This Week in Startups - Robinhood earnings breakdown, Amazon launching department stores + Mark Suster deep dives VC | E1268

Episode Date: August 19, 2021

Jason breaks down the 2 metrics he uses to to assess Robinhood's Q2 earnings (1:43) and Amazon entering Department Store retail (16:39). Then, Mark Suster from Upfront Ventures joins (24:07) to discuss venture metrics, community as a moat, why high valuations don't necessarily mean a bubble & more.

Okay, everybody, we've got an amazing show for you today. My friend Mark Suster, who is an investor, talks about the pivot he is doing at his venture firm, really fascinating stuff. And we talk about a range of topics. This is one of those guests who's been on the program now six times. This was his sixth appearance. And he's going to be on every six to 12 months because like Keith Rabeau or some other folks we have in rotation, he's just that good.

He's just that good. You're going to literally wish we had done two hours instead of the one hour. but I'm going to talk to you about Robin Hood's earnings and Amazon going into big box retail. Stick with us. This Week in Startups is brought to you by LinkedIn Marketing. To redeem a $100 LinkedIn ad credit and launch your first campaign, go to LinkedIn.com slash this week in startups. Twilio runs an amazing program for startups that includes a $500 getting started credit,

access to webinars made exclusive for startups, $3,000 in SendGrid credits, and full support via their Twilio Startups team. Sign up now at Twilio Startups.com slash twist. And Fiverr 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 Fiverr business, free for the first year, and save 10% on your purchase with promo code Jason. That's F-I-V-E-R dot com slash business and use promo code Jason. All right, first up in our news rundown before we get to our interview,

Robin Hood doubled their revenue year over year, but their stock is down almost 10% due to warnings of a trading slowdown. full disclosure slash flex. I was one of the early angel investors in Robin Hood before they even watched the product. So I still have all my shares. Haven't sold one. Don't plan on selling any of my shares. I will distribute my shares to my LPs in my fund.

But I'm long in the company. I think they can get to a hundred million accounts and that has never been done before, at least to the best my ability. If you know of any finance company with 100 billion people in the United States, I'm sorry, 100 million people in the United States, let me know. So Robin Hood announced these Q2 earnings yesterday after the bell, as is the case with earnings reports. And this was their first quarterly earnings report as a public company. I talked about the S-1 and their IPO on previous episodes, but before we get into the earnings,

let's quickly recap what a crazy ride it's been, actually, in the short period of time since Robin Hood went public. As you know, they let their own users have access to their members. have access to their IPO shares, which was very cool, and that's a trend. I hope to see more companies do, whether it's Spotify going public or imagine Netflix when they went public,

giving shares to their subscribers or giving first access to those shares to the subscribers. Really cool idea. The IPO went out of $38 a share in late July, and, yeah, it was a pretty wild ride. I don't really care about the stock price in the short term, just to be clear.

A lot of people have been asking me to comment on that. They've been trying to have me on CNBC, comment on it. You know, if you're holding a share in a company for a decade, you really don't care about the day-to-day stock price. You're just concerned about the growth of the core product, profitability, the management team, and that kind of stuff, which is all excellent. So, on the first day of trading, it went down 10%. Oh, my God, everybody's such a failure. This is so terrible. This company is horrible. And I just like, that's not the number to watch. like how many accounts do they have and how many assets do they have under management there.

Four days after going public, something happened where it rocketed up to $7 a share. And then my phone is going off the hook. Hey, well, you come on CNBC or my podcast or friends of mine or LPs. Oh my God, it's $70 a share. So you get the highs, you get the lows as an investor. And I try to even that out. And I just try to think in decades if I like the company. So now it's been around that $50 a share price from what I understand.

I don't check it incessantly. And today I dropped to $45 and that represents a $42 billion market cap, which seems like for me, pretty fair market capitalization. Some people might argue it's high. Some people might argue, you know, this is going to be a trillion dollar company so you have to get in now. It seems reasonable to me. But what do I know? I'm a early stage investor. So let's talk about the Q2 breakdown.

They had revenue of $565 million, which is up 131% year over year. Q2 revenue from crypto trading alone was $233 million, which is up, wait for it, 46x year over year from $5 million in Q2 of 2020 when they started. So this is super interesting. Obviously, crypto is a major space. So what's happening here? I have a thesis. You tell me if you think it's right or wrong. I think people are fleeing from the rogue exchanges out there in the world,

and they would like to be with U.S.-based companies that they can trust. So again, you have all these Fugazi, weird, offshore, questionable places you can trade crypto. Wouldn't you rather be on Coinbase or Robin Hood and have that security of a publicly traded U.S. company? I think you would. And so it might not be that there's so many more people interested in crypto. I'm sure there are people who are interested in crypto, but it might be people saying, you know what, I want to trade crypto on Robin Hood, not on, you know, some offshore or no shore or floating place, you know, for trading cryptocurrency. So over 60% of cumulative net funded accounts traded crypto in Q2. Over 60% of cumulative net funded accounts traded crypto in Q2.

So funded accounts and cumulative. So all of their accounts. So that means people are, this is becoming a real thing. So if there were 22.5 million cumulative accounts and 60% of them were, in fact, trading crypto, that means they have $6 million plus $6 million is $12 million and then a little bit over $12 million people on the platform trading crypto already. That alone is notable. And they first introduced crypto trading in 2018. Robin Hood's 2021 first half revenue was $1 billion, over $1 billion.

dollars over one billion, which is almost three X year over year. So that is a high growth company. You know, when you see companies growing 10, 20, 30% year over year, you start getting past 20 or 30% year. And hey, this is pretty fast growing, pretty great. Tripling is like a whole different level, a whole different ballgame. So here's the key. Robin Hood warned investors that their Q3 results may be negatively impacted by a trading

slowdown. In other words, in the summer, people might not be trading as much. end. This was supposed to be the end of the lockdowns. So July, August, September is Q3. Maybe people are trading less because they're going out more. And they have the Delta variant. So who knows? This could be headwinds. This could be tail wins. These are choppy waters, obviously. The pandemic ending and then Delta beginning really means nobody knows exactly what's going to happen. Except that I'm at peace with it. Because we've seen what a lockdown does and society can survive a lockdown.

And if we go back and we see what the vaccine can do and how quickly they made it, they can make another vaccine. So I believe that we can get through COVID, whether it's here for 10 years or two. I hope it's here for two. And I hope we get past this and people get their vaccines because we could squash it and there won't be more variants. So please, if you're listening to me, consider doing some research on the vaccine. If you're hesitant, just do some research, make your own decision, talk to a doctor.

look online, maybe look at the statistics yourself and think for yourself. I'm not going to tell you to get it or not get it. I mean, if you were my friend, I would tell you, yeah, absolutely get it, save your life. But I understand that the people who haven't gotten the vaccine by this time are likely to have some strong feelings about it. So I'm not going to pile on here and tell you you're an idiot or you're stupid. You probably have some reasons that you feel strong conviction about. Maybe talk to those with doctors because maybe you had those strong convictions before we broke a billion people, right? And maybe those strong convictions, you know, maybe you would change your decision in light of new information. And part of that new information might be just looking at who's in the

hospital and who's dying. It really is a pandemic now of the unvaccinated, and you're going to have to make that risk assessment for yourself. I made the risk assessment for myself. I understand you might make a different one. So that's just a little PSA here to people who are either anti-vax or concerned about VACs. I'm not going to insult you and call you an idiot or stupid. I'm going to just ask you to look at the new information that's in front of you. Let's get back to Robin Hood. So there are really two numbers that I think matter in these businesses. The assets under custody, AUC, so no matter which financial services group we're looking at, I think that's a key statistic. Why is that important? Well, you could have a lot of accounts that have

$100 in them. That may not be as powerful as having a smaller number of accounts with a large your amount of money in it. This is fairly obvious, right? Assets under custody, AUC, grew over 3x to 102 billion in Q221, compared with $33 billion in the second quarter of 2020. So, let's take a pause there. That is serious growth. 33 billion, and then we're here a year later, $102 billion. Will we be here next year saying $300 billion in assets under management, and then $900 billion, and then $2.7 billion, I mean, actually trillion, right? So we'd be at $2.7 trillion under management. Robin Hood ended the quarter with $22.5 million net cumulative funded accounts, which is 130% year-over-year growth. To put that in perspective, as of December 31st, 2020, they had $12.5 million funded accounts,

which is almost doubled in six months to $22.5 million. And if you go back even further, when I had Vlad on episode 736 of this week in startups, that was back in 2017. Robin Hood only had two million total accounts. And there is, you know, a very interesting moment. As I go into my second decade of investing, I'm now learning about being a shareholder of the companies, you know, I invested in before they had their products launched as public companies. And one of the things I did when investing in companies and even building my own companies,

I envisioned a world where the product was 10 times bigger and the customer base was 10 times bigger. Then I envisioned 10 times more revenue in customers and then 10 times more and then 10 times more. So I would do this little powers of 10 exercise in my mind. And when I met Robin Hood, they'd zero and when they had 100,000, you know, it's like, oh, what if they have a million? When they have a million, or what if they have a million? Or what if they have 10 million? When they have 10 million, now I'm thinking, hey, what if they have 100 million,

which is what I just said to you earlier. It's very easy for journalists who, you know, tend to be a little bit negative on financial companies and tech companies right now because of the power they've accumulated. We'll put that aside. I talked about it, I think yesterday in relation to superhuman. Pausing for a second, do you think a company that 10x from 100,000 to a million, then 10x from a million to 10 million to 10 million and then doubled to 22 million? in six months. Do you think they're not going to get to $100 million? I had these discussions on CNBC over and over and over again with the naysayers about Netflix and then Disney Plus. And you look at those services. I believe we're moving to a world in which these global

brands, and I do believe they're going to be global, will have billions of users. We saw it with free services like Facebook, Instagram, WhatsApp, Chrome, Google Search. Very few brands actually have a billion plus users. We can actually almost count them on two hands. Yeah, let's do that right now. Google search. I think Gmail is over a billion. Chrome, Android, iOS, Facebook, WhatsApp, Instagram. I believe Instagram's over a billion.

I'm not counting the Chinese-based company. So there's eight products from, you know, a handful of companies that have a billion. Is it possible that Netflix, a paid service, will get to a billion? It is possible. Why wouldn't it be possible? You know, if there's over 7 billion people on the planet, one in seven seems quite reasonable. Now, you have to have a bit of an imagination here. You have to be able to think globally.

You have to be able to have seen what I saw in my career, which is when I came into the industry, there were zero users using web browsers. There wasn't a web browser. Mark hadn't created Netscape yet, and Mosaic hadn't been created. So you need to look at the arc of history. It's pretty clear to me. 10x, maybe even 100x is a possibility for companies like Robin Hood, Airbnb, Uber, go right down the line because we saw it happen with the previous generation of outliers, Google, Amazon,

and Facebook. Right now, LinkedIn is going to give you a $100 credit towards your first ad campaign. I'm telling you the call to action up front, so good. LinkedIn.com slash this week in startups to get that $100 credit towards your first ad campaign. If you want to get a group of people who are receptive and who are doing business, they're doing business on LinkedIn, right? When you market on LinkedIn, your message reaches people who are ready to do. to engage with your business.

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LinkedIn.com slash this week in startups. No spaces, no dashes. LinkedIn.com slash this week in startups. Terms and conditions apply because they're giving you a hundy. So here is another interesting piece of information from the earnings report. And it's a quote, a funded account is a Robin Hood account into which the account user makes an initial deposit or money transfer of any amount during the relevant period, which account is designed to provide a customer with access to any and all the products offered on a platform. So what I like about this is it seems to me, and again, I don't have inside information. I was a seed investor. I put a small amount of money into the company

that became a large amount of money. Thankfully, it's good to get a win. It takes a lot of pressure off, I'll be honest, as an investor. Because, man, being an ancient investor can be super humbling. I mean, everybody knows my wins, but you don't see all the losses. Every Robin Hood equals 99 zero, not 99 zeros, 85 zeros and 14, you know, 1 to 50 X's. So it's nice to see that there, I believe here, is my interpretation,

of it, reading it, and you can correct me if I'm wrong, on email or you can DM me on Twitter or Instagram. Feels to me like they're trying to be very intellectually honest about what's an account, which is great. There are some folks, like, I think we discussed this with Nextdoor, who considered an user, anybody who opened an email, I felt that was like, I'm not going to say, unethical. I felt that was, you know, maybe bending the truth a little bit.

You know, if I get an email from, you know, the gags, I don't shop at the gap, but if I got an email from, you know, whatever company, I don't want that to be counted as a user. So always be very questioning when you look at these definitions if you're a public market investor. Okay, quick story here. I've talked about for a long time that Amazon is going to open stores, and they did sort of the quick checkouts. but there's something happening here that is much deeper. Today, the Wall Street Journal reported that Amazon is planning on opening department store-style physical locations in the U.S. That's right, department stores.

The news came as Amazon passed Walmart as the world's largest retail seller outside of China, and that was just reported in the New York Times this week. The latest information from e-marketer, which doesn't do their own research. I think they accumulate other people, so I'll have to see who the source. of this is, shows that Amazon will account for 41.4% of all U.S. e-commerce sales in 2021, whereas Walmart will account for only 7.2%. And it says here in their notes, yeah, we're going to have to check on the e-marketer research because my understanding when, you can leave this in the program, we should always be careful with e-marketer because they were using other people's information,

but maybe this is their proprietary information. So we want to make sure we give proper credit. I'll leave that in the show. I just want to, I want you to know how the sausage is made here. So the Wall Street Journal notes, people familiar with the matter, in quotes, believe Amazon is expanding into physical locations to help grow sales in areas like apparel,

home items, electronics, and other similar areas. Kind of make sense, right? If you're going to do something like this, clothes are something that, you know, it's one of the final things people like to go to stores for and home items too, right? So it's a great move by Amazon,

I think, because brick and mortar could not possibly be more compromised during the pandemic. They're probably buying up spaces for pennies on the dollar. There is a very simple way to look at this. If Amazon was challenging Walmart but with a different product, and then Walmart added Amazon's product, that is a competitive threat to Amazon because then Walmart can do things Amazon can't do. What Walmart can do is what's called bricks and clicks.

You may have been experience in this. I went to the Everlane store. Now, I haven't shopped at Everlane a long time, but I needed a white belt, and I was trying to find a white pair of sneakers, happened to walk by one on South Congress when I was in Austin for a wedding. I was like, oh, there's an Everlane store. And then the next one was Lul-Lemmon, and the next one was some other online store. I can't remember the name of it.

But I think Lululemon, I'm not sure if they started as a retorting. brand, but there were a number of brands on South Congress that were online brands that now had opened up retail stores. They asked me for my email and those purchases were synced with my online account. Now, if I were to buy this shirt, you know, and know it's a size, you know, three or whatever or nine and a half in shoes, now I know that for that brand, I'm going to be able to match that size. Same account I can order with at home. And all of my billing and my ordering and my returns can happen however I like them to, like them to. If I'm at a wedding and I need to pick something up today, I can go to the store, use my same account. If I go home and I love the

shoes and I want to buy two more pairs in different colors, same size, same account, log in, order them. I forgot which shoe it was. I forgot the model. Boom, I can do that. And Nike is amazing and wonderful for online ordering. So is Page and VIII. And VALZE. So is Page and VAL Vince. Those are two other male brands that have men's clothing that I like. Page, P-A-I-G-E. I think they started in women's. And then there's one called Vince, V-I-N-C-E. They make great T-shirt. So shout-out to those folks for stuff I like. So Wall Street reported the size of Amazon's department stores will be smaller than ones we see from Nordstrom and Bloomingdale's. Those are about 100,000 square feet. Amazon scaled on approach, 30,000 square feet, according to the story.

By the way, Amazon already has 600 retail locations. That's because, they bought whole foods and they have 506 whole food locations. If they don't do what Walmart's doing, Walmart gets an advantage and Amazon does not want them to have an advantage. So they also did this pilot program of the 17 Amazon Fresh Grocery stores. They've got 22 of these Amazon Go stores, you know, based on our quick research here. Those are the cashier less ones they've been testing.

And then I've been in one of these. They have these four-star stores. I think I was one in LA with five more coming soon. These are 4,000 square feet. They're kind of tweeners. And that feels like the size of like a lot of like, you know, local towns where you have a, you know, a main street. It feels like a main street store.

And they basically have toys and books and home goods, devices. It's great for them to sell their hardware prices like Echo or their Kindles and that kind of stuff. But it's a really nice experience because they've kind of skim the cream. and it's a nice browsing experience. And I guess they have 20 U.S. bookstores. So I'm thinking Amazon basics, Amazon essentials will all be in these stores. And when they go to break up Amazon, now Amazon can just point and say, listen,

Walmart's doing what we're doing. Walmart doesn't allow third-party sellers we do. Maybe you've got to break up Walmart. Right? It's basically a checkmate. The only thing that really, you know, the FTC and the government, Department of justice, whoever winds up going after Amazon to break them up, the only real case they're going to have is Amazon Web Services versus Amazon, the retailer.

And so I think it would be logical for them to break those two up because it will unlock more shareholder values. So two really interesting stories today. And now let's get on to our amazing interview. Twilio is the cloud communication platform used by Uber, Airbnb, Shopify, and many others. Not that you need any more names. I mean, think about that Uber, Airbnb, Shopify. It's basically as good as it gets.

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Engage and delight your users while scaling globally all from one API powered platform. From SMS to voice to WhatsApp to email, thanks to that SendGrid, acquisition. And founder CEO Jeff Lawson has been on this program multiple times. I think the last time was episode 967 back in 2019. Let's book them again. And here's what you're going to get from Twilio Startup Program. to webinars made exclusively for startups and full support via the Twilio Startups team, a $500 getting started credit and $3,000 in SendGrid credits.

Sign up now, Twilio Startups.com slash twist. Twilio, T-W-I-L-I-O Startups.com slash twist. So go get the bag right now, $3,500 in credits are waiting there for you to just take them. Twilio Startups.com slash twist. All right, next up on the program is five-time show. guest friend of the pod. Mark Suster is back with us for his sixth appearance. Mark and I have been friends forever, literally. He was on episode 25 in November of 2009, episode 279 in 2012, 429 in 2014, episode 674 in September of 2016, episode 11, 21, in October of 2020.

and we've decided that he is in the rarefied air of being so good on the pod. I learned so much. We have such a great conversation that he's just a yearly guest going forward, Mark. I've decided with the pod on five days a week now, four or five days a week. It's no longer this week in startups. It's like today in startups, I'm literally doing this show every day now because we sold the ads out. You remember what I started. So I have to tell you that I was thinking about this, Jason, and I think it's an incredibly smart strategy.

and I don't mean in terms of a media business or in terms of, you know, building an audience. But I was thinking about you and Donald Trump. Oh, and I know it's, I shouldn't invoke you and Donald Trump in the same sentence. But let me talk about one thing I think Donald Trump really did well and learned from, which is speaking at audiences. And he was in front of crowds, in front of big crowds all the time. And he would try out lines. And then he would get a sense of what.

the audience thought and how they reacted and what they cared about from their reactions. So I thought, you know, I was thinking about this. I went running this morning and I was thinking, you know, what do I think Jason is uniquely good at? And you, by doing the show, have stayed really close to the zeitgeist of both what entrepreneurs care about and what your audience cares about. And I thought a better metaphor than Donald Trump would be Steve Martin or Chris Rock. Because it's the same thing.

you don't go straight and have a great comedy show. Like, you're performing, you're performing. People are laughing. They're not laughing. They like this bit. You try out that bit. But you just get much better. And I think the same is true, not just with your show, but really about what makes you unique

as an investor, because you have your fingers on the zeitgeist. And I remember when I did your show this week in Venture Capital a decade ago. Yes, I forgot about that. And it was great for me, Jason, because I was, I just constantly felt in the zeities of the conversations, and I miss doing it. Okay, we'll start it back up then, okay? There you go. You just committed, we'll start to show up again.

I mean, it's a joke, but it's possible. You know, it's, I have to say, thank you for the kind words. It has been the great joy of my life doing this podcast, and I agree the zeitgeist is the reason I do it. Instead of going to lunch with people, I substituted this, right? And I would just take out one lunch a week and do the speaking startups. And then it became two and then three. And now we're basically doing four or five.

I mean, the ads are sold out until November. And now my team is like, hey, what about a Sunday show? And I'm like, yeah, sure, we could do a Sunday show. Let's come up with an idea. And it's getting, it's so much easier to do, Mark, now because of COVID, everybody like yourself has a quality setup at home. And Zoom has gotten so good. And the microphones have gotten so good.

And people know how to plug in an Ethernet cable. And people also know how to talk virtually and they're more comfortable having a conversation like this. I used to do a go-to meeting or, you know, a Skype call and nine times out of ten, we'd have to cancel the show because they couldn't get it up and running. Now it's like, this is my fifth call of the day. I know how to do it, J-Cal, we're good. Reflecting back to you, something I took from you as a friend is years ago, you wrote a blog post, and I remember Fred Wilson had written one before you about your yearly trips and how you looked at how long you had left with your sons.

You have two kids, I believe. Two boys, yeah. Two boys. And your sons were getting older. I think they were 10 and 11 at the time. You may have written this. And you said, hey, I got six left with one. I got five left with another.

And then they were off to school. Got to make every summer count. Well, here I am. I'm in Italy. I did a two-week trip with my kids last year or two years ago before COVID. We had done Australia. And I'm just looking at this with my 11-year-old old going, okay, 11, 12, 13, 14, 15, 16.

I got sick. And with the five years old, I obviously got a little bit more. I actually sent them home because they had to start school. And my wife was like, you should say we could do that book thing. And I was like, wow, I got the greatest wife ever. So thanks to my wife. But I'm here still at a, I'm at a secluded beach town in Italy. I won't say which one, writing my next book.

Awesome. It's been great. So let me start the conversation with you and I have lived through the start of a super cycle, 2009, when I became a Sequoia Scout, upfront ventures at the time was called... GRP, yes. I think you were a couple years into the job. You had been an entrepreneur before that.

And you and I were investing in companies for $4 or $5 million. And if there was... The term unicorn did not exist. The iPhone was a very new device, was on the second version, perhaps. And now here we are. It's 2021.

It's about 13 years later, maybe give or take, 12 or 13 years later. What do you make of what we're seeing in terms of the outcomes for the companies we invested in back then at the start of the super cycle. I'll call it a super cycle for lack of a better term. And is this sustainable?

And does it make you nervous? What do you think about this? Because you sold Maker for a billion dollars. That seemed crazy at the time. Now it seems like, oh, probably sold too early. Yeah. Now we have Goat, a sneakerhead marketplace. We were the earliest institutional investor there.

It's publicly released knowledge that it's worth $3.7 billion. Crazy. Yeah, but what's crazier is the volume of business that they do. It was staggering. I know in the earliest days, Eddie and Deichen and the board member from Upfront, who was a large part of White Goat was successful in the early days, Greg Bettenelli. You know, the biggest resistance they got from investors was how big of a market could this really be? There was a quote unquote Tam problem, total addressable market

problem. And I think that's the thing, the imagination of so many investors, which is that things are niches. I remember years ago looking at a business called Crunchyroll. Yeah. Crunchy roll, yeah, it was a Japanese media company. And it's like a Netflix, right? If I were to describe was like Netflix of Japanese content and Asian content. Yeah. And what it was particularly good at was taking what you and I might consider a niche, let's say, like anime. And it was making it available to international audiences, and particularly in the U.S. And it turns out that in the world of the internet, what we have is scale and what we thought of as a niche. Like, if I launched a store 100 years ago in Minneapolis and I launched an anime store, I'm not going to have that

many customers. There aren't that many. There's not enough anime fans in Minneapolis. I picked one city to build a real big business. But in the world of the internet with, you know, increasingly 4 billion people connected to this global network, the communities are really large. And so that was just an example of something where Goat was a Tam that people didn't think was huge. They're selling literally billions of dollars of sneakers. Billions with a bee. Then you look at, I'll tell you another weird one. Hopefully, this helps people think about how markets and communities form.

We looked at another one called Vicky, V-I-K-I. It stood for Video Wiki. It was created in South Korea. And what they were doing was they were taking South Korean dramas and bringing them to the United States and other markets. And because they were in Korean and most non-Korean speakers, therefore, couldn't have access, they would launch competitions. And the competition was how quickly could the audience transcribe it into different languages?

And the faster you did it and the higher quality, the more awards and points and, I don't know, little stickers you got. And so they got these free groups of transcribers. So think of it like Wikipedia, Wiki, Video Wiki, Vicky. And it turns out there was this show. I just remember it from 10 years ago called Boys with Flowers. It was a South Korean drama. But there was a huge audience in the U.S. of non-Korean, mostly white people who would like to watch it. And if you could globalize that, that's a big business.

It is amazing this observation and also coming from a Korean family. My wife is 100% Korean. One of her, one of my sister-in-laws, one of her sisters said, you know, Jason, be careful. Koreans are the Italians of Asia. They have the most passion. And there is a reason why everybody in Asia and outside of Asia, you know, now increasingly are watching South Korean dramas because they are the most, they have the most, let's just say, vibrance and enthusiasm for relationships. And it is kind of like Game of Thrones.

Their soap operas are like Game of Thrones combined with the soap opera. But this is a very interesting point. We have an investment in a company called Soul Savvy, which is also in the sneaker space. They recently had a very high valuation. They are printing money just in essentially having a community of sneaker heads talking and discussing what's for sale on Goat and whatever the other one is. There's another marketplace. StockX. Stock X. And so they're sitting on there paying for monthly subscriptions to discuss sneakers. And you're exactly right. What we've seen over the past decade is as the tools went to scale, people realize like one little niche could sustain it. I couldn't get anybody to invest in Com. And Alex and Michael told me after I did the seed round,

you know, we were going to shut the company down. I said, actually didn't know that. That's good information. That guy you didn't tell me at the time because I might not have made the investment. She goes, he said literally 50 investments, 50 investors said, no, you were the 51st. I was like, well, that's a pretty great feeling. Jason, tell me the name of the sneaker company, sneaker hit company. It's called Soul Savvy, S-O-S-A-V-Y.

Sol savvy. So let me say this because I want to use this as an example of what I think of the most important defensible strategy on the Internet is. When I work with our portfolio companies, I often am saying this, which is the only truly defensible strategy in my mind is community. Wow. And that's why marketplaces can be so big and so successful. And I want to give you a couple examples.

But the reason I want to tell you first, which is if you launch a widget, let's say a hardware product that you're selling, I don't know, I see, looks like you have an Apple watch there, You launch a watch and you want to be better than other people. You might be first to market. You might be first to the market with ring doorbell. You know, we were the first, you know, big institutional investor there. But in the end, you're never going to have better purchasing power, more engineers, more leverage, more ability to sustain losses than Amazon, Google, Apple, you know, everybody at scale. Yeah.

And so long term, it's really hard to form differentiating. when you're in a valuable market, except if you have community. Because if you are the place where everybody goes, it's really hard to get all those people to migrate on mass somewhere else. So the example I would give you from Ring, the brilliant move that Jamie and his team made, also a guy named Mike Trotten, Mark Trotten, rather, we're sorry about that. Mark Trotten made was to create these ring networks. So think of it as Neighborhood Watch.

So everyone in your community could opt in. You don't have to be part of it. But if you opt in, you can see other crime happening in your neighborhood. You can see each other's doorbells. Or you could see clips. You can choose to publish into the neighborhood watch an event. You don't auto publish everything. You can publish an event.

Let's say that someone came and stole your Amazon package. Let's say that someone broke into your car and you have that video. You can publish. that event so your neighbors are alerted to, if you see this person near your house, be aware they broke into my car yesterday, right? And I know there's some controversy that people find over that, but I find it to be a modern version of neighborhood watch. And I think it's highly productive, you know, with controls. But let me say this, Jason, which is, now you take a local area, let's say, wherever you live. And if you can now go to Best Buy

or Amazon and buy a product for 30% cheaper, are you going to? Or 12 new features. Are you going to buy that? Or are you going to buy the thing that everyone in your neighborhood's already using? Because that's the place you share. So that is the most important part, I think, of sustainable differentiation and defensibility. You know, I've never heard anybody say it that way. I think it's a very profound insight as well.

Listen, as a founder, you know, sometimes finishing a project is way, way harder than starting it. Starting is easy. Finishing is hard. shiny new ideas are great. You have them all the time. And sometimes you and your team don't have enough bandwidth to finish the mission. And that's where Fiverr comes in. They fix the issue by creating Fiverr business.

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The promo code is Jason. Just go to fiverr.com slash business and use the promo code Jason to get 10% off. F-I-V-E-R dot com slash business. Let's just tackle this head on. The only people who wouldn't want to stop criminals and would have a problem with what Ring is doing is virtual signaling on Twitter.

I'm going to say it. You don't have to say it because I know you're connected to Ring and we both know Jamie Simona. Who doesn't want to stop Amazon packages from being bought? And if you're saying the issue is privacy, there is no expectation of privacy

on public streets. You cannot have an expectation of privacy on my porch or on a public street. you're in public. That's why it's in public. It's crazy that people have, I mean, it's mind-bogglingly stupid that we give so much attention. The press and social media to these people complaining about stopping crime. So the preponderance of benefit is overwhelmingly with the community that benefits from crime reduction.

Every great invention has negative externalities. and I think it's okay as a society to acknowledge those. I'll give you examples of a negative externality of something like ring existing. Racial profiling. Sure. You know, if everyone starts saying, hey, I saw a black guy in my neighborhood and that becomes shorthand for, hey, that must be a criminal. That's not good, right?

So I think it's good for us to have our ears attuned to the downside. I think it's good for us to have our ears attuned to could someone a company, I trust Amazon, but could a company like Amazon over time use cameras, use devices in our house to listen, spy, have surveillance, could the government use this as a way to then surveil audiences like the Chinese with the Uyghurs and, you know, whatnot? So I think we need to have our antenna attuned to it. So I'm, leave aside virtue signaling. I'm okay with the super left,

uh, wanting to challenge the societal, uh, negative externalities of this, even though for the most part I don't agree with them. Because I think it just keeps us honest about the things that could go wrong and forces us to be more thoughtful about it. You could,

that is certainly an, uh, something to highlight. For example, uh, I recently had a company that's, scans license plates for communities. And it turns out when they put a license plate scanner in, crime plummets, the same way when ring doorbells hit a certain critical mass, crime plummet in a neighborhood. Would you rather, to your point, at the end of the day, would you rather have lawlessness

or more police, or would you rather decrease crime by having the presence of cameras? Well, if it's on the street and everybody's got a camera in their pocket, that cat's out of the bag. Everything's being recorded. The cat's out of the bag is a good way of phrasing it because we are going to have cameras. We are going to have other devices. We're going to have microphones. We're going to continue out technology. So we need to just continue to have the debate about what are the boundaries.

But I tend to overwhelmingly side with using these tools for safety and security and just being attuned to the negative externalities. I challenge the founder of this company with the license plate over and over again about like, hey, where's the downside? And I was like, hey, you know, what if somebody, flock safety, Garrett Langley episode 1249, for those of you who might be interested in watching it? And I was like, so can, you know, I get into this flock database and search it and, I don't know, stock and X or you spy on my neighbor? And I was like, no, the police have it.

They have 30 days. The largest, you know, they can set it. but the most anybody's ever said it to is 90 days. And then, you know, they can save a license plate if it's been involved in a crime. But we don't actually take a picture of the person in the car. We just send the license plate. This license plate has a warrant associated with it or whatever. And they say, we saw this license plate in this neighborhood.

They give it to the cops. And they said, specifically we didn't put the picture of the people in the car because we didn't want to have any racial profiling issues. I was like, wow, that is incredibly thoughtful. I said, what happens to the data after 30 days? It's destroyed forever. And I was like, well, that is also very thoughtful. So to your point, you could have the debate and then find a thoughtful answer. Of course, that seems to be have been lost, you know, in the Trump era of extremes.

Let me, let me slight pivot on our conversation. Sure. Because I could spend the whole thing talking about security and other stuff that we looked at and are aware of that some of which is scary. But you asked about the mega trend of, say, 2009 to today. And one thing I might talk about is what I think it means for venture capital. Yes. Changed dramatically.

It has changed dramatically. And I want to talk about it in terms of how it's changing upfront ventures. So my own firm. And I think that venture capitalists historically didn't change that much. They like to kind of keep things how it was. And, you know, there wasn't a lot of innovation. But right now, we know that with markets, capital markets changing so much, we have to innovate. We have to constantly evolve. And I think

the best observation about venture capital came to me about eight years ago from Scott Cooper at Andreessen Horowitz. I think he's one of the best thinkers about the market. He's written a book. I won't Google it right now. I can't remember the name of it, but he's written a book about the venture capital industry. It's very good. People should read it. And he said to me at a conference, he said the industry is going to bifurcate. You're going to end up with the mega vCs. Let's call them the Goldman Sachs of venture capital or the black rock of venture capital. And then on the other end, you're going to end up with niche.

And little small people who own some neighborhood, whether it's video or payments or physical security, cybersecurity, physical products, whatever. And people in the middle are going to kind of get caught. And he was just pointing to, for example, the investment banking world, you know, where that exactly happened. And I didn't really believe him eight years ago, but I love when smart people challenged me with ideas. So I always kind of held that idea in my mind.

And it's pretty obvious to me he was right now. And I've seen it now for a few years. But how does it manifest for people who don't know, the entrant of Tiger and some of these later stage funds, and then the ascension of Sequoia having many funds, and Drieson having many funds and the size and the scale of those funds. How does that manifest it for a firm like yours that does Series A as it's bread and butter? Well, you know, in 2009, which is where you started the conversation, I could wait and get a whole bunch of data on how a founder was doing, how their customers were doing, were there repeat purchases, were they expanding sales, you know,

were they winning or losing deals? And I could track it for three to six months. And if it was trending well, I could write a $3 million check for, you know, whatever, call it 17 to 22 percent, depending on competition and how well they were doing. And, you know, I could take my time. And that was considered in a round. And I would take a board seat and I would be active and I would work with them on building the executive team and product strategy and pricing and then help them raised their $15 million round, which was a V round. Well, now seed rounds are $3 million. Some seed rounds are $5 million. A rounds are kind of $15 million. Some are $20 million. Crazy.

You know, in 2009, you know, you would fund deals at a $7.8 pre. Now, you know, that same deal is probably 25 pre, 30 pre. So it's changed a lot. So you, if you, if you, if you want to be an A round investor in how the market defines it today, you've got to be writing 10, 15 million dollar checks out of the gate. And you've got to be paying 40 pre or higher. The good news is that back then, billion dollar outcomes were rare. Now there's many. So rare, we didn't even have a term for it. Yeah. And alienly coined the term unicorn. And, you know, unicorn being something so rare that it doesn't really. exist. Now it's kind of a funny term for it that everyone uses and doesn't stop to think,

why do we call it unicorns? Thank you, Aileen Lee. But now $10 billion is not crazy. If you look, look at Octa, look at Twilio, look at the, I mean, $50 billion in up companies that, you know, every day I could call my family members. They've never heard of Octa or Twilio, right? And so we're creating these tens of billions of dollars of outcomes. So companies, are able to pay 40, 50, 60 pre, build a portfolio as long as some of their companies become worth $5 billion and up. Now, I've decided that we're not, we up front ventures are not going to chase that market because that market is, I think, for people who want to raise billion dollar funds.

So what I'm doing instead is exactly what we've been doing for 25 years. We still want to be your first institutional. capital partner. We still want to take boards. We still want to help you with the hard work of the early days of a company. But I have to be willing to take an earlier risk. I can't get all the signals from your customers. So I have to be better at talent scouting, better at knowing who's coming to market, better at kind of persuading you to leave your job, better at understanding founder market fit, not product market fit. And I got to take an earlier bet, but I'm still writing a three and a half million dollar check.

I'm just committing earlier. And then I'm helping you go raise $20 million behind me. And we've been very successful at that. So I think we are largely becoming a seed fund up front ventures. That's incredible. We're in the same business. Yeah, but I think of you now kind of more as a pre-seater super angel, you know, in a way. It's just that the markets have changed and become more micro-focused.

But the one thing I want to differentiate between upfront. and maybe a traditional seed fund is we are seed slash A. And what I mean is, I'll write the $3.5 million check. By the way, that's the amount I wrote into density, one of the companies you and I are on the board together with.

I did the C and did the Series A. When they, now we would call it a seed, right? Well, think about it. I put in 400K when it was a $5 million company. You put in $3 million when it was a $10 or $15 million. 11 pre, I think. 11 pre.

So now you look at that. I am actually doing what you did, but I'm still referred to as an angel or seed investor. I'm a unique weird bird, but you're basically dipping down and saying, you know what, I would take it at the stage. Jason made the bet pre-product market fit, less customers, less, you know, proven, but pay the higher price and then act like a VC. So bring that level of professionalism and board structure and growth and tee it up for the series A.

So when I say seed slash A, I wrote three. and a half million dollars in that round. But when Founders Fund came in behind us and wrote a big check, I wrote another $4 million check. Yes. So instead of writing three and a half and tapping out, I write three and a half and then four. And by the way, then when they weren't ready for a B round, you'll remember this. I wrote a $4 million check when no one else would. I remember that. Yeah, it was big time. And then suddenly we got this really great investor, Kleiner Perkins, came in with a really big check. And Kleiner, I think, really plays the traditional A round what now is in A round because they don't mind writing a 15 to 20 million. Let's call it the new A for this conversation.

The new A. Now, here's the other thing about that sat with me from Scott Cooper, which is I then went out and raised three growth funds. So I have a barbell strategy. I want to be seed and late stage, but I don't want to compete in A&B. And so here's what I've done with my growth funds, is I can put $50 million into a deal. I have several deals where we are tens of millions of dollars in, and this won't be a surprise to you. It's goat, appeal, bird, companies like Threat Up, FabFit Fund.

It's like these companies that have become major winners that I can then move a lot of money into. And that would be, would that $50 million represent from your growth fund, pro rata or like super pro rata if we were to look at it because you own 13%, say you own 12% of a company. Now they're raising a 2 billion, 50 million is but, you know, whatever, 2 and a half percent. So is it like keeping up with your pro rata or just to sometimes make it super pro rata? How do you think about that? It's often less than pro rata, if you can believe that.

It's crazy. Yeah. It's often less than pro rata. So let me define for you my strategy just in case anyone else is wondering, you know, about evolving their own strategies, investors, that is. our A fund, our seed slash A fund, we aspire to get $10 million in before our growth will participate. So we don't want the seed fund LPs to feel like they're being crowded out by this other money.

Okay. Right. So we aspire to get $10 million in. I actually have to get approval if I'm going to do less than $10 million before my growth fund comes in. What's the size of that fund? The A fund or the seed now seed fund. They kind of...

300 million? Yes. Got it. Around 300 million. So some have been 280, some have been 380. How many names in that fund? How many unique names do you think? In terms of portfolio?

Yeah. How many companies would be in that 300? Got it. Perfect. 38 per fund. And we really religiously try to target getting 38. I think that's the right amount of distribution for us in terms of risk. And then the growth fund does not lead rounds.

It does not price rounds. So what we're aspiring to do is write 15 to $20 million checks on average. I can write more, as I've already identified, but 15 to $20 million on average as part of a 50 to 75 or greater million dollar round in which there's a lead who prices, in which I still believe there's minimum 3x return from here, usually 5x or great. is what we try to underwrite to. And there's sort of safety in numbers of the dollars, because if I'm writing 15 out of 100, they now have all the other capital, all the other participants at the table

who have also priced it with the expectation of at least three X returns. And it's later in what you call the J curve. So you know, the J curve of investing is you start writing a bunch of checks and you get fees. So your returns are actually negative for a period of time until your companies get marked up, at which point you have returns at least on paper.

This is why people say the third, fourth, and fifth year of investing are particularly challenging for a venture fund or an investor because you feel like I'm a schmuck. I started with 300 million. Now my portfolio is worth 150 and you still have to wait for that maker density, fat, fit fund to come out and all of a sudden now you're back above water. But it's known and it's expected. Yes.

And it's slightly nuanced, a tiny bit nuanced different than that, Jason, which is if I committed to him, if I have a $300 million fund, again, just for listeners to learn. If I have a $300 million fund, I'm generally only investing 40% of that in first checks. Okay. So a good deal of that is reserved.

But also in that $300 million fund are my fees. So I commit to investing 100% of the fund. How do you invest 100% of $300 million when some of it is fees? 30 million of its fees. negative 30, right? The way you do it is recycling. So in year 3, 4, 5, 6, when we sell companies, we take some of those dollars and instead of returning them, we reinvest them.

But we reinvest them with no fees. And so you have the ability to do that with 10% of the fund, I guess, is the typical number? Every fund is different. We have the right to recycle up to, I believe it's 115%, to implement. invest up to 115% without approval of the fund. Now, LPs want you to be 100% or greater. They actually want it. If you didn't recycle and continue to invest, some funds do 85% of their fund invested.

And so this model of recycling and getting your dollars up is how you get 300 invested. But let's take year one, two, and three. It's not that I've written off 50% of my fund. It's that I might have 100% of my fund at 1% of my fund at 1%. 1x, they haven't been marked up yet. And I might have charged three and a half million dollars in fees. So by default, I'm lower than 1x capital. I'm underwater.

It's like you move into a house, you get a mortgage, you're paying interest, and then you decide to redo the kitchen. Sure. Underwater. And maybe the house grows in value over the next five years. And then at some point, you're above water. Yes. Now, what a lot of people don't realize in this world where we actually charge fees is we

actually have to pay those fees back. Yeah, it's not free money. It's not free money. And I know a lot of people think it is, it's not free money. You have to pay it back. So if I have a fund that's $300 million and I return $600 million in total, let's say I did $2x gross, which is not great, but it is what it is. And so, you know, that's $300 million in gain. 20% of that is $60 million, right? So there's good carry on that. But I got to pay back all my expenses. So let's say the expenses were 40 million over the life of the fund. Okay, well, my gains really 20 million, not 60. And so those expenses have to be paid back.

So it's, you know, it's a cost-nared end. Now you have five partners dividing 20 instead of five partners dividing 60 over a 10-year period. So keeping your fees down is not such a bad thing keeping fees down. You know what? It's very interesting. You mentioned this. I have very small. My first phone was 10.

I recycled one. So it was about 11. second fund was 10. I was racing so fast with Fund 10. I didn't realize I deployed all of it and I still had fees left, but I was like, okay, I'm just going to deploy it. I moved on to the next fund. I didn't take the fees because I was like, I don't want to,

what do I need the fees for? I don't need it. Yeah, because I was so smart. And by the way, then your IRAs go up. Exactly. So I think that's, let's explain that to the audience because people love to hear about this inside baseball stuff. This is turning out to be a great episode.

So your internal rate of return. Yeah. is the average amount you returned each year on a percentage basis. So let me tell you the four measures that matter in venture. The first is called moik, multiple on invested capital. Some people call that gross returns. So that is, I raise a $300 million fund. I've returned $600 million.

That's a 2x moik. Okay. Multiple on invested capital. Cash on cash basically. Cash on cash. Now, the thing that LPs care more about is called TVPI. Total value per invested capital. That's net of fees.

Okay? So net of fees, net of carry. So that's the net return. So if an LP gives you, let's say you have a $300 million fund and they're $30 million of it or 10%, and they give you $30 million, they don't care that you generated 60 million total for them in gross value they care well what do I get back right so if they get back 45 they only had a 50% gain not a 100% gain so the tbPI subtracts out now some that's true cash in cash out for the LP that is exactly it cash in cash out which is interesting I'm an LP in a very

notable fund I wouldn't say which one and one of the most famous investors just said to me at some point just don't worry about any of these numbers in the reports, Jason. How much cash did you put in? How much cash did you get back? Yeah. That's all that matters. Yeah. Ultimately, that's all that matters.

But there are some interim ways to judge a fund, which I'll describe. But so, Moik is gross. TVPI is net. And the thing about TVPI is that is your paper gains. That is what your companies are worth on paper. and that's what your LPs are measuring. Now, if I do a deal, if let's say I do 38 deals and one suddenly gets marked up to $20 billion, well, my TVPI might look amazing, but people need to scrutinize that and say, well, did Sequoia invest at $20 billion?

Or was it a strategic or some weird investor that just paid that price and, you know, is not necessarily a good indication of long-term value? So there's DVPI. And then there's the true measure. And the true measure is DPI. DPI stands for distribution per invested capital. That's cash in, cash out. That's your distributions.

So if I have a fund that's $300 million and I have actually returned $200 million of that, well, let's say that my total amount that I got, including fees, was $300 million. my distributions of that $200 million, I have a 66% DPI. And DPI is, am I sending cash back? Or is this just you marking everything up on paper? And then the last thing is IRR. And IRR measures how fast are you sending the money back? So if I take $300 million and I return it in one year,

if I've returned $600 million in one year, my IRA is going to look great. If I take 300 million and I return 600 million in 20 years, my IRA is not so great. So internal rate of return is how fast do you deploy the capital? And I'll tell you one last thing that increasingly I think people are going to start measuring is called PME. And PME stands for public market equivalence. So now I say, okay, my IRAs are, let's say, 25%. That's a very good IRA.

You make 25% amazing. Yeah, yeah. You know, let's say it's 25%. So I have several funds north to 25%. I have some that are north of 40%. Amazing. And I have some that are less than 25%. And what I would say to you is

what investors want to know is what if I took those dollars at every point that you invested in, instead of investing in you, I invested in the public market index. How would that have performed? And so if I write $5 million check each quarter into companies over, let's say, 12 quarters, and instead I had written that $5 million into the stock market, at that time, how would that compare to your returns? So that's called PME, a public market equivalence.

Is that becoming more prevalent for folks? No, but more sophisticated LPs and more sophisticated VCs start to think about PME. And we've always calculated that. And I find it a very helpful benchmark to judge, should you be giving me money or should you be putting your money in a NASDAQ or a, you know, S&P index? We always hear the public markets have done 7% historically, you know, every year. But if we're in a super cycle and Amazon doubles in one year and Disney triples over or doubles in, you know, every three years, whatever it is, well, they're getting a pretty good IRA as well. They might be having a 25%. If you're a public market investor, you have something that you don't.

If you're investing in venture capitals, you have liquidity. You know, you could double Amazon and take your earnings home in one year whenever you want. Yeah. Whereas in venture capital, you can't. You say, listen, I love Disney, but I think they hit their peak. I want to put it into Amazon. Now, last insider baseball thing for you. Sure.

And this is something almost no VC's know. And I know that almost no LPs know. I've experienced this as I've tried to explain how the data works to people. If you have a fund, let's say pick a year, 2015, and I deploy all my capital in 2015, and you could say is that good or is that bad. I generally think it's bad because I think spreading your investment over multiple years gives you access to different platform changes and has more diversity built into it. It's called time diversity.

And time diversity matters. If you put all your investments in 05, you missed the iPhone that came in 07. If you did all them in 07, you probably missed the app store, which came, whatever, 18 months later. And so if you put all your video investments in 03, you miss the changes that led to YouTube in 05, right? Cloud storage and broadband. And streaming technologies that came out from Adobe and other people. And so time diversity matters. So let's say you put $300 million to work in 12 months in 2015.

And let's take strategy two, $100 million and $15, $100 million and $16, $100 million and $17. Okay. Now let's say you measure in 2018 and you try to compare the TVPI or the moit of those two funds. Well, the one that deployed everything in 2015 is going to look better. You know why? Because every one of its freaking deals are four years old. Whereas in the more prudent strategy, 2015, 2016, 2017, 2017, the 2017 companies are only a year old. So, of course, they're not marked up.

So you're comparing apples to oranges. And so I think the conservative, smart, distributed multi-year strategy, you have to understand the data set. So people who are a little bit more cavalier about their pace of investments actually look better. and therefore can go raise funds. Now, if the markets continue up into the right and we have no corrections, being cavalier or being really fast-paced and- Some might say bold, somebody might say reckless. We'll see when the outcome happens. I don't know if it's bold or reckless, but let's just say taking on more risk.

Yes. And that risk is rewarded in a bull market. In a correcting market, it is massively punished. And we just haven't really had a big correction since 2009. All right. So there's a great jumping off point. Is this a bubble and where is the bubble, right? Because when you have these bubbles, it's not always equally distributed. So yes and no, Jason, which is, you would be the answer.

So early stage, A, B, new A, where is the bubble here? If it's okay with you, I'm going to take it up a level, which is a lot of people are worried about inflation right now. and I tend not to be one of them. And it depends, you know, look, nobody really knows. No one is across the ball. The market's going to try to figure it out over time. And it depends which economists you follow. I think, and I think anyone, let's say, right of center, you know, will probably hate this.

But I think that the economist who has been most right over last 10 years has been the Nobel Prize winning Paul Krugman. and he has been saying for the last 10 years that people are overplaying inflation. And if you're interested in the topic of inflation, and whether you have right-wing, right-of-center beliefs, it's worth reading him and reading his arguments. But he gives a lot of arguments on why he believes inflation right now is likely. He doesn't say absolutely, but likely to be temporary in nature. A lot of it driven by things like used cars and the massive. boom and use cars,

uh, prices. Um, and so what he's saying and what makes sense to me is that we don't yet know if inflation is going to be persistent or if it's really driven by some of the things that happened of us coming out of COVID and certain materials being scarce and supply chain issues. Supply chain issues and and,

and chipsets in China and whatnot, but, and lumber and a small number of cars being available and everybody having stimulus checks to buy a new car. and then there being no cars available and resale prices go up. That's inflation. But when the car companies catch up and the Stimmy checks run out, now you don't have demand. So I think the one view I can tell you that I think is generally accepted is we have asset bubbles. Yes.

And so what's happened is almost every asset class, like name an asset class that hasn't seen massive appreciation, the stock market, private markets. housing markets, commodities. Triple check. Go down the line. Crypto. Crypto, collectibles, you know,

show me somewhere that hasn't had appreciation. So people who are investors who have assets who have wealth have gained dramatically. And if you don't have anything to invest,

you haven't gained because wages haven't gone up. Wages going up is actually, well, they are starting to, but they haven't gone up that's a three-month thing with this. But it's a good, it's a good thing.

It's a good thing. Oh, I think so too. Let's jump into that after we finish up inflation. So let's put a pin in wages. I think government leaders have made the decision that assets appreciating has, like everything, some goods and some bads. It helps wealthy people. It doesn't as much immediately on the first order help less wealthy people.

But, but who are. Who are, who's gaining from asset appreciation when you have the stock market up, when you have private investments up, when you have assets up, you have pension funds up, teachers pension fund, police pension funds, firefighters, I mean, all of a sudden, California had a surplus. Exactly right. In a pandemic. Right? And so, you know, I think stability of the system is important for everybody and it's as important for wealthy people as it is for less wealthy people, even if they don't fill it.

The housing market is particularly crazy because it is supply constraint, which obviously drives prices up inherently, especially in the place where you and I both live, California, where you have this crazy tax law whenever you bought your house, that's your tax basis. That's just dumb. We have to fix that, but it's politically untenable to do that. And then you have this NIMBYism. You can't build new houses. And then you have a third thing happening.

all this asset inflation has now led to Goldman Sachs and other folks to back people like Open Door and others and I guess Zillow is doing this now. They're buying up all the homes. So you have rich people who got asset appreciation in the stock market buying all the homes, no new homes being paid and the homes going up in value and record low mortgage rates. That to me is this how do you solve that problem? Four things. It's like talk about like a perfect storm.

It's four waves colliding in the same direction. It's a tsunami of housing crisis. The most important point there is lack of supply. And if you look at what happened with how many homes were built leading into the bubble, the crisis of 2008, 2009, there was a dramatic reduction of supply after 2009, and it persisted for many years and it's going to take us a decade to catch up. So we have really a supply problem and everything else, there are minor problems at the edges. I'm sure if you live in Austin, you don't appreciate that everyone from California is moving there and they're able to pay up

because they made money in California housing, right? Well, yeah, at $1,000 a square foot, if you're coming from Pacific Palisades or Brentwood or Bel Air or Atherton or San Francisco seems like a bargain. So we're driving up prices in Idaho and Colorado. and Texas and Florida. And, you know, there's winners and losers. If you're selling a house, you're a winner. It's amazing if you're selling it. But the real problem is lack of supply.

100%. I mean, I'm an investor in a company called Blockable. And it's so obvious, it's so easy to build houses in a factory. And it's so easy to build modular houses and one to three bedroom studios going up to five stories. They've nailed it. Katera. Was that the name of the company that went bused from Softbank?

They were kind of a mess. They never got it done. But there's other companies that are making prefab homes or mass homes like built in factories. And we could solve the problem. And it's going to be very interesting because there are some communities that are gangbusters allowing the building of what they call infill units. Somewhere between the suburbs and the city, there's a strip mall that's dilapidated or a parking lot that you don't need parking spots anymore. and you could plop in a four-story 20 unit,

and it's just a matter of if the Nimbys let it happen. It's just fascinating to me. Let's talk about the, since it came up, minimum wage. We had Elizabeth Warren, we had Bernie Sanders going crazy, minimum wage has to go up, yada, yada, yada, Jeff Bezos is horrible. He's, you know, people hate him, and, you know, he's torturing people in factories,

yet he's paying $15 an hour, double the federal. And now he's in competition. and Apple, Uber, DoorDash, Walmart, Target, and your local restaurants are in a dogfight, and wages are going $20, $40 an hour for jobs that were $10, $15, and $20. Discuss. Well, let's say a few things. One is I'm going to take an interesting, different leaping off point, which is I think we have a great labor shortage in the United States and around the world. I think that labor shortage is going to continue for the next few decades.

And I think it's driven by aging populations and lack of young people who are going to grow into these jobs. So if you look at the demographics globally, almost everywhere is moving into decline, declining demographics. It's a really big problem in Japan. It's a really big problem in China. it is not as big a problem in the United States, but for people who are anti-immigration, they should understand that immigration is one of our great strengths as a country. It has always driven our supply of labor and honestly cheaper labor. And that's allowed us to continue to grow and thrive and prosper.

And the great thing about America is historically a relative ability to integrate people. We're not perfect, but I lived in Europe for 11 years. We are much better than European countries at integration. You can ask the Turks who live in Germany how they feel about integration or the Algerians in France. Yeah, I was about to say the Muslims in France are second and third generation now and they're considered second-class citizens. We have the great American melting pot here, you know, putting cultural appropriation and that hysteria aside. Because one of the great things that we were taught is that we could all be part of this amazing soup and experiment that is America. When you think about the problem we have now is we have jobs that people don't want,

and we have a lack of labor and supply. And so I'm very pro automation. I'm very pro robotics. And I think, I remember years ago, you invested, didn't you, in a company that was, you know, automating coffee? Yeah, we have CafeX, which, you know, obviously had a heck of a time during the pandemic. They reopened at SFO. It's doing amazing. and then they pivoted having watched what we bolts are at density, hardware as a service,

the hardware, we're not selling hardware, we're selling you software. You remember those meetings where me, you, and Andrew were grinding like, ah, $1,000 for the product or a software license. And, you know, God bless Andrew, credible entrepreneur, he figured it out, you and I was sitting there with them as he did. And CafeX now is selling the units and the software to people. So instead of them putting in a thousand of these, what if Dunkin' Donuts, which is, you know, can't get labor for the average tenure of a Dunkin' Donuts employees

less than a year. It's less than a year. By the time they hire them, they're gone. Now you go to any airport where there's Dunkin' Donuts on the East Coast, they need twice as many Dunkin' Donuts to service people. You see the lines at airports even post-vote. If we are lacking- They could infill these. Yeah.

If we are lacking in the ability to provide jobs for people in the United States, then I can see the debate being a problem. But fundamentally, I don't believe a lot of people want to be making pizza, making coffee, filling boxes, pick-packing strawberries. Yeah. And so to the extent that we can automate, but then we as a society have a responsibility for figuring out how to educate and retool and train people to take newer modern jobs and still have good income. We have nine million job openings, maybe 10 now. And you just think about that. Like, we were wondering what would happen with UBI, right?

There was a group of people in our community like, oh, UBI, that's going to be the greatest thing ever. We kind of got a dry run of it. And if you give people enough money and this idea that they would go to work anyway to make the incremental dollars, it's like, nope. And it makes total sense. I think I nailed that one. I was like, you know, you take people's motivation away.

And now they're sitting at home with nothing to do. what is that going to do long term to a person's self-esteem? I can't imagine. I stayed home and worked like an animal during the pandemic, and I still felt bad. I still had anxiety from what was going on in the world. You have to have purpose and get out there and do some work. But the robotic work, you know, I think it's great.

We invested in a company called Rude AI. It's like one of these great aha moments, which you got to love when you're in our business, right? And I'll get your aha moment. But mine was, you know, when you use computer vision and we look at strawberries, I'm like, you pick which one is the right one to pick, right? You figure out which one is right. They're like, exactly.

I was like, oh, great, I'll invest. Like, no, no, that's not what we're doing? That's not all we're doing. I was like, oh, what's the next piece? He goes, all right, I spent 15 years working on like soft robotic hands at MIT. We're going to actually pick the shrubbery. Wow. I'm like, oh, my God, that's incredible.

They get bought by another company that specs. We triple our money like overnight. Fantastic, but also sad because I would like some long. The other company is doing vertical farming. So a vertical farming company is like, we're going to grow shrubber. is outside of Boston, you know, like right there instead of, you know, training them in and putting chemicals on them. We take 10 days out of the process.

So now you're going to have a robot. Look at the strawberry patch. That's vertical and pick the most ripe strawberry, drop it into a bushel. One of the fastest growing companies in our portfolio is a company that uses robotics to grow worms in vertical farms. As of 2022, they will be the world's largest. producer of worms. And so you say, well, why would I care about that? Well, the problem in the world is, one of the problems in the world is protein sustainability. And so what worms are able to do

is become a protein source for fish. So in the wild, about 15% of all input that a fish takes is insects. But now more than 50% of fish are grown in fish farms. And they were getting zero insects. And so we were depleting the world's supply of things like anchovies to feed fish. So they started feeding fish carbohydrates, so wheat products. And it turns out that fish mortality goes up because they don't all digest wheat. And so they started giving hormones and amino acids and antibiotics to then prevent inflammation from hormones. And we were creating an industrial system similar to what we did with cows and chickens in this country. And so this entrepreneur said, I think I can solve that problem if I can grow insects at scale. And so he tried 100 different types of insects. It turns out

some that sound like a good idea, like grasshoppers, crickets and the like, you can't grow in really close quarters because they become cannibalistic when you do. So he had to cycle through a bunch of insect types. He settled on this type of worm. It's called a meal worm. And they could They do mass produce the larva. But what they do is think of stack trays that go really high and robotic arms that lift the stack, drop in feed, drop the stack, pick the next thing up in the stack and drop the feed, and they go up and down. Then periodically they pull out a tray, flip it over a sieve, get all the manure out, and put the worms back. The manure makes about 60% of our total volume of what we create and we sell it as an organic fertilizer. at maturation, the worms are crushed.

You take the liquid byproduct, and it becomes an input into pet food to make dry kibbles water soluble. And there already are products that do that. They typically come from poultry, but we're a perfect substitute for that. The most value is the dry cake powder, and that then becomes an input for fish food. And it turns out, we did a three and a half year study to prove that we could reduce fish mortality and not impact the taste of fish.

Suddenly, we have so much demand we can't even produce enough worms. As I said, we're building the world's largest factory to produce worms now. And we went from zero to $100 million in bookings in one year. Fantastic. That is extraordinary.

I mean, you just think about all the problems we have. You think about how lucky we are to be capital allocators and to work with these amazing founders, I am so positive, and I know you are too, about we can solve every problem if we have amazing entrepreneurs

who are properly incentivized and are given the capital and if we have the will as a society who actually deploy these exciting things, you know, and it really is about willpower, we can correct, I believe, and I'm curious to your answer,

I believe we can cure and reverse, in fact, global warming. It's a complicated topic. I can't recommend highly enough to every reader if you care about sustainability of the planet to read a book called collapse. And it's written by one of my favorite authors in the world, Jared Diamond. And Jared Diamond won the Pulitzer Prize for his amazing book called Guns, Germs and Stale. So Collapse Studies Societies Around the World That Collapse. and why do they collapse? And like guns, terms and steel, he says, here's the proximate causes.

So the proximate causes of why the West conquered the rest were guns, germs, and steel. But he says, but someone needs to ask, why did the West get guns, germs, and steel, right? So that's the whole premise of that book. The premise of collapse is we know the proximate cause of why society's collapse is war or famine, or some sort of catastrophic event. event like water being reduced. Overpopulation, yeah. So, but then he says, well, what causes that?

And he goes back upstream to say, what causes why? Like he looked, for example, at Rwanda and why was their genocide in Rwanda? And it came down to agriculture because they were subdividing the land so much. And every subdivision went from father to son. And it usually went to firstborn son. And they would subdivide and subdivide and subdivide. the land as population grew to a point where they could no longer hand out land to their offspring. And they had a limitation on the number of acres of farmable land, and it started leading to civil

conflict. So he goes back up to looking at things like agriculture. And one thing he studied was Easter Island, the Moyes, and why did Easter Island collapse? So Easter Island went from this really religious place that had gods and norms and rules. And then over time, they became cannibals and killed each other and ate each other. And what led to that. And what they did is they studied the diets of the middens of like the, they studied the middens to determine the diets of what people ate. And what they figured out was the first thing they do is they cut down all the trees.

And once they cut down all the trees, they no longer had fixed. in their diet because they no longer could build boats to have fish. Oh my God. And so their calories were reduced and therefore their output was reduced and therefore they led to civil conflict and their entire religion was wiped out and they became cannibalistic. And so anyway, this book, it's a wonderful book and he basically says there, oh, you did. Okay. So he talks about a theory called Malthusian theory, which is the more you produce in agriculture

and output, the more population will grow to. fill that. That's the Malthusian theory. It's like induced traffic. You build more roads, people travel more. Exactly right. But what he said is, you need a combination of technology, but you need societal change. You need people wanting to consume less. And I think that's the other area. And that's what gives me great hope about Gen Z and people coming behind Gen Z is they're growing up with a culture of wanting to drive electric cars, wanting to consume less, wanting to have lower carbon footprint, wanting to find ways to not have to import their products from around the world that has carbon emissions, and wanting less. And I think that's got to be

the world we live in in the future. You know, it's crazy. I grew up, and you and I grew up, were both Gen Xers, where we really didn't think about this too much. We saw Greenpeace kind of over here doing, you know, saving the whales. There was some, you know, activity on this. It was a pulse, but it wasn't like today. And I got the bug from my children who are absolutely militant about plastic straws because they understand it kills turtles and, you know, the damage it does. So we have metal straws at home.

We have paper straws at home. We do not have plastic straws. When we go to a restaurant, if they give us plastic straws, we hand them back, we ask them preemptively, please do not give us plastic straws. And increasingly, people say to us, we don't serve plastic straws, sir, but that five years ago was a distinct difference. And then I started getting crazy, Mark, because I made a little bit of money, and I love beverages. So I start ordering Topa Chica, and I start ordering my Bundaburg, Diet Gingerail. You know, I got these bottles and cans of everything I like. I'm in love of beverages. And I realize, wait a second, I'm destroying the

environment with all this stuff. So that I said, you know what? Enough. I love my Topa chica. I don't know if you drink that sparkly water. So I put on, is it called? Topo chico. I put it on, I put it on Twitter.

Yeah. And I said how much I loved it on Twitter. Yeah. For which point I started getting bombs by several people telling me that it has the worst chemical rating of virtually any carbonated water drink. You just, that's terrible. It's got so many bubbles. People sent me the links to it.

and why you shouldn't drink Topo Chico. And I can't claim to be an expert, but I clicked and read the articles and it all seemed plausible to me. So I'm kind of back to other carbonated drinks. It had so many bubbles in it. It was so good. So here's what I did.

I was like, I love these bottles. I went on to Amazon. They make silicone caps that look like bottle caps, like old-timey bottle cups. I get the 12-pack of Topo Chico. After I use it, then I put cold, brew coffee, ice tea, uh, or water in them. And I put the rubber caps back on them. And like,

I'm like a maniac, like, like, I'm like some crazy environmentalist. My refrigerator, I, you know, I don't drink wine. So I have a wine fridge that was installed in my house. It's filled with these bottles who with ice water in them. So now my girls go and they drink ice water, uh, from the Tobichiko bottles. I'm just they, yeah, my wife went one step further, which is she bought one of those, um, sparkling water slash Coca-Cola. makers or whatever. I don't drink from it, but she does. She does it because she doesn't want to have to buy as much plastic. You don't have to carry as much. I think, and all of this, I mean, you just think about solar battery packs, you think about Tesla's. We are here. We're on the

cusp of it. It just requires us to focus on an innovation. Listen, Mark, it's been over an hour. Great job today. I love being in business today. I love having you as a friend. Love having you on the pod. Let's just do this again in six to one months. Whenever you can spare the time, the audience loves it. If somebody is looking now for the new A, not the new A, I'm sorry, the seed, and they wanted to get that advantage of having Mark's Series A wisdom and dexterity with the new mark, earlier Mark coming in earlier and strong, what's the best way for them to pitch you and the best stage for them to be at? Well, listen, I still believe that trying to find ways to get introduced to VCs is a good idea. It's not, I'm on Twitter. So,

I respond to tweets, right? Like, you can reach out. If, you know, there's the old saying, you know, you should give before you get. So the best way to endear yourself to someone you want to get to know is to find something of interest to them and put information in front of them. They're going to notice you. So I'm very active. I'm very public.

I don't mind interacting with people. You know, I'm on the road now. I'm traveling. I was in Austin three weeks ago. I was in San Francisco yesterday. I'm in Palo Alto today. I'll be in D.C. and New York. I'm getting out there, right?

Like, I'm being careful. You know, I understand there's COVID, but I'm getting out there. So I'm available. The reason that- You removed obesity from your risk factors. You've worked so good. I'm so happy for you. I appreciate it.

Thank you. What's the total weight loss at this time? So at peak, I lost 70 pounds. Right, yeah, right now I'm closer to 60. And I've been focusing on trying to do weight gain. I'm trying to do muscle gain rather than weight loss. I watch you on the social. I see you with your kids.

You're out there doing stuff and you used to be fat and tired and eating donuts with me at board meetings. And now look at you. You felt you look great. You look 10 years younger. And your energy level and your positivity also goes out right when you lose it. I'm on the journey right now. But thank you. And I'm happy next time I come on, I can give a ton of fitness suggestions.

I give a small plug to daily habits and the need to have daily habits. I hold myself accountable with an app called Streaks. There's plenty of them out there, but I have, every day I have to do push-ups, abs, take my meds, study French, and do cardio, those five things. And I just track it on my phone. And like, if at 10 o'clock, I'm like, oh, I kind of want to wind down and, you know, sit and watch TV, and I'm like, oh, fuck, I haven't done my abs yet. It just forces me to go do it, right?

I do my abs and I watch my Netflix. Exactly. But, you know, so I look a bit, Meshuggan. to my wife who's like, God, why at 10, 15, do you always have to go do your abs? I'm like, because I haven't done them today, right? Like, so it's okay to have a little bit of neurosis over, over good positive things.

All right, listen, brother, it's been a great episode, and we'll see you all next time on this weekend start us. Bye-bye.