This Week in Startups - Rapid Fire News: App Annie fraud, Instagram’s negative impact, Discord valued at $15B & more | E1284

Episode Date: September 17, 2021

Full news show! First up, Jason covers the App Annie fraud (1:59), then he shares thoughts on Facebook's leaked documents showing they knew Instagram was detrimental to teen girls' mental health despite claiming the contrary (13:55). He also touches on Discord's $15B valuation (25:56), Mailchimp selling for $12B (33:40), and answers some livestream questions (40:35)!

Okay, we got a full new show for you today. First up, we're going to cover App Annie and the fraud where they were ordered to pay $10 million, and their founder is now unable to be on a public board, be an officer at a public company for three years, quite a speeding ticket there. And then we're going to cover Instagram's detrimental effect on teenage girls and how they've disclosed none of this to the public, and they got caught with their hand in the cookie jar. I've got some choice words for Zuckerberg and Facebook.

Finally, we cover Discord raises. at a $15 billion valuation. We do a little analysis head-to-head with Reddit. I think the two companies should merge. I'll explain why before they go public. And finally, a deep dive into MailChimp selling for $12 billion to intuit. And should the employees have taken stock or should they have taken those guaranteed bonuses? We'll talk about the difference between the two types of companies,

ones that give stock options and one that give generous salary and bonus. Stick with us. This week in Startups is brought to you by Fiver Business. is a modern workplace for the digital world. Their team of dedicated business success managers help match you with the best freelancers for your team. Right now, you can sign up for Fivera business free for the first year and save 10% on your purchase with promo code, Jason.

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get an extra 10% off using Offer Code Twist. Okay, in our first story, the fraud parade continues. Man, whenever a market gets hot, like we see in crypto and in startups and the public markets, when things get overheated and the government's giving away a bunch of free money, then you start to see a lot of corruption and you see a lot of fraud. Today's fraud is the SEC has charged mobile data seller app Annie and their former CEO with securities fraud. and the company will pay a $10 million settlement.

Okay, so here, from the press release on Tuesday, the SEC announced they were charging App Annie and former CEO co-founder Bertrand Schmidt with securities fraud, and they would be forced to pay $10 million in a settlement. If you don't know about App Annie, they help companies basically optimize their mobile app performance so you can do things like increase your downloads

or maybe move up in the App Store rankings. You give them data. They give you back analytics, about your product. And then the concept is they were supposed to be taking all of that data from all of the 8 million apps they claim use the service, like downloads and usage statistics, how many people open it, all that stuff, revenue estimates. And then they would sell that data in an anonymized fashion to traders looking to place

bets on this data. So people who do, you know, major, major trades, of course, buy data from many different sources. You may have heard of this before. or satellite companies were taking pictures of parking lots and giving the parking lot data or maybe port data, how many ships were coming into a port, as a proxy for economic activity, whether it's at a target or a city or a country. And so then you can place a bet on that, which means, you know, any information you can publicly get, that's not insider trading, right? Not exactly. It's just you

getting an edge through information. And there's a fine line between what's insider and what's just really clever data to get. You could sit outside of a Tesla dealership, count the number of people going in and out, and do that every day. Or if you happen to be across the street from a Tesla dealership or a Starbucks, what if you put a camera there and you literally counted the number of people coming in and out or built software to do that? And then made trades based on it. It seems like a logical thing to do. If you see the number of people coming to a Starbucks every day, increase, you know, you might want to increase your bet. Just like counting cards isn't technically illegal in Blackjack. If you know there are more face cards in the deck, you can make a strategy on that.

But of course, the casino can kick you out. In this case, the casino is the SEC, and they'll look at the rules. So App Annie, not sure exactly what the company's valued out right now, but we found a last investment of $63 million out of $500 or so million dollar valuation in their series E. But here's what wrong according to the SEC press release. App Annie and Schmidt understood that companies would only share their confidential app performance data with App Annie if it promised not to disclose their data to third parties. Okay, so if you were running your app and you were Uber or Twitter or some nascent company,

you are com or Headspace, whatever happens to be, you were using App Bannie to optimize yours. You would not want third parties to have your data. As a result, App Bannie promised their customers that the confidential data would be anonymized and aggregated before being sold to trading firms according to the SEC release. What does that mean? Okay, we took all the games and we said, these are the number of hours being played on games on iPhones versus Android phones. Here's the number of on-demand companies or ride-sharing companies, but they thought they were all being anonymized. Obviously, they weren't. So contrary to these

representations, the order finds that from late 2014 through mid-2018, App Annie used non-aggregated and non-anonymous data to alter its model-generated estimates to make them more valuable to trading firms. According to the Reese, App Annie knew that their customers were making investment decisions based on their estimates, and they even shared strategies on how the firms could use the estimates to trade ahead of quarterly earnings, according to the SEC release. So here's a quote from the director of SEC's enforcement division. Here, App Annie and Schmidt lied to companies about how their confidential data was being used and then not only sold the manipulated estimates to their trading firm customers,

but also encouraged them to trade on those estimates, often touting how closely they correlated with the company's true performance and stock price. In other words, Schmitt was out there telling people, use my data, buy my data, you're going to make more money, trading stocks. Is that insider trading? No, it's not information from the company. But in a way, it's sort of like a secondary level of insider trading.

It's kind of hard to describe, right? Because people gave that data, but they gave it under the auspices of it being anonymized. So, you know, do insiders have an advantage? Of course they do. Of course they do. Anytime you have a lot of money at stake and in some kind of gambling or trading environment, people will try to get an edge.

And some people actually take pride in getting an edge that is illegal or not available, you know, depending on if you want to be charitable or if you want to be super cynical about it. In terms of fraud, you know, this is serious fraud. Is it fraud on the level of Theranos where the service doesn't work and you're basically putting people's lives at risk? No. You know, 10 is Bernie Madoff in Tharnos in my mind, like premeditated fraud.

I put this, you know, in the 6, 7, 8 range. It's just somebody doing something super unethical and they got busted. And there's no indication here if that person has been banned. But usually there's a ban with these things. Like they would be, oh no, actually there is a ban. App Annie and Schmidt did not admit or

deny the findings, but app bany will pay $10 million. Schmidt will pay $300K. And Schmidt will be prohibited from serving as a director or officer of a public company for three years. So I would say that's a speeding ticket more than a real serious action. It's a speeding ticket. I don't know if it's a slap on the wrist. A slap on the wrist would be don't do it again. I would categorize this as, you know, a speeding ticket, which if you own a Ferrari and you get like a serious speeding ticket and you get your license suspended for three years, that's kind of painful, right? If they impound the car,

This is kind of like you're a Ferrari doing 150 on the streets. They impound the car. You lose your license for three years. So it's a serious speeding ticket, serious action. And as I said on CNBC the other day, and I think I said it on this week and startups, there are 800 unicorns now. In my estimate, one out of 100 companies I invest in or, you know, I meet with sometimes, you know, well, I'd say out of the companies I've invested in 300, I've seen in 1% of the cases

things that would be very concerning to me, maybe not made off there are no level frauds, but people doing things that I've had to tell them like, that's not a good idea. If you are telling people, these are our customers on a slide,

let's say, and half of them are your customers and half of them are in your pipeline, you may be exaggerating, but exaggerating when you're selling securities, securities fraud. Giving people data to trade on, now you're getting into securities fraud.

So you have to just have a very high moral and ethical, compass when you are running a company. I've seen people do things they think are no big deal, like, I'm not going to take a salary, but I'm going to have the company pay for my apartment, and I'm going to have a corporate card that I put all my living expenses on. Then you're doing tax evasion. Why is it tax evasion? Because if you were supposed to get a salary, you're supposed to pay income tax. And if you're living and sleeping in your apartment and you use one third of it as an office and two thirds for living, well, then you should really be doing one third as an

expense against your personal taxes or maybe the company pays for it. And you just have to talk to a tax accountant and make sure you do these things right. So when you see all of these Tiger Globals and other companies allegedly, you know, I haven't seen this firsthand, but people have been talking about this, these firms basically taking a leap of faith and saying, we're going to not do diligence or we're going to do light diligence and we're going to pay a high price so we can close a deal quicker, that means that they're relying on the early investors to make sure that everything is audited and tight. My lord, I can tell you now in this frothy market the last six months, when I ask founders who were considering investing and to give me their document locker and to

due diligence, we get pushback. I'd say 25% of the time when we ask for a bank statement, or we ask for incorporation docs, or we ask to seek contracts, and they're like, other investors haven't asked for that. And when somebody says to me, other investors haven't asked for that, all of a sudden it's like, boop, boop, it's just like the alarms go off. Okay, other investors didn't ask for it, and they're putting in more money than me, they're leading the round and didn't ask to see the contracts. You know, I've had many times, and I told a story in my book, Angel, where somebody told me they had Google and Facebook as customers, and then in diligence, we asked to see the contracts, and they said, oh, it was an oral agreement.

And then I said, okay, who's the oral agreement with? And they said, oh, well, you know, we met these two people at party. We pitched them our product. They said they would totally do it, we're meeting with them. But they told me they were their pilot customers. I mean, and that I'm supposed to buy securities. And then I saw that same company on one of those Fugazi equity crowdfunding sites, not the legit ones. I think Republic and seed investors are super legit. They have a diligence process. I know companies of mine that have gone through it. And, you know, I've got first-end experience there that they have a pretty rigorous process. It doesn't mean everything is going to win, but it means, you know, they should eliminate frauds from getting through the system. But this thing I saw,

was a total fraud, and then I saw them on one of the second tier equity crowdfunding sites. So buyer beware, if you're playing in a poker game, my best advice to you is to assume somebody's rigging the game and try to defend yourself. And this correlates with what we saw yesterday, with NFTs. Somebody came at me on Twitter and said, hey, you know, you're beating up on crypto too much. Well, here we go. Today is a totally non-crypto fraud. And for the last couple of weeks we've been covering Theranos. We cover Tether, we cover Theranos, and we'll cover App Annie. We'll cover fraud wherever it is. We'll do it on OpenC, which is a venture-backed crypto company yesterday. Fraud exists. When you're gambling, when you're investing, assume that somebody could be trying to

screw you and just act accordingly, right, and take precautions. Doesn't mean you shouldn't place bets, but you've got to be careful. When you're trying to keep the momentum going on an important project, you may need some extra help. Well, Fiverr business puts a world of expert freelancers at your fingertips so you can get that project across the finish line and be proud of the work. Plus, you'll get everything you need

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it needs to finish strong. Right now, you can sign up for Fiverber Business, absolutely free for the first year, one year free, and save 10% on your purchase on Fiverr Business with the promo code Jason. Just go to Fiverr.com slash business, and don't forget that promo code Jason. Fiverr is spelled F-I-V-E-R dot com. Okay, Fiverr.com slash business, promo code Jason. Let's get back to this epic episode. According to a Wall Street Journal report, Facebook executives know that Instagram is toxic for teen girls

and have downplayed significant mental health issues. My lord, you know, we all know this just based on firsthand experience, but using Instagram and the influence it has over young people and even old people to create FOMO or body image issues is obvious to anyone. Media is extremely powerful and it has an incredibly detrimental effect on your mental health. It is, you know, to me, a crisis that I would put, I'm not just say cigarettes. Cigarettes, you know, were chemicals in your lungs that killed you from cancer. Anybody who looks at what happens when somebody gets cancer and then looks at what

happens when people have mental health issues like depression, which one is worse? I'm curious, in your mind, which is worse? I'm looking at the people in the live chat room. I'm wondering if somebody had severe depression or they had lung cancer when they were 70, but they had severe depression from when they were 20 years old to 60 years old, which would be a worse fate to be severely depressed and anxious from 20 to 60 or to just die of, you know, lung cancer at 70, right? We really should start thinking about it in those terms in my mind. That's how I look at it. So according to the Wall Street Journal, Facebook conducted in-depth research on the impacts of Instagram on children's mental health from 2018 to 2020,

but they never made the research public. And this is where journalism is super important. Journalists, you know, really need to sink their teeth into this kind of stuff because you do have bad actors like Instagram and Facebook out there. Nor did they make this research available to academics or lawmakers who previously asked for it. So in other words, this is the cover-up. If you've ever seen the movie The Insider, I think that's a Michael Mann movie with Russell Crow, one of my top 10 favorite films. It's very similar to what happened with the tobacco companies. They had the research.

They knew it. And they hit it from people. And that really is horrific. In my mind, teens, children should not use social media. I'm keeping my kids off it for as long as possible. seems the absolute worst, Instagram right behind it. And I covered Facebook talking about building Instagram for kids, which I called the worst idea ever on episode 1213 in May.

Think about it for a second. The people at Facebook who have children and unlimited resources to raise those children get reports back in-depth research that they are causing mental health problems in children. not only do they not share that with other academics not only do they try to slow things down and have an open discussion with public policy people no what does facebook do they recommend instagram for kids are you kidding me really you know this is going down Zuckerberg and you have kids really and then you decide you're going to do instagram for kids so you know that teens and people over the age of 13, 16 are having mental health issues.

And you decide, let's go earlier with the mental health issues. Did you realize how derange that is? Facebook presentation slides from 2019 stated, quote, We make body image issues worse for one in three teen girls. Teens blame Instagram for increases in the rate of anxiety and depression. The reaction was unprompted and consistent across all groups, according to the Wall Street Journal. Oh my Lord, can you imagine being a Facebook executive, being in a meeting, and somebody pulls up a slide that says,

we make body image issues worse for one in three teen girls. And teens blame Instagram for increases in the rate of anxiety and depression. The teens are telling you you're doing this to them. And you're doing it to one out of three girls. This isn't one in ten. It's not one in twenty. Maybe you say it's a statistical anomaly. Maybe the data's wrong.

If they're telling you, you're doing this to them. Believe them. Teenagers are telling you they're ruining, you're ruining their lives with your product. Believe them. Come up with ways to maybe not allow certain types of images or to maybe throttle people going viral on these services. There are things you could be doing. And at the very least, you could be putting warnings up, telling parents, and maybe increasing the age at which people start on this. But that is against Zuckerberg.

key, key mission. Zuckerberg only cares about growth. I've been saying this for over 10 years now. I know the guy, I've met him, I know the people who work for him. He has only ever cared about one thing, growth. One thing matters to Zuckerberg, growth. And he is not, you know, the most social of people. I don't want to diagnose him from afar, but, you know, when Saturday Night Live does skits

about him being Asperger's s, and everybody kind of says, this person does not understand social dynamics. You have somebody who maybe is not very sophisticated in social dynamics. I'll say it in a charitable way, based on his behavior, not trying to diagnose him. And if that person is in charge of the world's largest social experiment, what do we think is going to happen? What decisions do you think he's going to be made? He's gotten the largest fines in the history of the FTC, and that's all you need to know. You cannot trust Zah. Don't trust Zah. And you do not want these products in your life. According to the Wall Street Journal article, about 22 million teens log into Instagram every day. They should be banned from doing so. I think it's that simple. I think they should just increase the

age. Maybe it's like 17 years old. If we assume 11 million of those are young women or girls, just cut the number in half. If one in three of those 11 million are facing body image issues, that's 3.6 million teen girls every day experiencing body issues. I mean, it's just gross, right? It's super gross. How dare you? How can you live with yourself, Mark Zuckerberg?

I mean, just horrific. A Virginia Congresswoman, Jennifer Wexton, gave her thoughts on the matter. We make body images issue. We make body image issues worse for one in three teen girls. The quote that I just read. This report is sickening.

It's hard enough being a teen girl these days. Facebook must get a lot more transparent about how it serves content and the impact of that content, especially on young women. The Walsh Street Journal also notes that in public Facebook has downplayed Instagram's negative effects on teens' mental health. That's like trusting the cigarette companies who had doctors in their heads and told you was good for circulation.

I mean, really, you're going to trust Mark Zuckerberg or Facebook executives when they're suppressing data and they've made every decision possible to increase the share price by increasing engagement, even if it screws up democracy, elections, and now teens mental health. I mean, you can make a list of the things that social media is having a negative impact on democracy, mental health. I mean, how much more evidence do we need to know that this is not a positive for society and it needs to be rethought of? And of course, consumers are responsible because they're the ones being addicted to this. This is, you know, we might look back on this era and say fentanyl killed X number of people and depression from social media anxiety

caused this much suffering and suicides, right? We might actually look at that. And, you know, it might be neck and neck, right? Drug overdoses and mental health. And maybe they're overlapping. Maybe people get depressed from social media, from being on Facebook or Instagram, and then they self-medicate with opioids or fentanyl, right? It's quite possible. So the quote from Zuckerberg from March of 2021,

the research that we've seen is that using social apps to connect with other people can have positive mental health benefits. Oh, my Lord. you know, this just shows you how horrible a human being Zuckerberg is. The way that sentence is phrased is so weasily and practiced. The research we've seen, right, is qualifying it, is that using social apps to connect with other people can, not does, can have positive mental health benefits. So he basically doesn't talk about kids using the apps or this depression stuff.

He leaves that out of it. And then he probably has some report that some number of people had a positive. positive experience, right? Sure. Some people can have a positive experience doing something dangerous, of course. So Adam Mosari, the head of Instagram Toll Report, is in May. That research indicated that apps effects on teens' well-being likely quite small, according to the Wall Street Journal. You know, Mar Hicks is a tech professor, and she commented to the Wall Street Journal article. Companies love to pretend they don't realize the harms their products cause. They always know. Yes, always. So should these type of reports be public going forward for all social media companies? Yeah,

I think social media companies are having an existential crisis now. And I think their very existence is causing so much damage to democracy, to social discourse and mental health that society will over time, you know, recontextualize how they operate. And, you know, China is telling people, listen, you cannot be on these services in some cases, and we're going to limit video game usage. They're looking at this, and then other countries obviously banning Facebook, especially during elections. Other countries who are authoritarian are seeing the negative impact, and because they're authoritarian, they take immediate action.

So sometimes when you see an authoritarian country take immediate action, it's because they can. We in a democracy are going to have to have a dialogue about this. Well, the dialogue is pretty clear now. We know these companies have been causing damage for well over a decade now. It's so obvious to everybody. And it's so obvious that all they care about is growth and it's growth at all costs, whether it's YouTube with their algorithm or Facebook with theirs. This will only stop when the algorithm stops serving us the information.

And we set some age limits. I mean, those are the two things that have to occur. So Facebook, Facebook executives, you should be ashamed of yourselves. and I hope the money was worth it, but you're going to regret it on your deathbeds, the end. Was that a little too rough? Chatroom? Sorry.

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Discord is now valued at $15 billion after raising $500 million. This was led by Dragonnear, Koto, Fidelity, and others. the folks who tend to invest in late-stage startups before they go public. If you remember back on episode 1190, Microsoft was very close to acquiring Discord for a room and price between 10 and 12 billion. Those talks fell through. So, obviously, if at this valuation, they are now valued at, you know, somewhere between 20 and 50% more than they would have been valued in that deal with Microsoft. If you don't know Discord, it's a chat room. it's a chat room. It's like AOL chat. It's like, you know, Yammer turned into Slack or AOL chat,

Yahoo chat, turn into Yammer, turned into Slack, turned into Discord. So, and it's, but it's more for content that's on Reddit. In other words, content that young people, whether it's video games or comic books or music, would be into. So let's break down Discord's numbers for their chat service. And we'll compare them to Reddit, which is, I think, these are very complimentary brands that are both going to wind up going public. I think the two should merge and go public. They would be worth $100 billion together. That's the best idea that anybody's going to say in the next 24 hours on the internet.

So somebody bookmark that. Discord was launched in May of 2015. Reddit was launched 10 years earlier in 2005. So on a valuation basis, Discord is at $15 billion. Reddit's over $10 billion. And Reddit raised a $700 million series F in all. this past August last month, that means they're about to go public if you're wondering. That's just a lot of money.

Those late stage investors are looking to double their money in two years or something like that and maybe triple it in two or three years. So they're making a late stage bet that they want to, you know, they'll take a lot of risk before it goes public and gets priced by the public markets. Fidelity is in both their rounds. There are no fools. They know that these services are not going anywhere. Reddit did not give an exact valuation just over $10 billion.

but we can assume Discord's valuation is a little bit higher. So on a revenue basis, according to the Wall Street Journal and some of the numbers we found, Discord had $130 million in revenue in 2020, which was 3x in 2019. So tripling a big number like $45 million is pretty impressive. It's hard to double big numbers or triple them. A high growth stock in the public markets would be over 20% year-over-year growth. So in the private markets, we are really looking for companies that, triple, triple, double, double, double, double, something like that.

Sometimes you can get a triple, triple, triple, triple, double, double, double. Sometimes in the early stages, you'll see a company go four or five X year over year. So that's how these private companies kind of grow, which means in 2021 with the pandemic and people at home and Discord getting super popular, who knows, maybe they tripled again. Maybe their revenue is 300 million now. We don't know. Reddit did between 170 and 200 million in revenue in 2020 based on the numbers we found online, again, private companies do not need to.

to give out their numbers, but sometimes they get leaked by investors or somebody might give an estimate. They had confirmed 100 million in advertising in Q2 of 2021. So they're on a $400 million run rate. That was according to the Series F announcement. So based on my estimates, if they two and a half times their revenue, that means Discord would be at 130, 260 plus another call it 60 or 70. you know, you're looking at $350 million in revenue. Let's take a guess.

And Reddit at $400 million. Pretty amazing that they're both in the same exact zone. Discord sells a $100 a year premium subscription called Nitro for servers. And when you purchase those, it makes your servers have more advanced features and tools. Slack calls their servers or their instances, workspaces, Reddit, as you know, has subreddits. You can think of those as forums. If you have Nitro, you can do, you know, a lot of extra little things like personal profiles and HD video screen sharing and file uploads or larger file uploads. Discord currently has over 150 million

monthly active users according to Bloomberg. Reddit said it had 430 million monthly active users at the end of 2019. Now, Reddit has been around a long time. And as you know, when you've been around that extra 10 years, that's why they have that big boost because they get SEO traffic. You type anything in these days. You're highly liked you to have Quora and Reddit come up. Reddit is kind of like Quora, the Q&A site, because anytime you type in a question, what you'll see in Google Auto Fill, if you say, what's a movie like Tropic Thunder? You'll see at the end, Reddit. So people now are adding the word Reddit. They're appending the word Reddit, fancy word for adding, at the end of a Google search. That's when you know you've got a ball or service is when people

say, give me the answer of Reddit. In terms of servers and subreddits, 6.7 million active servers on Discord in 2020, according to the business of apps. If 20% of those servers are paying $100 a year, that's about 1.3 million customers at $130 million in revenue, which was their revenue in 2020. 20% seems high to me,

but I might go with 10 or 5%. 3 million total subreddits, according to Reddit's metrics page. You know, which one of these is the better service? Which one would I rather own? Well, Reddit's been around longer. Reddit can add Discord. just like Reddit added images and got rid of Imger, I think was the service that was doing images.

If they were both publicly traded and I can only own one, that would be a very hard decision to make. I might go with Reddit because of longevity, but if I want it quicker returns in a shorter period time, I go with Discord. So I think Reddit, more stable, never going anywhere. And one of the great lessons of Reddit is that if you just keep running a service that has product market fit, it will not go away. Reddit has never had a competitor.

Discord on the margins is competitive, but it's not going to get rid of Reddit. And if Dig had just stuck around and the venture capitalists had not pushed Kevin Rose to try to reinvent the service, it would still be running and it still would be awesome. Okay, congratulations to Discord. If you don't have business insurance,

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The process is transparent with no opaque prices. So let's talk about two very crucial types of startup insurance. You'll know that these are very much in the news, especially the first one, cyber insurance. You have to have cyber insurance, which covers tax. And they have been more than. and you think. A lot of them, you don't hear about publicly, right? Because people are ashamed to have them happen and they should have done a better job, but mistakes happen. And sometimes software

is imperfect, right? Or a human is imperfect and they make a mistake. They use a weak password. They forget to put two-factor on. Well, you want to have cyber insurance just in case that happens, plus DNO insurance. This helps if your directors and officers do something dumb and you get sued. Very simple, very important to have cyber and D&O. So to instantly buy. custom built insurance for startups go to inbroker.com slash twist embroker.com slash twist while you're there you're going to get an extra 10% off by using the offer code twist TWIST. Okay, let's get back this amazing episode. Okay, congratulations to our friends at Melchimp. What an amazing company. We've used the product,

an amazing product. They were one of the first sponsors of this week in startups over 10 years ago. What a great company. What a great founding team. and one of you, Colin DeVore asked me, or DeVro, Colin DeVro asked me to comment on it. And there's a lot of notable things about MailChimp. Now, they've been acquired for $12 billion in cash in stock, and MailChimp will likely be used to beef up into its QuickBooks offering by adding email marketing features. QuickBooks, you know, is a suite of accounting software targeted at startups and SMBs. SMBs, small, medium-sized businesses. and they have over 7 million customers worldwide.

Intuit stock rose 2% on the news Monday afternoon, and Intuit currently has a $156 billion market cap. They own a suite of products that includes TurboTax and Credit Karma in addition to QuickBooks, and they did almost $10 billion in revenue in 2021, and they're growing 25% year over year. And that's impressive for a company that's been around since 1983. The Mailchimp acquisition would also be the largest acquisition of a bootstri. startup ever. What's a bootstrap startup? One that does not raise venture capital. When I started

using MailChimp, I immediately asked Ben, can I raise money? He said, no, we're not raising money. I said, oh, well, if you ever do, let me know. He says, we're never going to. He was absolutely clear from the beginning. They would never raise money. And it's 100% founder owned and incredibly profitable that company. And they would give their employees huge bonuses every year. I think somewhere, what I heard from employees was, you know, 15 to 25% a year, cash bonuses to a group of employees who were very well paid. So other major exits of bootstrapped companies, you may remember Minecraft getting bought for $2.5 billion.

Assurance IQ got bought for $2.4 billion. According to the New York Times, MailChimp has 13 million total global users and 800,000 and paid customers, half of which are outside the U.S. One of the notable things about MailChimp was they were one of the first companies in the Web 2.0 phase to have personality, to have a character attached to them. And back in the 2000s, that was all the rage. You know, Reddit had their little alien and everybody had to have, you know, some little character associated with their brand Melchimp, obviously.

I used to do these Melchimp ads where I go, MellChimp. Their revenue, according to Forbes, hit $800 million last year. that means they sold for 15 times, right? 10 times it would be 800 million, would be 8 billion, and so then another 4 billion, 12 billion. 15 times, you know, they're top line.

It's pretty juicy. And if they were, let's just say they had a 25% margin, that would be 250 million. That means whatever number that is 50 times. The founders, obviously, as I mentioned, we're doing this, you know, profit sharing model instead of stock-based compensation, that reduced all the risk for all employees. So a lot of people are dunking on them.

Oh, my God, why didn't they have stock options, et cetera? Well, because the founders believed they would be able to attract talent by paying top, top salaries and giving huge bonuses and great benefits. And all those employees took that deal. In other words, instead of making, you know, $200, a million when the company was sold after working there for 15 years, you know, they received $25,000 a year or $50,000 a year guaranteed. And so that is capitalism at its finest.

Those people could have gone to Google or Facebook and made more money or they could have gone to a failed company on stock options, which became worth nothing. They chose the middle road. I'd like to see more companies pursue this. And I'd like to see more bootstrap companies who don't raise venture capital or maybe raised one round to become a Pegasus, like some companies that we've had. You remember Jason Fried, friend of the pod, a great guest on the pod from 37 Signals had a controversial tweet on ownership and stock options back in February of 2020. I'll quote Jason Freed. Giving out equity

and startups benefits ownership way more than employees. It allows the owners to push employees harder and harder because, quote, you've got skin in the game now. You're an owner. No, you aren't. owning less than 1% of anything is in ownership. True and not true. I can tell you that owning 10 basis points or 25 basis points or 50 basis points in a unicorn or one that becomes worth a decacorn or 100 billion, a centorian, that could be a lot. And Paul Graham and I had some fun in the replies of his tweet. Yahoo gave me a lot of options when this is Paul Graham.

Yahoo gave me a lot of options when they bought our company. I made so much money from them that Yahoo got less work out of me. I quit after a year leaving a huge amount of money on the table because I felt I already had enough. And I wrote, I heard from a friend that a fraction of 1% of Uber was worth a lot of money. That's obviously I owned a fraction of 1% of Uber. Aside from all of this, Nel Chimp was not 100% remote before the pandemic, but now offers four different variants. I shouldn't use the term variants. Variations of employees.

They could be 100% remote, no set desk, two days in the office, no set desks, three days. days in the office dedicated desk or fully in office dedicated desk. 76% of the staff chose to come to the office two days a week or less. So that's a really interesting aside. Congratulations to the team. To the people who are haters who are dunking on them. You know, like, you're just in the crowd in the Coliseum. Like, eat your bread and enjoy the circus.

You're not even in the game. Nobody cares about your opinion. Additionally, I will say, what a savvy move by MailChimp. You may have noticed companies like review bought by Twitter and a company called a substack offer, I believe, completely free email. And I don't know if there's any limit on the number of emails they'll send for you. They want to make money if you charge and they take whatever, 10 or 20 percent of whatever you charge for your subscriptions.

That's the way the world's moving. I believe email sending will become a commodity. So MailChimp did have some headwinds. I don't think it would have made MailChimp fall apart. But I was looking at it and saying, you know what, maybe I'll take some of my MailChimp list down, move them to review because now if you go to Twitter.com, Jason, you can sign up for my review. So if my Mailchip is built into Twitter and I'm a Twitter user and I'm active there,

I'm thinking about doing that. In fact, can somebody on the team take Jason's list, my personal list and just put it in review and let's just or let's have a conversation about that at the next staff meeting. Congratulations to the MailChimp team. I'll take a couple of questions, Rachel, on a scale of 1 to 10, how manipulated was crypto today? I think crypto is at least 50% manipulated, at least. at least, maybe as much as 80%.

What do I mean by manipulation? I think there are people who are creating fake trades and pushing activity in order to get other people to join in. So as an example, take the board ape, you know, Yacht Club. What if we were the first, you know, you and five of the people listening here, we each owned a hundred of these? What if we created a bunch of wallets and we started trading them back and forth with each other? and we increased the price 5% each time.

And we did that over 20 days. And they went from being worth 9,000 to 175,000. Oh, wait, that's exactly what's just happened. We don't know if people are doing this kind of painting of the tape or flooding the market with transactions to trick new people that this is a vibrant market and to get them excited. But that could be what's going on. You see this acutely in Three Card Monte.

If you've ever been to New York and when I was in New York, I was fascinated by this and I would watch it over and over again, first from afar and then from like a short distance and then right up front and never played. They would have three cards and they would move them around and you'd have to guess which one was the queen. And you'd have Confederates, people who were in on it who were betting. So you'd see two or three people betting and then you'd walk up and you'd see them win. You know, they bet 20, they win 40, they bet 40 or they win 80. And they would be winning and they win two or 300 bucks.

And you would get in there and you'd win and then you'd win again. And then you'd bet again and you'll lose. And then you put more money out and you'd lose. And then they would take all that money off you. It turns out they were putting these confederates around you to make you think that there was a lot going on here. Obviously, like, NFTs are not worth what they're worth. There's no intrinsic value there. So the only value is in what the velocity of the trading is and what people put on it.

Well, since you don't know who's doing all these trades and you don't know if there's a whole group of people manipulating the market, you're probably that sucker walking up to three hardmante. doesn't mean that somebody can't win once a three-car Monty and walk away. That doesn't mean you can't get in on it and be one of the Confederates and get paid by the person and start your own three-card Monty scam. So I think it's a giant scam 60, 70, 80% of the time. And I think that there'll be a lot of people who could get hurt by it. There's another group of people who believe that this is like manifest destiny. If enough people buy into Bitcoin, if enough people buy into board apes, then it creates the market. And then, you know, it's never going to go away,

yada yad. I am not one of those people. If you are buying into this and you've made a ton of money, I suggest you clear out 25% of your position, 50% of your position, just to have that idiot insurance. Unless you're a complete gambler who likes to have 90% of their wealth in one thing. Okay, last question. How would you go about starting your career over if you're 25 today? Oh my lord, what a great question. Well, I had access to invest in a lot of companies. and for the first, I don't know, from when I was 25 until I was 40, I wasn't investing in my friend's companies. I should have just done that. I would be really rich if I had done that.

And so investing in your friends and placing more bets is what I would have done. I would have been more risk-taking. But, you know, when I started in my career, I was very conservative. And, you know, I didn't want to take as much risk. And I should have taken more risk and been more bold. So that is my piece of advice to my former self. Okay. So I'm going to take another question here.

for sex pistols handle on YouTube asks, how do you decide if a co-founder is right for you? What about asking friends to be co-founders? Okay, your friends are probably your best co-founders because you have a great relationship with them. And you just have to make everything clear with them. So the way to make things clear with them

is to say, hey, what happens if we do not agree? What happens if we break up? So an example of this might be, you know, YouTube. When it started, It had three founders. It wasn't just Chad, Hurley, and the other guy. There was a third one, Javid.

And Javid, I think, did like two years and then left famously. And so he gave back half of his equity, which I guess you could argue was a mistake in hindsight. But, you know, whatever. I mean, he still got rich. And that was most fair to them. So this is part of basically doing a prenuptial agreement for startups. Make sure you have those conversations. You have three co-founders.

Okay, what if one of us quits, you know, in year one? What if we can't make a decision? How do we do that? Okay, there's three of us and there's two board members. That's five. We'll have three common seats. We'll give one seat to the seed investors, one seat to the series A investors. There's five.

If three people want to do something, that's the way we're going to go. And the CEO is going to make the final decision and you're going to be CEO and to be a product officer. I'll default for business decisions to you. You'll defer to me for product decisions. You just have that discussion. Just like people who are going to get married might discuss, like, what if we want to leave the city and live in the country? What if we want to have kids? What if, I don't know, you know, pick the myriad of issues you might face in a marriage or a partnership.

You really want to discuss those things up front and you'll go a lot further. Peter Lang says, what does it feel like to be rich? What are your guilty luxury purchases? Hmm. You know, when I first made a little bit of money, it was a major difference for me because, I was scared of running out of money my whole life and felt that pressure. When I first made a little bit of money, it actually just made me more bold, took the edge off, and now I don't really think about it. I'll be totally honest. I don't really look at things all that often.

I just focus on the process. And so I think in that way, it's freeing. It becomes a clarifying moment for you. You become what we call in the industry post money. A person who's post money is past that milestone of needing money. It's a really obnoxious thing, I guess, from the outside somebody in my clear. this and be like, oh my God, post money. But it's kind of like being healthy, right? Like if you're healthy and you can run the marathon and you're your ideal weight and, you know, that's like one

form of health. And then I think there's wealth, which is another form of health and education, right, and relationships and mental health. All of those things, when you kind of check the box, it frees you to lower your anxiety about that issue. You know, and like, I'm anxious about my weight. Like in the age of COVID, I'm like, I drop the 20 pounds. I really need to get that other 10 pounds off. I'm 50 years old right now. So I'm actually working on that in my life. And you know what? No amount of money can solve that problem for me.

I still have to solve that problem through my own, you know, discipline and really working out and eating better, which I'm trying to do. So, but it does think, I think, and, you know, I talk about wealth in the next book a whole lot. And what I think it does is the pursuit of wealth, I think, is noble because it does allow you to make more change in the world. So people who complain about. about wealth disparity, the best thing they could do would be to start a business and then pay people

a lot of money to work there. Like, if you actually really care about wealth disparity, well, why not open a cafe and pay people amazingly and give them health benefits? Well, you know what? Some people have actually done that. That's a better way to make change in the world than to sit there on Twitter and, you know, dunk on people or complain about Bezos. Like, look at all the good Bezos is doing. He created a lot of jobs. He's paying two or three times minimum wage. You know, you could come up with, like, is he, should anybody have that amount of wealth? Well, somebody has to be the richest person in the world. And he gave 10 billion to climate change. And his wife or his ex-wife, I mean, amazingly, she is giving away money faster than it is

accumulating. And so I do think that wealth and the pursuit of wealth can be noble, depending on how you pursue it. Obviously, if you're pursuing a life of crime, no. And if you do it at the expense of other people, obviously know, or the environment, obviously no. But I do see that people who acquire wealth then are faced with a crisis of consciousness where they look deeply and say, why am I on the planet? What am I here uniquely to do? And what can I do better than anybody else? And how can I pay it back? And I did think about that. And the way I thought I could pay it back was by doing this podcast every day and inspiring you to become a founder. Right. I literally thought about that. And then I thought,

well, how could I pay it back? I did so well, angel investment. Well, I could start Angel University and the Angel podcast and write the book Angel so I could teach people how to become angel investors. and there are now tens of thousands of people who are angel investors because of me. How do I know that? Because they tell me and they joined my syndicate. When I started The Syndicate.com, it was 900 members. The book came out and now it's at 9,000 members. So it's literally 10x in three years.

And we're investing in some months, 10, 12 companies. And that feels really good to then pay it forward, to pay it back, to not pull the ladder up behind you, but rather steady the ladder. And that's what I'm doing. I'm basically, I look behind me at that ladder that I climbed up. and I'm holding it. I'm holding it nice and steady and I'm giving you that encouragement

to climb up that ladder. So start a company, build an MVP, learn how to be a product manager, go to Founder.com. We're starting that as a 12-week program shortly and you're going to be able to apply. We're going to have 50 people in it. We're going to teach you how to build your MVP

and then how to get into an accelerator. So Founder.com. So Founder.com university is coming. And that's going to be another, you know, steadying of the ladder that we're doing. We're throwing back 50 ladders down for Founder University. We're literally going to charge, this is my current plan for Founder University.

It's like a 12, 16 week program. I think it's going to be 12. We're going to charge people $700. I'm curious what you think of this. We're going to charge them $700. And then we're either going to give them their money back if they complete the 12 weeks or, and I have to look into the legality of this. I was going to take the 700 times 50 people and invest 35,000 in the winner. Is that right?

700 would be 35,000. Which idea do you like better? If you were to come to Founder University for 12 weeks and learn how to be a founder and to take your idea, maybe using no code or coding, and make your MVP and get your first couple of customers, and we teach you how to get into an accelerator, that's going to be, because we realize that was a ladder that people needed. Which would you rather do? Get your $700 back at the end if you complete all 12 weeks, because I want people to have skin in the game and I don't need the $700. or B, would you like me to, or actually the way I could do it, that wouldn't be like gambling, because I do think some people might consider that gambling. I could personally just agree to invest 35K and the one who comes in. And so we take the profit of 35K and we invest it.

Option, Michael says option two. F.A. says B. Michael says B. No money back. Ekebel says on YouTube, either sign me up. Well, listen, if you're interested in this, founder dot university and our charge, Charlie Cuddy is going to run the program. I literally hired an educator to work. I mean, he's incredible. I think he's Charlie atlaunch.co.

So if you want to email Charlie atlaunch.coe and get a jump on that, we haven't announced it officially yet, so I just thought I would float it here. But it's going to be a pretty cool program. It's going to be 12 weeks, because I see everybody starting these programs and teaching people how to be founders.

And I was like, well, I think I know a little bit about that. So my plan is to have 50 people come in, And then success for me would be 10 of them, 20%, getting accepted to YC, TechStars, launch accelerator, Daniel Grosses, Pioneer Labs, something like that, right? I think that's a really cool idea. If you could get your MVP out, get a couple of customers, have some data and build the team, like those two or three things, and then be good enough to get the 100K check from an accelerator. That, to me, would be great success.

Oh, thanks for reading the book, Angel. Yeah, if you haven't read Angel, go ahead and read it. And people always ask me, hey, what can you do? What can I do for you? If you really want to do me a favor, like, there's really only a handful of things you can do. One is to read the book or listen to the audio book and then pass it on to a friend after you're done or donated to a library. And then write a review. Because when you write a review of the book, it really helps.

And then the second thing you could do that would be really helpful is to write a review of this podcast. and subscribe and join the Noti Club. I'm going to start doing live events again, by the way, whenever this is over. And my plan is to use these live streams to find folks. And one thing we're doing that I forgot to talk about was we're going to start twist meetups again. So the fans of this podcast,

we're going to let themselves organize like TEDx and make, I don't want to say your own business, but your own project, where if three founders, a minimum of three, a maximum of seven, will, and you have to be a founder, not somebody selling into founders. So, you know, I love real estate folks and accountants and lawyers and they sponsor the podcast and they support it. But I don't want them to be the organizers of this. I want founders organizing meetups for founders. And it's founders for founders. To come to the twist meetup, you have to be a fan of the show and a founder. I guess we'll let other people in as well. but free for founders

and yeah, you just get a cafe you can do breakfast, it could be five or ten of you and just talk. And then we're going to make a notion page and Rachel is running that and she is Rachel at launch.co, R-A-C-H-E-L at launch.co. If you want to do your city, she's coordinating all that on Slack.

So if you go to this week in startups.com slash Slack or you email her, you can talk to her about it. But I think we're going to do New York, London, and Austin first. So we're going to start with three cities. It's going to be a meetup and we're going to coordinate it with Notion and Slack. So we're going to make a Notion page at this week in Startups.com slash meetups. I don't know if that's up and running yet. If it's not, we should set it up this week and startups.com slash meetups.

So then people said, what do you do with the meetup? I think I wanted to start the meetups with just like, you know, your first meetup. The goal would be to have 10 founders, have breakfast or lunch or dinner together. And everybody pays their own way. And then after that, maybe go to 50 or up to 50. and then after that, maybe up to 100 or 200. And then you could start adding programming. So maybe we'll give people a pathway where if they do the first one, they take a picture,

they share it. And they, you know, Mission One, that's a cool way to do it. Mission one is host a 10, you know, up to, you know, five to 10 people have breakfast. Mission two, 25 to 50 people go have dim sum or pizza or go to a bar. And then mission three will be 50 to 100 people and you have programming for the first time. So if you do the first two, you get to actually host programming. And so mission one, you host an up to 10 person breakfast or lunch or dinner. Mission two, you have to complete mission two.

Mission two is you host a 25 to 50 person meetup where people just were labels and it's a networking event. And then mission three, 50 to 100 people. And you do content. And then you would earn the right to do content. and then I will probably call in to the content one and, you know, appear on a screen or something. So let's make Mission 1, 2, and 3, Rachel. I think that's a good idea.

So thanks, everybody. How about some places in Europe and Stockholm? Absolutely. Well, Stockholm, my friend Tyler has his own meetup, so I wouldn't want to compete with that. So go to Tyler's. Or I guess if you want to have the breakfast, I don't think that competes with Tyler's, but just make sure you invite him and get his blessing. Okay.

When will you have a cameo on billions? You know, I almost was on the poker episode because Phil Helmuel was on the poker episode. And Brian Coppulman invited Phil to bring people from our poker game to play in that. I think it was the first season. And I couldn't make it. But my friend Billy and Phil were on that episode. And I've talked to Brian Coppulman about maybe doing a cameo on it at some point. But he had Chris Soca, so probably don't need to have me on it.

But boy, I would love to do a cameo in the Uber. So everybody clip this and send it to Brian. Give Jason a cameo as an Uber driver or an obnoxious Uber even better. imagine me as an obnoxious Uber passenger who just, you know, yells and screams at the Uber driver. That would be hilarious, or I'm an Uber driver. Either of those would be. What are your thoughts about Magic Leap? You know, I thought Magic Leap was a giant scam because it broke my rule, which is any startup that is worth over a billion dollars before they release their product or have customers is going to be a scam or it's going to fail massively one of the two.

And they kind of fit in that. but I was told when I said that on a previous episode that I would be concerned it's a scam or my gut tells me my spidey sense. Somebody told me, and I won't say who, but somebody who's an insider said, the new CEO, I don't know the woman's name, is the real deal,

that the first product was kind of janky and not very good, and that the new product is really good and that it's actually going to surprise people how good it is. So I'm not going to say how I know that, but you can be sure that sometimes, we get inside information because some of you might be involved with the companies we cover. And if you have information on the companies we cover, all right, everybody, thoughts on TikTok, it should be banned in the United States. We are crazy to allow China, our competitor on the global

stage, to have all this data, and they've proven that they're untrustworthy, that they're liars, and that they'll put people in jail with their information. They are proven to be untrustworthy. we should not allow them to have any apps or any products or services in the United States that collect data, just like they don't allow us to. So it should just be reciprocal. They're smart, we're stupid. A lot of our politicians are grifters who are in on the take. They're getting paid off by special interests who have interest in China on both sides, Democratic, Republican. It doesn't matter what side you're on. These grifter politicians are selling out our kids. And I think that, Honestly, it's a bit of a sciops.

I think China is doing sciops on us. Okay, listen, I got to get back to work. So do you all. Great to have you here. I'll see you all tomorrow. Bye-bye.