Andrew Wilkinson: The Hardest And Easiest Businesses To Start

What are easy businesses that you've you started where you're like'cause I For me, Milk Road was a way easier business. than any business I had ever started. Um, what what's been an easy business for you? And where does design where does the where does agencies rank on the easy to hard scale?

I'd say it's medium. I mean the hardest, let's just say the hardest possible businesses are brick and mortar. Or where you have to move physical goods and you have a lot of employees. Alright, Andrew Wilkinson. You're back. What's going on?

Not too much. Good to be here. Uh Sean, did you know that The Sahel one that We did we had Sahel Bloom on the other day. Two things were interesting to me. One, people thought when we were making fun of him that we disliked him.

They thought I disliked him, which is not true. And two It was shockingly popular. Did you see that? Well, that part's not that surprising. The first part's surprising. I mean we were all making fun of each other, I thought. I thought it was a fairly even Give and take, but maybe not. Maybe we were It was a bit of a roast battle. But you don't you only do that with people you like. Yeah, exactly. If you actually don't like somebody, you don't just come out and start busting their balls. That's not to be fair, the guy is like stupidly handsome. I met him uh when I was in New York.

Very, very handsome guy. So we gotta shit on him. I mean break down the handsome guys. You want and you the worst part is you wanna hate those guys, but if they're nice, it's almost worse. He was very nice. Yeah, the one thing that was really good is he's pretty prone to like taking a pretty like a cookie cutter response to things because he's like He's got like a good image. He wants people to generally like him. Like he's, you know, he's on TV sometimes. He's got his like book deals. He's like doing things where You know, public perception kinda matters, whereas if you're just an entrepreneur

You own some business like You don't need everybody to like you. But for his things, you know, it it's good when people like him. It's it's good for business. But he came on and he was like super honest, super open about everything, and was not giving us politician answers, even though I do think he's a future president. He wasn't doing that though. So I thought, you know, mad props to him for uh for just being normal. Like be like if we were normally hanging out, that's how he was on the pot. It was perfect. What do you wanna start? You wanna start with some post mortem stuff? You wanna s w where do you wanna go with this? Andrew Andrew always sends us the best topics in advance where we could just we could just

Pick and choose, like, what's this word mean? And we could riff off that. But Andrew, I bet you have a sense of what you think the most interesting topic is. So let's not bury the lead. What do you think is the most interesting topic that you have? When I started my business, um I was like Mr. Business Builder, like I'd say yes to absolutely everything.

I'd be in the shower and have the idea of like Oh, you know, why doesn't this exist? And then that day I would start it. And I would just constantly be starting new businesses, like every single month. And I think it was really good because

It was like throwing spaghetti against the wall, right? So it was like Seeing what a a good business model is. via pain. So it was just constant pain. And then also running an agency, you get to see All these startups.

make mistakes and learn from them and I had this really painful experience of Starting an agency, getting really, really lucky that my first business was actually profitable. Cause I think one of the things that happens is People.

start their first business and fail and then they just say, I I don't like this entrepreneurship thing, I'm out. And so I was able to keep going and started another five to ten other businesses Um, and almost all of them failed. Like it was

Incredibly, incredibly painful. And after that I kind of swore off Starting businesses. And I've only just come back to it over the last three years. Um so I can talk a little bit about my experience in some of those businesses. Sam was texting me before and he's like, Well, you start all these businesses, you've like tweeted out all these businesses, what actually happens to them?

Um so I was gonna go through a couple of those. And by the way, for the for the listener, this is Andrew Wilkinson. You you're on he's on the pot all the time, owns this thing called Tiny. Although are you guys Do do you want to go by tiny capital now or just tiny? Just tiny. I hate tiny capital. Yeah, I I know you I I know you hated it, but everyone was like using it. But owns tiny, which is I think one person called you online the Warren Buffett or Berkshire Hatway of internet companies. So you basically buy uh and hold m a bunch of internet companies that collectively are now doing Hun a hundred north or hundreds of millions of dollars in revenue, whatever the number is that you say publicly. How much did you pay your friend to say that about you?

I actually it's really funny because there's been all these Uh uh uh like on the cover of Newsweek or whatever, it'll be like the next Warren Buffett. And Sam Bankman Fried was one of those people. And so everyone's sharing all these covers from all these things. So being called the next Warren Buffett is not good. Uh I and I'm I'm Different from Warren Buffett, but I've copied a lot of his ideas.

Yeah, like the the next Steve Jobs, that was uh Elizabeth Holmes from Theranos, so that was a another another one you didn't want to get tagged with. I think Chemoth was calling himself the the The the new Warren Buffett or like the brown Warren Buffett or something like that for he called himself that? He called himself uh or I don't know if he call I don't know, I don't wanna put like the quote on it, but he definitely insinuated it and he definitely said We're trying to build You know

The next Berkshire Hathaway, blah, blah, blah. And so, you know, he w he was given that or he named himself that a way. My favorite thing about Shamath, um was that in his annual shareholder letters he would Uh he would compare himself to Berkshire Hathaway. So he would track Social capital's results versus Berkshire.

And then one year he just stopped. And I think it was the one year that it he didn't actually beat them. I think. I don't recall. That might be unfair characterization, but that's my recollection. So where are you going with this? Do you wanna do the post mortem thing? Sure. Is that is that where you're going? I don't know.

Yeah, let's do it. We can go through a couple of those. I think it's kind of interesting. Can you start with Pixel Union? I think that's incredibly interesting. Yeah. So um Was running Meta Lab? And I

Uh was like an early Tumblr user. And I met David Carp just Via Tumblr, like He was He was the CEO of Tumblr and he kind of knew all the early users and stuff.

And I ended up making a Tumblr theme that I wanted to use myself. And he was like, Hey, this is really, really cool. I would love it if you could create some more of these and we're gonna make a premium marketplace where other people can pay to buy Tumblr themes. And so I'm kind of thinking like, oh, this is a favor for a friend and this is a really small platform. I'm not thinking of it as a business. But I end up

going to a bunch of my designers and saying, Hey, look, you know, over the weekend would you be able to whip up some themes. And so Um, I go to one of my interns, like like literally uh a guy who is like um my brother's friend who had like just finished like doing a I think a philosophy degree and I was like, Hey, like Turn this into whatever you you want. And so

We ended up calling it Pixel Union and it started doing like ten thousand dollars a month of revenue, and it was my first taste of automatic revenue. Like I would go to sleep. And I'd wake up in the morning. And we would have sold, you know, five hundred bucks worth worth of these Tumblr themes. And

Uh Shopify noticed what we were doing for Tumblr and they said, and at the time they were a tiny company. There were about 15 people. And they said, Hey, can you guys Also, do the same thing for us. And so we got into the theme world um for Shopify and Tumblr. Tumblr obviously died post-Yahoo acquisition. Um and the business still exists today. Um It's a really

Interesting story actually. So We So I I started the incubated the business, didn't raise any outside capital. Spun it out of Meta Lab, became its own independent company. Um we ended up.

Selling it. In twenty fourteen. And Then I stayed on the board. I kept twenty percent of it.

And then A couple years ago I bought it back. And then we ended up taking it public. And that became We Commerce. What did you sell it for, like ten or fifteen million dollars? I think I I read about it publicly.

I sold it for seven million. Seven million dollars. Why would you sell that? Well at the time it was doing I think Five hundred K of net profit.

And I didn't To be honest, it was one of those things where I didn't know how good the business was and I hadn't read anything about investing yet. And so I didn't know how to value a business. And so it was D a double edged sword because I sold This incredible business for

Um, you know, a good amount of money. It allowed me to kind of have a sense of comfort and retirement and all that kind of stuff. But Doing so, I suddenly had this pile of cash and I had to learn how to invest it. And so I started reading about Warren Buffett and reading all the investing books and going, Oh my God, I can't believe I just sold that incredible business. You know, it was growing at Fifty a year. And you know, I thought it was great to get a 14x multiple, but not when it's growing that fast.

Um so I regretted it. And then What did you guys pay for it when you bought it back? So we bought it back for twenty six million. And then

We Um Did a bunch of acquisitions. And then we took it publicly. How how big was it when you bought it back?

Uh I think it was doing about four million dollars of annual profit. So it grown a lot. Um And we paid twenty six. And then we

But four sixty and a couple other businesses. And then we took it public at a two hundred and sixty million dollar valuation. And when you uh you said I didn't know anything about investing and blah blah blah at that time. I think today people look at you as somebody who knows a lot about investing and they want to be like you when it comes to investing or buying businesses. Um What year was that when you said that statement you felt that way?'Cause I

I'm guessing it wasn't Right. That long ago. Is that ten years? Is that twelve? Yeah, it was eight years ago, twenty fourteen. So that's basically eight years, so less than a decade going from I feel like I know nothing about any of this. Two

You know, I don't know, what it w you know, like in the top percentile uh you know in our in our industry and have had phenomenal success. I think that's just sort of a A nice thing. It's like if you're willing to put in a decade Um You can go from literally the bottom to the top.

And that's pretty cool. Yeah, I think it was You know, getting obsessed, right? I think that Um When you there's no better feeling than

Yeah, picking up A book about something and just desperately reading it. Like you can't stop going through it. And I spent probably Two full years. Just reading every single book I could get on I could get about value investing. Um, so yeah, I think with intensive time you can do it. And the nice thing is.

There's that great Buffett quote where he says I'm a better businessman because I'm an investor and I'm a best better investor because I'm a businessman. And Chris and I We were natural investors within our own business. We knew how to allocate capital within the business to drive growth and profits and margins and all that kind of stuff. So when we became investors

We were much better at it, I think, because we had the operational lens. We could look at a business and say Oh, that's really hard. Or hey, they're not doing these three easy things that we did at our company. And I think One of the big problems with investors these days is they're often What I call spreadsheet investors. They look at a business like a spreadsheet. And they go, Oh, it's easy. We'll just increase margin by twenty percent, not realizing that in order to do that, you have to convince a hundred people to change.

Um what a So Have you did Sam did we talk about this Warren Buffett sees candy letter? I know I had it on our list. I don't know if we ever did it on the pot. Did we did we talk about this? You it's been on your list. You've never you've never just brought it up. So Andrew, you're like a you know, Warren Buffett PhD. So you you probably know this, but may maybe not. I had never seen this before. So

There was a letter in nineteen seventy-two that Warren Buffett wrote to the CEO of C's Candy after they had bought C'Candies. And um have you read this before? If not, I just put it in the in the chat. 'Cause it's kind of amazing and I wanna talk about it. This was this was very surprising to me. So I put it in the chat here on Riverside, but um Okay, so I think of Warren Buffett as this like Kind of like what I see today, there's this guy who's super smart, really like you know, likable storyteller.

He's an investor, he's a you know, he's not doesn't look like an operator, he's like a geezer, right? He's just sitting there at his at his at his table and he reads all day and you know, he makes investment decisions. He's he's a capital allocator. But when you read this letter you realize like how detailed and in the weeds he was and how business savvy he was. So I actually want to read out parts of this real quick so that you know people who aren't reading it can be a little bit more. This is terribly I mean, sorry, this is incredibly well written.

He's got a he's he's got such a good voice. He goes, Dear Chuck. Uh I was at Brandy's a couple of days ago and I have a few strong impressions to pass along. So he visited the store and here's his here's his impressions. He goes Um, people are going to be affected not only by how our candy tastes, but obviously what they hear about it from others, as well as the retailing environment in which it appears. This means like the class of the store, the method of packaging, the condition it appears, the surrounding merchandise.

Just like the New Yorker cre creates a different editorial environment. For Lorden Taylor ad than it does for Village Voice, so do the surroundings of our candy uh affect the way that our potential customers' mental and gastronomical impression of our quality. You know, of course you know of course, you of course know this better than I. Right. So that that was the first piece, which he's basically talking about like, you know, the the store environment, you know, like the way that Apple, you know, sort of recreated the the retail store. He's already thinking about this and sending this like more like an operational and almost like It's like a design note. Right. He's not talking about margin. He's not talking about like, you know, debt.

He's talking about the The the merchandising of the store and how it feels and how that's gonna affect how people taste uh uh taste and stuff. Um Then he goes and he talks about um Uh let's see, what's the next uh good bit. So he's like Number three.

Yeah, he goes, Brandy's our product stuffers in comparative way against Stovers. He goes They have extremely well organized, well displayed, attractive area put uh featuring nothing but their candy. Um We've taken a number of our boxes, put them on the counter with 25 other offerings, offering cheap bulk candy and other run of the mill products.

And they you know and so he's talking he's like basically comparing this the store design And then if you go down, he goes, um So he's talking about the merchandising for a while. And then he goes, um He's like

We may well want to have a d have descriptive material, maybe our own little booklet. called the most famous kitchen in the world, or something of that sort. Coors gets a lot of mileage out of the fact that all their beer comes from one brewery. And I do think there's certain m s there's a certain mystique attached to products from with a geographical uniqueness. Maybe grapes from a little part of Italy or France. Um Are really the best in the world, but I've always had a suspicion that 99% of it is just in the telling about it and one percent is in the drinking. Right. So he's talking about like, you know, like sort of this marketing psychology about the you know giving them like ideas for catchphrases and slogans. This is way more active and sort of like the brain switched on in terms of operating than I had thought.

Uh what is this a s was this a surprise for you too, Andrew, or is this something you knew about? That's one of the things I found really inspiring about Buffett is everybody Like To be honest, my impression was always like, okay, entrepreneurs are the people that do the work. The investors are people that shuffle paper around on Wall Street.

And what I realized with Buffett is that he actually was Someone who Yes, he owned the businesses, but he influenced the businesses massively and he made them grow and, you know, brought them together and did acquisitions. There's so many ways where He built value, right? Which you can't say about a lot of people. Like

Black Rock? Doesn't build value. They just index. They own a bunch of pieces of paper. Warren Buffett actually grows stuff. What's fascinating though, and I'd be curious to know. Whether he would still write a letter like this is Chris and I had dinner with Charlie Munger a couple of years ago and we asked him how involved do you get with the CEOs? And he really said.

Um I'll never forget this. He goes I've never been able to change someone's mind. If someone has a s uh an idea about something they want to do. Um, I've never been able to talk them out of it. And so You know, he said there's always opportunities within their businesses to tweak them and make changes and all that kind of stuff.

But it's just very hard. to actually get CEOs to do stuff. CEOs are not puppets. They have their own brains and they want to do their own things. And You know, two man with a hammer, everything looks like a nail. Do you ever get bored just being an investor?

Yeah. That's why he starts all those businesses. Yeah, exactly. I that's the thing. Dude, it's so boring. I that's why I don't feel boring. It's so boring. I totally um It's like Yeah, it's like imagine if

Yeah, someone came along and was like, Hey, look, you don't have to work and you can have all this free time and just read all day and It sounds like a luxury when you're a stressed out entrepreneur, but actually doing it in practice You have to find new things to fill your time with. And you don't get your hands on the tools, right? So you don't get the sense so like for example

You know, we bought press. And When we first bought it. I helped drive the redesign of the website, which you know I was proud of. But

I very quickly had to let go of it. I knew I couldn't keep you know, holding on to the business. And so I hi you know, we hired a CEO and I had to pass him the baton and let go. And yes, I get a sense of like pride of ownership. But as the business progresses, I don't feel the lifts. I don't feel the gains. Can can we talk about that acquisition? Sure.

So the background here is AeroPress for like it's almost like a coffee snob product. Uh I I owned it. I loved it. It was basically like a More convenient French press that you could travel with. I I love it. Owned? I'm not sure. I still own. I s I own two of'em. I have one that I I have one that I travel with and I have one that just stays in the cabin. I use it every morning.

Uh I love it. But it was only sold, I'm almost positive, I would only see them in mom and pop coffee shops. And maybe Amazon? I don't even know if they're on Amazon, but I like I the so the retail wasn't that great.

Uh, but like it was clearly like a good product. It's one of those products that like consumers can buy for twenty bucks, but even the coffee snaps are like This is the best way to do it. Uh, and and you guys purchased it recently, which it's not exactly an internet business, but you're trying to make it a little bit more internet related. But uh are you happy with this deal? I know you guys paid it seemed like a lot of money. You paid a premium for it. Absolutely. I mean I think um

When I look across all the businesses that we own And I think about What business could exist in fifty years? There's a very, very small number. I mean, most businesses die. And I think that AeroPress is something that has

Um potential lasting impact and can be around for decades. Uh, and it was just an incredibly unique business. I mean, when do you get the opportunity to buy a way of making coffee? It's like, how do you value buying Kleenex, right? The word for the way of making coffee that's written on grinders and is a verb almost. No, I think it's sick, man. Sean, did you see he bought this? Yeah, I'm not a coffee guy. Like I literally don't drink coffee, so

Even though I had heard of the brand it didn't I didn't know enough about it or didn't Sort of. Didn't have too much of a, you know, opinion on it. Uh Because it's not my thing. But it does remind me of like I was looking at Soda Stream

And I was like, I really love this type of this category of product. I think it's a fantastic category where It's a thing that g it another device that gets in that can get into every kitchen. and has like this sort of consumable, you know, refillable component to it. So that's great. And then if you become the de facto device, like you said, I think you just said like the verb, basically, like if you could become a verb. I I just read this recently with someone who's like, you know, I learned twenty five years ago, if something becomes a verb, just invest.

And uh you know, it's it's pretty true, right? Google it. Will Uber there. You know, like you you you s you realize that these verb tend to become like de facto winners of uh of of their category. And so I've definitely Definitely uh think it's a good idea. I just don't gonna drink coffee myself. So it's not a good thing.

When I tell people and you know, I you know, if I'm in tech And you say, Oh yeah, we own dribble and they're a designer, like they know what that is, they think it's cool. They might like give me a little nod or something like that. But if you tell like I'll talk to, you know. uh the carpenter working in my house and say, Oh yeah, I own Aeropress. And if they know what it is, they are passionate about it and they're excited about it. And that is very rare.

So um it's a guy's amazing business. I remember reading uh about this in Price Anomics, the guy who created it, he was like this I know now now he's quite quite old, I think. I think he's in his eighties and he was like an inventor. He was like a wacky scientist, inventor, like stereotype guy. Where he also encre created like uh the Frisbee or like uh what was the Frisbee there? Eerobi. Do you remember those commercials where it was like we could throw this frisbee over a football field or something like that? And he created all this amazing stuff and he just ha owned Aeropress that he created But it he wasn't like a business guy. Wasn't he just wasn't this kind of just sitting? Uh kind of just like on autopilot.

I wouldn't say it was on autopilot. He had a really great president who was running the business side, but they were both older guys and they were really focused on the retail channel, which you can see there's a reason why if you walk into Ninety five percent of gourmet coffee shops Anywhere in the world. They sell AeroPress. But

Uh when we looked at a just v a very, very small percentage of sales were online. It just wasn't a focus for them. So we came in and there's just a ton of best practices. And Sean, it's funny you mentioned SodaStream. We actually hired the president of SodaStream US Who grew the business to two hundred million in the United States. That's the new CEO of Erapress. So Yeah, I read about that person because I was researching SodaStream and I was like, Oh damn, this person was like Yeah, they were they were, I don't know, the driver or the trigger of a lot of a lot of growth that happened for Soda Stream. Cause so didn't SodaStream sell a couple of times. Um like it's owned by who, Pepsi now? Something like that?

I think it's owned by um What is it? Um Oh my god. I think it's it's an Israeli company. I don't know if they've sol they might have sold to J A B Holdings or someone like that, I forget.

I think they have. So Yeah. No no it's uh uh Soda Stream was acquired for three billion in twenty eighteen by Pepsi. Um but maybe now it's owned by somebody else. I don't know. There was there was some story like that where it had kind of like

I thought. Um And I I was thinking that there should be like more competition for this. Like there's a There's so many D to C brands and I feel like the D to C sare stream competitor Um should win. I I know there's a few of them out there, but uh

I'm surprised I don't hear about these more. I'm surprised there's not a hundred million uh you know A D to C Soda Stream competitor that's doing, you know, north of a hundred million in sales. I feel like that's a Like that should be a thing. Cause center stream is very not D to C. Totally. Should we talk about some of the terrible businesses?

Yes. Those are more fun. So and then I've I wanna talk about a new business I'm starting actually because I've got yet another one because I'm a glutton for punishment. Um, okay, so some of the early stuff that I did. So um I had the idea

That Um Cat I had cats. And I was like, Okay. All cat furniture is hideous. Like it just ruins your house. It looks horrible. And so

I went out and I found a couple like kind of mom and pop brands that were doing this. And I said, hey, I'm gonna start an online store for cat furniture called HJ Mus, spent a whole bunch of money designing an e-commerce website. And I um You know, poor probably three hundred grand into it, which at the time was a lot of money for me. You know, my whole business was maybe making eight hundred grand of profit a year.

And I just learned how brutal a business e-commerce was. that you know, I was basically eking out these razor thin margins. Whereas in my agency or in Pixel Union, I was making thirty to fifty percent EBITDA margins. I was making like

Two or three percent. And the amount of work required to move physical goods around By inventory, I realized that While on paper I was profitable, I was constantly taking my profits and putting them into buying more inventory. And so I ended up shutting that business down. And losing I think I lost all the money I put into it. But it was a great lesson in in just hard businesses. I didn't realize that

Different businesses were Um harder than others, right? Like you kind of just when you when you do you when you're inexperienced in business. you stumble into these things and I always go like God, I'm so lucky I didn't start a restaurant as my primary first business.

Right, because it's so brutal. Right. It teaches you so much, but it would be so easy to tap out and just think you don't like entrepreneurship. A restaurant was my first business. Um and then he went into ecom. Now I have e com you know, the the road less traveled, maybe. Uh so so what uh what are easy businesses that you've you've started where you're like'cause I For me, Milk Road was a way easier business. than any business I had ever started. Um, what what's been an easy business for you?

And where does desi where does the where does agencies rank on the easy to hard scale? I'd say it's medium. I mean the hardest, let's just say the hardest possible businesses are brick and mortar. Or th where you have to move physical goods and you have a lot of employees. So One of the hardest businesses I own is I own a bakery in Delhi in Victoria.

And I bought it because I'd my my brother had grown up working there. It was a neighborhood place. The owner wanted to sell. And uh I've owned it for about five or six years. And I mean they have to have about

Forty or fifty employees. Someone has to wake up at two in the morning and go into the basement of the bakery and bake croissants. And the amount of coordination that has to go right where if a couple people are sick. how messed up the business can be is just night and day compared to any internet business. Dude, if the if the if the manager of that bakery bails, are you gonna who's gonna go out and find a new manager? I have I have a restaurant group, like a food and hospitality group. So I have a guy who runs that now. Before I was me, I mean they would text me and say, Andrew, the deep fryer's broken. I need an approval to buy a new one or whatever it is.

Um put people in place between their Um In the medium camp of challenge, I would say agencies. So agencies are beautiful in that They are asset light. So really you you don't even need an office these days, but you really just need an office, an internet connection, and a keyboard.

And Um You can hire generally the people as you need them. And so you don't really need any investment. Um they're

They're um scalable. Um, but they're hard in that you're constantly balancing supply and demand. So MetaLab, for example. If MetaLab was to do all the work that came to it at any given time, it could probably be five times bigger. But in order for us to get five times bigger, we would have to grow the company too fast and we would ruin the culture. And so I would say that agencies are a little bit like a law firm or an accounting firm or or consulting firm where you've got this kind of flat linear growth.

That happens over time. Um, so I think they're great businesses. But there's feast or famine, right? And you really have to be prepared for a downturn. Um, and you need to be unfortunately ready to make radical changes in the business at the drop of a hat if your pipeline's not looking good and that kind of stuff. So it's just very, um very difficult in that way. Um, of course every agency I owner I know wants to own a SaaS software company. And every Saa software company owner I want.

Um uh that I know wants to own like a consulting business or something that grows really fast. So Um grass soys greener. The easiest business that I own is a company called We Work Remotely. Um this is a job board.

that we bought from Jason Freed and David Heinemeier Hansen at Basecamp. They had started it. And it was like the remote job board. Um they'd written a book about remote. And

They had great SEO. They ended up ranking number one for mo remote jobs. And as you know, remote work has taken off over the last five years and so We bought that business from them. And it really it was just kind of sitting idle. And so with some very simple best practices and a very, very small team, we're able to build it into a very large business. Wha what about SAS? Where would you put

Yeah, SaaS businesses that you've run. Uh well, I've lost a lot of money doing SAS. I mean, I think a lot of people know the story of Flow, the project management software that I built. Where I basically poured ten million dollars into it because I was competing with Asana and didn't understand the dynamic of When you're competing against

uh you know, you're fighting an army that has unlimited budget. It's like Fiji fighting the United States, right? And I'm going like I'm gonna win this. It's ridiculous. And so I lost ten million dollars uh doing that. And that was a great lesson. But um incredibly painful and I wish someone Like me had tweeted and I could have read it instead of losing all that money. How many agencies do you own right now?

Um partially owned. Ten or twelve. There was um There was uh what's the guy's name who's the richest black guy in America, Robert Smith, I think his name V uh Vista is it Vista Equity? Equity. Vista equity. So basically Vista Equity is a PE firm that owns they're they're mainly SaaS. And I think if I remember correctly, the article said that they own

Two hundred million sorry. Was it a hundred billion? I whatever it was, it was it was north of a hundred billion of of SaaS revenue, I think. It was second only to Salesforce in terms of their reach. And he had this uh thing where he was saying, Look, on our companies, we're actually only seeing a twenty percent decrease. From where we thought we would be this year. Meaning like only a twenty percent.

Um he's like we're growing at twenty percent a year. We thought we were gonna grow at Twive percent. So we're seeing a small decrease in the growth that we expected. Therefore, we actually are pretty bullish on the economy. With your agency, since you mostly sell to big companies like Slack and whoever else you sell to, are you seeing a slowdown from American companies buying services? Yeah, absolutely. I think we're seeing softness over the next six months and things are definitely slowing down, or if they're not slowing down, people want to achieve the same things, but for less money. Uh and so there's these pressures, you know, like I said, it's this supplier demand problem.

And you've got the labor market where people are demanding more and more pay. And then you've got your clients crunching you down, right? So Right now, um You know, I think that

It's unclear. So The other problem is it's really hazy. And so you get into these situations like when covet hit. We had a brutal three month period where the pipeline dried up and then everything was fine. It really depends on what the market sentiment is. Whereas if you own a SaaS business,

What are the odds that someone's gonna take, especially a sticky one What are the odds they're going to rip it out of their company and retrain everyone on that? And plus they're only being reminded they pay for it once a year. Right. It's w I always think it's better to have 10,000 people paying you a small amount of money than a hundred people paying you a lot of money.

And what a What's famous original? Huh. Um I would say the theme for me is that I will often do the wrong business before I find the right business. So for example, um

I started a I I always I'm a designer and I always fetish the idea of having brick and mortar businesses. I was so sick of doing all these internet things. I wanted to something in my own city. And so I came up with this restaurant concept of like a bar and pizzeria called Famous Original. And me and some friends did it together.

And We basically learned the hard way that restaurants are brutal. You know, we were like super egotistical. We're like, oh, we're great entrepreneurs, we're gonna be able to nail it in restaurants. And Sean is I I've definitely heard you talk about your experiences here. Uh and nodded along. We just learned it was the most brutal business in the entire world and we're shocked by how much money we could lose. And so

We, you know, hired the wrong management. We got the incentives wrong. Uh we overspent on the build out to the point where we could never get our money back. Um, you know, labor shortages, we had slippage, there's there's tons of issues. But what I learned from that was What is a badly run

garbage restaurant look like? And then when the Deli and Bakery came up, I was like, Oh, oh, this is a good one. Like this has been around for twenty five years, stable earnings, great generator. What type of let it run. Uh Peter. You could screw up a pizza place. I would have thought that'd been one of the easier places to easier of the hard. Yeah. Because like you don't need it's like pretty simple ingredients. Uh

I I I wouldn't have thought you were gonna ruin that one. No We managed to do it. Yeah. Our software's the worst. Have you heard of HubSpot? See most CRMs are a cobble together mess, but HubSpot is easy to adopt and actually looks gorgeous. I think I love our new CRM. Our software is the best. HubSpot.

Grow better. You have a couple on this list you got Things you did in the past, you have things new businesses you're doing now, but I'm curious Do you have I guess like we haven't talked to you in a little while. Have you s Have you had any ideas?

for businesses that you're not starting currently, but you're like, someone could do that, or someone should do that, or I wish Someone is, you know, gonna capitalize on this opportunity or trend. Is there anything that that comes to mind, uh, for ideas that you're not currently acting on. So I might have talked about this idea in the past, but I've had this idea for a long time.

Um I like the idea of a service that allows you to get on One person's radar. Right. I choose let's say that I

Let's say I want to sell my company. in the next two years and I think the right buyer is This, you know, this X, let's say HubSpot, right? I want to target Darmesh.

So everywhere Darmesh goes on the internet. I want him to see stuff about my company and I want him to think we're huge. There's I forget where the quote comes from, but there's this idea that if someone sees you five times, they think you're everywhere. So if you're on five podcasts they listen to, they deem you a huge celebrity and a success or whatever it is, right? So I think I want that, but hyper targeted and I think it's worth a lot of money. So I would pay ten thousand dollars a month. to be on Darmesh's radar everywhere he goes. And so I don't know how it gets done. It's like a

Advertising sniper rifle essentially. But I really like the idea of something like that. I have a story about this. So my best friend, his name is Jack Smith, he sold his company called Vungle for eight hundred million dollars right before the pandemic. When he was like twenty nine years old. The way that he started it was he uh was in England, living in England as a college student.

And he had this idea. And he wanted to go to a accelerator called what was it called, Sean, do you remember? Angel Pad. Angel Pad. And the guy who run it run it was his n name Thomas and Jack missed the deadline to join the incubator. And so what he noticed on LinkedIn, he goes, Let's advertise just to Thomas. And he said, uh on LinkedIn the way it worked is you could advertise to like it said, like, only show this to people

Uh like a hundred people a day. And he's like, Wow, you can go to a hundred people a day? What if I just moved it to like Ten people a day. And they allowed it him to, and it says, All right, only shows at ten people a day, but make it so they have to work in San Francisco and they have to work at Angel Pad. And the ad said, Hi, we're trying to reach Thomas. Uh, please tell us to contact us. And he did that and it worked. And they let him into the incubator and six or seven years later the company sold for eight hundred million dollars. And we at the hustle wrote an article about this. It went viral and LinkedIn changed how they did it. You can't actually advertise. They won't tell you how many people you're gonna reach per day. Or something like that.

Totally. Something like that would be amazing. Or even just figuring out Okay, what Let's let's just do this. So So I get Darmesh's email.

And I run it through some sort of database. And I go. What email newsletters does he subscribe to? Or what podcast? Like how do you I don't know if it's possible, but What is his information diet and then how do I appear in all those things?

That's crazy. Yes, I think that would work wonderfully. Yeah, there's a I I would love it. If someone wants to start that business, please email me because I think it's a great idea. Um But yeah, there's I mean, again, like I come up with Tons of ideas. But that one has stuck with me for

Three years, so I feel like it's something good. Yeah, what could go wrong? Just uh targeting somebody wherever they go. Everywhere they look. What can go wrong here? Um okay. So that's one. Uh what about some other ones? I know you got more. Let me let me talk about the new thing that we're doing. So and this has been something that's been driving me crazy forever. So You guys know what investment bankers are?

Yeah. I know people who call themselves that, yeah. Right. But a lot of people kinda go like oh that's like a stockbroker or you know, they work at a bank clear Investment bankers are realtors for businesses. They go and they represent you.

And they sell your business for you or they raise capital for you. And I didn't really understand that world at all. Um, so like I like I said earlier, I have only understood finance for eight years. And I would say really only over the last two or three years have I actually tap the world of finance, like gotten proper banking. credit, learned how to sell businesses, learned how to use investment bankers.

But I think those That stuff is not really accessible to founders. And frankly, they don't speak the language of investment bankers. The investment bankers are the spreadsheet Business people.

Right. Look at your business as a spreadsheet. And they want something that's simple and easy to understand. And frankly, like I was kind of allergic to them because I didn't speak their language. They would come and talk to me and they would use terms like eBITDA and you know gross margin and all these things I didn't really think about as a founder. And so I have been looking for a firm

For years um that I can use to s either sell small businesses. And when I say small, I mean like kind of one to five million dollars of e but uh Or help founders do secondaries or all these sorts of things, or even just finance. M A.

And I'm yet to find someone. Everyone seems to specialize in Larger businesses, or they're too small. And so Um, last year Chris and I met this young investment banker And he was just a normal person.

Like we had him out for lunch. And he was not wearing a suit. And he was Saying how miserable he was and how much he hated H you know, his his old job doing it.

And we we kept saying like look like You should quit your job. And come work with us. And we'll start a modern investment bank. Four founders.

really focused on bootstrap founders because they don't know how to access capital. And so We s we're starting this business called Tenzing. We started like a month ago. What's Tenzing? Tenzing Norge is the most famous Sherpa of all time. So he helped Edmund Hillary climb Mount Everest. Um and so

Basically the idea is Um, you can go to him and say, look What are all my options, right? I you know, can I get credit from the bank?

Uh, can I raise debt to do M<unk>A? Can I do a secondary? Can I sell my business? And they can basically walk you through all of that stuff. in a way that's aligned and not fee driven and more long term focused. So we're basically starting our own little investment bank. Is that gonna work?

Dude,'cause if you are a s if you're if you're a startup And you're in the if you use the word bank right now, I hate you. No, it's not I mean it's not They're not taking their money. I I mean I could just call it business we're starting a business realtor firm, but the term is investment bank. There's no banking. We're not holding anyone's money

Uh there's no tokens. I'm not going to Argentina. Yeah, do you like billions of dollars or not? I don't know if you guys have experienced this, but like Even here in Canada, so Um

For like five years I wasn't aware of this, but the government will actually pay thirty percent of your R D when you're a small company. And I just didn't know about that. And so I literally lit

A million dollars on fire. I could have gotten a million dollars of these. tax credits and I didn't. Right. I could have used a credit line to buy ads for my SaaS business. but I didn't know how to do that. Um, I could have sold businesses that were working, but I didn't really want that just kind of died.

Like I let them die. Right. So I think it's about like How do you get How do you get the most out of what you have? Um

and giving people tools to do that. And it's just I wish this had existed when I was starting out. Yeah, I I totally agree. You know, most uh investment bankers don't Work with startups. Um Because they're too small or the deals are too small or whatever. So how are you gonna get it to how do you get how are you gonna get the numbers to work?'Cause I don't think they're doing it 'Cause they discriminate. I think they're doing it'cause the money's not there for them. So how do you make that work?

Well it's not small businesses, right? I mean like We're really focused on bootstrap businesses because that's where we come from. And these are companies that are doing You know two, three million dollars, maybe five hundred K of profit.

Some of them are actually bigger, so we've Talk to Founders that are like hey, I've got like a you know, 10 million ARR business. I'm doing three million dollars of profit. I was thinking I want to sell thirty percent of my business. And we kind of

go, okay, well we have the network. We've gone and, you know, raised all these funds and met all the people in finance. Let's connect the dots these people and be the financial translators. I just linked you guys to the website. It's tenzing.co. Um but you can kinda see what we're doing. What's been the biggest Oh dude, I thought you said you hated these graphics. You have the graphics of like the people with like the funny arms and funny fingers. Uh if I remember correctly, you tweeted out if you see another page like this, you're gonna kill yourself or something like that. No no no. It was the um

The like weird Russian looking ones that Dropbox was using for a while. They were like so weird and depressing. What a What oh, dude, I know you're I know these folks. I've met Rob before. Rob is in our world. I don't that's funny. It's such a circle jerk world that we live in. Do you just like call you just collect people on Twitter is what you do. Bob actually lives in Victoria, so I've known him for a long time.

He he runs uh Outway, the sock business. That's right. And they just launched a custom they just launched a custom sock business. You guys should get some uh M F M socks made. We did. Where I've gotten'em for this other thing, but What uh what's been the biggest business that you've sold so far? Was it the uh fitness thing or the meal plan thing? Yeah, yeah, we bought a business called Me Lime.

Um, and we sold it to Albertsons. You so did that. I thought you started it. No, we bought it. So um there's a guy um up in Nanaimo, he's a developer. And um He uh started this business with two co-founders.

And his two co founders after the first year didn't want to be in the business anymore. And so We they own seventy percent. We came in, we bought them out. And Mitch, the founder, was basically like look, guys, like I'm already growing this business. I know exactly what I want to do. Just leave me alone. Like we tried to write the Warren Buffett letter and say like

Oh, you should do this on growth or whatever. And he basically just said Leave me alone. And so we said, okay, fine. We'll leave you completely alone. And a couple of years later, uh Albertsons came and they bought it for tens of millions of dollars. And uh it was a great deal for everyone. And uh yeah, worked out really well. Do you think that in the future you're gonna sell anything, or are you just gonna keep on buying and keep on holding?

I mean does like you don't want to sell, do you? No, I don't like selling and I think that um It's really hard to predict what's gonna end up being large and how large it can be. And then

Um also if you think about it Like If you have a business And it's dying. it's hard to predict how quickly it will die and how much profit will come out of it. And usually when a business is dying, you can't sell it for much, right? Let's say the business is on a major downslope.

You might get like One times profit. And so you're basically making a bet that it's gonna die before a year. Which very few businesses die that quickly. And so usually it's better off just to hold forever I've found.

Um, you know, you will see like Warren Buffett sold off his newspapers. I think That was partly because the writing was on the wall, but also because it's like unions and a lot of complexity and they wanted to get out of that. Um but no, I mean I I don't ever want to sell businesses. As some and the only reason we sold me lime was because Mitch wanted to sell the business.

He came to us and said, I want this exit and we weren't gonna hold him back because he was the founder. We um We just did this thing on the FTX saga, and I know that you like have historically been I don't know if you call yourself anti crypto, but you're definitely not pro crypto and you're for sure not pro NFTs and all that other bullshit of which I agree with you.

What what's been your take so far on watching all this drama? Um I think it's really, really bad for crypto. I think that You know, Sam Bankman Fried is somebody who

I certainly had thought, Oh, maybe this is one of the good guys and I'd seen him Uh do the podcast circuit. Um, and he seemed like a smart guy. And I think that When the number two you know, if you think about these like banks.

It's like that's the equivalent of like JP Morgan going out of business just suddenly and everyone losing their money. Um so I think it Probably. has a lasting negative effect on crypto and trust. Um, and it's been fascinating watching the price of crypto.

Not react. the way you would think, where, you know, inflation you'd think would drive the price of Bitcoin up. It doesn't appear to have done that. Um To be honest, I'm not

I was saying this to a friend of mine, I think I've probably said it on the show before, but If you came to me and you said, Hey, I think um British pound sterling, I'm super bullish on them because XYZ macro event was happening. I would just say Why are you currency trading?

You're a tech entrepreneur. And I think that Bitcoin is currency trading. Right. Like Just

Buy great businesses. Do the thing you know. And I think everyone is just speculating on this stuff. And there's A ton of fascinating arguments for it and I follow it.

But I have just ful clear and um I'm sure that we'll invest in a crypto business at some point, but For now, um, I'm just waiting for it to play out more. Um, one important reminder is If you If you missed Amazon.

you had until twenty ten to invest in it. There's a lot of time to wait and sit and watch. To find these great businesses. Uh two things. One Uh

That thing you just said? Reminds me of uh something Kevin Van Trump told us once. He goes Um we go what you know, you've been trading for twenty plus years. Uh, you know, what are the biggest lessons or something like that. I don't know. I asked him some some Stupid question like that.

And he goes Well well, you know, there's no lesson, blah blah blah. Then he goes, one thing There's always a second chance on the train. He goes, even when it's a winner, even when it's a good thing, you always get a second chance on the train. And um, you know, so so that sort of takes away a lot of the FOMO when you realize that that you know, there you do get these second opportunities. You know, it happened with Amazon, it happened with Facebook, it happened with many, many businesses where even if you weren't early and correct.

Um These things go up and down. Now the hard part is Uh it's when they go down that you have the least conviction. So Could be that's that current Right now is the right time. You know, now might be the second time to get on that train because prices are down

But now is when people are the most scared and and the most hesitant. to act on if you were hesitant before, you're probably triple hesitant now. And so I think that's the hard part. For to for to get to try to get back on the train when uh when there is a dip. Uh, the second thing is we talked about red flags and fraud. I think on the last time you were on here, we talked about people who were lying or

our partners who had screwed you, uh with the FTX thing. Did you Was there anything red flaggy that you had heard either along the way or once it started to come out that you're like Oh, that sounds pretty bad, actually. That's that was a bit of a tell now either in hindsight. No, I mean I like you guys, um

I I um I've just Haven't follow I I guess I hadn't followed it super closely and I hadn't really spent a lot of time on that particular business. Um, I was quite shocked.

That he was known for risk management and he had been talking, you know, was very Assertive about Talking about the security of the balance sheet. And it seems like there's a lot of

uh loans going on between related party businesses where he's bailing out his own business and stuff. So Very sketchy. What I find fascinating is Is this a bad actor? Right? Is he a psychopath who's building a Ponzi scheme? Or is he just somebody who got in over his head and used too much leverage?

uh and messed up. And I I don't really have an assessment of that yet. And to be honest, I'm not Following it super closely. I'm kinda waiting to read the book. I find like waiting for this stuff to all blow up. and wait four months for like, you know, the Atlantic or New Yorker or someone to write like an amazing piece on it is always more interesting than following the day to day. My favorite uh Twitter feed, Autism Capital. who's been covering this whole story has said that Michael Lewis, the guy who wrote the big short

has been like embedded with him for the past six months writing a book. And that he's still involved. And so I have a feeling we're gonna we're gonna feel good. It was meant to be like the blind side. It was meant to be this like, you know. Uh this like ragg you know, sort of like

This was you know one. Style story. What's that? You said it's supposed to be like the blind side. Yeah, like a positive story. Big short was basically like here's you know, this thing that was, you know, destined to fail. I think he was following him, not thinking FTX is destined to fail, but thinking you know, these are the challengers, you know, and look at look at the crazy craziness that's going on, but like not I don't think he was following him and I don't think SPF let him in because

Michael Lewis was thinking It's just a matter of time until this blows up and this will be the big fraud and the big scandal, like just like the big short part two. Um you know, so so I think that That's the interesting part. It's like, well here's your here's your surprise twist ending uh that you got here. I will say there's this one guy, Jason Choi, that wrote a Twitter thread that is the best Uh Andrew, if you wanna read the equivalent of the book or the the New Yorker piece, like

I wouldn't wait for them because A the New York Times put out a piece on on SPF that was supposed to be The um You know, the sort of like the recap and it was like

incredibly soft on him. It was sort of just made him out to seem like a good guy. And um you know, some s oh some bad things happen to happen. And uh this guy Jason Choi wrote out this Twitter thread that's very clear and that has all of the evidence in a timeline. Um that we know so far. And it is uh it's pretty compelling. You should check that one out. Have you guys pulled it up. Have you guys ever come have you guys ever had contact with someone who's now a famous fraud?

I've I've never I've like never met someone who Like was a blatant liar. uh about things that like kinda became well known. I've told the story about the guy worked with uh the king of coal in Indonesia who ended up in jail and and passed away in jail and But he he wasn't a fraud, was he? He was just a criminal. I mean he did bet he like he br he

Like, well no, no, no. It's way different. It's like uh Uh someone you know who's like what do you do for a living? I well I've I've fucking rob people versus like Bernie Madoff, who's like Why I run a bank. People who people who steal tend to lie.

Um and and you know, so I think that Yeah, this guy was bribing people, but it wasn't just Let's say bribery, you know, there was obviously gonna be other things in an organiz in an organization like that where you're If your primary agenda is to make as much money as possible as quickly as possible And you have great success doing it.

Um, but you're not doing a ton of the value creation yourself. You know, there's There's often a um Yeah, both. There's often both going on. And you know, I I was able to See a little bit of it. The fact that okay, I guess

That's the way you do business in these countries. You kinda gotta grease the the the guy in the middle and that's how you get the thing. Uh, you know, the the sort of bribery corruption is very common in India and Indonesia and a bunch of different places. And so That part was known. It was an open secret? Um, but I'm you know, it it's not like if you had a if you'd asked me at that point in time is there anything else going on, I wouldn't have been able to tell you anything specific, but I would have bet a lot of money that there was something else going on and part of the reason why I I wanted to to leave eventually. So so I um most of the frauds that I've met have always been small time. So it'll be like

I meet someone And I ask around about them and someone's like, Hey, like, you know, they've Mm. mm gone through the city and got like ten thousand dollars from all these investors and like defrauded them, but it's small time enough.

that they get away with it. Um Charlie Munger calls them the rats in the granary. You can't really do anything about them because they're too small. They're always going to be there and if you Uh, you know, you hammer them once, they're just gonna come back in some other form. Um I Met a guy

Um this is a bigger one. So Um In in the Canadian stock market, there's tons of Frage and there's very little enforcement. And

Um, often what you'll see is something will get hot. So like, you know, oh uh vertical farming is hot. So they'll find some you know, guy with like five employees who has a vertical farming business and some investment banker in the public market will say, Hey, let's dress this up as the next great thing. And then what they do is they dump it to retail investors. So they go to mom and pop. And the investment banker calls them and says, Hey, I've got this amazing deal. We're gonna IPO it, it's gonna pop. Whatever.

And they hand the candy out. And often what ends up happening is You know, as the trend goes, so you know, as marijuana stocks or fake meat or cubic farming or whatever it uh it is, it pops and then it drops. And what happens is

The investment bankers often make a killing because they get paid in warrants. And they get paid a percentage of the money they raise. So if they raise a hundred million dollars, they might get paid Five million dollars. Plus warrants. And if it pops, maybe those warrants end up being worth ten million dollars.

And this is all legal. This is totally legal. And so it's basically legal stealing, right? So they go out They raise all the money from a bunch of, you know, grandmas and doctors and normal people. Stock pops, they sell, and then it goes to zero and all the employees get laid off and the company goes bankrupt, or it's kind of

a shell of its former self. Um and I met a guy At a party. Um You know, last uh last summer And he was bragging to me about this IPO that he had done and how much money he made.

And I started digging into it and it was literally a The equivalent of taking a corner store public. This was like a two location business. And he dressed it up to match a trend. How much did they make? I don't know. I could probably do the math, but it's I would argue probably five to five to twenty million dollars doing this.

And you know, he's bragging about it. And the stock is down I think to like ten cents or something, right? It just it turned into nothing. And so It's crazy'cause it's literally legal. It's legal stealing, right? Like everything he did is technically legal. They do all the right documents.

When they take it public, they disclose all the details, they just write it in the right way. He's behind the scenes and like, you know, no one knows And lots of people flip the stock too, right? So many of his early investors probably just sold when it peaked out to Oh, you know, what are called bag holders in in the industry. And then those people lost all their money. And so it's

They hurt. Let's say ten thousand people in a very small way. And so it's just not the sort of thing that gets a lot of attention from regulators. So I find that kind of gross and crazy. And there's a ton of that.

Up here in Canada. So I uh tweeted this out. Let's see, when was this? This was basically last year, February twenty twenty one. And I said, Esport investments are a joke. There's so much dumb money in the space. Look at this billion dollar publicly traded company in Canada. And esports is another one of those like kind of hot industries that that you're talking about.

And the ticker is E. G. L. X. So I showed this graph and I was basically like look at this thing, it's trading at eight dollars and fifty nine cents. So I said um Yeah, it's basically it's a whole code of random assets. It's got like a website for the sims.

They own a minority stake in the Overwatch team of Vancouver. Um, it's not necessarily a bad company, but it's definitely not a billion dollar company. And so it's like here's some of the things that they bought. They boughtity, the team, uh the esports team. They bought it for one point five million in cash, seven million in a stock. What's the company call again? I want to look it up. I I'll tell you in a second because the the The prediction came true. Here's the spoiler. So uh EGL X is the ticker.

So it was eight dollars and fifty nine cents when I wrote this. It is now trading at what? Eighty three cents. Point. Eight four. Oh my gosh. So yeah. So it's down ninety percent uh since I wrote this thing. Uh 126 million. How does it even have 126 million? Spoiler, it's gonna go down another ninety percent from here is my guess. Uh not to pick on these guys, but just like there's a lot of this happening. I met uh other people you know who who are doing the same thing and it seems to happen on these small exchanges and

Um, so they bought Luminosity for a million dollar million and a half in cash, seven and a half million in stock. They bought some agencies for thirteen million in sta uh cash, some more stock. And uh they started trading on the TSX and then they were up four t four X in a year. And it's basically an ad agency. And then they own uh, you know, a couple niche websites. Um

And like, you know, if you add in all of the things that they bought, you know, they did thirty million in revenue with fifty million expenses. You know, tw they lost twenty million dollars this year and they called themselves a um you know billion dollar company. And so you know, like I said people wanna invest in a rocket ship and this is a sparkler. They have eight million of cash left in the bank. It looks like they're gonna need to raise more money if they wanna keep this going. And so uh you know, I didn't even remember that till you just said

The thing you said, I was like, I think I saw some Bullshit e sport thing in Canada, and sure enough, this was it. Yeah, there's endless numbers of these. I mean it happens in the States too. You guys saw Nicola. Yep. Where you know, even the name, you're like, Okay, Tesla, Nikola Tesla, like you're just trying to grab onto this trend and They you know basically faked the they they had this um

Uh what is it? I forget. Hydrogen powered Um Electric semi truck. And it turned out they were just rolling it down the hill and turning the camera so it looked like it was driving on a flat surface. Um complete fraud.

Complete fraud. Like commercial? Yes, I'll s I'll link you guys to um So there's this amazing guy named Nate Anderson. Um he has a a short selling uh hedge fund called Hindenburg Research and he writes these amazing research reports where he takes down these companies and it's just facts, right? It's like All he does is just basic diligence.

And he'll find like Oh, like it turns out Trevor Milton, the guy who is the CEO of uh Nickla, was accused of all these crimes. And if you just do basic research on this guy, obviously this guy's a fraud. And he'll write these amazing research reports. Um here, I'll send you guys one. No, this guy his his stuff was good. He's he's he uh I mean he's a short seller, so obviously he's gonna be a hater, but his stuff is usually well researched and fun to read.

Yeah, I mean I think there's I There's crappy short sellers who are gonna you know make stuff up or you know hint at stuff and then there's short sellers that are basically journalists that just share what's going on. Do you guys do you guys remember Bird? Sean do you remember Bird in San Francisco? Scooter company. Okay. So scooter company that I don't remember how much they raised, but I I believe it was a two point five billion dollar valuation, and I bet they've raised

North of four or five hundred? I think I think they've raised over a billion dollars. Let me see. They've raised over a billion dollars. Yeah, th I they're they've raised more than it's currently worth. And I think it's currently worth it. So listen to this. Listen to this. Google what it's worth right now. So they took it public at a Three billion dollar valuation, I think.

It's currently trading right now at seventy million dollars. Seventy Okay, they raised eight hundred eighty three. Million. Is that crazy? This company is is is the market cap is seventy three, I think, million bucks. Wait which company? Bird. Bird Scooters. Do you guys think that's the third? Well they have to have at least a million of of scooters. Well and how much secondary how much secondary did the founders think to which I I don't I can't blame them, to be honest. I don't blame them. But but I don't know how much he took, but I always

Like stick with like the best way to figure out. uh h you know, how wealthy someone is is by looking at how expensive their home is, because it's kind of hard to like get a fake mortgage that way. Uh and Travis, the guy who founded it, if you Google his name and like house, you'll see like You know, uh tech entrepreneur selling ten million dollar home in Santa Monica or tech entrepreneur buying twenty million dollar home in

Miami. So he's But he bought He's I think he's bought two houses that are worth tens of millions of dollars. There's something.

I've got a really quick Yeah. So Um do you guys remember I did this thing called a non binary term sheet a couple of years ago? Yeah.

So you're on that nonbinary train before everyone else was doing it. Exactly. Exactly. So so I've always found I've always found venture really tricky, right? Because someone will come to you and they'll say Um you know. I am going to revolutionize XYZ industry and I'm going to create a billion dollar business. And I always say okay, well If you don't create the billion dollar

Business. Then I lose all my money. Right. And to me That A, it sucks for the founder because if they

Um, you know, get a bunch of money at a valuation that's too high. They can never make their investors happy. And it sucks for the investor because it's binary. Either they lose all their money or Uh where it goes. And so When I was raising money for Supercast a couple of years ago I wanted to

Get what the market rate was. For valuation. But I also wanted it to be fair because for me, I didn't want to feel like shit if the business didn't pan out. I knew that if the business didn't pan out to be a huge business, it could actually be a good smaller business.

And so uh we raised it a ten million dollar valuation, which at the time was kind of a good um you know angel angel round valuation. But it was structured so that within two years, if the business doesn't do a million dollars of revenue, that turns into a five million dollar valuation. And so it ended up we we did uh close to a million dollars, but we didn't hit it.

And so I cram myself down by fifty percent. To make it fair. Now I know a lot of founders wouldn't want to do this because why would you do this, um you know, other than to be a boy scout and you know have a sense of fairness if no one else is doing it and if VCs expect this.

But I think it's a really interesting structure. And we've been offering it to more and more founders as the environment changes where we say, look. We'll invest But it has to s be structured so that if you don't deliver on what you say you're gonna do. We can still get our money back. What do you guys think about that?

I I don't love it. For two reasons. One is what you just said, which is like why would a founder do it? Uh like if I think about it from the founder's perspective. If I don't have to do that, I'm not gonna I'm not gonna do that, right? Like

Traditional venture would just be a better deal for me as a as a founder in that case. Um and the other thing is I think it creates weird incentives like Um I like the concept behind it. Like I like the spirit of it. But then I'm like, okay, who's gonna set these benchmarks? And then what happens when the thousand different things can happen in business? And like you you you said it yourself, like We got close, but we didn't get there.

And then there's like this crazy urge to like do something to nudge it over the top, but now you're doing something that may not be long term. Um you know right for the business. And so you create some weird dynamics. I wouldn't say it's Worse dynamics than they currently exist. Um It's just more like

If I'm the founder, I would rather Um I'd rather do that. And I also think I'd rather take the venture path where I'm getting a higher valuation and selling less of my business. I would also say There is a sort of like we're going for it or we're not. Like you would if you're running a pro like my e commerce business, we run to maximize EBITDA. Like yes, we want to grow it, but it's like this thing needs to make profits every year. Whereas when if you did adventure things, it was like

We don't think about that. You know, how are we gonna grow users, let alone revenue, let forget about profits altogether. And so there is like sort of like a There is a benefit. And knowing which path, which blueprint of business you're trying to build, and then being able to go all in on a strategy that's aligned with that versus a strategy where you're hedging. You're like, maybe we should try to have profits but sorry, go ahead.

But Andrew, the My whole like I see all these I think there's this like I've seen this like this thing called the like hustle fund and all a few other funds and they're like, we're trying to do things differently. And my opinion on that is Why? Like the game isn't broken. The game works as it should. The the the thing that's broken is people who are joining and playing the game and they maybe shouldn't be playing the game, but it works perfectly fine. Like we are getting our desire to do it. There are certain businesses that are

Good businesses, but they're not good venture businesses. Um and then they have they have a lack of access to capital. So I forgot the guy's name I feel bad now. He's kind of like It's kinda like an N D V C thing they're doing. They create each other. Is it Tyler that what's it called? The the SEAL agreement or the s something like that? They have like some new type of doc that's like the nine bot not nonbinary term sheet. But that's not. But that's not V C, right? I mean you would consider that's almost like P E.

That's a different category. Yeah, but I guess what I'm saying is it's a funding it's a funding option. It's an it's an alternative funding option for a technology business, right? You could say it's alternative to V C. What I'm saying is venture capital as we know it I think it works perfectly fine.

Like it's the the way it's supposed to work is Uh some get it. Uh most don't. The and the some that do get it, most fail and very few become huge Life changing things. And don't but don't you think like

Okay, so Sean, let's say that you got really bullish about your e commerce concept. And you'd raise 10 million dollars, like let's say like in the age of Casper, when e-commerce is super hot and D to C is crazy and the valuations are high. And you go out and you raise Ten million dollars. And now you're stuck where you're going, you know, what I really want is to pivot this into a lifestyle business, because that's what's logical.

For what you want. And imagine if there's a structure where you didn't have to feel like feel like a piece of shit because you can never get your investors money back. Right. And what I've seen is The incentive creates this situation where the founder

Is sitting on a business that could make them happy and give them a great lifestyle, but they have a gun to their head and so they continue down the venture path, even when it's actually futile. and won't work and they drive the business into the ground. So it's worse for the employees, it's worse for the founders, it's worse for the investors as well, because the investors just go to zero instead of at least making a reasonable return. So and it is kind of like private equity, but you got to remember Private equity doesn't take risk on What could be. Right? Private equity invests in what is. They they will say your business does ten million dollars, EBITDA. I'm gonna assume it's gonna be eleven, twelve.

Thirteen, fourteen. Your business does two hundred K revenue. You're assuming you're gonna get to two and then twenty over the next three years. Right. So it's a different form of capital, in my opinion. But isn't the problem like let's say I take that 10 million. And I take it where I sell, let's just say, ten percent of the company in that round. And what you're saying is that in the event that things don't grow as fast, two years now from now,

Um that ten percent becomes thirty percent for the same Ten million becomes whatever. Just numbers like that. Totally. So um But isn't the problem that They probably have burned the 10 million along the way trying to get the thing to grow. Um, hiring people, marketing, whatever else they're gonna do. And now they still need money, and now they have all these people.

So you're gonna have basically like a combination of things. It's like We're gonna have to lay off a bunch of people probably as we shift strategies to more of the lifestyle. type of business to be more profitable. We're gonna ratchet up those investors. We go from ten percent to thirty percent. The ten million is gone, so I still need money to run the thing, most likely. I need to maybe raise additional capital, so I'm gonna

Raise more money. But on those lower terms dilute everybody. It just becomes kind of like Help It's a sad rainy day, no? Or am I thinking about it only in the bad sense? I think I just fundamentally have a problem with founders who raise money at A very, very high valuation.

with the knowledge, especially from people who Are not V Cs. Right. So you know, you've seen a lot of this, um There's lots of people uh in our world

Very like on businesses that you know we've looked at. And would value it like. maybe five or ten million dollars. And they've gone on crowdfunding platforms or something. Can you give an example. And raised tons of money. No, I won't say any names. No, but there there's lots of people and there's t I I'm not singling anyone out. Literally, there's like ten or twenty examples I can think of. And

Frankly, it's like it's opportunistic. I get it. You know, you want to raise on great terms. But I have a fundamental problem with Taking money from someone when I know I can't give them a return or there's like a five percent chance. Um and positioning it as you know, you're investing in this super solid, awesome thing that's gonna be huge or as cash flowing or whatever.

And you're basically just taking someone from It's like going to someone in real estate. And selling them on your tech startup. That we would all know as a bag of garbage, but because they're in real estate, they go Oh, this looks great.

Yeah, I I actually uh I I agree with you a hundred percent. And I I really, really dislike that. I tweeted something out that I want to get you guys' uh reaction to. So I tweeted something that Kind of uh I don't know, ruffled some feathers, I guess, so I go I got one lesson, uh let me pull it up exactly. Yeah, I like this one. I don't say it wrong, but um I don't understand how this ruffled feathers, but go ahead. I go, This year I learned there is no quote smart money.

Andreeson, Sequoia, Jama, Tiger, Tribe, Kou to South Bank Paradigm. Alameda, FTX. They all made terrible financial decisions at huge size. And yet most will get richer. They play a rigged game.

Uh, Chemoff made money off of a bunch of his shitty spacks because he's the promoter. And these funds manage billions of dollars and they'll make hundreds of millions in fees along the way. As a reward, even if they lose their investors' money. Um They don't invest uh they didn't it these aren't just companies that they invest in that start to underperform.

These are huge bets on fundamentally flawed assets. It's crazy. But the lesson for me Remember to think for myself. Don't use the justification that the big name is investing as any sort of signal. And remember that the smart money is just as dumb as me. So I tweeted this out and I did it really fast. I I probably

Should have worded it differently, but A bunch of people from these firms didn't really like what I was saying. I think Did they DM you or comment? DM. Uh come on. The courage to comment and get into a tiff about this? No way. There there's no way they're gonna they're gonna take that chance. Um

You know what and I think the the I think part of it is I w worded it poorly. I think they thought I was saying These people who are supposed to be smart are dumb and evil. And I think it's'cause I said, like, you know, they play a big game. I stole that from Chris Saka, who was a VC. He goes, Venture capital is a rigged game. You make money on the fees, regardless of whether you get returns or not. And then you get their carry on the returns too down the road. Seven to ten years later, before you know, before anyone figures out if you're any good at this or not. Um But

Yeah, I think they people thought I was calling them dumb and evil. And actually no, I think they're very smart. My point was actually that even the very smart people Are doing some really dumb things because it's a really hard game. And um And I gotta remember to like, you know, not use their conviction in something to override my own

Either cluelessness or lack of conviction in something and be like, Yeah, this is a good this is I guess it's a good idea. These guys are doing it. I guess I should put money in these guys are doing like the FOMO investing. Uh style. You know, I got burned on it. I think this is one of the dirtiest things in our industry. So um You know, if you're in private equity or you run a hedge fund.

You know if you're an idiot or a genius in months or years, right? When you're playing Venture. it can take 10 to 15 years to see what a fund really does. And yeah, there's markups and all this other stuff, but at the end of the day to see realized gains takes a very, very long time. And so What you'll see is, you know, someone raises a hundred million and then five hundred million and then a billion And on a billion.

they're getting a 2% management fee. So they're getting$20 million a year. And let's think about what are the costs to run a venture capital firm. You've got someone as a custodian managing your fund. You could, if you wanted, probably have three or four employees. I know Benchmark manages three billion plus with like 12 or 15 people. So these are not expensive businesses to operate. And I think that. Um They make money guaranteed. every year and by the time that investors realize that over a 10 year period they've underperformed

They've already made Hundreds of millions of dollars. It's just absurd for taking very limited risk themselves and they win no matter what. And so I think this is something that will go away in the long term. And I'm frankly shocked that when you raise a venture fund. You don't have to say, This is my budget. I'm gonna hire three associates and my salary is this. That's all I'm charging you in fees. Instead they get this thing where it's like

You get twenty million dollars of fees and if you spend two million dollars a year on the office, you make eighteen million dollars a year. It's Total hustle. Um, and this is why like our rolling fund and our private fund, we don't cover we don't do any management fees whatsoever because I am allergic to this. I find it really gross. Yeah, that is crazy. The first two years of my fund I took zero Management fees and then as I hired people Then I added the fund, but also my fund is so small that two percent management fee of my fund is two hundred thousand a year. It's less than what I'm paying people.

to doing it. I am I am taking a loss on my on the salaries uh you know with that management fee. But two percent Of a billion dolly is 200 million dollars over the life of that fund that you got as risk free reward, which is insane. And so and then you know, uh the uh the p other point I was trying to make was that like There are Times when you bet on something that's a business that's doing really well, a really healthy

That hey, you know, it didn't achieve the maybe it didn't get as far as we thought it would. So it was a two X instead of a twenty X. Or Th something in the market dynamics changed, a competitor or regulation or the economy slowed down and then they slowed down and they they didn't end up you know, achieving the dream that they had.

Versus Like The p the investors who invest in FTX, if you're putting like like paradigm, paradigm is the number one Like you know, crypto V C, crypto focused V C.

And they put two hundred ninety million dollars into f FTX, right? Three hundred million dollar bet. Um And they came out the other day they go We are writing our investment down to zero. Um we wanna assure you that this was a small portion of our overall funds. And we had no idea what was going on. Uh like we didn't know about this.

And you you think about it, you're like First of all, the fact that a three hundred million dollar bet is a small portion of your overall thing like That's true. I'm not saying that that's not true because you have a three billion dollar or whatever fund. But man, when people the when when an outsider reads that F T uh that Paradigm puts three hundred million a da to F T they assume a couple of things. F Tex is probably a good business.

And that paradigm, the smartest guys in the room are probably doing diligence to say Hey, is this guy literally funneling customer money into his like his own trade hedge fund and like going and gambling with that money or not, right? Like you would hope that somebody's doing the diligence. And so um You know, I I think that that's that's the c and uh not to pick on paradigm, the I still think these guys are really smart.

Um it just sort of shows in general that The amount of diligence you would assume happens on Large bet sizes like that is actually uh you know, nowhere near what it what it could or probably should be. And secondly, like you have people like um like Chemoff when he was doing his spAC for Metromile, right? Like

You know, we've named basically a couple of businesses that all in Pod. I think these guys are super awesome. I love the podcast. Uh they're super smart and successful. That's there's no no doubt about that. But you talked about Bird, you know, David Sachs was the lead investor, I think, at Bird for like multiple rounds. Uh if I'm if I'm not mistaken. And um you know, Bird now is a seventy million dollar company, but you know, these guys cashed out at the IPO probably, you know, over a billion dollars. And you know

You know, there you go, you're done. Uh these guys were Month ago laughing about Solana and how they, you know, just received all the Solana at the super low price and they can't wait to dump it. And um And you know, now they're you know

Po finger pointing at other people in crypto for doing the same that for doing the same thing, but not acknowledging it. Or Chal took uh Freedberg's company, Metromile Public, threw SPAC and said, Buffett had Geiko, I had Metromile, a better business in all these ways. And like, I don't know, less than a year later, Metromile sells for a third of what it went public for. Um you know, it's to lemonade. And so you you know, you see this stuff and you think

Are these people Lying? No? I don't think that they're lying. It's just that Investing in business is a really, really hard game. And even the smartest people in the room are making really dumb things, really making really dumb decisions or dumb bets. Um and in some cases they have unfair advantages that you don't have. So it was a reminder to myself and to many other people out there who don't have those unfair advantages. That um

You cannot take their backing or their involvement in a project. as a signal that this is a a winner or a good thing. That's my rant. When you just think about how much more powerful it would be if Chamath Like I would have a lot of respect if he had said

Look, you know, we took Metromile public. I thought it was my Geico. I put two hundred million dollars, twenty percent of my net worth. into this business and I lost it alongside of you. Um, or I invested my warrants into equity and I I locked it up and I held it for three years or something like that. But no, there's nothing like that. There's no alignment. And I think so often this comes down to alignment of incentives. Um, you know, they're they're incentivized. To do the bad thing. What was the general sentiment of the DM, Sean?

Uh I got a bunch of you or like semantical stuff first. Like we weren't in FTX. Like, dude, I'm not talking about FTX. I'm talking about these other three shitty bets. If you need me to name the names, I'll I'll do it. That you know, this thing you invested that made zero sense, you know, blah, blah, blah. So it's like Some was we didn't make this mistake. And then the other one is Look, this is just the nature of the game. It's venture. You should know this, but you have a venture fund. Like, you know, you're gonna have a bunch of zeros. And I said I totally agree. You know, I I invest in seed.

S you know, start up ideas that are you know Summer routine a pitch deck, a prototype, or you know, early stage product, I know a lot of these aren't gonna work out. It's very different than I put fifty or a hundred or three hundred million dollars into a business. That was fundamentally like

you know, fraudulent or was like doing something that was uh um, you know, sort of self dealing. That's that's very, very different than um, you know, we bet on this technology and it turned out the costs weren't and you know didn't work out or That Traction wasn't a it didn't grow as fast as we had hoped or whatever. There's there's Different ways to lose. In the same way I always say in our business, like

There's errors of action and errors of inaction. If you're trying really hard and you make mistakes, totally acceptable. If your error is that you didn't think about it or you didn't do anything, you forgot, you just drop the ball on it. That's where I have tr trouble. And the same thing in investing. Well here you can You can misjudge a business and s think it was gonna grow faster or You know, um it it got sideswiped by something else.

versus um You put something into you put money into something that you should have diligenced and you didn't. To me i this is like yeah. If A sixteen Z

on average delivers value, right? So as a portfolio. They've created all this innovation. They've invested all these great companies. And yes, there's gonna be some colossal mess ups where they're going to lose a ton of money. I think that's great.

What makes me sad is when you take the uh holistic result of an entire firm. And you go, wow, over a ten year period They made tons of money and all their investors lost a bunch of money or All these businesses were were zeros. That I think is the hard part. And again

This is a decades game, right? Shamaf. We won't know if Chamath has actually built value for another ten or twenty years and frankly, like his It's all very like secret because I think a lot of his stuff is private. So we really have no clue how much money he has, how much money he made. Um, what's been successful, what hasn't. There's a bit of a smoke screen there. Um

And I I you know, I've talked to Shamath before. I think he's like a super nice, charming, smart guy. And I like you, I listen all in and I I like those guys. And at the same time I go, you know, wow, there's some there's some games. Yeah, and again, I'm not saying that they do a bad job or that they did anything bad. I'm just saying the reminder to myself was Just because this really smart person who you respect and is generally successful and has made money and probably will continue to make money is in something. Like you can't outsource your conviction. Like you can outsource a lot of shit, you can't outsource your conviction. So that was really what I was trying to say. I think I got a little too heated up and made it sound like they were dumb or evil, but that really wasn't what I was trying to say. It was actually they are smart.

But Even th even though they're smart, they're gonna make some colossal mistakes along the way. They will probably end up fine. But you gotta make sure that you know that you go in eyes wide open, that smart person can do dumb things. And it sounds so simple, but it's like A reality is We all do this. We all take mental shortcuts. Oh, if these guys are in, we're in. If this if they say it's good, it probably is good, right?

And you have to do that to some extent, or you can't function. I can't sit here and diligence every business on earth. But uh you know, y you have to be you have to At at the end of the day, you have to The reminder was to myself. Make sure if I bet on anything. And I wasn't an investor in FTX, for example, but like let's say I let's say I was or an investor in crypto or you know

promoted Sam as a smart guy, like You have to try to Um Try to not lean on other big names as your source of conviction.

Totally. I I remember I read um Howard Mark's book. famous billionaire, uh investor, value investor, and specializes in distress debt. And I read his book and I went, wow, this guy's amazing. What a great investor.

And I realize there's ways to see what they were buying so you can find out what all your favorite investors buy in the stock market. And so I went, Well, I totally trust this guy. I read his book. It's incredible. Um, I'm gonna buy into this weird Greek shipping company that he just bought, you know. fifty million dollars of equity in. And so I put like a hundred grand into it.

And It goes out of business. And what I didn't understand was two things. One. He has

thousands of positions, right? Or hundreds at least. And for him, it's just a a tiny little roulette chip that he's put down. And two, he's a distressed debt investor. So he might buy the equity, but he's buying all mostly focused on the debt and expecting it to go out of business. So I actually screwed myself by not understanding it and just blindly going along with it. And I've made that same mistake, you know, hundreds of times.

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