E43: Innovative venture strategies, Zymergen's implosion, Square acquires Afterpay, future of fintech & more
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the view and i'm optimizing for shade actually .

trying to get out of.

I mean, show. He shot up to my beach clubber yesterday, and I was basically like someone had taken a mommy and then wrapped the mom inside of a White cheek, and then presented him at this, at this place.

the lathered in his, like, S. P. F. Five hundred.

And so I at one point, I said, at one point, let's go for a walk. And this assemble had the nerve to grab his cell and the battery packed for the cell phone. I forced him to leave the phone. He felt naked. Then I made him take off a shoes and socks, and then I tried to get him to take a shirt of, we got almost all the weather.

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We sorted to the fans and.

Hey, everybody. Hey, everybody, welcome to everybody's favorite game show. Guess who's not in italy?

Do, do, do, do with .

us today. David sacks, wearing sunglasses with the view of an ocean, clearly on a nodal vessel. And I am in an old apartment in the center of FLorence. And chaos is that is, hide away somewhere in the countryside. And friedberg is in front of a abstract piece of art.

Two people hide on Crystal maths, trying to break into his car in sentences.

I know I no longer as same for six go resident. I'm proud and sad to say after twenty years of living the city, I have relocated still in a to a uh non describe location still in california. But you're in the day area .

engh in the base. So with us again, obviously red man the dictator and back from a week off the queen of kenwood, what had tell us, uh, queen, you had a big week. You had a some nice ink come out and press about the production board raising some months around, and you took the week off, give us the feedback. What was IT like taking a week off from the pod and now you're getting pressed and you're becoming a public figure. What's have been like for the last week and and tell everybody what went down with this new fund.

You know, my strategy was to take a week up from the pod and then have the ratings go up and then I could quietly and nicely exit um as the as a number of the cast but fortunately, i've been drawn as opportunities just when I thought I was out. I am back in so uh it's I miss you guys. I actually listen to the all in power for the first time ever last .

week you guys did a great you been complaining these .

other last forty one times but I ve been listening to you know um I will say I listen to you all .

were on IT but this was um actually liens taking.

We do IT ourselves. I hear the whole freaking thing in real life. So listening to IT I found IT really entertaining. And I I think I have a Better appreciation. It's less about some of the points fact. We may what i've been pitching and complaining about the and you know where we go with the conversation and stuff but it's just generally just like just hear everyone you know kind of shoot the shit anyway.

Good job. So you're saying you're a fan of of the all in pod.

I might get to went your big mug from.

I send me a .

whole gift basket from the kid was paying for is based on R I P.

Um, no. So yeah, we enounce our T B B. Funding last week, to which I I have been running the production board for four years now little over four years.

It's been my primary vehicle where i've been um primarily incubating new businesses and making some investments from the baLance sheet. Uh, no, we've raised um several rounds of capital over last few years. We've never talked about IT publicly. We've never done press around IT, but um as you guys know, the primary reason for going public with IT was really just to um gain recruit interest in the work that we're doing.

So we really want see great people um be made aware of the worker doing a production board that each of our individual businesses so we could start to um you know at least get get get folks knowledgeable, aware of us. So when we are reach out and and folks are interested in thinking about what else they might want to do with their careers, and I know we're hopefully there for that so that, you know IT was great. I mean, it's nice to kind of share what we're doing.

We also shared five of our businesses that we've incubated, several of which have been stealth up until now. You one of which, Jason, I think you've kind of referenced in the past or molecular average printing company cannot. So that once kind of starting to emerge a little bit more now after several years of R N D and work. So we're kind of making progress now um and all hopefully have more to share a over time in terms of what we're doing. But we're cited and it's great to have great investors.

It's a great piece. And C M B C by R E levi. Um I guess you gave him he's a great journalist, by the way, like old school legit journalist. No, I don't think fan of the pod, how did you pick R, I to be the the vehicle for this to use A P, R firm where you just decided i'm going to share IT with this one person .

we had a mutual person is in P, R, who intrigues. I didn't want to go to abroad P R things. I was just kind like, um let's get I was going to do my my medium post, which I wrote was like a blog post and that was the primary content and then I was like, glitter, find someone good who can kind of at least, you know, push people to that content that they can speak well to our business.

And he was recommended i'd never made before. Great guy. So you know, we just wanted to kind of get that one piece done. anyway. He did a great job, he said he, I think he's been on your show, right?

He's still on my show. He's on this week and start up yeah and and I see when I used to go to see nbc, I would you walk down at one market, used to go there, trump two, and you walk down like a row of journalists and actually go to get on set on over time to youtube moh. One or two of the journals will intercept you and try to get a story.

So he would always stop me. Hey, I heard that travel at uber. Was this of whatever, a great job on the ink? It's great to see you, uh, you know, raise three hundred million. And there was a lot of references to Larry and sergey and google. Maybe tell what how much, who who LED around the three hundred billion dollars and what's google involved?

When I first started the products in board and with mile, I had made personal investments with my own money and started some businesses with my own money. And I had a series of conversations, Larry page, about, like doing something together without alphabet.

I knew Larry ed from my google days, obviously um and h you know we ended up kind of after a bunch of conversations that folks the level below of saying let's I didn't want to manage a fund and I didn't want to go work at alphabet. So the idea was I would set up a holding company, kind of a permanent company, uh, that like any business, has a baLance sheet with cash on IT and conduce stuff with that money. And alphabet invested in the holding company.

They put some cash on this was four years ago and they became a minority shareholder and had a board seat. And I set up a board. And so that's the work.

And then we've raised another round since then. And then we just raise from we announced last week. And so you know the round was I think, uh, I don't have announced that was kind of code by black rock.

We had um you know Morgan stanly coke industries, baily gifford Allen and company um fox tavan error march is a buch of really high quality long term institutional investors although that put more money in um the gate's family office called casket has been an investor with us for a while so they all put money in into the round. And um you know it's great because we can use that capital to build new businesses and support some of our existing businesses. Some of our businesses are really hard detect company.

We don't want to have to go rush out and raise venture money or and we don't want to have an incentive to try mark the I set up and you know get a good on IT. Really, we can use some of our money now to support some of our businesses until they're ready to go commercial or until they're ready to raise outside capital. That makes sense for them, not always make sense. Um and so we have .

so you to know and you own one hundred percent of every business that comes out of here, then you find a management TM as we discussed and then spin the match riff. What do you think of this venture studio approach which has only really worked for bill growth for a ideal lab and maybe john worth wick with beta works in new york and I guess science baby worked as well with dollar shave club. But here you have you know I think freeburg a great um entrepreneur as well doing this. What do you have thoughts on this studio model going wrong ah in in building companies in a studio system.

But I think that means a lot of different things to different people. So i'm not sure, honest, what a venture studio is that's different in somebody else's view than what freeburg is doing. But what I will say is the different thing that he is doing, which I believe in, is you have to become uh extremely hyper focused.

Um you know I think that there was a moment where if you look at when ideal I was really successful or when beta works was really successful. In the case of ideal labs at a very specific prototypical web one point of business, beat works at a very prototypical web two point of kind of social business. They all work because these guys were experts in those things.

And so um i'm pretty olive on what freebooters doing just because he's not trying to boil the ocean. He's being very specific around you know, synthetic biology. And I think that, that is probably what got other people excited because not only from freedoms, gs execution capability, which I really believe in, but they now think about IT.

If you're an investor, I don't want to put my money into something that all of a sudden looks like nine other things where all of a sudden that creates a lot of correlation that I didn't really know existed, especially when i'm investing hundreds of millions of dollars. It's a very big deal that a lot of investors have. And so when freeborn very legitimately say, look, i'm you know actually focused on this thing and then he also said, free berg, you may wanted talk about this and this is the only thing i'm going to focus on.

IT gives an investor lot of confidence because it's like, here's a really smart guy who's done this before he's gonna stay in the swim line and do something really specific here. And now I can understand how IT fits into the rest of my portfolio. I think that there is a lot of value for um investors in a bunch of different ways. So I don't know. I am super excited.

Appreciate that. I mean, I think like one of the things that mattered to me, Jason, and the way I kind of frame IT, like a lot of people think venture studio OS about how many things you crank out. That's like why combats model.

For me, it's not about how many businesses you start. It's about absolute value creation. So you know you have to do the things that you have the resources to do with the objective being to drive business value as a whole.

So that means doing one thing, doing three things, doing five things. It's not about how many things know whatever the right baLances. It's not about just cracking up businesses because each one of these things, we have to continue to be active.

We need to continue to build. And when we start a business, we reserve uh, a good chunk of the business as equity for the team that works on IT. So it's not like a hundred percent owners. We've got to get the right people. They've got to feel like an act like owners.

And that business with us, you wind up wing fifty cor ballpark forty percent.

What do you think is actually very quite a bit so you know without in the community details, I mean, when we start the business for the majority owner and and in many cases, when we're brought in other investors over time, we get deluded, has become a minority owners.

So thirty percent or something like that, like as if you did the series .

I or something, but but in many cases, we end up being um you we want to continuously exon some of these businesses because IT may not make sense to bring in outside investors and and will continue to be the majority owner. But we create an independent forward. We make sure that the the the team feels like it's an independent business and we give them a lot of infrastructure. And two like finance, H R, legal facilities support, recruiting support is at a and obviously templates for how to succeed and and play box and so on. So that's a lot of what I would call our platform value.

amazing. Another best housekeeping the way it's sex .

is an investor in T. P. B. I don't know you guys need that good, good jobs at good jobs.

Sex is another unicor for me.

typically ally. Yes.

look at you. Ah well, in other news, sex, this is like the Victory lap episode sax, you announced your closing one point one billion dollars with a bee in crafts third fund and explicit talking about focus to chaos point, explicitly focus on marketplaces and sas. Maybe you could explain how long I took you to raise the one point one billion. I think the first phone was three hundred billion, in the second was six hundred billion. So you're basically .

doubling each time almost I mean the first one was three fifty, second fund was five ten. This one is one point one two billion. Um it's going to be six hundred and twelve million for venture, which is see series series b five ten for growth. And yeah, we are focused on sas and marketplaces. I kind of run the SaaS practice.

And my thesis is really the same as I was when I was doing emmer, which is apply consumer growth tactics, enterprise software, make a go viral inside companies, sort of sell IT bottom up through the average employee, as opposed to top down through the cio and then the other gp in the fund. Uh, jeff floor is a focus on marketplaces. He was the founder CEO step up, which was one of the original e commerce marketplaces on the web.

And so he leaves Marks place practice. And those are also, I would say, along with sass, marketplaces are the best kind of internet businesses to create. And so you just decide to focus on those two areas, and that's kind of enough for the world, for us.

And in related news, your project call in which is a podcasting plus casual audio application has been doing great in beta. And and I am proud to announce that we had a small allocation for our syndicate, thus syndicate 点 com， which is my syndicate, and then the all in synergics, which we created as a lark um between those two sync ates, my syndicate had nine hundred requests to invest over, I think seven million dollars.

We had a small one million dollar allocation and we debated did a lottery, uh, so something like one in, I don't know, seven or six got in. And then the all in syndicate also filled up. And then they all in sync, ate no Carry, no fees. Everybody gets a free ride, thanks to the sax. And that's our first all in syndicate, chipping away at my core business and eating my lunch.

Thank you. And the dick is going to two hundred, fifty thousand hundred and fifty one thousand dollar checks with no fee, no Carrier. And where the companies paying the administration of expense of that, we just want to let, you know, tune and fifty of our listeners with their beaks. yeah.

So and is IT open the yet sex? Like can anyone demand the open music?

No, it's still in private beta. We're going up, up soon. I was looking at.

at the other day, it's getting really tight. I mean, can I talk a little bit about IT? Or do you not want to keep yeah well, I mean here's here's the genius of IT.

I mean that scarey not just because you game in allocation but um clubhouse when you go to clubhouse, if you miss, the great conversation is gone. And clubhouse has really bad audio quality and the rooms are eh and there's really you know there's clubs as a concept. But in koin, uh everybody creates a show, then the show is syndicated to an access speed like a podcast.

So you can basically start your own podcast with no staff, no post production, you just talk and that IT goes out to an our best fit. So we're thinking David and I of doing like a post uh show after all in like two days after just to talk to the fans and do like a little private group thing. But it's kind of like a really nice overlap of podcasting. And yeah well.

going to say it's it's basically long till podcasting using social audio as the gateway drug to you know to long til podcasting is the .

company worth for a billion. Yet have we internally marked up around four types like a recent hours? Do we ve else? Let me get get out in the conversation.

What do you think of a venture firm making a seed investment at one hundred million, then a billion, then at four billion? For a product that know is largely sideways? This is like internal three beds and marking IT up ten x and then four x so 4 ex lift over three rounds。 But we think of this.

I think the best venture firms shouldn't give a shit about any company, and I don't think that they really do because if they're very savy, they should be doing exactly what entries. And um you've seen the articles about tiger. You've seen all these other folks.

The real question is maybe if you want, can you please explain what they're doing? And uh, what they're doing is to me, if you understand the investing landscape, makes a on a sense, which is technology used to be the small nitch. And so we used to only get, you know, when I started social capital.

There is probably twenty five to thirty billion dollars a year flowing into venture just in twenty eleven. Fast forward a decade, we have like a hundred and twenty billion dollars a year going and to take, and it's going up like crazy. And if you're the best brands, you're gonna the overwhelmed amount of interest from people who wants to get into the assa class as the other class expands, right? So all of a sudden you you decided to invest in private equity when private equity was going bonkers.

You're not gonna take as much of a shot under emerging manager. You're gonna to take a shot on blackstone or K, K, R, right? And that's what's allowed those folks car while to scale A U M. Just unbelievably, blackstone.

I think, is under management exactly .

half a trillion dollars now at blackstone. Similarly, there are these indeed liable brands and venture. And when everybody realizes they need to be long tech, they jump in in. Now when they do that, you have to understand who these people are. There are two things that matter. One, there are people like pension funds and their hurdle rate, meaning, you know, what are they trying to do Better than in terms of of a rate of return is in the low bit single digits. That's really .

percent to nine percent ten person.

even five percent, six percent. okay. And then the second thing you need to know is that these guys have so much money that they would rather when they spend an hour meeting with you, they'd rather give you a fifty million dollar check than a five million dollar check.

A five million dollar checks compounds your problems. So if you put these two things together, IT makes a ton of sense for companies. I can reason to now focus on the velocity of money.

Raise a fund, put the money to work, raise a new fund in a very systematic way that everybody can understand and can predict, so that in reason, can tell their peace. On a calendar, guys I want to be back to in eighteen months, guys I want to be back to in a year and be able to scale the capital. And I think if you if you look at IT in that framework, IT explains and recent IT explains excel, IT explains.

So koa, and by the way, it's a brilliant strategy because these guys still make two and a half percent on the money. They end up returning the market beta, meaning what the average market would do anyways plus a little bit of alpha, right? So they'll still do a little bit Better than the market, which means they'll be able to raise money infinitely.

So the public market or the venture market, a venture market, the market, venture market?

No, but that will decay, right? So that will decay down to the to to ten percent to two percent. But by point is, is still Better than the five or six percent these pension funds and other folks need to earn.

So today, the goal of every fund that successful that has a brand, David included, should be do good deals, make sure you're in things that that can work and the thing that David has, which other folks notice David, can help make things work when they are not necessarily obvious, but then found the money in and then raise more money as fast as you can because you know IT helps the investor, that's what they want and they're happy to pay you. And then for you, the G P, you start to make enormous fees and the whole cycle work works. Um so for any reason I think that's sicom lus.

It's like shit. If I can put a hundred million in, that's one hundred million less I have in my fun. Now I can go on one hundred million closer to raising the new fun.

okay? Now the criticism has been free. Berg, i'll go to you. It's bad. hyg. E for the same firm to mark up the same product three times in this case.

You know, cloth ouse, what's in cloud SE? So is that a warning sign for you that it's a bubble or its kind of the the worst case i've heard is like marking up your own book, self dealing, whatever. How do you look at that issue freeburg? And then i'll go to use sex.

Well, if you were space ex, you would look like genius. So you know, I think we can criticize IT until what's now or whats up. And seo has done this many times where they've been the lead in multiple rounds in the company and they have high conviction in the quality of business and they don't want to bring other investors in.

And when you have high conviction and you can continuously buy more the stock and buy more the company and be a bigger owner and then IT works out, you look like a frigid genius. And so I don't want to criticize the investing style of these guys. I mean, time will tell if they make good bets or not as a whole.

You can kind of make the case maybe that they're going to be asset managers and drive assets under management up and gain more fees. But I can give peace a little shrug than math, kind of take a smart look that at the end of the day, the guys that are known for doing this like to koa founders fund and others have had incredible returns by doing exactly this. So this strategy does work. And um you know you just have to have to do IT with the right businesses and that I think that will you know demonstrate the quality of your investing argument.

Ali sex, any further thoughts on that? The marking up your own book. Is that something you plan on doing with this new fund and having the growth? And how would you look at hey, calling starts getting some traction.

Does that mean your growth fun? Is gonna market up and take that those shares? Or do you you think that it's Better hygiene? Have the market Prices well.

I guess that disappears. I mean, the growth fund does give us the ability to double down at a later stage on our own early stage companies, but you do have to be really sure when you do that because IT does, you know IT certaines ised questions if you're wrong, right, that you would have with any other investment. So IT IT definitely raises the stakes.

You have to really certain, I guess. But you know, if collin's a big hit, do we go raise, know, a grow round? yeah.

Now I think what we might do in that case, because we incubated IT, is we'd let somebody else lead around and that we would participate. So you have some third parties saying the Price because we incubated the company. And Frankly, that's what we do with the round that you just participated in, is craft participated. But we did not set the terms that was actually uh gold crest and skua koa around with craft when you .

include a company like that. Let me ask another technical question. I see you last week or in the week before really responded well to us talking about this as opposed to commit a delta period, which will talk about at the end of the show for those people.

You can basically turn off the show fifty minutes or seventy five minutes when we talk about the the back of the pandemic. But and I am hoping you're thinking right now about who's not in italy, I hope we will get back to that when you incubate a company like that, who owns the original founder, shares, craft the organization. David taxi individual came up with IT. What's the inside baseball there?

So it's sort of all the above. And we mean craft. I have a deal with our lp, has called an lp a limited partner agreement.

And one of the things that was negotiated when I found a craft four years ago was the terms on which craft would incubate deals. And and so it's all predetermined what I get as a founder, what our funds get, what the lp s get. So there can be no argument about IT later.

And this is this call, IT. We've actually done. Now we are a few incubates in development. You know for me, it's really important to scratch that product each.

You know, i'm originally a product guy and and I love investing in helping companies by the occasion about, I say, maybe once a year, I got a product idea that I think is worth developing. And so this gives a possibility to incubate IT. So we did IT a few years ago with the crypto company called harbor.

We ended up selling that companies to big go, which is announced the largest uh, acquisition of egypt to company. H galaxies acquire ing IT for seeing like one point two billion. So anyway so harbor I think um will work out you once the deal closes and call nins the second one. There is a couple of the things that are still you know they're too early to talk about, but but I think collin will be the the second one to launch .

cheap as an lp in a lot of funds. What do you think when somebody comes to you and says I want to, in my lpa, my limited partner agreement, have the ability to incubate these companies? That a good trend, bad trend. I don't think about IT.

I think it's great. I mean, I don't really you know push back on a single term in the L P A because i'm only doing IT mostly to support people. And so whatever terms they want they get from me and h you know can just like let them go and hope they get lucky. I have a very different approach to to these kinds of things because i'm not necessarily trying to compound my capital.

I'm just there to sort of enable folks in you take one percent of the funder, sometimes a little bit more if I really have an asian review on a specific thing that they are doing, but others SE, I just take one percent time of thing and you know wish them wish them the best and then try to support them big. And that's all i'm trying to do if I believe in what how they're investing and the deals they've done. You know, however they do IT is up is fine.

But I want to go back to something which is I actually think it's not a question of hygiene. It's really a question of governance because when you do these things and you mark these companies up, the real question if a company stops working is they tend to have too much money and then they tend to not have enough governance. And the reason is because governance typically comes with board diversity, and board diversity comes with more and different investors who have different you know puts and takes uh at any given point in time that diversity is very helpful to keep everybody on the same page and to to actually get a decent outcome when things aren't working as much. Now when things are working, obviously, nobody cares. You always like you can just have jim gets on the board of WhatsApp with you on and it's all kind of set and done.

It's not been to the right. So as we're saying, when things when things are good, nobody complaints yeah no.

And you know this may be a good job of the talk about there's .

all sorts of new models now with with this sort of tech and the money going into tech, the venture capital exploding, there's all these innovative new models. I think it's all for the good a studio that I think is great is what jack over has done with the tomic. You know, they produced multiple unicorns out there because jack is just a phenomena, a guy.

He's like a tenets idea guy. So he then, as part of atomic, comes up with the idea, then brings on a Operating partner and that model works for them. And then you know he just partner with Keith abbey on open store and Keith decided to become the CEO.

And Keith is still a gp founders fund. So we're seeing like the blending of these models. You know, I used to be that you made the decision, become a VC and your career as a founder was just over IT was like this line that can ever be crossed again.

And now you're seeing the blurry of these lines. And look, I think it's good for everybody because Frankly, when you know keh or you what i'm doing with call in, we remind people that were still founders and product people and you know not just sort of some I retired guys. And Frankly, it's like it's good for what we do is investors.

We saw IT with the mike spy. Zer, who's a partner is utter hill. He incubated, started and was original ahead of snowflakes.

which was a before that. He, this is his third. So, you know, he did peer storage.

He did snowflake. I think he did lace works incredible. He's incredible. He's increment. And folks.

I don't know, snow flake, it's an enterprise software company and they make software. So he's an adventure capitalism. He started this company while working as a venture capitalist. They brought on a great cees of incredible guy later, whose frx footman is a legend. And the company just went public last year, I think, over year before and they're worth eighty two billion dollars today. Um and so IT really highlights that while the guy is still Operating as a venture capital alist in A G P, he's been able to generate incredible returns for his fund. Um and and told amazing businesses at the same time.

So I mean spicers a perfect example because I I ve ve known him since like the early two thousands. And at one point sphere started this consumer company called bix. And I was like a we were like an investor, was a small investment bix.

And and I, by yahoo and IT was always curious, because exception was clearly the smartest one in the room. And it's like he was kind of grinding this consumer thing. And then he left yahoo, went to sutter hill, l and he basically said, you know what? Fuck this.

I'm going back to my roots because before that he was a pretty traditional enterprise guy and he just crushed. It's kind of like Michael jorden was finally like, a fuck baseball. I'm going back to basketball.

But it's like, it's like red hot men and bossy at greylock, right? I mean, these guys are incredible Operators, business builders, and they continued to do that work while 啊 while being partners of the vegetable。

We have three directions we can go moving on.

Zy margin. Zy margin? So interesting.

I do IT. Okay, let's do sir gin. I agree. All right. So for people who don't know is emerging in public, uh, thirty one dollars to share in April, uh, trade to size forty eight dollars.

Shortly after that I had the uh C E, O on my podcast and I was confounded trying to understand the business. You had told me i'd ask you for some questions for work. You gave me sub choice statements of what that is.

which can I say? No, I don't.

O anyway, you gave me some choice questions. I didn't ask them exactly where you said them. A, but here is the quote of what happened on tuesday.

Uh, zim gin stated the following. Zim gin recently became aware of issues with its commercial product line that will impact the companies delivery time line and revenue projections. Accordingly, the company no longer expects product revenue in twenty to twenty one and expects product revenue to be in material in twenty twenty two.

They also announce that the founding CEO, josh hoffman en, who was on this week and serves to maybe a month ago stepping down a CEO, will be replaced. And zim gin soc then dropped seventy percent on the news. I don't know this was a .

spack or not soft bank hypo, eighty cent and eighty percent three years ago.

So I think for a good way to start would be what did they say they we're going to do and then why has this happened?

So zim gin and a couple companies like them started a around the same time, which is around twenty fourteen ah 20 22 that era， fifteen even. And um the the promise of these companies is truly to be everyone wants to be this platform for sthetic biology, what that means as they can take cells and in the smart way, edit the cells and get those selves to make things that humans need.

Uh and so you can kind of think about making materials like silk and leather and plastics, and you can think about making food like eg proteins and milk proteins and so on. And you can think about making industrial products, uh, you know, enzymes and things that might be used in launcher to turn other applications. And so for years, you know, we've gotten D N A sequencing cheaper.

We now have D N A writing and editing cheaper. We have now got other tools to basically screen cells. So we have these, the set of tools where these synthetic biology platform companies popped up and said, you know, we're onna, put all these tools together and build a platform for editing cell s and doing a Better job of making things, and we're going to get in to all these markets.

And zimmer gen, when they first started, were like several other companies like them and services business. And they would go to big partners like, do punk and say, hey, let us make a new ensign for you, pay off twenty five million dollars up front and then they'll get a royalty on the back end when that product eventually goes to market. And they did that for years.

They went after accept a cyl product. They went after plastics and materials. And although of stuff, and as is the case of a lot of deep tech IT, turns out IT is really forgan heart. You know, these tools might be there, but like we saw with the clean tech era where everyone thought they could make oil from sugar cane, know, twenty years ago, using the same sort of approach to get the unit economics, meaning can you make the product cheap enough is really, really hard. That means you got to get these cells to be just perfect and you're got to get the systems to be perfect.

And so at the end of the day, they went through a lot of customers of emerging that paid ten tens of millions of dollars and zip gen didn't have anything at the end of the projects to say here's something that works that you guys are willing pay for that you're going to go take to market because IT really wasn't that compelling. The makes working good enough. And I didn't really have big breakthrough th for any big industry.

And so zi, merging, like other companies in the space, pivoted and said, you know what, we're gonna be a products company. So we're going to make our own products instead of this being a services company. And as they started to get into that, they decided that the first big product would be this kind of, you know, plastic for for, uh for for cell phones that would have a protective file film.

And in the meantime, what happened is IT takes so much money to do all these are dead, to run all these laws, to have all these robotic arms that they have that are moving testis around hundreds of people building and winning these lives and um and so they've had to raise money. And in order to raise money, as you guys know, you have to kind of pipe the story. You have to say, look, we're going to change the world.

We're reinventing everything where using synthetic pology to rebuild everything about the other. And the story resonates with me because I truly do believe that the potential is there. But the timing and the sequences of these things is hard, as is the case of a lot of deep tech companies, when you get too far ahead of the curve and you start saying, i'm going to do X, Y, N, Z, but you can really only do A, B, N, C.

today. You raise money saying i'm worth billions of dollars. You raise hundreds of millions of dollars and the high pests that keep stepping up and they eventually got into the trap that a lot of companies got in to, which is taking money from soft c and sort bank said, here's four hundred million dollars at a three billion dollar valuation a few years ago.

And they said, great, let's run at IT. Let's be a products company and they burned through a lot of that money, and suddenly they didn't have any products to show, cause deep tech is hard to took a lot longer than anyone thought. And what will you know we'd Better try and craft a narrative and get public and so they did that.

They got public. And um you know a lot of what they had been telling people was coming was coming it's going to be here soon didn't really work. So they had to pivot the business.

They had to become a products company. They kept telling folks they were going to be X, Y, Z months away um and we're going to be able to hit these targets on the product. And that turns out there was always a little bit, little bit further away, little bit further way. And then boom, they have a big border view recently and they look at the product pipeline and they look at where they are. Oh, this really is going to work.

And the whole thing um falls apart because everyone was banking on this massive r and everyone missed the story, which is that the'd been doing this for many years and had to eventually abandon activity away from their business because no one was willing to pay them for so truly they never found product market fit in their first generation of their business and they never found product market fit in the second generation of the business. Um and it's really worth taking A A watchful eye based on this this learning, which is just a fundamental basic premise for starting a company. Do you have product market fit and can you make money from your product? And if you can answer those two things, there is a business.

And then the third thing is how valuables of the companies is a function of how much you can grow. And so you know um they really had even gotten past, says one, and everyone kind of wanted to believe the hype. So it's a bit disappointing to see, but it's it's really going to impact the industry broadly because now people going to say a lot of the companies are smoking mrs, and are really not there yet. A lot of folks in the industry are .

really concerned, right? So to dog tell this with the previous discussion, sax funding your own company over funding of companies we talked about here. If IT goes well, like what's apted ah well, your genius. But if IT doesn't go well and you get ahead of your skin, you don't have product market fit and you face a bunch of money, then somebody becomes the bag holder.

No, Jason, it's it's, it's even bigger than that. It's not just that IT happened just in the private markets and we and you had J. P. Morgan and golden sex take the public and then they raised, you know, another half a billion dollars in the public markets. And then they shot the bit.

right? And we seen the same thing. This is the same week that nicola founder, who went out by back and was going to compete with tesla and ford there. He's now under entitled for lying and selling shares, also known as security fraud, probably going to go to jail, had him on the podcast that was underwhelming. So sex, we look at these, which is IT.

Should we, on a high gain basis, be throwing these companies and have milestone based financing? Or is this the sign of a top in the market that people are able to go public? People are being given large amount of of money by soft bank. And these things, probably people should .

pump the bricks. yeah. Look, soft bank is engaged in a style of investing that we would never engage and is absolutely anathema to the way that we invest, right? They're making five hundred million dollars seed investments in massively over value companies. You, we we are one of the reasons why we like as and marketplaces, a craft is their very milestone based. I mean, we you know if we invest before you have a functional product, it's going to be at A C evaluation, you know like a ten cap million doll evaluation, not in the billions like like emerging.

And you know we're going to want to do a series a by in large, we need to see some revenue, you know um and then and if we're going to do a growth round, we need to see more revenue and more customers. And so you you you show incremental progress. We're engaged in my stone based investing where the amount of money you raise and the valuation you're able to get scales with the amount of proof that you have delivered you two investors about the company and the crazy thing about these like spectacle explosions, and they're usually around deep tech, is because these entrepreneurs tell a story and people just seem to suspend belief and don't demand any, any proof for years and years. So IT was there or no? So was nichola .

and ozio gen. And I think, by the way, deep tech is it's not that we should dismiss technically difficult problems. We should engage and fund and build great businesses that are technically difficult. How much we for how many months. But what's important is, you know what is the representation that's being made? And I think there's only one height man on plane and earth that is good enough to pull this off uh and actually delivered the goods at the end of the day is probably elon like because, you know, he funded these businesses that were detect businesses.

tesla spaces for many, many years.

He was able to get investors excited himself.

No, with tesla, he put in fifty million and went bankrupt. He went bankrupt, was living off for two hundred thousand people from a bend of.

so sorry, islam, only self funded, the first couple hundred million in these companies. He delivered revenue very early on. Your member at tesla, he first developed the sports car, a roadster, and that was hundred .

fifty thousand dollars. He sold one hundred advance, not the similar to virgin collect s playbook.

And maybe that's an important lesson, right? Like in deep tech. Uh, you can just say i'm going from zero to one with billions of dollars over decades. You know .

that's a governments funding program or you can if it's your own and what when I showed up, Richard had spent one point one or one point two billion of his own money. And I thought, I mean, at at something that's that skin in the game.

And I think they take .

neck and mosquito island. If if that doesn't work out, I am there was .

also qube story yeah quip .

I didn't even involve .

deep tecate didn't require any scientific breakthrough IT is required some marketing proof that people are interested in that format and IT is .

blue a billion dollars. Well, that is basically .

cat and burg along with meg, women with who was kind of a weird choice to be a co founder because she's more of like the like the late stage CEO you're bring on to take the company public once really working.

She's not really like a personal no yeah exactly.

But my cats cat burgh g is, though, like cats enberg obvious ly, very creative. And so came with this idea. He does tell they care.

The idea a to build a studio, they put a billion dollars into creating short ten minute videos. The problem was, there is no proof that the market was wanted. That format, they should have spent five or ten million improving that the format made sense and then spend a billion dollars if IT worked. And you know I just I don't understand why why um founders or really investors kind of put up with these types of stories.

Look at we work same thing. There is not A A shred of evidence that there is an economically viable model there. And yet billions and billions .

of dollars .

went into that .

company before the .

bottle IT actually found a great of model. IT was just purely like, go least something for x dollars and then sublet ted for expos y expo S Y dollars. And IT worked to just like, how do you scale that? And then they got ahead of their skies and did also the crazy stuff to get the tech valuation on.

The second sound like you can just go to the restaurant by IT off the shelf. There's a tech value thing you can buy. Other people had to believe that as well. And these other people were also pretty credible, smart people.

Were they the later stage people?

Do you read the way?

Book the later stage once. I think we're like, we're like evading the thing that that we are not saying, which is that as much as we all want to believe that we're all doing incredibly, incredibly diligent work, there are a lot of examples where belief trump s logic. And even the smartest people just look past the obvious.

And we just talked about four pretty obvious examples. In no world should incredible tech investor not be able to do a simple valuation or see a business model and bravely believe at real estate businesses attack business. At the same time, there should be no world where you know your pitch, something that is just so incredibly grand deals from a technical perspective and be and the reason you invest is actually because you don't understand IT, because if you did, you'd be more critical.

That's fucking insane. Well, this is a thing, but these examples that up exactly that, the sort of greed and they're not doing the basic tenants of investing, which is milestones talking to the customer, these are blocking and tackling .

I think it's .

more it's greed .

is forth read .

the quote from the turney of manhattan who said milton, with respective Nicole, lied about nearly every aspect of the business. People like that need to go to jail. Okay, jail big time.

Jail big time. The start up where the investing world only works if investors can trust the information in the financial statements are being given by Operators because we have to make decisions quickly. And if they give us spoke as numbers, how we want to make educated decisions.

people don't want to do diligence. sex.

People don't want to do this. We look at metrics. We always look at matrix.

okay? We look at, look, we can do the metric in one day. Turn, look, we look at A R, we look at our revenue attention.

We look at turn, we look at cake and we look at your financials. We can do IT in one day. okay? It's not an invasive process. We can decide very, very quickly because we know what numbers were looking forward, how to read the statement .

for the question for you, when the founder say have a capp process, we don't want to do all that. Has that been happening in today's crazy market? Say the change live in the station and we can't do diligence.

We don't have time for this. Are you to you? Has that happened to in the last six months?

In in a sense. But we say to them, listen, here's what we need. And if you give us these numbers today, we can make a decision within twenty four hours. So and there's no reasons we can. And by the way, they have those numbers and if they say they don't have those numbers, they are too incompetent be funded because they are all the course metrics that you should have we checking your business. So we would never make an investment without seeing the assem tricks for access business.

Yeah, let me just step in for a second because I think there is two camp. One is businesses, companies that are Operate a business and what you're talking about that makes a lot of things you could have looked at the business metrix if we work and made an assessment of the quality that business well. On the other hand, on the other hand, you have companies saying not their notes are not neglect because those are not businesses yet.

Those are still in technology development. They are deep tech. So what happens is the founder, the C E O, the management team, they put together their own representation of the metrics that they believe should matter, and then they try and show how those metrics translate into value over time.

So there's no revenue, there's no customers, there's no profits. What there saying as we can. In the case of zy merging, we've got x number of experiments we can run per day.

And as a result, those experiments should translate into wide discoveries per year and those discoveries should translate into z dollars of revenue per year. And that's where the person gets built. And the same was true of nq. The same with true a lot of these companies where they say we can do x therefore were worth why. And it's that sort of narrative that investors then say, my god, the story is so compelling.

If you're right, I want to believe IT, I want to put the money in and I want this thing to work and therefore all fun this thing um and I think and I think that's what we've seen continuously IT started with the clean tech industry and now we're seeing IT increasingly with all of these cases. But it's to do that. But IT shouldn't be a representation that the entire set of opportunities is a fault narrative. There are many great businesses in biotech that actually do deliver the goods, and they turned into .

incredible companies. There's a synthetic biology competitor, designer gin, who I spent a bunch of time with. I'm not to the name of the company and they I and I ask them, uh, what gross revenue question, what's your growth margin? What's your revenue? What are your cogs? What's gross margin? And I got an astra ts laden answer.

What does that mean? Abstract lady answer.

it's kind of like adJusting eba, adJusting for .

what speak english. That's what you got. Got to tell them speak talking english.

This is like when I would come home by that, I was your report card. I say, you interesting my report card, yeah, I don't have IT. So where is that?

I passed. And then, you know, again, it's still shocking to see the number of people that will still do these deals. And look, maybe IT all works out in the end, but I tend to think like if you can't present things simply and you can't explain things simply, that's on you. However, if then you still do that and you still have good intentions, maybe you don't. But then investors told the line, the problem is there's this momentum thing that happens among investors, as freeburg said, where the formal kicks in and some of the smartest people become some of the dumas fucking in people.

No, they are suspending disbelief like you would not even in the industry .

because it's up their money. I mean, look, at the end of the day, why does IT happen? Meaning, how can the imaging IPO happen like this?

Like, meaning, if you look under the hood in the s one, I was trying to find that in the s one, was there somebody that I actually did like some do diligence into highline? Clearly not. Was was there a synthetic chemist or synthetic biologist that basically helped? Clearly not.

Um did everybody say that that was a play? Clearly yes. You know um did I don't know anybody get into the hood of nica? Uh and actually like look at the engine, make sure the thing work.

I don't know, by the way, people did they are just were enough people did that, they were able to get a financing, right? And I think that's the important point is there's nothing.

nothing in the public market examples. You're not a lot to have sex sequester diligence when you're going through an IPO.

Yeah so how what works by the way? Like do you guys know the difference between humans and animals? This one there's one distinguish characteristic .

that .

I think .

making token and they can warn each other about approaching pressure, meaning that there are other species that can communicate what humans can do, that no other species can do, is create a narrative to create A A serial belief in something that does not list and get others to believe religion, democracy, the financial institutions, the monetary system, a business like this.

they're all the same. It's all .

highlight exactly. And I think in all these cases.

by the way, this is the Cliff notes version of sapience. Everybody.

yes.

yes.

Notes have a funny there. No story. Um if you guys want to hear that.

let me just finish this one point. Like there's fundamental premise which is humans want to believe. And so when you have a bartow tight person show up, when you have a you know a compelling narrative and a compelling delivery of that narrative, whether it's uh a religious leader, uh or a or A A presidential or a government leader or a business leader, and you want to see what they are selling come to reality. You want to write a check, you want to put your time or your money into seeing that income reality.

Oh, no, I I fundamentally look at you. You're rising a key point. It's not their money.

So stop saying that they would not put their children's fucking education account into these companies. They're putting other people's money. They're putting other people's money. This is the key thing.

not enough in the put their time into these companies for the people.

just not their money. People trade off money and time.

People will take their time. They're giving up the opportunity cost of working .

somewhere else to go word on to be with you here. The reason why somebody goes on works at this company because they believe there's positive signaling from a soft bank. okay? So these people are smart.

They think this money must mean it's real. They think i'm now gona commit my reputation in my time to get options because obviously these folks must have done their work. How i'm not making the mistake. And that's the lie because those .

folks are not doing the world make. There's a group of people there, a group of people placing bets who are placing .

bets of other people's money. The imaging IPO, the traditional IPO, would have been entirely different if they had to write. If they, the underwriters were at risk for their own network. IT would .

be if their stock was locked up of the management .

teams for five years .

or ten years. I do a sack from a boat coat.

Yeah not disagreeing with trouth, but the the point the point that resonates with me that freeburg said is actually the books sapiens really did impact my thinking as A V C, which is you've all hori makes this point that it's narratives I kind of define, you know, humans and that's what buying us together and societies.

And Frankly, the vast majority of narrative throughout human history have just been wrong, but they still worked as why many people together. And I kind of, and I kind of applied that to V C, which is the V C process revolves around a pitch. It's a narrative session where the answer goes up there yeah and presents a narrative.

And then everyone debates on the artistic they buy into IT. And after reading sapiens, I like this whole process, like is stupid. How do I get out of a narrative driven investing flossy? And that's I back to look. I understand that I know what the matter supposed to be. Also listen to the pitch.

I want to hear IT, but to show me the numbers first, and at least I can get to a decision that somewhat grounded in reality because I think most of what the VC process does is just measure a founder ability to told narratives. And that may be correlated with their ability to do marketing, but it's not correlated with whether their idea is funny. Correcter not.

It's fine in the seeds day is fine in the seed stage. I think I think .

they'll be the least amount of fraud when you either have um irrefutable able metrics or the investor has to invest their own money. Yeah that's the gold standard. Everything else is just you know catch as catch can and you're just going to have a bunch of trash .

yeah here's how i'm handle at the early stage sax. You could you get to meet my companies? I have told them to craft their narratives around their attraction now, because I know that all this former of stuff is nonsense.

So when you meet those companies, they do a three minute pitch. It's the majority of IT is here's the product, here's the traction. And I accept people based on traction and then I give them more money as the traction goes up that we bet four or five times on the same company based on metrix.

And I tell them all, you're coming to the accelerator. Here's a hundred k if you want more money for us will keep giving you money if you can grow ten percent or more per month on real metrics s period. And we will keep giving you money forever.

right? And I like this launch, like demos sions that you do at us, because now you force them to base their presentation around a chart, so at least I can see some metrics. And the other thing we do similar to you is I always start with the product demo.

Our model is show me the product, not a powerpoint, because the same powerpoint can describe ten, one hundred different products. They can describe a product that might be great, and they can describe a product that socks totally. So show me the product and not at least i'm grounded in what you're doing and not just listening to some story.

By the way, I go back to this, I still think that funding narratives makes a tone of sense in the early age. See I P, I rip in fifty to five million dollars checks all the time. I could care less if that sounds reasonable.

I take a punt. But the minute that i'm writing a hundred or two hundred or five hundred million dollar check, I pay fucking attention. Yes, because it's my money.

It's my money, and I go back to this when it's not their money. You're gna see this thing riddled with fraud. You're gona see cases like this stuff constantly.

And the person that pays the Price where I do, I gree with freedom, is the employee, because they mistake ly think that these folks must know what they're. But the reality is body else they really care. They're doing. They are. And so this is how this .

is let me give you some specifics on the imagine. So they are going to go public, right? Leading up to the IPO, the stocks at thirty one box in the IPO.

So if you're employee and you have stock options in zigging, you have the option to exercise your stock options any time, which can you buy the stock at your strike Price? And h, then you can sell the stock later when the IPO over. So a lot of employees, you know, exercise their stock options, meaning they put their own money up to buy the stock at ten, five box, 4 box， whatever is.

And they actually owe taxes on the difference between their exercise Price and the fair market value at the time that they exercised. So if the stock goes public at thirty box and exercise, they're going to pay taxes as if the stock was at thirty box and then they end up in the situation where they can actually get liquid. And so there's a lot of employees that got really screwed on this transaction um when whether zimmerman went public because they thought the company was going to be worth you know ten, twenty, thirty, forty dollars, fifty dollars and the starts at eight box.

And they're to actually own money to the IOS and they paid for their stock option. So it's it's a brutal scenario when IT plays out for employees. And I just feel really bad for a lot of IT.

Really, really great. You smart keyboard work there. H that that take a massive hit on this thing. I I hire .

two more researchers on my team just to do diligence at the same. And I would say between twenty and thirty percent of deals that look great when we get under the covers and look at the diligence, we look at the captain, we look at the revenue, we look at the accounting. We asked them who's doing there accounting.

We asked them for bank statements. We asked them for incorporation dogs. We ask them for IP assignments.

This is like the basic blocking, tackling. Twenty to thirty percent do not pass diligence. And we find self that is crazy.

I had one founder give themselves a own, and then we didn't know about, and then we find out about later, they did alone and the company owes the hundreds of thousands of dollars. Had another one where they were presented their uh revenue as reoccurring. And IT was A A IT was a cruel based IT wasn't a cruel based counting was a cash based accounting.

And i'm like, yeah, what is going on here? You're basically lying and you're misrepresenting your company. Don't do that. It's called security for the when you make a representation, don't ever bend IT or exaggerated, just tell the truth, period. What's the thro story check out I need the there no story and then i'll give you a follow up story.

the um thero story. So I had I had a cup.

I had a very famous investor tell me this is like twenty and fifteen, twenty sixteen and I success you know we were just talking I said, but what do you like? What do you like? Like know we all kind of talk like that at some point whenever we interact you know um and he said this company there know you have and maybe with twenty fourteen anyways, twenty fifteen theirs there is theirs and I said, are you an investor he said, no.

But I wish I was its incredible and I try to get an introduction I thought, okay, this is um this is gonna in a really interesting, I couldn't get an introduction, but then I find out who the board is and instantly I get turned off. So in my mind, at a very negative impression because the board was literally not all ninety rules and I felt, what do ninety rules know about, uh, blood testing and, you know, basically building a dry quarter. And at that time, you know, I think I told the story before, but I D burned bet maybe fifty, seventy five million bugs on six different startups trying to do this like, you know, institute, kind of like, you know, finger prick blood testing, ba B.

I was really fascinated with the space a year and a half later, a guy that I work with, a facebook, a very senior guy. As to me, i'm thinking, and I was trying to recruit him to come work at one of my company's a CEO. I'm thinking of going to thermos and I said, just go to the interview and tell me what happens uh, before I you know try to convince you to not go, he goes into the to the interview to be C O O of the fucking company.

They don't let him past reception. They interview him in a makeshift room outside of the meeting and he said, what can I, you know, go inside and, you know, when do we have a follow up interview you? I'd like to meet some of the team.

I want to see what IT is and they said, not over good use your what you wanted join. Well, can I see the device? Can I try IT? I don't know. no. Very good, let's cup.

And I said to this guy, I said, how can you fuck join this company? I mean, it's not like you're coming in as a join your funky you know you're coming in as the second or third most important person in this business. You haven't been past perception.

You don't even know what's past perception. You don't even know what your office will look like. You don't even know feel like the office at that basic level.

Think about everything else that comes after that. And then you know what happened? happened.

So what a disaster. William parry, former head of secret advances. Harry iser, we did just that was like IT was a bunch .

of grand poo, all types. That's how you knew IT was a red flag. If you ve got of those guys, you got one guy like kissing on your board, it's okay. If they're all like that, it's a problem.

Problem huge. I go on C, N.

B, C. I just had uh jan Carry rule from the wall street journal who broke distinguish en on my podcast and I start getting all these inside tips about there's nose and one of them was that Elizabeth homes and bwana, who is the CEO, were in a relationship together. They have lived at the same address.

All this nonsense. And I check with Carrie room and I like, hate. Is this true? And he's like, yeah, that's true. Yes, how's I got into report? So I i've just chased IT down whatever you be in the next day so I go to see abc and as like, listen, when the smoke, this fire, if they had the device, my game areas, if you have the device, you show IT.

If you don't have the goods, you don't show IT period and the story, I think my god tells me this is a total for auditor. Be zero and they're like, go and I was like, yeah and you know when the C O L CEO or in a relationship that's bad and they like what and they didn't know this and I like, they are like, are you sure and my yeah, that's what people are telling me. I don't know if it's sure and that I don't first acknowledge, but that's what I so this holding blows up, kicanas says this, but policy and we receive. That night I got invited to bibs house in the valley for movie night. We've all .

been to that 呀 呀呀 i walk in.

there's suck. There's this famous person. There's this google. Bad person is, you know, it's fifty people and the celebrities were in the blockbuster movie, are there?

I think that was the movie arrival, but i'm not going to make any. I don't want to give away whose thought that was. I go to the secret movie night.

I walk in, I get greeted and I kid you not, fifteen fifty, in front of me looking directly at me is Elizabeth mes. And I get with like ten fetter and he just looks at me, snarls and walks away is the most uncomfortable moment of my life. Clearly a giant sm and fraud and she's gonna to jail too. By the way, she's going on trial this month, August, I believe should be on trial .

taking way too long and I hope yeah.

I mean, the justice systems a little .

bit of pretty track record calling out these fraud. S I think it's a service to the community. Yes, agree. You're one of the few who actually does that.

You got any other budding frames.

right? You got go easier .

on the rip to some people who are friends. Well, I think I back IT off.

back IT off.

I'm not backing off. I just don't want to lose a member of our little cortege but I will say, uh, that my my fraud of the moment, the one that making my spider sense go crazy. It's tether usdt.

These these guys are. I mean, this feels like IT is going to be a little lion stable coin. There's a crypto stable coin.

The idea is they said it's one dollar in us currency, one dollar protected always. And then over time, we find out maybe they don't have a dollar in their bank of coverage. One, the new york attorney general finds a eighty million dollars.

You can't work with anybody in new york. They say we're not a fraud and I like, what about the attorney general who said you wear a fucking fraud? I like, yeah, I know. No, that was a misunderstanding. Yeah, i'm like, there's no .

misunderstanding. You know we should, we should do. We should get all the fans, the olympic, we're going to declare a certain time and date where and we encourage everyone is in tether to pull out a tether to stress the system and see what .

yeah let's stress us. Well, the problem is you don't actually own your tethers at the other sm, it's like eight or nine of these offshore unregulated cyp to exchanges, not the ones in the united states that are highly regulated like going base. This is offshore and there are White, what i've been told, as you can create and exchange yourself .

with label software and pop up your life.

When I find this out.

I like IT. I love IT.

I love to fight.

I love you. There's people .

want to call out, people I want to call out. So let's go .

to move on to IT. Oh, scout, alway gift.

I know for his small potatoes.

but is he small potato? irrelevant.

Doesn't sex up like just have the third on his?

He, yes, right. So Jason in florida mah chamar at .

his estate. Actually I want to boat outside elba, which um is the .

yeah it's where .

napoli was in prison. I'll actually i'll show you the prison where he was, where he was kept. I think you .

can see IT mean if I get to the right.

you know what? We put the .

nico founder there .

and will put the. How much your people gna hate us. Three of italy. And August IT is like the .

stereotypical more hard in ubs.

Of course, i'm staying in an airbase is cost me three hundred and fifty year old s the night for four bedrooms. I feel pretty good to buy myself from the center affluence. I think if you you're spending about the same amount, your boat, right? I just fifty four hundred per room.

Yeah, I I got the area. N B. Deo.

talk about x so, well, first, I mean.

we're going to call somebody. At first I want to call out paypal. O what's going on there? I actually want a blog post about IT um called the no buy list.

Basically paypal is creating the equivalent of a no fly list with respect to their service. Well, for anybody who they put their team is deplorable or undesirable, basically they're working with the A D L, the N. T. Defamation league and the southern poverty law and S, P, C. To create less of people and groups who they are going to ban their accounts.

Now, me, I gotto say this, the ad and the s plc are story institutions that did great work combating both anti semitism and racism, but they are now under new management and new leadership, and they have greatly expanded their missions. The adl was originally about stopping enthusiastic. Sm, now it's about um basically opposing extremism or why supremacy and you know in any of the the places they find IT.

And so for example, they've taken positions on us to court nominations. Um I mean it's like theyve gone very, very far. A field of the original nation.

P lc has gotten sued a number of times for putting people on these lists. They put them at some point on the list. They put another human rights person on this, anybody who chAllenges any or has any guest on their podcast that the southern part of loss that doesn't like they, they basically .

black with them, right? right? And the list become very expensive. They come very expensive. So here, here's the problem, is you now have, look, before this was just some ivory tower, non five one types thing, where they were basically IT was hyperbolic, retorted they would basically these people in group's names. But now paypal is Operation alizon.

These band lists, they're turning IT into a new BIOS or same where cut off your account. And that's very dangerous because we really seen the president with speech online, that we had a bunch of social media companies banning people from participating in online speech. Not what paypal is potentially doing is banning people for that from financial access.

And losing your right to speech is bad, but losing your right to make a livelihood is even worse. And I think the republicans in congress need to say to dance show man first, we'll be great for them to haul them up there in front of congress to a hearing like they did with jack and suck and sand dark, hold him up there and say to him in no uncertain terms, we see what you're doing. We don't like IT.

We oppose IT. We're going to get honor high legs and fight this. Uh, if you try to deny americans their right to access the new economy, we see no reason for your company is to get any bigger.

We're going to oppose every acquisition you ever do. And we may not be empower today, but one day the tide will turn. We will get control of congress. And at that point, elephants of long memories. So we're watching you.

And you know, I spent a long time since republicans thought of their role this way that for the last few decades have been very laser fair with respect to the economy. But there's a very successful republican president on mount rushmore, teddy rose evelina. And he is on mount rushmore because he busted up the cartels and the oligarchs of his era, and he fought for the rights of of the common american to make a living. That is the playbook that republicans to follow right now.

Okay, enry bell cast. You got that here. Let's get the animation on top of IT. Let's go right.

Square has bought after pay for thirty billion, which represents a large portion of their outstanding equity. It's an equity based deal. What do we think riber?

They issued a third of their stock um uh to buy this company so basically squares the public company they they issued shares to after pay shareholders um and after pay only represents about four percent of squares revenue and they gave away a third of their company to increase the revenue by four percent that that's the pessimist view of the business.

Now if you kind of think about square theyve got two businesses that are equally size one is like a consumer business ah yeah a bunch of stuff including crypto in there and then they have another APP, uh another set of tools for merchants, which is businesses on the other sites. It's a it's becoming more of a marketplace business. And the idea is that this after pay deal can solidify their ability to be basically be a uh lender to their consumers um and provide a tool to merchants to increase sales because the way after payment ks, it's a by now pay later product.

These have been around for a long time and you can basically make a purchase uh online without having to put down a credit card to pay ford. And they instantly run a credit check on you and instantly offer you credit to buy that thing and then you pay in installed ments over time. And so IT allows IT allows websites and businesses to to get more consumers to buy stuff because it's really easy for them to buy stuff being of the money by today.

And by the way, business contest for long, the company called bill me later that was bought by paypal in two thousand and eight for a billion dollars. And IT was a similar thesis. Rites of the theses, know what? What's old is new again, the thesis.

If you can provide these tools to merchants, they will get more sales. And paypal on the other side would make more money because consumers would spend more through the system. Um and and I take back to the same model with square, but most important, we're seeing square consolidate the market place dynamics in their business. They are also effectively stepping up in competing uh and making sure they're locking in the competitive advantage they have with having this two sided marketplace against emerging competitor is like a firm.

And so far, corner was the original.

Yes, the public capital markets will always reward great growth strategies. The minute that they announced is still the the para cap of square went up by almost twenty five percent. The deal is free, free. I repeat, they just acquired a thirty billion dollar company for fucking free.

which is what happened with whole foods and amazon.

Here is the secret hiding in plain site that not enough CEO understand about the public markets. And so for the C. E.

S. Out there listening, there are two ways for you to get constantly rewarded by the public markets. Number one is what squared did, which is to incrementally acquire feature after feature.

After feature, the thing would buy now, pay later, is that IT is not a company. IT has always been a feature, and it's a feature of a much larger financial services platform. And I think square is proving that and everybody else over time will realize golden sex.

And apple or about to do something there with by now, pay later as well for themselves. They are the apple already does IT for the phones. So the idea is that this is just a credit feature that should be on every single major network.

I wouldn't be surprised of what's happened. Facebook at the buy now, pay later, free on over time. Everybody needs to have this feature. You can build a company around IT. And so if if square can basically continue to acquire or build adjacent features that consolidates the financial services stack for their consumers, the stock market will reward these guys. They'll be able to grow and buy things for free for the next five or ten years.

The second way that corporate a that companies can get rewarded in the public markets is if you look at your costs and you flip them from a cost or and expands into revenue and the gold standard is amazon. So if you guys look back, i'll just give you a very quick example because it's incredible. In two thousand and five year, two thousand and five, amazon, they at eight, nine half billion of sales, two billion of net profit.

Their two biggest costs there was product and shipping. So what did they do? They started amazon kindle.

They started amazon basics. They started him is on fire. They started amazon echo. And all of a sudden that whole thing shank. Their gross margins went up.

Then on the Operating expense side, amazon was spending six percent of revenue on fulfillment. They started a film at business. They were spending five percent of revenue on technology.

They started dw. As they were spending two percent of revenue on marketing. They started them is on prime.

They started. They were spending two percent on payment processing. They started them as on payments. So if you look at any company like this square, I think strike is another uh, part of me, uh, sharp fies. Another great example where you can see the path to growth, if you can see folks acquiring adjacent features or if you can see folks taking expense lines and turning them into revenue lines. These are, in my opinion, sure that companies are compound forever in the public.

There's great network effects. If you think about financial services for consumers, I would argue there's five general categories. There's banking, lending, trading, crypto and insurance. And I think in order of retention, meaning how long a customer is likely to stick with the service provider, its banking, then lending, then trading, then crypto o then insurance. And in terms of profit generation per customer per year, it's trading, then crypto, then lending, then insurance and then banking.

And so what we're seeing is a lot of beast financial services providers to conceive in the digital world, replacing the old school world by starting to consolidate these categories in a smarter way. Then the old school offline companies have been able to do banks need to make money through overdraft fees and make thirty billion dollars in your over grapes. So if you make banking entirely online and make IT free, you retain a customer, and then you can make money by offering them lending, trading, crypto, someone's other services.

And that certainly the trend. I have a big theses and a big belief that over the next decade, we're going to see those five categories start to merge and you're going to have three to five superpowers that you're going to offer a consolidated stack of services. And the unit economics are going to change because they're going to focus on getting the high retention products to be cheap and free, and they are going to make money on the high margin products.

The canary, I completely agree with you in the canary in the coal mine is who will be given a federal banking license because that is the only gate that the authorities have. To king make who those consolidators will be. And that's an easy thing .

that can be unemotionally or amazon.

Just you to do no you to this is an incredibly of to get a federal banking license to be cleared by the federal reserve. A lot of bank, you have to get the approve chase and you're not listening to me. These are regular .

to take a question .

for the audience.

You can make acquisition for applying, okay? So even if you want to, you can't just buy a company to like you buy the whole foods.

So for example, uh, I think square now is a federally licensed bank, uh and I believe that that the federal reserve recognized these guys. They can borrow win. They can borrow money at the discount window, at the discount rate.

Um has startups get more successful and can get there? Those will be the ones that will do what David said because IT doesn't matter how many users are, how much momentum you have, if you cannot get a federal license to Operate, you can consolidate so you can be a vertically specific great business. But eventually you have to sell e trade. Morgan stanly is a great example where you know in the absence and an inability to expand, you have to sell yourself because the cost of capital um it's you up to the the the comment on this, by the way, the most obvious one here, which I think is interesting, is the sharp fy stripe debate. Because if you look inside the p nl of sharp fy, an enormous line item now about three hundred and fifty million boxes what they are paying to strike and you know there's going to be a lot of pressure over time to figure out what these big businesses want to do with respect their payment strategies and and do with themselves because they may be able to save a lot of money.

Unclear, be like the one voice of dissent on this after paying.

Oh, great. yeah. Well.

look, it's clear the market loved ditch math is right about that is sending a signal to everybody in the in the industry, in the finance industry that consolidations can be rewarded IT seems like finance is going to go the same way that media did where you start to see studios in hollywood all get gobble up by big tech players. Sort of the final convergence of digital analog. You're clearly going to see that in making out too.

So as a as a business person, as an anchor, nor I respect and admire what jack rosy has done with square, but as an american, i'm definitely concerned about this accumulation of power. And we now see jack is the first person. I don't think it's has ever been anyone in american history who holds in his hands the right to deny people speech on a on the major speech platform and the ability to deny them access to a major consumer payments platform. Now he doesn't have dominant market .

share in either one of those. No, and he's got less ten percent in each.

But but he is an influencer. And we saw that twitter was the first site to kick off trump. And then in the wake of that, every other tech platform did IT and square, after generation six, cut off the accounts of everybody who is involved or connected to, whatever that means.

And a bunch of other players in the fine tex stack did IT. So we now have this issue of financial dept. forming.

Paypal is already well down that road. What will jack rosey do? I don't know. I mean, on the one thing.

why don't you start up? Why don't you buy your start or incubate your own? That's protection.

Freeze free. You're not going to ban people from Colin. So you win, just fuck and start your own square.

Competitors acts and stop complaining, James. Look, these companies have work effects. Paypal is over a three hundred billion dollar mark up company. If all.

if they back those ten, if they not ten percent of people off, you get them. Now you're got you. Now you get your beached. Stop .

complaining. A little IT is a non argument to claim that a cartel of gigantic fin tech companies that have monopoly scale, monopoly network effects acting together that is not a threat to people's rights .

to have a widely not i'm talking about how you can make money from.

I'm just talking for not making me about making money.

So I know. But this is an opportunity like who's to stop somebody from create or isn't parler back and isn't there are some other like a right wing or more conservative twitter that's booming right now? I heard this. Another one Carry .

swish was talking about. I am predicting right now the financial deep platforming is going be the big hop to political hopital to over the next year. This is the next wave of censorship.

And what republicans on the fc.

what the republicans on the ftc on that board need to ask jack orsa right now is, will you import the twitter block list over to square? Or will you kick the things separate best?

Gusty jack.

can I just say something sexy? You I think you're right. But if you just want to make a lot of money um and you have to have some financial stock ownership over the next few years, I think the the way to do IT is just the kind of like figure out which of these emerging companies have or are about to get or have disclosed in their earnings that they are filing for um licensure.

And um I think you want to own those things because the the key thing is like when you get these licenses, you just get a cheaper cost of capital IT just allows you to outcompete and out manuvre. And then i'll let a student you're competing with these big lumbering and compound who just don't have the access to the same flexible technology and they are running code that no forty fifty years old, then the policy decision becomes much more complicated because I do agree with you that there's going to be a platform or d platform issues that happened. The good thing about this, that IT is highly fragmented and that there is in no clear path, at least that I see for two or three folks to have twenty five to thirty to thirty five percent ownership that already happened sort of being credit cards. And I think we've learned our lesson from that .

and hasn't happened since. I hope IT remains that decencies. But what I think the the reaction of the stock market to square buying after pay is now everyone's going be looking at that and going way to second, I can spend you know a quarter of the mark .

of my company and have the of the David point. That's not what they're their saying is hold on a second, these companies are features, and we want to have folks who are licensed and capable to consolidate what freebooters at these five categories. And if you you look inside a square, they have an incredible lending business.

They have incredible merging services business. They have a pretty decent and emerging crypto o and trading business. So they're putting all the pieces together. That's what they saw. And they are licensed.

right? But who are the big winners in this way of a consolidation going to be at the end of the day, it's going to be square. It's going to be stripe IT might be it's going to be payout.

It's going to be the big online companies, not the offline legacy banks. It's the same thing that happened in hollywood. The only studio that didn't get gobble up by a tech company is disney, right? So it's gone eighty percent.

They became a tech company. They became a tech company.

They're whole based.

They're going to catch up to nefarious and they in a roll netflix, they're na roll write over a netflix.

The reality is that there is something about big tech that wants to deep platform people. The legacy analog offline companies were never this moralistic h towards our customer base. They d never deplore formed in ban people the way they limited.

They limited their moralization and their high horse to the Oscar awards.

And the are correct. Yeah i'm going to do a, i'm going to do a, uh, a crazy wine data tomorrow night uh, and it's about forty five minutes from you. You should take a car, have some weight, eat dinner and then dry back.

I'll try. I I am doing i'm gon to see David, which you know for me as a lifelong dream because it's every time I are going to go see David because not David sacks David you know the statue of David, which to me is like looking in a mirror my whole life.

I looked at that, you know the body more stubbed h long. I get IT 和 i have so many tours .

of doing in FLorence。 Maybe I say that, let's see, made IT out, but i'm going to see you next week. It's forty five.

The question is freedoms. G, what are you fucking doing? Get on a plane to come see your best to you.

The only person not in italy, you come for three or four days. You you got a pregnant wife. I know you got to let you are moving all the stuff. You give up a little. Just come for three days, three days, get get some present and maybe.

Literally having the best type, but they're living in their best lives, right? They're like we're going to take a tour, get hand.

I send my plane. It's united. I'll send united for you.

Jack a want. You can visit me tomorrow. You don't need to see a museum, you know to spend time .

museum that's.

Time, i'll see you next week.

No, I J, I only going for a day. I'm i'm coming to drop, uh, the, yeah, yeah. I, I, I, my, my mom here. You like I have a lot of people .

come for two days and hang out for two days with us. What do you do to forty eight hours? Not a big bring every I love you guys, I love you best is, ah, yeah. I congratulations. Congratulations on Robert. J. O, K.

A R, A, J, K.

what i'm going to say is, is my first fund, my little eleven million dollar fund right now. You know, we'll see what have is a long way to go. Once again, i'll have a top five percent, one percent fund.

First fun I did with zoia with the scouts was like a hundred fifty cash on cash. Who knows this first fun I did with you guys backing me, uh, thank you for supporting me. That seven million, seven fund could be five, six, 7x， who knows?

Will seek cash, cash. You good. And thank thank you for every everybody.

Where did you have any winds .

this week aside from spending a lot of money on wine trim? Is any spectacular news?

Well, I think the David can confirm, but I think I probably made a billion dollars this week.

All right, something is going on there, so there .

must be a backup and face no solved.

right? We'll find out next week. We will see you all next week.

Bye bye. Love you guys. Love you guys. Love you best days. Love you. Italy, of course, everybody's favorite, the queen of king on the science conductor himself, game freely.

Go into a nigh club sweet loving go into. Go go away. What the other counterpoints and counter arguments might be is critical to get people to actually get an opinion, telling them this is a single point that you should believe. Nothing else matters.

And nothing else matters. So much is all about like evil them. And we don't recognize that in moments where there are share values were just sitting on both sides and recognize necessarily makes someone ever. Nothing is Better.

Nothing else.

Vivo.

of course, everybody's favorite, the queen of king walk, the science conductor himself, David free, the quality of the show he calls IT the freeburg index, the free bound .

talks a lot.

Great episode.

Go into all the time, go into nights b go into the. Right, go into. Nothing else matters.

Nothing alternative.

Nothing nothing matters.

Nothing else that matters.