This Week in Startups - Sequoia resigns from Citizen's board, IPO window opens, chaos at Dapper Labs | E1691

Episode Date: March 7, 2023

Jason is BACK with Molly to break down the news! They cover Sequoia leaving Citizen's board after passing on a "pay to play" round (5:46), two major companies reportedly going public in 2023: Instacart and ARM (27:11), and the recent turmoil at Dapper Labs (50:44). (0:00) J+M tee up today's news show! (2:25) Jason's back! (5:46) Sequoia leaves the board of Citizen (14:21) Squarespace - Use offer code TWIST to save 10% at https://Squarespace.com/TWIST (15:51) How investors make the decision to pass on a "pay to play" round (25:41) Contra - Get $500 off your first hire at https://contra.com/twist (27:11) IPO window starts to open, Instacart prepares for IPO after big Q4 (35:42) Revelo - Get 20% off the first 3 months by mentioning TWIST at https://revelo.io/twist (37:09) ARM prepares for IPO, reasons for CHIPS Act speed (50:44) Chaos at Dapper Labs: reckless spending, securities lawsuit FOLLOW Jason: https://linktr.ee/calacanis FOLLOW Molly: https://twitter.com/mollywood Subscribe to our YouTube to watch all full episodes: https://www.youtube.com/channel/UCkkhmBWfS7pILYIk0izkc3A?sub_confirmation=1

All right, everybody, welcome. It is Monday. Jason's back from Japan. He's mostly awake, we think, and put together a great show. You got it together for a great show. I don't know what time it is, but I'm a little jet lag. They got back from Japan. Great trip. And I saw this new story. I didn't get to talk to Molly about it. So I thought we should talk about FT story about Sequoia leaving citizens board after electing to not participate in a pay to play around. So we'll talk all about the dynamics and we'll speculate for 20 minutes or so on what the heck is going on there. You should just know that going in. Yeah. Then we're going to talk about the IPO window maybe opening back up again in 2023 after a pretty more abundant 22. Instacart and SoftBank owned arm are both gearing up to go public. We're going to do a little compare and contrast and break down those two businesses. Yeah.

And very interesting to see Instacart and their numbers, which were leaked, perhaps. But they seem to be doing good. They seem to have right in the ship. as it were. And then Dapper Labs has a duo of stories. We're going to catch up on the action by the Southern District of New York, a very serious office that doesn't take actions lightly, and they tend to take things to the mat. And so they are in a lawsuit with Dapper Labs over the selling of NFTs. And then another story in the block described some anonymous current and former employees who are not happy with the CEO over spending.

Lavish spending. Maybe. Or marketing expenses. What's the difference? Rolling on PJs while you fire the little guy is always going to get you. It's always going to get you some anonymous quotes in some sort of newspaper somewhere. I'll find out. It's going to be a great show.

Stick with us. This weekend startups is brought to you by Squarespace. Turn your idea into a new website. Go to Squarespace.com slash twist for a free trial. When you're ready to launch, use offer code twist. to save 10% off your first purchase of a website or domain. Contra is a commission-free marketplace for freelancers and independent creators. Get $500 off your first hire at contra.com slash twist.

And Revello, looking to affordably scale your product development with global tech talent in U.S. time zones, hire vetted remote developers in Latin America with Revello. Get 20% off for the first three months at revello.com slash twist. All right, welcome back. everybody, it's a Monday. Are you sure it's a Monday? Do you know what day it is? Well, I left Tokyo at 5 p.m.

and I got back at 9 a.m. and I slept two hours on the plane. Then I stepped like three hours when I got home, and then I stayed up all night, and I don't know what time it is right now, we're taping, but I'm hoping that this jet leg is easier and coming this way. When I went to Japan, I got there at 10 p.m.,

which was 5 a.m. our time. and then I went cat skiing the next day. I did the most challenging skiing physical activity I've done in 20 years. So that was dumb, but amazing. Did it make it worse? I feel like it would make it better in the way where then that night you would just sleep and you'd just sort of wipe out the existence of the previous time zone? No.

I would just do this as a mental game. If I had thought this through a little bit more, I would have added a day or two of rest. And old sense and just chilling for the first two days I got there, and not immediately tried to do to ski the abandoned ski resort while driving up to the top in cat skiing. It was crazy. I did something that was incredibly challenging.

That's awesome. I think they're having that kind of skiing in Tahoe right now, too. You might as well just... Paradoxically. I left helicopter up there and, like, do it all over again. I literally left, and I let a... a family used the house because it was their ski week. And they're like, oh, yeah, it's a record ski, record snow in Tahoe.

And I was like, oh, wow. So I leave to go find the powder and it dumps powder like in record amounts. But we have, thank God, California has the most, I think this is the record or second snowpack depth in the history of recording. I think so too. Yeah. I think we're like there. I mean, before this last, because there was another storm that just came in on Saturday. I think we were at like slightly dry for most of this.

Like I think we might have kicked the drought kind of situation. Yeah, we did. Yeah. Great. Amazing. The drought seems to be like, yeah, it goes for like six, seven, eight years out here. It's horrific. And then we have these incredible monsoons and then it overflows and we don't capture any of it.

I was just thinking like we, California has a very laissez-faire attitude towards water that we could do a better job. And all of the water just runs off. Into the ocean here. They don't capture anything. And it's like going to happen when all this snow melts is going to run off. And then meanwhile, the Colorado River is still legit empty. Like we literally need all this water. Anyway.

It would be good if we recaptured some of it. Anyway, something to think about. Wouldn't it? Just an idea, thought. Just throwing that out there. We need it to live. The problem in California, when I lived in Santa Monica, Southern California, all of the, you know, it would be bone dry for 100 days.

Then it rains. And all the oil. and garbage will have built up in the streets, you know, and gone down the sewers, then the water comes and it flushes it all directly into the ocean. So instead of capturing any of that, the garbage, the water, they're just like, yeah, it doesn't rain here that much, so it just might as well just let it run off into the ocean. Like, they could capture that and the garbage. So, yeah.

It would be better. Yeah. Humans can hear you. Hey, there was a lot of news when I was gone, and one story stuck out to me because a lot of founders had questions about it. And maybe we could talk about that one as we kick off here. Yeah, let's do it. So last month, Sequoia left the board of its portfolio company Citizen,

otherwise known as the app that scares the crap out of you, because every time you wake up in the morning, you have 10 citizen notifications and none of them are ever good. And maybe that's just, maybe that's just Oakland. Anyway, Sequoia left the board of Citizen after declining to participate in a pay to play round, which there's a lot going on in that sentence, but let's sort of unpack it one by one. Why this matters is that these crammed down rounds have apparently been happening frequently in this new environment. And maybe this is a good time for you to start by explaining what a pay to

play round is and how it happens. Sure. If you're raising money, you know, you went to an accelerator, your valuation was $2 million. You did a seed round. Your valuation was $8 million, $6 million, whatever. you raise a series A, 30 million posts, and then you raise Series B at 100 million. Okay, the company then doesn't get proper product market fit. It's spending too much money. It anticipates since, hey, those four fundraisings I just described happened easy-peasy, lemon squeezy in the height of the boom market. You know, founders expect, okay, I'll just do a Series B and double the valuation.

It'd be great. Maybe I'll even sell some shares to the new investors and buy an apartment. So then you find an environment where people revalue the company. They say how much revenue you got and how much of you're burning. And it turns out, let's just make a number up here. If they had a million dollars in revenue, people were valuing it at a hundred times revenue in the last round. The new investors say a million dollars in revenue, okay, ten times that. It's worth ten million to me.

The person as well raised our last round in a hundred million. And nobody can agree. And then some people might have the ability to block some valuations. Now, Citizen, I just made up an example of a composite based on what we've seen. That pretty much tracked the last five years of the bubble. They were valued at $447 million. So this could have been, you know, really expensive. And then nobody wants to invest.

Maybe the company's burning a ton of money. So nobody sees a way to fix this. And then somebody comes along and says, I would invest. You know, if I saw the company and you laid off all these people and you got to, you know, 30 people and you had three million in revenue. and, you know, there's a chance for this to get to break even in a year or two and then be profitable. I would do it, but I would only do it at this valuation. Now, if that valuation was $20 million and the company had raised $50, the math doesn't work out, right? You have more basically debt on the books, more capital put in than you do room to invest.

So they say, okay, move all of the existing investors to come in, and the board would have to vote on this, and they get 20% of the new company. They lose their preferred shares. they get 20% of the company. There's no longer a preference stack so they don't get their $50 million out first. And then anybody who wants to can participate in this new round.

So to keep any reasonable amount of ownership, you have to put money in. And if you don't put money in, you're going to be washed out. Recapitalized is a way to say this. So the round is paid to play. You pay or you basically are going to lose a bunch of equity. And it's kind of cutthroat.

I think we've had many conversations where people just say, I don't, I really would not want to be the person who suggests the pay to play around or offers it because it creates a lot of bad feelings. And here we are, lots of bad feelings. This round, in the case of citizens specifically, which was, which I think you mentioned most recently valued at $447 million, had an equity conversion rate of 10 to 1, meaning that the shares of those who did not participate in the current funding round would be reduced to a 10th of their previous value. Sure. So you have these bad feelings and then you have this kind of larger question of the signal that it sent. So in this case, Sequoia refused to participate. Sequoia had led citizen Series A in 2017. Chose. Elected. Yeah. I mean, as opposed to refused. You know, refused is a little bit charged. Right. You know, when you're making, the way an investor should make this is they should value it based on the current market. Yeah. And they should elect. They should. should choose to invest or not based on the best interests of their LPs. So refusing makes it seem like it was an obligation, like they had to. They don't have to. So I'm guessing the press use that word, maybe. Refused.

They declined to participate. They elected not to. Like, sure. Mike Vernal left the board. Okay. Big statement. Yep. Refused.

The press did use that word per Nick, who is updating our notes in real time. I guess the question. So then one of the people close to Citizen said Sequoia's decision was ruthless. it's very possible that citizen itself might have people close to citizen use the word refuse and that as its earliest backer it had abandoned the company in its hour of need. I wonder how much of that is an attempt to counter

the signal that gets sent in the case of Sequoia electing not to participate and then leaving the board. Yeah, so lots of bad feelings all around. And if you are the VC, you do not comment, right? Because there's no upside here. Yeah. it could be, we don't know, if the company was run terribly. The founders did a terrible job. It could be they didn't take anybody's advice. It could be they spent money like ridiculously and weren't focused, right? And Sequoia might have looked at it and said, you know what, this company is not being run well. It did not manage its finances properly. It did not have a path to profitability. We can't put bad money after good. We made a good investment in something that was

very promising. And then in the execution stage, it wasn't very, they proved to us that they can't build a robust, profitable business. So as an investor, can you imagine coming out and saying that? It's like, you can't come out and say bad things. It's like saying bad things about your ex situation, right? Like, is there any upside in that? Like, people get divorced and you can look at this like a divorce.

Like, you really is it going to go out and bad mouth your, ex-spouse to other people. It's really not a good idea. So I think that's probably what happened here. I mean, it seems like a lose-lose for a citizen. Like, it seems like a lose-lose for a company that is in need of a fundraise, finds itself in a situation where they are participating in a pay-to-play round. And then you have a major investor who led one of your rounds elect not to participate

and leave your board. And there's no, whether they say anything or not, it's hard for that not to be a Right. That's why these things typically happen quietly. Right. And usually people say nice things about each other if it does come out. And so let's look at a couple of other logical things here. And I know people know I'm affiliated with Sequoia and they've invested in one of my companies and I was a Sequoia Scout. And so does Sequoia have money? A little bit. $80 billion under assets. Yeah, they have money. In assets under management, I believe about $80 billion. Does Sequoia know how to build large? meaningful companies in the world.

Right. Have they participated in building companies for the ages and know how to operate these businesses? Yeah, better than anybody, you could argue. So this is a group of people who have a ton of money, a ton of knowledge, and they elected to not participate in this funding round, which was a distress funding. It is the job of the founders, you know, in consultation with the board, to not get themselves into this kind of situation.

again, not to super blame the founders. But if something doesn't work out and somebody who has an unlimited amount of capital and a lot of knowledge and chops in the space, elects not participate, it signals to me that maybe the company was not being operated at peak operational excellence. Let's, you know, just to be kind.

That's what my gut tells me. And, you know, they still have a small ownership percentage, but somebody leaked this because they were hurt. Right, definitely. Sequoia would never leak it. I can't imagine why they would. Yeah, exactly. What's the upside, right?

It would be, right? What's the upside? Hey, everybody, we're back with another show us your space contest in partnership with our friends at Squarespace. We did this last year. It was a huge hit. Here's how it works. We're going to give one twist listener, $1,000 in Squarespace credits, but we're doing it vertical specific this time. If you run any kind of an e-commerce related business, it could be a DDC brand, a consumer

marketplace, a consumer subscription service, online course, you get the idea. Head to Show Us YourSpace.com. That's it. And that's going to redirect you to one of my tweets from Matt Jason. Reply to the tweet with a short video and image, a link, a gift, whatever, that shows off your e-commerce site on Squarespace. Then the team is going to pick a winner and we're going to give them $1,000 in a Squarespace gift card. That's right. If you want to be an entrepreneur, you want to start a side project, the hustle, Squarespace is how you do it. On Squarespace, you can build or sell anything. We love it here at launch. We use it for a remote demo day, countless other projects, and the features are amazing. They've got templates, analytics,

inventory management APIs, everything. And it's optimized for mobile. It's going to look great on an iPhone and Android phone. Everything just looks perfect. And you can even sell courses directly inside of Squarespace and keep the 15% that other platforms are taken. Listen to your money. Keep it. Here's your call to action. It's so simple. Head to Squarespace.com slash twist to start your free trial. And when you're ready to launch, use the offer code twist to save 10% off your first purchase of a website or domain. When you look at this dispassionately from just the kind of external reading, Sequoia does not appear to be the bad guy here. Right. Like Sequoia appears to be a firm that made a decision in the best interest of its LPs.

Basically how you're supposed to make every decision. You're supposed to look at every decision and say, will this return capital? Now, as an investor, you also want to have a heart, sure. But when it comes to writing the check and making the bet, you have to then make a dispassionate trade. Very hard to do in venture capital, because as we see in venture capital,

as opposed to me J-trading Facebook and being like, I'm criticizing Zuckerberg's behavior over here and I made the trade. That's a public thing. I'm not like, I haven't seen Zuckerberg in person in, I don't know, seven, eight years, you know, like I have no relationship to Zuckerberg. I can make a dispassionate trade. I didn't spend five, six, seven years with the company trying to build it and then make a dispassionate trade.

Right. And, you know, the press is going to, you know, this is a juicy story that doesn't come out. So there is what they call palace intrigue here, big money intrigue. Like, ooh, Sequoia, biggest name of venture capital. Ooh, this startup is a very polarizing startup. You remember, I think they had put a bounty out at one point. We covered that story. I think you might cover it.

I interviewed the founder on Marketplace back in the day and about this idea of like incenting people to run to crime scenes. And I mean, it's been pretty controversial. It also makes me wonder about the firms that force the pay-to-play scheme. Yeah. Is that also a smart business? Is it kind of like, what should we tell founders about how there's probably going to be more rescues like that headed their way in a tough funding environment? We, without going into specifics, we did one of these during the stand market.

There was an asset still had a lot of value, was damaged. Founders wanted to try to keep it alive. And, you know, it was a very modest ask. and it was literally like investing in a friends and family round, seed round to put in a very small amount of money for a larger amount of capital in a business that was valued at 10 times what we invested in it at. And I thought,

hmm, should I do this or not? Mm-hmm. And I had, I thought about loyalty to the founders, et cetera. And then I thought about RLPs. And I balanced it,

you know, okay, I trust these founders. I got some, you know, uh, experience with them. end, I think it's a good trade. Now, anybody who doesn't participate in it is going to get crammed down,

but they would have had a zero otherwise. And so with the person who's doing the cram down round, it says, hey, I'm putting the offer out here. I realize this price is not what anybody else paid for it. Therefore, you can come in alongside me. You can pay to play. So I'm not excluding you from this. That's why the play part is put in there. This way, it's back on the original investors. you're choosing not to invest at this new valuation, you had the chance. So you bought shares at a dollar,

now they're worth 10 cents, you liked them at a dollar, but you won't participate in 10 cents? Okay, you made your choice. And I choose to buy them at 10 cents. It's just that when it's a private company, there's a lot of feels, there's a lot of feelings.

This might have also been, now that you bring up the discussion at marketplace with like how people were a little uneasy with the startup, this might have just been a convenient time to disengage from a startup that was just a little too, too spicy.

Maybe. Right? Like, maybe Sequoia didn't, or other investors didn't like this idea of the bounties or the sending people to crime scenes and just said,

you know what? We invested in this because we thought it was an interesting concept originally, but, you know, it didn't pan out and they're doing things that are a little too agro for us to be associated with. When the founder, Andrew Frimm was also on Twist,

episode 1117, he mentioned they were going to try to build some kind of, quote, vigilante protection service where people in high crime areas could pay a monthly fee to essentially have a security guard escort them from place to place. I mean, Uber for security guards is a brilliant idea. That exists to a certain extent.

You're like, actually, I'm in. Now, if you said, hey, wouldn't it be great if during a high crime time, you could click a button, or if you were an individual who's a public person and needed security on demand, you could click a button and for 40 bucks an hour have somebody set outside your house for a night. Like, that sounds like a... That man has a service. We have, I mean, my neighborhood has like a lot of... neighborhoods that have some kind of an HOA have private security.

That's like becoming more and more common where you just sort of pull your money and you pay for somebody to patrol. It is a huge deterrent. It's not uncommon. Yeah. And putting cameras up, we had the license plate reading company that small towns are doing license plate reading companies. So it reads all the license plates that come into your area.

A little bit of privacy concern there, but, you know, it dumps the data every 30 days or something and you know, hey, this license plate hasn't been in the neighborhood before. Okay. Yeah. It's a delivery drive. Who cares? It's an Uber. Oh, you know, it's a unmarked van that's beaten up and it's sitting on the side of the road somewhere idling. Okay. Could be a reason. But we should set somebody out there to check it out. Oh, yeah, somebody's living in their van. Okay. Good to know. Oh, somebody's, you know, lost. Great. Broken down car. You know, whatever it is. So, yeah, these seem like spicy founders. I'll be honest. Oh, 100% spicy founders. I wonder the extent to which we're going to start to see. I mean, spicy founders have had it a perfectly good. run, right, for a long time. Like, spicy founders isn't always a problem.

In fact, often it is considered a feature, not a bug. But I wonder the extent to which we're going to start to see, you know, for various reasons that range from spicy founders to simply just... Let's say pirate. The pirate fibrate. Here's the thing about being a pirate. You better... Is it going to get more ruthless now?

But just on the point of pirates. Because otherwise you get killed by the other pirates. Exactly. If you want to be a pirate... you've got to be successful at that job. And so, you know, is citizen successful? I don't know that they made a, they ever found a business model that worked.

I think they were trying to figure it out. And it's a free product and they got to vigilante as a service. Like, you know, it sounds like they didn't find. They have a subscription. They have like a premium product that they always try to get me to sign up for whenever I open it. It would, yeah. So would it be worth it?

I don't know. But generally as we like get deeper into this downturn, I do wonder about this like quantitative versus qualitative and the having to set the feelings aside and be a little more ruthless. which is part of the industry and always has been like it's finance at the end of the day finance with relationships but I because there are so many founders who had a really easy time raising who have not seen a downturn and we're talking about funds not just Sequoia but funds that feel like they have unlimited capital like I do wonder if we're going to see

more publicly hurt feelings like this has been a business conducted in private for a long time but you wonder how much of it's going to come out as these firms start to make harder and harder decisions. Yeah, it tends to come out. You have dribs and drabs of stuff. You know, there's an incentive to be magnanimous in these situations. If you're the investor, you never want to say something bad about a founder because that other founder's like, oh, well, if it doesn't work out, you're going to say something bad about me or vice versa. So for these founders, if they did leak this, I don't know that they did, but it kind of feels like it would be, a leak from that side, or it could be an angel investor who is aware of this, talk to the founders

and leaked it on their behalf. Anything's possible here, so I don't want to speculate more than speculating every possible for 20 minutes every possible permutation of this. But I'm speculating for the help of the founders listening. Like, yeah, if it doesn't work out, you can just quietly, you know, have your opinion about the other person. If somebody asks you, hey, should I have them as an investor? You can say it didn't work out for me. But, you know, you might have a different experience or say nothing. And that really is, I think, how Silicon Valley works. You don't hear people bad mouthing people.

It's very subtle here. And you want to keep optionality. What if the citizen founders, one of the citizen founders, their next business is Uber or Airbnb. You know, so you want to keep good relations and vice versa. What if they come up with a great idea? That's a guy who is going to back them again. keep everything friendly.

Enemies accumulate. As these companies go out of business, you've got to just try to be kind to everybody on the way out. It's hard enough. You get these stories once in a while. The press loves these stories. I'm not saying they shouldn't cover them either,

but the press loves these stories. These are, you know, they don't happen often. But I wouldn't read too much into it. Like, you have to make the right trade as an investor for your LPs. And remember they had FTX? Remember, Sequoia invested in FTX?

and they had written that blog post that was effusive about how great Sam Bankman Freed was. VCs are on high alert right now. Oh, God, if you backed Theranos, if you backed FTX, you're on high alert. You can't have those kind of things back to back. So maybe they saw like, oh, this could have had

this could have other issues. Like, what if they do vigilante as a service and somebody gets killed? And then Sequoia backed vigilante as a service. They may have been trying to unwind this for a while. They may have been asking the founder, hey, please don't do crazy things. Like vigilante has a service, we, you know, it blows back on us kind of situation.

Yeah. So, so much to speculate about. So much. But, you know, far be it from us to speculate. Far be it for must to speculate. For 25 minutes. No, for 25 minutes. Hiring freelancers and doing that on project-based work is a brilliant way for you to grow your

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as it looks like the IPO window might be opening back up. Here we go. After Acquired 2022, Instacart and the really dischy one, SoftBank owned Arm, are both reportedly gearing up to go public this year. Of course. That's a big deal. There were basically Bufkus IPOs in 2022.

There were 181, which was down 82.5% from 2021 when there were over a thousand IPOs. That was an all-time high. but it looks like at least so far, of course, you know, Stripe remains the outstanding question, but so far it looks like we're going to see two major IPOs

in Instacart and Arm. So we can break them both down here. Yeah, yeah, yeah. I mean, Instacart took that huge valuation cut, if you remember. Yeah. We talked about that on the show,

75%. 75%. And then they've been talking, I guess, about their results publicly. They had a leak. Oh, was a leak. Okay.

But it's the kind of leak that makes you think they're talking about it publicly as they, like, raise attention for their IPO, you know? That does happen, especially since it's good news and not bad news in the case of Instagram. Yeah, good news league is like, hey, hey, Valleywag. You're never going to believe it. I'll revenue's up 50%. What has happened that Wall Street Journal is a new Valleywag, bless. Yeah. Yeah, they did leak that, or somebody leaked, sorry, that in Q4, 2020, far be it from us to speculate, but someone leaked.

revenue was up more than Not Insta CFO at AOL.com Oh no, I actually said Oops Well, nice. Revenue was up more than 50% even though order volume only grew

16% because Instacart turned on advertising in the app. Boom, instant money machine. We have seen this happen with a bunch of consumer tech businesses, Amazon, Uber, and now Instacart. Yes.

Reportedly, gross profit was up more than 80%. And for the full year, 2022, Instacart revenue increased 39% to $2.5 billion. So at a $10 billion valuation, which is what they cut the internal valuation to back in 2022, Instagart would only be trading at Forex 2020 revenue. Okay, great.

Seems reasonable. Yeah. There's a lot of headwinds against this business, lots of competitors. Amazon, Uber's doing delivery of groceries now. I think DoorDash is doing delivery of groceries now too. And so those services work really well. They have large networks of buyers.

I have to say, and I'm not just saying this because I'm team Uber still, but I've been using the Uber grocery product and it's faster. And we have Instacart too. And we were Instacart and Good Eggs Only. And now Uber's taken a decent chunk of that because it's just so much faster. This kind of feels like, I remember saying this when GoPro was about to go public, that like, you better just go ahead. Oh, go ahead and do that now.

Like, now's your shot. Go public. Raise that money. Yep. And then, you know, chunk along. But I don't know that there's going to, for all of the reasons you just mentioned, I don't know that there's going to be a better window for Instacart than there is now because it is hard to pinpoint the differentiator. Like they've got, I like that Instacart has a lot of stores, a lot.

And it's easy to choose from them. I don't find the shopping to be particularly high quality. that's probably regional, right? It depends on where you are. The issue really with these services is, you know, unlike Amazon where I've never gotten a mistake. Yeah. Every Instacart order has three mistakes.

Two mistakes and you're just like, I'm going to deal with it. It's like a meme at this point. It's just like sort of a joke like, ooh, what did I get from Instacart? Nine pounds of sugar, whips, you know. Or it's, you know, and for me, it's just something subtle. Like I like a certain type of Greek yogurt and they substituted the brand. I absolutely hate, you know, and I'm just like, right. you know, now I got to eat the yogurt.

You know, you start getting your first world vibe on where you're just outraged that like the Greek yogurt that you love is now you're getting the one that's not as thick as the. And everything that they've done, I mean, ironically, everything they've done to try to mitigate the mistakes just as work. So like you have to go in and you have to select which things to substitute with and with not. And then you have to communicate constantly. Like I will frequently.

When that shopper is at the thing. Oh my God. They call. They text. They're like your stonker. It's like going shopping with the teenager. It's now going to take three times as long. What about this?

What about this? Exactly. I just check. Do not. No subs. No substitutions. That's it. And it makes everything super easy.

And then when you're going through that experience and you're mad about it, then you feel like such a first word, a world a whole. Yes. I just then have just started to go to the store. I'm like, you know what? I'm just going to go to the store.

the store. And that's bad for Instacart. Like, they don't, they want me to sit there and have a first world experience. But I don't. There is something nice about going to the store and perusing the aisles and seeing what's there sometimes. I, uh, had that experience, you know, when I go up to Lake Tahoe and I'm in the mountains, there's no Instacart. And it's quite nice for me for a change of pace to do my own shopping as opposed to, you know, having it delivered to my doorstep. But I do think this advertising business is a very interesting wrinkle. If you think about hitting scale with these businesses, and then you are Frito-Lay or you are Budweiser or Egg-O-Waffles, something, you know, they always give you that, oh, do you want to add this to your order? And it's like, do I want to

add egg-o-waffles? Of course I do. Like, he doesn't like those. Frosted flakes. It works like a charm. So are you going to advertise on television and then hope that your Eggo Waffle or your Frosted Flake commercial, your Budweiser commercial, incents me to actually buy that product? Or would you like to have the Google search version of that product, which is, hey, when somebody's at the checkout counter, would you like somebody to say, egglewaffles and dangle them above your cart? Right. Like, that's literally what they're doing. Get the hell away from me. I know. They're like, and if it happened at the store.

above the last bag. Here's your egos. Just say it. Say the word. Click. Boop. Well, it's just like an end cap. I mean,

it's like having the promotional part of the grocery store and I always buy those stupid cake cookies with the pink frosting that are disgusting. Like, this is brilliant. In terms of integrating advertising, there's almost no better way to put advertising to turn it on than in a place where people are already shopping and are just like, oh, okay, sure, fine. I mean, I'll go through those stupid.

It's like Instagram. It's like three screens. And I'm just like, yeah. I want one of those and some of that and give me this. They get me on Uber Eats like when I'm ordering food. They're like, hey, side of guacamole or, you know, do you want flan? And I'm like, yeah, I want flan. I'm not supposed to eat it, but I do want it.

And like, this is, I think. Smart revenue. It's what CPG advertisers have always coveted, you know, the checkout. And they've never had access to it. and because you can't fit that much in the candy bars at the checkout, right? You can't put a bunch of products there. They have like magazines and candy. It is funny now that you mention it.

I'm picturing in the store aisles, those last aisles that are, and they are crammed with stuff. I mean, it's like there's the magazines and then there's candy, and then there's like a row of chicklets and then this and that. I mean, you can almost feel the desperation of the bidding on the checkout aisle. and now it's like digital checkout aisle where it's just like recommendation, recommendation, recommendation, I mean,

it's really actually, you could imagine that becoming a huge part of it. You could imagine that, imagine that, especially in a competitive environment being the thing that keeps you afloat. It might be the business. And maybe it becomes the business. Maybe it actually is the business.

Maybe Amazon's business ultimately is people buying ads and breaking even on the delivery of it. Yeah. It might even, that might actually be, The business. Mm-hmm. Like, we don't really need to make money off of your order.

We break even on it. But we have this advertising moment at the end that just is so coveted. We make money off that. Finding great engineers is time consuming. It's expensive. Let's face it, it's a pain in the neck. If you're looking for qualified international developers, without those crazy time differences,

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So, Arm, this is, I believe, softbank bought Arm, right? SoftBank bought Arm when it was public. Right. So Arm is a fascinating company. It is a chip, it's British, and it's a chip design company. meaning that it doesn't actually manufacture its own chips. It's actually quite clever. It's like the lowest, you know, capital intensive way to do this.

They create this chip architecture and license it, license its chip blueprint technology, basically. And then they take a royalty on products that are sold using that technology. So once you build the chip using Arms Blueprint, they charge you for the blueprint, and then they charge you a royalty fee every time you build and, sell one of those chips. And so in 2021, Arm reportedly generated $2.7 billion in revenue. The licensing and the royalty revenue were somewhat close to even. The licensing revenue has been growing a lot faster. But Arm was founded in 1990 as a joint venture between Apple, Acorn computers,

and VLSI technology. In 1998, it went public on the NASDAQ and London Stock Exchange. But then in 2016, it was bought by SoftBank for $32 billion with, and this was reported in 2020, the intent always to sell it to somebody like InVIDIA. So in 2020, Invidia reached a deal to buy Arm from SoftBank for $40 billion in stock and cash, and SoftBank would get a 10% stake in Nvidia. I mean, this would have been a blockbuster, like just an absolutely absurd deal. NVIDIA becomes basically the king of the world. However, in February 2020, after more than a year of regulatory scrutiny, the acquisition was canceled.

And NVIDIA kind of had to go back to the drawing board in some ways, but they remained pretty strong. And then SoftBank is looking to take Arm public. Everybody was like, oh, God, SoftBank really ate it on that deal. I always knew Arm because when I was back in my PC era, back in the day, you had a choice to buy an Intel PC or an Arm PC. the armed ones were cheaper and more powerful. We even more bang for the buck, it seemed. And then Intel did like, ooh, the Intel design, you know, Intel inside campaign, the jingle, and really said, hey, you know, we're the better ones, but it was kind of like a Coke and a Pepsi kind of thing.

Or maybe R. C. Cola and Coke might be a better analogy. But they also do all of the smaller chips for wearables and smartphones and that kind of stuff. So I think that was their big innovation as well. that's why they were kind of an Intel killer because you recall Intel has been is still with like Arm ate Intel's lunch by building mobile chip designs

and Intel never really cracked the mobile market. I think still has not cracked the mobile market, which has been a big question for them. So then the theory was that if Nvidia had inquired Arm had acquired Arm and this I think was sort of SoftBanks plan all along and acquiring it and taking it

private. Invidia would then control the market for GPUs, which of course are the key to AI processing, to they've become really big for autonomous driving development, huge for crypto mining. And then they also would have had access to all of this sort of mobile chip development. Just stepping back from Arm and, you know, wish them a great IPO. Congratulations. And I hope Masa makes a bundle of money and gets back in the game. I know he's got some debt to pay down. clear. We're expecting papers in

like April-ish. I have to say I have stepping back, I am very impressed at how fast the Chips Act went through. And I've been given that a lot of thought. Have we ever

seen a bipartisan bill like this to subsidize businesses go through this quickly? I mean, the great financial crisis and that would be one where they did bailout of all the banks or whatever. Right.

But that was a bailout, not an incentive. Yeah. Yeah. So it's kind of different, right? That was acute. It wasn't like... So then you see this Chips and Science Act. And we started hearing about this like a couple of years ago in 2021, maybe.

It starts bubbling up. And then it's like, boom. It's in effect. And boom, everybody's building factories and like these incentives are going. It's big, right? 52 billion or something. It's like this giant thing and roughly 280 billion to boost domestic research according to Wikipedia.

And I was wondering why. Why is this train going so fast? You know, oh, China. Yeah, exactly. And why exactly are they so concerned about chips in China? And then all of this stuff with the lab league theory comes out. And I was like, ah, they really think, I think what was happening is people really think the relationship with China over this lab league thing was going to come.

come out and be like really hairy and gnarly and this Taiwan situation and all of this craziness going on. We didn't want to be caught short with not having chips. Is it too tinfoil hat? I'm admitting it's a tinfoil hat kind of moment. I know. I'm like, well, or we got into a trade war with China. There were like lots and lots of lots of tariffs. There was there were threats to withhold and we do not have domestic manufacturing of semiconductors. Like, we don't have it. Now, to be clear, a lot happens in China. If there's a tinfoil hat, it's more really maybe about China invading Taiwan because Taiwan semiconductor manufacturing company, best name ever. I love a literal name. TSM. What do they do? Where are they based? Exactly. Do they make anything?

I mean, it's the best. It's just the greatest. Manufacturing company. Oh, okay. The biggest manufacturing, yeah. But it's like literally, you know, it's a manufacturing company. Literally. We make stuff. Taiwan semiconductor manufacturing.

Like, it's so great. Manufacturing company that delivers to you. And then during COVID, unrelated to labs or anything. We just couldn't get it. If you can't get chips, there is no cars. There is nothing that you can build.

There are no cars. There are no computers. There are no phones. There are no appliances. There are no appliances. There's nothing. I mean, I actually think the speed with which we moved was the actual internalizing of the National Security Risk Care. Yeah, you can't build a bomb for God's sake. You need a lot of bombs, turns out. You need a lot of chips in those bombs. There's still nothing that we spend more money on than bombs. Yeah, I don't know if we manufacture those ourselves. I'd be interested in following those backwards.

Because they probably have all kinds of chips in them. Wait, bonds. Just one set of chips, a zillion of them. So, you know, we're the, you know, they're like, wait, who makes our bombs? Do we need to onshore this? Well, and the components in them, right? Who knows what components are used for the equipment around the bomb? You know, the truck that drives the bomb somewhere, the missile silo, you know, the computer monitors and computers that run the missile silo. If we find out we're making our missiles in China, that's going to be amazing.

I don't know what I'm making them there, but is it possible that there are components inside of, you know, definitely aspects that come from Taiwan? It's possible, probably. 100%. Yeah. Like they all, we don't have, there are no, there are hardly, and maybe like Micron has a foundry in the US. We didn't see when we were away for these two weeks, we didn't get to talk about the,

that's why I see, I really wanted to talk to you about the lab league theory with a report that came out that maybe, you know, more people are leaning towards it's a possibility. We didn't get to talk about that. I think we're up to like two out of seven federal agencies, one with moderate and one with low confidence. We should definitely run with that, though. I mean, it does feel like the chances of there being two research facilities in the world that do this, and one of them was where the outbreak, just geographically peculiar. I find it, I think I tweeted something to the effect that it was very interesting that all of a sudden there was just a ton of like heavily misrepresent

because that report did come out from the DOE. Moderate, they said they had moderate confidence in the idea that it could be a lab leak. I think the FBI is still at low confidence and every other federal agency so far. And we don't know what they're going to come up with eventually, but so far is like, nah, wet market. I'm going with John Stewart. However, like, we might find out more information. It was just weird that there was that and then the massively misrepresented mask thing

in the same week. It's like, like, I want to get to truth, ground truth, but that doesn't feel like. like we're going, it feels like now we're just going to go all the way in the other direction and then get to ignore the fact that like millions, you know, so many excess people died in the U.S. and didn't have to. It's, uh, this is going to be a messy one to unpack. It's going to be super messy to unpack. I just hope we can objectively look at it. We need a commission. Like, we need a COVID commission. Like the 9-11 commission, like the

Watergate commission. Like, we need a truly bipartisan commission because people are crazy. I mean, this seems like something that should be a real focus, just because it's going to happen again, right? Yeah. So wouldn't it be good to just know? It's probably not to be like a giant bummer, but it's probably already brewing with like bird flu right now, evidently. It's like in minks and minks have a respiratory system that's like the same as humans.

You know what we should do is we should study that. Hey, here's an idea. We just study that. You know what we should do is we should study not only that, but what it could evolve into. Just so we're prepared for the next version. So we could like literally use science to study where that is going. going. Oh, no, no, don't do that.

Wait, wait, wait. Like, we could be prepared for it? Well, we could just involve it. You know, we could just give it like a gain of function. We could like add to the functionality of whatever we find and then. You just do like some, you know, add some functions to it. Like, see if you made it more robust, what would happen?

We do that. We do that. We do that. We do that. I have a really good idea. I think that's why we don't talk about lab league stuff because we're like we also have labs. We don't want to talk about Lab League. We have all the labs. We're all doing the same stuff. Just do it on an island. Like Plum Island.

Do you ever hear of it? It's a mile and a half off the coast of Long Island. And that feels close. It's, it's, yes. Can you go further? It's a mile and a half, like I think it was like three blocks to the wet market outside of the Wuhan COVID laboratory. So a mile and a half of water, it's a start, at least. It's a start.

If you're going to do... It's better than blocks. Better than blocks. I wonder where we're doing it. I wonder where our labs are. Plum Island. Plum Island Animal Disease Center. That is where it's happening?

Yeah, this is a whole... If you want to go super tinfoil hat, you can go down the Plum Island tinfoil hat. Yeah. Where this is where they study foreign animal diseases on livestock, on an island off of Long Island. It's kind of like what we were talking about at the beginning of the show. Yeah.

There's stuff that you just want to... be cool about. Yeah. Because if you don't, you get into a mutually assured destruction loop. And like, you can bet that whatever China's doing, for sure. Yeah. And so you don't want to, you know, it's like you don't want to get too high horsey about stuff.

I mean, we probably funded it too. We probably funded it. Yeah. So, I mean, I would be fine with just taking ownership of it and moving on. That has that for an idea. Like, we all just take ownership of it and do better. But Club Island, if you. For those people looking to go down like an area 51 rabbit hall, may I suggest, Plum Island.

I'm sure there's a Joe Rogan episode. It's somebody who's just asking questions. I love it. Let's go. I used to love that series that Leonard Nimoy used to do in search of. Do you remember In Search of? Oh, yeah. In Search of.

I forgot about that show. Leonard. Oh, I got to look this up. So there was a show called In Search of. And they did 100. 44 episodes, it seems, and Leonard Nimoy hosted it. In search of Bigfoot. Oh, my God.

This was like OG conspiracy theory stuff too. Lockness Monster. All the classics. All the classics. But to have Leonard Nimoy do the voiceover was just amazing. This is incredible. I want to go back and like watch all of these. The outer space connection.

So great. I'll tell you, man, you could have a really fun afternoon with a weed gummy in that show, Ancient Aliens. Oh, no. On the, that is on the history channel. Oh, the history channel has the history of aliens? The history channel has a show called Ancient Aliens, and it's always the same wackadoodle guy who's like really tan and has this big mullet and is pointing out how, like, ancient relics all have the same alien designs.

Yes, there it is. There it is. Aliens. It's just, I'm just saying, put the hat on for balloons and go crazy. Oh, they're probably, there got to be aliens. Any crypto craziness? as we round third base here, it's always good to round the show off

with the latest in crypto nonsense. Yeah, this is a good one. This is a good one. Like how many Thanksgivings have to be hijacked by crypto discussions and your crypto cousin? I want Thanksgiving reparations from the crypto industry. For sure. Yeah, I want to pay back.

Give me my time back. Those nine hours. Dapper Lab's CEO, Roham, Gary Goesloo, was reportedly Dapper Labs, by the way, is the maker of NBA Topshot, crypto kitties, and the flow blockchain. So, like, big games that everybody knows. They've done really great stuff, too. Like, that NBA Top Shot was very successful, you.

Yeah, definitely. And in fact, Dapper Labs has raised money from A16Z, Co2, Bond, which is Mary Meeker, NBA players like Kevin Durant, Clay Thompson, Josh Hart. There's a little note here that says, go Nix. Oh, okay. I don't know what that's about. and other athletes.

We've got a nine-game winning streak right now. The Knicks are playing better than they have since I was in my 20s, and Patrick Ewing was on the Knicks. So Josh Hart, 9-10-0. He is the good. Side notes galore. Anyway, so it appears that obviously the NFT and the crypto space have been completely hammered over the past year or so.

And again, circling all the way back up to the top, feelings are coming out in the press. Now 11 anonymous current and former Dapper Labs employees are speaking out against its CEO. Uh-oh. Yeah. You had me, once it was double digits, I'm like, oh, no. I've been through this. 11.

When you get to double digits, oh, oh. That's not good. It's not two. It's not good. It's not three people. It really is not. Yeah. So in March 2020,

Dapper Labs raised $250 million at a $7.6 billion valuation led by KOTU. At its peak, the NBA Top Shot. collection generated $224 million in sales in the month of February 2021. But then, of course, so $224 million in February 2021, those sales fell to $2.8 million last month. Okay. That's total sales, which they get a percentage. So if their take rate was the standard 20 or 30% that you see, or 20% percent for like a really elite marketplace, like,

app store marketplace. But let's just give them the benefit of the down and say 30%, like a really high one. That means they made a million dollars or so, 900K, whatever. And when you look at this, you know, monthly trading volumes declining 95% through 2022. Sure. However, apparently none of that ongoing decline stopped Roham from rolling on private jets, renting mansions at up to $300,000 a month and just generally living the dream. He would routinely apparently rent these mansions.

The private jets had become one of his priestly expenditures. The trips would cost between $60,000 and $100,000 per flight. When not renting a mansion, I'm just quoting from the article because it's just a corker. When not renting a mansion, the CEO often booked five-star hotel suites. sometimes cost as much as $30,000 a night, according to one person familiar with the matter. As Gary goes to... Wait, he did this as on the company or his own personal. Oh, yeah, he would, this is the most amazing thing.

He considered these big ticket expenses integral to his strategy of closing up to celebrities, and so they would be listed as marketing expenses. Oh. Yep. So, okay, let's pause for a second on this. Marketing. Yeah. There is an instance where if you...

were at CES and you rented a suite to invite people by who are buyers of your product and you'd want that suite to be impressive. Right? We've all been to those suites at CES where people are throw a South by Southwest party right now. Sure. There are massive marketing budgets being like thrown at South by Southwest. Now so if it was in fact that you rented a $10,000 or $30,000 suite one night if a hundred people came to it and these were a hundred buyers and there were some sort of justification okay one night in the suite two nights in the suite to set it up and it's got a business expense that would be valid marketing so you know just so we steal man straw man whatever steal man it of course but flying on a private jet if you were flying Kevin Durant to a

speaking gig to sell things okay If you're flying yourself, no bueno. Not necessary. So you have to look at each one of these independently. This is why, as the CEO of a company, they nail a lot of CEOs on personal expense. This is why you've got to make it bulletproof. Right?

Like, it's not the suite you're staying in. The marketing department rented it. So I'm just giving a little of advice here. And it was approved and it was thoughtful and you had the sales that occurred because of it. Right. I've had this happening companies. You track your ROI.

Yeah. You track the ROI of it. And it was driven by the marketing department. So if the CEO is doing stuff like this unilaterally and it's for their room where they're staying, that's not good. Yeah. If the marketing department did it. So if you were on the board of this company, how you would evaluate it or for people who are, you know, thinking about doing something like this, just you have to be thoughtful. If you have shareholders, if you own 100% of the company, you do whatever you want, as long as it's been in the tax law.

And the tax law would be totally fine with you having a party or marketing through a party, but not for your travel expenses if it was personal. And then there's just the optics. So once you have to explain optics, that's when you get yourself in trouble too. Yeah, it's a very, to me, this also feels like an interesting case of what happens when you get too much money, which I think we've talked about. There is, let's see, in a statement, Dapper said, quote, the notion that, oh, so anyway, this, two things about this. One, a lot of money came flowing into this company. And I suspect that there was no small amount of keeping up with the Joneses here, as they kind of say in their statement. They're like, we have and will continue to spend money on high impact events. Our business is rooted in entertainment and sports. You have a CEO. So, you know, who has a huge amount of funding and is at some point having up to, you know, $60 million in trading volume in a single month and is like this is what we have to project because this is the pool that we're swimming in.

It does make you, I mean, it is an interesting governance question because it does feel like there were a lot of really, again, very, very well respected investors. presumably on their board, the Appard Lab has five board members and three observers. So, Rahm Keri Goes Lou himself. Maybe a relative. And the observers are Chris Dixon of A16D, Dan Rose from Koto and Fred Wilson. These are legit investors.

The marketing expenses here could be completely justified. Or if he was doing this, alone, solo. Yeah. They would be abusive and he could get fired for it. I think he seems like a smart cat. And I'm going to go with these are expensive things to do and they have bad optics, but

especially if you had to lay off a bunch of people. So those people who got laid off who are trying to dunk on him, I guess, or whatever. Yeah, sure. That does look bad that you spent money on private jets. Yeah, of course. and that private jet equals somebody's salary or something who got laid off. You can kind of make all the jumps here. But if that private jet was for Kevin Durant and Snapkari,

to go to a speaking gig and sell those NFTs that sold a quarter billion dollars that sold a quarter billion dollars worth of NFTs, then it was worth it. Also, it sounds like he was just a real jerk internally. Like, it sounds like as things started to decline, I mean, you know, when you look at why 11 people are speaking to the press, it's also that there became this really bullying culture, lots and lots of micromanagement that he would publicly shame people on Slack

or screaming employees during video calls screaming notes etc etc as the market went down he became harder to work with it sounds like but just on this thing what are the 11 employees hoping to get out of this is this just a slam piece or is it like are they in a lawsuit I don't know yeah

yeah they're just going public with it sounds like no lawsuit it's not as part of a lawsuit because, you know, something unfair happened to them. There's no unfair labor practices here kind of situation. We have no idea. And there's no lawsuit, like maybe yet. I don't know, right? Who knows?

Maybe people are contemplating, but right now, it's just, it's a, it's a, it is a just, it is a slam piece in the block, potentially related to, who knows, layoffs, most likely. There's a, there's kind of a lot of, again, we have a whole story arc here, starting at the top and ending here. Like, we can enter a lot of slam pieces about media layoffs right now. Like, we can just anticipate that there's going to be a lot of this because there's a lot of disgruntlement. Yeah, when you're reading these things, I think always asking what the press is going to cover interesting stories, especially if people, there's conflict, right?

Conflict equals drama. Conflict, sometimes there's something important. And if somebody was spending a sugar ton of money, that's also notable. Yeah. You have to look at it and say, are these anonymous and. And are, is there a point to this? Are they trying to get them fired? Is there a lawsuit?

In this case, I guess they just got a bunch of people who were laid off to talk about it. It said current, they are anonymous, but it was 11 current and former employees, including both staffers who left of their own volition and those who did not. Got it. I would like to see that number broken down. So that is exactly what Nick predicted that you would say. Well, I mean, was it one person who still works there and like 10 who got laid off? you know, yeah.

And it's just one of the problem with any, I am so, I feel like we've gotten into a dysfunctional usage of unnamed sources now, where I think like the unnamed sources kind of understand they get to be unnamed. So they have this in their back pocket as like, well,

if I'm mistreated, at least I can be an unnamed source in a story and get my revenge. And if the person was fired for cause or if they left on their own volition or if they're still there, all that matters. And then what the motivation is here. You know,

sometimes this could come from, an investor who's not happy, could come from a competing company? Who knows? I mean, I think it's a, it is an interesting question of what recourse, if any, people have when they work for a private company and they feel that governance is failing. Like, so a generous interpretation of the people who are being quoted here is that they were like, this is terrible and people need to know about it. And we came here for equity.

And that equity isn't to be wiped out by this banana spending. And we feel like, you know, the investors don't know what's happening. and we're trying to raise the alarm. Yeah, if they were leaking that he was burning the money, stupidly, I could understand that. Yeah. But that is what they leaked. I mean, they also said that he was a jerk,

but primarily this was about the spending habits, this story at least. You know, on boards of companies at this level, they present a plan. The plan, just so people understand, if it's compensation, there's a compensation committee, the compensation committee looks at everybody's compensation. So there's like a safeguard there.

When it comes to T&E, travel and entertainment or marketing expenses, the board would rarely double click on that. They would not say, oh, tell us what I see we have $3 million in marketing spend this year. Can you break that down for us? They would just look at, okay, what is the marketing as a percentage of revenue? Okay, we had $300 million in revenue. We spent $30 million on marketing. Great.

10% that seems in line. We'll trust you to spend it however you want. Now in this case, if that 30 million was spent on a lot of private jets and parties and that worked for the company, that's all the board is going to look at just so people are aware of like what happens.

It's a really important insight, exactly. Yeah. Now they might, if they sort of report like to say what's up, and then they say, okay, we spend 30 million on marketing, six million on parties, 24 million on cost per click ads.

And they'd say, okay, So 20% of marketing was on events and 80% was on cost per click trackable advertising. Okay, that seems reasonable. You know, so who knows? We don't have enough information. But just say, you know, the boards here are going to look at top line level items.

They're not looking at people's expenses. You have to have a certain amount of trust with the management team. And if they want to go spend a sugar ton of money on, you know, expensive dinners, as long as on a percentage basis it falls in line, that's okay.

There was a note saying too that they have a strong, well, the CEO told investors in which in a document obtained by the block, which announced that Dapper was laying 20% of its employees off. The CEO told investors that he aimed to improve efficiency and that the company is in a, quote, strong cash position with no outstanding debt. Again, back to that top line point, exactly. Yeah. So this is like, so what this speaks to, Molly, is.

It's like what you're seeing internally could seem wasteful and crazy. What VCC see is big picture. So you're looking at the micro and saying, I can't believe that we're spending this much money on catering lunch or this event or ferrying this celebrity around on a private jet or whatever. And the board is just like, you know what? Yolo, if the top line revenue is growing, the valuation's growing, and this is a percentage of revenue,

it's when it gets off that people start going, huh, wait a second. I mean, you can see why someone would be asking these questions now when trading volume has declined 95% in a year. When I have other shareholders in my company, I am just unbelievably cautious, maybe even to the point of paranoid, about expenses. When you own your own company, which I do, in the case of launch and this being startups, I don't have shareholders. in those companies, yeah, I can buy myself a business class ticket or, you know, entertain at a warrior's game or buy an expensive dinner. I don't have anybody to answer to. But when I do anything at inside as an example, when I have shareholders in that company, man, I am not

flying business class. I would actually literally pay as the CEO the difference between Economy Plus and business myself and have done that kind of stuff many times. So my advice to founders is when it comes to your personal travel expenses, the real flex is to use miles and stay at the

W and, you know, because you set an example for everybody in the company. And once some people in the company see you find first class and staying at expensive hotels

are like, oh, wait a second. You know, we have shareholders and then this kind of stuff happens. So be paranoid. And then finally,

I think the other really, really interesting part about this is this lawsuit, primarily because you have a judge here. So Dapper Labs motion to have this lawsuit dismissed, the one in which they're being sued over whether they sold these top shot NFTs as unregistered securities. The judge, Victor Morero of the Southern District of New York, denied the request and then published a 60. Oh, this is that CNY? Mm-hmm. Oh, man. And this, I think that this particular

the piece of writing here in denying this request, sets the conversation about liability, I think, in a whole new direction. And it's fascinating. It's a 64-page opinion that went through the four-part Howie Test and how it relates to Dapper Labs. The Howie Test, of course, determines that something is a security when it meets four conditions. First, an investment of money. Second, in a common enterprise. Third, with the expectation of profit.

and fourth to be derived from the efforts of others. The judge did not say outright that these NFTs were securities, but he did say they fulfilled three of the four parts. That's what I did. The first three, to me, makes sense. Right. And that what's also very interesting is that it might be a security because of this fundamental reason, and I think this is fascinating,

because Dapper Labs owns and operates the flow blockchain, the private blockchain where NBA topshots are traded. And since that blockchain's success is tied to the success of Dapper Labs itself, that's why it might be a security. The judge noted that if NBA topshots were traded on a public blockchain like Bitcoin, that then maybe they wouldn't be. And I think that is such a nuanced, crucial reading going forward. This judge really gets it.

This how we test, you know, is for securities typically not, collectibles. And so the collectibles industry is always like, oh, we're just training, you know, baseball cards. Literally, that's what Top Shot is. It's the digital version of baseball cards, and baseball cards go up in value. People buy them as an

investment, right? Yeah. So it is an investment of money. It is a common enterprise. People do have the expectation of profit. And then this last one, to be derived from the efforts of others. Okay, well, when it's a company like Google, yeah, people are working at Google and you're collecting the

profits of others. Here, after the card is minted, using the baseball card analogy, after the

baseball card is minted, there's very little effort in a baseball card or a comic for the efforts of others. You might be

able to argue, like, I don't know, if Marvel really invests in Iron Man a whole bunch, maybe that would

make it, you know, more valuable, I guess. So when they do, what do they call it when an

an NFT, like the board apes mutates, or they do a drop, right? They add to the value of the NFT. You know when they do that? They'll like mutate the NFT and they'll give you like a free NFT as part of it. When they do those kind of things, that feels like driving from the effort of others. So that also could be a rub here is that if you do the thing that people find valuable about NFTs, which is those mutations and stuff, that would be one. But here it's the maintaining of the blockchain, the effort to maintain it.

Right. I mean, that's one of the, I think, the three things. And exactly. And then the fact that it'd be like if you sold baseball cards, but then you also, like the, you know, the analog version or something, if you sold baseball cards, but then the only place that you could ever sell or resell or buy those cards was at your own auction that you ran. Right. That's different from, like, I just sell a top shot, you know, I could sell a baseball card out in the world and like buy it on eBay, sell it on eBay, sell it on eBay, sell it on eBay, sell it. anywhere, sell it privately. But if all of the then, and then that auction house, the privately owned one, takes a cut every time you do something, then the only reason for those cards to have value is to enrich my private blockchain and therefore you have potentially a security. It's just a really, like, good job the judge. People are catching on. We talked about with the crypto roundtable a couple

weeks ago how, like, it seemed like Gary Gensler, it seems like the scalples are coming out. Like, regulators and judges and the legal system is starting to figure out how to scalpel out the parts that are no good. Yeah. It's nuanced. It's certainly nuanced. And I, nobody thinks that Dapper Labs is a bad actor. Fact quite the opposite.

They seem to be doing things in a thoughtful way. I would, I would argue that 11 former and current employees think that they might be a bad actor. Okay. And this judge suggests that, in fact, they might be a bad actor. I'm just going to say, it's not no one. It's not zero. How many employees they have like 3,000 employees at that place, I bet? Probably over 1,000 at the peak, 600.

Okay. So 11 of 600? Statistically valid, I guess. 1%, 2%, yeah, it's valid. It's a real number. It's not two. That's why when I said it gets to double digits. You might have a pattern going on here.

Yep. It's just, but there's no lawsuit. So there's no crime going on here. He made people feel bad. He was a jerk. And he spent money on. Well, there is, there's not a lawsuit from the employees. There's a lawsuit over whether, right.

Back to the block story. The second one, yeah, he's in trouble. Yeah. Anyway, it's like, listen, when the market goes down, this is, these are the things that will happen. This is the kind of like. Knives come out. The knives.

The knives. Yeah, exactly. Oh, yeah, that's the, uh, Yeah, that's the glass on you. Knives out. Yeah. Knives come out. Who knows what the truth is here?

Like, it's probably a little bit of, a little bit of truth in each side. Four former employees who were closely with the CEO said, even as the bear market set in, Gary Gozloo appeared to be more concerned with generating hype by celebrity partnerships than he did, building new products, running developers, utilized dappers, blockchain. So that's a strategy. Yeah, question.

More to come, I'm sure. I'm certain that this is not the last knives out. story that you will hear. I would be very careful with that, uh, Southern District of New York. That is. I would look out for that. And I definitely, I'm mentally bookmarking this public versus private blockchain conversation for the next time Sunday and Benny are on because I think that's a really interesting wrinkle. I think they, yeah, just need to make it, they should make it public. Yeah, they has a tough one. I wonder what they're thinking is there of why it needs to be, oh, probably because they need to have controls. So here's where this is where, this is where

it gets dicey. If you want more controls to have more consumer protection, right, then you're doing securities law. If you give less controls to not break the securities law, then the public has no recourse, like when somebody loses their Bitcoin wallet, right? So, this is the or something this won't be as valuable. You can make it more valuable by minting it on your own blockchain and controlling every aspect of it. Yeah. AKA sort of security. Yeah. My, understanding, though, is you could sell them out of the blockchains. I'm sure you could sell them under the blockchains. They would just imagine that the...

The flow thing is controlled by them. Yes. I mean, if we're having a hard time, I'm thinking about what the right thing to do here is, like, I could see the SEC in Southern District also being like, huh. I think it's just like, we're going to, don't you feel like what's really going to happen is we're just moving to a universe where NFTs have to have utility? They cannot just exist to trade and be a collectible because that's always going to become some that's some sort of a

it's to make money like fundamentally it's it's an investment with an expectation of profit in a common enterprise you know you just keep coming back to that every time like maybe your NFD should just be a concert ticket and then we can avoid all that. It's super like what happens in art you know it's long been known that

some people use art as a way to you know collecting of art is seems to be a very it seems like the IRS and people who buy art are well aware of the nuances in buying and selling art and taxes

and the gains on them and inheritances or it seems, I don't want to say a loophole but a loophole. Well, it's not a common enterprise. There are lots and lots of artists, right? Like I guess maybe that's the difference. That's why it's a four-part test, I guess. Yeah. And then there is the value of owning it.

So I own this thing because I love it. It has nothing to do with taxes or money or donations. So I bought this for $30 million and I got a donation for $30 million when I donated to MoMA and, you know, whatever. Sure. Just always seems to be. Any asset of value can and will be arbitraged and exploited. And then the question is at what point do you hit all four ticks and then? And then you're doing it to make money, right?

Like, you could argue that all the behavior you described about art is as a result of art being an underlying asset that has value. But it was not necessarily created to be an investment with an expectation of profit. It was art. But if an NFT was created specifically to be an investment vehicle with an expectation of profit that would then flow back to the flow, blockchain and on and on and on. Yeah. It's, you know, it's tricky. Well, then the people are buying the art from a free port. You remember that whole thing? So you don't have to pay taxes on it. Yeah, I mean, and then there's like the donations of it.

I just, every time I talk to a rich person about art, my head starts spinning because they are doing so many different moves with their art that I'm like, this can't be legal. What's going on? Why exactly is all this effort going into art? It feels like more effort than the art is worth. Like, I mean, and then there's the wash trading that. Well, the wash trading that occurred in NFTs is definitely a real thing.

Like when people were flipping them and then you come in and you're the 18th buyer of this, but in fact, you're the first buyer of it. That 17 people who came before you were just running it up to create a wash trading kind of. Also you. They were your 17 wallets. Sure. Yeah, exactly. You armed it up yourself and now you're trying to find somebody to buy half the price that you pushed it up to.

If there's money to be made, people are going to figure out how to make that money. I mean, at the end of the day, like, that's never not been true. The utility of NFTs is the key here. If they have some utility, that would be good. More utility would be good. Yeah. We'll see. All right, everybody.

Thanks for tuning in. We're back. Oh, and hey, the climate show is back. Tell everybody what's happening. Tomorrow, yep. First edition of the Tuesday climate show. Excellent. We're going to break down some climate news.

And then I'm focusing, at least in the beginning here, on some climate unicorns. So I'm talking to Arcadia, one of the first climate unicorns, with the climate founder, they're doing community solar and all this kind of, speaking of arbitrage, all this kind of energy arbitrage that's just making tons of money. Then, on Wednesday, another amazing angel interview. It's just like a boom, boom, boom, boom kind of week. All right, everybody, we will see you tomorrow. Bye, bye, bye, bye.