Chamath Palihapitiya: Okay, we got a great all new show for you today. I know you guys like when I do an all new show. OnlyFans has flip flop from the earlier position last week, and they're back in business as usual. There's a lot of interesting turns in there about banking. The stable coin circle is cleaning up their reserves to move to a perfect dollar for dollar representation of their stable coin, unlike tether. And this is a major move for circle. And I think it's going to have a profound impact on cryptocurrency and tether.

SPEAKER_00: Finally, Warby Parker is going public via direct listing. So I'll break down the difference between D2C companies and software and direct listings and traditional IPOs. Plus, there's a little button at the end with a personal message for you. Stick with us.

SPEAKER_05: This Week in Startups is brought to you by LinkedIn Jobs. A business is only as strong as its people, and every hire matters. Post your first job for free at linkedin.com slash twist. Drada. Don't let requests for SOC 2 compliance reports slow down your business. Use Drada to stay ahead of the curve. Go to drada.com slash twist for 15% off. And Masterworks, the first company allowing investors exposure into the blue chip artwork asset class. Twist listeners can skip the 30,000 person waitlist by going to masterworks.io and using promo code TWIST.

SPEAKER_00: Okay, in our first story, OnlyFans has reversed their decision to not allow adult conduct on their membership service after getting commitments from their banking partners that they would not be shut down. And we talked about this on the last two episodes, episode 1269 and episode 1270 back to back, because it's kind of big news on the internet in in many different ways. One, it kind of dovetails with Apple scanning people's phones for content that is of an adult nature, obviously, in that case, it's child porn. And in this case, it's hey, there are some concerns that maybe the actors who are working on OnlyFans might not be of age. And obviously, that's dependent on what region you're in. And it's a global service. So there were a lot of different theories of why OnlyFans decided to only allow adult content, i.e. pictures of yourself naked versus adult conduct, i.e. to people or who knows what combination of people, you know, doing sexual behaviors, just to keep it PG here. So this caused a lot of conspiracy theories when they made this announcement. And it actually inspired people to compete with the platform. One of the things that happens is these platforms exert pressure over their members, be it Facebook, YouTube, or Apple's App Store, when they squeeze their partners, and they get too heavy handed. In today's world, because it's so easy to build software, and there are so many developers, and there are so many platforms, whether it's Amazon Web Services, or Bubble for no code, or, you know, SurveyMonkey type form, if this, then that, you have all of these amazing services that let you build a competitor quickly. So, of course, competitors started to emerge, Tyga being one of them, he decided he would start his own competitor, MyStar. And we talked about that on a previous episode. So large investors, of course, were hesitant to invest in OnlyFans because of the nature of the business, even though OnlyFans is on pace to do 1.2 billion in revenue in 2021, and had over 600 million profits, according to Axios, which is a great newsletter company. So when you look at that, don't be so surprised. The fact is, almost every venture capital firm has a no vice clause in it, including my own. Which is LP's limited partners who give venture capitalists and general partners, the power, the people who make the investment decisions, they will say, hey, no vices, no gambling, no drugs, no alcohol, and no adult content. Why do they do that? Well, if you're running some giant endowment, or family office, the people who are running those institutions might not want to be in those businesses. So all it takes is for one person, especially if you had money, let's say from the Middle East, from a university, they don't want some journalists to find out you invested in OnlyFans. And now it's, you know, this very large institution is pro OnlyFans, right? It's just that simple. And cannabis is another example. So you will have certain funds that pop up. And I've actually thought about this for a syndicate, like maybe starting a separate syndicate just for gambling, because I like wagering, or just for cannabis. For society, I think it's probably arguably a lot less destructive than alcohol or a number of the prescription drugs that people are addicted to. So putting that aside, that is the background of why people don't invest. So only fans realizing their business was at risk, they went to work, and they confirmed basically, that the issue was in fact, their banking partners, we are not yet in a world where banking can be just shifted over to crypto, nor will we in all likelihood, because regulations will emerge over time, there's just a short window right now to kind of innovate or break the rules or bend them with crypto. But the regulations coming, we know that. And so that will mean, people will probably try to use crypto for this. And I talked about that as a possibility. But it could also get banned by the government because they can create laws that don't allow you to use crypto to short circuit the monetary system. So here's the OnlyFans tweet. Thank you to everyone for making your voices heard. Standard PR speak. You know, thank you so much for criticizing us. We screwed up. Second paragraph here in the OnlyFans tweet. We had secured assurances. We have secured assurances. It's necessary to support our diverse creator community and have suspended the planned October 1 policy change. OnlyFans stands for inclusion. And we will continue to provide a home for all creators. It's just a lot of PR nonsense speak to basically say, Yeah, we were facing the risk of ruin. We were facing having all of our banking turned off. This is me reading into it. And now, because we are not having all of our banking turned off, we're going to reverse our decision. So if you would like to do adult content again, i.e. porn, feel free. And what probably happened was Tyga or other people had banking set up. And then OnlyFans probably went to the banking partners and said, Hey, are you banking Tyga or these other competitors? Why can't we get that deal? Or maybe OnlyFans said, Hey, you know, we're thinking about taking legal action against you. Any of those are possibilities. Life's in negotiation. They obviously negotiate hard. It's hard because they were going to lose all their users. They're going to blame the banks for their decision to remove sexual conduct on Friday, August 21. Dear sex workers from the OnlyFans Twitter account. The OnlyFans community would not be what it is today without you. The policy change was necessary to secure banking and payment services to support you. We are working around the clock to come up with solutions. So there you go. What everybody thought was true. And here's the quote from Tim in the FT Financial Times. The change in policy, we had no choice. Short answer is banks. Tim called out BNY Mellon, JP Morgan, a UK-based Metro Bank by name as prior banking partners that made it hard for OnlyFans to operate. And here's another quote from Tim in the FT. JPMorgan Chase is particularly aggressive in closing accounts of sex workers or any business that supports sex workers, i.e. OnlyFans. Stokely made it clear the previous announced policy change was only about banks. The Financial Times also noted there was some speculation around OnlyFans making these changes because of MasterCard having some sort of new merchant rules. And Tim in the Financial Times was quoted as saying, we're already fully compliant with the new MasterCard rules. So that had no bearing on the decision. More speculation had come from the assumption that OnlyFans couldn't find investors. But Stokely said that's not the case. We didn't make the policy change to make it easier to find investors. This decision was made to safeguard funds and subscriptions from increasingly unfair actions by banks and media companies. We obviously do not want to lose our most loyal creators. So yeah, this makes sense. When you see, you know, crazy action like this, where it happens really quick, whether it's a crypto company, or an adult company, or any other company, they could have legal issues and journalists have maybe 10, 20, 30% of the information, their detectives are trying to figure out what the actual story is, and give credit to the founder of this company for coming out and putting all of that to bed, you wish a company like tether would do that, right, would come out and just say, Hey, in that tether investigation, we still don't know what paper they own the commercial papers.

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SPEAKER_00: billion. That's the top line. How much money came in to pay for subscriptions. Obviously, things come out of that, like the 20% cut that OnlyFans takes as well as credit card fees, etc. Their projected revenue at OnlyFans for 2021 is 1.2 billion. And their free cash flow in 2021 is 620 million. According to the fundraising deck, which Axios seems to have gotten OnlyFans is projecting to double revenue from 2021 to 2022. So this is one of the issues in the adult industry, finding investors very hard, you're not going to get a private equity firm in all likelihood, you're not going to obviously get venture capitalists. So who is going to invest in a company like this would have to be a high net worth individuals who are okay with being in this business and the potential ramifications. So this is what we're seeing. Possibly or possibly or probably has happened already and people don't know it. So that is one of the, you know, crazy things about this. And that's probably why some of the other adult sites removed user generated content, user generated content, plus of, you know, platform like OnlyFans is a really dicey issue. You want to empower people, obviously, but you also have to be very careful because abuse in the system can happen. has happened in the previous system so you have to also be pragmatic about this there will be

Chamath Palihapitiya: bad things that happen on platforms at scale only fans content creator bimbo marxist on twitter shared their thoughts on the announcement sex workers if you decide to stay on only fans pull

SPEAKER_00: your money out as often as you can don't trust these melon farmers i'm using a colloquialism for the curse word mf yeah i mean that's probably generally correct don't leave money in any of these platforms also build your own mailing list is the other piece of advice i would have is you know tell everybody hey if you want to get some extra free content sign up over here so in case this site got shut down you wouldn't have to start from zero you see people doing that all the time creating a backup account on instagram or tick tock in case their primary account gets canceled or just having an email list is always the best thing to do united sex workers is a uk-based organization advocating for better paying conditions for sex workers and they commented about the announcement on twitter never underestimate the power of community together we demanded our voices be heard suspended is not canceled and only fans is not to be trusted but now more than ever it is time we come together and fight for our rights at work so uh interesting comment there i do think that you're going to see a bunch of competitors emerge even though creators are wary sam lesson of the information uh who was recently on episode 10 46 uh he's a columnist and also married to uh the great editor of the information which is a great news source i think it's like 25 bucks a month well worth uh getting a subscription uh especially if you're pairing your only fans subscriptions down maybe you can get an information subscription as well he thought this was a great move by only fans uh hit the brakes they will fly right by very well played only fans masterstroke to build outrage for change name banks get them to cave and reverse interesting take you know could they have handled this differently who knows they probably uh were deep in negotiations with his banking partners you try to solve things quietly then you have no choice if you're facing the risk of ruin which is they turn off your bank accounts which could be disastrous for only fans they had no choice but to comply uh doesn't uh does seem similar in fact to what happened to robin hood without having inside information they've been pretty clear that they had too many customers at one point and they had partners they needed to negotiate with privately in order to resolve that issue so this is one of the things that happens with big companies you have um you have non-disclosures with your partners in other words your banking partners you know uh organizations you work with other business partners in the agreement says hey you can't talk about our deal you can't talk about our negotiations and that's a two-sided non-disclosure then something bad happens and you're trying to negotiate with it but you have to tell your audience your customers hey we have to change something but you can't tell them what's going on with your partners because you've signed this legal agreement and that's just part of the chessboard of being an entrepreneur so uh we'll keep monitoring this situation uh but i do think more competitors equals better and more sex workers owning their own platforms is better so that's what i would like to see uh is somebody create a white label service that would be the ultimate somebody literally create a white label service that allows you like there's ghosts that lets you make sort of a white labeled version of sub stack so you don't have to give sub stack your money 10 you can just pay a you know a nominal enterprise fee that actually would be a great business if somebody had a platform that worked just like only fans for adult creators where you could set up shop and just pay them 50 bucks a month flat rate and then you don't have to give them a 20 commission that would do really well uh so that's a pretty good business idea i wonder if somebody's already doing it i think somebody should look into that all right big news in the stable coin space

Chamath Palihapitiya: and i think we get a little bit of credit for this here at this week in startups circle which runs usdc a stable coin that competes with usdt tether which many people believe is a bit fugazi a scam or otherwise not honest including the attorney general of new york circle is moving their reserves to be a hundred percent backed by cash and short duration us treasuries boom they want to become a federally chartered bank on sunday circle published a blog on their website stating that by september 100 percent of usdc reserves will be backed by cash and short duration us treasuries here's the quote given our commitment to maintaining high standards which in some cases go beyond those required by our regulators we will effective in september hold all usdc reserves in cash and short duration us government

SPEAKER_00: treasuries which will be visible in our september attestation why are they doing this well they're obviously going to face a lot of scrutiny and they want to differentiate themselves from tether which does not hold everything they only own three percent or so in cash so this is a clear shot across the bow of tether in fact i would say it's about 10 shots that are landing right on the deck of the uss tether and i think tether is going to obviously go down because of this what you'll see over time is people are just going to move off tether and go right into usdc or other stable coins

Chamath Palihapitiya: that give the initial promise of tether tether was supposed to always be back one-to-one so all usdc is doing here is taking tether's original promise and fulfilling it what a stupid move by the people at tether to not see this coming and you have to ask yourself at this point if this is so easy to do why isn't tether doing it well if tether bought let's just say i don't know some you know commercial paper in other words loans uh from i don't know real estate in china or something that is less regulated and they paid a small amount for it where did the other money go and that's what people have been speculating again keyword in that sentence is speculation we will see what happens with tether

SPEAKER_00: over time but i do believe uh that tether's uh best days are far behind him and i think that they will face massive scrutiny and i think they'll just be banned i mean if they got banned in new york you'll have other uh jurisdictions follow suit because who the heck wants to have this kind of um a black swan possibility or people losing their money on something that's called the stablecoin

Chamath Palihapitiya: so according to circle's blog post the rapid growth of the stablecoin market has quote rightly brought

SPEAKER_00: significant federal regulatory attention as regulators consider the implications of digital currencies growing from 100 billion to potentially supporting trillions in economic activity in the coming years in other words circle's getting ahead of this circle is the second largest stablecoin with a market cap of almost 27 billion while tether is the largest at 65 billion but i do think tether is kind of plateauing that's anything pretty clear to everybody and i think circle is surging tether is the fifth largest cryptocurrency by market cap while usdc is the eighth largest i think you'll see those positions reverse pretty quickly uh maybe within a year or so circle's most recent attestation and breakdown of its assets was published in july uh and it was dated on march 28th of 2021 on may 28 2021 here is a breakdown of their holdings from may 61 cash and cash equivalents 13 yankee certificates of deposit meaning cds issued in the u.s by branches of foreign banks 12 treasuries nine percent commercial paper and five percent municipal and corporate bonds which are something i've held for long periods of time when you compare that to tether's most recent attestation uh you know they're like two page pdf with the uh pie chart that has been derided on twitter uh for months now they disclosed about 50 of the reserves were tied up in commercial paper uh in other words over 30 billion in commercial paper the recent circle news is great for transparency uh but uh jeremy allaire who has agreed to be on this podcast but has not yet appeared so jeremy clock is ticking you got to get on the pod here

SPEAKER_21: because you you told me you'd come on and now i'm uh telling people you're gonna come on and you gotta come on come on the pod let's go september let's do it in today's startup landscape

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SPEAKER_00: twist in an august 9 blog circle ceo and co-founder jeremy allaire who i've known for 20 years we're not besties or anything we don't go to dinner but i know him through three companies uh bright cove and then before that uh he did cold fusion so i i've been aware of him we've we've met maybe five times over the years pretty smart cat obviously and i think super upstanding guy uh i'll be totally honest it feels like the opposite of the tether team where jeremy is like out and has been around for a long time he's not like the ceo of tether who nobody can seem to find and people speculate doesn't exist which i don't think that's true but certainly it's very weird that the cfo and ceo of tether are nowhere to be found uh here was the quote from jeremy in that august 9 blog he says circle is uh setting out to become a u.s federally chartered national commercial bank that's kind of a big deal uh and here's another quote circle intends to become a full reserve national commercial bank operating under the supervision and risk management requirements of the federal reserve u.s treasury occ and the fdic we believe that full reserve banking built on digital currency technology

Chamath Palihapitiya: can lead to not just a radically more efficient but also a safer more resilient financial

SPEAKER_00: system great this means he is going above and beyond what tether is doing and let's face it there's no way tether would clear uh the ability to operate a bank with the federal reserve u.s treasury occ and fdic after getting banned uh from working with customers in new york that's just off the table

SPEAKER_21: circles focus on transparency comes as tether is reportedly facing a criminal probe by u.s prosecutors in the doj which we covered in episode 1253 now remember that's in addition to what happened with the

SPEAKER_00: new york attorney general this new uh doj investigation seems to be around um using uh committing bank for it essentially using a bank account that is not prescribed for one use for another use and we saw this in poker i believe where people were unable to deposit money to play online poker back in the day and then they would create banks that did this on in some sort of sly way they're the i think the theory here is that the doj is probing uh whether tether did this to move money and they basically admitted it in a in a in a youtube clip that i believe bitfinex has shared uh multiple times on their twitter handle i'm really interested to see where that goes and this is an example of once you start committing any kind of fraud or fugazi activity and you get on the regulators or justice

Chamath Palihapitiya: department's radar it never ends they watch everything you do like a hawk because think about it if they got you once the new york attorney general and then you commit more fraud that would be like you you know you caught made off and then you let him off the hook again or you caught uh elizabeth holmes at theranos and you'll let her off the hook again you do not want to have that look where you caught the criminal and then you let them go that would be like you brought in you know some uh serial killer for questioning you kept them overnight and then you let them go the next day and then they kill

SPEAKER_00: five more people that is the big fear of any uh you know detective or uh you know the doj or the fbi or anybody you don't want to let people run amok after you know or suspect that they're doing bad things which my guess and keyword in the sentence here is guess is that tether has many skeletons in their closet if we know of one or two i'm guessing here's 20 it's just a guess so remember what i told you in a previous episode circle and jeremy allaire are using transparency and safety as a selling point

SPEAKER_27: not just for customers because a lot of these customers don't seem to care that tether has

SPEAKER_00: problems right and i think the customers who don't care those customers are probably involved in uh money laundering money that was gotten through activities that maybe are not above board i think what circle is doing here is they are really going to regulators and saying we know you're going to

Chamath Palihapitiya: have um strong regulation in this space we would like to regulate ourselves we would like to go beyond what you're doing and then put that directly as a counter example to tether and imagine if tether

SPEAKER_00: gets banned imagine if tether uh faces a doj uh investigation and it actually all comes public and they're guilty of three or four more things which i think is possible if not probable if that happens man people will just flow over to this other more trusted stablecoin and as they should so

Chamath Palihapitiya: uh how did tether respond to circle's announcement well uh debo my friend over at cnbc summed it up as circle says it will change the makeup of usdc reserves to all cash in us treasury bonds tether applauds transparency but says they're quote comfortable with assurance opinions that we have provided you may be comfortable tether nobody else is so we couldn't find the statement online it seems they sent it to cnbc directly and in this uh ridiculous statement from tether tether i mean this is the height of insanity but i have to read it anyway because it's so stupid

SPEAKER_29: tether says we applaud our friends for embracing the transparency that tether has pioneered in the marketplace i made that point at the beginning of this news story that circle is doing what tether promised they would do and didn't do now tether's saying they actually applaud it and that they're friends with circle you are not friends with circle circle is going to sink your battleship they're going to drink your milkshake tether it's over you're done you cannot recover from this i am predicting

SPEAKER_21: tether done for anything other than gray market transactions and offshore marketplaces and you know and uh i think this is game over i think it's game over checkmate congratulations to usdc and it gives a clear path to other people and you know what i think it's good for the crypto space all of this regulation which i know people are complaining about we talked about some previous episode you know what stop crying about it it's going to make the industry much much much bigger and it's going to be more trusted and that's

Chamath Palihapitiya: a good thing yes it's short-term pain yes less innovation i get it but you can't run amok with people's

SPEAKER_00: money period end of story sorry you have to play by the rules everybody else in finance is playing by the rules you can do innovative stuff do it in a sandbox under 10 million in tokens you know you have like we have some sort of safe harbor that's the way we should do it in america once you get past 10 million bucks there's too much of a crater created from shenanigans this tether thing is just too high risk for society we do not want to deal with a black swan we want to keep the market going we don't want individuals

SPEAKER_27: to lose their money so just you know create a little sandbox here and let's make everything above board

SPEAKER_00: and let's get rid of players who are untrustworthy like tether tether is untrustworthy anybody who gets banned from doing banking in new york is not somebody who's trust any ceo and cfo who are in hiding and will not go on cnbc and will not you know um face the music and be transparent you shouldn't trust them we shouldn't have them in the industry let them work offshore okay let's go to our next story okay warby parker which makes glasses file their s1 yesterday and they're planning on going public by direct listing somewhere bill gurley is having a nice ice cold beer kicking his feet up and feeling great so before we get into this warby parker let's do uh just a quick primer on direct listings there have been five notable companies that recently went public via a direct listing spotify slack palantir roblox and coinbase spotify back in 2018 a true pioneer slack in 2019 palantir in 2020 and then roblox and coinbase in 2021 so we're averaging about 1.5 of these a year but it seems to be ramping up obviously if warby parker goes out this year there would be three major direct listings let's break down the differences between a direct listing and a traditional ipo initial public offering when you

Chamath Palihapitiya: go public via direct listing you don't have intermediaries i.e investment banks underwriting

SPEAKER_00: your shares so this is a little bit risky because without the intermediary there is no safety net guaranteeing the shares will sell you don't go on the same what they call the tour you don't go on the same road show you don't have the blessing of the big goldman sachs etc for this reason companies that have direct lists have to have strong brands and some level of notoriety obviously with spotify and coinbase and slack and roblox you have very high profile companies they don't need to be sold because they have a massive footprint you know anybody who's in the stock market knows those companies well now with direct listings you also have no lockup periods that is uh great for early employees and investors like myself in traditional ipos there's a lockup period and that's between 90 and 108 days basically six months is what you can expect that means when robin hood goes public or uber

Chamath Palihapitiya: went public i can't sell my shares neither can the uh folks who worked for a decade uh or like me angel

SPEAKER_00: invested and held my shares for a decade we can't sell you know who can sell the banks the banks took it public and their customers and clients who they let have friends and family shares and they can flip them how is that fair that makes no sense it's complete hypocrisy it's complete inner kind of inside baseball dealing it just screams of unfairness now uh direct listings also have no further dilution for shareholders in an ipo you're giving new shares of the company that are created and that dilutes existing shareholders of course you get money for those in a direct listing you're basically saying here are all the shares that are available we got 100 million shares or a billion shares of spotify have at it start trading them now direct listings are also much less expensive they take

Chamath Palihapitiya: less time and money than a traditional ipo and an ipo these investment banks charge an underwriting fee

SPEAKER_00: to do this whole process uh you know for finding all these uh investors for you and the underwriting fees are charged on a percentage basis based on how large the ipo is the more money the company raises the lower percentage of the fees pwc price warehouse coopers recently published an ipo price calculator on their website based on the average of 829 ipos and in deals greater than a billion dollars the average underwriter fee was 3.5 percent and the average investment banks on a deal were 16. so based on this you know you're spending 35 million dollars uh making your shares available according to andresen horowitz's breakdown uh apparently that's some venture firm and so i haven't heard of them yet their direct listings charge a flat advisory fee which is typically half of what the smallest underwriting fee for an ipo would be are you concerned about your portfolio's

SPEAKER_11: performance in the near future well jp morgan blackrock and others are projecting public equity returns of just three to five percent over the next five years analysts at bank of america urged investors to consider real assets as part of an inflation strategy so where are the major players putting their money endowments for yale harvard and other top asset managers are looking into alternative assets according to masterworks research endowments over 1 billion are investing 55 more in alternatives on average if you're looking for a very interesting asset class that's uncorrelated with the stock market it's blue chip art masterworks.io sells shares in multi-million dollar paintings by artists like banksy picasso and warhol according to masterworks contemporary art has appreciated 14 annually from 1995 to 2020 outperforming other real assets like real estate and gold i just had the founder scott lynn on the program again uh episode 1232 for an alternative assets roundtable and he shared some great insights around inflation appreciation more go listen to episode 1232 masterworks.io is a fantastic idea and they're executing at a super high level i think it's really genius so sign up today at masterworks.io and if you use the code twist you'll skip their 30 000 person waitlist see important information at masterworks.io disclaimer so let's dive into warby

Chamath Palihapitiya: parker's s1 the ltm revenue in other words the trailing last 12 months of revenue that's typically how we would say it in the business trailing 12 month revenue they're saying ltm in their s1 s1 is a document you file when you're going public uh their ltm or trailing 12 month revenue is 487 million which is 33 percent year over year revenue companies that grow over 20 percent are considered high growth in the public markets in the private markets maybe not so much when and in this case uh this

SPEAKER_00: means warby parker's revenue from june 2020 to june 2021 was you know basically half a billion dollars so in our industry you'll hear the term annual reoccurring revenue uh arr that's typically for sas businesses that means the revenue is guaranteed to keep going that doesn't apply when you're selling you know glasses it's not like people are having a subscription to glasses i mean maybe they do have a subscription process in which case they could say annual reoccurring revenue ltm is the last 12 months and uh people could say trailing 12 months so it just gives you an idea of what you know is actually going on with the business a little more i would say honest intellectually honest so when i meet with founders i just always ask them the same thing what are the last three months revenue and then i'll put in parentheses three numbers just so we're clear i'm not looking for one number i'm not looking for three paragraphs i'm not looking for disclaimers and man my job is maddening sometimes i will ask a founder for the last three months revenue and they will start talking for 10 minutes i still don't have the numbers it is bonkers if you are working with investors or potential investors and they ask you a really simple question give them the answer because they probably have a follow-up question and the follow-up question might be really good for you to give so the first half of 2021 uh puts them at a 540 million dollar runway they did 270 million that's pretty great they claim to have a 60 gross margin that's nice they operate 145 stores and claim to have over 2 million active customers not sure how they define active customers we talked about that on previous episodes what's an active customer for me an active customer will be somebody who made a purchase in the last 12 months that would seem uh like a fair one to me because they might come back we talked about next door saying people who open an email were active users this is one of those things if you're going to be a public market investor you're going to want to really drill into oh actually my researchers just told me active customers i guessed it are uh unique customers that have made at least one purchase of any product or service in the preceding 12 months i had literally guessed it uh that's good in 2019 warby parker essentially broke even in 2020 they lost about 56 million which is nothing you know losing a little bit of money while you're growing a business it's called investing in the business in 2021 they're on pace to lose about 14.5 million uh so they're decreasing the loss uh or they're investing less i guess would be two different ways to look at it depending on if you're a growth investor or you want to see profits one of the most money losing slash break even businesses of all time was amazon and now they've turned on the profitability uh just by turning a dial right they can just decide how much money they want to make by increasing the cost of amazon prime i don't know if warby parker has that ability i don't know uh what percentage of market share they have if they made every pair of glasses 25 more and increase their profitability would they lose customers would people push out buying new glasses

SPEAKER_27: you know that e-commerce is hard all right so just taking a pause here i have invested in d2c companies

SPEAKER_00: before most of the time we say no to these companies 99 times out of 100 and a lot of investors hate this

Chamath Palihapitiya: specific sector why do they hate it well uh it's because you know if you're warby parker and you're one of the greatest d2c companies of all time along with dollar shave club and many others direct to consumer is low margin and hard to scale and if they're only making 30 percent year over year

SPEAKER_21: growth right uh at warby parker and they're making nine figures let's compare that to you know a software business like twilio well twilio has a 2.4 billion dollar 2021 uh run rate that's up 65

SPEAKER_00: year over year and they're at a 63 billion dollar market cap and twilio has two times warby parker's growth rate with four times the revenue why is this one of them selling software one of them is

SPEAKER_21: consumption based right and the other one is selling a physical product selling physical product hard to scale uh warby parker is also not a marketplace if it was a marketplace and you had a bunch of sellers on one side and you had a bunch of buyers and warby parker was managing that and taking a rate a

SPEAKER_00: percentage of the sales like ebay does or uber does or any number airbnb of marketplaces that might be higher scale that might be more interesting so investors love software and marketplaces they love consumer subscriptions they love fintech they hate direct to consumer it's a really really hard business you need to have a very unique product like say eight sleep which is a direct consumer business we've invested in or terra cafe which is a very unique direct to consumer business in my mind and i don't mind investing in them but i do uh when i look at those businesses look at them differently than consumer subscription sass and marketplaces i mean let's take an incredible example youtube

Chamath Palihapitiya: 28 billion dollar run rate for 2021 83 euro for your growth youtube is not a spring chicken i mean the

SPEAKER_00: they have three times warby parker's growth rate with 50 times their revenue so take a pause and ask yourself if you're replacing a bet are you gonna place a bet on warby parker yeah i wouldn't it doesn't seem like a high growth business to me and finally amazon web services have 56 billion dollar

SPEAKER_21: run rate for 2021 what's their growth rate 30 percent in other words amazon web services with 56 billion dollars in revenue that is not a small company that is a huge company they've got the same

SPEAKER_00: growth rate as warby parker is this the fault of management at warby parker no it's just the nature of different businesses have different margins and different growth rates it's very hard for a company that makes a physical product to scale sas software yeah that scales so one final thought here about warby parker cnn business reporter nathaniel myerson dug up a pretty interesting insight uh from the s1 where they talked about the positive trend and signals for their business staring at your computer all day is good for warby parker the rising usage of smartphones tablets computers and other devices has contributed significantly to increase vision correction needs and consistent new customer

SPEAKER_21: growth within the eyewear market in other words we're all going blind from staring at our smartphones i don't i know it i mean i started wearing this past year like readers uh if anybody has suggestions for me about how to get my eyesight back do i have to stop looking at screens should i get lasik

SPEAKER_00: i don't know i've never had eye problems i gotta i gotta figure this out so you're all going uh blind and warby parker's gonna win maybe i should invest all right at the end of the program here i like to do a little button just a personal uh observation and uh this one comes from uh just a simple tweet that somebody tweeted at me a gentleman named jose posuelo on twitter mentioned something i had said once about running a bed and breakfast being just as much work as running a hotel chain uh i don't remember saying this but i i have told this to many founders i must have said it here on the podcast and here's what he says our restaurant journey has been so complete it's incredible the breath and depth of problems to tackle jason said somewhere that running a bed and breakfast is as much work as a hotel chain might be slaughtering the quote seems it's true next stop scaling and let's pause here and i'll tell you what i've been talking about uh and i mentioned this in my my first book angel and uh many of you know i just got back from italy where i took a week off was alone basically not with my family and just went to the beach every day and wrote and i kid you not i went to this beach club and when i was at the beach the cabana had a desk and a chair and i just i didn't ask for a desk and a chair and i looked in italy they put a desk and a chair at every beach club at every cabana and i sat there like a crazy american popped open my laptop every day and wrote and it was the greatest feeling

Chamath Palihapitiya: in the world to sit there by the ocean and write it was wonderful and i got a lot done and one of the

SPEAKER_00: things uh that i did say in the previous book angel and that i still subscribe to is when you're thinking about your time and it this will be relevant for the next book which i won't talk about what it's about yet because i'm in the process of talking to my previous publisher and my agent i haven't even

SPEAKER_17: picked a publisher yet so i'm gonna have an auction or something for the book and i'll probably go with my existing publishers they were pretty great harper uh business um as long as i pay a decent price for it not that i'm doing it for the money i'll be totally honest i'm writing the books now because i love the act of writing and i love when you read a book that i've written when you say it

SPEAKER_00: had an impact on me and so this tweet is what i live for because he obviously read this in the book uh he might have heard on the on the on the podcast as well but the point is uh pick a business that scales warby parker is a business that scales but there are businesses that scale more if you're an entrepreneur whatever business you pick if you're running a hot dog stand a bed and breakfast a hotel chain or airbnb uh or aws whatever it is you're running if you're a great entrepreneur you're going to spend 80 hours a week running it and you're going to spend another every other waking hour thinking about it it's just the nature of entrepreneurship is that it is all encompassing if you're not all in if you're not thinking about your business constantly you probably pick the wrong business but you want to pick a business that scales and that's high margin and many of the founders i meet especially young ones who are starting their journey or older ones who are scared um or don't have you know the ability to think big because they're just conservative this conservative um nature leads you to pick a business um that doesn't scale such as a service business or making a physical product

SPEAKER_27: and those businesses you're going to work just as hard but you're not going to get the reward so always level yourself up if you were thinking about starting a bed and breakfast think about starting a marketplace of bed and breakfasts right if you were thinking about serving um if you were thinking about creating a web hosting company think about making a platform like aws always try to think one level higher if you were thinking about creating a delivery food service think about creating cloud kitchens like diego and travis did right they just thought one level of more abstraction up and then

SPEAKER_00: you could have uh more profit and build a bigger business and so jose thank you for writing the note

SPEAKER_17: it really um you filled my bucket as uh the kids say in preschool uh you want to fill the other person's bucket and not uh drain it and so you made me feel great thanks jose i appreciate it all right we'll see you all next time bye bye