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SPEAKER_02: All right. More information is coming out from the fine work of investigative business journalists.

SPEAKER_04: As you know, Tether is a stable coin. What's a stable coin? It's a type of cryptocurrency where the price of the coin stays stable. One Tether or one USDC should equal $1 in American currency, US dollars. So there has been quite a controversy because Tether has become so big. It's one of the top five to 10 crypto projects in terms of market cap. It's got a market cap that's been over $60 billion.

SPEAKER_05: And they were supposed to be, as we all know, backed one-to-one with dollars. And it turned out they were changed that rule and they were backed maybe 3% or 4% by dollars. Where's the other 90%? It's in equities maybe. Maybe it's in something called commercial paper, which is loans to other businesses. Anyway, there's been a lot of investigation into this company because people consider it

SPEAKER_04: perhaps a black swan or a systematic or, I'm sorry, systemic risk in the crypto space. Because so much of crypto uses these, essentially you can think of them as casino chips, right? If you go to Vegas, you get casino chips from the Aria and you happen to wind up at the Bellagio or at the Bellagio and you wind up at the Wynn, they'll kind of change those chips for you. I don't know if you knew that. And you don't have to carry $10,000 in cash. You could have 10 $1,000 chips or two 5k chips called flags in your pockets. That's what this was the equivalent of, a way to just not carry around large amounts of money and use essentially a shadow currency. And Tether was banned from operating in New York City after the Attorney General had a scathing report on them. They've since done attestations to kind of tell us what they have in their holdings, but

SPEAKER_09: they were one or two pages long and done by a very questionable accounting firm from the

SPEAKER_05: Cayman Islands or somewhere offshore or something that I shouldn't say that that firm is questionable. I think people had many questions about that firm might be a better way of saying it because

SPEAKER_10: it's not Price Warehouse Coopers or Ernst & Young or something like that. Okay.

SPEAKER_04: So anyway, this article came out by a gentleman named Zeke Fox. He's a journalist at Bloomberg and the title of the story is Anyone Seen Tethers Billions?

SPEAKER_13: So let's bring on Zeke who's calling in, I think from the East Coast, perhaps New York. Hey, Zeke, how are you doing?

SPEAKER_15: Hi, Jason. Thanks for having me on. Yeah, here in Brooklyn.

SPEAKER_13: Ah, my hometown. I lived in Brooklyn when it wasn't cool, the 70s and 80s.

SPEAKER_04: Now you're there and it's super cool. So tell me, what did you learn in the course of your reporting?

SPEAKER_17: So I mean, took it back to the start. I wanted to see who founded Tether, why it existed, what was the point of it?

SPEAKER_20: And I mean, on the most extreme side, you have people who are basically saying this is a giant fraud. It's a Ponzi scheme. There's probably no money at all. Then you have the crypto people who are like, why would you ever worry about Tether? It's industry standard. We've been using it for years. And what I found is that the company that issues the coin, I mean, this isn't really some decentralized thing. It's controlled by one company. And the man who's in charge of the company, his name is Giancarlo DiVicini. Early in his life, he was a plastic surgeon near Milan. Yeah. And he got into like the import export business, bringing in like low quality RAM from Asia. And then he invested in a crypto exchange. One of his employees there helped found Tether. And he ended up sort of buying in, buying a bigger share of it. So you've got this guy, Giancarlo, who controls Tether. And there's kind of a conflict of interest at the center of it, which is that like if you are a person who uses Tether, your concern is that they have the money to cash in the coins, whatever you want. You want Tether to always be worth a dollar no matter what. But if you're Giancarlo, you want to take the money that people have given you to buy the Tethers and invest it because any money that they earn on these reserves, that's their profit. And with Tether at 69 billion, even if they earned 1%, $690 million a year.

SPEAKER_22: And it's a really small operation, like a couple dozen employees.

SPEAKER_05: So they get the float and that would mean their incentive is to take more risk with people's

SPEAKER_25: money while the people who are giving them the money are giving them the money under the auspices, under the exact promise that there is less risk in this. And is that what you're saying is the opposing forces here or the conflict?

SPEAKER_26: Exactly.

SPEAKER_20: And so for Tether, it's created as a workaround for banks, but they've always had to have a bank because they need someone to keep the money that they're holding reserves.

SPEAKER_28: And I spoke to John Betts, a banker who ran a bank in Puerto Rico, which for a couple of

SPEAKER_20: years was where Tether kept its money. And he said to me, he ended up having a falling out with Divacini, the Tether's chief. And he said to me, first off, when Tether was with this bank, the money was there. But second, he compared it to a hedge fund. He said, basically, it's not a stable coin. It's a high-risk hedge fund. And Tether is misrepresenting, in his view, the risks involved. And so once I understood that, what I really wanted to know is like, okay, what are they doing with these reserves then? Because you could invest in like treasuries. It'd be pretty safe. And you might still earn like a, if the pot is so big, you could still earn a decent yield. So I wanted to see, now that the question had been raised, like, okay, maybe they're safe, maybe they're not.

SPEAKER_22: I wanted to see what they're investing in. So I spent a while looking into that.

SPEAKER_13: And you, in fact, had somebody tell you that Tether has about 15 billion sitting with Deltec, about 22% of their reserves. Maybe you could unpack that.

SPEAKER_26: Yeah. So the only bank I could find now that would say, hey, we do business with Tether is called

SPEAKER_20: Deltec. And it's a real bank. It's in the Bahamas. And its founder is an interesting guy. Not its founder. It's chairman and largest investor, I believe. It's an interesting guy.

SPEAKER_26: His name is Jean Chalepin.

SPEAKER_20: He's French. He got rich by inventing Inspector Gadget. And Heathcliff. I remember that one. Yeah. I mean, he was like writing these cartoons. He sold his animation studio for a huge amount. And now later in life, he's moved to the Bahamas, where for a while he lived in a mansion that you might recognize. It was the villain's house in Casino Royale. Okay. Yeah. I think I do. Yeah.

SPEAKER_40: Daniel Craig, he gets out of the ocean in that little bathing suit. Yeah.

SPEAKER_11: The famous homage scene. Yeah. So, okay.

SPEAKER_05: Colorful characters. Yeah. Yeah. They do business with them. They, however, that chairman says he doesn't know where the rest of the money is.

SPEAKER_20: So he's like, yeah, we've got about 15 billion. That money is safe. We haven't invested it in anything weird, but I don't know where the rest is.

SPEAKER_47: Let me ask you a question, you're a reporter, right?

SPEAKER_50: So why would, um, the Inspector Gadget creator, uh, why would he tell you this information?

SPEAKER_52: It's like, he's not obligated to tell you, right? No, I mean, he, I said, Hey, can I come meet you in the Bahamas?

SPEAKER_20: And he said, uh, he said, sure. He didn't have to do that. And I appreciate it. Um, I think his interest is that he doesn't want people to think his bank is some. Like two bit operation that has nothing going on, but Tether. He wanted me to see, this is a real bank. We have other customers and like, yes, Tether's one of them, but they don't own us.

SPEAKER_55: We did our due diligence and we were handling some money for them.

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SPEAKER_05: O-D-O-O.com slash twist. So that's just fascinating that you went to the Bahamas and got him to give you that information. Well done. Sometimes sitting with somebody in person will get them to give more information or context. And I guess he had some concern for his own reputation being associated with Tether. He must be watching the investigations, you know, being, they were banned, Tether was banned in Canada, or at least not allowed on the two regulated exchanges.

SPEAKER_04: So let's move on to, after you returned from the Bahamas, you said you obtained a document showing detailed accounting of Tether's holding, which included, quote, billions of dollars of

SPEAKER_60: short-term loans to large Chinese companies. Yes.

SPEAKER_55: Yes. And, you know, I'm being a little, some people have asked like why I didn't post the document

SPEAKER_20: or give more details and, you know, I'm giving as much as I, as I can. Got it.

SPEAKER_63: You don't want to reveal your source, I guess would be. Exactly.

SPEAKER_20: I want to be a little, keep it a little vague. Okay, perfect. There's a lot of question about does Tether have this Chinese commercial paper? A lot of people were sort of, were saying on Twitter that they do, and I found what I believe to be this trustworthy document that shows that, yes, like they have a lot of Chinese commercial paper.

SPEAKER_22: Not Evergrande, which was the property developer that's like teetering on the edge of bankruptcy or whatever.

SPEAKER_66: And you got these documents before Evergrande collapsed, correct?

SPEAKER_22: Yeah, these are, these predate that and there's a, and I didn't see Evergrande in there.

SPEAKER_67: Got it.

SPEAKER_45: Okay. And so it was detailed to the level that it showed the actual holdings, is what you're saying, because Evergrande wasn't listed, which means other people were listed.

SPEAKER_55: I feel like I would have, but who knows, you know, in this story, it's like so hard to know what to, what to believe. I mean, there's no pile of gold, right?

SPEAKER_28: Like, in the end, like, how do you, you almost start wondering, like, how do you prove anything about, uh...

SPEAKER_71: Well, I mean, it just shows that the banking system, uh, the global banking system combined

SPEAKER_05: with crypto, I would think you, uh, would agree and anybody listening would agree, uh, creates a great opportunity to obscurify, uh, what's actually happening, right? And in fact, Tether is an obscurification tool, right? People can buy Tether. They could, you could be a criminal, you could be the Vatican, anybody in between.

SPEAKER_09: I guess some people would consider the Vatican more on the criminal side, but putting that

SPEAKER_71: aside, you know, you could be anywhere in between those two, uh, uh, you know, a virtuous non-profit or a, you know, terrorist organization, anybody could buy Tethers, move them around, and there's very little way to figure out what's going on, at least by journalists. So when you get this document, um, let me ask this question, how sure are you and how does a journalist, broad strokes without being specific to this case, what is the process of vetting a document like this without revealing your sources, which I'm sensitive to, um, cause it's a whistleblower, obviously, or, or somebody who could have serious ramifications for giving you this information.

SPEAKER_04: How does one, um, as a journalist, make sure that you're not being actually manipulated and somebody is not trying to do an operation on you because the people who are running Tether

SPEAKER_71: seem very colorful, perhaps, um, uh, you know, uh, some people would consider them to be dishonest. Uh, I think in, uh, people have some concerns about them. So did you ever think maybe somebody's sending you a forged document to make Bloomberg look

SPEAKER_74: bad and then how does an organization, a journalistic organization that has a very big reputation like Bloomberg make sure you're not getting snowed?

SPEAKER_20: Yeah. I mean, there, there's always a risk like, um, it's certainly something I worry about. I mean, it depends, um, how much you trust the source, um, and the.

SPEAKER_22: Um, sometimes you're able to verify some of the details independently, um, and corroborating

SPEAKER_71: evidence that you get from the documents, right? You could look at the letterhead and make sure that's official letterhead. You could look at the data inside of it and make sure that that data seems legitimate.

SPEAKER_79: Yeah.

SPEAKER_20: You could, you could check some of the data with other sources. Um, and also, um, I mean, I think people have a lot of like misconceptions about how journalism works. But like, sometimes I don't realize how little people understand. I think everyone's going to know how this works and they don't, um, like, I wouldn't

SPEAKER_81: just get. Exactly. I mean, I'm a journalist.

SPEAKER_05: The reason I asked the question for the benefit of the audience so that they could look into your process. Cause you do think deeply before publishing something like this, correct?

SPEAKER_20: Yeah. I mean, we w we wouldn't just get something in the mail, like an anonymous thing and be like, oh yeah, I've seen it like for sure. You know, like we're, uh, if we put it in there, it's because we believe it to be true. We've had reason to do so. And I wish I could have been more, uh, specific in the story, but that's the best I could do.

SPEAKER_05: I mean, eventually you, you probably will be at some point as the ramifications happen. So let's, uh, you see, they have, you know, billions of dollars in these short-term loans

SPEAKER_04: to large Chinese companies. One would wonder why would they take that risk? And then the next one is that they, uh, were giving loans, uh, or making investments.

SPEAKER_71: I guess they would be loans to other crypto companies using Bitcoin as collateral. So I assume the other companies, Bitcoin would become the collateral of Tether. So am I correct in assuming they're taking these high risk loans from the Chinese companies to get the, uh, a better return because they're high risk, they have higher return because they carry the risk. But in the second case of giving money to crypto and then owning their Bitcoin, is this a savvy move? Because if they are investing in those cryptos companies and they're enabling crypto, they know crypto, they know crypto is growing, they have inside information essentially because of their data, um, knowledge, right. But they also then get to own their Bitcoin as collateral and Bitcoin is going up. So if they do go bust, they get that benefit. We don't know what's in these documents.

SPEAKER_04: Maybe they get an interest rate that's really good, but in a way, this is like somebody who, um, I don't know, selling somebody who sells houses, giving people the loans to buy the houses

SPEAKER_71: without doing a background check on, you know, and like that could pop, prop up the entire ecosystem.

SPEAKER_87: Um, is that the issue here?

SPEAKER_88: So they're giving like, these loans aren't too complicated.

SPEAKER_20: It's like this, I was explaining this by, um, the founder of Celsius, which is like a big sort of quasi bank prime book broker type company. So he's got too many Bitcoins. He wants, um, tethers instead. Um, so he'll give tether say, and don't quote me on these numbers, but let's say he gives tether a million dollars worth of Bitcoin. Yeah. That's collateral to hold on to temporarily tether will lend him $700,000 worth of tether. So even if the price of Bitcoin goes down a fair amount, they're still covered. And he, Celsius pays tether, he said five or 6% interest. So that's like, I mean, you can see why they do this. I mean, it seems pretty safe, like as far as things go, especially in the Bitcoin world and five or 6%, uh, interest is pretty good. You know, even, um, I mean, if you got a billion dollar loan, that's what he said, or a billion tether loan, um, that's 50 million bucks a year, uh, so this, this, uh, is a pretty profitable deal for them. And if you believe in Bitcoin, you might think it's not too risky. Now, I mean, the thing that we're not talking about here is like tether is, uh, if you compared it to say like a, a money market fund, I mean, these funds take like very, very little risk because there's this one big risk, which is that if people lose confidence in the fund or in tether, they might say, okay, I think tether might've lost some money in secret.

SPEAKER_27: It's like a game of musical chairs. Like I better cash out, right? Because if I'm the last one, the money could be, you could have a bank run basically.

SPEAKER_33: And you don't want to be the bag holder because if these loans were to fail, uh, there would

SPEAKER_05: be, uh, uh, this sort of, uh, shock wave, people start pulling out, they start selling their tethers, trying to cash them in or whatever. Maybe it could go below a dollar because tether doesn't have the assets to back.

SPEAKER_92: Hey everybody. I thought I would bring Christina Cassioppo. I pronounced it correct. I'm hoping. Christina. You got it. Yep. All right. You're the founder of Vanta. Uh, people have been hearing your ads on the pod for the last year.

SPEAKER_94: And I thought it'd be fun to have you on and you to explain why you created Vanta and what sock two is and why it's important people get it right. So let's start with what is sock two for people who are just realizing they have to become sock two compliant.

SPEAKER_95: For sure. So sock two is at a tie level. It's sort of a customer asking you to prove your security.

SPEAKER_94: Got it. And when you do a sock two report, how often do you have to update it? And what is that process like? Because my understanding is you don't just do this once in the life of your company. You do it continually every year, every quarter.

SPEAKER_97: Right. So you actually do it annually. Yeah. So often, um, so the way these reports work is they've got dates and time periods on them. Um, and sort of like a pen test. It's, it's something once you start doing, you'll just renew every year.

SPEAKER_94: All right. Fantastic. Well, thanks so much for coming on and telling the audience, uh, why you should get your sock two, when you should get it and how you should do it. And you've been very nice to our audience, giving them a thousand dollars off, uh, which is a really significant, uh, and generous offer. Go to Vanta.com slash twist, V-A-N-T-A.com slash twist to get a thousand dollars off your sock two. Thanks, Christina. Appreciate it. Thank you so much. Cheers now.

SPEAKER_71: It is possible that Tether has made so much money that they feel they have a huge profit sitting somewhere that they can withstand this though. Is that maybe something we can infer here?

SPEAKER_103: That's interesting question.

SPEAKER_20: Like it's, I don't think that the holders of Tether have any claim on the accumulated profits of Tether, the company, like that's going in the guy's pocket and he's not obligated

SPEAKER_105: to, to get into that. Uh, if you know, this is where it's going to be sweeping the cash as profits is what

SPEAKER_05: you're saying. So that it's not like Tether seems like the most responsible company. So it's not like they're going to say, oh, we made $20 billion over the last five years. We have it sitting here as a reserve.

SPEAKER_53: There there's no regulation here. So they're not required to have a reserve. That's another big issue here. Correct.

SPEAKER_88: Right.

SPEAKER_55: And people like to say in the crypto world, they're like, oh, Tether, it's so much better than banks. Banks are, you know, uh, banks are lending out so much money.

SPEAKER_20: But if you like, if you look at, uh, at Tether, they've got, they do have like a tiny cushion. It's like a hundred million bucks or something based on the numbers they put out there. I mean, it's like a fraction of a percent. They've lent out all the money and what we, you would call like their, uh, this cushion is really tiny according to what they're posting on their website. So if, if they lost even a small amount on their investments, on paper, it would be worth less than a dollar. And there'd be like an incentive to cash in because they're, they're cat, they say they'll cash them in for a dollar. So there'd be incentive to do it.

SPEAKER_04: So, uh, Celsius, this company, uh, that you mentioned, uh, held a $30 million funding round back in June, 2020, uh, where Tether was the lead investor.

SPEAKER_05: So now you have more conflicts going on here. They're investing in the company. They're loaning money to it. Uh, they're making, they're doing business with them. Uh, they're, they're preferred, uh, you know, uh, imaginary money token, uh, and Celsius has been under regulatory scrutiny recently with Kentucky securities regulator recently issuing a cease and desist for their, uh, interest bearing accounts.

SPEAKER_71: So the house of cards here could be as crypto regulation occurs, all the people who are Tether's customers, investments, loan partners, uh, are also intertangled.

SPEAKER_87: There's not only conflicts here, there's risk. Is that correct for sure?

SPEAKER_20: I mean, I thought it was interesting that the investment that you mentioned, um, now if you saw, you might've seen on Twitter, the Celsius founder actually corrected the story at one point because I initially said that, um, just, it was just a straighter mistake that they had borrowed Celsius had borrowed $1 billion from Tether. And he said on Twitter, no, we borrowed $1 billion Tethers. So, and what, and I think this is important because that means that if Tether were to crash, Celsius, it would actually in a way be good for Celsius. They could pay back, they could buy, they could rebuy these Tethers very cheaply and pay back the loan. Um, but it's, it's, I can't say that I fully understand the, uh, the connections between

SPEAKER_114: them and what would happen if one ran into trouble or the other.

SPEAKER_110: Yeah. I see.

SPEAKER_04: Uh, so I guess the, the question that I have for you, um, with all of this is have regulators called you and asked for the documents now that you have them? Um, we wouldn't, yes or no.

SPEAKER_79: I think they, they wouldn't call cause they know that, uh, you know, I wouldn't give it to them. Okay.

SPEAKER_110: Right. So they haven't called, but this is serious enough.

SPEAKER_71: Does a journalist covering something like this, when you get inside information like this, if a regulator says, Hey, um, you know, there's a lot of people at risk here. Um, is there a point at which a journalist says, you know what, this needs to go to the authorities, uh, obviously if it was, you know, human trafficking information that you

SPEAKER_83: were privy to, you would give it to them. Right. A journalist would give it to them in the, in the ethics code.

SPEAKER_122: That's a good question.

SPEAKER_20: I mean, it's never come, I've reported on a lot of like financial situations before. And I don't think there's ever been a time when, um, I mean, generally like I'm in the business of finding things out and then publishing them.

SPEAKER_23: Like I'm not really sitting on usually like sitting on some crazy secrets that I don't publish.

SPEAKER_11: Well, I mean, I wonder if the documents you have, I guess another way of saying is I

SPEAKER_05: wonder if the documents you have is something that the sec department of justice, cause there's rumored to be a department of justice bank for a bank wiring fraud case against them. I don't know if you discovered anything about that, but I wonder if you have the documents,

SPEAKER_87: that means the DOJ must have them. But there are times when journalists get documents before, uh, the authorities.

SPEAKER_28: I mean, it could go either way, but I would think that, um, look, I mean, Tether publishes

SPEAKER_20: these attestations from this accounting firm, like you mentioned that as far as I could tell,

SPEAKER_22: honestly, it seems like a real accounting firm. I had, I didn't find anything to call them into question. Um,

SPEAKER_130: Well, except for the size and scale of the company, right? It's like a 10 person accounting firm. And this is $60 billion.

SPEAKER_71: That just seems like, why wouldn't you use a more, if you had 60, $70 billion, wouldn't you want to use the best firm?

SPEAKER_50: Like, as opposed to some unknown person, one in the, you know,

SPEAKER_55: I mean, it's fair, but I've seen worse where, where you have someone, it's like some guy in a, in a, in a one room office.

SPEAKER_20: I mean, then you'd be like, all right, this accounting firm is really, uh, but I, I, to me, the question is like, what are they saying in those reports and what are they not saying? Like, they're not really saying exactly what the investments are. Um, but of course, I think the DOJ would definitely ask Tether, Hey, give us a detailed

SPEAKER_23: account of your, of your investments. And that Tether would probably give it to them. I mean, this is just me speculating.

SPEAKER_20: Um, when you saw that with the New York attorney general, that they actually sued Tether because they wanted more documentation. There was like a dispute over that, which ended up in this settlement that you, that you

SPEAKER_114: mentioned before.

SPEAKER_135: Yeah. And where they were banned from operating in New York, the capital of finance.

SPEAKER_137: I mean, uh, Tether didn't admit. I guess that's not a red flag. Yeah.

SPEAKER_139: It's pretty amazing how like people don't consider being banned to the financial capital of the world as a tiny red flag.

SPEAKER_105: Yeah. I mean, you know, I should say these Tether guys say like, this is all FUD, like this

SPEAKER_144: is all uncertainty and doubt.

SPEAKER_71: And they are, are they attacking the messenger yet? Because that is typically part of their play bug is to attack the messenger. Have they gone after you personally in Bloomberg yet?

SPEAKER_147: Um, do you have some agenda here to take down Tether?

SPEAKER_28: I mean, they said, you know, I'm out. I can't remember what they said exactly, but they said this is really biased and like, we're out to get them, which is not the case.

SPEAKER_20: I mean, any, this is the funny thing is that any, like, like you, I, I, as I was reporting

SPEAKER_23: this, I saw you tweeting about it and I'm like, yeah, any like observer who knows about business would think a lot of this stuff is really weird.

SPEAKER_151: Um, and you know, in fraud cases, um, uh, what I try to do is not look at the words that

SPEAKER_71: are being said by the people who I believe are perpetrating the fraud or who are accused of perpetrating a fraud. I just look at the behavior. When you take all the words out, when they attack you or they, you know, whatever, if you just look at Canada's banned them from participating, New York's banned them, you

SPEAKER_09: know, they only have 3%. They switched from saying they were a hundred percent backed now to 5%. They won't say if they have Chinese paper, then they do say they have Chinese paper.

SPEAKER_156: Attacking the messengers, all the conflicts. When you just look at the behaviors, if the behaviors themselves don't make sense. And there's like many of these red flags, I think you just start to put them in that bucket because

SPEAKER_71: like there are notes or made off the, the words are just confusing things. And if you look at the behavior in Madoff's case, it was these results are too predictable.

SPEAKER_156: There's no way statistically they're possible. And then with Theranos, it was nobody's seen the blood testing machine. And with Tether, it's nobody's actually seen the commercial paper. Nobody's seen the holdings until today or yesterday should say when you saw them.

SPEAKER_20: And what, and what they're saying is like, Hey, we actually do provide these accounting reports. There's a bunch of other stable coins. They don't put out any, anything better. And they're like, whatever, how are we going to prove it to you? You guys don't believe anything we say.

SPEAKER_55: And the people who do care, the crypto people, I think what's interesting. I mean, they seem to trust Tether. It still trades for a dollar. Like they're super naive. Yeah. Super naive. Yeah. Super naive. Yeah.

SPEAKER_167: I mean, well, I think it's that, um, after talking to a lot of them, you know,

SPEAKER_20: I've realized that like, it's not that they really believe these guys is that this is like at the core of the crypto market structure, especially overseas. And if they want to play in these markets and they can make a lot of money, they'll use Tether all day. And they probably don't think that they're going to be the one to be stuck holding the bag because they're smart. They're paying attention. Maybe they don't even hold like big positions overnight in it. I don't know.

SPEAKER_170: But like they, uh, they'll tell me their own conspiracy theories. Even people who use it a lot. Yeah.

SPEAKER_110: All right. Listen, uh, great reporting. I assume you're still on the case.

SPEAKER_45: And, uh, if we follow you on Twitter, uh, or, uh, we subscribe to Bloomberg, we'll see some more coverage of this in the coming weeks.

SPEAKER_20: Definitely. It's, uh, Z-E-K-E-F-A-U-X on Twitter. And I'm going to, uh, I'm definitely going to stay on it. It's a really interesting story.

SPEAKER_174: Well, we're going to put it in the show notes.

SPEAKER_04: Of course, twitter.com slash Z-E-K-E-F-A-U-X. Zeke Fox pronounced like the animal, but spelled F-A-U-X. Z-E-K-E-F-A-U-X. Go ahead and follow him. Uh, and, uh, let's stay on the case.

SPEAKER_05: Uh, thank you for coming on the show and do let us know when the next piece drops. We'll have you on again. Uh, have a great weekend. Bye-bye.

SPEAKER_04: Listen right now, LinkedIn is going to give you a hundred dollar credit towards your first ad campaign. That's a handy for you to get new customers, to run some ads. Just go to linkedin.com slash checklist, linkedin.com slash checklist and get a hundred dollar credit right now. Now let's look at your startup. Let's pretend you're about to launch a campaign. It tested. Well, your entire team is happy. The creative is great. It's going according to plan, but you have this thought in the back of your head and you should have this thought for a reason. How do I ensure the people I want to target will be in the mindset to receive my message? Well, the answer is LinkedIn. Why? Because when you market on LinkedIn, your message reaches people who are ready to do business. LinkedIn equals business. Business equals LinkedIn. LinkedIn, business, business, LinkedIn. We all know that's the case. If you're there, you're doing business, right? And that means your advertising campaign will work as hard as it can. As soon as you launch it because there are over 62 million business decision makers on LinkedIn right now waiting for you. That's why over 78% of B2B marketers rate LinkedIn as the most effective social media platform at helping your organization achieve specific goals. So do business where business is done and get a hundy $100 ad credit at this very new domain name. LinkedIn.com slash checklist. LinkedIn.com slash checklist. One word.

SPEAKER_159: Terms and conditions apply. Because they're giving you a hundy.

SPEAKER_179: All right, everybody. I'm really excited for our next feature series here on This Week in Startups. Sure, we're going to do the news. We're going to cover the news with the Nody gang. We're going to cover you eight ways to Sunday. But a lot of people have been asking me, what does it take to start a company? There's a lot of people who are fans of this show who are into the news. They're into tech. They're into innovation. They're into entrepreneurship. But, but they may not know where to start as an entrepreneur. So I thought about and I was like, my God, there's so many questions I get. So many great questions from our audience. So many great questions I get when I am running the accelerator with Jackie or meet people on the street or at a conference. And so we've been accumulating these questions for a decade. And we started to clean them up and organize them. And we decided we're going to do a feature over the next 10 weeks or so.

SPEAKER_182: And it's our 100 point founder checklist. These are 100 things you can should consider as a founder.

SPEAKER_60: Now, if you're already a founder, these are good things for you to think about, maybe to share with your team.

SPEAKER_179: The first couple are going to be a little bit obvious and early for seasoned founders. But listen along and you might be able to use them in your, you know, path as an advisor to other companies or when you're talking to other founders. Obviously in your feedback on these. So if you have feedback, you can do that at this week in startups.com slash slack. If you come to our slack, you can talk to the producers of the program myself for hanging out there. It's a great place to have conversations about the show and startups. And then of course, you can DM me on Twitter at Jason or DM the show TWI startups. I try to get to as many of my DMS as possible, but my team, they get to 100% of them. And we're pretty active in the comments at YouTube now. And I'm really proud of the fact that our YouTube comment game is strong. We have considered awesome comments there and now threads are starting where people are talking to each other. So you can see all those questions about this video itself at youtube.com slash this weekend. And you just go to the videos tab to see all the videos. You'll find it.

SPEAKER_156: And so onto this checklist, which you can see anytime you want.

SPEAKER_09: We basically built a notion page this week in startups.com slash checklist this week in startups.com slash checklist and you'll see all 100 items on the checklist. Now, if you're at a big company, or maybe you're in college, and you're thinking about starting a company, this really is the episode for you. So when you're thinking about starting a company, right? What kind of qualities do you need to have as an individual? Right? What characteristics make a great founder? I get asked this a lot when I'm teaching Angel University, or I'm talking. I'm talking to investors, or people just ask me the press, whatever. Hey, how do you? How are you so good at picking companies? Well, let's be honest, I picked 350 comments. There's got to be a couple of unicorns in there if you're gonna pick that many. But there are some characteristics that are super important. Now, one of the things you'll hear over and over again, and the question you have to ask yourself is, and this one relates really to motivation, are you solving a problem that has personal relevance to you?

David Friedberg: Are you super passionate about this idea?

SPEAKER_179: And do you really care about seeing this product or service manifest itself in the real world? And are you willing to give up a decade of your life? Because that's what it takes. And if the problem is not important to you, right, let's say you decide you want to create Slack, and you think chat and talking to people and communications at companies is just something that has been burning you for a long time, because you've worked at companies where you've been sitting in meetings and wasting time. Great, you're gonna wake up every day, and you're gonna say, I really want to see this problem solved.

SPEAKER_187: Now, conversely, if you like video games, you don't like working in an office, and your thing is Dungeons and Dragons and Diablo and other kind of, you know, real time strategy games, whatever it is.

SPEAKER_179: Well, if we put you in charge of Slack and building, you know, the greatest version of Slack or Yammer in the world, you're gonna wake up one day, and you're not gonna want to do it. So if you pick the right idea, then you don't have to worry about motivation, because you're just absolutely thrilled to wake up every day and do your job. How do I know this? Well, you know, I'm 50 years old now, I'm an entrepreneur for a long time. And I wake up every day, I can't wait, can't wait to tape the podcast. And I can't wait to invest in companies. And I can't wait to do events. I love these three things. I like communicating. I like talking to smart people. I like placing bets. It fits who I am. So it took me decades to figure out exactly what I wanted to do every day. But this is it. And I'm super happy. And I don't have to worry about my motivation. Okay.

SPEAKER_09: So this, some people refer to this as your North Star, your mission, your purpose in life, there's a lot of different words for the same thing.

David Friedberg: But let's just put it in one basic simple lens. Are you going to be motivated every day for a decade to work on this problem? For Robin Hood, it's democratizing finance. For Calm, it's really helping everyone out there have more equanimity in their life.

SPEAKER_179: Eight sleep, they want to improve sleep, obviously. So is the problem worth solving to you? And is it really, really, really something you could see yourself working on for many years?

David Friedberg: If the startup goes well, it's going to take 10, 20 years to really hit the good moments, right? When you really do change the world. I mean, you're 11 as an investor. And I woke up today, actually, just coincidentally. And I realized, you know what, we're at 9,000 members in the syndicate, thesyndicate.com, my angel syndicate. And I had set this stretch goal of hitting 10,000 when I wrote the book three years ago, Angel. And I just realized I'm about to hit it. And I was like, wow, gonna have some sort of celebration. Then somebody said, Hey, do you know what, this next deal we do, we're going to break $100 million invested from the syndicate.

SPEAKER_179: And I was like, wow, you know, my goals are starting to manifest themselves in year 10 or 11. That's what it takes. Actually, the syndicate is more like your seven rate of an angel investing for 11. So make sure you pick something that is really passionate to you. Because if you're in it to just get rich or be famous or to have the title of CEO founder, I can tell you that those things are not enough to get you to get out of bed in the morning when you open your phone. And one email says resignation in the in the subject line, and it's from one of your top contributors, and your just stomach sinks. Oh, God, I just lost my CTO. I just lost my, you know, head of HR and human capital. Oh, my God, you know, it's just that's like getting punched in the gut. Or the lawsuit shows up and you get a legal letter. Oh, my God, we're suing you.

SPEAKER_187: Oh, you know, like, to get through those moments, or you look at the bank balance, and it's like, oh, my God, we the funding is running out. And I emailed our existing investors asked them for a bridge and they said no.

David Friedberg: But think about those three moments. Somebody who's a key contributor quits, your investors give up on you, and you get sued. Think about those three different moments. Would you be able to wake up and go to work and stay focused and build the company if that happened?

SPEAKER_179: Now have all three happened in the same goddamn week, because that's what entrepreneurship is. Those three things, it always comes in three, will happen to you in the same week. And you know what? The idea of getting rich or being famous or having the title means nothing. When you get punched in the stomach, you fall to your knees, somebody kicks you in the teeth, you know, and then they stomp on your head. That's what being an entrepreneur is like. That's the reality of it. So make sure you pick an idea that you are motivated to see through for a decade in the face of insurmountable odds. Okay, let's go on to the second question you have to ask yourself. All right. So first, you know, this is an idea that you can work on for a decade. Second, can you build a great product or not? Can you build a great product or not? Because all startups are about building a great world changing product.

David Friedberg: You cannot, cannot have a successful startup based on your vision, your ideas. That's not how this works.

SPEAKER_189: What happens is everybody has the same goddamn ideas.

David Friedberg: Everybody has the same vision. You get zero points for your vision and your ideas. What do you get points for? Your ability to build a product or service that delights customers.

SPEAKER_09: So let's take a deep look in the mirror. Are you a developer? Do you know how to write code? Because that seems to be the big skill involved in building these companies is being a developer. Okay, you're not a developer. Are you a product manager? Do you know how to manage a product?

David Friedberg: And have you done that before to coordinate between design developers, etc? UX? Oh, you're not. So you're not a developer and you're not a product manager. Okay, wait, there might be other things that involve you building. Okay, are you a UI UX designer? So do you know what the users want? And do you know how to build the wireframes? And then go to the developers and say here are the stories. Here's the product journey. Do you even know what UX and UI is?

SPEAKER_09: If you don't, now we've established you're not the product manager. You're not UX, UI. You're not the developer. Are you a designer? That's kind of the fourth one. Can you make a beautiful product? Are you Johnny I?

David Friedberg: You know, and if you're not, pause for a second. And then just say, Well, what if I was? What if you were one or two of those things? What if you are a product manager, developer, UX, UI designer, or just a straight up designer, right? Then there's industrial design. There's different types of designs, graphic design, etc. You can learn these for free on the internet. So have one of these skills.

SPEAKER_09: And being a product manager, a UX, UI designer is probably the quickest and easiest to learn. Being a designer or developer, that could take years to be good at.

David Friedberg: But being a product manager, UX, UI designer, you can learn in, I would say, three to six months and have a, you know, be relatively good at it. And then after six to 12 months, be very good at it.

SPEAKER_09: Whereas a developer to be very good, let's be honest, that might be a two, three, four year journey. And to be a designer to be a very good designer could be five, six, seven year journey. I think I might argue that elite design is, it takes a little bit longer. And let's be honest, a lot of times when you're doing elite design, you can hire somebody.

SPEAKER_156: Of course, there's always low code and no code. You can build MVPs with Bubble, Webflow, a bunch of these different products out there.

SPEAKER_09: You could mock things up with Zapier and If This Then That and, you know, Typeform Survey Monkey, you know, all these different products.

David Friedberg: You're able to glue stuff together and make a no code solution. And there are plenty of no code solutions out there that you can learn inside of I'd say 60 60 days to be, you know, proficient. In fact, we do it. We don't have any developers that launch ourselves.

SPEAKER_156: We just do a ton of low code stuff where we will create email sequences, databases with Typeform forms, etc. Notion works really good. So you can build a stack of these things and and dial it in and build an MVP.

David Friedberg: So those are different ways for you to actually be a builder, because in the early days of a startup, the first couple of months, you're just building a product.

SPEAKER_09: You're talking to customers, building a product, talk to customers, building a product. And if you can't build a product, probably if you can't be involved in the building of the product, you shouldn't be an entrepreneur or founder in a tech business, right? If you just go across all the most successful people in the industry, they all knew how to build great product, whether it was Zuckerberg or Bill Gates or Elon or, you know, just go right down the line. It's it's it's 100% of the time they're involved in the building of the product. There's no idea people in the world. This is a fallacy. If somebody told you, you can do a startup and be an entrepreneur and just be an idea person, they're actually wrong. It just doesn't work that way. Doesn't work that way. So let's go to number three, because if you can only do one of these three, four or five things I mentioned from no code to UX to design to coding project management, you have to ask yourself this important question.

David Friedberg: Are you incredible at convincing elite talent to join your team?

SPEAKER_182: Can you recruit elite people to join your team in the face of other offers that they have for much more money and equity? In other words, can you convince people to come on a journey with you? Can they come on the journey with you? Even though you don't have the money to pay top dollar because you're going to be under resources, a startup, can you get them enthusiastic enough about your mission? That's why the mission is so important. And question number one, can you get them so enthusiastic that they leave Google to join you? You can.

SPEAKER_179: I see it all the time, but you have to ask yourself, can you do that?

SPEAKER_09: And I don't know the answer to that. You have to ask yourself that. And can you, you can find this out very quickly.

SPEAKER_179: Are you able to get a co-founder? If you're not able to find a co-founder, you have failed the first test of entrepreneurship over and over again. I have people come to me and say, I'm an entrepreneur. I'm starting a company. I just can't find a co-founder. And I say, you failed. Like you, you failed out of the gate. If you can't even find a co-founder, how are you going to build a team? Right? And if you don't have any skills that I mentioned in question number two, and you can't find an idea that you're truly motivated for, do not go on this journey. Right? This is what it comes down to. This is like somebody who is not willing to take a punch, is not willing to work out, is not willing to change their diet saying, I'm going to be a boxer, I'm going to get in the ring. Well, if you're not willing to take a punch, you're not willing to work out, you're not willing to sacrifice. What are you doing in the ring? Stay the hell out of the ring. I mean, this is not a pursuit for everybody. This is an elite pursuit entrepreneurship. So can you recruit a great, great team? Maybe you're an amazing developer, but can you get sales executives on your team? Maybe you're an incredible sales executive and you know exactly what the customers want and you've mocked it up and you've learned a little bit of UX, UI, right? And maybe you no coded it. Now can you get a developer to really refine, you know, your duct tape version of your product, right? This is what it takes. So if you can't build a product, can you at least convince people to come work for you who can? And you need to have an opportunity that's motivating enough for the world class engineers, designers, salespeople to come work for you. I have a really easy time getting people to work at launch or even on the podcast, I'm honest, because it is an incredible opportunity to do something exciting in the world. And there's plenty of people who want to invest in companies and find it very exciting, right? If your idea is incredibly boring, you have to really figure out how to make that mission bigger so that people will join you.

SPEAKER_09: And I've seen people who are super charismatic, you know, talk people into going to work at logistics companies or what would otherwise seem to be very boring companies.

David Friedberg: But they figure out a way to make it exciting. So what are things that attract high end talent? Well, of course, you know, everybody thinks money.

SPEAKER_09: It turns out, if you're really high end talent, money has no longer become a motivator for you. Right? Think about it. If you're really talented, you don't worry about getting a job. I've never worried about having a job. I could go get a job anytime I want. I was offered to be the president of did you not Rolling Stone, Playboy and, you know, like a really senior position at Yahoo over the years when I was up and coming in the media space. Literally, they want to be the president of these organizations. And it's like, Yeah, I can. No, thank you. I'll just start my own company. Why would I go work for you? So talented people have so many opportunities.

David Friedberg: They don't think about cash. They might think about equity. Sure, I get it on the ground floor of a big company and that could be life changing.

SPEAKER_09: Maybe I make millions, tens of millions of dollars. Yes, the elite talent will think about equity because the elite talent have probably already experienced the power of equity.

David Friedberg: But what they really want is meaningful work and a large opportunity. They want a big, audacious goal. And that's why, you know, going to work at Uber or going to work at Tesla or, you know, some portfolio companies like mine, like Blockable or Calm, they really have an easier time recruiting people because they're like, Oh, we're taking on housing. Oh, we're taking on people's anxiety and mental health. These things feel great for people, right? It feels great. Oh, we're going to allow people. We're going to change the transportation industry forever at Uber. Oh, we're gonna do space exploration.

SPEAKER_182: I mean, this stuff is big and awesome. And it's really, really much easier. I'm not gonna say it's easy, but it's much easier to get people to come to index the world's information, right?

David Friedberg: And make it shareable around the world like Google did at the time, or even Facebook to connect the world with big, audacious goals. So you want to think about those big, audacious goals. And can you become an elite recruiter of talent? So just to recap, is this problem, number one, really personal and important to you? Is this a mission you can do for a decade? Two, are you capable of building a great product?

SPEAKER_182: Three, can you recruit elite talent? Just think about those, right? Makes sense. I think it kind of makes sense. So let's go on to our fourth. Do you understand your ideal customer? Do you understand the ideal customer you're going after? How deeply do you understand them? If you think about the companies out there that have done really well in the 21st century, they are not doing well because they abuse or annoy or frustrate their customers. We did have that previously, those were monopolies.

David Friedberg: Those were people who had franchises or bandwidth, and you had no choice but to use them. Remember those days when you had one cable provider in your neighborhood, and the cable provider could say to you, oh, you know, your cable's down? We'll come over on Tuesday.

SPEAKER_179: And you're like, okay, Tuesday, you're coming over on Tuesday. Great, what time are you coming? They say Tuesday. You say, oh, you're coming Tuesday morning or Tuesday afternoon, 9am, 1pm. And they'd say, yeah, Tuesday is the window. And you got to stay home the whole day from work.

David Friedberg: Those days are kind of over, aren't they? You have to fight for your customers every day. People are not locked into contracts like they used to be. People have many choices. If you don't like your cable provider, you probably have three, four, five people who will bring internet to you now. You're going to have Starlink coming down from satellites. People have wire or WiMAX on the side of their buildings.

SPEAKER_187: People have fiber coming in. They have cable. They have DSL. You've got choices, just like with restaurants. You're not like stuck in a one horse town with one pub.

David Friedberg: So can you delight your customers is absolutely important. Well, to delight a customer, you must understand what they need better than they do. Do you understand your customer better than they? Well, when, you know, watching Uber build that company and Travis and the team over there, they understood things about customers that customers didn't even understand. Like the customers don't want to have any cognitive overhead in ordering a car or doing tipping. Or, you know, they just want to press a button, get their car, get in and get out. And they want to do it as fast as possible. So what do they work on? The shortest possible pickup time. What are people complaining about with Uber and Lyft now? It's taking too long to pick people up, right? It used to be like one to seven minutes to get picked up. Now it's like three to 15 minutes to get picked up, depending on what city you're in.

SPEAKER_09: Kind of sucks, right? I mean, you know, they'll get it back. And it's obviously a pandemic through a wrench in all this. But you stop delighting customers and you will hear about it. And you can watch on social media, whether you're watching Twitter or Facebook, whatever. People are complaining about wait times, right? They got used to a certain wait time. And that's but one example. So who are the cohorts who use your product? How passionate are they about your product? How well do you know them?

David Friedberg: And then are you just relentless in delighting them constantly? One of the great things about owning a Tesla, if you have, if you're lucky enough to own one is every 30 to 60 days, they upgrade the software. And they're like, here's your new car. And you're like, you used to buy a car and like you would have this incredible new car experience for a year. And then it'd be like, okay, six years. I'm watching all these other people with their new version of the Prius or their Benz or their Beamer or their Honda, and they get all the new features. Well, now with a Tesla, like every 30 days, 60 days, they're like, Oh, by the way, we added something. Oh, we added Spotify. Oh, self driving. Oh, you know, here's a new feature for your, you know, security cameras built into the car century mode. That's the kind of constant delight and understanding and listening and studying of customers that you really have to do. And this is something we have to ask you, are you willing to be obsessed with your customer base? If you think about this podcast, you know, when I go live, or I read the comments, I'm constantly thinking, what do you what do you all want to get out of this podcast, right? And we come up with ideas like this, and we test them. So we do our checklist idea, this is an idea to see if we can delight you as a customer, and you'll give us feedback, and we'll iterate on it. And maybe we'll build future products, right? Maybe this will be a book someday, or here's a bunch of checklists. So, you know, do you have any domain expertise in your industry, sometimes domain expertise is really helpful. Other times, it's good to come with fresh eyes, right? So if you look for domain expertise, if you were in the, you know, transportation business, or the hotel business, that would have been terrible.

SPEAKER_09: If you were running Lyft, Uber, or Airbnb, why would it be terrible? You would come to it and say, Well, it should be like this, because you have all of these sacred cows and industry best practices in your head.

David Friedberg: You would never make the bold choices that Airbnb made if you had worked in the hotel industry. Absolutely not. You'd be like, nobody wants to stay in an extra room with somebody else staying in it.

SPEAKER_09: Nobody wants to borrow your apartment while your stuff's still in there. Nobody wants to stay in an ADU, you know, a granny unit, an in-law unit in the backyard. Turns out, if you've got an ADU in the backyard, and it's 75 bucks a night, and my other choice is 200 bucks for a hotel, or there's no hotels available. Yeah, people are taking them, right?

SPEAKER_179: So domain expertise can cut both ways. I like fresh eyes on a problem for most problems.

SPEAKER_09: If you're doing, you know, blood testing, if you're doing biotech, you gotta look for that domain expertise. If you're building like consumer software, or like even meditation, like, I think one of the reasons Calm really did well was they came to it with a fresh approach to it. And I think other people were like, that's not meditation. Meditation has to be this way.

SPEAKER_182: It has to occur in a space with this and you have to do this before meditation and after you have to have this happen and you got to ring the gong.

SPEAKER_09: And they were just like, well, what if people just did a three minute meditation, but they did it more consistent? What if we just got people to meditate more? Yeah, it might not be your version of meditation, it might not be, you know, this really hardcore version, but it would be a version that could really help people.

David Friedberg: And, you know, these, this is a key thing to think about is, can you really, really study and do you like your customers, right? There's a concept here of liking the customers.

SPEAKER_09: If you don't love your customers, if you find them annoying, like, I think I can run an airline and deal with like, customers who are just upset all the time and it wouldn't be for me. But some people might like that they might like to deal with people when they're stressed out and make them not stressed out. And start an airline.

David Friedberg: So, you know, you want to be very flexible in this regard, your ideal customers, and the people who love your product might not be who you anticipated. So you want to look at the data, you want to study them, and you just have to be customer obsessed. So can you another way to look at this is can you be customer obsessed? Can you are you willing to talk to them constantly?

SPEAKER_09: Okay, now fifth, this is critically important. And I think people don't talk about it enough. How much personal runway do you have? You got a million dollars in the bank. Okay, you burn 25k a month. Okay, you got kids in private school, you got a mortgage, you got a big lifestyle, you burn in 300k a year. Great, you got a million bucks. You got over three years of runway. Sure, doing a startup with a family with that amount of runway seems reasonable. Okay, let's take the same scenario. You're working at, you know, Goldman Sachs, you're making 400k a year, you burn 300 of it, you want to start a company, you got, I don't know, 200k in the bank. Okay, you got eight months of runway. You're going to jeopardize your family and your kids private school and your mortgage and on a startup. That's a terrible idea. I've seen people do that.

SPEAKER_187: I've seen people mortgage their own homes, because they come to me and they shake out, please, I'm begging you. I mortgaged my home, my kids are I sacrificed, I took my kids out of private school, they're in public school. I'm like, you did that? You think I'm going to invest in somebody that reckless that they would put their whole family at risk? That's not charming or like laudable. That's just dumb and reckless. Take care of your goddamn family.

SPEAKER_182: So what is your personal runway? Like, well, listen, this is why a lot of people say startups are a young person's game. I don't think they're necessarily a young person's game.

SPEAKER_179: They are a person with low burn rate and who have and or who have a lot of money in the bank. If your burn rate is very low and you're living in a three bedroom with two roommates and you're spending 1500 bucks a month and you raise, I don't know, 250 K for your startup and you got a co-founder and they've got to take a 2K draw every month. You take 2K and you're taking 25K each. You're good. You're good. Like you don't have to worry about it. They call this ramen profitable. You're profitable enough to have enough ramen to eat and have the basic amount of calories. Oh, my God, that's unfair.

SPEAKER_210: Oh, wow. That's so elitist. Or, oh, not everybody can do it.

SPEAKER_09: Doesn't matter how you feel about it in terms of it's if it's equitable or not.

SPEAKER_182: The reality is the reality is you need to have runway. If you don't have runway, if you don't have runway, you're going to be super anxious and distracted and not be able to run your company.

David Friedberg: And people can get very, very optimistic or delusional about their ability to raise money, hit profitability and hit their goals. Every product I've ever worked on has been two or three months late. I've never had somebody say, hey, you know what?

SPEAKER_182: Products, the next version is ready two months early. It never happens. It never happens. So if we know things are always far behind, then if it's always going to be far behind, you want to have as much runway as possible.

SPEAKER_09: So being reckless, not charming, not smart, and that will negate your ability to raise from venture capitalists who are going to look at you and say, if you're that reckless, do we really want to back somebody who is, you know, taking a turn at 100 miles an hour? Like the exit ramp says go 25 and you're doing 100? Don't do that. You want to plan these things out. If you're planning to be an entrepreneur this year, but you only got six months of runway and you think you feel like you need to have 18? Great.

David Friedberg: Here's what you do. Lower your burn rate. However, you can pay off your mortgage if you can pay down some debt, whatever it is, you know, it depends on if you have kids or family, this stuff, but you want to put some cash in the bank. You want to lower your what you're spending every month and be ready to, you know, go at it for maybe 18 months to 36 months, you know, a year and a half to three years and do that before you quit.

SPEAKER_09: And if you want to get started now, well, you could keep your day job and do this on nights and weekends. Most people watch four hours of television a day.

David Friedberg: Stop watching TV. Say to yourself, I'm going to not watch TV for a year.

SPEAKER_204: Well, that's just going to be there, by the way, everything's going to be on Netflix and HBO Max and sitting there on Hulu. You're not going to miss anything. It's not a big deal. You'll be able to stream the stuff that's coming out weekly.

SPEAKER_179: So who cares?

David Friedberg: Just say to yourself, I'm going to spend one year, I'm going to work an extra second job to put money in the bank, or I'm going to work at night becoming a UX designer studying to be a developer, learning project management, and I'll build my MVP and I'll do all my I'll do all the pre work before I quit my job.

SPEAKER_09: And then when you go to quit your job, you could say to your company. Hey, listen, I'm quitting this job. I work at Goldman. I'm making this 300 K a year. And you just say to your boss at Goldman.

SPEAKER_179: Hey, boss.

SPEAKER_09: Um, I'm starting a company, I have 20 hours a month available as a consultant, how would you feel about paying me, you know, $300 an hour, 6000 a month, keep me on retainer, you know, for the year and pay me $72,000 a year to be a consultant to do just this part of my job. And the person I go, you know what, I got other people can do your job, you're overpaid. Screw it. I'll keep you just for that for six K a month. I've done this myself, right. And another hack is to, you know, do consulting works on this and side jobs on the weekends or one or two days a week while you build your startup three or four days a week. Now, there will be some people who will be judgy about this that you're not all in. But if you don't have venture backing, if you don't have your seed round closed, you can.

David Friedberg: And this is another one of the big tests. And people don't want to talk to you in a candid, frank way about this. But what I'm explaining in this checklist is really the truth of it. And the truth of it is, it's not fair. It's hard. It's brutal. And you really have to set yourself up for success and be thoughtful about it. Right? Be thoughtful about it.

SPEAKER_09: Um, maybe if you have a family and you have a spouse, one spouse can say to the other one, I am going to go on this adventure. As a founder, it's going to take me three years. I am not going to be making any money $0 is coming in. You're going to have to take that job at Yahoo or Goldman Sachs make max money while I do this. Is that okay with you?

SPEAKER_179: Do I have your buy in and getting spousal or partner buy in whether you're married or just a partner? Doesn't matter. Having that buy in that you know, you're going to try this for three years is a really good conversation to have.

SPEAKER_09: I've had people who just go off and become founders quit their jobs, their spouse is kind of reluctantly supportive, things start to go bad, the spouse gets really under stress.

SPEAKER_179: Now the family is suffering, they're fighting the bickering, it's a distraction.

SPEAKER_09: And it could have totally been avoided with one conversation. I'm going to try this for three years. Here's the scope. If I can raise money, I keep going. My plan is to make $0 year one, I'm going to make 50,000 year two, I'm going to make I'm going to get back to my $150,000 a year salary by year three. And your partner might say great, then that means we'll have a deficit of $150,000 the first year, $100,000 the second year. So we need $250,000 or I need to make an extra $250,000 over those two years or we need to have savings or we need to cut our burn.

SPEAKER_179: Have that conversation and set yourself up for success. Right?

SPEAKER_187: And there's no shame in the side hustle. The reason people hate the side hustles is when they give you venture capital funding and they think you're distracted. If you do the side hustles, and you're got service revenue and software revenue, and you come to me, you're like, Jake, I make $150,000 a year, $150,000 a year doing this side job, doing consulting, and that's let me build the SaaS software that I got to 25k a month, I would be so absolutely impressed by you that you didn't take that first round of funding and you use service revenue to build your SaaS software.

SPEAKER_09: And at that point, I'll say to you, okay, I'm going to give you 500k. Can you please stop doing the service stuff and go all in on the SaaS stuff? So it's a software company, not a horrible consulting firm, like it's a means to an ends, right? So those are really, really important questions.

David Friedberg: Let's go through them one more time. And I want you to tell me how many of these you got a yes to. Are you solving a problem with personal relevance? Number two, can you build a great product? Can you, you yourself, build a great product? Build a great product? Do you have that in you? Three, can you, you look in the mirror, not, you know, somebody else on your team, but can you recruit elite talent? Four, do you understand who your ideal customer is? And are you absolutely obsessed and love those customers? Five, do you have the personal runway to do something audacious like this for three years? Really think about a three year journey, right? Minimum 18 months, but I would like to see you look at three years. So I'm going to need you to say yes. I'd like to see you say yes to five of these, but at least four. I mean, if you can only say yes to two of these, stop what you're doing. And just think, do I need to, should I get in the ring? If I can't throw a punch, should I get in the ring? If I can't defend, should I get in the ring? Should I take on this battle? This is like, you know, mountain climbing or something. This, this is an extreme sport. This is MMA. This is mountain climbing.

SPEAKER_182: This is not for the faint of heart. You know what is for the faint of the heart? Taking a job somewhere else and letting the boss worry about these things. You know, if you don't want to worry, there is another option for you. You could just take a job and have a narrow focus and not have this level of responsibility.

SPEAKER_179: So think about the five critical five questions. Number one, are you solving a problem that has personal relevance to you? Number two, are you capable of building a great product? Number three, can you recruit elite talent? Number four, do you understand your customers? Number five, do you have enough personal runway? Okay, we should talk about some deeper questions before you start the company. Those five are the baseline. You've got to get four or five of those. Really, you should have all five, but I'm going to say four out of the five. Maybe you can make it work. All right, number six, this is critical. How much are you willing to personally sacrifice? This is like an emotional one. How resilient are you? Before you quit your job and you start a company, you're going to need to do a self-assessment on your own personal resilience. Okay?

David Friedberg: Now, are you able to deal with absolute insanity at work? Are you able to deal with every problem that the smartest people you hire not being able to solve coming to your desk? The buck stops at you. That's the end of the line here. If your team can't solve the problem, then it has to go to you. And that's what people forget here.

SPEAKER_09: There is no backup for you. You have to do this, right? So how do you build your own resiliency? Well, ask yourself, have you ever done something really hard? Right? And how hard was it for you to do those things? If you're the type of person who gets emotionally imbalanced because you have a bad day at work,

David Friedberg: if you can't concentrate on problems for 10, 12, 14 hours a day, if you are resentful because the servers went down and you had to give up your weekend, or you had to skip a vacation, ask yourself, if I have to skip my vacation that I planned for six months, ask yourself, if I have to take on the work of the person who just quit on me with no notice, and I have to take on their work, and I have to give up my weekend, and I can't go to yoga for a month because I have to do their job. Are you are you going to be able to do it? Or are you going to crack? That is what resiliency is about. It's about every time something goes bad for you, every bad beat you get, every time you trip and fall down, will you get back up? Will you carry the load? And I'll be honest, most people are not resilient. Or they have not at least practiced resiliency. So they have the potential to be resilient, but maybe they haven't run a marathon. Maybe they haven't, you know, hiked 10 or 20 miles. I'm using physical things here because I think it's easier to understand. But resiliency is something that's built over time. And, you know, emotional fortitude and resiliency is, I think,

SPEAKER_87: the number one thing that defines the success of the founder.

SPEAKER_09: Because, you know, all things being equal, like we got through the first five. But once you've gone through those first five, listen, you know how to build a product. You love customers. This mission is great for you. Then it becomes a test of wills. Who's going to give up first?

David Friedberg: Who's going to be able to deal with the most bad news? And who's going to get that huge list of problems and just work their way through it? Right? That's really what startups are, is a never ending series of problems and challenges. And you ripping through them. Can you rip through those problems? And when you get through five problems and another five show up, are you going to cry in your coffee? Are you going to be like, this is too much? I can't do it. Or are you just going to get back at your desk and rip through them? And that's what I do. Honestly, every week, a new set of problems occur. And I am a journey, not a destination guy. It took me a while to realize that.

SPEAKER_09: I thought I was a destination guy for a long time. I wanted to be rich. I wanted to be powerful. I wanted to have the magazine. I had goals I wanted to hit. I wanted to get to 10,000 syndicate members. Oh, I wanted to write a book. Oh, I wanted to be a millionaire. I had all these goals.

SPEAKER_179: And then what I realized was the goals when I got to them were meaningless. They didn't fill my bucket.

SPEAKER_226: They didn't make me feel great. I mean, except when I became a millionaire for the first time. I'm good. I'll be honest.

SPEAKER_215: But aside from the first time I got the wire into my bank account, everything else was just kind of like, what I love is the journey.

SPEAKER_179: And having being presented with a new set of problems every week for me, in my mind, I frame all of those.

SPEAKER_182: I frame all those problems for me as learnings. Like today, I was learning about litigation and, you know, Delaware law. And I just said to myself, this is an ugly situation. I find myself in an ugly legal situation. I'll leave it at that. But my Lord, the amount of learning I had and I was speaking to one of my

SPEAKER_179: contemporaries at the company and I said to her, you know what? This is a tough situation, but we're going to learn a lot. So great. And you can reframe almost anything to be a positive, right? You go on a hike, it starts raining. Okay. It's a rain hike. Awesome. Let's see how we do. You know, you run out of food. Okay, now we got to figure out how to fish. All of those bad beats you get. All of that adversity will then give you the opportunity to grow. And adversity equals growth. Okay. So that's number six. How much are you willing to sacrifice? How resilient are you? Two ways of saying the same thing. Number seven, do you have a bias towards action? Complacency kills startups. Complacency kills startups. Complacency will kill your startup. You must have a biases towards action. When you have a startup, you do not have time to debate. You must GSD, get stuff done. You can't sit there and be in committee and build mockups and debate things forever. Why? We talked about it before. Personal runway, your company's runway. You're in a race against time. And every month that goes on, you burn whatever you're spending every month. 25K, 100K. Let's say it's $100,000 every month. Let's just say it's $25,000. You burn $25,000 every month. You got $250,000 in the bank. You got 10 months. If you spend three of it debating your logo, and then you spend another three months debating what technical platform you're going to launch on, you're going to be out of money.

SPEAKER_182: You have to be able to do 10 things simultaneously. In a startup, it's not sequential. It's fast. Make a decision. Study the results of your decision. Iterate if you have to. And don't worry if you make a mistake.

SPEAKER_179: Worry that you make a decision. I have so many founders who I talked to on Monday. They got a big problem. They're going to they're faced with. We have a phone call. They do the email thing. And now it's all of a sudden a week or two. You know, I think that they're going to make a decision. Two weeks go by checking on them. They're like, yeah, we haven't decided. We haven't decided. I'm like, haven't decided. Flip a goddamn coin. Go north, go south, go east, go west. Pick a direction. North America is to the west and to the east. You're going to eventually wind up, you know, in India or Australia. Pick a direction. What you don't want to do is go in a circle in the middle of the ocean because you know what? You run out of provisions. There's no limes or lemons that everybody gets scurvy and then you got cannibalism. That's what happens when people don't make decisions. You wind up losing your mind. Make a decision. Make a decision. Try something. Right? Don't debate. Debate for a quick amount of time and then make a decision. And you can be intellectually honest. I always tell my team when I'm working with them, let's try this. They're like, okay, but what if this doesn't work? What if that doesn't work? I'm like, great. The next time we do it, we'll try the other way. So if we think we're 70% sure it's going to be X. But there's a 30% chance it could be Y. Great. We'll start with X. Monitor the decision. If it's working, great. We'll double down on X. If it's not working, we're banging our heads against the wall. Great.

SPEAKER_09: Let's try Y. Right? It's really that simple.

David Friedberg: And so casual working environments where people are collegial, that's all very nice for people who have money printing machines. But if you're trying to build a money printing machine and be stable, you know, you really need to make a decision. It's not unlike a pilot. If you're going to take off, you have a certain amount of runway to abort the takeoff or you're landing. You have a certain window in which you can do a fly around, right? Or you decide to land and you commit. You got to make a decision. If the pilots who wind up flipping the planes and killing themselves and their passengers are the ones who won't make a decision. Make a decision. There's no shame in flying around the airport and taking another approach. And almost universally, when you hear about pilots who screw up the landings, they're like, why didn't they do another go around? Right? Just go around one more time. Complacent people, people who debate too much are not good founders. It's that's it. And people who don't GSD get stuff done. They're not good at being founders and people who are not going to, you know, put it in an extra Sunday or get up early or stay late. It's just this is not going to be for you.

SPEAKER_09: Number eight, ask yourself, do you need a boss or a coach? Do you need somebody behind you pushing you in the small of your back to finish the mission? Some people do need oversight. Some people, you know, they color very well between the lines.

David Friedberg: Some people are great soldiers. But, you know, they're not James Bond. They're not going to think on their feet. They're not going to make executive decision. They don't have executive decision making capabilities. They're good at walking in a straight line and holding a rifle. You're in the infantry, right? That is a noble pursuit. That's great. It doesn't mean you're a Green Beret or a Navy SEAL or James Bond or CIA agent.

SPEAKER_182: All of these things take different skills. Does not mean one is better than the other. I mean, one is better than the other. Let's be honest. But hey, I'm trying to be magnanimous here. I'm trying not to be elitist, right? The world needs infantry.

SPEAKER_179: The world needs, you know, worker bees. No problem. But you want to be a leader, right? That's the job.

SPEAKER_182: Be a leader, not a follower. You have to look in your gut and make decisions constantly and live with them. And if you need a boss, if you need somebody to motivate you, if you need somebody to hold you accountable, you're just not ready. You're not ready. Because you're going to be in the pilot seat. You're going to need to land that plane.

David Friedberg: You're going to, you know, your engine stalls and you're at 30,000 feet and there's nobody to help you. Okay. There's no parachute. I mean, in the Cirrus, there is a parachute. There's very few planes that have a parachute. I think there's one, the Cirrus.

SPEAKER_09: And you don't even want to use that. It's only works in certain conditions. There is a parachute in one plane, but most planes, no. And certainly not in startups. You know, you need to make the decisions and be the boss. And that's the next point here is, do you have that ability to lead?

David Friedberg: Number nine, are you like an excuse maker? Or are you somebody who just looks at the results, right? And the process, right? This is what you need to do. There are many people who will say, I'll start a company.

SPEAKER_221: If you give me money, I get that all the time. I'm like, Oh, what's the status of your company?

SPEAKER_09: Like, okay, yeah, well, we need to raise money. And then we're gonna start the company. I'm like, okay, well, I invest in, you know, when you have one customer, let's talk. And they're like, okay, we'll give us money. We'll get one customer. And I'm like, well, why don't you just build an MVP and get a customer? I'm like, yeah, we're waiting until you give us money to do that. And I'm like, you failed the test. You failed the test.

SPEAKER_156: Build it on the weekends. Use bubble. Use Webflow. Build a smaller version.

David Friedberg: Build the minimum viable version of your product and show us something. We in Silicon Valley in the technology venture capital allocation business are in a demonstrated, demonstrated ability business. We want you to demonstrate your ability. Not talk to us about what you're gonna do.

SPEAKER_182: Show us. Show. Don't tell. Show us what you're capable of. Don't make excuses. Make a product. And once you build that credibility that you can build a product, man, investors are going to be very drawn to you. And even if it's a very narrow scope of a product, you say, listen, I have a big vision, but all I'm making right now is this prototype. Man, is that absolutely alluring to people. Literally, you could make a version of Uber.

David Friedberg: Let's say you wanted to make Uber or DoorDash. You can make a version of that that works over SMS where you just give people a phone number and you say, text us what food you want from what restaurant. We will bring it to you and text you. And you don't have to build any app. Think about that. You could literally build DoorDash with SMS. You could open up a laptop. You and your co founder could say we have a delivery service for, you know, our area of the world where we're in.

SPEAKER_13: I don't know. Soma in San Francisco. We're in Brooklyn.

SPEAKER_09: Great. We have 30 restaurants. You can just text us what you want and we'll bring it to you and tell you the price and we'll send you a PDF of the menu.

David Friedberg: Does that take a developer? Nope. Does that take a million dollars? Nope. If you did that and you made the SMS version of DoorDash, right? The simplest version before DoorDash and Uber Eats and Postmates existed. Just that it would require $0.0. It would just require 100 hours, 200 hours of work and marketing. You beta test it and you say, hey, we beta tested this for 60 days. We went from doing one order a night to 12 orders a night. You show that that's what a minimum file product is like the least amount of work to get to prove something. You show that to a bunch of investors. You're going to be like, wow, these people are legit. They delivered food themselves.

Chamath Palihapitiya: They sent PDF menus over SMS. Awesome. These people are awesome. They don't make any excuses.

David Friedberg: They just GSD. They get stuff done. Okay. My final question is, can you build a startup flywheel? What is the startup flywheel? It's a, it's basically a concept we have inside of my investment firm launch in the syndicate. The, this startup flywheel has three components. The first is the product. Second is the customer. Third is the team. Can you build a really compelling product that delights a customer that makes you money so that you can invest in your team? If you invest in your team, they can make the product better, which will delight the customers more, which would mean the customers will spend more money with you. So you get a better team. That's it. A bigger and better team, more resources for your team. So stop for a second and say, wow, there's a lot of precursors here, right? Do I have the runway? Do I have the motivation? Do I get stuff done? Am I resilient? Okay, great. All of that and that funnel in this first episode here of the top 10 things culminates with the flywheel. Can you crank the startup flywheel?

SPEAKER_182: Cranking the startup flywheel means you're able to get the product to market, delight some customers, even one, get them to give you some money. Okay, another crank. Oh, we made enough money that we can afford another team member for 10 hours a week. Great. Oh, wow. We got two more customers because we added a feature to the product and now we doubled the price of the product. We landed and expanded. I can give that person a full time offer. Okay. Now it's starting to run. Oh, whoa. And then all of a sudden you got a business running and you're getting into a rhythm, right? You can feel it. The flywheel is going. Oh, wow. Our product is really good. People are giving it good reviews. Customers are delighted. We've raised the prices. We landed and expanded. We went from three people at this company using it to 30. Oh, we added a second adjacent product for the pro version, which cost twice as much. Amazing. You know what? Now we can afford to split up the product manager from the designer and the UX person. Instead of that being one jack of all trades or Jane of all trades, we can now have three different positions because we're making so much money. Oh, wow. Now all of those things are working better. And then the flywheel starts going.

David Friedberg: Man, when that flywheel starts going and you hit scale, now you're Uber. Now you're Airbnb. Who can stop you? You can't be stopped. The flywheel is just cranking so fast and it's just racing across the entire globe from country to country, from city to corporation. And people can't help but saying, I want to be part of that journey.

SPEAKER_179: And then instead of convincing people to use your product, you have product, you have market pull. The market is saying, when is Uber coming to Austin? Or when are you coming to Vegas? I remember those days. Or, oh, Airbnb is banned in Paris. Oh, no, Airbnb is available now. I'm going to plan my trip right around that.

SPEAKER_187: And then team members just start sending you resumes. I want to be on your team, J Cal. I get this like a hundred times a month.

SPEAKER_179: Qualified people are like, hey, can I come work for you? Man, does life better when you have that flywheel. Startup flywheel. Say it with me. Product customers team. Product customers team. Product customers and team. Get the flywheel cranking. But as you know, each of those is really hard.

SPEAKER_182: Building a world product. And that's fricking hard.

SPEAKER_179: Sitting there and trying to understand your customers, looking at cohort data, doing listening labs, asking people what they want, ignoring what they want and giving them something that is even better than what they expect. What they expect you to give them is time consuming.

SPEAKER_182: And my God, building a world class team takes forever.

David Friedberg: And people change their minds and move on to other adventures or retire or quit. And then you have to start all over again.

SPEAKER_182: So can you stay focused on all three of those things at the same time as the CEO? You really have to think about this. I hope this has been helpful for you. This is our startup checklist. We're doing it as a podcast series for 10 episodes. Tell me, what did we get wrong? What did we get right? What's got you thinking? Do it in the YouTube comments. YouTube.com slash this weekend. You can DM us if you want. You could write a blog post or make a notion page about this. Cut it up. Remix it. I don't care what you do with it. Let's just spread some knowledge here and learn. Maybe. Hey, maybe you go on Spotify or Apple podcast and write a review about this podcast. But just take this knowledge and please consider becoming a founder because life is short. And at some point you might be dead or dying on your deathbed and say, you know, I should have taken a shot. I should have tried. I should could have been somebody. I could have been a contender. Take your shot. Maybe not now. Maybe you just let the sit and marinate for a year or two. Right? And you build your runway and you wait for that idea to happen. Right? Hopefully this has got your juices flowing. And if you know anybody else who's thinking about starting a company, send them this file. Just send them the link and maybe have an open discussion with them. Hey, listen, Jake. He's done this for a long time. He's been doing it for 30 years. He's invested in 300 companies. He knows that which he speaks of.

SPEAKER_211: Maybe we should think about what Jake is saying here and we can join forces and start a company.

SPEAKER_159: Right? Maybe there's somebody, you know, you always want to start a company with and they're super talented. Maybe you send them this file. This is the start of the journey.

SPEAKER_156: How amazing would that be? Make sure you go to this week in startups.com slash checklist. All right. We'll see you next time in this week in startups. Bye-bye.