This Week in Startups - The state of seed, the first TWIST500 startups, and the impact of anonymous apps on society | E1963

Episode Date: June 11, 2024

This Week in Startups is brought to you by… Attio. A radically new CRM for the next era of companies. Head to https://attio.com/twist to get 15% off for your first year. OpenPhone. Create business phone numbers for you and your team that work through an app on your smartphone or desktop. TWiST listeners can get an extra 20% off any plan for your first 6 months at https://www.openphone.com/twist⁠ .Tech Domains - Don’t miss our “Jam with JCal” contest! To apply and get more details go to https://www.jamwithjcal.tech brought to you by .tech domains. * Todays show: Alex Wilhelm joins Jason to discuss concerns about the app "Fizz" (12:24), the state of seed (31:35), the first TWIST500 startups (58:58), and more! * Timestamps: (0:00) Jason and Alex kick off the show (11:15) Attio - Head to https://attio.com/twist⁠ to get 15% off for your first year. (12:24) Concerns about the app "Fizz" and the use of anonymity in social media apps (19:14) The impact of anonymous apps on society, parenting concerns, and the responsibility of investors in harmful tech startups (23:16) The case for banning smartphones in schools (30:19) OpenPhone - Get 20% off your first six months at https://www.openphone.com/twist⁠ (31:35) The state of seed (35:33) Impact of AI on startup efficiency (38:17) .Tech Domains - Apply for the “Jam with JCal” contest today at https://www.jamwithjcal.tech (39:45) The variety of seed deals (45:13) How to leave and join a rival company legally (58:58) The first TWIST500 startups (1:05:48) Impact of AI on journalism and media companies * Subscribe to This Week in Startups on Apple: https://rb.gy/v19fcp * Mentioned on the show: https://www.wsj.com/tech/personal-tech/fizz-is-the-latest-campus-gossip-app-it-took-two-days-to-shake-up-one-high-school-1d59ffd4 https://www.businessinsider.com/gen-z-fizz-app-anonymous-messaging-cyber-bullying-vermont-2024-6 https://techcrunch.com/2023/08/10/insiders-bet-more-on-fizz-a-social-network-that-has-now-bubbled-up-at-80-college-campuses/ https://x.com/JonHaidt/status/1799525595509850522 https://techcrunch.com/2017/04/28/yik-yak-shuts-down-after-square-paid-1-million-for-its-engineers/ https://x.com/Jason/status/1799868195899376014/photo/1 https://techcrunch.com/2024/06/07/y-combinator-yc-startups-tiny-seed-rounds-vc-investors-not-interested/ https://x.com/dhh/status/1799427898652389827 https://ticker.thisweekinstartups.com/ https://www.forbes.com/sites/sarahemerson/2024/06/07/buzzy-ai-search-engine-perplexity-is-directly-ripping-off-content-from-news-outlets/ https://techcrunch.com/2022/06/24/zendesk-drama-concludes-with-10-2-billion-private-equity-acquisition * Follow Alex: X: https://x.com/alex LinkedIn: ⁠https://www.linkedin.com/in/alexwilhelm/ * Follow Jason: X: https://twitter.com/Jason LinkedIn: https://www.linkedin.com/in/jasoncalacanis * Thank you to our partners: (11:15) Attio - Head to https://attio.com/twist⁠ to get 15% off for your first year. (30:19) OpenPhone - Get 20% off your first six months at https://www.openphone.com/twist (38:17) .Tech Domains - Apply for the “Jam with JCal” contest today at https://www.jamwithjcal.tech * Great 2023 interviews: Steve Huffman, Brian Chesky, Aaron Levie, Sophia Amoruso, Reid Hoffman, Frank Slootman, Billy McFarland * Check out Jason’s suite of newsletters: https://substack.com/@calacanis * Follow TWiST: Substack: https://twistartups.substack.com Twitter: https://twitter.com/TWiStartups YouTube: https://www.youtube.com/thisweekin Instagram: https://www.instagram.com/thisweekinstartups TikTok: https://www.tiktok.com/@thisweekinstartups * Subscribe to the Founder University Podcast: https://www.founder.university/podcast

Two of my friends at light speed and NIA, stop this. You made a huge mistake investing in this. You certainly did your diligence and saw what happened at Forespring. You saw what happened at Secret and you saw what happened at Yikyak. And now the Wall Street Journal, God bless journalism, right? Everybody's deriding journalism. This is where journalism does a really great job. He's going there and telling the actual story and giving you eyes on the truth.

And the truth is, in this school, it created chaos. The principal of school said, I have not seen chaos like this in the last nine years. Your app caused pain and suffering. So if you're so proud of this investment, I want you to print out the Wall Street Journal story and bring it to your PTA meeting, bring it to the principal of your school, and say to the principal of your school, here's my latest investment and look them in the eye and say, what do you think? This week in startups is brought to you by Adio, a radically new CRM for the next era of companies. head to adio.com slash twist to get 15% off for your first year.

Open phone. Create business phone numbers for you and your team that work through an app on your smartphone or desktop. Twist listeners can get an extra 20% off any plan for your first six months at openphone.com slash twist. And dot tech domains. Don't miss our Jam With JCal contest to apply. and get more details, go to Jam WithJCal. Tech. Brought to you by DotTech domains. All right, everybody, welcome back to this week in startups.

My co-host, Alex Wilhelm is here. He's at Alex on the Twitter. NowX.com and I am Jason, and we have a full docket. We were out of town last week. We hosted our liquidity summit. About 150 people. I would say it was 70% GPs, the general partners of venture firms, and about 30%

angels, high net worth individuals, and LPs, the people who give money to venture capitalists, generally speaking. And we had a little offsite. We had three nights of poker, Alex. As a journalist, you now got to come inside the tent, your impressions. Everyone was slightly less guarded than usual. But the biggest takeaway that I had was how if you arrived 10 minutes late to the poker tables, you were on the wait list. because everyone was like breakfast, people are 30 minutes late, started content,

10 minutes late, poker time, everyone's early. Yes. We had six tables going. And I ride at 920 on the third night. And I was like eighth on the wait list and I was heaved. So,

wow. Well, that was for the one two table, but you know. Yeah. But I mean, it does speak to, uh,

you know, we are placing, uh, bets, even though Megyn Reynolds says, don't use the gambling terms. Uh, she gave a great talk.

Brad Gersoner's LP relations person. And she says, don't call it bets, right? And we all like to call it bets because we do consider a gambling. We do consider placing a bet part of what we do. But it's an investment, sure, probably better when talking to LPs to say investment. But the truth is, when you do venture investing and you're trying to figure our startup, what are you trying to do? You're trying to make the best decision you can with partial information.

Yes. You don't know everything about the startup. You don't know everything about the market. So you place a bet, and then some time goes by. Maybe you place a second or third bet and you try to get your money in good, as we say in poker. Same thing holds true for investing. I got a question about that analogy because I like it. It works for me, especially sitting there with a lot of people who make investments for a living.

It was pretty apropos. But what is the equivalent of a poker bluff in venture investing? Yeah. So I would say when they overfund a company or you see like an investor make an investment and then they put more money. into the company and they're kind of saying like, hey, we don't have anything here, but we're going to keep hiring people, we're going to keep marketing it, we're going to keep building the tech, and you're bluffing hoping for M&A, hoping somebody buys the assets. So maybe the aqua hire kind of maneuver, we're going to keep building this because we know

large language models are, for example, today, large language models are the future, or that's my perception, hey, we're in seventh place, but we're going to keep putting money into this and pretend that we're going to be able to catch, you know, these open source projects, open AI, you know, and Google Gemini. We're pretending, we're bluffing that we're going to get there. We'll have a ton of employees. And then suddenly inflection AI is bought or gutted by Microsoft and they get their money back. So that's kind of it, right?

I would say. No, I think it's interesting that you put the founders and venture capitalists together on the bluff side and that makes the other player, other companies that might buy the asset, aka the bet. No, it's interesting. I just like poker analogies to be. honest. So this works for me. Well, I mean, and if you think about each of the cards coming out, you have your whole cards, right, you make a seed investment, the flop comes down, maybe that's a series

A, you got some customers, et cetera. And then over time, the turn and the river come and you, you know, you start to, you know, raise growth funding and then eventually IPO or have an outcome. And it does, you know, a story gets told over four or five betting rounds, four or five investing rounds. And so it's analogous, I think, in some ways, just making decisions constantly. the reason why it felt clubby or interesting and low pressure is because no founders, no press, right? So listen, you and I, well, spent a lot of time as journalists. Journalists are there, people are going to be guarded.

And if the founders are there, people are going to be guarded, you know, you're not going to talk about, hey, we're trying to get to this percentage ownership. It seems a little uncouth, right? We're trying to, you know, because you might talk about startups as if there are assets, you know, in a portfolio. And maybe to a founder that feels like, oh, I think. thought I was like special and I'm like, you're talking about me like I'm one of 30 bets in an asset of a portfolio. It's actually good for founders to understand that dynamic, that you are

in the VCs and the LPs mind, one bet in a portfolio of bets with the goal of hitting an outlier. And so everything done in our industry really hate to tell us to everybody is spinning our wheels waiting to hit Uber, Airbnb, DoorDash, or some outlier. And then everything we do is just experiments on the road to hitting the power law, which could make you feel terrible about it or it can make you feel inspired, right? That we take so many chances and we're so risk-taking in this country and that we're okay with that risk-taking. And we don't mind if you are one of 27 zeros in a portfolio if the last eight return two to 200 X, right? So I'll throw in a one more observation than just to cap this off, because I like where this is going.

One thing I did notice talking to a panoply of GPs at the event was how non-antachnostic they were towards each other. I thought there was going to be a little more good natured ribbing, a little more competitive shit talking, if you will. And there wasn't that much that it did feel clubby, but not in like a stuffy wood paneled English kind of way, but just in like it felt like intimate in a good way, I guess. Yeah. So what you can take from that is the proliferation of new.

venture funds. We had, I think it was Megan Reynolds talk as well, or it may have been Seon from Green Spring, now Stepstone, where she sort of showed there were like 3,000 new funds and 1,800 new manager, some crazy number. Seed investing in early stage investing, there's probably 30, 40, 50 entities on the cap table up to and including the Series A. And it's only at the Series A where one person wins and two people lose, right? In a competitive Series A, there's just not enough room for everybody. And so starting in series A or B, you start to have some sharp elbows. That's why you'd see like Andreessen, Kleiner, Sequoia, you know, those kind of names battling it out historically. Like, we have to get Google and, you know, then Google says, well, you know, Larry and Sergey said,

we'll take half from Klein or half from Sequoia. That was like a seminal moment in the history of the industry where founders exerted who got to participate in Google's round. But generally, that's the nature of startups today, which makes it quite nice. And so if you have a winning company, what we try to do, and you got to sit in our all hands, and we can talk a little bit about that as well,

in our all hands, made it with our investment team, I had you sit in just because I want you to kind of help me get reality. It's like a bonus of having you as the co-host here. You get to see you, I'm trying to craft a team that not only can pick the company,

right, and have a framework for picking them and making a really good decision so they know which starting hand, but they also now know how to play those cards after the flop comes out, right? And in that analogy, the second half of the job is seeing if there's pull through. What's pulled through? That means another firm evaluates our startups from first principles, you know, from a sharp pencil and a blank sheet of paper. They underwrite our latest company, Podcast AI. And they make a decision if they want to invest. Well, if we invested in our accelerator, a founder university like we did for Podcast AI,

and then somebody marked it up to 10 million, okay, we invested at 2 million, it's 10 million, we have a 5x on paper. Okay, no big deal. But the most important thing is that it pulled through to the next set of investors. It made it from, you know, this mountain, down the valley and back up to the next peak, down the valley into the next peak, and hopefully going up the whole way. So I've got our team focused on, because as a manager of a new. fund, we're an emerging fund.

I have to motivate the team. So I said, listen, everything you've done up to this point in placing the bets means nothing. That's table stakes. That's your ante. I'm judging everybody. The bonus pool is based on your employment here is based on your promotions. You're based on pull through only. So now what I'm trying to do is on a 360 basis as I train these new investors.

Okay, you picked really well, but was your pick validated by the marketplace with a pull through? Right. And the way this was described to me actually at that meeting was pull through matters because an early stage fund has such limited final outcomes to discuss for so long that LPs look at pull through as kind of a heat check, if you will. Proxy. Forward the fun and how it's doing.

Proxy, sure. Yeah. So it does matter. And it was good to see. And I have to say, uh, that event had more month, uh, sorry, uh, liquid death than anything I've ever been to in my life. And so I was happy as a clam. Yes, absolutely.

If you're sober and you, and you know, and you want to drink something that looks like you're drinking, uh, one of these fancy beverages that the, the, the millennial what do they drink they're all into this like malt liquor stuff what is the um not kombucha no what's the thing they all drink like white ball is that malt liquor or that's vodka soda it's seltzes yes it's not salt salt malt liquor is different malt liquor is different right yeah higher higher calories on the malt liquor pot anyways on the show today we are going to talk about fizz and when to rein in social media apps because we have a couple of historical notes about this app that is blowing up on college campuses and high school campuses then the state of seed startups raising

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Head to adio.com slash twist, and you'll get 15% off your first year. That's ATTIO.com slash twist. Jason, Fiz, you brought this up. I have a lot of thoughts about this, but I'm curious, as a parent, why did this story grab you by the collar and drag it into your attention? All right. So anonymous apps and anonymity in general. is if you've been in the industry for a couple of decades,

especially if you're a journalist, you start to really understand the pros and cons of anonymity and when it should apply and when it should not apply to society. In society, we need to have whistleblowers. Go see the movie The Insider. You know, sometimes people who have no power need protection to whistleblow. And you can, you know, make your decision for other high-profile whistleblowers, which ones you think did the right thing,

which ones didn't, but generally speaking, we have that protection for a reason, and that is virtuous. Then you have anonymity by somebody who maybe doesn't have power, but they want to write, you know, papers like we did here in the forming of our union. And what were those papers? The Federalist papers, right. They're back here on my shelf, actually, somewhere. Okay, yeah. And they were written anonymously, am I correct, in some cases?

Yes. And so, okay, great. you are trying to say something politically, you know, you're a dissident. Okay, so we have whistleblowers, we have dissidents. You know, you can add to that, you know, uh,

ish posters, uh, maybe who are making fun of people and don't have power. Okay, maybe seems less important. And then there's another virtuous one in my mind for anonymity, which is I, um,

am embarrassed. I'm suffering. I need some advice. I'm, I don't want to say it publicly, but I'm depressed or I feel insecure about these issues. Okay. So those are like,

like nice virtuous places for anonymity. And then there's owning your words, and we all know the value of that. LinkedIn, you don't have to deal with fake people. You know, you have, it was very rare to run into a fake pseudonym account on a LinkedIn or Facebook because they're not allowed. And that allows you to have more trust in those platforms. So more freedom of speech on X, more trust inherently on those other platforms. You know, you get to pick what you want to do.

Now you bring in children. Now you bring in children whose brains are not fully. developed and who have a propensity to try to figure out who they are socially. We're all awkward as teenagers, even the jock and the, you know, the king and the queen of the prom, they also have their own insecurities. And there is absolutely no justification or value that comes from giving those people who are developing their frontal lobes in long term the ability to be anonymous and then do anonymity by geolocation and by phone books. So this is where details matter, Alex.

What these apps do is they know your geolocation. Okay, we both go the same high school. Okay, they know whose contacts are in our books. You say this person is a slut. You say this person's parents are on drugs. This person's parents, these people are poor. These people are rich. And then what inevitably happens is some child who is struggling gets targeted by this.

And there's enough abuse in the system when people use their real names. Educators are having a hard enough time. And then what inevitably happens with a platform like Fizz, like we've seen before, a child kills themselves. Or goes into depression and harms themselves in some ways. And you and I have been covering the space for long enough to know that this is the worst idea you could ever have. Yet people keep coming to it. Maybe you could explain the backstory here in some details. I think the reason why people keep coming back to this as a startup model is that it always catches fire at the beginning.

So it looks like the next big thing. This is how we got Yikak, which raised over, I think it was over $73 million, up to a $400 million dollar evasion back in 2017. This is what gave us secret. This is what gave us Form Spring, which later became, I think, spring. So for you and I, Jason, this is the fourth round, at least, of this coming around. And this is in the news because FIS is blowing up. It's now on 240 colleges. It's now at 60 high schools.

And the journal wrote a story discussing what happened when it opened up to students at Vermont's largest high school. Essentially, it went from zero to super toxic incredibly quickly. I mean, not a huge surprise if you've seen the past. But we're not talking just about like what happened in kind of the theoretical sense. These are actual kids who actually struggled and actually suffered. And Jason, if you know anything about the current ministerial. mental health crisis that students are having today, kids are having today, they don't need extra pressure and extra stress.

Yes. At the same time, the flip here is free market system, people have phones, you make apps, you don't go afoul of the app store rules. I struggle to say, no one should be able to do this, even though I find it distasteful because I don't want to get in the way too much, but I'm being too soft there. You're being too soft there, I would say, because. we're talking about children and because we have so much evidence

that this will result in suicide by children and suffering. And so when we are talking about adults, if adults wanted to use secret and secret, if you remember, that app was designed more for adults, not for college campuses,

although it obviously spread. Their kids can hack their way into any software and get in there. That resulted in, you know, pain and suffering. You know, and sure, like maybe somebody got called, out for bad behavior once in a while and then in people's mind they justify but you nailed it what's at the core of this is greed and the desire to have a viral app you nailed it if you make a platform in which you get to trash people in honesty the worst the worst of our psychology

the devils in our in our souls comes out the bullying the slander the gossip the worst of humanity is channeled through these. And when there is a car wreck, everybody slows down to look at it. It is just the nature of humans. There is some pathos in us that will look towards this. And anybody who traffics in this is trafficking in the suffering of children and the eventual suicide of children. So I just want to let the investors and the founders know that you will have blood on your hands if you pursue this. Just full stop.

it will result absolutely in suffering. And if you were to read this story and you're an investor in this, you should go home and speak to your spouse, speak to the other parents at your school, and ask, what do you think about my latest investment? You should take that Wall Street Journal, print it out. This is what I want the investors.

Who are the investors in this? Can you tell me? Per crunch base series A was lightspeed, N-EA, A, ALE, Smash Ventures, Rocket Ship.V.C. and K-5 Global. Okay. So we said light speed and N.EA, right? I have friends at both of these firms. Two of my friends at Lightspeed and N.A.

Stop this. No amount of returns, IRR, LP distributions, DPI, is worth one child being bullied on this app and, God forbid, a suicide, which you will have if you continue to pursue this. So two of my friends at Lightspeed and two of my friends from N. you made a huge mistake investing in this. You certainly did your diligence and saw what happened at Forespring. You saw what happened at Secret and you saw what happened at Yikyak. And now the Wall Street Journal, God bless journalism, right?

Everybody's deriding journalism. This is where journalism does a really great job. He's going there and telling the actual story and giving you eyes on the truth. And the truth is, in this school, it created chaos. The principal of the school said, I have not seen chaos like this in the last nine years. Your app caused pain and suffering. So if you're so proud of this investment, I want you to print out the Wall Street Journal story and bring it to your PTA meeting, bring it to the principal of your school, and say to the principal of your school, here's my latest investment and look them the eye and say,

what do you think? And ask an educator what they think of this. It is not worth it. And to the two kids out of Stanford who dropped out and did this, I know, I know that you think that, you know, it's really special that you raise $30, $40 million. It's not. happens all the time here. What is special is being thoughtful about what you build in the world and your intent. Now, your intent obviously is not to have kids be bullied, but you're naive. You're naive children yourselves. You are naive, stupid children to build this app and release it publicly. I don't blame you. If I was 19 or 20, I might do the same, Alex. But these are naive Stanford students who are obviously very smart and they know the history of this. And they have convinced

themselves that they'll be able to stop this, despite the fact that it's already got a Wall Street Journal story with teachers and parents and students explaining their suffering. You can't solve this problem. Period. Full stop. The problem of anonymity plus kids cannot be solved. Yes. I'm entirely with you on that.

The thing that I can't quite wrap my head around is what happened to Secret and Yikyak and Form Spring. They all bizzzled out. I think Yikik sold for like a million. dollars to square in the end. And so my question is, what about this, this time felt different? Not only the risks to kids, but also the failed kind of economic experiments of the past revolutions of this particular cycle, did they think this time it was going to be a lasting

product that was going to become the next Facebook? I don't get the investment thesis. Their nonsensical answer will be AI is my prediction. The nonsensical answer will use AI to not even. even let the worst post be published, right? And so they have a nine-person team or something I heard that's like vetting these things. They're not going to keep up. Kids know how to get around these. And here they're saying what happened at Vermont was an outlier. Solomon said, I view it as a learning opportunity. Yeah, great. You're going to learn and a child's going to die. Yes.

And you're going to learn what we've all learned, that anonymity and building, removing friction to create more anonymity, creates more suffering. That's it. Your growth hack is suffering of children. That's your growth hack. No, you're not wrong. It's just, it's good to kind of frame it that way because the suffering and the drama is what draws the kids back. Someone says in this story that they felt they needed to check it all the time in case their name came up.

So quite literally, you're praying on fear and anxiety, which is suffering. That's a, it's a good summation of the problem here. But I want to take it one step further. When we were talking and putting the show notes together today, one thing you said, really caught my eye. You said, we need to ban smartphones in high school. Absolutely. And I do not disagree with this.

Teachers don't disagree with this. Tech folks, maybe they don't want that to happen. But who is holding us back as a nation from making this a reality? Because it seems like such an obvious thing to do. Better focus, et cetera, et cetera, et cetera. Why haven't we done this? John Haid, who I'm going to have on the program, or I'm going to interview him for all in one or the other. It has an incredible book out right now about the, I think it's The Anxious Generation.

He tweeted about this because I was like, you know what? You know, I want to hear Jonathan Haidt's version of this. I think he also did the coddling of the American mind. He's just like a, you know, very based thinker, I think. And he's also, I think he's a lefty, right? So like, if you, lest you think there's some political, you know, bias here. This is not a political issue. This is a parenting issue.

It turns out smartphones are a huge distraction for all of us. If you're an adult and you go play poker with your friends, everybody's on their phone in between hands. If you go to dinner, everybody's on their phone. Everybody wants to be present. That's why we do things like stack the phone or a phone penalty at the table. We all know that these things are too distracting. Now, if you have a mind that is being developed, you need socialization.

This past generation is so anxious because they don't have to socialize. they have all their dopamine receptors fried from just flipping to the next TikTok and you get a constant stream through the algorithm of whatever the next most dopamine releasing video is. It could be people dancing, you know, with not a lot of clothes on. It could be somebody crashing their car. It could be somebody getting in a fight, world star, you know, kind of style. Any of those things that just, you know, a great song.

It could be positive things. It could be an incredible recipe. shout out chef's reactions. And so, but that kind of dopamine release constantly and that kind of distraction just screws with learning. So what some schools are doing now is you come to school and you put your phone in a locker. That's the obvious. You can't.

And if one parent can't do this because if one parent, like I say, my kids can't have phones until they're 16 or 17 and the other kids do have it. Now you're the bad parent. The other kids have an advantage over your kids, you know, they can order DoorDash or or get an Uber, your kids can't. It's just a disaster. So what you really want to do here is past regulation, no social media until 16 and no phones in school. Bring your phone, put it in the locker, just like we do when we go to a Chappelle show or any comedy show now, it goes in that pouch. I love that. Some of the best stuff ever. And so we'll put Jonathan

hates a message up here. Maybe you could read it. I think he's now become the expert on this. Yeah, yeah, yeah. So the, uh, The quote here is, one of the worst ideas ever is to connect people to talk about each other publicly, yet anonymously. It's sad and predictable that this kind of social media brings chaos and shame to communities of adolescents. Can we at least raise the age to 16? That seems like a pretty low bar. As I get older, I'm realizing some things are mind-blowing to me, like the fact that we allow 16-year-olds to drop Suburbanes down the highway. Have you met a 16-year-old?

I wouldn't trust them with a blender. And so that seems like a very minimum bar to me. On the smartphones and schools point, I think as I approach picking schools for my kid slash kids, I think smartphone policy is going to be among one of the things that I kind of like filter schools by. Because if someone says to me, our school is as good as the other ones and no smartphones, check.

Because I like my child to be present and not as worried about this stuff. It's going to be hard enough keeping smartphones out of their hands, let alone during school. I mean, if you, I was programming my, my TI 83 plus during math class to say, oops, when I should have been studying math. If I had a smartphone, I would have been real trouble. So like, I just, I just don't think kids are able to kind of multitask in that way. So I'm with you on this.

Fizz, may you please fizzle out and go away because my gosh, we're here again. And I, you know, if we're still doing this in three years together, Jason, I guarantee you there'll be a new FIS and bought to do this show over again. Yeah, it seems like we're on a three to five a year. history rhyming here to the people who invested in this just do the simple test print out what you did take it to your kid's school

take it to other parents and say I invested in this and just please give me candid feedback on my bet and then for the folks who are running it listen I don't have any animus towards you I'm sure you think you're doing the right thing

I'm sure you think your intentions matter your intentions mean nothing the outcome is what matters here so if you if you intend to not hurt somebody and you go drive drunk, that doesn't matter when you kill somebody. They're still dead. They're still dead.

And your intent to drive drunk, but, you know, magically avoid killing somebody and take that risk, means you're responsible. And you're responsible. You will result in a suicide. And then you will, for the rest of your days, investors and founders and people who work at this company, all of you,

from the latest employee to the CEOs and founders, you all will live with the death of that child. It is not worth it. Life is short. Do good work on the planet. Anonymity equals child suicide. I'm just going to put it right there for you, and I don't want to be right on this.

I don't want to be right and have to pull up a story from the Wall Street Journal or the New York Times about a child killing themselves because of FIS. What I want you to do is immediately take my advice and pivot away from anonymity. Or pivot away from kids. And even then, doing this with adults, if you're comfortable with an adult killing themselves, great, go for it. Here's another idea.

You get one swing around the planet. You got $40 million in the bank. Say, I listened to Alex and Jason on This Week in startups. I realized we made a huge error. Would you like us to give the money back or pivot? That's what the founders need to do. Take a deep look in the mirror and say, pick your best friend. who has had the most mental struggles.

And then imagine, this is for the founder, pick your best friend at Stanford who had the most struggles, right? We all have a friend who's suffering from depression, anxiety, whatever, sadly. And then imagine they got bullied and piled on, they killed themselves,

and you have to go do the eulogy. Put that in your mind. Here's your test. Okay? Framing matters, I like to give people a test to check their ethics and morality and their behavior. Your friend, used your app,

got bullied, and now you have to give the eulogy in front of the mom. There's your test, founders. I hate to make it super simple for you, but I'm an old man now. I've seen this movie too many times. I don't want to see it again. Yeah.

And, you know, if you've known anyone who's committed to suicide, one of my best friends growing up did. Sorry, I might too. And not a lot of patience for it. Juggling multiple devices and apps to run your business is a mess. Open phone is here to make it simple. By simplifying your business communications with one easy-to-use app. Open phone has rethought every detail of what a modern business phone should be. And here's the magic.

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And if you have existing numbers with other services, no problem. Open phone's going to pour them over easy, peasy, lemon squeezy, no extra cost. Head over to openphone.com slash twist to start your free trial and get 20% off. Let's do a shift and a pivot to a topic that is near and dear to the hearts of everyone here at this weekend startups. Seed. Jason, I know you are a seed machine. I saw a recent story from Rebecca Scutac over at TechCrunch discussing the current YC batch and not for the first time ever in the history of Accelerator coverage that valuations were too high, but instead that companies that came out of the most recent batch were raising less money,

looking to raise $1.5 to $2, $15 million post money, giving up less or than around 10% of their companies, and also no lead investor. Bowery Capital's Lauren Straub says, quote, it was impossible to get double digit ownership in any of the deals. VCs told founders, get lean, spend less money, they're doing it, and now it seems to not actually be working out that well for VCs. I find this ironic. I'm curious what you thought.

Yeah, there's two things happening here. There's a little bit of spin. So if given $5 million at a 30 million post and a VC coming on the board and taking 20%, they gave you $6 million, I guarantee you everybody in this group would have taken it. Okay. So let's just, and that is happening. There are still people buying 20% of a company, putting $6 million in. But for people who can't find a lead investor because everybody's being a little guarded, with their capital and it's a non-ZERP era and people of funds are having a hard time raising

the next fund. The fund sizes are smaller. So the entire industry has gotten lean from the LPs and how much money they're giving to GPs and for the GPs in how they're deploying it. GPs want to deploy over three and a half years during ZERP. They were deploying their entire fund in 18, 24 months. So they've doubled the deployment period and they're raising smaller funds, which means the peanut butter is getting spread and everybody's putting in half as much the average deal. And these folks are saying, you know what? Also true, they're positioning. I actually don't need that much. So maybe I'll just, I want to give up 10% of the company for $1.5 million and get back to work. That's actually healthy. So what we're seeing here is instead of gorging, you know, at the buffet,

people are eating the proper number of calories that they need to make it to the next milestone. In other words, you know, all you can eat buffet style investing and raising of money out of fashion, lean, tight. What do we need to hit the next set of milestones? Can we get to profitability is back? And by the way, this is what it was like after 2008, when I started 2009 to 2015, you would raise a small amount of money. Uber thumbtack all $4.5 million $5 million rounds

that was their round size and they raised 1 million, 1.5 million for 20%, 30%. That means better returns because the entry prices come down. People put in money. The teams are more efficient

and they are able to do more with less. That means higher margin businesses, right? In Vida, I think I saw this statistic that their market cap is 100 million per employee. And then it drops down severely. I tweeted it the other day.

Wow. Wow. Yeah. You almost start to feel sorry for alphabet. I mean, of all the big tech companies, it's only 12 million per Apple and meta at 19, Microsoft of 14. And then it drops off incredibly far. Tesla stands out amongst the non-software companies at 4 million.

And then banks, JPMorgan, 1.8. And that's why the bonus pool hasn't been as big lately if you're in I banking. Sorry about that. Yeah, it's true. Not my fault, but hey, still, that's tough. Yeah. And so, you know, being more judicious and using AI and maybe outsourcing specific functions to other companies is in fashion. So, yeah, it means the industry is becoming boutique again.

I do think growth stage funds are going to have a hard time hitting their ownership targets. Yeah. But for seed funds, it's great. Great for seed funds. We still have our seat at the table. And we're pre-seat, too. So that's why I even moved earlier. We were Seed and I created Founder University to say, can I meet people the year they

have inception of their company? Like half the companies that come to Founder University are not incorporated yet. We give them their first 25K to get incorporated. So I'm really leaning into that program. Well, the earlier you get the faster you can get money in at the lowest possible price. Before we talk about naming Seed Browns, because I know you have a B in your bonnet about that. I'm just curious, how much is AI playing into effect here? because I've heard people talking about startups building companies with smaller teams in general,

just higher efficiency because of recent advancements. Do you think that's having an impact in this particular conversation? So founders of startup companies are resource constrained. Great constraint makes for great art. If you only have a certain amount of film in the camera, you're going to get that shot, right? Now, if you go digital and you have unlimited film in the camera and unlimited time to tape, you get the advantage of doing many takes, but, you know, maybe the average take is of lower quality.

So founders really take advantage of this. It's a small canvas. They have a limited amount of paint. They want to make every stroke count. Therefore, they're using offshore developers. They're using co-pilots. They're using whatever the latest AI tool is for customer support or, you know, SDR support.

They're probably using Athena. go to Athenawowd.com and get a discount and you get to jump the line if you use my code. Athenawowswowwow.com. Shout out to my team over there. So people, in small, companies, wildly efficient. You watch this, you know, when you worked at TechCrunch or Crunch Base in the early days when, oh, no, you probably joined after Mike sold it. So, were you there before the acquisition or after? After, but when I was doing TechRunch,

we were all still kind of in one room. And Crunch Base was like eight people at a row of desks. So. Yeah. So, you know, you watch as a company gets really big. There's more resources and like, yeah, okay, we have an extra office next door and it costs us $5,000 a month. We'll keep it. we have the option, it's only 60,000 a year. You can be loosey-goosey because you have so much budget and so much cash laying around. And that's okay. The founders, yes, they're going to be the first to adopt whatever the latest AI tool is. And then they're the first to get the gain from it. And just super efficient. So yes, that is a trend. I just think that we've gone past the foie gras era of startup fundraising, which people just got stuffed with so much capital.

And sure, it is going to be harder for, you know, battery capital to hit its ownership target. But I think it's going to be better for the companies and better for returns down the road. So to me, this is like, it's like going to the gym. No one likes doing it. You don't want to be sore on the next day, but you love the results. This is going to be healthy. Okay, I am passionate about innovation and tech, and I love hearing from the founders themselves. And now I've got an exciting opportunity for you.

I'm hosting a jam session with JCal. It's powered by my friends over at dot tech domains. And it's over this summer. I'm going to have five founders get in a call with me. And I'm going to give them my unfiltered feedback. and the best part is these mentorship sessions, these jam sessions where we go back and forth and talk about your customers,

your product, your team, your problems, your victories, the things that are going well, the things that aren't going well in these jam sessions, we're going to take them and we're going to publish them on this week and startups. Think about how great that is. You're going to get to have a jam session with me. That's awesome and fun and educational and hopefully helpful,

and you get to share it with the world. So all you have to do, if you want to be part of this insanity, this awesome, beautiful insanity is you need to have less than 2 million funding. We want to do this for startups. And you've got to have an awesome.com domain name. So apply and get more details. Jam with JCal.com.

Jam with JCal.Tech. It's in the show notes. And I'm partnering with my friends over at dot tech domains because all these great innovative startups are starting to use dot tech. I see it all over the place. Rabbit.com, aurora.com, 1x.com. And of course, founder Fridays. dot tech. If you're using a dot-tech domain name for your website,

I want to hear about it. Apply for the jam session with J-Cal today. Jam withjal.com.com. dot tech. Jam with J-Cal.Tech. Jam with J-Cal. dot tech. Okay.

Now, series seed, mango seed, extension, seed one, seed two, seed three. I'm so freaking tired of these kind of like semi-seed deals. You have a plan to absolve us of those sins. Yeah. So Series A, we all know what that is,

A venture capitalist does a priced round. They priced the round. There's a certain shares at a certain price, and they join the board and governance starts with board meetings. So let's say that's series A. We all know what that is. The series B comes after that. Another person joins the board, either as a full board seat typically, sometimes an observer,

and you do lose another 10 or 20%. So kind of series A, B, C, we've got that handled, and they just count up. But before that, you have friends and friends and families. family, free seed, seed, seed plus, seed extension, you might throw in an accelerator or an incubator note in there from YC or launch accelerator. So what I am advocating for here is we start naming seed, seed one for the first seed investment, whether that's your friends and family, mom and dad put in 50k for 5% of the company at a million dollar valuation. Then Ycombinator launch accelerator come in with 125K for 7%

that's C2 and we anytime the valuation goes up we increment now if now you raise at 5 million when you graduate

tech stars or Y Combinator now you're at 5 million okay what happens at 5 million we're at 5 million that's gonna be seed 3 let's say so you had your friends and family mom and dad put in 50k for 5% then you had tech stars launch accelerator Y Combinator do theirs

that's seed 2 Now they go in the open market, they raise C3. Now, let's say a year later, they top off that $5 million. Still C3. Okay. So tell me why that still counts. Is it the same cap? The same valuation?

Same valuation. Nothing changes essentially the same round. And so then if a company is at CED 7 before their Series A, that's okay. You know, I just described, you know, the first starting point of the company was three. and let's say they go 5, 8, 12, 15, 15 a second time. They added five funding events that would add four to the incremental count. And then we'd have like an honest discussion about what's going on. This company did three rounds of funding.

They got to C3, then they went to Series A. This one did seed seven and went to Series A. Now, is one better or worse? Well, the one with less seed rounds and clearing market at Series A would be, on average, a much stronger company because a series A investor is underwriting that with their time of joining the board and a price round. So I like that. It's more sensible. That doesn't mean that you won't have the alicorns. What's an alicorn? It's a Pegasus, like a unicorn, and a Pegasus put together. So it's a unicorn with wings. Alicorns are these unique companies that I came up with the term for this, for com.com.

Com.com did a $5 million round of funding that we participated in four and a half or something. We famously bought 5, 6% of the company. Their next round of funding essentially was 250 million from, and that was their essentially what they called their series A, but it was kind of like a series C or B. They just use their own profits to grow the company and skip around to funding. So when you have the Pegasus wings, Alicorns skip around the funding because they can fly over them. There's your little analogy.

So you have to double click. and maybe somebody thought, you know what, I just want to spend a little bit more time in the laboratory. I have somebody who wants to put 250K in at the last round. You know, it's Jason Calacanus. It's David Sachs. It's Mark and Dresen, whatever. I'm going to take that money because I want them involved. So sometimes people will take that $250 and they don't need it.

They got a million in cash, but they add the $250. Why? That person is accretive. They're a great signal. They're a great mind. They have a great network. Whatever it is. So let's just clean it up.

Let's all agree to seed numbering from the beginning. Anytime the valuation goes up, it increments. Nice and clean, nice and easy. It also applies well to later stage rounds. I forget the company that did this, but they called me up that said, hey, we've raised a series C1. I'm like, okay, series C one. Why is it not a series D? Did the valuation go up?

They're like, yes. I'm like, okay, so the valuation went up. It's more money. It's like two years later. You're calling you to series C1. Why? They said, well, we don't want to tell people we're out of series D yet because we don't feel like we're there.

And I'm like, well, what are you doing? So I like this because it gets rid of the BS. If the valuation goes up either in a cap on a note or in a priced round, it's a new round. How did we get away from that? That's so simple. I think there's no like organizing body of individuals who determine this. And so I'm taking that. I'm officially as the chair, you know, I used to give myself the chairman of the internet.

I used to call myself chairman of the internet, trendy and gadget days. I would just come down with edicts and made people really upset because they're like, you're not the chairman of the internet. I'm like, watch me. I'm in the chair online. It's the joke. Thank you.

Also, there, technically, I bet you there's a world's better moderator somewhere. It's just a joke, folks. So anyway, I think numbers for seed,

letters for venture out. Very easy. Easy, peasy, lemon squeasy. Let's start adopting it and make it super easy. Okay. Moving on. Moving on.

Someone was laid off and is going to work with some other folks, wants to build a company, and they wanted us to talk a little bit about how to leave to found a rival company without falling in a foul of lawyers, IP, exit agreements, and so forth. So can you give us- Jason that came into my email box. I forward it to you and said, put it on the docket, right?

Yeah, so just read the quote from the person. Let's see if we can get- Yeah. I was recently laid off and I'm working with another ex-employee from my old team to found a rival company. Can you do a twist pod about how to do it and stay legal and legit? You touched on some of the obvious ones, such as don't steal the material and things like that. I was curious if you have a more detailed framework. Yeah.

So you obviously, when you leave a company, you never bring documents from the last company. Everybody remembers Lindowski, who was pardoned by Trump eventually, was doing self-driving at Google, Waymo, I believe, came to Uber. He came, he had a CD-ROM or a thumb drive or whatever it was with a bunch of documents. The management at Uber said, get that the hell out of here. We don't want that liability. They basically fired him, I guess, or disconnected from him, took away his offer. He went to jail, right?

Jail with a J-A-I-L. So you never take any of that stuff. Now, what's in your head and what you learned by osmosis at CrunchBase? If we wanted to create a CrunchBase killer here, I mean, stuff that's on the website or stuff that you learned, you're doing it, techniques, etc., those are generally not protectable. What is protectable is the IP. So if there was a algorithm or a patent, you couldn't just take that with you.

Now, if they said to, hey, a crunch base, you know, one of the ways we find out about companies is we email the VCs. It's kind of like, okay, that's not, yeah, that doesn't, like, it's not a, it might be a trade secret in your mind. Now, anybody can sue anybody for any reason. So if you made them feel bad that you're creating a competitor, be prepared to get a letter. And if you poach people, then you could also, you might have a non-solicitation. So step one, make sure you have copies of all your documents.

If you don't have copies to your documents, you simply email HR and say, I'm leaving. I would like a copy of all my documents. And then they don't reply to you. And then you email them again. This is my second request. This is my third request for my documents that I signed. Can you please send them to me? And then if they don't send them to you, you know, something's weird there.

You just got to email the founder and say, like, why are you not sending me the documents I signed here? Then you make sure you have a good lawyer on the other side. And then you have to make sure that you're starting from a blank sheet of paper, new laptops, etc. If you were working on this project while you were working for the other company, you got a big problem. So, and if you solicit people, you could have a big problem. It doesn't mean you can't go do it, but it really depends on the wherewithal and the, vindictiveness of the previous person. And that's why two of you leaving is, you know, more than double trouble.

That might be like 10x the trouble. And then if you get two more people to leave, uh-oh. So I would specifically not poach anybody else and don't poke the tiger of your previous employer. Don't go after their top five customers. Just avoid that. Build your product. Let a little time pass.

And, you know, you'll differentiate your product. Also, the other lame thing, Alex, is when people just name the product or photocopy the product. So if you were to like leave Crunchbase and you're like, hey, here's my database. It's called Twistbase. And we, you know, copied the design of it. People would be like, oh, now we're doing Twist 500. Okay. It's a database of the top 500 companies as determined by Alex myself.

That's, I guess, tangentially evolve to Crunchbase. Tengentially, but so much more curated. than a database. So they're not going to sue us. And if they did, it would be like, you're kind of being ridiculous. So that's it. That's all you have to do.

But be careful about poaching. Don't take documents. Don't go after the top customers. You want to just let it slowly, let that energy slowly release. So before we get to the $2,500, though, I want to turn this around. You're a founder.

One or two of your employees are leaving. What's the best way to approach being a leader as some of your talent walks out the door and wants to take you down politely, but in a business context? You have to win on the field is what I'll basically say about all these competition. So two people leave your company. You want to make sure they're not taking any lists with them.

You could send them a legal letter. Hey, this is a reminder. You have a non-disparaging. You have a non-disclosure. Your IP assignments. And send them the copies of them. Please do not do anything that would have us take legal towel. So you're within.

You're right. And maybe it's even a best practice. to send them that letter. Reminder, you've left the company, you have a non-solicitation. Now, that doesn't mean, a non-solicitation means you will not ask previous crunch-based employers in your case to come join this week in startups. That doesn't mean that if you tweeted a job description and your best friend said, I apply, can you put a good word in for me?

You can't. Of course you can. It means you can't email them and encourage them to apply. So when Google, when Cheryl Sandberg left Google, there's a bunch of, um, leaked emails about her trying to create peace with Larry and Sergey and the team at Google, because so many people were leaving Google and applying, especially from her team, I believe, to go to Facebook because they're like, hey, I'm vested. I could start with a new vesting with Cheryl at this new company.

Eff it, let's go. So that's all you have to do is just, and you're going to want to win on the field, which is what Google did, you know, and you have to then, we have a free market, and we all benefit from the free market. So if you worked at Crunch Base or TechCrunch, and you, thought I gave you a slightly better offer. Great. You come here.

If, you know, TechCrunch comes back and doubles your offer and you come to me one day and say, Jake, I'm leaving to go back to TechCrunch, then it's my decision to either match, exceed or not match their offer, just like in the NBA. We want that talent fluidity in our market, right? It benefits everybody. Just for the record, if anyone wants to double what twice currently pays me, it's sharing my email address. All right.

I mean, that's a free market, right? If you were underpaid, you know, somebody could come and make a, a more compelling offer, right? And I think we all just have to recognize that that's what makes America great. Did you see this DHH hate tweet that I retweeted this week? No, actually, I did not. John, pull it up here. But basically, somebody was going after DHS for his, like, posting David Hamar Hansen from 37 signals.

You know, he's posting his car collection. He likes to drive fast car. Oh, wow. Somebody like is like, oh, my God, you know, all of his employees without equity. must, what did they think about this? You know, and it was like, um, they don't have equity, but they pay the best cash salaries. Those people are, it's a free market.

So I guess, yeah, I'm not going to even say the guy's name, but he says, every time DHS posts photos of his lifestyle, I think about his employees have no real equity and how happy they must be. Like, they don't need you to come defend them. They're Ruby on Rails developers making a quarter million dollars a year. Like, if you want to defend somebody, go talk. about cashiers at McDonald's or people picking strawberries. Like, this is not the group that needs your union.

So absolutely agree with all of that. But I will say showing off your twin Pagani sports cars is to me, even for my relatively high level of acceptance for being gauche, that's a bit much. Like I mean, maybe just show off one of them. How much of those cars? I don't even know what they are. Oh, oh, see, Pagani Zonda, I think several million. Oh, really?

Oh, yeah, they're not cheap. So what, I have a ski house? Oh, I'm sorry, 20 million each. No. Yeah, well, the Pagani's on to H.P. Barchetto was 17.5. You owns a 17.5 million. Oh, I don't know if those are the exact Pagani's in question. Okay, okay, okay, okay.

But like, let's assume it's not like the most expensive one. But even still, whatever, I have a ski house that's worth a couple million bucks. Like, what do you want me to do? You want me to be, uh, I'm sorry. sorry that I created a couple of great companies. And like, this is capitalism in America. I have a ski house. I'm going to take a picture from it once in a while.

Boo-hoo. It doesn't bother me. Yeah, I mean, come on. And especially like another rich guy dunking on him or something. Like, this is where this, what's the term like how we treat people like babies? Infantilization. Yes, thank you. We're treating the employees of, it's insulting to the employees of that firm to,

to be like they're being lorded over. They're Ruby on Rails developers making hundreds of thousands of dollars. They could go work anywhere they want. They could start their own company. They could compete with DHH. They've made a trade in life. They work for him.

They don't have to stay up late at night. They get paid a huge salary and they're remote. Great. Yes. Even more so, most startups that offer you equity as part of your compensation end up going to, politely, zero.

And so these developers are taking a guaranteed paycheck instead of an option on a potential return. You don't have to feel bad for someone taking a more conservative bet. That's their call, especially if they're that flexible in the labor market. So I agree. And look at what you did. This is why I respect you a lot. I asked you to do this a couple years ago.

You were like, hey, you know, I need security, whatever. And then you decided, well, you wanted to start writing and everybody could read your newsletter. The URL is once more. Oh, cautiousoptimism. Dot news. Thanks, Jason. Cautionism.

dot news. Everybody subscribe right now, pay for it. And you decided, hey, I got some security with J-Cal, he'll promote my newsletter, and your newsletter is going to make money. I hope you make six figures on this newsletter, great. And I hope it's a huge success for you. Now, other people might be petty about it. You decided to hedge, right? You got a little bit of risk over here, and you got a little stability over here. That's like, this is the American dream. Pitch yourselves, everybody. We live in a free market. Also, going back to your whole one time around the sun, like you only get one shot of this. And I think that just for me,

it was kind of a self-challenge. But I do, I do think that we should treat adults as adults who are rational actors in the market. And going back to the FIS conversation, we should protect kids. Like that, it's a simple dichotomy.

And it's not political to your earlier point. This is just what I would say is common sense. Welcome to this week in common sense. Welcome to this week. Jason and Alex are right about everything once again. Just let's be based. I love this term based. When people say you have a base

opinion, you know what that means? It's just like a basic, absolutely true one that might hurt somebody's feelings. I'm sorry to hurt your feelings. It's a capitalist society. There's going to be winners and losers. Does everybody want to wait in line for one style of bread? Man, I got that sourdough with the olives in it the other day. My lord, I mean, that was next level. I have to just go off topic here. So at the end of the liquidity summit, we had a team dinner. and we're at a restaurant called Press in Napa. Incredible. And I don't eat seafood.

And so when they brought out caviar and pretzels, they brought me the non-fish eating version of this, which was just sourdough bread toasted with this really amazing butter. That was the best freaking bread I've ever had in my life. I don't know what they did with that bread. And I'm not a startup point, but like I've been thinking about bread for several days now. And that's not how my brain usually works. So I kind of want to go back and be like, all right, talk to me about bread. Capitalism is good.

Do. Capitalism is good. You get like better bread. You want to be on the bread line for bad bread? I mean, think about it. If you're going to wait online for bread, wouldn't it be nice to have a choice and have it be delicious and to your, and customized? This is what capitalism does.

This idea that Americans hate capitalism, I know there's like a subsection of politicians who are anti-capitalism. And like, when you're anti-capitalistic or, you know, you want to rein it in too much, let's say. What you're actually saying is like, like, maybe I want to limit consumer choice or lower prices. Like, just got to think that through if you're going to make that your political party's position because Americans love that when they get a new car, they get a new iPhone, it's got

a couple extra feature. So be careful with your framing of like what your party stands for. There's a threading of a needle here that we're doing. Because if you go back to the FIS segment of this show and you listen to us, discuss things like how to handle trust and safety and so forth. There is a certain vein of technologists out there today who has specifically called out those phrases in terms as degrowth. And I don't agree with that. To be a desal, yeah.

I think you can be a capitalist who's in favor of rapid progress and experimentation while also acknowledging that other humans are worth fair treatment. And I don't think that that should be too hard. But it does seem like now there's only like we must do everything as fast as we can or you're killing people or we're going to shut it all down and go back to farming. And I just want there to be something in the middle. Yeah, some common ground here. Yeah. I mean, just some common ground here, right? Some cautious optimism, like, that we could actually split these two extremes, right?

Like, yes, we can protect people's privacy and we can make a great ad network. Lots of social apps. No dead kids. You know, you can do both. Exactly. Jason, we have to get to this because it's super important. We are working now on the Twist 500. We had discussed this on the podcast before.

It is coming to our newsletter. It is going to be a good fun all year round as we figure out who are the top 500 startups out there in the world. As a reminder, we're talking about startup genres. So we're going to be looking at companies in different sectors across stages. If you do get the twist ticker newsletter, expect to see quite a lot about this in there. And, Jack, I have a couple of names that I wanted to throw out to get us started. Right. And we'll have a domain up for this.

I think it's going to be twist 500.com eventually. It's going to be that very soon. I think right now it's ticker. dot this week and startups.com is the temporary URL. We are moving fast. This week and startup. Ticker dot this week and startups.com is where you can sign up for the newsletter. Yes.

We decided to have the newsletter be organized around this principle of the Twist 500. So there's so much to cover. We said, let's come up with categories. So I asked you today, maybe you could run a couple of categories by me and give you my thoughts on it. Yeah, absolutely. So starting with categories, the first one that came to mind for me was Fintech. Huge venture bet. Everyone loves Fintech.

Awesome. Great. And who do we have? I know Wealthfront is still private. That's got to be on the list, right? You got Stripe would be Fintech. That's still private. So those are two top ones right there.

Chime, for sure. Chime, for sure. A Mercury Bank is still private, right? I believe so. So I'll throw that on the list as well. Now, there comes a point between HR, Tech and Fintech when you think about companies like gusto deal, remote. Where do you put those in your mind?

Yeah, that's a great one. They're definitely, like, all those payroll ones have a little bit of fintech. And I guess, though, they're more HR. So I would put them under, like, the HR ones. And what I want to do with this flexibility of the Twist 500 is be able to have people in multiple categories. So you could be, most likely to IPL, right?

we're going to have our, you know, top 25 next most likely to IPL. So that definitely is going to include Stripe, right? Oh, absolutely. And then they would be the top company in payments and FinTech, right? So we could even have payments and fintech. We could have HR and payments. So, you know, you could have people listed in both categories. So I think having that flexibility in the database architecture would be wise.

People could wind up on multiple lists. What people don't know is I'm making this database later. So what Jason is doing is describing my evening's work session to me. The architecture of the database. Yeah. Okay. So moving on to AI, you want a different AI categories. So here's what I came up with.

Tell me if these are too granular. AI models, AI Infra, Data for AI, vertical AI, and then consumer AI, AI hardware, and then AI robotics. Perfect. Yeah, I think that's, I think you nailed it, right? And then robotics is its own thing. And AI robotics is like a subsection of that. So I think that's great.

And we can just, the fun of this is going to be to ask the audience to tell us, us, hey, what do you think should be on this list? And it would be really nice if, sure, there are obvious people who are doing robotics that need to be included here in the, and again, this is for private companies only. We're only doing private companies here. This is this weekend startups. So we're going to leave the big public companies out of this, at least for now. But when it comes to robotics, you know, it'd be nice to have people doing, who are in their seed or series A, as well as the people who've raised hundreds of millions. That kind of adds to the richness of this list. And then having those people, you know, come on the show or experts in that field talk about it and vet these lists with us is going to be a lot of fun.

So I do like the framing there, of course. And we're going to rely on the audience to help us out with this. And so we'll have you, we'll have some sort of nomination and we'll do, you know, some sort of dedicated shows where we say, hey, you know what? We're going to do next week's news roundtable. We're going to focus on robotics. And we're going to announce the, you know, the Twist 500 robotics category with the top 25 robotics company. So we'll, we'll make an edit. calendar as such. Yeah, I want to throw out a couple names, though, that are not the biggest,

most obvious names, just kind of get us started and get your feedback. So a couple weeks ago, we talked about media companies, AI economics, and how it's great to get a check from Open AI if you're the Atlantic, but if you're smaller, how do you get there? There's a couple of startups working on that. There's a whole bit human native AI, and I think one other that I couldn't find before this show. I think that category of companies, at least one of them should be on the Twist 500 because I think it's so important. Yes, absolutely. The clearing houses for, you know, between language models and content is really important.

I saw there's a big kerfuffle around Vox doing their opening idea. I went over to threads and I found all the journalists who used to hang out on X. They hate me. I mean, my lord, I go over there and they're just like, you're cheating on your friend. Like, am I? Like, I'm kind of my own individual here, but sure, I'm cheating on Elon by going. over to threads. I think Elon's okay with it.

I think Elon will survive. Yes. Clutch my pearls. But I go over there and like I start talking. People are like, why are you here? And I'm like, I don't know. I'm just checking it out. It's all journalists.

Yeah. But it's all the journalists who hate Elon and, uh, and who hate Trump and whatever. It's pretty hilarious. But anyway, what do you? They were really upset that Bankoff had done a deal with Open AI and they felt like this was them being sold out. Take us into the journalist mind. Modern tech journalists.

Yeah. They really, really are threatened, like a lot of people by AI and the scraping of their words. Because they did sell their words to Vox, but to have, take me through their thinking. So I can try. I can definitely give you my best approximation of this. I think it comes down to scar tissue. Because if you are a media company, there have been cycles in which big tech companies, big platforms, upstart startups come to you and say, hey, hey, we have it. It's the new big thing.

And media companies, which have been in dire straits now financially for my entire career, often jump at these things. Facebook says, we're going to do video. People pivot to video. Facebook moves away from it and the media companies who have no money. Classic rugpole. It's the pre-c crypto rugpole. It's hard, man. And search, there was always kind of a give and take with search.

You know, media companies do the work. Google would index it. Google makes some money. Send some traffic over. Everyone's happy. That relationship is changing. Social media. Same thing.

So I think there's a lot of scar tissue amongst reporters expecting that once again, they are going to get 48 cents. Someone else is going to make a billion dollars. And their publisher, their employer, is going to be left off worse off. And Jessica Lesson from the information has written quite a lot about why she thinks these deals are poor choices for media companies. Yeah, she's not doing them. She's not doing that, but the information is expensive, locked down, paywalled, and at any of the very particular audience, Vox is much broader.

Yeah. Well, rich. People with corporate accounts who can pay $300 a year for a newsletter where they might read like one story a week. Like, if you look at the Wall Street Journal, like the price of the journal, is that like five or six hundred a year? I mean, it's unbelievable how expensive it is. It's not cheap. It's 40 bucks a month, I think. So, you know, you start looking at that.

It's for an elite group of people. I mean, people have a hard time paying. for the New York Times and their Netflix and their other 10 subscriptions. They're not going to be jumping into the information on Wall Street Journal. So there is like this, hey, we're going to get screwed again.

I think another big fear of it is, I spent 800, I spent an hour on my 800 words. And it comes from three hours of research and, you know, three phone calls I did for an hour each. And I wrote these 800 words and they're special. And then my browser now, by default,

It was announced by Apple today. So it's not like, you know, this is not going to be built into every operating system. Then take your beautiful 800 words and says, TLDR for bullet points like Axios or my launch ticker before that did. And Inside did with their newsletters. Like, we just summarized it in a couple of bullet points if it was TLDR.

The reblogging upset journalists like Business Insider does or blogs do writ large. And now this is just happening automatically. I went to a website the other day and it had like little summary and I realize, Speechify, which I use to read me stories, when my eyes are hurting. They're now putting a summary of three bullet points at the top. This has to be in people's minds that, like, what is the value of my pros? Well, perplexity, the AI search engine that's supposed to be raising, I think a $3 billion valuation.

And I think it's pretty cool because it's taking on search with a fresh sheet of paper. They have taken a lot of flack for what Forbes journalists think is not to, just summarizing, but kind of thieving their content. And so there is a lot of distrust. And I do think that the other thing at play in the Atlantic and the Vox deals are the journalists said, hey, okay, we did this deal, didn't consult us. What are the terms? And the companies are essentially saying, well, we're not going to tell you.

And I think that that lack of transparency amongst a newsroom and its leaders is pretty toxic because journalists are in favor of things being kind of out in the open. And that passes through the entire organization structure. So I think the terms are a little wonky. I think people are worried about the safety of their industry. But maybe Talbot and human native and whatever else is out there working on this. Alex, this is basically going back to the Ehow days, my Mahalo days, we would make pages like this. But we would use humans to write articles, like how to articles, how to use an arrow press here.

And what perplexity is doing is not only summarizing all the great information. that humans wrote about using an aeropress, they're then making a gorgeously designed page, and they're putting a human in between it to deflect that they're doing this in a programmatic way. So they say to people, you go make the page, right? So that we didn't create it.

Now we got our section 230. It's a really, exactly. It's a little dirty, I have to say, like the perplexity of people here know what they're doing. They're not dumb. They're stealing people's content. They're publishing better looking pages. they're using a human in between to pretend that they didn't do it, and then they republish this.

Google should not allow this to be indexed, first of all. Second of all, they should get sued by anybody whose content was taken here to do this. And this is where the content industry and the writers have to get together as a voting block. Vox, New York Times, they all have to work together. EHOW, anybody doing the content? And they have to say to perplexity, this is a bridge too far. You cannot publish a page and then compete with us for SEO with our content. It's easy to know because there's no citations here.

They made the citations very small. And this is going to be the hack. When you force the user to click a summarize button to build the page, you're now saying, I didn't do it. The user did it. I didn't do it. The browser did it, right? You're trying to, and I think Google's kind of doing this as well with their search.

You have to turn it on. You say click AI summary. Oh, we didn't do it. But this is where I think they're going to be dead to rights. They're going to lose lawsuits. I think this is like perplexities, whole business could crumble by doing something like this. This was a stupid thing for them to do. Well, what's the long-term vision?

Because to me, if you starve the companies that make the content that you depend on to explain the world to your users, it's like chasing near-term EPS as a public company versus a long-term strategy. You're eating your seed corn. And it just feels defeatist to me. Like, you're just, you're not going to win long-term. doing this. But people are doing it. People on the Colorado River being like, you know what, I'm just going to take a lot of water out of here and I'm going to make almonds in California, whatever it is. I'm going to make almonds in the desert. And it's like, yeah, but we're going

to run out of water and then everybody's going to die from starvation. And you're going to have almonds for a decade or two. It's like, yeah, we've got to think about the tragedy of the comments here. And this is, I think, like, where I have a big problem with people in tech who feel like, you know, if they can build it, then that's enough. Like, if they can figure out how to build the hack, then the hack deserves to exist. Here, I think you're breaking the law. I think that this is so actionable that anybody who has content, three or four content players should get together, e-how, whatever.

We should all, they should all get together. They should hire a law firm. They should go on to perplexity pages. They should make these pages. They should publish them. then they should force discovery on perplexity. And they should get half the money from this lawsuit to the lawyers, and they will literally own perplexity.

They can get an injunction against perplexity for doing this, I believe. That's why the New York Times has not given in to Sam Altman yet. That's why they held the ground, because they know they have them dead to rights. And perplexy is going to have to show their work. Where did you get this information on how to use an aeropress? What pages on the index? How did you train your data?

Oh, you trained it from the open crawl, and the open crawl told you you're responsible for the licenses, and you pulled in these three pages. Oh, you didn't know you pulled in those three pages? That's not enough. Back to my, oh, you didn't intend on stealing. You didn't intend on driving drunk and killing somebody. Doesn't matter. What's the outcome? The outcome is you stole?

Now you're guilty. That's it. I guarantee you perplexity is guilty. I guarantee you with 99.9.9% certainty that perplexity is guilty of information. infringing on people's rights when they do this, I guarantee you 99.99% certainty. This is a $100 million settlement minimum for them. Now, maybe they want to pay the $100 million speeding ticket. All these content companies must get together and sue perplexity immediately.

The longer you wait, the worst it will get. The only company for whom $100 million is a speeding ticket is actually, I think, the top 10 largest. I think for everyone else, that's more like a catastrophic disaster. John's going to pull up an article for us from Forbes about this issue. But here's a pitch. Jason. So your substack, your beehive, your ghost even, need some more business. Why don't you just go ahead and do this idea? This starts kind of bringing content together to sell it to

AI companies. Why doesn't substack have a little thing that I can check and say, hey, I'm willing to get paid for my material? Absolutely. Yeah. I think these third party tools will come in and do the clearinghouse and they'll be partners with substack. And so substack, it's a great idea, by the way, substack or perplexity or WordPress even could build in a standard. Like WordPress is a third of the web, I think, it runs a WordPress.

You click on, I'm willing to do business for my content and here's the terms of my business and then yeah, boom, you just work it out that way. All right, let's take one question for the audience. It's been a great show. From Rahim Koja. This goes back to our discussion of technology companies, SaaS and so forth.

I think Chamath is correct. It is super easy to replicate most products with Lama and chat GPT very quickly. And the very few people, back to that. I think I could replicate most SaaS things in a couple of months by myself. Here's the thing. If that was true, and I just thinking now a lot, wouldn't people be doing it? The fact that they haven't to me, it's like time travel is impossible because no one's come to see us.

That's my thought there. But I'm curious if you're more optimistic than I am. I think it's starting to happen. I think you will see people make 80%. And this has been happening for a long time. Zendesk, as but one example, when they applied to TechCrunch 50 and we accepted them, my old partner on that and I were like, this is too simple. And we didn't want to accept it because it was so simple.

It was almost like a childish product at that time. It was like, you know, five fields for a help desk. And the founder said to us, and he was right, no, simple is the idea. We made it much simpler and easier to onboard so people who don't have customer support can now have customer support. And they don't have to overthink it and spend a million dollars to stand. up their customer support system. They can just give us a hundred bucks a month. That was the genius

of it is making it simpler. So yeah, I do think you'll see it. But then also you have to have somebody who wants to create a sales force competitor and then who wants to dedicate a decade of their life to it and then wants to undercut the price and then wants to, wants to, wants to update it and wants to add features. So you have, you know, it's like saying like, I could make a better movie. To your point, you're like, I could have made reservoir dogs. Like, okay, go do it. Go make your reservoir dogs. Go make your better Star Wars. You also have to have the motivation. You also have to have the wherewithal, the chutzpah, the gumption.

And this is where people, you know, while it is easy to make a competitor, in the short term, you can probably pop one up quickly. Do you have the ability to do it for year 10, 11, and 12? That's always my question. People, podcast is another perfect example. People like, oh, I can make another version of this week. And startups are all in. It's like, go do it. And then, you know what?

A bunch of people have started all in competitors. Jessica from information has one Pirate Wires is another the character are cartoon ones that change the name

Oh yes I know what you're talking about Four avatars Four Cartoon avatars And he gave us credit Like there's been like a half dozen of these all-in killer competitors And then like I think half of them

don't publish anymore You want to know why Because media is really really hard It's a low margin And it's hard Welcome to the worst business in the world Congratulations you just anchored yourself.

You know, like with your newsletter, you know what people care about? The next issue. Yes. You have to feed the machine. And with that, dude, machines,

machine's hungry. And machine is the last thing. What does Zendesk exit for to private equity back in 2020? 8,9 or 10 billion? 10.2 billion dollars. So shout out to Zendesk. And there's your article right there. Oh,

there is. Yeah. So sometimes simple works out. We will have more on the Twist 500. I will let everyone know when the site is, launched and working on that newsletter we launched this moving on good so coming soon but we are now underway and this is monday show but uh for tomorrow show we will cover all the apple announcements which were occurring when we tape this we're not going to let you go so uh make sure you tell your

friends subscribe to the channel and uh we're going to try to do news two three days a week we're getting back in the flow yes sir bye bye everybody