SPEAKER_00: okay everybody we've got an amazing show for you today it's a big news day and we are of course SPEAKER_01: going to get into the facebook whistleblower hearing facebook's pr team's dirty tactic response SPEAKER_02: and zuckerberg's response to all of this brouhaha and the donny brook that has ensued i'm gonna uh opine a little bit on what is the reasonableness of um the whistleblower's uh outcome that she's SPEAKER_01: looking for and i think she's quite credible quite moderate and i think her suggestions are pretty obvious and banal they're not very controversial at all and we probably are all going to agree on them uh but it's a really interesting uh set of clips that we're going to play for you today then we're going to get into a bombshell that dropped this morning scorpion capital has done a short seller report on ginkgo bioworks you may remember the ceo of ginkgo bioworks was on this week in startups episode 12 39 and we got into his business model which i thought at the time sounded really clever however scorpion capital is claiming that that business model SPEAKER_02: is a giant fraud a scam a hoax and that uh ginkgo bioworks is um they're big short and they're SPEAKER_01: down 20 today this is a really dicey one that involves a concept called round tripping that you should know about that aol was accused of 20 years ago and we're going to unpack it all on today's SPEAKER_06: this week in startups stick with us this week in startups is brought to you by drata don't let requests for sock 2 compliance reports slow down your business use drata to stay ahead of the curve go to drata.com twist for 15 off dell's xps products were built with entrepreneurs in mind with increased mobility and longer lasting battery life you can stay productive on the go sign up for a free consultation and a five percent off coupon at launch.co slash dell and disruptive advertising sign up for a free marketing audit at disruptive advertising dot com slash twist plus if you go into business with disruptive you'll receive a 250 gift card and a free friday to sunday ski trip in utah SPEAKER_08: in our first story facebook whistleblower francis haugen uh went before the senate yesterday SPEAKER_09: and did a great job i think she was well spoken and i think moderate in her proposed solutions for the challenges of social media facebook circled the wagons and came out swinging and in fact many of the facebook surrogates the people who are one or two uh steps removed from facebook were out there attacking her including their pr team so let's break down the hearing before we get into what's SPEAKER_01: going to happen to the whistleblower because it's almost like a classic playbook to discredit and attack diminish the and maybe even try to demoralize uh these whistleblowers and uh that is the strategy and it's happening you know that which we knew would start happening after sunday so uh on monday's show we uh here at this week in startups we did cover francis's 60 minutes appearance that was the warm-up obviously uh before she went before the senate subcommittee on consumer protection for about two SPEAKER_02: hours and uh we're gonna break down some of the um you know key moments here uh and maybe talk about some of the insights before we do that um we should be clear about what her goals are and i think that's part of this we we are obviously uh now entering the phase of attack the messenger and let's figure out what the messenger's motivation is right and i guess that's valid right you do have to think about who is making these claims why are they making these claims why are they making these claims now and maybe what are they hoping to get out of this sometimes you will see this and somebody is got an axe to grind maybe they were fired maybe they didn't get their stock options they didn't get a promotion SPEAKER_01: or sometimes it's virtuous and they are doing this because they believe it's in the best interest of society or maybe they have some idea ideological position but let's hear it from francis herself one minute clip and i'll talk to you on the other side during my time at facebook i came to realize a SPEAKER_18: devastating truth almost no one outside of facebook knows what happens inside of facebook the company intentionally hides vital information from the public from the u.s government and from governments around the world the documents i have provided to congress prove that facebook has repeatedly misled the public about what its own research reveals about the safety of children the efficacy of its artificial intelligence systems and its role in spreading divisive and extreme messages as long as facebook is operating in the shadows hiding its research from public scrutiny it is unaccountable until the incentives change facebook will not change these problems are solvable a safer free speech respecting more enjoyable social media is possible but there's one thing that i hope everyone takes away from these disclosures it is that facebook can change but is clearly not going to do so on its own congress can change the rules that facebook plays by and stop the many harms it is now causing we now know the truth about facebook's destructive impact okay this is uh i think critically important SPEAKER_02: number one she believes the problems are solvable she's credible and believes the problems are solvable so she is not asking for facebook to be broken up she is actually saying we can make a social media landscape that is um less uh polarized and that is safer for everybody and that maybe doesn't have downstream effects on mental illness or uh politics elections misinformation she's an expert on the subject she's highly credible and she believes it's solvable i actually think it's less solvable i think this is just one of these problems that you know we've never had as a society you know i don't know billions of people on these platforms even if it was tens of millions of people there's never been a town square that's 10 million people and that one tweet or one tick tock or one story on instagram or snapchat could become the number one uh media object in the world same thing with youtube this has never existed in the history of humanity she thinks it's solvable i actually i think it's less solvable i think than she does and her solution for solving it let's talk about that second piece so a she believes it's solvable b her solution is not breaking up facebook it's forcing facebook to be more transparent and SPEAKER_09: to publish all their research uh so that is very interesting to me um this is not the aoc bernie sanders elizabeth warren all rich people are bad all capitalism is bad giant conglomerates are bad break them up regulate them tax them shut them down that that's she's not clearly not part of that camp you do not get the bernie bro elizabeth warren aoc squad vibe from her do you you don't get an anti-tech SPEAKER_23: vibe from her either the vibe i'm getting is let's work together to solve this so when she gets more specific she says listen congress should have a regulatory body where people like her can work on making algorithms safer anybody disagree with that anybody disagree that something this powerful SPEAKER_09: and unprecedented should have some regulation i mean i'm not for over regulation but we're in a situation where there's no regulation and you've got to remember with facebook facebook is um i wouldn't say left or right leaning they're peter teal leaning when it comes down to it zuckerberg and teal and that SPEAKER_02: whole crew are very much in favor of no regulation and they're kind of an randy and in their objectivist you can look up those fancy words it basically means people should be you know talented people should be allowed to do what they want and not be stopped by people in their ivory towers like politicians or the media or professors right they they are anti-cathedral and they're you know more about the SPEAKER_25: marketplace and and the uh yeah the bizarre not bizarre isn't strange but the bizarre is in the SPEAKER_01: marketplace of ideas but i think for the rest of us yeah cigarettes yeah maybe we should uh regulate those a little bit and the vape pens yeah there should be some regulation there those are those are pretty bad for society yeah you know social media it's having some weird effects we should definitely think about it because the russians are using it to screw with the elections um we should definitely have some regulation there her second idea is just publish all the research i mean SPEAKER_02: is anybody against that i mean the only people who i could think would be against that is people who SPEAKER_23: want to front run the research like the internal people at facebook i mean i think the reason facebook SPEAKER_09: is doing the research is twofold one they care i do actually think that they care uh about what the research says but two i think they want to control the research and they want to control the researchers so this is like you know keep your enemies closer kind of situation for facebook if they bring the researchers in house and they're funding them and they work for them well then they can keep this from escaping and they can control it and they can front run it which is exactly what they did with this research they are front running this research they are massaging it and that is why this person felt like they needed to front run or they needed to leak the front running of the information does that make sense i think we can all kind of see what facebook is doing there buy the researchers bring them in house and yeah it's not great that you're paying for research that is working against you which was zuckerberg's reply and we'll get into his response like why would we pay for this you know like how would we pay for research if we didn't care it's a pretty it's a pretty good defense i'll be totally honest and and it's half true i think i think they do want to know and they do want to pay for this research because it is helpful for them and i do think you know they do have uh you know i don't i wouldn't say they have the users and the citizens best interest in mind i think they think first about the size of their company and the growth of it i think second they do think about the customers but SPEAKER_02: you know it's in that order so this is a very interesting uh strategy and a highly effective one clearly because here we are facebook has reached critical mass there's no way to stop it it would it would it's going to take decades like literally two or three deck if you really wanted to stop facebook it would take two decades probably you know because look at what happened with aol and yahoo SPEAKER_35: people are still i went to yahoo finance yesterday some people are still using the aol email addresses SPEAKER_02: like it was these tech companies when they hit scale take a decade or two to come in for a landing and get below you know whatever number of uh users or revenue and third she wants facebook to reinstate SPEAKER_37: something called soft interventions what's a soft intervention you remember where before you retweeted SPEAKER_02: a story and say hey why don't you take a look at the story and read it dummy before you tweet it uh to kind of get people to be more thoughtful and i would think um warning labels would also fall under soft interventions or for more information and linking to a credible source would be another soft intervention i think another soft intervention would be saying this is disputed information this person has been suspended this many times for these things so these kind of soft interventions are a way to steer things maybe and to throttle how quickly misinformation would spread so the second somebody starts talking about you know vaccines if it said hey here's a link to people studying vaccines there's a link to the cdc supposed credible sources obviously we can have debate of we can have a really SPEAKER_01: vibrant debate of what is a credible source in the world or a credible institution right after we've seen some institutions phallus or there are there's corruption institutions so who are you going to SPEAKER_02: link to i mean some people trust the wikipedia with its anonymous editors or editors using pseudonyms and everything in between there are people out there who trust the information on wikipedia more than they SPEAKER_40: trust the information from the government in fact i could ask my live audience watching here which do you trust more a wikipedia page or a politician you got the same information would you trust the wikipedia SPEAKER_01: version or the politician's version on average just on average wikipedia page through anonymous process SPEAKER_42: or politicians it's an interesting question in today's startup landscape committing to security and compliance is vital for growth and proof of your company's security posture has never been more 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listeners can get 15 off and waived implementation fees at drada.com twist drata.com twist so these are SPEAKER_02: pretty simple um ideas and uh not all that dramatic or controversial uh in fact mother jones which is like SPEAKER_01: i think it's best described as a socialist publication i think they're kind of like that jacobian or whatever that socialist publication is like they're the far left of the far left um they thought haugen was uh SPEAKER_40: going too soft the facebook whistleblower doesn't have the solution revolving door regulations never SPEAKER_23: make anything better uh if you believe that facebook is producing significant harm the solution that SPEAKER_01: follows should probably be significant as well as evan green deputy director of fight for the future homey rectifying facebook's invasive privacy practices could require a privacy law strong enough to effectively kill facebook's current business model so you're kind of jumping the fence SPEAKER_09: like it's not like 90 percent of people aren't having a you know decent or good experience on facebook you know seeing their family's photos it's a little ridiculous to think about like doing something as draconian is shutting down facebook i think you know the algorithm being more transparent the studies being transparent would be the next logical step here right that is the next logical step and there are things you can do to make things more transparent that solve problems i'll give facebook some credit here the facebook ad library if you just type in facebook ad library um you can see every ad and the creative placed on for every uh different company or organization they did this for SPEAKER_01: politics to make sure that people didn't do these crazy clinton ads again that the russians were buying to try to create more strife here in our country on our original sin racism uh you know probably the worst part of american uh america's history i think most people would agree and uh this a database has now SPEAKER_02: made it really hard to do smarmy ads on facebook because it will be revealed if you're doing something really crazy on facebook it's right there in the database you can't place ads on facebook without them being public anymore well maybe that's the case for ads let's do it for the research let's make all the research public and have a town square where we debate it so if haugen is getting hate from facebook and pro facebook surrogates and then she's getting hate from the anti-facebook crowd i think that means her position is pretty uh moderate i would say and uh senator amy klobuchar um who i am uh increasingly uh impressed with i think you know i don't know her exact politics but when i see her asking questions she tends to uh be well prepared uh it seems and so uh here's the democrat from minnesota and she starts SPEAKER_01: her questioning with an impassioned statement these things are also performative um about big tech lobbyists in dc and uh this to me was quite informative 32nd see on the other side we have SPEAKER_48: not done anything to update our privacy laws in this country our federal privacy laws nothing zilch SPEAKER_50: in any major way why because there are lobbyists around every single corner of this building that have been hired by the tech industry we have done nothing when it comes to making the algorithms more transparent allowing for the university research that you refer to why because facebook and the other tech companies are throwing a bunch of money around this town and people are listening SPEAKER_01: to that yeah i would love to see her name names there did she take money from these lobbyists does the person sitting next to her take money from these lobbyists uh the fact that there's you know hundreds thousands of uh folks lobbying and our privacy is not being protected and there's new not new privacy legislation when you compare what's happening in california and in europe you know SPEAKER_02: privacy is a serious issue we should have some legislation around that is there anybody here who wouldn't want more privacy regulation so that their information was kept more private and not recorded i don't think anybody listening to this stream right now in this podcast wouldn't want to see SPEAKER_01: more privacy protection um so here she is asking uh haugen about facebook and instagram's impact on teen girls and body issues which this is the reason why i think facebook has now um hit a very different SPEAKER_02: moment in time this this could be the icarus moment uh for facebook where they just flew a little too close to the sun it's one thing you know to ban trump or not ban trump uh or to have russians buying ads you know we can debate those issues they're super hyper political but you there's nobody nobody who wants SPEAKER_01: to see young teen girls have body issues bulimia anorexia these these are like the worst things in the world SPEAKER_02: right like nobody wants this uh to be increased in the world and the fact that now there is a link between instagram and teen girls anxiety depression body dysmorphia is pretty damning and this really does i think lean people more towards the cigarette cigarette company analogy or metaphor or in their mind SPEAKER_01: framing versus the car metaphor that uh mosari i think uh the leader of instagram was sort of pushing so here's 65 seconds from klobuchar and haugen i'll see you on the other side another major issue that's SPEAKER_50: come out of this uh eating disorders uh studies have found that eating disorders actually have the highest mortality rate of any mental illness um for women um and i led a bill on this with senators capitol and baldwin uh that we passed into law and i'm concerned that this algorithms that they have pushes outrageous content um promoting anorexia and the like i know it's personal to you uh do you think that their SPEAKER_58: algorithms push some of this content to young girls facebook knows that they're the engagement based SPEAKER_18: ranking the way that they pick the content in instagram for young users for all users um amplifies preferences and they have done something called a proact a proactive incident response where they they take things that they've heard for example like can you be led by the algorithms to anorexia content and they have literally recreated that experiment themselves and confirmed yes this this happens to people so facebook knows that they that they are leading young users to anorexia content yeah so this is the SPEAKER_28: perniciousness of the algorithm when we build algorithms here in the technology industry SPEAKER_02: you're not really saying here's what i want the algorithm to interpret the world that's not really what's happening it's more outcome based so you're telling the algorithm you know run a series of experiments look at all the data and if somebody were to click on x would they click more if they click on y or z do they click more okay after clicking on x if they click on y do they stay on the service longer it's just might is right the length of your session is what matters the frequency at which you SPEAKER_37: come back is what matters we're just looking at outcomes with these algorithms we're not looking at SPEAKER_02: the journey right we're not looking at how you got there we're looking at um where you wound up and if where you wound up was on youtube the intellectual dark web or you know worse um that's bad right and there was a specific case uh with ben shapiro and if you watch ben shapiro's content and listen he pushes the envelope on being anti-trans and you know edgy sort of positioning uh socially you might then get um like milo yiannopoulos who went from being you know like a kind of a cheeky blogger when i met him in the 2000s and to being like straight up like hanging out with white supremacists you know and just crazy all of that kind of uh algorithmic shaping of your behavior and leading you down rabbit holes has been proven over and over and over again the wall street journal the new york times the studies they all show an algorithm will lead you uh down the path of incredible mark knoffler and dire straight bootlegs or it could lead you to white supremacy anorexia body dysmorphia uh or you know some obscure sexual preference uh or niche sexual preference that maybe you didn't want your children to be looking at on tick tock literally there's a wall street journal article about that there has been entire new york times series uh on the youtube um you know rabbit hole uh and where that will take you and and of course now instagram so if you look at that three different platforms what do they have in common they're all algorithmically generated content and social networks tick tock youtube uh and instagram all three of them rely on the algorithm to increase your time on site they all worship at the altar of the algorithm and the outcome algorithms and outcomes are a great way to build a large business it's not a great way to build a high functioning society so that is what the world is coming to something we've all known in the tech industry for a long time i'll be totally honest we all know this and i've been there when the conversations occur the algorithm we don't know exactly what it's doing but it's working and things are going up and to the right and everybody's in the board meeting woohoo up and to the right we're all going to be rich and oh we're winning we're succeeding and it SPEAKER_09: it's kind of secondary to people um to know what the fallout is or you know we'll see what the fallout SPEAKER_02: is when the fallout happens and we'll clean it up then i mean i i do actually think zuckerberg's belief is might is right he has a peter thiel kind of approach to this which is no regulation how dare you try SPEAKER_01: to stop people who are building stuff in the world and it's in a like that objectivist and randy and i'm going to build it you can check me uh in the review mirror because i'm i'm i'm going and if you want to try to stop us feel free but we're we're going to just keep building and this sort of defiance you see in their response uh to all of this scrutiny dell for entrepreneurs wants you to stay SPEAKER_42: connected to your business no matter where you are in a world where you can work from anywhere SPEAKER_00: why would you let technology hold you back mobile ready devices such as dell's latitude line of tablets pair with verizon to give founders the power to stay connected wherever there is cell phone SPEAKER_42: service so you can stay productive as you scale your business with the confidence of secure connections no more relying on public wi-fi which is a disaster because it's usually way too slow and you're gonna get hacked it's that simple so stay confident that your connection is secure with dell's mobile ready devices i love my dell's i got dell monitors and computers and laptops everywhere dell is the greatest thank you so much for supporting this podcast and for supporting me for three decades i've been buying oh my god it's four decades i've been buying dell since the 80s and i love them so go to launch.co slash dell to get connected to marcus a manager at dell for entrepreneurs for more info and to unlock exclusive discounts like five percent off once again launch.co slash dell to get connected and save that five percent today thanks dell klobuchar finished with a question SPEAKER_02: about facebook's election safeguards these are critically important to everybody around the world has been talking about this it's not unique to the united states everybody uh in a democracy where there's elections is concerned about you know what happens when everybody's on a instant uh content sharing machine with algorithms that will surface the most crazy electric dynamic tweets uh and sometimes those are misinformation so according to this whistleblower the safeguards were turned off after the election and then turned back on during the january 6 insurrection i think this is going to be one of these political issues uh that we're not going to get consensus on i think the instagram uh with teen girls and the body dysmorphia issues are the more powerful ones in terms of SPEAKER_40: actually creating change around how facebook does what it does but let's listen to kovachar one more SPEAKER_84: time i'll see on the other side of this one minute and two second clip on 60 minutes you said that facebook SPEAKER_50: implemented safeguards to reduce misinformation ahead of the 2020 election but turned off those safeguards right after the election and you know that the insurrection occurred january 6th do you think that facebook SPEAKER_48: turned off the safeguards because they were costing the company money because it was reducing profits SPEAKER_18: facebook has been emphasizing a false choice they've said uh the safeguards that were in place before the election implicated free speech the choices that were happening on the platform were really about how reactive and kukuchi was the platform right like how viral was the platform and facebook changed those safety defaults in the run-up to the election because they knew they were dangerous and because they wanted that growth back they wanted the acceleration of the platform back after the election they re they returned to their original defaults and the fact that they had to break the glass on january 6th and turn them back on i think that's deeply problematic agree thank you very much for your SPEAKER_02: bravery in coming forward uh so this is interesting i don't think we actually understand this um breaking of the glass and this safeguard um we really need more information on it because the safeguard could be a good thing before the election they put on a safeguard which would it seems it seems which we don't exactly know again this is where transparency would be very helpful but it seems that this um ability to throttle it seems i'm inferring something here i'm guessing it seems like they are able to throttle the virality of the platform in other words you put out something that you know is a pizzagate or russia gate or you know pick the gate it doesn't get amplified as fast it doesn't go into everybody's feed as fast this would then mean when you're sharing information it gets shared amongst your you know a smaller group of people but it can't go viral and if it can't go viral well that's going to decrease the time on site because it might be that that you know pizzagate that you know uh or you know the clintons are aliens and all this wacky alex jones stuff on one side and then on the other side with the republicans that trump is a manchurian candidate those things could just go right to the top and impact the election so they could also be gangnam style it could also be squid game it could be also be i don't know this celebrity is dating that celebrity stuff that drives people to the platforms right if you were to throttle these things then the kanye crazy tweet storms that we see every you know nine months they wouldn't surface for you you'd have to have searched for kanye to see those just does that make sense i think that's what this is doing now when january 6th happened what what do they do oh my god now we're gonna have other people start driving to the capital with their guns because they think we're in the middle of a revolution and that they could win it like here's the thing one percent or two percent of either party's base is mentally ill right what's what's the acute mental illness percentage of any population in the world it's just the law of big numbers my fan base as modest as it is here and and brilliant and engaged good looking generally speaking you know like there's going to be some crazies in that any group's going to have some people who are deranged the people who showed up on january 6 some percentage of them were truly deranged and they brought guns now that stuff starts trending on facebook or twitter or whatever platform SPEAKER_40: what if some person suffering from mental illness who's a two-hour drive away just says you know this SPEAKER_09: is a great opportunity for me to go out in a in a in a you know blaze of glory to you know be famous SPEAKER_02: for ever in their deranged mind and i'm gonna go shoot up a building this is what happens you have to be careful uh with these tools and now we know they have a circuit breaker so the question is why is that circuit breaker not built in like if we know that these safeguards keep things from going viral and SPEAKER_09: you know keep things from getting out of hand maybe that should be the default and defaults matter in tact we have a saying defaults matter how you set up the system by default is really what matters so if you by default you know ask people if they want to invite their friends and then upload their address book you're going to grow really fast if you say by default we're not going to upload your address book to use this service to find your friends and you have to go you know three clicks into the interface to do it one percent of people are going to do it and if you make it part of the standard SPEAKER_02: onboarding you might get 80 90 or 99 of people to do it or you might get 100 of people to do it if you make it defaulted on and it's a requirement of the service uh so maybe that's how we should be thinking about this uh senator brian uh schatz uh is a democrat from hawaii uh he asked haugen what SPEAKER_01: changes she would immediately make if she was facebook's ceo always a great framing of a question if you were ceo if you were god if you were the president united states if you were the supreme ruler of the universe and you could wave a magic wand what would you fix it's always a good question so uh let's hear haugen's answer to that uh in 52 seconds i'll see you on the other side i would SPEAKER_18: immediately establish a policy of how to share information and research from inside the company with appropriate oversight bodies like congress i would i would give proposed legislation to congress saying here's what an effective oversight agency would look like i would actively engage with academics to make sure that that people who are who are confirming are facebook's marketing messages true have the information they need to confirm these things and i would um immediately implement the quote soft interventions that were identified to protect the 2020 election so that's things like requiring someone to click on a link before resharing it because other companies like twitter have found that that significantly reduces misinformation no one is censored by being forced SPEAKER_96: to click on a link before resharing it all right so recapping some of the stuff we talked about earlier SPEAKER_01: uh again these seem like they're telling her if she was ceo what would she do she's not saying i would shut the company down i wouldn't let teens use the product she's not saying there should be an age limit she didn't say uh there should be a separate service just for kids and you should have to sign up for it and pay for it i mean there are much much greater interventions than the ones uh that she put forth in fact the ones she's putting forth are very soft uh in fact one category of them are soft interventions okay chats uh then uh finished up with a question about why facebook is so focused on hooking uh teens and kids into the service i think it's pretty obvious why you want to get young people into your services because it's competing products like tick tock and snapchat and you know if you get them young you keep them for later uh so here is haugen's 42nd answer facebook understands that if they SPEAKER_18: want to continue to grow they have to find new users they have to make sure that that the next generation is just as engaged with instagram as the current one um and the way they'll do that is by making sure that children establish habits before they have good self-regulation by hooking kids by hooking kids i would like to emphasize one of the documents that we send in on problematic use examined the rates of problematic use by age and that peaked with 14 year olds it's what it's just like cigarettes teenagers don't have good self-regulation they say explicitly i feel bad when i use instagram and yet i can't stop SPEAKER_104: um we need to protect the kids yeah and again this is the most powerful argument we all know kids SPEAKER_01: don't self-regulate i mean we were all kids at some point kids do stupid stuff there's a speed limit kids will exceed it there's a rule they're going to break it there's a boundary they're going to push it the frontal lobes are not yet fully developed that still happens into their early 20s uh if you look at the research so having kids make any kind of a critical decision you really you want that to happen when they're 21 when they're frontal lobes and they start thinking about long term ramifications of their behavior uh this is why binge drinking so dangerous on college campuses because if you're not a fully developed individual and know the ramifications you might decide to chug an amount of alcohol that could give you alcohol poisoning right this is why SPEAKER_02: four loco and some of these brands um we looked at them and said hey we need to regulate these or stop them because giving kids an insane amount of caffeine and the same amount of insane amount SPEAKER_01: of alcohol in one can you know that that could uh be problematic you know if it's a glass of wine you know you'll probably puke from drinking too much wine before you have enough alcohol in your SPEAKER_02: system to really do damage but uh kids were literally getting caffeine poisoning and alcohol poisoning from some of those crazy drinks and as a society and as entrepreneurs i think that's pretty good analogy for social media it's kind of like for loco you know like is a kid really should they be drinking alcohol at that young age no should they be drinking copious amounts of caffeine no should you put both together and put a funky logo on it and making make it fun should kids be using vape pens no should you be marketing it to kids with pina colada flavors no it's like there is a group of entrepreneurs who will just say you know what if there is another use for it and kids happen to get it SPEAKER_09: well you know so be it um we can't not let adults have this pina colada flavor it's like well you could SPEAKER_109: put it in a black box with just like you know and put it behind the counter pina colada flavor let you know uh be regulated a little bit more right it would be better for kids okay everybody let's take SPEAKER_113: a moment to talk about growth marketing and all the tactics and hacks that are out there with me today jake badsguard he is the ceo and founder of disruptive advertising which you can visit at disruptiveadvertising.com twist so some questions for you jake when is too early to start marketing your cyber monday uh or your black friday what's the right time to engage people and how do you SPEAKER_114: engage them yeah you know that's going to depend on the audience but the cheapest customer is the person that's already bought from you before and it's time today to start warming up the audience that bought from you last year with custom audiences on social or email it's time to get on top of those right now and getting them warm and ready to engage as far as new audiences are concerned there's a lot of opportunity to explore new platforms outside of the traditional google facebook channels uh like uh instagram tick tock some of these other ones linkedin youtube let's get some new audiences in place and test those out and find what's working so that we're ready to scale when game SPEAKER_117: time comes all right that's great advice so if you want to sign up for a free digital marketing audit SPEAKER_113: with jake and his company disruptive advertising just visit disruptive advertising.com twist and if you go into business with disruptive you will receive a 250 gift card and a free friday to sunday SPEAKER_117: ski trip in utah we'll see you on the slopes it's gonna be a great season let's do another 75 second SPEAKER_05: clip here of how getting answering a question from south dakota senator john thune about facebook's SPEAKER_09: engagement based ranking and what i love about this moment in time is that we're seeing a more sophisticated discussion as a society about social media we were having a discussion five years ago ten years ago on this very podcast about is this good or bad for society and the algorithms well SPEAKER_01: guess what the politicians might be slow you know the edge the research might be slow but it's caught up now and we're having a pretty granular discussion here aren't we uh 75 second clip see on the side SPEAKER_18: i strongly believe like i've spent most of my career working on systems like engagement based ranking like when i come to you and say these things i'm basically damning 10 years of my own work right um engagement based ranking facebook says we can do it safely because we have ai you know the artificial intelligence will find the bad content that we know our engagement based ranking is promoting they've written blog posts on how they know engagement based ranking is dangerous but the ai will save us facebook's own research says they cannot adequately identify dangerous content and as a result those dangerous algorithms that they admit are picking up the the the extreme sentiments the division they can't protect us from the harms that they know exist in their own system and so i i i don't think it's just a question of saying should people have the option of choosing to not be manipulated by their algorithms i think if we had appropriate oversight or if we were formed 230 to make facebook responsible for the consequences of their intentional ranking decisions i think they would they would get rid of engagement based ranking because it is causing um teenagers to be exposed to more anorexia content it is pulling families apart and in places like ethiopia it's literally fanning ethnic violence SPEAKER_01: all right so this is very simple to understand i think everybody's getting a great education we all SPEAKER_02: know this engagement based ranking the more clicks the more comments the more shares the more shares with comments the more replies or threads that emerge from a piece of content well that means share it SPEAKER_28: more surface it more get more engagement on your platform and what she's saying very clear and i think SPEAKER_01: it's easy for anybody who's listening to this show to understand is hey you don't know if the reason that is SPEAKER_02: doing so well is because it's racist or it's hate speech uh or it's misinformation or it's political lies lies lies will have a higher engagement based ranking than truths things that are logical and SPEAKER_01: simple are not worth sharing right like if i tell you like if the sun rises you know and the sun sets and you know there's the population is x and you know the weather is y is there any reason to share that no it's just a fact it's just you know very simple you know truths don't get shared like that SPEAKER_40: for those of you who don't know what section 230 is i'll just read to you what it says no provider or SPEAKER_127: user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider it's a fancy way of saying if you run an SPEAKER_01: online service you're not responsible if you run an open platform you're not responsible for what people say on it um they're responsible right uh and this makes complete logical sense section 230 is um i think um pretty pretty solid uh in terms of uh as a rule because we do not make verizon or uh you know paper companies responsible for what people write on paper or whatever you know verizon users say over the phone now there are some differences between um you know what verizon is doing and what you know paper and journals in the world do they don't have an algorithm surfacing things and putting on the top so SPEAKER_02: if a paper company said we're going to watch all million letters written and we're going to take the one that's got the highest engagement ranking and we're going to send it to everybody in the world well that would be different so when you have an algorithm uh then i think section 230 needs to be revisited and you need to say listen if you're going to rank things if you're going to promote things and you're going to have your own algorithm then you're going to need to rethink it SPEAKER_40: and a possible solution there would be what jack said about twitter which is maybe people will bring their own algorithm and we'll go back to reverse chronological order reverse chronological order SPEAKER_01: just meant whoever you follow we give you their content in reverse chronological order the newest stuff is up top the oldest stuff is below it and you can in fact set your twitter to that and i think there's somewhere deep in the facebook interface the ability to just say show me everything and show it in reverse chronological order that's how these systems worked originally and then they found out when you did an algorithmic based surfacing of interesting things people came back more so if you SPEAKER_02: had a hundred posts in your feed and post number 98 was uh you know a wedding uh an engagement notification or a bar mitzvah uh or sweet 16 or a baby announcement or a graduation announcement and those things would go viral everybody would place comments oh congratulations on your engagement oh SPEAKER_01: my god what a beautiful baby so that you go up top right as opposed to the last 10 the first 10 posts that you looked at chronologically might not be that interesting but that 98th one was that was the SPEAKER_132: virtuous version of this um and uh you know that's long gone so if we go back and uh you know we look SPEAKER_01: historically back on episode 1132 i had the acquired fm boys on and uh we talked about the section 230 hearings during those jack dorsey proposed this exact solution so let's just go back to october of 2020 uh and um jack with a strong beard game talking about section 230 and by oa bring your own algorithm SPEAKER_135: 33 seconds see on the side and finally much of the content people see today is determined by algorithms with very little visibility into how they choose what they show we took a first step in making this more transparent by building a button to turn off our home timeline algorithms it's a good start but we're inspired by the market approach suggested by dr stephen wolfram before this committee in june 2019 enabling people to choose algorithms created by third parties to rank and filter their content is an incredibly energizing idea that's in reach all right so i think that's just a great um SPEAKER_01: a great summary of you know sort of algorithms and all the different approaches to it in 230. SPEAKER_02: we'll get into in a moment uh how facebook's responded to all of her thoughts um and before SPEAKER_40: we do i got a comment here from the nodi gang the people who watch me tape the podcast live at youtube.com this weekend somebody with the handle tech says jcal you should talk about the individuals SPEAKER_01: using these platforms to at least take some responsibility apologies if you previously mentioned this no i think it's a very valid point um if you're an adult and you decide you want to smoke cigarettes or you know eat fried chicken and or pints of ice cream like you have some agency over your life fine uh you should be allowed to do it we're not going to stop you but if you're going to SPEAKER_02: um you know eat pints of haagen-dazs it should say on the back how many calories and fat it has shouldn't it say that and um if you're going to smoke cigarettes maybe there should be a warning on it and um i think that this has been very helpful i don't know anybody who is upset when they go to a city where they post the calorie count on the menu i i know at the beginning people were like oh this takes uh you know this doesn't feel right to me it feels weird to see the calorie count um you know what the calorie count may help me lose weight because i didn't know that goddamn maple SPEAKER_00: frosted scone i thought i was making an intelligent choice right it's a scone that sounds like it's got some good grains in it has a little maple frosting on it but it can't be so bad and i'll have a mocha SPEAKER_40: sometimes i'll treat myself or you know maybe i'll have a latte oh jesus christ if i was eating uh SPEAKER_23: if i was drinking a black coffee in a croissant with 250 calories versus the 500 calorie 600 calorie maple scone and the 7 800 calorie latte i mean i was eating 1200 calories every morning for breakfast no wonder i got fat i then started drinking black coffee in a croissant like a french person started losing weight i could never have done that i would have never looked at the goddamn calorie count but i saw the calorie count there and i said okay five calories versus 300 calories SPEAKER_09: from my beverage i'm going with the five calorie i'll learn to like black coffee oh 250 for a croissant i like croissants i didn't know croissant was less than a scone makes sense though scones covered in SPEAKER_23: sugar and the scones got all those dense grains in it i guess it was obvious for me after i saw that SPEAKER_01: so i think that's the analogy here uh facebook comms director andy stone decided to get into it and um you know watching the facebook people do this is just gross um i think this is the moment for you to be SPEAKER_40: humble be collaborative with society given the crack record of facebook now facebook has consistently done horrible things with our privacy and their product decisions and this absolutely terrible SPEAKER_02: executive andy stone decides that instead of having a really intelligent humble discussion about the SPEAKER_40: actual issues he decides he's going to attack the messenger this is the stupidest approach you could take SPEAKER_02: if this person is in comms if andy stone is got a comms degree this is the worst possible person you could ever hire to do comms because this is textbook bad communications look at this tweet he starts with just SPEAKER_09: pointing out you ever have a friend say that to you just one thing oh can i just point out that is such a SPEAKER_23: weaselly way to start a tweet right just pointing out the fact that francis haugen did not work on child safety or instagram or research these issues and has no direct knowledge of the topic from her work at facebook SPEAKER_09: just pointing out that's like when you know when somebody says to you don't take this the wrong way you know what's coming right something you're going to take the wrong way something that's going to be incredibly hurtful what a moron uh seriously like andy you are in the law wrong line of work and man he got ratioed SPEAKER_02: 25 to 1 replies to quote tweets to likes it is just bonkers yikes i don't know if i've i mean that's a SPEAKER_00: ratio that i've rarely hit personally attacking haugen is not the right communication approach here SPEAKER_02: he's not talking about what she said he is just attacking her character that's not what we want to see out of facebook right now so i replied with simply how much money have you made from your stock SPEAKER_01: and cash comp at facebook to date because that's really what's driving these comms people you know somebody's telling me i gave a hard time to the other brett who's uh defending them if you're a comms SPEAKER_40: person the ability to make 10 million dollars does not come along period like there's no pr people who SPEAKER_35: get to get secure a bag 5 10 25 million bucks these cats they've secured the bag the reason SPEAKER_01: they're behaving like this the reason they're attacking the messenger the reason why they have SPEAKER_02: no credibility is because they secured the bag it's about money and i hate to tell you uh exactly what you think is correct i'm guessing andy stones made 10 million bucks i don't know i wouldn't be surprised if nick clegg took down 25 to 100 million bucks in stock in a decade if he's been there for SPEAKER_01: a decade you know like a couple million bucks a year stock doubles or triples it's just they're sellouts that's it that's all you need to know they sold their soul to secure the bag uh well played if SPEAKER_23: you're a pr person you know the idea that you could even make a million dollars a year is crazy SPEAKER_01: it's kind of like when a journalist or a pr person goes to work for some bad actor they're just going to secure the bag they're taking their skills to a place where they can actually get paid the largest amount of money it's kind of like being um it's not dissimilar to being a lobbyist right if you SPEAKER_02: wanted to be a tobacco lobbyist i think that's how people society will look at nick clegg and andy SPEAKER_01: stone they're gonna look at them as like tobacco lobbyists or tobacco pr people like just the worst possible humans you can imagine like they're defending kids having dysmorph body dysmorphia and anxiety using these platforms like just talk about the issues bob pickard a pr industry veteran SPEAKER_23: with a blue check mark also replied to steve with the following tweet the backlash to this SPEAKER_09: tweet will prove useful in the new pr case study on how not to do modern crisis comms these lower end tactics from the political realm aren't effective here from the slick nick clegg free bottle on reliable sources to this sort of ad hominem sliming hashtag pure ethics hashtag pure ethics kind of a um oxymoron huh but uh i think bob is saying exactly what i'm saying is this is not what we're looking for here dummies like really dumb like and this is the problem when you're inside of the bubble and you're in this wartime mentality you know i think zuckerberg learned a lot from peter teal learned a lot from trump learned a lot from this sort of right wing never apologize go on the offensive and you know it's worked to get them to this point but this is the point where this is not going to work why kids kids harming themselves nobody nobody wants to see kids harming themselves once you get to kids harming themselves you've lost you must be humble you must be contrite you must be collaborative this tactic works when you're talking about banning trump or not banning trump and political issues fine sure but as bob correctly points out going on the offensive against somebody SPEAKER_23: who's making you know very reasonable uh recommendations like if her recommendations SPEAKER_02: were not reasonable then you could say okay this person's hysterical and they want to shut down SPEAKER_01: facebook and break it up and they got an axe to grind this is she's kind of got less of an axe to grind than i do or many people do with facebook uh you know i think i've got a stronger response to SPEAKER_02: facebook's behavior over the decades zuckerberg decided he would respond um he was busy uh sailing i think when facebook was down on uh his uh sailboat which i think is called shenanigans because i when i saw the clip it said shenanigans on the um on the mast so uh that was notable zuckerberg sent an SPEAKER_01: internal memo uh to the entire company and then shared it some of the quotes i'm sure many of you have found the recent coverage hard to read because it just doesn't reflect the company we know okay SPEAKER_02: circling the wagons get everybody internally hey we're all on the same team that's what that SPEAKER_09: statement is hey this this is not who we are this isn't us kind of is you guys let's be honest you guys have always said move fast and break things this is who you are you're moving fast you're breaking SPEAKER_23: things just own it um next quote i think most of us just don't recognize this false picture of the company that is being painted again he's trying to use a very persuasive technique here like this isn't who we are right the we here this is not how we look at this um at the heart of these accusations is the idea we don't that we prioritize profit over safety and well-being and that's just not true SPEAKER_01: um kind of is if you're if you're building the algorithm and you're just sending people down rabbit holes and that is uh the case the argument that we deliberately push content that makes people SPEAKER_09: angry for profit is deeply illogical we make money from ads and advertisers constantly tell us they don't want their ads next to harmful or angry content yeah now that this is um this is an example of mixing lies and truth to try to convince people of stuff yes it is true advertisers do not want to be some advertisers brand advertisers a subsection advertisers uh do not want to be next to SPEAKER_02: political content and they wouldn't buy as an example they wouldn't buy rachel maddow or um tucker caulson right they just wouldn't want to be on either side of that um there are many advertisers who don't care they're cpg based they just want to move product they actually don't care and if they can get angry content or racy content or controversial content at a lower price and bigger SPEAKER_01: results they'll go for it if you've got those people selling gold coins guns rations to put in your you know end of days bunker they're more than happy to sponsor ben shapiro or you know russell brand either side of the aisle they'll get in there and and pick either side and and do it so he's not telling the truth here um he's telling a truth and leaving out the overall big picture people do want to be where the eyeballs are period so the truth of this is if you get more eyeballs on facebook yes certain advertisers like coca-cola or disney might not want to be next to political speech they don't want to touch that the nba they just want to appeal to everybody and keep it very milquetoast but that doesn't mean they're not going to be drawn to the platform overall um and so this is basically um the devil mixing lies with truth i'm not saying zuckerberg's a devil but um this is the devil's technique of uh communication mixed lies and truth to try to make your point and SPEAKER_40: once you deconstruct it it's obvious what he's doing there i've spent a lot of time reflecting SPEAKER_01: on the kinds of experiences i want my kids and others to have online it's very important to me that everything we build is safe and good for kids okay he's pulling his own kids card you know uh SPEAKER_132: great it's a classic way to do it like i would never want to hurt children um meanwhile your pr SPEAKER_01: people are attacking the messenger and not talking about the real issue we've also worked on bringing SPEAKER_37: this kind of age-appropriate experience with parental crows for instagram too but given all SPEAKER_23: the questions about whether this would actually be better for kids we pause that project take more time to engage with experts and make sure anything we do would be helpful so what he's saying is we got SPEAKER_01: caught we got called out for doing instagram kids and we pumped the brakes so you can be sure that they would have gone full full blast ahead with instagram kids if they hadn't been questioned so again i find that a little bit of a weak defense like many of you i found it difficult to read the mischaracterization of research on how instagram affects young people yada yada yada um and uh it's SPEAKER_40: disheartened to see that our work is taken out of context and used to construct a false narrative that we don't care uh frustrating to see the good work we do mischaracterize especially for those of you who are making important contributions for safety integrity and research i'm proud of everything we do to keep building the best social products in the world and grateful to all of you so what he's SPEAKER_23: trying to do with this whole word salad here is to keep people from resigning i think that's the big SPEAKER_02: fear he has is that he's not going to be able to keep great people at facebook i think it's becoming untenable to work at facebook you know if you're in atherton or palo alto like every conversation seems to be about SPEAKER_40: facebook and everybody in palo alto and atherton either has made money from facebook or sold the company to facebook so the facebook money is just sloshing around this town and it's just very hard for people um it's so myopic here like it's just this like obsession of talking about facebook is a good SPEAKER_53: or bad for society while it's just the money is just sloshing all over the place from it um i don't SPEAKER_132: think any of this is a mischaracterization um and uh you know as nick clegg is saying and um they're circling the wagons we uh should wrap this up uh at this point i think we've been talking about it for an hour on one um i'll just say uh i think that this is an existential moment for facebook we knew it would come eventually and um i would think we'll see people resigning from facebook would be probably the biggest impact this will have i think regulation is going to be very hard i think they'll self regulate that's my guess and self-regulation will um you know it could be headwinds uh just like the apple uh you know anonymizing people's data and not letting them track people as granularly for advertising from facebook i think that these things are all just becoming headwinds and the headwinds might be one two percent against facebook and they might be growing 10 or 20 so does it mean the company's going to stop growing i don't think for a while but i do think that it's going to be tough for people to want to go work there i think it's going to be tough for people to see it as the stock you want to own but many people bought the tobacco stocks even after a lot of those settlements because they just threw off a lot of cash so facebook's not going anywhere but this is going to be something that people will talk about for the next couple years and the talent train at facebook is the i think the number one existential problem if you were at facebook does not feel good to go to work um i know facebook employees i know former facebook employees uh i hear the buzz SPEAKER_02: around the town you tell somebody you went to work for facebook and people are just like uh you know like you're i would say you're a pariah if you work at facebook but um basically the entire conversation leads to people goofing on or upset at you and it just becomes like it's literally like working for a SPEAKER_01: tobacco company actually it's literally like working at a tobacco company people are like i could be friends with you but i kind of don't want to talk to you about your work because i don't agree with what you're doing in the world and that for people who have made their money already or super talented and super talented people have choices of where to work it's just not a world positive place to go SPEAKER_02: to work so i think the brain drain is going to be the biggest um punishment for all this stuff and what would be nice as an outcome would be have all of this research out there and to maybe rethink the algorithm and how quickly that circuit breaker um should probably become the standard if the circuit breaker was the standard i think we'd all feel a lot better about this okay we'll talk about this a SPEAKER_01: lot more but uh let's do another story scorpion capital a short seller released a short report on ginkgo bioworks and the stock is down around 20 so far today remember we had jason kelly from ginkgo bioworks uh on episode 1239 of this very podcast so that was this year they are a synthetic biology company uh that claimed to have an interesting business model they would develop products on a SPEAKER_23: service based basis in other words instead of them making the products they would work with other companies and they would essentially be the amazon web services of synthetic biology as opposed to other companies that were going to build the products themselves we'll get into that in a minute SPEAKER_01: and um jason was well spoken on the program uh i did get a couple of dms that hey this company's a little shaky maybe they used other choice language so i always take the approach here of let the founder speak on our podcast and let them explain their business model and here we go here's ginkgo SPEAKER_40: ceo describing their business model in this 38 second clip let's talk about it on the other side SPEAKER_179: and by the way the way ginkgo's business works is we're like cell programmers for hire got it okay right so i'm sitting in front of like a 200 000 square foot compiler and debugger for genetic code here in boston it's like robotic automation doing what i did back in grad school and then we use that machine to basically program a cell to meet a customer spec and then we give it to them and we make money like kind of like apple would make money in the app store right like we get like a royalty or equity in their company or some region oh wow yeah that's a fascinating SPEAKER_47: business model so what's an example of a company that sends you on a mission like this all right SPEAKER_179: so i'll get what i like so there's a company called chronos up in canada it's a canadian cannabis company SPEAKER_01: all right altria owns like half of this company okay so what you see there is he explains their SPEAKER_23: business model i was like well that's fascinating it's kind of like an incubator plus a service business so this would be as if amazon web services or google cloud um or azure from microsoft said SPEAKER_02: hey let's have you uh come in and we will um you pay us to do your synthetic biology research SPEAKER_01: but we get some upside it's a pretty good business model right it's like an incubator plus service revenue kind of interesting um it would be like a development shop building your app and investing in your company so uh we research chronos um and um it seems like they don't share similar investors in ginkgo and if you look at ginkgo and we'll get to that in a minute why that's important ginkgo build themselves as kind of an app store or aws for synthetic biology this would be a platform that SPEAKER_02: other people could build on top of right so they did a spac back in may at a 15 billion dollar valuation SPEAKER_28: uh and we officially started tracking the dna stock so if you do a search for dollar sign dna on SPEAKER_01: twitter or you search for that uh this pack was led by former head of mgm harry sloan i mean that's a little bit of a mini red flag i don't know what mgm has to do with dna synthetic biology so we had a similar collapse for another synthetic biology company that we also had on the podcast on episode 1231 i had been hearing about synthetic biology from my bestie david friedberg on all in i said okay what are the i said to my producers what are the synthetic biology companies let's get j cal and the audience up to speed on them let's have them on let's let them talk well that company zymergen announced that they were way off their revenue predictions they'd make no revenue in 2022 and they removed their ceo josh hoffman who was on the program all right so let's get back to ginkgo this morning uh which is wednesday october 6 2021 short seller scorpion capital released a report on ginkgo's business model calling it a and then i'm going to put this in quotes a colossal scam now scorpion is an activist short seller just like hindenburg research whose reports we discussed on nicola nicolo also on the SPEAKER_132: program also uh you know or i should say not also they turned out to be really really um seems like SPEAKER_35: one of the biggest frauds we're going to see in a long time in silicon valley scorpion uh released SPEAKER_40: their first short seller and is it interesting scorpion hindenburg it seems like all these short sellers have to name themselves some really scary deadly name scorpion and hindenburg wow uh very SPEAKER_01: evocative good good uh good persuasive names i would say in in good branding really strong brands like you think about hindenburg you think about scorpion you don't want to be involved and you don't want to SPEAKER_23: uh touch either one of those so in april they released a report on quantum scape uh the ev battery startup that had lost 85 of its value since peaking at 130 a share in december of 2020 activist investors if you don't know take a large position then they disclose their rationale to the public in a pr move uh the biggest examples would be bill ackman's uh pershing square and paul SPEAKER_01: singer's elliott management i think bill ackman was the one who did uh herbalife that kind of blew up in his face he wasn't able to convince the world that that was an mlm scam um which was his position SPEAKER_02: so you can read the following at scorpion capitals twitter feed which is scorpion fund one word and SPEAKER_01: here's the six tweet thread they released this morning number one we are short dna ginkgo bioworks is a colossal scam uh frankenstein mashup of the worst frauds of the last 20 years at 23 billion dollar market cap it is rare to see a related party scheme on ginkgo scale in the u.s markets it is quite simply the u.s version of the china hustle in quotes number two in the tweet storm and this is SPEAKER_23: a really important one ginkgo's business model which i talked about in that clip is based on a dubious SPEAKER_25: shell game most of its foundry revenue i called it um the foundry a um an accelerator uh and have SPEAKER_01: served 72 percent in 2020 and almost 100 of its deferred revenue are derived from related party and in question and quotes customers investments into these entities by ginkgo and its investors are round tripped back and that is the key word in the sentence round trip back what is round tripping well let me give you a little uh history lesson aol america online um had controlled much of the internet in the early days and you're like how did aol controlling it well there were 30 million people paying for aol at the time and that was how people figured out how to pick a website uh people didn't have just like a dsl connection largely then they would dial up into aol and then aol would present them like here's the choices of what's on the web that's why they bought netscape and what they did was they did what were called portal deals these portal deals would cost 50 million dollars 100 million SPEAKER_02: dollars a lot of money at the time um in today's money there would be 500 million dollar deals let's SPEAKER_01: say maybe even billion so they would sell a company i think it was like cd now or music something the music category they would sell somebody the auto category so there would be somebody who is trying to make the yahoo of autos or the yahoo of music or cds or movies and they would say okay we would like you to pay us 50 million dollars they might invest in the company at the same time 50 million dollars so they'd say okay we'll invest 50 million dollars into your startup so when you take it SPEAKER_23: public we get the upside because ipos were going crazy in the dot-com days this was the accusation then the money would then the sales department would say okay give us 50 million dollars in advertising and it was like they wouldn't have the 50 million dollars if you hadn't invested the 50 million dollars and this is the shell game right that they're talking about here is and round tripping means the money SPEAKER_01: takes a round trip i give you the money you give it back so let's just create a um a scenario here you work uh your startup is part of um i don't know an accelerator a big accelerator and it's a sas business SPEAKER_02: and you say i need 10 people to buy my software and you email that social network for that particular piece of sas software and 10 people buy it but you charge them a small amount of money and maybe you buy their software and now you've got 10 paying customers and you go to vcs and you raise money well SPEAKER_01: this is what one person accused uh y combinator of doing in the early days and uh i don't know that that's true i have no evidence of it um and it wouldn't be y combinator doing it would be the companies within y combinator so this was part of the playbook was hey um let me get 10 of my friends SPEAKER_02: to use my software it wasn't too limited to i think y combinator companies if i was at tech stars or SPEAKER_53: 500 startups you might do the same thing we're not big enough at launch to have it happen we have 160 SPEAKER_01: startups but you know if you had a couple of thousand startups you could go to the mailing and say hey can people start using my software now you go and say we have 12 customers the value of those contracts is x that's why when we do our diligence we say can you give us your first 10 customers how did you acquire them how much are they paying and then how many times did they log into the software this month right that's real diligence right did they actually use the product how did you meet them and we will discount the first five or six people typically because SPEAKER_53: it's the company that where the founder worked previously it's their cousin who did them a favor and trial the software and it's three people from their accelerator class who used it right SPEAKER_01: so there are all kinds of shenanigans that can happen and i think the framing of this uh is the problem if you call people customers you think they're paying customers and you earn them you won your customers in this case did they win the customers does not feel like it does it doesn't feel like these were hard fought customers this feels like okay maybe they are joint ventures if they said ginkgo is running an accelerator of joint ventures we invest in companies those companies pay us for services we're all in it together yeah sure you could look at it and say it's conflicted but it would all be above board and i'm sure that will be ginkgo's explanation of this and scorpion is looking at it and saying it feels differently and that's why i asked to pull the clip from our podcast because i looked at it and said that's a good business model but it was presented to me SPEAKER_23: as you know one thing and we'll see again these are all accusations i would encourage people to wait and see what the response is in all these cases because scorpion now has a position that they SPEAKER_01: want this stock to go down we saw the same thing with tesla right they said elon would never deliver the cars and then he started flipping hundreds of thousands of them and anybody who wrote him said this is the greatest car ever made and all of the people who review cars said this is the greatest car made in the history of automotive companies like this was not small praise and there objectively were things like the ntsb or the safety rating saying this thing broke the rating scale like this there's never been a safer car than the model x so the evidence started to come up that like maybe they were spreading fear uncertainty and doubt so i would take scorpion's claims and i would say okay these are claims let's hear the response from ginkgo and then let's look at what the reality is and the reality of course is going to be between those two things i think herbalife was another example of this one person's multi-level marketing scheme and could be another person's entrepreneurial ebay or you know airbnb right like it's feels like uh you know all of these services that allow people to make money and make them into little entrepreneurs uh micro entrepreneurs yeah they could be framed as an mlm SPEAKER_37: or they could be seem shady or and they might be and then in other cases they could be world changing and totally on the up and up like airbnb or etsy or ebay SPEAKER_40: so let's read the third tweet here from scorpion capital we believe that ginkgo is concealing the SPEAKER_01: true extent of its dependence on related party revenue and that it is even greater than it reports we've uncovered a smoking gun that indicates that essentially all of its foundry revenue is derived SPEAKER_02: from related parties the allegation uh scorpion is basically making here is that they manufactured their revenue and so if you manufacture your revenue you shape the revenue like this and you call them customers and they're really joint ventures that seems to uh be not kosher in my mind but again let's SPEAKER_53: wait till we hear the response um these are certainly blockbuster allegations the fourth tweet SPEAKER_37: the actual truth is far more nefarious than related parties and suggests that it was it is a hoax for the ages well strong words based on interviews with its customers we believe that at least half of SPEAKER_132: ginkgo's reported foundry revenue is phantom that is non-cash and pure accounting hocus pocus okay SPEAKER_23: phantom revenue that is crazy so that would be if the round tripping was occurring and the cash didn't SPEAKER_01: move from one bank account to the other but it just happened on paper where it said like okay we're going to invest 10 million in your company and you're going to agree to give us 5 million but we're actually not going to run that money back and forth and pay taxes on them and you know have them you know be actually certified by accountants maybe that's what they're referring to here we don't know because they're using very strange words that are open to interpretation hoax for the ages uh that the revenue is phantom um you know these are not actual words uh you know pure accounting hocus pocus these are ad hominem not precise accounting concepts yet so we'll see when they SPEAKER_37: release all this research we spoke with several former employees ah this really gets interesting who indicated that they had been terminated for refusing to play along with the scheme and who stated they SPEAKER_23: knew of others pushed out for similar reasons and um i think when i spoke to hindenburg they alluded to SPEAKER_02: the fact that uh these kind of companies that are activists and take short positions uh will very often just talk to former employees and get an idea that some company is a scam or is um on shaky ground and they'll spill the beans i don't know if they compensate those whistleblowers they're kind of like SPEAKER_40: whistleblowers uh in a way right they're not coming out but they're giving information to these SPEAKER_37: activists so i don't know the legality of all this um i'm supposing those former employees did sign SPEAKER_40: ndas and if this were to become actionable they would be revealed so i'm not sure how that actually works i'm interested if they have a financial interest like to scorpion or hindenburg say to the people who leak this information we'll give you part of our gains if you give us this information and would that be legal or not that's just a hypothesis there i wonder what the motivation is SPEAKER_132: of people who leave for talking to activist investors like do they have an axe to grind in the SPEAKER_40: last two months timed with its backlisting ginkgo this is a sixth tweet has announced a flurry of new r d partners a dog whistle that the scam is about to hit overdrive we believe these partners are undisclosed related parties we present several smoking guns so what's the real issue here you know um SPEAKER_01: the scale is the issue if this was a one billion dollar private company i don't think we're having SPEAKER_40: this conversation they'd be saying okay you're trying to jumpstart the industry when google came out with SPEAKER_01: google glasses they gave a hundred million dollars to mark andresen and i think uh kleiner perkins and some other folks and they did a fund to invest in jumpstart their ecosystem tick tock paid creators to make content youtube had the creators program they built studios for them to use to make better videos SPEAKER_02: they gave them money in advance you know like injecting money into an ecosystem to grow it is SPEAKER_132: completely valid right but if you're a public company and it is of a big scale here and maybe like they said they had 77 million in revenue in 2020 10 times that would be 770 million dollars and you know 100 times that would be 7.7 billion dollars and they're at 15 billion dollars so SPEAKER_37: talking about 200 times their revenue top line is their valuation the scale of their valuation combined with being a publicly traded company combined with going public in a nascent SPEAKER_01: state of the business i.e what specs in many cases are doing uh that is the problem here if it was a private company if civilians weren't investing if you couldn't bet against the SPEAKER_00: the stock then there would be no issue here but you can bet against the stock this is why people didn't want to go public to begin with this is why stay private longer existed as a concept because if SPEAKER_01: you go out too early let's say everything ginkgo is doing is on the up and up and if it was a 1 billion dollar private company all these sophisticated investors who were buying it could have said you know what we buy in bed juice the market let's get the market going yeah invest 10 million dollars of our money and 20 different companies that are doing completely speculative stuff we know that 18 of them are going to zero but two could become you know our blue chip customers who prove out the model and then we'll go public if it was done that way this would seem completely on the up and up and it probably would be no issue but that's the uh the issue here is the scale of these companies and the fact that SPEAKER_132: civilians the public you and i can go buy them uh hocus pocus revenue um really interesting way to say SPEAKER_40: it according to scorpion a senior genomatica employee told them that they never paid ginkgo cash for r d SPEAKER_162: services they just used r d credits which were provided from large investments from viking global SPEAKER_37: who is also a large investor in ginkgo that is the smoking gun here so viking's an investor in ginkgo they make billions let's say i don't think we know how much of ginkgo viking owns that would be good to know if viking global made a billion dollars from there i'm just making a number up here but let's say viking global made a billion dollars in profit from their ginkgo position and then they said you SPEAKER_40: know what we think we can make 10 billion we want it to 10x from here let's invest hundreds of SPEAKER_01: millions of dollars in our profits we'll bank i don't know we'll bank 750 but we'll take 250 and we'll invest in a company genomatica and 10 other ones like it so that they can then go use ginkgo services and we'll we'll jump start an entire ecosystem well that would be fine if these were private companies and there were no civilians buying the stock and if it was presented as such and it was super clear i guess the issue is going to come down to here is you know are you counting r d credits and are you propping up the stock price of one company by investing in others and then was it done transparently SPEAKER_02: that's all going to be the issue here you know like if you were uh an investor in airbnb and you SPEAKER_37: decided to invest in 10 property management companies let's take that as an example so let's say airbnb SPEAKER_01: is worth a billion dollars and they're doing 50 million dollars in revenue and you're a rich venture capitalist who owns 10 of that company you have a hundred million dollar position you say you know what i'm going to invest in i don't know 10 property management companies i'm going to give five SPEAKER_02: million dollars each half of my returns or you know on paper returns from this incredible airbnb investment and they're going to buy with that five million bucks you know uh 10 apartments in uh you know these 10 different cities and i'm going to make a profit off those and it will also be good for SPEAKER_01: airbnb well okay you're not propping it up because it's a real business people are renting those apartments you're just making a savvy bet based on insider information that you have uh that the model works and that but it's also helping your other investment well that would just be investing like in a movement you're investing all across the board which is kind of what we do here in silicon valley if you are investing if you believe in cloud computing and you have an investment in slack or SPEAKER_02: yammer before that and you see other opportunities oh you know zoom and is similar to slack and oh this other notion kind of works well with slack you're just investing in a theme right so the question SPEAKER_01: here is is viking global investing in a theme here or are they propping up the company as um and SPEAKER_02: scorpion is kind of alleging they are doing so very interesting case uh we'll watch it and synthetic SPEAKER_01: biology might be such an emerging technology that these companies shouldn't go public and this is the sort of achilles heel i think of the entire movement of spats which is companies that are nascent need SPEAKER_02: time to figure out their business model not be under scrutiny and um you know i'm not saying that they're cutting corners but they're doing things that are um things you do when you're trying to manifest a SPEAKER_43: market so there you have it folks uh maybe this company shouldn't have gone public