This Week in Startups - State of early-stage VC, finding PMF, Caroline Ellison testifies & more with Zach Coelius | E1826

Episode Date: October 11, 2023

This Week in Startups is brought to you by… Fount. Do you want access to the performance protocols that pro athletes and special ops use? With Fount, an elite military operator supercharges your focus, sleep, recovery, and longevity, all powered by your unique data. Want a true edge in work and life? Go to fount.bio/TWIST for $500 off. Coda. A new doc that brings words, tables and teams together. All your valuable data, plans, objectives, and strategies in one place. Go to https://coda.io/twist to get a $1,000 credit! Miro. Working remotely doesn’t mean you need to feel disconnected from your team. Miro is an online whiteboard that brings teams together - anytime, anywhere. Go to https://miro.com/startups to sign up for a FREE account with unlimited team members. * Today’s show: Zach Coelius joins Jason to discuss the phases of early-stage startups (2:01), break down the state of VC (13:17), answer live questions from the audience (22:36), and much more! * Time stamps: (0:00) Zach Coelius joins Jason (2:01) The three phases of early-stage startups (10:00) Fount - Get $500 off an executive health coach at https://fount.bio/twist  (11:31) Advantages that Builder/Founder startups possess (13:17) The state of VC: The LP and GP relationship, post-ZIRP, and startup soft landings (21:10) Coda - Get a $1,000 startup credit at https://coda.io/twist  (22:36) Question: How do you describe PMF in the simplest terms possible (29:20) Question: How hard is it for first-time founders to raise pre-seed? (39:46) Miro - Sign up for a free account at https://miro.com/startups (41:11) Question: I will be in the Bay Area for two weeks… any advice on how to efficiently meet VCs to pitch my startup? (45:56) Question: What are attributes of companies that are getting funded today? More stable and breakeven? Different industries? What is working today? (54:49) Breaking news: Caroline Ellison, CEO of Alameda Research testifies for first time today in SBF’s trial (1:01:49) Cruise robotaxi fleet deployed in San Francisco * Follow Zach: https://twitter.com/zachcoelius * Read LAUNCH Fund 4 Deal Memo: https://www.launch.co/four Apply for Funding: https://www.launch.co/apply Buy ANGEL: https://www.angelthebook.com Great recent interviews: Steve Huffman, Brian Chesky, Aaron Levie, Sophia Amoruso, Reid Hoffman, Frank Slootman, Billy McFarland, PrayingForExits, Jenny Lefcourt Check out Jason’s suite of newsletters: https://substack.com/@calacanis * Follow Jason: Twitter: https://twitter.com/jason Instagram: https://www.instagram.com/jason LinkedIn: https://www.linkedin.com/in/jasoncalacanis * Follow TWiST: Substack: https://twistartups.substack.com Twitter: https://twitter.com/TWiStartups YouTube: https://www.youtube.com/thisweekin * Subscribe to the Founder University Podcast: https://www.founder.university/podcast

You got a space. You got customers walking by. You start with the sandwich shop. You know, nobody really likes your sandwiches. But everybody talks about the ice cream Sunday at the end. And it's just because you made some really unique Sunday. And then people start coming in just for the Sunday. You know, hey, want a sandwich?

Like, no, just I'm going to go right for the Sunday. And I brought my kid with me. Oh, and I brought my coworker. So, wow, what's unique about this, you know, Sunday here? Okay, let's put three Sundays on and let's change the name of place from, you know, Zach and Jason's sandwich shop to Zach and Jason's Sundays. And then all of a sudden, you do this minor pivot just based on the feedback. And now you're running a Sunday shop.

Now, if you were the investor and you got sold on, hey, this is the best brisket sandwich you could ever have. This is the best, you know, Rubin in the world. And you come back and say, hey, we're making an ice cream pauler. You're like, what? I didn't invest in an ice cream pauler. But if you come back and you say, look, the ice cream Sundays, we charge eight bucks for them. Cost us three. And we're printing money.

And we sold a hundred of them yesterday. And guess what? We certainly find ourselves profitable. We can pay our rent. Now you got them at. This week in startups is brought to you by Fount. Do you want access to the performance protocols that pro athletes and special ops use? With Fount, an elite military operator supercharges your focus, sleep, recovery, and longevity.

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sign up for free at Miro.com slash startups. All right, everybody, welcome back to this week and startup today. My guy, Zach Colius, is back for another exciting episode of Ask an Angel. Now, we're both VCs, really, but we started as Angels. We write early stage checks. What is early stage? I think we would define it, Zach, you correct me if I'm wrong, as pre-series A.

That would be the earliest seed stage. We're in agreement there? Yeah, yeah, from the very beginning, from an idea all the way up to the point where, like, the line starts to extend and any 80, it can extend the lines. If you got, you know, six months of month, over month growth and, you know, all the metrics that the VCs love to see, then they'll hit that bid. But before that, come talk to us. Yeah. And we would call this starting point. What are the characteristics of the startups in the zone where you and I invest this early stage?

would you say is most characteristic of the work that gets done during that period and the startups who make it out of that period? Yeah, so I tend to think of it as three sort of stages in the early stage, quote unquote. You've got sort of what traditionally is called pre-seed or concept stage or idea stage or sort of like, it's just getting started. And so that's where the founders are largely able, if they're able, they raise money from people they know, people who have learned and watched them over the years and seeing that they have the ability to perform and succeed and if they're successful,

then people are very happy to give them capital because they've done it before. Sometimes those are people we know because they're famous. So, you know, if Travis was to go start another company, you and I would be running up there, be like, hey, hey, hey, hey, hey, please let us suggest. Yeah. Yeah.

Some of those people are not famous, but we know them because we've, you know, spend a lot of time with entrepreneurs and we get to see them in the trenches in the arena, fighting it out. And, you know, it's easy to bet on those people if you know them. So that's phase one. Phase one is you got an idea and you pass the hat with your friends and family, thus

the term friends and family round. Yeah. Yeah. And so, and there are some investors who invest at that stage from institutional funds or from their own capital. And even if they don't know you, you know, one of the most well known is a guy named Charles Hudson, a precursor. So he started doing this super early, long time.

ago whenever I thought he was crazy and he would write relatively small checks into lots of startups and the idea being oh if you invest in enough of them some of them will break out and then you know power law being power law that will return the fund um and but traditionally worked out for charles who's been on the program many times yeah yeah charles is brilliant and he does good work so it's not surprising he's done very well yeah all right phase two you got the friends and family past the half phase you got an idea you're in the ideation And you know, you've got an idea of a market. What's the next phase in this early stage?

You said there were three phases. So that's what we would call our sort of like pre-seat traditionally. Now we're into seed stage. So seed stage means you have some MVP, you have metrics, you have validation, which is like, hey, I've got this idea and I went to the market and I figured out if it was any good or not. Here's my channel. For instance, I've gone and done marketing tests to see that, hey, I can acquire customers and people actually want this thing.

but we don't have any metrics yet. And the MVP maybe works. Maybe you've made it in, you know, who knows how you made it? It's not a scalable product, but it appears that there is a real thing here that customers want, and it appears that we can scale this. And there's a big, big, big, market opportunity.

All the things that seem good, look good, smell good, now we've got a potential VC investable opportunity. here. The one thing that you don't have usually at this point is you don't have significant revenue. So you're not looking at hundreds of thousands or millions of dollars in revenue. You've got something in revenue, but probably maybe not very much. You don't have month over month growth rates. And you don't have the core metrics that most VCs are really interested in, which is things like retention and churn and the virality of your product and your KACLTV and all the things that If you go and spend a lot of time looking at VC metrics, they're all this long list.

You don't have any of us. But you do have something that seems like it's pretty good. And this is what we'd normally call the seed stage. And it's pretty big category. And the checks there can run anywhere from hundreds of thousands to millions of dollars from investors. Got it. So phase one, you're doing ideation. You're raising from friends and family.

Phase two, you're raising from seed funds. You have an MVP, a minimum viable product, a prototype. Some people have played with it. You have an idea of how you're going to raise. reach them. That was the channel. So you got the MVP, you got the channel, channel just, hey, where's the stream of users going to flow from? Could be from a forum like Reddit. It could be from mailing list. It could be from a podcast. It could be from Instagram ads. It could be from Facebook ads. Any number of places could be your funnel. And you do have maybe not the full complement

of metrics, but you may have 10 people using the product and you can study three of them. And so you have some idea of how big this could get what it is and how do people like it. So it's not strong product market fit. It's not market pull, of course, where the market is seeking you out. But it's something that's more than nothing. Yes. Yeah, yeah. Yeah. Okay. So now the third phase, you said there were three phases in the early stage that you look at broadly. The third stage is what we would normally call seed plus or seed extension. And so what happens here, and this is very, very common, is a startup will raise some money. They'll go into the market.

They'll make contact with the market, and the market will rip their face off. Like, yeah, great. I have this awesome idea. I went and I built something, and it didn't work. And not only did it not work, I got my ass handed to me. And most founders quit at that point. A few, the ones that I really like, they take that opportunity to look at what they've learned. They look at what the market is telling them.

And they iterate. They're like, oh, well, it turns out that they don't want this game that I built, but this chat program I built to help me build the game, everybody loves that. I want to start working on that. And that iteration cycle is messy. And most investors get really skittish in that sort of iteration cycle because the companies that are flailing look very similar to the companies that are doing good things. And so usually your insiders are the only investors who want to invest in you or occasionally

you get outside investors who get comfortable in that iteration cycle. But that iteration cycle is usually where the most magic things happen. Because when you make contact with the market, very rarely does a company just go up into the right and lock off we go. Like the first original idea was brilliance and everything else is good to go from there. Like for instance, in the video game turning into the chat, that's Slack.

And like it was, you know, Twitter, that was a podcasting that turned into Twitter. So those iterations. Odeo to Twitter. Yeah. Yeah, those iterations are magical.

And there's often, in my opinion, great opportunities there, both as an investor and for the entrepreneurs, when they can learn from making contact with the market about what the market really wants, and then they can go build something that people actually really want. And then, boom, you're off to the races, hopefully, if you find that. And so what I like to say is that moment is the moment where you have real product market fit. And by product market fit, I mean you can cold call a customer at 9 o'clock at 9. on her cell phone while she's putting her kid to bed. Describe what you do in one sentence.

And instead of her saying, you, why you calling me, she's like, oh my God, I need to talk to you tomorrow. I actually need that. I want that.

That's my guess, please. And that's, that product market fit is, like we could talk about that for hours, but that's a magical moment. And I get really excited when I find companies that have that. You see these blue light glasses I'm wearing,

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And if you're running a startup, if you're a CEO, if you're a capital allocator, take it seriously. I love this service. Fount.bio-slash-Twist. And a lot of founders give up. They try one thing and they give up. And this is why, you know, I think part of the magic of the early stage is when you have builder founders, you know, a developer, a designer, and a growth hacker walk into a startup. You know, that compliment, you know, they run out of capital or they're on fumes, but they're still iterating on the product. So, hey, listen, if we were going to, you know, use an analogy here of a restaurant, you got a space, you got customers walking by. You start with the sandwich shop. Yeah, you know, nobody really likes your sandwiches.

But everybody talks about the ice cream Sunday at the end. And it's just because you made some really unique Sunday. And then people start coming in just for the Sunday. You know, hey, want a sandwich? Like, no, I'm going to go right for the Sunday. And I brought my kid with me. Oh, and I brought my coworker. So, wow, what's unique about this, you know, Sunday here?

Okay, let's put three Sundays on and let's change the name of the place from, you know, Zach and Jason's sandwich shop to Zach and Jason's Sundays. And then all of a sudden, you just like minor pivot, just based on the feedback. and now you're running a Sunday shop. Now, if you were the investor and you got sold on, hey, this is the best brisket sandwich you could ever have, this is the best, you know, Rubin in the world,

and you come back and say, hey, we're making an ice cream pauler. You're like, what? I didn't invest in an ice cream parlor. But if you come back and you say, look, the ice cream Sundays, we charge eight bucks for them, cost us three, and we're printing money. And we sold 100 of them yesterday. And guess what? We certainly find ourselves profitable. We can pay our rent.

Now you got the magic, right? So just keep that in mind, folks. I think if you figure something out and you're actually the chefs yourself, as opposed to just an idea person who has to hire a chef, you're going to go a lot further. So watch the TV show The Bear. Great show for entrepreneurship. All right, let's get to some questions here.

I think it's a really good overview. And this all, this is the suffering that we go through with startups. After you have product market fit and the Sundays are flying out the front door and you've got a line around the corner, Then you need operators, you need to scale it. You got to figure out a way to get from a thousand to, you know, from 100 to a thousand. And you got to figure it from one location to 10, yada, yada. So, and there are people who have expertise in that.

That's typically when a series A happens. So let's talk about the state right now. The state of fundraising, I can tell you, Zach, being out there on the road, raising our fourth fund, and we're halfway done with it, and we'll finish up by the end of the year. I think we'll be oversubscribed again. But boy, is this a lot more work than previous times. So maybe you could explain to the audience, what is going on right now in the underbelly, the plumbing, backrooms of the venture industry where limited partners, the people who give money to general partners,

you know, venture firms, limited partners can take the form of high net worth individuals, fund of funds, endowments, sovereign wealth funds, etc. those LPs and that GP relationship, there's some texture there going on right now. And then, of course, there's what our GPs doing at venture firms in terms of investing in startups. Give us the back channel, what's going on in the back room right now, as you see as that call it is.

Yeah, I mean, so the big, the big TLDR is everyone got drunk when interest rates were zero and everything went to the moon. I mean, any idiot with a checkbook in our job, literally any idiot in the checkbook, like a genius, genius for almost a decade. From, effectively from 2012 through 2022, everything went up. So like over those years, it was like 50% compounding IRA every year. Everything going up.

Everybody's super duper smart. And the LPs looked at that and they're like, look at us. We're geniuses. We invested in all this venture capital and look at it go up. And if you look back, you know, a couple of years ago, there were LPs releasing returns from their venture portfolio. that were just unbelievable. I mean, it was like,

I think MIT was releasing a 50% plus IRA for their entire portfolio, largely driven by venture and other things. But at the end of the day, ZERP, zero interest rates, like basically drove everything to the moon. And so, like, for instance, I invested over those years in almost 80 companies, and we only had to go bankrupt in all those years. So precede every stage of best thing.

And, like, and that wasn't because I was smart. It was just because everything got funded again and again and again and again and again. And everything went up and every company had growth. And it was just like, it was amazing. It was, it was. There's a funny. It used to be in, uh, there was a bumper sticker. You'd see around San Francisco in the valley every now and then they would say,

please, God, just one more bubble. And they were referring to the 2000 bubble and they just wanted to have one because it was so good back then. And now, now we like, it's like, oh, please God, one more Zurp. That was, it was like too easy. It was a weird experience. I have to say, the lack of shutdowns was always a red flag to me. And I had many a conversation with founders who, you know, we said, hey, third, fourth pivot, you know, big overhang. You've raised a bunch of money. Lots of dilution on the cap table. You know, maybe after this pivot, we sell the company

or shut it down. And then, you know, take a break and, you know, go work somewhere or, you know, let's work on our next idea because there's no way to get over this overhang. You've raised 20 million, you raise 10 million, no product market fit. It's not working. And sure enough, there was always another investor, sometimes a new investor who those founders who got really good at selling vision could get to put the incremental million dollar, $2 million bridge into. And in fact, a lot of those companies maybe should have shut down. It would have been healthier, but they were able to hang on. But yeah, 2022, 2023, I'm assuming the two out of 80 changed to 10 or 20 out of 80.

You know, for me, I haven't, I haven't, we haven't lost one yet, but I mean, God, we are dancing through a stream of bullets. I mean, I had a company go through a fundraise where literally we like, we were ready to do the shutdown. We went out and like, we did the, the soft landing attempts, which none of them, normally we would have had a whole bunch of yeses. And like in this, in this environment, like, nobody wanted to talk to this company. I mean, it was like, explain the soft landing that we talk about in the industry.

Yeah. So what happens with a quote unquote soft landing is when a company is getting ready to hit the wall. And the product is not working and the team is tired and the investors are tired and we're ready to shut this company down. Usually we have some sort of asset that has built up. They could be customers. They could be a product. They could be just a team. They could be knowledge about how to build a particular thing.

But usually there's some value in that entity that has accumulated over time. And, you know, historically, all the way up until the last couple of years, because tech companies, the big fangs of the world were growing so rapidly, and then all the baby tech companies that were trying to become fangs were growing so rapidly, they were always excited to acquire these small startups because you could get team, you could get tech, you could get IP, you could get customers, there's things you could get out of these. And so we would go to them with a startup and be like, hey, we got this startup. It's got 10 engineers, 20 people in total. they've raised, you know, call it $7 million. And one of these big companies would buy the company and usually pay off the investors so the investors made some money out of the deal. Oh, got their money back. Usually you didn't make any money. But you got your money back.

And then the founders and the team would get a job going to work for the big company. So this is traditional. We call an acquire. And I mean, for many years, it was really easy to do. I mean, we've sold, in my portfolio, we've sold, I think about 15 companies of the companies we've invested in. And everybody saves face. It's a nice ending. The founders can take a win.

You know, sometimes these acquisitions and acquires happen and the investors get nothing where they get like 10 cents on the dollar. But, you know, oh, it gets an incredible tech crunch rate. Oh, this company's been acquired. Yeah. And, you know, we know the truth on the inside. That was a terrible sale. to even qualify it as a sale would be dishonest in some cases. It was a soft landing.

And so, you know, we try to be de minimis in the industry. I'm sorry, we try to be magnanimous in the industry. There's no reason to like be like, oh, wow, this failed or, oh, wow, you return two cents on the dollar. You lost 98 cents on the dollar. It was, hey, you made an effort. Hey, you wound up at Google or Facebook or some other company. And, you know, yeah, we'll see on the other side when you come up with your next idea. Yeah.

But now people are not interested in doing that. I think in large part because they've laid off 20,000 people at Google, Facebook, Microsoft, pick the company sales force. They've laid off 10 or 20,000 people. The idea of going even through the legal of a transaction to bring in, you know, a 10-person team, a 20-person team, a 6-person team. The juice, it worth the squeeze because they got a line of people out the door that they could hire or rehire a boomerang. So that is the issue, as you see it as well, I guess. Yeah, no, I mean, it's the sort of aqua higher soft landing market is, you know, a fraction of what it used to be. It still happens in the case of if you built something that's very strategic and there's a partner who really wants that, you know, there's those things do happen.

But, you know, it's it's not like it used to be. It's become very challenging to say the least. All right, everybody, product velocity is your goal. The faster you ship, the faster you get feedback. The more feedback you get from customers, the better you can make your product. But mind-numbing operational tasks are going to slow you down. So here's your solution. Codas, new AI-powered work assistant is going to help you get your product to market faster. Here's an insane demo if you're watching. You can use Coda AI to tag customer feedback, draft documents, suggest target audiences,

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All right. So let's do a couple of questions here. How do you describe PMF product market fit in the simplest terms possibly? You had a great analogy earlier. they said, hey, you call this person on a Sunday, and they have no time for you, their kids screaming, but they still say, hey, listen, I don't want to forget this. Can you email me and send me a calendar invite for tomorrow? Yeah. That was a really beautiful description of it.

Let's unpack it a little bit more here. What else is a good sign that you have product market fit? So, I mean, think back to like when, you know, Travis started Uber. Like, you know, he and I, we were at this party. They hadn't even started Uber yet, and we were at a party. And he told me about it. And I was like, oh my God, push a button, get a car. Oh my God.

I want that so bad. Then, you know, given how brilliant I am, I convinced to argue with him for two hours about why I wouldn't work. I was like, dude, the taxi lobby is going to crush you. They're a big bungee, blah, blah, blah, blah. He's like, I'm a fighter. I can beat them. And I mean, I wasn't investing then, so I don't know what I would have done.

But given the fact that I told him that it was a bad idea, I probably wouldn't have invested. So I'm kind of an idiot. Well, you had cognitive dissonance, actually. So let's pause there for a second. And this is important for people to understand who are angel investors or parts of syndicates or who are on the other side of the table of founders. A lot of times the best ideas can be polarizing and you could have conflicting ideas. One, regulation.

You identified their number one headwin. It is regulation. The number one reason it's awesome is because you wanted it. You yourself could see using it. You understood the problem. So then we're left as investors or people looking to work at these companies. or founders looking to pivot to say, hey, is it worth taking on that battle? Do I want to spend the time to try to solve that problem?

Startups at their core are a series of problems to be solved, whether the problem is this product doesn't exist and I have to write the code or nobody's ever used a product like this, so I've got to convince them to try it. There's all these series of things. And so that is part of the process. So I think you did the right thing by identifying those, but you don't want to overindex on negativity I've learned. Because a 1% chance at a 5,000 X return is worth taking, implied odds-wise, you know?

Let's talk about product market fit. The one I love most is when somebody who has the product in a company starts telling other people in the company about it. This could be called word of mouth. In net promoter, this could be a promoter as opposed to a detractor or an indifferent person. So one way you know you have this is when people come and start using your product and you ask them, how did you find out about the product? If word of mouth is in there, a friend told me, a colleague told me, my lord, you've done it. You've done it. That is product market fit.

When somebody tells another person to use it, they use it and they become a customer, that's it, that's as good as it gets in my mind. because now your product is growing while you're asleep and doing nothing. Like literally your product's growing. Other signs for you of product market fits starting to collect things you've actually seen in the real world where you said, ah, you know, there's something that's happening here.

That really nails the core of it, which is when the market starts pulling the product out of you and needing and wanting the product more and you are no longer pushing, when you're no longer having to go out there and bang on heads and spend a lot of time trying to convince people to use your product, but people instead are sending you long emails about all the things that are wrong with your product and what they would like you to fix and how they'd like to do prove it and the word of mouth is happening and all of a sudden there starts to be this sort of like movement around what you've built um then you know like for instance i'll give you a good example i uh i invest a long time ago this thing called mudwater which is the mushroom tea company yes fantastic product it's an unbelievable product if you want to quit drinking coffee now for for many many years i've been a coffee drinker and so like i'm like

I love it, but I don't drink, I drink coffee. And then recently I decided to try to stop, quit drinking coffee, see what happened. And oh my God, mud water is like, it's like, it's like, it's like magic. When it comes to like, when I'm really needing coffee, I have a mud instead. And like, it totally solves a problem. And like that, that's when we get to product market fit is when you have those sort of magic moments. And we saw that early on when we invested in the company. It was like, the company was just like, it was just growing like crazy.

And the word of mouth was happening. And people were like, I'm so excited about this. And it was like, that's just magic. There's fireworks everywhere. Now, what isn't product market fit, I think is equally as important. And one thing I will tell you is not product market fit is you ask your friends or you ask VCs or you ask civilians about your product. They give you feedback.

They tell you it's amazing. They tell you it's great. They tell you all these ideas for your product. The reason why that's super dangerous is you've manufactured that feedback. That's not feedback that's unsolicited. That is solicited feedback. When you explicitly start asking people to give you feedback on your product, you're giving them permission and people are gracious. People generally speaking are rooting for entrepreneurs.

They're rooting for underdogs. So they're going to give you a bunch of feedback. But if they don't actually use your product, what good is their feedback? I'm not a couch surfing person. So when Airbnb and the 1.0 came out, you know, I had a lot of feelings on it. I was like, this is crazy. You know, you're going to write up on a serial killer's couch. My, as a, you know, 40-year-old at the time, my feedback,

as a 40-year-old who could afford to stay in hotels and liked room service, you know, and like, you know, I don't know, but fancy, but nicer hotels and nice linens and had a whole list of things was not pertinent. Yeah. The 25-year-old J-Tal would have been like, you know what, I couldn't afford a hotel in Tokyo. I would have stayed for 10 days.

I would have worked out of there if possible. This would have opened up a world of possibilities because I didn't want to stay in a hostel, but I would have stayed in an extra bedroom, sure. So make sure that the feedback you're getting. Now, Airbnb today, where they have. have full houses and I like to bring a family or maybe two families, you know, bring my sister-in-law or my brother and their family and you have two families staying at a house. I have a long list of things. Yes, washer and dryer is important. Yes, pre-ordering food, you know, having a barbecue,

all that stuff is great, having kids toys, whatever. I have a list of feedback for when I'm there with multiple families at a house when I'm traveling that I would love to give. And that's valid feedback. So just make sure you're not getting silly feedback. The feedback from customers who pay is so important, especially when they churn. And so just be careful that you're not manufacturing product market fit. I'll leave it at that. Okay. Let's take another question from our audience. How hard is it for first time founder to raise precede? Any advice to help it or what to wait for? I'm going to say, hey, you know, what to wait for as in what could improve about your startup, that would increase your chances. So let's take it first. How hard is it to raise pre-seed?

I mean, it really depends on who you know and how much they trust you and how much they believe in you. So, you know, if you're, you know, the son of a billionaire, you know, somebody rich, it's probably pretty easy, you know? Yeah. If you're, you know, growing up in a community that doesn't have access to money and you don't know a lot of people have access to money, it becomes a lot harder. And so if you're, if you have to move beyond the people who know you, then and you don't know people who have the ability to write checks to help you get the thing off the ground, it becomes much, much harder. And what I like to say is, is that ideas are worthless. So you have an idea. So does everybody else. It doesn't mean anything. validated ideas are priceless. And so what that means is that if you can show that that idea could work, that people want the product, that you actually have a channel,

that you actually can build it, if you can demonstrate that this thing is real and can be big, suddenly you move from something which is like, everybody has an idea and the hundreds of emails I get every day from people who have ideas are trying to raise money, and I just hit archive, archive, archive, but it doesn't matter. You move from that category to suddenly to a category of viability and potentially something that could raise money.

money from people who don't know you, then you've kind of broken into that. But even still, super duper hard because there's a whole series of challenges to get in front of someone like Jason, get in front of them like me to get into Y Combinator, to get into any of the other great accelerators are out there to find people to invest in you. Like you need to prepare for a full-time job of hustling. Hustling is harder than you've ever hustled before. And even then, it could take a very long time. So like when I, my last company, it took, we raised $15,000 in the first year. So from the first year of operation, we had $15,000 or two people, three people, five-page.

A couple of couple of small angels. Yeah. But that kept us a lot. Yeah. So let's pause for a second here. On raising money, this is a really great insight. The majority of people do not have a rich network. So we'll just put it at that, right?

6% of the country are accredited investors who are legally allowed to invest in private companies. Now, of course, in the most private friends and family. people raise money from non-accredited, so we'll put that aside for now, the legal issues around it. So, you know, you talk about 90% of the company, let's say, is never invested in a small business, whether it's a deli or, you know, Airbnb. So I think going through a test, who are the 10 wealthiest people you know in your network and just emailing them and asking them or asking them over text? I'm starting a company.

I have two quick questions for you. One, have you ever invested in a startup before for a small business? Number two, if no, would you consider it? And just quickly assessing, and you can tell them, because I'm starting a company, I just wanted to pitch you on it. And it's fine to say no. And so you just get that really quick. And if one and two are 10 out of 10 have never done it before, I think you've got the answer.

They've never done it. You might be able to convince them to, but yeah, it's going to be hard. If nine out of 10 say, yeah, of course, I've invested in three or four companies. companies. And yeah, sure, I'd love to hear your pitch. Well, now you know your network is a network with people in it who do this. So just be just run a little AB test to your point about validation. The more validated you get, the more credibility you have, uh, the easier it is to, you know, start meeting investors, angel investors in a Silicon Valley. So if you have a hundred hours of work that you can do in the next month, right? Let's say you're doing this on the weekends.

would you allocate a hundred hour how would you allocate those hundred hours acts to validating your product your thesis building out your MVP or reaching out to investors let's say you have nothing right now but an idea month one two and three you have a hundred hours of work i'm only spending hours validating yeah until i validate 100% like i'm not even spending time working on my idea until i validated that people actually want it so like it For example, here's a good way to validate it. Let's say you're building a consumer product. Let's say you're just building any product.

You go on to Google and you find the keywords that people would search for your product. So let's say you're building a new AI video tool to help parents do cool stuff. And like, you go in there and you figure out what people would type into Google, because people type everything in Google, to search for that. And you make an ad for what you're making for them, what you hope to make for them. And then you put that ad. into Google and you write the ad for why it works. And then you make a landing page that says,

coming soon, would you like to get on the invite list, submit your email address? And then they submit their email address. And then the next page or the next panel is like, oh, why do you want this? What's important to you? And then you just keep asking them questions until you start noticing them falling off.

And you spend some little bit of money on that. And boom, you're very quickly going to realize, do people click on the first ad? Because if they don't want it, they're not going to click on it. If they really want it really bad, they're going to click, click, click, click, click. You're going to have a high CTR and you're going to have something really, really viable. Do they submit the email address?

Do they leave comments? Like that so quickly will prove if people wonder. Classic landing page technique that takes a day of work. Nobody does it. Like, literally, I see zero startups that come in when they're pitching. They're like, oh, here's our landing page technique approach. Here's the outcomes and here's the metrics. And I'm like, they never do it.

And here I typed an AI tool. video tool, the auto-correct or auto-suggests on Google added the word free, so I thought I'd add that. Sure. And to your point, the first sponsored ad is from Vimeo. This product actually exists. Then one from Adobe, the new Adobe Express, grab the best AI video maker. It exists.

Yep. And then turn video into AI, create studying videos with AI, video leap app. So I don't know who that is. And, you know, what you learn very quickly is not only is this validated, but you have two of the largest players in the world doing it. And then a third person who's a startup right here with that product and market. So do you have to validate from that point on? No, you've got massive competitors.

You're too late to the market, perhaps. Or perhaps there's a good opportunity for you to do something that's got a beachhead market, a channel, a bigger niche. Maybe it's just for parents and baby pictures. Maybe it's just for family photos. So there you have it. A very simple way for you to validate is landing pages. And that's the category you want to look at.

someone needs to write a book about this like just startup validation just like here's how to validate your startups and just like go through all different categories and like just with examples yeah and you know to your point and to the person's question we saw this as an opportunity

we have this Founder University which we did as two days which we changed to a 12 week program now and we had 2,000 people apply Zach for Founder University for the 12 week course we accepted 450 people representing 220 teams and I added, would you like to be considered for the launch funds

$25,000 friends and family investment? What percentage of people who filled out their weekly progress report do you think? Check that box. You had to pick. 10% just because people are bad at that.

60%. And this is at a $1 million evaluation. So it is a 25K check at a million dollar valuation. Six out of 10 people, click it every week. Cool. I did that as a test.

So talking about A, B testing and product validation, I didn't know. I thought maybe, you know, people have their own 25K. So they're just, you know, if I was starting a company today, I would put 250K in for my own pocket. You would put 500K in. You've done really well for yourself. And then maybe you'd call some of your friends and say, hey, I'm raising at a $5 million dollar valuation, $10 million dollar valuation friends and family around. I'm putting in $250 myself. You want to put in $250 again. Yeah.

But, you know, we forget the days where you were raising $15. It's a pretty scary concept for you, Zach, at that time, to find $15K in your own personal account and then I'm right. write it to the company. Yeah, I didn't have it. You didn't have it. And so, it's just shocked. You know, how, guess how many in the last two classes? We have those checks we wrote.

Take a guess. 460%, so 240, you wrote 100 of them. 46. Wow. That's awesome. That's cool. That's quite a awesome portfolio. 26, 25K checks.

And I'm just like, you know, when this thing gets to 300 of these, which is only 7.5 million. Yeah. I'm going to be really interested to look at what you got. Yeah. What I got, right? Just a little 25K micro checks, what's in there. And then, you know, so we as investors also, A, B, test concepts and try them. And we'll see what happens, right?

We're running the test. We got, there's a market for it. Now, let's see if the returns are there, right? Yeah. So we'll see you very quickly. That's really fascinating. It's really different. It kind of goes back to the original Charles Hudson idea of writing really small checks or really low evaluations into a lot of companies.

and then seeing what happens from that. But you've got, because of your media empire, and because of the footprint that you have all the infrastructure and the team and all the stuff that you've built, you've got the ability to do that at scale, which is like, yeah, I like that idea. I'm going to be really curious to see what comes out of that. That's pretty awesome.

Yeah, it's going to be interesting. It's kind of part of my launch four pitch, if you want to read that, launch.com, slash memo. I wrote a deal memo. But, well, in this third, fourth fund we're doing, my plan is to have 300 of those checks. in the fund. Yeah.

And then to invest a second time in maybe the top 20% of those. So maybe 60 of them would get 100 to a 500K check from us. And then that would put us at, you know, five to 10% ownership in those companies, the winners of that company, if you think of it like a funnel. Yeah, yeah. So we'll see.

It's a great way to do it. I like it. That's smart. Yeah, it's an experiment, right? It'll be 7.5% of the $100 million dollar fund, hopefully.

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sign up today for a free Miro account at Miro Miro M dot com slash startups. Again, MIRO.com slash startups, Muro.com slash startups. So an interesting question. Somebody asks that they are going to be coming to the Bay Area for two weeks. starting Sunday. Any advice on how to officially meet VCs and pitch my startup? Okay, so they're just showing up.

They're showing up and they want to walk down Sanjo Road and just pitch folks. Yeah. What's your advice there? Is that exactly how it works? No, no. I would change the expectations. At the end of the day, Silicon Valley is a place of relationships, and it's about, honestly, it's a place of giving,

which is like you, in Silicon Valley, would you show up, The nobody knows you. And the only way to really break in here, the best way to break in here is to just do favors. So it's funny. When Joseph Walla, who was the founder of Hellasine, he was on my debate team. And my ex-wife and him were really good friends. And so when he first moved to Silicon Valley, he was like, what do I do? How do I break in here?

I was like, look, it's really simple. You just go to as many events as you possibly can. And you go, there's tons of events happening in San Francisco every day all over. You meet people and you just help them. You figure out ways that you can be useful to them. in scalable ways, like not where you're going to go work for them, we're going to put hours and hours of work in, but like where you can make an introduction,

or you can help them find a customer, or you can do something useful for them, and you just plant these seeds throughout the city, throughout the valley. You're just constantly meeting people and helping. And you're helping in ways that are valuable to them, but low cost to you. And you just do it over and over and over again. And it takes a long time,

but those seeds, they become an orchard. And that orchard bears fruit like you wouldn't believe. Because the valley creates, it's so much amazing wealth and so much promise and potential and awesomeness that like if you're out there helping people, they will give back to you like you wouldn't believe. But it takes time. You can't just come here and show up and be like, I'm just going to go pitch people and then people give me money. You need to know that like your time in Silicon Valley, if you want to really

come here, is about relationships. Now, once you have a company that's scaling and you're growing and you have month-per-month metrics, totally different story. But in the beginning, it's about helping people. Yeah, I call this the Johnny Appleseed strategy. Johnny Appleseed, actually a real person. And what he did was he planted a bunch of apple trees from apple seeds. And then he took those seedlings, I guess whatever you call a small tree. And he sold those or gave them to people to start their own apple orchards. And this planting of seeds and being, you know, in a minor way, helpful to people really scaled for him. And that's the strategy you're talking about. It could be just setting up dinner with three or four people you know. And then this was my

hack when I was trying to break into the industry. I would find one or two people who wanted to have dinner with me. I would get a reservation for six or eight at a Mexican or pizza joint somewhere where I could put a super cheap and I could put a bunch of food on the table, Chinese food as well. And I just say, hey, everybody. I say the two people, hey, did you know anybody interesting? an extra seat or two. And I'd ask those two people. They'd say, yeah, I know this person, this person. I'm like, okay, great, can you introduce me to them? I'll talk to them on the phone. Hey, what are you working on? You listen. You ask a couple questions. Then you invite them to come to dinner. And they say, oh, by the way, somebody dropped out. I have one extra seed.

You know, anybody, you had no two or three interesting people. Or you can just cold email people. Hey, I'm having dinner with three or four people. Would you like to come to dinner? I would do this constantly. Yeah. I remember one time I was in at Sundance with David Sachs and Elon Musk. it was the preview of thank you for smoking. Yeah. And Walter Mossberg was there. And I was having to talk with Walter Mossberg. And I was like, Walter, hey, can I bring my friend Elon?

And Walter, no, Walter Mosberg got a little upset at me. He's like, listen, I don't want to take pitches. You know, I'm just here. Like, whatever. And I was like, okay, no, I won't bring Elon. And I didn't bring Elon. Oh, wow. Because he called me out on it.

He was savvy. He knew I was using his name in my relationship with him from Engadgett to help Elon because I wanted him to review the Tesla or whatever. when he came out. So he kind of saw right through and he called me out on it. I was like, you know, I got Elon with me. Can I bring him? Elon didn't ask me to do that. I was just doing it because I was trying to help Elon out because

the, you know, the car company was failing. Yeah. And so those stories well, those stories of me helping people, whether it was Travis before Uber or Elon, you know, when he had just started the Tesla journey, those, a lot of those are legendary stories now of just trying to be helpful to people. Be of service. Try to help people. It all comes back. So less focus on

more focus on helping others. And it all comes back. It's a huge giant favor bank here and goodwill. So keep building up that goodwill every chance you get. All right. Dave asks, you discuss money going after everything in a ZERP environment, a zero interest rate phenomenon,

I think is what the P stands for environment. What attributes of companies that are getting funding today, more stable and break even, different industries, what is working today? Great question. What is the profile? Let's leave out the type of company like AI.

Everybody knows AI companies are getting funded. But what are the attributes, the qualities of the variables that you see help people clear market in the seed stage? Let's put this on seed stage and then we'll do Series A as well. What are the qualities you see at the seed stage, any of the three phases we outlined, and then at the Series A? I mean, the biggest thing is that everybody was able to raise money a few years ago in ZERP. And raising capital was easy. Capital was free.

It was quite a while time. Today, the bar is substantially higher. And what that means is, is like when you go into your buddy, your friend, you're racing and precede, you go to your friend and you're like, hey, I got this crazy idea. I want to do it. Two or three years ago, they were getting 0% on their bank deposit. The stock market was overly inflated, so it didn't make sense to go buy public equities. Their house prices were through the roof, so they didn't want to go buy more houses. They had cash sitting in the bank, and they were like, I don't know what to do with it.

Okay, fine, all investment is crazy startup. You didn't have an alternative. Today, you're making 6 plus percent on your cash sitting in a very safe investment vehicle. Houses are cheap, theoretically cheaper, depending on where you want to go. They're on the market for six months, so you're not like you're having to overpay and come over the top so you can take your time and pick the right house for you. So that's true. Public equities are all over the place. So there's some things that are overpriced. Some things are massively underpriced. Like there's opportunities everywhere to deploy capital right now and smart capital allocators who are sitting on capital, whether they're your friend Bob, who's a dentist who has a couple extra $100K or their multi-billion dollar fund. They've all got places to put their capital. So you're in competition. So you literally have gone from a place.

where the FOMO, oh, by the way, and two or three years ago, everything was going up. Every startup went up 50%. So, like, I would feel so dumb when I would pass on a startup and then see somebody come in and mark it up at a crazy price. Every time that happened, I was like, I'm an idiot. I should have done that deal. So the FOMO was raging back then. And now, not so much.

Now, the alternative, we're all looking at startups that are fighting to stay alive. Yeah. And we're looking at- So what are the qualities of those startups, the ones that you see getting a 500 to a K to a million dollar check from a seed fund. Let's start there. You know, pair, first round, you know, some seed stage fund, yourself, me. Well, what are the qualities of those companies?

Yeah. So we could break it into the three groups if we want or we can make it simple. In the beginning, you either, you've either validated an idea. And if you've a validated idea in a big market and it's a great opportunity and you can prove it, call me. Call Jason. Call other people. You're very quickly going to figure out if we are excited about your validation or not,

or I'll tell you, I'll be like, this is what I need to see. And that validation, if you have that, great. Now, it doesn't really matter. Anyone who validates a big idea and a big market that has the chops to build it is going to find the investors are going to be excited to talk to them. So that second piece, you kind of just subtly put it in there, has the chops to build it. Yeah. Is critically important.

Yeah. You know, we could build a landing page and validate it. But if you're just an idea guy or gal and you're a solo founder, chances go way down. If you're a team of three, man, chances go way up because I think investors correctly see teams of three as having a greater chance of survival. And it's more serious. And you've proven that you can get two other people to come on the journey with you, like Shackleton, getting people to go to the north or south pole or wherever we went. like pretty, pretty hard to convince people to come on a journey. And if two or three of the people, two out of the three are actual builders who can actually

build the thing and have the chops to build it and have previously built stuff and are in the process of building the prototype and you can show each week or two, hey, we made a little more progress. That's going to be specifically very attractive to our firm. We really like builder founders. We really like multiples of founders. And we really like product velocities, the internal terms. we use. Yeah. I mean, so if you, if you come to me and you're like, hey, I invented a new

battery that runs a thousand miles, you know, unless you literally are the world's expert in batteries, I'm just going to hit archive on that. If you come to me and you're like, hey, I got this idea that's trivial to build and I can build it really easily, you know, and there actually is a moat, you know, that's another hard part. Then, you know, suddenly you might find people get interested. So the question is not so much what are the capacities of your builders is what are you trying to build and is it possible to be

built by you and your team? Yeah. And so this is absolutely critical. At the Series A, it's pretty straightforward. You're looking for, I would say, 10% month over month growth, 2 to 3x growth year over year. So you're doubling from 250K

to 500 to 700,000k or you're going from 500K to 1.2 million or from 700k to 1.7, something in that range, two to three X, uh, growth in the low millions of dollars is going to be interesting for a series A today. Could be as little as 500K. Could be as much as two or three million to get a series A to get that VC to say, this is one of my 10 boards I'm going to be on.

And this is one of my five million dollar. I have 10, five million dollar series A checks to write, uh, you know, I'm going to buy 10% of your business. I'm going to spend the next 10 years with you, if it works. That's what you're looking at. Doubling your revenue year over year on a base of, let's call, 500 to 1 million, something like that. Yeah, minimum. And one thing that is really important right now is capital efficiency.

So if you spent $5 million to get a million dollars in revenue, you're going to find that most investors are going to be very skeptical about that. The union economics of how you acquire customers and then what those customers are worth, really, really matters today. Two or three years ago, nobody cared. You had all sorts of crazy companies that were being funded that had negative unit economics where it cost them more to acquire a customer

than they would ever make from those customers. But people didn't care as long as you had growth, you were able to raise more capital. Now people were going to look very closely at what is your cost of acquiring customers and then what is the value of those customers and what's the long-term value of the business? Because right now in the public markets,

you can buy SaaS companies very, very cheaply. You can buy SaaS companies at a very low price. And so if I can... 10, 15 times revenue. Yeah. Yeah. I mean, it's amazing how cheap they are.

It's amazing. Yeah. I mean, and so if you were in that position and you, if you were trying to pitch David Sacks for your Series A or Lempkin, Jason Lemkin, two really great SaaS investors, and you'd deploy $10 million to get to $1 million, ARR, that is wildly inefficient. Yeah. Now, if you spent $3 million to get to $1 million, they're going to say, hey, wow, for the first million in, great, how much is it going to cost you to get the next

million? Is it going to cost you two million to get a million in? Is it going to cost you one million? And the closer you get to that one to one ratio, I spent a million to make a million in reoccurring revenue, I think they're going to be delighted when you start to get to three, four, five times, they're going to go, huh, are you just throwing parties and flying first class to conferences and just not being thoughtful about the growth? So, if you are lucky enough to have growth, it has to be thoughtful growth.

It cannot be spastic, um, you know, wasteful growth. So capital efficiency, you're going to hear that term all the time. Multiple founders and builder founders, uh,

also capital efficient. The other piece of capital efficiency that we love internally is the company doesn't go out of business. If the company is capital efficient, they get a, they might have 24 months of runway. When we see people raising money, they got six months of runway,

they're constantly coming to us nine months and they're in a panic. We're like, this person is not doing great financial planning. And it's usually because it's three idea founders who want to pay themselves 200k each and then hire a third-party dev shop for a million dollars a year. That may have worked in ZERP that you're blowing $1.6 million that way. Not going to work here. Hire your own developers, get them internal.

That's the key. Or have them as co-founders, ideally. All right, listen, big breaking news story while Zach and I were taping here, SBF's former romantic partner who is the CEO of Almeda research took to the stand for the first time. today, Zach, in the SBF trial, according to reports from inside the courtroom. It's not televised, but people are reporting from inside the courtroom. Allison admitted to fraud during her time at Alameda under SBF's direction. That's second part really important. This is Carolyn Ellison, I believe it's her first name. She placed the blame for misuse of FTX user funds directly on

SBF, claiming he, quote, set up the systems leading to Alameda taking roughly 14 billion from FTX. Some more quotes from Carolyn Ellison. Alameda took several billions of dollars from FDX customers and used it for investments. I sent balance sheets that made Almeda look less risky than it was. Prosecutors made Ellison's point, made Allison point out SBF and say everything was under his direction. And here is an excerpt from Ellison's back and forth with prosecutors. These are from Inner City Press on X.

Thank you to them. They cover SDN-wide trials. That's the Southern District of New York, the hardcore folks. Prosecutors, how do you know the defendant, Ellison? We met at Jane Street, then Alameda. We dated for a couple of years. Jane Street, I met the founders of that firm. Really interesting, savvy firm.

Prosecutors, did you commit crimes? Ellison, fraud. What others? With others. Yes. Prosecutors. Do you see Samback? Fried. Ellison, he's over there. Prosecutors, what's his involvement in the crimes?

Ellison, he was the head of Alameda, then FDX, he directed me to commit these crimes, prosecutors, what makes you guilty? Ellison, Alameda took several billions of dollars from FDX customers and used it for investments. Prosecutors, what was the defendant's role? He set up the system and told us to take the money. How much did Alameda take to repay its lenders? In the, Ellison, in the ballpark of 10 billion, ultimately around 14 billion. Prosecutors, how did you defraud Alameda lenders? Ellison, I sent balance sheets that made Alameda look less risky than it was. Prosecutors, why was there not enough money for customers in November 22?

Allison, we had taken it to repay lenders. Wow. Well, I guess she's flipped and is going for a smaller sentence. What do you think of this entire crypto space writ large? Did you invest in it? and what do you think this trial, which is obviously going to result in a massive sentence for SBF, I think he's getting life in prison or at least 30 plus years.

I set the over under 30 years. Everybody took the over. So I mean, I didn't set a great line. But what do you think this case represents in the bigger picture here? I mean, I've always been highly skeptical of crypto because it's fundamentally, it has beautiful product market fit for doing illegal shit. Like, it's amazing. It's amazing product market.

fit for illegal things. It's so good at that. And I think a lot of people, like, they see the growth and they see the money that's flown into crypto. And they're like, oh, there's a real thing here. It's like, no, it's really good for illegal. Amazingly good at that. Yeah.

And, you know, I think this is a great example of that, which is, you know, they engaged in a giant fraud because of the nature of crypto. Crypto facilitates and makes it so easy to do this. And they just, they, they, they, it's not. amazing the level of digital money and the ability to create your pop up your own currency if they didn't have this FTT token they made if they didn't have the ability to move money around seamlessly

if people didn't pour money into the system to gamble in their casino they wouldn't have had the opportunity to do this if this was actual real dollars there would have been real controls in place if this was equities this was people's Netflix shares there would be really serious controls in place but because they were playing

with an entirely new paradigm shifting. I'm using air quotes there. Paradigm shifting technology, all regulation, all controls were removed. What do you think happens if you play chaos? And we had a poker game

where one time Chimoth and SkyDade and my friends were like, okay, let's play an orbit of no rules poker. There's now no rules. You can do whatever you want. And so me and Chimot lead over to each other.

We put our four cards together and said we're playing from the same four cards. Yeah. And then somebody else said, okay, great, I get to take two cards from the bottom of the deck

because I'm the button. The button now I guess I take two cards. And it immediately turned into chaos. It was Lord of the Flies. And then it was like, okay, if I have a deuce, I get everybody stacked.

First person to turn over dues. And then I turn over a do seven. I get everybody stuck. It was complete chaos. What do you think when a bunch of young, entitled, and I don't want to say brilliant,

but, you know, above average intelligence, let's say, and above average tech savvy, You give them their own casino and say, do whatever you want, make any rule you want. They're like, okay, great. Let's tell everybody that they are guaranteed to double their money playing roulette, and then let's have everybody lose 90% of the time.

Go. Yeah. Yeah. I mean, it's just the Michael Lewis quotes were just, did you watch any of the Michael Lewis quotes go by? Some of the other things. He appeared to have gotten snowed pretty hard. So I'm, it's really from weird. Yeah.

I'm, I'm really, really interested to see if tether's role and all this comes out. Because the end of the day, Tether is literally, has the ability to print money whenever they want, wherever they want, at billions and billions of dollars. And it appears that what they do is they basically take that and they fund all these exchanges like the biggest one they had, FTX. And they give them the ability to print billions of dollars as a loan, quote unquote, but, um, um, So the exchange is able to basically have access to free capital to go gamble. And that it appears what happened here is that FTX at the end of the day, they gambled with their loans.

They lost them. And then they had to steal from their customers to pay them back. And the great part of all this is one of the bets they placed was on Anthropic. And apparently, like, I don't know exactly what the numbers were, but supposedly there's this $500 million number. Now, I don't know if that's how much they put into Anthropic or how much they're Anthropic stake is worth. But supposedly they wanted to bring that up into trial.

And the judge is like, yeah, like, no, you don't get to, you know, do a parlay with the jets and the giants. And then you hit some crazy parlay and you win with stolen money. And then because you paid back the grandma you stole it from and then gave her interest. You don't, sorry, that's not how stealing works. Anyway, yeah, this is absolutely disastrous. Speaking of disastrous, the city of San Francisco has lost their mind. And I know, correct me if I'm wrong, but Cruz was one of your great investments of all time.

Am I correct? It was one of my first. So we invested is the second investment I ever made. First, obviously, a billion dollar eggs that I've ever had. So I was like, woohoo, look at that. And you know what? It really, really makes my heart warm to see them getting all the progress that they're getting. Because every year, 40,000 people in America die from human driver error.

There's no other, the only cause of people dying from car crashes is humans being stupid. They're looking at their phone. They're drunk. They're not paying attention. They're just driving like morons. 40,000 dead people a year just in the U.S. alone. And robot cars are going to eliminate that.

We literally have virtually no deaths from that every again. It's like curing cancer. It's like so freaking huge. So I get really excited when I see them driving around now. Well, and we talked on all in. If you just look at the top three or four reasons, people die in car accidents. It's drunk driving, speeding, distracted driving, not wearing. a seatbelt.

All four of those are opt-in by stupid humans. Yeah. Like stupid humans, get in cars, don't use their seatbelt, use their phone, drink, and speed. Yeah. And so cars just, automated cars, can't do any of those. So the top four killers are removed immediately. What did you see? That was a deep tech investment that you made, I think, a decade ago, right?

Yeah, yeah. one of the first investments. How did you make that deep tech investment that you knew was going to be a long bet? What gave you the courage to do it at that time and make that long bet? It was all Kyle. So Kyle, the founder of Cruz, I had tried to hire him to work for me for many, many years, for over a decade. I met him when he first started with Justin TV, and I was like, wow, this guy's brilliant.

He's like, he's really, really good. And I was like, please come work for me, please come work for me. And he was like, yeah, no, yeah, no. He's smart enough to avoid that. And so when the Justin TV team split off and they ended up starting Twitch, they ended up starting Exact, which was Justin's thing. And then they ended up starting social cam. Yeah, Michael's thing was social cam.

And then Kyle went and started Cruz. I was just like in love. I'm like, this guy's really good. And so. And the market is so big. I mean, you think about the scale of the market for autonomous driving is like, I mean, huge. trillions and trillions and trillions and trillions of dollars.

I mean, it's probably one of the biggest markets in the world. We have, yeah, the TAM is ridiculous. So San Francisco is one of the test beds. A hit and run driver hit an individual. Yeah. That individual tragically ricocheted off the hit and run driver, the human. Yeah. And got pinned under a cruise car.

Yeah. No problems with the cruise car. Yet the local socialist, communist lunatics fringe in San Francisco. Francisco, including the San Francisco Chronicle, which is, I think, a bunch of lunatic, communist, commie bastards over there. Feel free to quote this. They just said to have mindworms. Their brains have literally, like, become so convinced of their own rectitude and righteousness

about the beliefs, the political beliefs that they hold, that they just literally just engage in falsehoods constantly. And the falsehood here was they framed this as Cruz was responsible here, which quickly got debunked, your thoughts just on the progress, how do we, how do we continue to accelerate progress of the human species in the face of a lunatic fringe trying to, including, sadly, some members of the press, were part of this lunatic fringe, which are just so anti-tech. How does the tech industry deal with this? I mean, the goodness is that we've always had stupid people. They've always been around. They've always done stupid things. And I don't think they've stopped us before. They're

going to do the best they can to slow things down, to try to create their own narratives and to try to change the future in the ways that they want them to be. But if you look back at the history of technology, it's a history of constant improvement and progress. Like, you can look at the cost of solar power now. I mean, it's falling so rapidly that there's a real hope that we actually will have clean, safe power that we can use everywhere, everywhere, every now. It's so crazy you bring that up. Literally, in Australia, they hit 126% capacity with solar. And now they're having to figure out what to do with it.

So because rooftop solar and solar farms, they are doing so well, they're just planning on doing a bunch of, um, uh, batteries. And the amount of coal being used went down 80% as wind and solar levels started hitting these record this summer. And so congratulations to the people of Australia. Germany had hit that as well during some particularly sunny days. It's not always sunny. Yeah, Australia's got a lot of sun. So the southern part of Australia is just going to have free energy forever. And so they're doing a major, major push there. Yeah, and you can think about all the things that we could do with free energy.

Like, it's like the world. The world could be a very cool place if we have free, free, clean, safe energy. And so you look at, people have been fighting technological improvement for the history of humanity. The Luddites have always been there. They'll always be there. And so the people who run San Francisco, they are Luddites at the core. They don't want any more housing built. They want their museum to stay the way it is. They don't want anything to change in their little museum city. And they don't like technology and they don't like technology companies.

And so like, but at the end of the day, the cruise is safer, cheaper, better. It literally is going to replace all human driving. Like, you will, our kids will not drive cars. And they will just, there's no reason to. You know what? We'll be thrilled with that. Check this out. This is just so insane.

That's awesome. The season of renewable records on Australia's main grid continue. continues apace with the first days of spring, also adding a new milestone for solar in South Australia, the country's most advanced renewable state. Combined output of rooftop and large-scale solar reached a record 120% of local demand at 12.55 p.m. on Sunday,

according to data provided yada yada. Rooftop solar alone contributed 93.7% of the state's demand with peak production of 1301,332 megawatts. Large-scale solar added another, 23% of 374 megawatts. This is extraordinary. The state was reporting more than 400 megawatts of excess power to Victoria. So now, when they say states, they mean regions of Australia, distributed.

So different states inside of Australia are shipping their energy to each other because they've got so much. And so abundance is upon us, folks, all we need to do. is keep executing. And what we need most of all is great entrepreneurs to take money from Zach and J-Cal. Let us slide in that 100K. Let us slide in that 250.

Get on the cap table. 100 exit for us so that we can keep doing this job because it is the greatest job. True. On the planet, to be able to sit with entrepreneurs, Zach, how lucky are we?

Too lucky bastards, you know? Life does not suck. It's just great. Even in this sucky 18-month period where I have to do five times as many meetings to raise 10% as much.

It's like a, it's a 50x lift, I think, right now. Yeah, it's harder right now. I mean, we'll get there. It's no big deal. But how lucky are we, even in, you know, with the shutdowns and the hard work to get to witness things like Uber and Cruz change the world, Robin Hood, whatever, you get to, you get to, you know, invest in. It's just fantastic.

What a job. We're so lucky. Life does not suck. I like it a lot. All right, everybody. You know how to get to Zach. You figure it out. You're an entrepreneur.

And if you want to come to the founder university, I'm and founder. University. We're doing it quarterly now. So, and I do maybe three in person sessions

with the teams. So you get to spend some face time with JCal as well. So founder. dot university. It's my new passion. We'll see you all

next time on this week in startups. Thanks, Zach.