a $2.5 billion evaluation in April of 2021. Again, getting into that 2021 bonanza when capital, uh, when capital, was flowing freely for big companies. The thesis being, hey, listen, you could never bet enough money on a winner. This was the common philosophy the last decade in Silicon Valley. You cannot overpay for a winner. Now let's let that sink in. If you've seen Peloton stock or Zooms or DoorDashes, you can overpay for a winner. Those companies are all winners in my book. Great products, great services. But oh my lord, their stocks have been creamed. And I think in some cases, they're trading below their private market valuations. This is a very unique thing that I've never seen in the history of Silicon

Valley. I'm sure it happened during the dot-com boom as well, but I don't remember it happening at this scale. Essentially, private investors putting money into a company and then the company being worth less as a public market company. It's not supposed to happen that way, but we've seen that. Peloton would be the most shocking version of it, I think. But yeah, that's a 4x step up for Daphne and in Citro. So congratulations to them. Really great team over there. Really important work. And this is when Silicon Valley's at best. When we take these amazing advances in technology, machine learning, and obviously artificial intelligence is the wider umbrella, and machine learning is part of that, and big data.

You know, we've been able to store all this data because of servers and cloud computing and the advances Moore's Law, we're able to process this stuff, the chips. All of this stuff has coalesced to make things like this possible. Here's some highlights from Daphne's episode. So this is something that's fascinated me for... about 20 years now, but it was always really hard to do that because data collection in biology involved weeks, months of wet lab experimentation by people sitting there and pipetting and moving liquids from one tube to the other. And so if you got a handful of data points, you felt lucky.

And now that world has changed. And we are in a position where there has been a set of tools that have been developed by bioengineers and cell biologists, that all of a sudden give us the opportunity to measure biology at unprecedented fidelity and scale. And that is just an incredible opportunity for people to bring that suite of tools together with tools from machine learning and data science to solve problems that are at the core of society, at the core of making the world a better place.

I think there is opportunities like that across multiple domains. I think it could transform agriculture and crop growing. It can transform the environment in allowing us to create organisms that clean up our oceans, for instance. And importantly, from what I want to do, it allows us to understand and transform human health, by making better drugs that help us deal with diseases that are currently intractable and cause tremendous amounts of pain and suffering and death because we haven't had the tools to really probe into the biology and figure out how to fix them.

And that's really what we hope to do it in C-Tro. All right, listen, if you know anything about me, I like to place a bet once in a while or friendly wager. and one of the most interesting platforms I've seen in the space is CalShe. K-A-L-S-H-I. Cal-She. This is a regulated exchange that offers financial prediction markets on everyday events. They've created a new asset class. It's called event contracts.

The contracts let you trade on specific events. You know, we've been talking about CPI here and inflation, the print on All In on This Week and startups. Well, you can place a bet, essentially, on what next month's CPI will be. or whether specific legislation will pass, or what global temperatures will look like at the end of the year. Now, why would you place these? Well, these might be important hedges for you. So here's how it works.

On CalShe, you earn $1 for every correct position you own at the market's close. For example, if you have 10 yeses in a market, you'll receive $10 when the market settles if the outcome is yes. You can also sell your contracts before the market closes if you are already in the money. If you're watching the video version, you can see one of the hottest markets on October 18th. yesterday, which was the upcoming October CPI print. The current forecast is 0.6 higher than September's print, so you can see how the contracts get cheaper, the higher you go. I want you to know, this is a federally regulated exchange. Sign up at calci.com slash twist to receive $25 after trading 100 contracts. That's right. They're going to give you $25 for trading 100 contracts.

I'll be on their trading as well. K-A-L-S-H-I.com slash twist. Okay, later in season two, we had Cockroach Labs, co-founder and CEO Spencer Kimball, joined the show. That was episode 1098 in 2020, August of 2020. That was right in the middle of the pandemic, huh? Well, it's kind of scary times. If you remember that, that's when we were talking about, oh, my God, the election is coming up. Will we get the Trump vaccine? Vaccine came after the election and was all, that was the summer of the vaccine.

When are we going to get it? Just as a little time capsule here, we were talking about outdoor dining. Remember that when we could all leave our houses and they were going to let us eat at diners outside? Oh my God, so risque. But also felt so great to be alive. When you first went out to a restaurant, you felt so great that they were going to make you food after just a couple of months before being on your doorstep wiping groceries with a mask on and just scare to death that you were going to get this crazy virus. And oh, Lord, we've come a long way since then. So they make CockroachDB, which is an open source cloud SQL database.

Basically, it helps companies in app scale faster, be more resilient. And, you know, databases latency is really important. and how quickly can you query the database? This is a competitor to stuff like Oracle, you know, other database companies. The last round before Spencer joined the show was an $86 million Series D at an $800, almost $900 million dollar valuation.

Since then, they've raised two more rounds of funding. They did a Series F at a $5 billion valuation in December of 2021, just a little more than a year after being on the show. So their customers include Comcast, Hard Rock, and All Saints. 5x plus valuation step up since joining the podcast. Let's roll the clips. I'm going to break it into two questions. Talk about serverless, explain to the audience what that is and why that's important to people. And then explain what do we look like in 2035. I'm just going to pick 15 years from now.

Certainly it's become immeasurably larger. I mean, things, it's not just that everyone's moving onto the cloud. And I was mentioning that as Global 2000. That tipping points already happened in the last couple of years. Now they're like every one of these companies is buying 100 million or 100 billion, sorry, 100 million in credits over the next four years. years or something. You're like tripping over those kinds of deals. So that is already happening and that's just represents non-organic growth in the cloud market. I mean, it's going to be getting, you know, up there in the hundreds of billions in the, you know, maybe even close to the trillion dollar mark, you know, over the next 10 years. Crazy. But it's also, it's not just those companies inorganically moving their spend to the cloud. It's also that you can do things faster with the cloud. And that's really where serverless comes in. You can iterate faster. You can deliver more services, more applications to your end users, that's how you compete whatever vertical you're in.

Let's say you're in financial services. Like it used to take, you know, months just to get machines into some private data center that you could use for something you were going to launch. This is months. Now you can get those things in minutes, maybe even seconds, especially when you're using orchestration technologies like Kubernetes and things like that. What serverless fundamentally is is it's abstracting all of the deployment,

all the work that has to be done around deployment from the equation. And they're saying, okay, we're going to do this deployment DevOps monitoring, keeping all your services up, maybe some auto scaling type stuff. We're going to do all that for you. And all you're going to do is pay us, right? And so the total cost of ownership is going to be lower. You might be paying us a bit more than if you did it yourself, but that's not counting all of the expertise that you have to hire into your company to run that.

Then to wrap up season two of the next unicorns, we had a product that we actually use all the time here at launch. Joe Thomas is the CEO and co-founder of Loom. They sell basically SaaS software. It lets you do audio snippets, video snippets on top of your screen. So you could do a little screencast. You've probably seen Looms. A lot of salespeople use it.

Some product managers will do it when they're sending a new version of a product. It's a picture and a picture. It's almost like pop-up videos. You got a little video on the bottom right. It's in a circle. Hey, my name's Joe. I want to sell you some SaaS software, yada, yada. Let me walk you through it.

Great to meet you, Jane. Blah, blah, blah, blah, blah. I read your LinkedIn. your kids go to school here, whatever, you know the nonsense. These looms are really easy for people to create, and they're actually really, really effective because they're customized and they're fast. So people working from home can do a very quick walkthrough of a product.

They don't need to know how to do video editing. Previously, the software would have taken, okay, I've got to record my screen. Okay, now I've got to record a video on myself. Okay, now I've got to sync it. I mean, it would have taken hours to make these videos now, you know, with tools like LUM, and there's many competitors. It's built into some other products out there now.

You can just very easily make short walkthroughs and videos combining desktop, walking through a presentation, a PowerPoint or whatever it happens to be. Amazing for onboarding, new hires, all that kind of stuff. That's what we use it for. We walk them through like, hey, welcome to the company. Here's what you need to know. They were founded in 2016. Joe was on the show in September of 2020, and at the time the company had just raised their series B, $29 million, at a $321 million valuation. Sequoia and Co2, two amazing firms.

Sequoia being the most legendary firm and successful firm in the history of Silicon Valley. They've raised more money since. In May of 2021, $130 million Series C at a $1.4 billion pre-money valuation led by Indrice and Horowitz coming after Sequoia. And so that's a 4X boost in being on the show. Clearly the show correlates with success or ability to pick the companies, perhaps. Let's check out this quick clip from Joe back in 2020. How did that fundraising process work?

in a pandemic? I mean, you know Silicon Valley. When you tell one person that you're fundraising, the whole ecosystem knows. It is weird. Yeah, we had told, we had talked to the board internally and just let them know that we were thinking about this. And then from there, we had been building relationships. I think one of the most important things for founders to do that I learned in the early

days is be building relationships in between rounds. Do not try and like cold start any relationship when you're going up to raise around. And so there was a short list of investors that we potentially wanted to work with. And it was starting to get to be at the valuation that we were targeting in that kind of more gross stage investor territory. And so I had reached out to a short list. We did all of the meetings remote. I actually said it was by far the most efficient round that I've ever raised because I was actually able to get a material amount of work done during it. You're going to get this question about defensibility all the time. I could give the stock answer for you, but I want to hear how you answer

it. How I always answered it is the fact that you have to believe, and what I think we did a really good job of is picking early investors that believe that this is a missing mode of communication at work. This is a massive opportunity. And in order to get this right, you just have to focus on building a best in class product. And that takes disproportionate resource allocation to our video infrastructure is the most performance. that exists for any asynchronous video recording and sharing. And then the second part of defensibility, if you have a best in class product, is you need to build a best in class brand around the product as well.

So do folks look to you as being the thought leaders and the next kind of brand trust? And then the third part of this is there could be death by thousand paper cuts, but usually there's one or two winners in a space. And the one or two winners, particularly in B2B SaaS, are those that can serve the larger organizations. And so if we can be the market creators and market leaders in this space, then we can start to grab the biggest customers in the world. And as long as you grab those, there's pretty high switching costs. Like it has to be a 10x better solution for a new entry to come in and steal the material market share from Lume. And so the question that we had to answer was less about kind of like

the small upstarts that are copying us, which now we've kind of created an ecosystem below us. that there will probably be more and more over time and more about how do we make sure that we're not just a feature and that we're truly a product and independent business. Okay, listen, season three, we just did it. But I wanted to point out one of my favorites. As fans of This Week in Startups and All In, you probably know, we're big fans of Adina Hefetz.

She is the CEO of Divi Holmes. She spoke at the All In Summit. They provide an on-ramp to home ownership. Really clever idea. The person finds a home. then they start renting it, DIVY buys it, and then you rent to buy. So you only have to pay one to two percent up front, divy pays the rest, and the person pays the monthly rent, but 25% is put aside towards savings that could be used to the future purchase of the home. Basically

rent to buy, right? But Adina, with this very clever idea, gets to have individuals really care about the home they're buying. So this makes the renters care about the home. They're going to take better care of it, right? Because they have a chance to buy it. She, uh, joined the the show, episode 1246. My God, I've done a lot of episodes of this week in startups. It really just goes to show you if you do something for a decade. Hopefully you get good at it. Hopefully you have a fun time and the numbers go up. Before she joined the podcast, company was valued at 490 million and she had raised $110 million in 2021. Then in October of 2021, less than a year after raising that 110 million, she raised a $200 million series

D at a $2 billion valuation co-led by Caffinated Capital and Tiger Global. I've talked about Tiger Global, CO2. Those were some of those late stage firms who had the philosophy. You can never overpay for a winner. Now, Adena's a winner. I know that. Hopefully Divie is a huge winner. But this is a very extraordinary valuation run up. Let's get into it. Those funds are going to have a little bit of a challenge. Depends on their time horizon, of course, and how well they picked. So while they might be down now, it only takes one big winner, don't I know it, to fix a portfolio or to make you legendary in the capital allocation business. So I'm rooting for Tiger Global Co2 and those folks who came in and made those big bets that

they do wind up having a winner. And who knows? Divi could be that winner for them. But let's let that sink in. A three and a half times valuation step up from February of 2021 to October of 2021. February, March, April, May, June, July, August, September, October, nine months to add $1.3 billion to your valuation. that means in nine months, over $100 million in valuation was increased per month.

It means over $3 or $4 million a day in valuation were added. It doesn't make a lot of sense, does it, that a company would add, all due respect to Adina and her amazing team, it doesn't make a lot of sense that you would add that much valuation. You would really have to be growing revenues at a big pace. But, you know, people got very excited about tech in 2021. And there was a lot of free money in the system. We printed a lot more money. and we're all now in 2022 digesting that.

For the smart founders like Adina and other ones who raise at that high number, they just got to work it out. They got to just put that money to work slowly, make it last, get through this recession, and if you have that amount of money, you'll get through to the other side. So congratulations to her and the team. And she's since been on this week in startups,

and again, she was a great speaker at the All In Summit. So let's take a moment. for a quick snippet from Edina, from her original Next Unicorns interview from season three. How did you come up with this idea and then how many homes have you bought on behalf of your renters? Sure, yeah. So when I came up with the idea for Divi, it was really based on a couple of things. Personal experience and then understanding the market. From the market side, let's start with that.

I saw that we had just made it out of the global financial crisis. If you looked at the rates of homeownership, they were at all-time lows. and I thought, you know, people can't get mortgages. There has to be another option that we can offer them. And so wanted to figure out a way in which people could buy into the equity of homes without taking on a massive amount of risk from a credit lending perspective. And so making them into a renter, letting them buy into the equity, sharing in the appreciation, seemed to be a good idea as a way to start.

And then more on the personal side, my parents, myself, I couldn't get a mortgage. My dad, when he had immigrated to the U.S., couldn't get a mortgage. him and my mom had actually just gotten married, just got pregnant, and they were looking for a house, couldn't find one. And then ultimately they found a lovely woman who was willing to give them seller financing on a home.

And that house became my family sole source of savings and wealth. And eventually my dad had a credit score, refinanced that house with a mortgage, and was able to take cash out and use that to pay for me, my three siblings to go to college. And I always just thought that in Silicon Valley, CEOs had to be like Elon Musk. Like visionary, like we're going,

going to Mars, like big picture, and not me. To me, I was a worker bee. Like, I did my models. I was very organized. I was diligent. I prepared for like my slides for every meeting. I did not think that was the stuff of a CEO. I thought I had to be a bigger picture thinker. And what's actually amazing is having founded Divy now, I realize that there's a lot of different types of CEOs at different points in time. The person who I was for the last three years in founding Divi is not the person I'm going to be for the next three years. And there is no right or wrong. but more the right fit for the company at a particular time. Okay, here's a question from my mom, apparently.

What are some of the unlocks for 2020 that could help founders? For example, mobile phone adoption, the 2008-2009 experience, 2009. Now, that is not actually my mom. With somebody in the chat room claimed to be mom. Great, great question. I think the why now of 2023 is going to be AI and machine learning. Now, that was the why now a number of years ago, but it's actually now coming to fruition. So why is that happening?

Well, it used to take a lot of people, and there weren't a lot of open source projects or software to build on, and there wasn't a big talent pool. So the number of people who could actually write code and who understand artificial intelligence and machine learning was very small. In fact, it was dozens, then hundreds, and now it's thousands to tens of thousands of people understand how to use this software. and it's pretty easy to learn. So you can just go to MIT and watch their machine learning AI courses or Stanford. They're all up there in public.

All the tools are out there. So I believe that the next year or two in startup land is going to be developers and founders playing with AI tools, computer vision, machine learning, and they're not going to do projects like, well, let me see if I can beat chess,

but they might do projects that are, hey, let me see, if I can tell you which company your salesperson should call next to sell SaaS software to, right? Or I'm going to tell you which story you should write next as a journalist. Or I'm going to find you who I think the great next chef is going to be by, or influencer, by analyzing what's going on at TikTok, right? Different ways to train AI to solve problems that were being done brute force, or maybe with, you know, some rudimentary tools. And that's going to be very exciting

because if people can solve problems instead of in five hours, do it in five minutes, like we're seeing, just when people use Dolly to make a beautiful image or a beautiful logo. And maybe that logo took, you know, used to take 10 weeks. I used this example a lot because logos used to cost $5,000, for a startup.

Then you could hire somebody, you know, maybe offshore working from home for $50 to $500 dollars to do a logo. Now, a founder, any civilian, is going to be able to open up, and somebody should make this, I would fund it. If somebody made an AI toolkit just to make logos and come up with brand names, people would pay hundreds of dollars for that software just to have it here and say, hey, I want to come up with a name of a new product. I want you to check that it's available, check the domain, check for competing products, check the trademark registry, copyrights, whatever. I want you to come up with a new word that's kind of like a mix between Nike,

and prego tomato sauce and whatever. And it just gives you some ideas, right? So these kind of ideas, I think, are to come out of the woodwork and they're going to surprise us as to how delightful and fun they are. I would love to see somebody create a Dolly version of a screenplay writing software

where it just gave you ideas on what should happen in your screenplay or character ideas. What if there was one that wrote jokes and comedians could say, hey, I want to write a joke about, you know, my friend Chamoth, and I want it to be about his sweater, and I want it to be about his time in Italy.

And it says, oh, yeah, I got it. Boom. I've listened to every episode of All In. Here's all the the Chimov quotes. Here's some jokes for you. Or here's some stems of jokes that you can work off. I think all that's coming. So great question. All right, let's take another question. This one's from Jack. J. Cal, what are the qualities that most attract you to founders and people in general? Okay. So for founders, pretty obvious. I like people who can build products. I like people who can hire amazing talent and inspire them to build great products. And I like founders who are obsessed and hardworking and just put in the time to make great products to delight customers. So they have to have a founder.

The founder has to have a certain obsession with not only product and team, but also an obsession with the customers. And that tends to lead to success. Now, in terms of people, I like people who are fun and who are loyal and who are kind and who are generous. And now that doesn't mean everybody in my life. is off the charts in that. I maintain friendships or acquaintances, business relationships, and of course, you know, even friendships with people who maybe are flawed in those regards. But that's the standard I try to hold myself up to. I like to be the most loyal friend anybody's ever had. I like to be the most generous friend. And you know what? It's worked out for me.

You know, sometimes I do get burned. I'm generous to somebody. I give them a lot of time, give a lot of energy and it doesn't reciprocate. But by having this philosophy in life that I'm always going to be the best friend out of all my besties, I'm going to be the most loyal, hardworking for them and really think about them and try to be, you know, a really, really strong friend to them. What has happened to me is over time, I've just developed wonderful, deep friendships with people that are meaningful. And I always feel like, I never feel like I'm imposing upon anybody or using anybody. And I do feel like sometimes people are trying to use me and it's okay. I have this other group of friends who are my real friends.

And then I've got acquaintances and people who use me and, you know, are transactional. And that's okay too. I just put them in the transactional bucket as opposed to the, hey, these are my good friends who I want to hang with and just, you know, watch an episode of South Park or go, you know, make a steak and have a glass of wine, right? It's just different buckets of people. And I think it's important to define who you are and how much of a good friend you are and then, you know, try to pair yourself with people who reciprocated that way. All right, here's a question from Bob G, the OG Bob G. Why do you think many companies fail to integrate acquisitions effectively into the core business? What are the most successful acquisitions in your opinion? Well, I mean, it's obvious. what happens. The company gets acquired and then the acquiring company tries to tinker and screw with it, and then they drive the founders out and it goes sideways. Now, there's a balance here. Sometimes the founders might not be bringing it or they're not as ambitious as they need to be. You'd have to ask yourself, well, why did I buy it? Of course, most people consider YouTube, Instagram, WhatsApp, amongst the most amazing acquisitions of all time. I also think PowerPoint was acquired by Microsoft. And so these have really been accretive to those giant companies.

And if you look at Instagram, you look at YouTube, double-click by Google comes to mind. Those were all done in a way to not screw them up, but also to integrate them intelligently. So PowerPoint did become part of the office suite. Apple made the greatest acquisition of all times in my mind. I think if you look at all these, the $400 million acquisition of Steve Jobs, you know, they said they bought next. They bought Steve Jobs, right? So that was a $400 million signing bonus of the greatest CEO and greatest product creator

and the history of mankind in my mind. And so, well done. I mean, Adobe bought Photoshop for $35 million. I mean, they're buying Figma for $20 billion. They bought Photoshop for $35 million in 1995, and they've milked that ever since. Instagram, I mean, Facebook tried to screw that up. They tinkered with it and screwed with it,

but they still have shepherded it to over a billion people. For me, if I look through all of those, putting aside Steve Jobs, which I consider recruitment, I would say that YouTube, if YouTube was an independent company right now, I think it would be on the way to a trillion dollars. I think it's a little bit limited inside of Google in terms of ambition and the value creation.

I think if it was unlocked, they would be acquiring a Netflix or acquiring, they would have acquired the James Bond rights. They would have acquired the NFL. They would have been more aggressive as a company. Whereas, you know, with Google, alphabet as the parent, you know, got two layers of, you know, ambition there. And I think they should spin it out.

I think Google should, spin it out for their shareholders. They won't, but boy, would that be an amazing thing. I think every, I think they would, they would double the value of Google by spinning out YouTube eventually within like five years or something. I think it would be unbelievably a creative to shareholders.

Great question.