SPEAKER_00: hey everybody it is thursday and we're kicking off today we look you thought that we were kidding SPEAKER_02: but we're not yeah i'm going to start actively trading on the show uh j trades will occur uh not day trading we're j trading uh this is not investment advice but today i'm going to talk SPEAKER_03: about my first investment i've never traded public stocks before i've always been an index fund SPEAKER_04: vanguard low fee index funds and then put all my risk in doing startup investing molly but i i feel SPEAKER_05: like this is a unique opportunity and so i'm going to put a million or two million dollars into equities and i'm going to trade it live here on the show and tell you my thinking because we talk about Chamath Palihapitiya: the viability of all these companies and today's investment is a really interesting one it is i SPEAKER_07: think that you all will find this interesting too from the perspective of hearing an investor talk about investing in a totally different context which is public equity so like i'm excited to compare the thinking on both of these things and we have a new segment to get back to our roots series a and mna we're going to be talking about an interesting series a startup and then in the search space in the search space jason's got a lot of i'm not saying i baited you with this one but i may have like i like to say put a little velveta on that hook and toss it into the water trigger warning mahalo SPEAKER_05: and uh and mna we talk a little bit about mna and some vc firms wanting to get into the mna business and then we're going to cover stripes 409a valuation and why it's a bit of a click bait SPEAKER_02: story in the wall street journal and just what 409a valuations are and how they work yeah private SPEAKER_14: company valuation super interesting topic and then of course we have to cover the netflix microsoft partnership what it means for both of those companies who is the winner in that deal yeah SPEAKER_02: netflix is going to have an ad supported tier uh by the end of this year we understand and then we're SPEAKER_04: going to wrap up with peloton deciding that they're no longer going to build their own hardware they're SPEAKER_02: going to outsource it to taiwan and if that's a big deal a good sign or a bad sign for the absolutely troubled company which is trading at under three billion dollars now tell you who is a winner though SPEAKER_17: you because it's going to be a great show it's going to be a great show stick with us this week in SPEAKER_18: startups is brought to you by liquid iv making hydration a priority will help you feel better on a day-to-day basis get 25 off at liquid iv.com by using promo code twist wealthfront wealthfront makes it easy to invest and easy to grow your savings with a diversified portfolio that balances your other riskier bets to start building your wealth and get your first five thousand dollars managed for free go to wealthfront.com slash twist and harmonic need to speed up your growth without speeding up your burn harmonic gives investment sourcing and sales teams data superpowers learn how a16z craft notion brex and many more source better leads and qualify them faster get four thousand dollars off at harmonic.ai twist all right everybody in our first story uh a good friend of SPEAKER_02: mine bill gurley a venture capitalist from benchmark has bought a million shares of stitch fix yesterday for a total of 5.4 million stock popped 10 15 on the news uh for those of you who don't know stitch fix is a styling service that uses recommendation algorithms to give you personalized outfits tell SPEAKER_07: us a little bit more about it molly yeah i have been a stitch fix user on and off for many years i actually wrote a big cover story about them for the new york times not long after they launched about this idea of them doing like really curated styling they built this really actually pretty impressive ai uh platform combined with human stylists to kind of recommend clothes for you and the way that it would work is you would sign up as a subscriber you'd get this box of things that were picked out for you by a stylist but in combination the stylist would sort of already be on third base because the algorithm would be like oh this person took this quiz they picked these things and then previously they have enjoyed these things so it would get like a pre-curated list to an individual have you been a customer i think i wrote that story in the times in like 2017 is how long i've been using stitch fix now to be fair i sort of stopped using it for a while so the way it works is you get this box of like five items that are pre-selected for you whatever you want to keep you keep whatever you don't want you send back and they would give you like a discount if you bought all five things and then uh they have SPEAKER_26: sort of evolved as a product they launched an actual like shopping service that suggests things that go with the stuff they've already sent you it's very clever that's actually very clever you use SPEAKER_10: another service right that's related so what happened is i stopped wanting to have new clothes showing up SPEAKER_07: all the time ah yes and now i use rent the runway rent the runway where i just get four new things every month where i'm until i'm bored with them and then you send them back and it's literally more like a rental SPEAKER_10: service and i like that because it's a little more sustainable it's used stuff you know does stitch fix SPEAKER_02: do they either of them offer the other service yet or and would you consider them contemporaries SPEAKER_07: rent the runway you can buy the things that you rent if you like them so you can keep them and so in that way it's a bit of a stitch fix competitor stitch fix does not have a try this and return it SPEAKER_26: like try this for several months and return it the way that we rent the runway public or is it still SPEAKER_07: private rent the runway is public it is yeah yeah we might want to compare there yeah so you know anyway yeah stitch fix has been a little bit of trouble sorry to get to the point to stop shopping for a second and get to the point stitch fix has been has had a tough narrative lately they had a leadership change katrina lake of course a very well-known incredible founder stepped back into executive chairwoman elizabeth spaulding took over maybe some slowing subscriber growth there's been a lack of SPEAKER_02: investor confidence and then of course this big move came yeah yeah and they also did uh maybe a 15 percent cut less quarter uh in terms of getting rid of uh some employees the layoff and the stock price is about five bucks and change and the market cap is 600 now think about that market cap is 600 million my understanding is they peaked at about a hundred dollars a share uh in the boom times it had 11 billion dollar market cap so 95 percent of the value has been wiped out 94 i think to be exact yeah uh from its peach yeah so this is one of those companies that's absolutely been decimated i've been talking about on the show i'd like to start trading and buying some shares in companies over the next year because i've never traded i've never been an active trader in stocks i've always done index funds because SPEAKER_05: i didn't have the time to put into it but i frequently on the show pick winners in fact all the time and we do this really deep dives on them i think i'm qualified to do this especially with 10 years SPEAKER_04: of private market investing and since i met a lot of these companies when they were private had them on this very show etc i think i have some unique insights so i decided i would sell uh 2 million bucks uh of um index funds and i start trading them here so i'm going to start that process today uh and so i'm very frustratingly i haven't like been trading i'm gonna have a robinhood account uh with some dogecoin in it and a bunch of i had a bunch of free shares because i guess you get a free share for every time you get a member so i literally had gone hundreds of members and so i had hundreds SPEAKER_03: or i shouldn't say that i think they capped me at 75 shares after that they wouldn't give me more free shares but because i tweeted about it early on i literally had hundreds of people SPEAKER_02: you know join the app which is my job as an angel investor in the company so i literally had to sell SPEAKER_04: just to clear out my account i think 75 shares in all these little pharmaceutical companies and other things that i didn't even know so i was literally swiping swiping swiping so i cleared out my account i have some more money coming into it but i decided i would make my first j trade in this company so i just bought 1500 shares today not a lot i think it's like whatever six thousand dollars seventy five hundred dollars worth uh and i may buy more but i'm going to pursue a couple different strategies and i'm going to explain them here my strategy here is i want to get to know the company SPEAKER_10: and buying we should be we should be clear when you say 1500 shares you mean stitch fix that's why SPEAKER_07: in case that wasn't obvious the reason that we were talking about stitch fix is because that is the first j trade which we should be clear is not investment advice i'm not no i'm just sharing SPEAKER_05: you with you what i did so before i came on air i swiped up on my robinhood account this isn't an SPEAKER_02: ad for robinhood they're not advertising the program but i am an angel investor and shareholder so i just decided i'd buy a you know a tiny little piece of it not a lot uh 1500 shares to bill gurley's million shares so you know 10 basis points of what he bought i might buy more who knows but i want to start making small bets um and even larger size bets and i'm going to categorize SPEAKER_05: them this category of bet i'm going to put under uh two themes the first theme is insiders who i SPEAKER_60: respect buying shares bill gurley i can't think of somebody i respect more bought shares so i'll buy SPEAKER_07: some shares based on was and i don't think i said this earlier in the setup either bill gurley was an early investor in stitch fix he was really one of the people who propelled katrina lake and this SPEAKER_21: company to success so him making this big investment is him saying i love this company i'm not giving up SPEAKER_65: on it and it was a big market mover for it yeah and i think he might still be on the board so we David Friedberg: should i just think double check that but i believe he's on the board is what they said on cnbc today SPEAKER_02: so um he's you know very engaged and he sees some value here so that's theme number one insiders SPEAKER_04: buying shares uh dara bought shares in uber uh recently danny meyer i heard downtown josh brown uh on cnbc today he danny meyer uh bought shares of his company shake shack so i think this is going to SPEAKER_05: be something we'll see now you have to look at the number of shares in this case bill gurley bought SPEAKER_04: approximately one percent of the shares in the company i think if the company's got a market cap of 617 million surrounded to 600 and he bought five six million in shares that's almost one percent right so this is not a small you know ten thousand share buy it's not 50k it's a million David Friedberg: dollars million shares or six million uh i think it's six million in value and a million shares so he bought a million shares i got it five dollars and forty cents which is like close to six million SPEAKER_04: dollars of the value yeah yeah one percent of the market cap i mean this is uh not a small bet it's SPEAKER_02: a big bet uh i think now i don't know bill gurley's exact net worth but it's a big bet uh for an insider to make and so i'm watching these you know here's the market cap you can see it got crushed since it's gone public so i'll just pull that up for a second based on those two themes i just want to deep dive into it so maybe you could just give us what happened in q3 their last quarter uh last fiscal Jason Calacanis: quarter uh which was reported on june 9th yeah so last fiscal quarter uh they reported ending the SPEAKER_07: quarter with 3.9 million active customers down 200 000 or about five percent year over year okay net revenue per active customer however was 553 dollars up 15 percent year over yeah i mean when that's a lot of money for wow okay i mean you get these boxes in the mail and it's like 200 worth of stuff and that and you can get that as much as once a month yeah okay that's good you know so that yeah and if you if you want and they get you too because i'm such a shopper because if you do it you get this big discount so you basically get one thing for free so you always buy the whole box got anyway gamified it a bit yeah back to numbers assets uh in q3 137 million dollars in cash on hand short-term investments 97 million dollars long-term investments 48 million dollars so total cash plus short-term SPEAKER_32: investments 234 million total cash including all of these investments 282 million the reason that's SPEAKER_02: important is we don't want to catch a knife here that the company's going to run out of money SPEAKER_05: so we'll eventually get to you know what's their profit or loss and cash flow like you know are they burning a billion dollars a quarter in which case oh my god or are they profitable or are they SPEAKER_02: burning 50k you know a quarter right have whatever amount of runway so we'll get to the runway SPEAKER_07: issue in a second yeah exactly so they do have cash on hand 282 million dollars and 213 million SPEAKER_02: dollars in net inventory okay okay which means they could sell that theoretically in theory and get SPEAKER_14: the money from it if as reassuring to me because dumping a bunch of clothes on the market is maybe David Friedberg: a little bit tricky but you know i mean if you got if they got 25 of that of value and they got 50 million dollars still you know a nice little a bit of cash there there we go we just got our good on SPEAKER_07: screen graphic by the way reminding everyone that this is not investment advice not investment advice SPEAKER_11: make your own decisions make your own decisions especially if you're investing in a company that's lost 94 of its value you know recently yes yeah and to be clear i'm investing an amount of money SPEAKER_02: in this and all combined that i can afford to lose so if i lose all of it half of it if i double it whatever happens i'm good so just so we're all clear here it's it's a de minimis amount of money for David Friedberg: me not a big deal i mean it's also it is skin in the game i'm gonna put a million two million bucks it's it's a million or two million bucks so it's not it's not nothing but into stitch fix no no no SPEAKER_98: totally totally my goal is maybe to get to a million to two million dollars deployed over the SPEAKER_02: next six to twelve months which i think is going to be the down market that's my overriding thesis molly the we're going to be in a recession for six to twelve months people don't want to buy SPEAKER_05: equities there's no buyers in the market therefore maybe a good time to buy some things i might want SPEAKER_02: to hold for 10 years and that is my outlook i'm not trying to make 20 this year i'm trying to make four times three or four times my money in 10 years in other words i want to beat the market you know SPEAKER_103: significantly would be my goal it's been a hot as heck summer and i've been working my tail off when i SPEAKER_04: push my body hard like this it's important for me to stay hydrated and if you've got a crazy work schedule you've got to be mindful of this as well so if you want to up your hydration game you need to check out liquid iv i've been mountain biking up here in the mountains i've been going to the beach i've been going for long hikes liquid iv has saved me and my recovery has been awesome my chief of staff presh loves it as well you know he's a long distance runner like i used to be when i was younger and he definitely has an intense workout schedule after he heard about liquid iv from this very podcast he ordered a couple packs to try it out and he loved it so much that he just ordered about 20 pounds of it for his runs all over san francisco way to go presh mixing liquid iv's hydration multiplier in just 16 ounces of water will hydrate you two times faster than regular water and there are amazing flavors watermelon strawberry and bottom line liquid iv gets you hydrated twice as fast and it tastes great i'm addicted to this stuff so grab liquid iv in bulk nationwide at costco or you can get it for 25 off at liquid iv.com with the promo code twist so they know you're fans of the pod and actually SPEAKER_14: we're going to talk a little bit more about buying in the down market with respect to venture capital SPEAKER_07: in a minute but continuing with the the financial health of the first j trade investment here yeah um let's talk about revenue and profit net revenue in q3 was 492 million dollars that was down about nine percent year over year cogs were 282 million dollars their cost of goods sold so gross profit here is 210 million dollars yep yep net loss in q3 78 million dollars meaning they lost 60 million more in 2022 then they lost in 2021 adjusted ebitda was 36 million dollars so basically taking out 31 million dollars SPEAKER_113: of stock-based comp plus some other minor things left to them this 36 million number to get a real look SPEAKER_02: at the actual business taking out stock comp that makes sense so that's interesting to me the way i would sum this up is they're on a two billion dollar run rate approximately 500 million times four quarters two billion yeah uh and so the company's valued at 600 million with two billion in revenue that does seem to be a mismatch gross profit looks okay and so even if they're losing a little bit of money uh you want to see them grow and they have to get back to growing and that's why this is so depressed so i think this would then uh fall into you know a change in management is another theme so the opportunity to invest this low is because there are some challenges in the business there are definitely some SPEAKER_07: challenges in the business i think there's been slowing subscriber growth there's this kind of SPEAKER_14: question about the long-term viability and competition and then there have been people i think investors had a lot of confidence in katrina lake yep and are not as sure about uh elizabeth spalding the new president yep and yeah frankly in the pace of shipping new features and product SPEAKER_03: if you look at this revenue chart here uh the quarterly revenue chart which is you know showing a bit of a challenge here uh during covet or coming uh you had that massive dip right after covet in 2020 and then yeah just massive run up right so i guess people at home started to appreciate this my thesis here is you know there's a core group of people who spend 500 a year and perhaps undervalued and an insider buying so you put all that together i feel pretty good about this um and the revenue SPEAKER_02: growth has been up and down which is this next chart we'll show revenue quarterly year over year you see the dip when during covid that you know first quarter second quarter of you know 2020 was really scary everybody uh you know in lockdown yada yada and then boom they had their record quarter coming into 2021 i guess stimmy checks maybe paid played some part here and then uh yeah a little correction there as i guess people went back out into the real world maybe going to retail again uh so uh and their profit margin has been challenged as well so a lot of challenging stuff here the the price to sales ratio is one we talk about a lot on the show yeah it's like there's a big sale at the stitch SPEAKER_07: fix store right now yeah as in it's the cheapest it's been the price to sales ratio and stitch fixes time as a public company now around uh 0.3 what is that percent yeah that's the ratio would be yeah SPEAKER_05: so i mean if their sales are if your sales were 2 billion here and you're valued at 600 million three times 600 million and change is 1.8 and change right so they're trading at yeah but 0.3 times their the SPEAKER_02: value of the company is one times would be two billion dollars right if it's trading at one times their revenue 1.9 billion or so and change they'd be at a 1.9 million dollar company instead they're a 617 million dollar company or whatever it was at the time we took that snapshot so there it is folks that's j trading um and i'm going to share all this stuff in a document with the audience and i'm looking for you as the audience to you know tell me what you think i should trade uh and if i my logic is bad or not uh and i think this will get interesting i'm going to probably do you know a couple trades a week and i'm going to figure out i have to figure out bet sizing for different bets and then i'm going to have themes right so i'm looking for more undervalued significantly undervalued companies where insiders are buying so if anybody in the nodi gang or anybody who listens to the pod has ideas around that go ahead and just tweet them to me and just use the hashtag j trading it could be let's go with jay trading just so it's clear i mean if you put j trading without the a y i guess we'll figure it out but let's go with j trading um and let me know uh and other theories SPEAKER_128: let us know what you think about this first trade you know give us your thoughts this is not investment SPEAKER_07: advice you should make your own decisions the notice have a lot to say about reconciling retail uh retail clothing buying with a an oncoming recession well that's their big question for you which is an SPEAKER_12: actually an interesting part of the bet right what what is your thesis there molly what would you think look i think this is a now or never moment for stitch fix you are coming out of like people SPEAKER_07: are going back to work yeah empirically they're getting new jobs they're going back out into the world i know i certainly am like going back out in the world thinking like i need to lug out a really fancy manicure on sunday before i went on this to this con you know like this is the moment for stitch fix to capitalize on pent-up appetite for cute clothes yeah and if they can't pull it off now they're SPEAKER_00: never gonna so like yeah this is you know they should be going hard with marketing galore saying if you need new clothes don't worry i know you don't know what anybody's wearing anymore this is SPEAKER_07: what i constantly feel what are people wearing what happened in fashion should be like we got you we will literally style you for the return to the world and send it to you at your house and if they don't go hard now i mean but it's a great opportunity it's a great opportunity to go really hard now and be that like yeah literal stylist in the mail to save you from looking like you're wearing your SPEAKER_02: three-year-old pre-covered clothes uh yeah and i i think one of the other concepts i have here is that these companies will be take out targets as they clean up their you know businesses so peloton buzzfeed you know other small companies that have gone public uh and that lost 80 90 of their value like we saw with zendesk going private i think there'll be some of these moments happening so as a backstop to the investment could be wrong here i do think that m a is going to become a thing uh during the recession where somebody like amazon which bought zappos and i believe they bought diapers.com and you know they've gone on little uh you know adventures buying other e-commerce brands yeah this feels like a perfect brand for them to buy they've got a lot of customer base so amazon buying this and if amazon SPEAKER_03: wants to buy it they're probably going to have to double the price or triple the price yeah and so SPEAKER_14: amazon tried to build a competitor and it just went nowhere like they built a something like a stitch fix that was like algorithmically chosen clothes and it just did not it didn't fly so yeah i think SPEAKER_02: people want stitch fix as an amazon brand i think they want it as a standalone brand with its own aesthetics and its own you know culture uh so anyway there it is folks uh and if you have any other ideas uh i am going to be building uh a portfolio with you live on the air with full disclaimer my goal is to hold these things for 10 years but i may sell some of them on the show so you may hear me say i'm going to sell them or i'm selling this uh and uh yeah j trading is not investment advice SPEAKER_24: j trading is not investment advice just in case um but yeah you know it's interesting to hear investors talk about investing whether wherever that comes from listen if you're interested in the SPEAKER_144: stock market it's been a rough year so far we all know that but if you're investing for the long term SPEAKER_04: you don't need to lose sleep when the market is down so let me tell you about something it's called wealthfront wealthfront is an investment app focused on long-term wealth and it's designed to weather any market condition even the one we're in now with wealthfront you'll get a pre-built diversified portfolio that spread your investment eggs across multiple baskets it's so easy to use and you'll just be up and running instantly with a beautiful interface you answer a few questions about your risk level and your future plans then you quickly get this personalized portfolio and when you automate your investments you can ignore the day-to-day volatility and focus on the long term wealthfront was actually voted the best overall robo advisor by investopedia and it's already got a half a million investors using the product with over 27 billion dollars in managed assets those numbers you can't fake them that's the real deal there folks people really trust wealthfront and everybody i know who uses it loves it if you want to invest for the long term while the market is basically having a clearance sale sign up with wealthfront today and get your first five thousand dollars managed for free once again to get that 5 000 managed for free wealthfront.com twist this bit of investing wisdom SPEAKER_07: is a paid endorsement from wealthfront all right but speaking of yes getting back to basics you have been asking us for more news about startups and investing and so we have a new segment yes here we're working SPEAKER_12: title series a and m a okay uh i like it i like it it rhymes uh it is what you say it is and uh let's SPEAKER_07: take a look it rhymes it's better to be clear than clever as we used to say in the headline writing game all right so we're going to start with an interesting series a company and then talk about what's happening Jason Calacanis: in m a like i said very literal here's what's happening in the series a uh our today's series a company no big deal is coming for google ah yes this okay i've been there good luck with that exactly we've SPEAKER_07: seen this happen before you.com or you is this private ad-free search engine powered by natural language processing so ai driven results and a highly customizable interface that we'll talk about in a little bit you launched out of beta today and is announcing this 25 million dollars in series funding its investors uh the round was led by radical ventures with participation from mark benioff's time ventures benioff actually led the seed round because one of the things that's so interesting about you is that it's founded by two former salesforce guys who are phds like science and ai phd is a former chief scientist at salesforce richard socher and brian mccann lead research scientist at salesforce research okay uh you can see i put in their competitor thesis and the bet SPEAKER_03: love it okay so i just did a search for myself which is the first thing everybody should do and um the results are basically comprehensive search which is something i did with mahalo and something that neighbor uh did in korea first where they give you like here are the tick tock results here are the image results and google started to do this google used to be 10 blue links they copied neighbor down this path i copied neighbor down this path you is copying people those paths uh my results SPEAKER_02: included some spam and some low quality sites uh they'll work on that but um it is uh the interface is like a seven out of ten it's not very well designed yet um the logo is completely ugly uh and the results are just average so great that they're starting and you got to judge a company by where they go right not where they start and so being ad free well actually one of the other things is that they say SPEAKER_07: you can so if you um look at the top here uh above this there's this kind of carousel of search results they're trying not to do the like the endless scroll they give you this carousel where you can scroll sideways but there's a thumbs up and a thumbs down part of their promise is that you can actually customize huh the these results so if i like you know i searched for myself so if i cruise sideways and i discover alexander wood a merchant from 1772 to 1884 uh who was the center of a sex scandal in 1810 i can be like interesting but unrelated to me thumbs down and then it'll let me customize my sources and maybe it'll show me like more or less from wikipedia or more or less from reddit so that was one of the promises that you could sort of say i'm not impressed with these results up and down is but i can up or SPEAKER_05: down vote them yeah it's an okay concept um it leads to gaming is the challenge a lot of people have tried this as well and that as a signal people explicitly voting isn't as good of a signal as what people click on and then if they hit the back key and come back so they'll probably quickly learn SPEAKER_02: that that's of little value and i see they're doing votes up and down based upon each section not the SPEAKER_05: items in each section so anyway there's a long way to go in this the interface is yeah just okay um i SPEAKER_14: think they started out it is interesting they started out with like a focus on developers like SPEAKER_07: you could search for code snippets for developers and i think you can see that in the interface for sure yeah their their bet the thesis at least is that you know people and brands in particular want alternatives to google and that google results have been have been too skewed by ads showing you either ad results or their own products um and that there's not really a long-term future for ad supported search results because of things like apple and the european data privacy laws so they're going to try to monetize by building it sounds like partnerships with actual apps so they would have app functionality built into the search results okay that's uh which is a more SPEAKER_14: interesting thesis i think than kind of and you know privacy first and search for snippets and all SPEAKER_07: that stuff but to me that's a little more interesting than just like we're an alternative search engine SPEAKER_47: the first part of the bet you know people and brands want an alternative to google um and that SPEAKER_02: you know there's too many because because there's too many ads um the counter argument to that that i've heard is that people who are willing to pay are willing to pay because it's more targeted in other words SPEAKER_05: the best brands eventually win and the spammers can't keep up with the best brand so if you're searching for hotels in hawaii and somebody wanted to intercept that result who was an intermediary let's say SPEAKER_02: yeah they can't beat expedia or they can't beat you know a specific hotel in maui the four seasons in maui whatever it is you know and so that's the counter argument to it is that the ads are actually the SPEAKER_05: content and they're really good because over time because it's an auction so what you actually see at the SPEAKER_07: top so yeah i think that yeah the and i will say the counter argument from the business and brand side is that if you're a business who relies on google for search results and google keeps changing its algorithm right it's the super black box algorithm they change it and they prioritize for example first ads then their own shopping results yes and then finally some stories and you don't know why those stories were chosen you can scroll like i just did a search for iphone 13. okay and i get ad at like i'm literally it's an entire page talking about on google on google yes i have three ads i have the apple website with a bunch of specs um i have related questions and then i have to literally scroll down a page SPEAKER_14: yeah before i get to any um like tech site reviews yeah and when you type iphone into you.com you SPEAKER_03: get the apple site first wikipedia then their news in a carousel uh wikipedia in a carousel because what they're doing is they're taking the sections of wikipedia and letting you uh or actually they're taking all the different uh iphone pages on the wikipedia and putting them in a carousel like iphone 7 and yeah you know uh first generation iphone 8 so that's clever then they do tech crunch shopping SPEAKER_07: yeah if you were like a cnet or a p like if i do apple iphone 13 review then the first thing i get is like pc mag or top tom's guide i could imagine if you were a brand who's frustrated by the google things maybe what you would want to do is buy some app functionality from you and be like oh okay when you surface this result let people shop for it directly and give me a lead or something i would say you know SPEAKER_05: in certain certain searches it might come up with better a 20 better experience and that is always the SPEAKER_02: challenge and the challenge for the u.com team and i hope they succeed is if you're 20 or 50 better than google uh nobody will change their behavior you got to be like two times better than google SPEAKER_05: three times better than google to actually get some change in behavior and that's why it's been very hard to challenge google either you need to have a distribution advantage which is why bing did okay SPEAKER_02: and apple is doing okay with their search results there's actually a search team in apple so when you do the spotlight search do you notice it's getting more and more robust and apple where it shows you hey here's apps here's things in your icloud here's that you know your photos whatever they're doing like their own version of comprehensive search which is what's on your device and then they're going into the app level and searching inside of apps so you know that's because those two players uh microsoft has search inside of they have search inside their browsers and their operating system and then apple of course has search inside of uh their devices uh so it's going to be really hard the chances of success are incredibly low but i do like people continuing to after this the one question i have is their actual search results are they crawling the web when they show organic results so if i type an iphone review tom's guy came up in a carousel as number one and then trusted reviews number two etc then cnet did they index the web to get that and are they doing a crawl because that's SPEAKER_04: the other problem there's only like two people or three people really crawling the web so when you duck duck go you're actually using microsoft bing bing is actually crawling the web i think yahoo SPEAKER_05: stopped crawling the web yahoo used to have a search api and that's actually a question i have is is there a company that makes their own search index of the web that allows anybody to use it as an api SPEAKER_04: that would be actually a company i would think would be very interesting but searching the web SPEAKER_02: in real time right now is an incredibly hard task and this is where network effects become super important you know they got tens of thousands of people working on search at google and they've figured out how to index twitter and youtube and facebook and you know every little nook and cranny of the web really well so i wish them luck uh and it's a really good serious a company uh they're gonna have a really challenging time this is one of the craziest things you could ever do is try to go over uh to go against somebody with a monopoly that's 90 in most most markets the chances of success here are less than five percent which is why people are making the bet if you do succeed SPEAKER_03: which is why we had to bring it up right because it's like every well what is every point of search worth today so google's market cap is currently 1.5 trillion trillion i would dollars that uh one SPEAKER_02: trillion dollars of that is based on google search i'll give the other 460 billion to youtube and some other services they have maybe some cloud stuff or whatever but mostly search yeah that means every David Friedberg: percentage point of search is worth 10 billion dollars in market cap so there you have it folks if you SPEAKER_03: have a five percent chance of hitting but one percent of search uh you have a 10 billion dollar market SPEAKER_07: cap company and that's what this is this is exactly like why we thought about making that merch that basically said but what if it works but what if it works is that here and i love people making crazy SPEAKER_03: bets that's what our industry is all about and we also don't know what else they have in the works Jason Calacanis: right yep so exactly there's the pitch thing it's so frustrating too when you read now that i know better when i read the tech crunch article and i'm like yeah yeah yeah i want to know what they said to SPEAKER_07: the investors like i want to see the deck yeah because somewhere in there there was a pitch that made benioff go i'm all in on this and then made these you know these second i mean this is this is a search company with no obvious revenue path that's competing against google and has raised 45 million dollars so something is in there either the technology or the eventual plan one assumes um that made people go like yeah yeah that's cool pre-revenue 45 million bucks invested absolutely SPEAKER_04: let's go hey everybody i want to tell you about a new product i have been using it's called harmonic what is it it's a database that has all of the companies and all of the employees and all of the data around those companies updated every day so you can search inside this database for companies that have raised the series a and that have these qualities that have this many employees that have this much revenue it's really interesting how you can slice and dice the data now why would you want to slice and dice all this amazing data one you're a vc like myself we have to source startups like we want to do outbound and we want to find really interesting companies maybe b2b companies like sas but we don't want the ones that everybody knows about that are series c and d because our investment window is earlier so i've literally got my researchers and associates inside harmonic ai and they're finding these incredibly high quality startups we email them SPEAKER_05: the hit rate has been extraordinary and then i thought about it well my team at inside.com and this week in startups they sell ads and they sell ads to a lot of sas companies and high growth companies well they started doing searches here and they said hey jcal we're finding really good companies in here and we've already started to get meetings even companies like brex use the harmonic database they find newly incorporated founders to sell to and we can find like the founder backgrounds go to stanford or do they have a degree in ai i mentioned before like their head count growth and other metrics we can perfectly customize these searches and then save them and if you have great data and you can get great leads you can grow faster so here's what i want you to do i want you to visit harmonic.ai slash twist h-a-r-m-o-n-i-c dot a-i slash twist and you're gonna get four thousand dollars SPEAKER_04: off your company sourcing and monitoring i am just shocked by the quality level of the data here so i want SPEAKER_02: you to check it out harmonic.ai slash twist h-a-r-m-o-n-i-c dot a-i slash twist and you get SPEAKER_203: four thousand dollars off your account enjoy everybody it's really cool news from the wall SPEAKER_07: street journal today which i am mentioning specifically because one it was an exclusive but two it's based on unnamed sources so also not investment advice make your own decisions but the wall street journal reported that stripe told employees in an email friday that its internal share price was about 29 that it cut its internal valuation by 28 and its internal share price was now 29 compared with 40 in the most previous internal valuation known as a 409 a valuation the move and i'm quoting from the journal lowered the implied valuation of those shares to 74 billion dollars according to one of the people um stripe of course recently raised 600 million dollars at a 95 billion dollar valuation it did not explain its decision to lower the internal valuation what is this 409 a SPEAKER_05: thing yes so a 409 a valuation is a valuation that is done by an independent appraiser and it gives you SPEAKER_02: a fair market value for a private company's common shares okay so there's a lot to break down here you have an independent party say hey your common shares the one owned the ones owned by the founders and the employees are worth this amount now why would you do that well because the preferred shares are the name of the shares bought by investors so when that 600 million was put in at 95 million those are SPEAKER_05: preferred shares preferred shares in a stack of share classes go on top of the common shares now when a company goes public and the exit is clear where it gets bought the preferred convert into common and there's one class of shares typically and it goes public oversimplifying here of course there's a lot of nuance but why do you need to put a value on the common shares well the preferred shares have a series of rights that the common don't have so when they put that money in they get a liquidation SPEAKER_04: um preference so if the company were to sell for about 600 million the preferred shares would get a hundred percent of that and the common would get nothing they might get a board seat they may get SPEAKER_207: information rights they might get uh the ability to have pro rata and buy more shares they may get SPEAKER_04: to approve a sale down the road they may get to approve the change in management right depending on how many preferred shares you have so the preferred are the professional investors buying into a company now why does that exist well those investors need to have some downside protection because they're putting money at work and so 99 times out of 100 a company has this structure there have been some SPEAKER_05: companies that have sold common shares to investors uh but it's very rare so you do this because there's no way to actually know the value of the common shares because nobody's bought them they were given to people and that price is the price employees have to pay for them molly so when they execute their share options so you go to work at this company you're the cto and they give you two percent of the company you've got two billion dollars worth of shares but you know maybe in the beginning you have but two hundred thousand um you want the the fair market value of the common shares to be low so SPEAKER_02: employees get to get the gain when the exit happens between the 409 a valuation and the eventual exit typically the 409 a puts the common at 20 30 of what the last preferred was so here this is just a way SPEAKER_05: since the market has changed and valuations have come down to make sure the new employees don't get a sky high valuation so this is in the this is done strategically and fairly by the way uh to correctly appraise what the common shares have in terms of value sometimes a company molly will be running out of cash they have less than a year of cash in the bank and they're not making money and the fair market value of the common if there was 20 million dollars invested in the company and the company's only SPEAKER_02: worth 10 or 20 million dollars in the public markets you know in terms of what people would pay for it not the public markets literally but in the market um then the common might be worth five percent or ten percent of what the preferred shares are worth because the company has the risk of ruin and so these 409 evaluations are done by these firms they get updated yearly they used to cost ten thousand SPEAKER_11: dollars to do now they cost 500 to 2 000 to do for early stage startups um and i met i met a guy who SPEAKER_07: that's what their company does is private market valuations maybe they did this one but um so okay so but just to sum up so the investors do not get diluted here no this is specifically about this internal valuation so that presumably when and if stripe goes public employees are in a better position and i would imagine that this must be in preparation in some way for an ipo there were like a lot of SPEAKER_14: rumors in the spring that's not going to go public any minute now yeah it's actually not done in SPEAKER_02: preparation it's done every year so companies do these every year basically right um just as good hygiene uh sometimes they'll skip a year because they're not issuing any more shares or nothing's changed with the company but generally you'll see startups do this every year uh and it's literally like SPEAKER_05: appraising the value of your home you're just appraising the value of these common shares so when people do execute their options you know what they should pay so the shares are worth a dollar each SPEAKER_02: uh we're going to put the fair market value of common uh you know people paid a dollar and they're preferred we're going to put the fair market value of the common at you know 25 cents employee executes their options the company goes public at a dollar the employee pays 25 cents for their option and then gets to 75 cents in between so those transactions then occur and the company goes public SPEAKER_84: yeah and the notice are pointing out that even though this is a cut in the internal valuation from 95 to SPEAKER_07: 74 that that is nowhere near as deep a repricing as for example paypal has seen in the public markets SPEAKER_05: where it's down over 60 since january 1st employees don't understand this typically they have options SPEAKER_02: they haven't experienced you know shares being worth anything and so it's all very um you know it's all very theoretical for most employees until you know you have you meet somebody and they're like yeah you know i worked at microsoft i bought this house with my options yeah then i went to google and then i went to facebook and now i'm at uber and i'm gonna leave uber when my four-year vest happens i'm gonna find another company or i'm gonna go work at a venture firm so that's one of the magic things about silicon valley is once you move here you know people who've won the lottery of their stock options right right and it's like oh i wonder who lives in this big house in my neighborhood it's like oh yeah that person was at google yeah and we're the you know 657th employee at google they did okay you know uh and so this is the lottery we really do care right so you really have this as an employee you really SPEAKER_07: care but as a headline it's a little misleading it's not like a it's not a misleaddown i actually SPEAKER_224: yeah it's not like the this is the opposite like it's a markdown story no that's why i was disappointed SPEAKER_05: with the wall street journal on this i think it's like a slow news day and just like i would say SPEAKER_02: it's in the um you know market collapse porn category of like oh my god the world's coming SPEAKER_29: apart here's another headline click on it oh yeah it's a little lower evaluation and you're like oh and SPEAKER_21: you hear that about stripe which is like a money printing machine and then you're like what's the SPEAKER_02: company we were just uh did the story of that um sequoia invested in and it was went from 45 billion down to like 6 billion the buy now pay later company yeah clarna clarna that actually is a legitimate SPEAKER_05: headline clarna you know preferred shares were selling at 45 billion and they could only clear SPEAKER_02: market at 7 billion that's a legitimate headline clarna this is a silly headline and the wall street journal should do better do better do better do better good to know well i'll tell you who's SPEAKER_07: doing great today yes microsoft yeah this might be a j trade this might be a j trade we might get a SPEAKER_12: second j trade on the same day and this is not investment advice but i am saying that my investment SPEAKER_07: professional loves him some microsoft yeah exactly netflix has named microsoft as its global advertising technology and sales partner so we have a double interesting business story one microsoft winning business from a huge player netflix yep but also netflix is definitely going to do an ad supported SPEAKER_224: subscription plan and microsoft is going to power it amazing this is nothing short of amazing yeah this SPEAKER_238: is fascinating i mean this is netflix moving incredibly quickly which they have to do um and SPEAKER_07: then microsoft really i think interestingly just you wouldn't think of microsoft for this right as the like help you build out ad supported infrastructure um but microsoft is probably one of the few at this point that is a big enterprise software provider like this who also doesn't have a streaming service like google has youtube comcast has peacock apparently they were both being interviewed as potential partners according to cnbc um and netflix coo said microsoft has the proven ability to support all our SPEAKER_02: needs and blah blah blah tech talk so here's what you need to know um microsoft uh made almost 50 billion uh in q3 of 2021 i just was looking for ad revenue so this is a little bit dated uh but i was looking for the SPEAKER_05: 2021 yearly ad revenue so at that time they were doing uh search and news advertising revenue combined SPEAKER_02: was 2.9 billion in q3 actually here we have it in q3 of 2022 uh they had almost 3 billion in ad revenue so that's 12 billion a year out of their whatever they have in revenue per year which is i think probably in the 200 billion range so this is not a small amount of revenue for him for them you know this is like six percent of their revenue so microsoft is trying to continue to grow their ad revenue just like amazon is because it's really highly profitable um and so google's revenue is of course like you know 85 percent 90 i mean it's 80 uh ad revenue yeah um and so you know it's kind of the opposite the companies in terms of you know mirror images uh one makes their money through software and the other SPEAKER_05: one makes it through advertising but it's meaningful and this is a way for uh netflix to get a really great deal microsoft has the need to grow this and advertising is about scale so you if you get some really lighthouse customer a lighthouse customer is one in our industry the term lighthouse customer means they are so bright that all the other ships can see them from far away and they are that's where everybody goes they go towards the light right so when you get microsoft gets netflix you know that's a setup that somebody else who wants to follow this path you know might come to them uh hbl max whoever and if they can get more and more partners like that then they control the interface some advertiser wants to be on netflix which seems like a place advertisers are going to be and then ford now has SPEAKER_02: to go to microsoft through the microsoft interface and hey maybe while they're in in the interface they were doing a little bit of bing advertising or news advertising maybe they increase it right so there's a huge loss for google and a huge win for microsoft uh in terms of building their ad networks and i bet you i bet you microsoft was like you know we'll take some very tiny percentage you know google might have offered them like you know we'll do it but we want 30 of the ad revenue microsoft might have come in and said 10 right i don't think that data is available yet on this deal uh but eventually it will come out what percentage they get and i would guess you know it's low double digits so 70 80 i would say google might have offered 30 and they offer 10 if i had to take SPEAKER_47: a guess right youtube offers 55 to just anybody off the street and they take 45 so they would have to SPEAKER_02: give a better deal to somebody bringing so much audience so maybe they go down to 30 but maybe SPEAKER_03: microsoft doesn't care about making a profit here they just want the lighthouse customer right so SPEAKER_07: they can build that ad business and add yet another avenger to the stable i mean microsoft is just absurd every single cylinder is firing there um we should note as just a preview that netflix is going to report its earnings on tuesday and they are expecting to have lost 2 million subscribers during uh the second quarter so i hope they are enjoying today's little stock bump should it be occurring because SPEAKER_02: it's going to be a tough one it's going to be so in this g trade and this is not investing advice not uh not investing advice um i would really you know like buying microsoft is seems like you know SPEAKER_05: and again i haven't gone through the numbers and drilled down here they seem like the winner in this trade uh netflix feels like they're getting off of their you know bread and butter which was oh well no you know their their whole brand was around not having advertising and that's what i loved about them and now putting advertising in it listen i'm never going to pay for that but i know what happens like i pay for no advertising on a lot of services and then it seems like some you know little carve outs exist so you watch some show on hulu and i'm paying for the ad free version but i still get served ads on some things yeah or i pay for ad free on nba and i still get SPEAKER_02: served some ads you know and it's just i just beat my head against the wall um with this issue and i you know just looking at netflix find myself netflix is the fourth service i go to yeah right now it's hulu hbo max and disney and yeah i literally like i'm on netflix so sorry to the netflix SPEAKER_26: second away i mean i've been saying this for months that netflix is the optional one and it has been SPEAKER_07: for a while and i think that making it kind of cheaper and more ad supported is probably the right way to go but i would have liked to see what they could do with a more you know i mean i'm willing to pay a lot more for hbo than i'm willing to pay for netflix for example i was i had almost canceled it and then i started watching this stupid now the problem is stupid are you watching a SPEAKER_177: stupid show on netflix which isn't do you remember the lincoln lawyer oh okay yeah no i mean it's SPEAKER_07: totally it's just like a little like you know cheese ball crime drama or whatever and i'm like perfect like this is great for like procedural one season and then i'll probably be out and then SPEAKER_02: i'm definitely canceling netflix yeah you know i find hulu keeps having big winners for me uh i like SPEAKER_203: great dope sick i i think the bear is a hulu or is it fx yeah i like the bear i i go to it for hulu but yeah yeah and i like how they have all that fx stuff like hulu yeah hulu is great and SPEAKER_01: amazon prime actually has really good shows like netflix i just finished the boy season three which SPEAKER_03: is a little challenging i gotta get after that i'm gonna get after that actually you know it's gonna it's kind of interesting they really play with a lot of themes on there um but what i hate about this is the culture of netflix is now going to be forever changed the culture of netflix was we're so SPEAKER_04: good like hbo give us your money and we'll just give you great stuff it was a very simple trade and now they're gonna say you know what our stuff is really not that good not good enough for you to pay for it so we're gonna give it to you for free and you monetize it i love the fact that they challenge themselves and their audience to make that transaction and now i think this breaks that covenant it breaks that contract and i am not there for it i would have preferred for them to say we're now gonna buy out the top you know 50 podcasts or we're gonna do podcasts that we think are SPEAKER_05: really interesting right so to take the spotify playbook but do it without ads because they could afford to they could have afford to do the joe rogan deal or call her daddy whatever they vibed with whatever content they vibed with and then imagine if you could only get that stuff with your netflix well now anybody who is call her daddy i think it's the i think caller daddy and joe rogan are the two main and the ringer if they had done those three deals at netflix and they had the vision to do those three deals well then anybody who liked any one of those three and got some value from netflix wouldn't churn so these two million people if they had those three podcasts those those three podcasts and podcast networks have tens of millions of listeners if you could only get them there maybe they would have saved a million of those two million or five hundred thousand right i mean this is what i SPEAKER_07: hate about the the kind of like val the the maximize shareholder value or the cnbc version of the analysis of netflix is like sure okay could you get more subscribers by having a cheaper base probably fine but fundamentally content is king and that is what people pay for when they go to streaming services and netflix did not innovate on anything except for a cheap you know pile of content that they just like threw at people and now they're going to make it seem even more like i'm sorry a garage sale by tossing uh ads in on top of it and it's like when it comes to streaming people want great content and they want a premium experience and they want star power that's what content is all about it's not the baseline for every single business but that is what streaming is about and this is just like netflix did sit on its butt and so congratulations microsoft but i don't think this SPEAKER_26: is i'm not sure this saves netflix in the long run either i would have liked to see netflix get into a music SPEAKER_05: subscription uh and you know they could have just been the super bundle they could have done news as well so you know we we make fun of cnn plus uh because it was horrible but there's an argument that netflix could have done their own news network kind of coverage um and just had like whatever eight hours of news a day they could have spent 100 200 million on that and had a better you know and had SPEAKER_02: a cool product so i just hate hate hate um them changing their culture from the you know elite content worth paying for and going this route but yeah i agree it could work i think it could work we'll SPEAKER_07: see well it'll work for like short-term numbers will it work for like a long-term sustainable business i don't know i mean it'll just be like it'll be like nbc all over again right it takes the promise of streaming and just turns it into a cable bundle i wonder if people are going to drop down SPEAKER_02: from their paid tier to free and so that i think is going to be their internal conflict like they're literally going to be having circular discussions at board meetings and the rank and file are all SPEAKER_04: going to be debating when they start losing even more paid members because the paid members go well why would i pay for this if i can get it for free and it's a recession the only thing i'm watching is SPEAKER_10: the lincoln lawyer like i don't care so you're the perfect candidate i'm already not paying attention SPEAKER_12: yeah you're already like you know what i'll just go on my phone i'm just doing it while i email so like yes i'm definitely going to drop down to the free right i'm like oh here's a dumb show on in the SPEAKER_04: background you can afford it so they're literally took somebody who could afford it and they're going to turn you into a free customer and you're not going to watch the ads so they're not going to work anyway because everybody's going to just multitask and be on their phone and turn the volume down SPEAKER_03: oh yeah yeah terrible decision okay let's continue the terrible decisions i i heard peloton is making a terrible decision this is such a terrible decision is it i don't yeah let's see tell us okay so peloton SPEAKER_07: which had many competitive advantages not least of which was that it was premium it had wonderful content it had all the things we were talking about with netflix and it also had this great thing that i personally know several consumers who made the buying decision based on exactly this SPEAKER_32: pelotons were made in the united states that was a huge deal did they cost a lot yes but they were made in the us peloton that's why they're so well constructed they were really they are very well SPEAKER_07: constructed they're great machines like i i mean i am not kidding when i know one person in particular who was like this is the only reason that i bought the peloton peloton is now going to stop making its own bikes and tread machines uh-huh and outsource all manufacturing to taiwan thank you to by the way uh andrew nuanly in our twist twitter community this week in startup tc he put this story on our radar tweeted expecting jason to address or comment on the news that one peloton will outsource all hardware manufacturing is peloton now a fitness or lifestyle brand a software company or something else SPEAKER_14: so from a class perspective this makes sense obviously right yes so i mean apple design so this i i guess SPEAKER_05: the nuance to this is there the design is still being done by peloton so you know when it says designed in cupertino yeah you know it's made in china yeah yeah so you know foxconn is like yeah here's SPEAKER_02: how we can you know shove more stuff in here and we'll we'll slap together your design and you know make it even better and but it's still designed software right our deal is also the design of the hardware really matters so what this is saying is they're going to try to squeeze more margin whatever it is 10 more margin out of the hardware by manufacturing it in taiwan so this isn't as dire as i think it sounds it means they're probably moving to what apple does and that works fine but they're not doing what tesla does which is tesla has its own factories when you have your own factories um you can scale to extraordinary lengths and you can do incredibly innovative things uh and so you know you can basically have materials come in one side and the car come out of the other side you know as SPEAKER_54: tesla has proven they can do you know to the tune of whatever they're doing a million cars a year so SPEAKER_05: you know just it's this is what happens when your company is mismanaged and you have to write the ship this is a ship writing moment right it's not ideal give some credit which is that it is a bold move SPEAKER_07: right it's a it's a hard to i'm sure it was a hard decision it's a big cut it's a you know i mean it's the kind of thing it's the kind of dramatic move that you pretty much have to make if you're trying to like you said write the ship and and that's peloton's only goal right now is either do that SPEAKER_05: and or get bought yeah it's hardware is hard um and i still love my peloton i'm still a subscriber i think SPEAKER_02: people who love peloton are still subscribers the market cap of peloton is at 2.8 billion dollars that is stunning let me find the peak it looks like the peak share price was 162 and now it is down uh 94.8 percent so 95 percent uh and it's down to eight dollars and that is just extraordinary um yeah it's gonna be a hard turnaround but i think that they're going to do it i think this is a company that should be you know with two billion they still have two million members i believe their revenue is still around you know it's close to two billion dollars so you know for this company to be worth one the price to sales ratio is like 1.x here right uh this seems like i'm not making a j trade but because i do we have to look at the cash in the bank and how much they're burning i do think that this is a um this is should be on the short list of a j trade based on my thesis of takeout candidate SPEAKER_04: loved customer base that loves it and has a high ticket price so we look at stitch fix and we compare these businesses both of them have a very loyal base of users who spend a lot of money each so and and great products you know if you have a great product and a lot of customers who love you and you make a lot of revenue from each one yeah it's there's something there right this is not a fake business this isn't like some spac that came out and they never delivered the cars right now like SPEAKER_316: nicola or something honestly it's a real business like i would have i would be so happy as a consumer SPEAKER_07: if the announcement that peloton made instead of we're going to outsource our manufacturing to taiwan which means it'll take longer and maybe have worse build quality but i don't know right i'm not trying to cast dispersions but that's less of a sell than made in the usa if they had announced instead that they were going to do that hardware subscription like yeah i am in overnight i sort of it's and it's to me it's a question about it it does make business sense to say we're going to make this big systems change because that's going to save us a lot of money versus we're going to make a system change that will cause a lot of customer acquisition it's almost the netflix model and possibly going to the hardware subscription maybe they just like did the math and they said no making this big systems change about manufacturing will save us more money than the short-term customer acquisition and it might be like maybe i'm a low quality customer because i'm just paying 100 bucks a month instead of dropping the like four grand right off of the right out the gate but i really still hope SPEAKER_40: they do that i think there'll be a lot of options for them to pursue once they the new ceo gets SPEAKER_02: control of the ship and you know we we went through the new ceo's pedigree um he's you know a legit guy who's done stuff like this before and i believe he's a previous cfo uh if i'm not mistaken so it's kind SPEAKER_05: of who how you send in here is like the fixer so they sent a fixer in here and what you're seeing is SPEAKER_47: fixers fixing and the previous founder was all over the place and not disciplined and so this is like the down this is the downside of the founders can do no wrong yes you know founder authority is SPEAKER_05: really important you want the founder to run the company ideally unless the founder isn't disciplined enough to run an operationally hard business some founders are super creative they make SPEAKER_04: a a category defining product like peloton there is no doubt that peloton is the greatest exercise equipment ever made the greatest most innovative product ever made period full stop there is nothing SPEAKER_02: even close to it in my mind except for maybe the tonal uh which i think you know got a lot of its dna from peloton in fairness to peloton um and i don't have shares in either company just to be clear but i do own both of them and i can tell you i watched tonal copy peloton and you know they're SPEAKER_04: clearly inspired by it it's that much of a category um defining company but a category defining company with bad operations is what apple did when steve jobs was running it without people like tim cook and then steve jobs got ousted and then he came back for round two and it was like you know what i need to have an operationally sound business i need people like tim cook running it and now we're seeing the totally uninspired version of apple today with tim cook running it so they lost the founder SPEAKER_11: innovation and authority and they just got this incredible operator running it and it's printing SPEAKER_335: money so it prints money doesn't have to be inspired hey well it's just basically all the inspiration SPEAKER_04: that steve jobs came up with like they just keep releasing you know macbook airs and iphones that are literally cover songs of what steve jobs came up with like literally they just added a verse to one of steve jobs great you know songs it's a remix like it's just a remix on the brilliant stuff that johnny ive and steve jobs created like they keep releasing the macbook air and i keep buying them they keep releasing the ipad and the iphone i keep buying them yeah because they're so good you know it's it's like they're so classic it's like the rolling stones or you know whatever incredible band they can just keep going on tour and people keep buying tickets um you know that's how transcendent the product was i actually believe peloton is that transcendent of a product that if this person can just get the ship righted and operationally make the math work on the subscriptions SPEAKER_03: and the product sales and the cost structure they'll be back in the game so now i'm talking myself SPEAKER_341: into a j trade oh my god which is obviously not investment advice which is obviously not investment SPEAKER_07: advice don't follow me i've never done this before two things on that one tonal um also cut 35 of its workforce fyi to cut expenses and readjust to consumer demand and then speaking of m a i want i SPEAKER_26: really want to ask you actually about this this story that i read in forbes today about battery ventures SPEAKER_05: okay sure um is this uh this might be a sunday school let's go i i didn't read the story explain SPEAKER_07: to me what the story oh maybe well it's related to i had put it in as the m a part of series a and m a because what battery ventures announced basically was two things one they announced a 3.8 billion dollar raise so mega fun okay but also said that their strategy in this downturn kind of is that they're going to use this big war chest to buy out venture-backed companies oh and that they are going to structure more of their growth stage investments to look like buyout deals which evidently is super unusual bessemer venture partners launched a similar growth buyouts practice i'm reading from forbes but otherwise traditional venture firms have seldom explored this type of strategy is this like when there's blood in the streets go shopping and like go shopping okay yes that's exactly what this is if SPEAKER_02: companies were overvalued there'd be no opportunity right so yeah here we i just bought stitch fix shares at a 95 discount to the peak if it was trading at its peak i wouldn't be bottom feeding like i am uh and taking advantage of that and obviously like if battery was going to try to buy the company and it was worth 20 times you know it's worth 10 12 billion they wouldn't have the war chest to do that but a 600 million dollar stitch fix and that's a public company but if a private company was worth 600 million they have the war chest to actually buy something like that and then try to take it public and grow it so yes that's opportunistic the other thing they're saying this story is their plan is to stretch out the three billion dollars over as much as three years so remember SPEAKER_05: i said in a down market that uh vcs will not make capital calls because they or they didn't in the 2008 crises because they didn't want their lps to have to sell equities and they knew their lps might be in a bit of a cash crunch too right so they were like yeah we'll you know we'll slow down a little bit here we'll circle the wagons we'll work on our existing companies and getting them you know operationally sound and we'll opportunistically make small investments so we don't have to call that SPEAKER_55: capital down right yeah now they could be jerks and just be like i'm going to pound that money because it's in my best interest as the gp but there's a little gplp dance that occurs here where it's SPEAKER_05: like is it okay for me to draw this down or the gp the lp might say like hey it would be good if you SPEAKER_02: drew this down a little bit slower right so now that i'm in 20 funds and i just announced one of the ones that i put in very small amounts of money um and typically that's drawn down completely uh at the start of the fund because they're micro funds the ones i'm looking at but uh yeah sure it'd be SPEAKER_55: nice if people were like hey the market's down we're gonna you can give us the money over the next SPEAKER_02: three years instead of all at once or you know over two right so it's just a kind thing to do to your lps so yeah it's interesting um but buyout deals are not what vc funds do you need to have a group of cutthroat insane operators inside the business i don't know battery well enough to know if they have that i suspect this is not a good idea yeah i suspect this is not what venture capital SPEAKER_363: should be doing this or private equity people should and i'll tell you why well and i keep saying SPEAKER_365: that all these big funds are moving more toward private equity like this is a thing anyway yes SPEAKER_05: tell me yeah well here's the thing the culture of venture is optimism and growth yeah the culture of private equity is um cutthroat and making a spreadsheet and then sending in people who don't SPEAKER_02: care what people think about them or the culture who just come in and fire the people who cost a lot SPEAKER_05: of money do pay you know do pay cuts or pay freezes get rid of the kind bars everything that startups SPEAKER_02: you know are it's antithetical to startup culture of pampered employees and growth and joy and it's just cutthroat right we're going to run this business um for optimizing the earnings and we're not SPEAKER_05: going for growth we're not going to have r d we're going to just squeeze every dollar of profit we can out of it because then we can use that profit to pay down our debt because usually they finance the stuff with some portion of debt and we can flip it and the person who buys it then can decide well i got this money printing company do i want the money printing if there's no competitors sure if there's SPEAKER_02: competitors okay well we might have to put some money into r d but if not that's the buyer's issue the buyer can make that decision we just made it look really good to be fair there are plenty of SPEAKER_07: people who think that that's what vcs do vc real large as a category that they come in at some point and they're like oh i need a return so i'm going to force a sale of this company i think there's a perception that later stage vcs might do like meddling and optimization at that level certainly that was part of the we crash story and even the story which is yeah vcs coming in and forcing a lot SPEAKER_82: of change okay so there's two different things there um there's forcing a sale which is hey listen SPEAKER_04: we've been at this 10 years we need to get a return we need to sell this company or take it public SPEAKER_02: because the the the window here is but we let you run it and we didn't get in there and roll up our sleeves and tell you how to run it yeah we just met we went to the board meetings we looked at your plan SPEAKER_04: which is what vcs want to do anyway they're not designed to roll up when you go to a private equity firm you know they could send in a swat team of 10 people to to go do the hr stuff and to start firing people and do the accounting vc firms don't have those people they don't have those fixers sitting there ready to go in and you know be the temporary ceo cfo uh so they're just not staffed that way and then if a company is mismanaged that is like the edge case of like this thing is such a disaster that the founder is buying wave machines and smoking pot on planes and you know gonna just SPEAKER_375: destroy the whole company we have no choice like water drinking down the good stuff i mean it's SPEAKER_04: literally like the last ditch effort to save the company whereas that is the default behavior of private equity firms the default behavior is coming in you know and setting up that temporary war room like the guy did in the we work drama and saying we're gonna go everything with a fine tooth comb no more kind bars we're selling everything we're ripping out everybody's getting a pay cut oh you've got a cultural department oh you're doing a retreat no more retreats no more kind bars SPEAKER_02: you know no more uh you know business travel unless it's approved and you're flying coach you know they just basically uh rip out all the joy of working at the company and any of the perks i mean so yes it SPEAKER_07: can happen with vc but usually only as a result of dramatic mismanagement and that still doesn't and that still is separate from this just kind of interesting move which is you know yeah changing the the model of vc and i almost wonder if that's the start some of the thing that just started has Jason Calacanis: to happen when your fund gets so big well it's just so much money like what else are you gonna do you gotta start squeezing out returns however you can because to return two or three times 3.8 billion SPEAKER_05: dollars it's hard really hard well if you own 10 of each company you know and you bought into the company when it was a billion dollar company you spent 100 million now if you get 30 times that you know it has to go from a billion dollar company to a 30 billion dollar company like that's only happened a handful of times uber airbnb you know pick the company like you know facebook it's very SPEAKER_02: rarefied air and i think that's what people are going to be faced with is these multi-billion dollar funds came up at a time when people thought there would be an unlimited number of ubers and airbnbs and facebook's and google's and it turns out there's probably not going to be an unlimited number SPEAKER_05: of those there's going to be you know like it used to be a billion dollar company was rare and then it was like yeah we have a thousand of them we're going to go back down to a billion dollar companies SPEAKER_02: being a little more rare and certainly the 10 billion 20 billion 30 billion dollar outcomes being very rare you remember when it was like every coinbase investor was a genius the company was worth 70 80 billion and then now it's worth whatever you know under 10 maybe it's worth 10 billion or something uh dropbox was another one you know like that became a 10 billion dollar company like really hard SPEAKER_04: to get there 10 billion is a very big company yeah uh it's not easy folks that's why the ideal fund size for a five six partner firm according to fred wilson and you know benchmark is 200 to 600 million SPEAKER_02: uh each person does six seven bets eight bets nine bets whatever it is each bet is you know whatever it is five million dollars you get to you know uh 40 bets in a fund 50 bets in a fund 30 bets in a fund there's like a optimization there uh that seems to work really well with five partners 500 million dollars five partners 300 million dollars um or at least that was the old numbers who knows where it winds up SPEAKER_00: today and there you go everybody it's like thursday vc sunday school i'm so glad i'm so glad i brought SPEAKER_07: that up because i thought that was really interesting and i'm glad you think it's as unusual um as it seems to be i think that's it for our show yeah great show everybody yeah tomorrow we're going to do SPEAKER_02: two really great interviews uh i sat down with the fcc commissioner brendan carr to talk about tick tock you might remember brendan carr commissioner carr sorry wrote that letter to sundar and tim cook and said listen tick tock out of the app stores let's go uh and tick tock has been trying to defend themselves i've been hearing pr people try to spin it but i am with commissioner carr and we have a really important discussion about the very unpopular task of telling people the delightful tick tock should not be allowed in america at least our two opinions cannot wait to SPEAKER_07: listen to this i sort of wish i had been there to be the devil's advocate but you know it's uh i brought you up i brought up your position and then of course it'll be friday so we will have another SPEAKER_11: great okay boomer from producer rachel and as always follow us on the twitter mollywood jason and twi SPEAKER_02: startups join the twitter community at thisweekinstartups.com tc if you want to invest uh alongside molly as she invests in climate startups thesyndicate.com climate you had to be an accredited investor uh sorry we didn't make the rules and uh but if you're a climate startup you can apply to our syndicate there too so and if you have questions you can post a question at inside.com now inside.com slash questions and you can post jobs inside.com slash jobs so i'm still tinkering on my little product over there and uh we're making good progress so inside.com slash questions inside.com slash jobs you can post a question for free post a job for free and i might just tweet it for you uh rate and subscribe yada yada youtube.com slash this week in if you want to join us every day uh and watch live 10 a.m all right everybody give a thumbs up by god so many comments uh from the notice thank you so so much and we'll see you all tomorrow bye bye bye bye