SPEAKER_00: This Week in Startups is brought to you by Real Good Foods is modernizing frozen foods and has become one of the fastest growing food brands in the US. Everything Real Good Foods makes is low in carbs, high in protein and made from real food ingredients. From enchiladas to Italian entrees to breakfasts and more, Real Good Foods can be found in the freezer section of your local grocery store, Walmart or Costco. Masterworks, the first company allowing investors exposure into the blue chip artwork asset class. Twist listeners can skip the 30,000 person waitlist by going to masterworks.io and using promo code TWIST and Lemon.io. Need to speed up your product development without draining your budget? Hire vetted engineers from Europe at lemon.io. Go to lemon.io slash twist to get 15% off for the first four weeks. All right, everybody, the world has gone

SPEAKER_03: completely bonkers. Trump is launching a social media company and he's going to SPAC it. Absolutely

SPEAKER_04: bizarre. We're living in an upside down world because in addition to that SPAC happening, WeWork has finally gone public and the stock is up 10%. And since everything is going absolutely

SPEAKER_03: bonkers, I thought we'd bring a guest on who's doing a great job with his new newsletter. You know, Eric Newcomer, he's been on the pod four times. He was reported at Bloomberg, been with the information. Now he's on his own. This is his fifth appearance. Coincidentally, Eric's last appearance was on November 11, 2016, right after Trump got elected. And on that episode, the amazing Molly Wood and Eric joined me to reflect on Trump winning the election. And today,

SPEAKER_08: we're going to talk about Trump today. Welcome back to the program, Eric.

SPEAKER_10: Thanks for having me. Now I'm independent. I can say whatever I want. I don't have my Bloomberg

SPEAKER_11: paranoia or, you know, information rules. So hopefully it will be better than anyone before.

SPEAKER_14: Well, you basically went from like a super stringent big company, Bloomberg. Well, I was with the information first. I was the first employee of the information. Oh, it was the information of Bloomberg? Oh, okay.

SPEAKER_16: Yeah, I was with the information a year and a half. And then I went to Bloomberg, which is even more, yeah, buttoned up.

David Friedberg: Buttoned up. Yeah. And now people can go to newcomer.co, yeah.

SPEAKER_04: N-E-W-C-O-M-E-R.co. And you can subscribe to your amazing Substack newsletter. You had a great

SPEAKER_24: story in there about the GitLab IPO. We'll get to that in our news stories. But you've got a bunch

SPEAKER_27: of people subscribing or is this able to- Yeah, I have 11,000 plus total email lists and I have

SPEAKER_16: 1,300 people paying me, you know, $15 a month or $150 a year. So it's- So you're making more than you were at Bloomberg. Yeah, it's good.

SPEAKER_30: It's good. That's incredible. This is like independent journalism is working.

SPEAKER_10: You know, about half the posts are paid and half are free. It's sort of a mix. I mean, it's on Substack, which has sort of pioneered this model of, you know, sort of a half paywall.

SPEAKER_34: And you weren't part of the group of people that Substack paid to move over there, correct?

SPEAKER_27: Correct. I mean, they offered me like a very small advance, but it didn't even make sense to like

SPEAKER_38: get tied out of them. And, you know, ultimately you're running your own business. And so this isn't

SPEAKER_41: about the advance. How are you enjoying that versus working? Do you feel you're doing better work working for yourself being an entrepreneur? Yeah, I think, you know, you have a much

SPEAKER_16: more personal relationship with your readers. I think, you know, I like writing for insiders. So it's very much, you know, for founders, venture capitalists, sort of people really in the industry. So it's nice. You know, even at Bloomberg, you know, you're sort of writing for like finance people and trying to explain, you know, I don't want to have to say who Bill Gurley is. Like, if you don't know who he is, it's just sort of like, you're not the audience, you know, it's for like, so yeah, I like that. You know, I like mixing sort of reporting and opinion.

SPEAKER_27: So it's a blast. I mean, it's a lot more work because I'm editing my own stuff and, you know, you know, you have to keep putting content out.

SPEAKER_49: Yeah. There's no days off, right? I mean, if you, I mean, I guess you could take a week off.

SPEAKER_16: I took, I took two weeks off actually. And, you know, I was like, you know, there's a premium business. Like I'll take a vacation, but, but yeah, like a holiday weekend is a hassle because

SPEAKER_54: then you need to play catch up and you're behind and everything.

SPEAKER_57: Ah, right. Yeah. This is where you will wind up hiring a stringer to do an extra day a week for

SPEAKER_59: you. And then suddenly you're going to have 10 people working for you. And

SPEAKER_11: no, after this all, yeah, I definitely need a Jason Kalkanis lessons. I feel like you've done

SPEAKER_61: some of the things. If you ever need advice on building media brands, I'll let you know. Uh, employees are really annoying. Be careful, especially writers writers are the most difficult

SPEAKER_57: to manage, right? Uh, just super opinionated think they know better than everybody. And in many cases they're, you know, they kind of self-select for very intelligent people who are love to debate. So you put 20 of them in a room, you know, just think about what Jessica lesson is dealing with, you know, you know, with all those like incredible writers, like it's, uh, I think what's my interesting theory about this sub-stackification and, you know, the indie journalist thing is that I

SPEAKER_03: think it's going to create a little more empathy between the tech industry and the writers in that you now as an entrepreneur are going to have a level of empathy and be thinking about business and dealing with business issues as opposed to just being like in the ivory tower and just, you know,

SPEAKER_43: Yeah. I agree with you on sort of twofold, or at least this has been my experience. One is sort of the

SPEAKER_16: reason you're giving, you know, you're running your own business. You sort of realize, yeah, that you have to build something, you know, you, you have a clearer sense of the customer. There are lots of reasons that makes you more aligned, but I also just think the sub-stack model is much more a mix of reporting and opinion. And there's a way that sort of the objective journalistic style allows for these sort of positions that, you know, they're not fully baked positions. So you're writing with an inherent narrative that no one actually it's, you don't have to

SPEAKER_80: fully think through it. Whereas if you have to write an essay and make an argument, you have to sort of think through what you actually believe, which then makes you understand sort of the

SPEAKER_57: entrepreneur point of view a little bit. Yeah. And I think the connective tissue then becomes not

SPEAKER_04: us versus the New York Times, which has now become the New York anti-tech times. Like they're literally

SPEAKER_59: hiring journalists based on how aggressively they will go after tech companies, right? Like that's literally when they made the announcement about the last two, they were specifically saying like, we want journalists who are going to hold truth to power, power, power to truth, whatever.

SPEAKER_85: I mean, I like the New York times. I'll defend the New York times, but yeah,

SPEAKER_03: it just feels like when you're in the industry that they're just, it's, it feels like they don't write anything that is in any way complimentary or objective about tech. It's just all the dark stuff. So it's just, it's like a percentage thing, you know? Yeah. I mean, the media goes through moods

SPEAKER_16: and their story, you know, there was a period where it was all about shiny gadgets, but there, I mean,

SPEAKER_80: you go to the verge, it's still like, Oh, people excited about an iPhone. So it exists. If anything,

SPEAKER_27: I'm sort of, I feel like we should get to a point where there's the media, which is just like reporters, you know what I mean? And everybody else, opinion writers, columnists, whatever, we should just treat them like influencers online. And like, if anything, the elevated status,

SPEAKER_16: I think is hurting reporters because it allows, or hurting sort of the sort of intelligentsia of

SPEAKER_27: media commentators, because then people on Twitter can be like, Oh, you're a blue check or whatever. It's just like, no, I'm one person with an audience talking just like if Andreessen talked or whatever, and then you can evaluate, you know, their actual values that the New York times columnists hold, which is like, I'm not invested in this stuff. I cover blah, blah, blah. But, but right. I mean, you're, you're, you're a talker now, you know what I mean? I mean, you're, so I, I just rather see that whole world collapse so that you guys can stop saying the media, you know, it's just like, Oh, you know, we're, we're saying things, you're gonna have to put them into different buckets,

SPEAKER_56: right? Because the, the average consumer doesn't know the difference between the opinion page

SPEAKER_04: and opinion versus reporting. And I think that's why I think the opinion page at the New York times

SPEAKER_94: should literally be like an attachment to it, a separate format, and it needs to have like,

SPEAKER_58: these are opinions. Exactly. Yeah, I totally agree. The confusion between those,

SPEAKER_99: reporters should be treated as different. They're trying, mostly trying to get information. Obviously, they, yes, they have bias, but too much of the conversation is this weird

SPEAKER_35: mishmash of people not knowing the difference between sort of a columnist and a reporter.

SPEAKER_57: All right, well, let's start giving our opinions now, since we're just doing random acts of journalism

SPEAKER_04: here. Donald Trump just announced his new company TMTG, or Trump Media and Technology Group. And they're launching an app called Truth Social, you can go to the App Store and search for it. And you can, I've never seen this before. But I guess in the App Store, you can pre install an app or pre sign up for it. That's kind of a cool feature. And they're going public via a SPAC. The SPAC is called Digital World Acquisition Corp. It's currently trading under $DWAC. The stock went up 160% on the news Thursday morning, and it was briefly halted around noon Eastern as it became a trending stock on Wall Street

SPEAKER_41: bets. So let's break it down here. According to the press release, Trump Media and Technology Group's

SPEAKER_57: mission is to create a rival to the liberal media consortium, and fight back against the big tech companies of Silicon Valley, which have used their unilateral power to silence opposing views in America. Initial value of TMTG will be $875 million is also a potential earn out of $825 million in additional shares. That would add the valuation up to $1.7 billion. What's your take on this,

SPEAKER_105: Eric? Do you think this could in any way be successful?

SPEAKER_107: I'm skeptical just because, you know, the first people you attract to a super niche,

SPEAKER_16: conservative platform, I mean, this is the gab had this problem are going to be really terrible, you know, it's going to be the people who are really on the edge. And if they don't want to be censoring people, all of a sudden, they're just going to have a huge content moderation challenge. I mean, it's sort of the argument that Facebook makes, right? Being really big, they have the talent, skill, they've hired a bunch of people to moderate their platform. You know, TikTok puts a lot of work into moderating itself. And will sort of this new app be able to, will they have the infrastructure,

SPEAKER_10: or is it much more sort of, yeah, Wall Street bets stock play? You know, that's my initial reaction. I don't know, what do you have? Do you have a bull case for this thing or?

SPEAKER_57: Well, if Trump remains off of these platforms, right, Twitter, Facebook, et cetera, if the board of Facebook, their, you know, independent Supreme Court does not reinstate Trump, uh, people love Trump content, uh, and they will probably create accounts. I could see that's a

SPEAKER_117: website. I mean, you can go to a website right now and see, you know, why does it need to be

SPEAKER_41: an app? And I would say because the app would be, you know, interactive two way, and then all the constituents and whack pack around him would be creating content too. So you basically get all of the people, you know, these lost children who were kicked off of all the platforms now have a place to

SPEAKER_04: live. And so he did have whatever 70 million people vote for him. 10%, 20% of them still really

SPEAKER_57: love him and weren't voting just because, uh, you know, uh, they, they, they wanted a Republican and not Hillary. So yeah, maybe, maybe they get to five, 10 million people. Um, but they don't know what

SPEAKER_10: they're doing exists. You know, there are, uh, Glossier, there are brands that are oriented around far less famous people than Trump. So I guess there's certainly a draw, you know, a single really popular person can build a company around them, but you know, running a company is hard. Moderating is challenging. The people they're going to attract are going to be sort of the worst of the worst. Um, and how do they get mainstream Republicans or regular normie sort of Trump fans on there? Like, I feel like there are, there are a lot of challenges and then obviously Trump himself

SPEAKER_125: is not a great, like executor, uh, you know, executor. Yeah. I mean, what is it? He's like, university, Trump stakes, Trump order, Trump airlines, everything he touches just crumbles.

SPEAKER_117: He's good at marketing. So we're going to talk about it right now. The stock's going to go up,

SPEAKER_10: but our, is he, you know, he hasn't proven any capability to run a company, let alone a technology

SPEAKER_57: company. Yeah. And the moderation, I think is a really good point. Cause didn't you see gab was the other one that, uh, on January 6th, they banned from all of the app stores. Like basically, yeah, I think that's right. Yeah. I think gab got banned. So, you know, they, they have some,

SPEAKER_04: if this becomes like insurrection 2.0 planning platform, like it's going to get bounced off of the app stores again, right? Uh, that's going to be a disaster. I think there's something really

SPEAKER_57: horrible about this as well in terms of using the SPAC vehicle, because now it's going to be a money grab. This is going to go, you know, to $50 a share. People are going to lose money. It's going

SPEAKER_03: to become a meme stock. Um, I, I could, yeah. Well, that's a recurring theme of Trump world,

SPEAKER_99: right? Like, I mean, there were all these games to keep donors, you know, contributing, uh, when

SPEAKER_10: they didn't even realize it paying more, far more than they could afford. So the idea that Trump world

SPEAKER_80: is willing to extract, um, money from loyal followers is nothing new and clearly something

SPEAKER_57: that he's willing to do. So. And here's the thing, you know, tech companies generally have a

SPEAKER_04: positioning or a point of view in terms of product, right? Twitter was the short updates. You know, Facebook was the newsfeed, TikTok, uh, Snapchat, each Instagram filters, everybody had their own kind of technological innovation. This is done. Uh, it looks like they just forked master Don,

SPEAKER_03: which is an open source Twitter, basically competitor. So it looks like they have zero technology behind this. They literally just threw this thing together, put lipstick on a pig, and forked the open source version of Twitter. Um, and they literally didn't even put, they didn't have the courtesy to put in the open source licenses. So I think this is a disaster. My

SPEAKER_57: professional opinion is this thing will fail. It'll have five or 10 million people and anybody who puts money into a lose all their money. So if you're a better in the public, this is probably the worst, unless you're like a sophisticated gambler, like day trading, you know how to pump these things on Reddit. Like I would stay far away from this and buy Amazon or Disney or Tesla stock. If you really like want to buy a stock, like buy one that actually has competent management. We all know how hard

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SPEAKER_04: All right. We work finally went public Thursday via SPAC and the stock is up 10% as of this taping. Back in 2019, we had the famous, we work S one, all kinds of shenanigans in that. Um, Adam Newman was

SPEAKER_57: buying buildings, then leasing them back. He was selling the trademark. We to we work for 5 million. The malfeasance was just brutal and disgusting. Um, if you haven't seen the documentary, it was,

SPEAKER_146: you've seen the documentary. I take it. The Hulu documentary. Um, well, I read the book. Uh, this is a classic reporter. Uh, I I'm not, I don't think I actually have seen the documentary, but I read,

SPEAKER_151: uh, Elliot Marines, uh, book. Yeah. And then there was Reeves book, uh, billion dollar loser,

SPEAKER_57: the epic rise and spectacular fall of Adam Newman. And we work, we had him on episode 1130. Um, um, and they were going to go out at 47 billion. Um, and, uh, that was in mid 2019. And according to a Barron's article for March quote, soft bank holds about 65% of the equity in we work. Uh, and so I don't see what the market cap here is right now, but if they own 65%, uh, according to CNBC, it's at 9 billion, right? So they now, if, uh, I guess if it was, we round it up to 10, that's a $6 billion or so. And do we know how much we were pumped into it?

SPEAKER_80: Are they actually going to come out of this even, uh, didn't they put it in? Like, I thought it was at least, I thought it was like a 9 billion, 10 billion something. I mean, they put a ton of money in.

SPEAKER_158: They might be halfway there, which is really super. You have to be able to exit. Obviously. Yes.

SPEAKER_27: If you own that much of a company. Oh, and I'm sure a bunch of the value is predicated on

SPEAKER_10: soft bank's perceived commitment to it. They started selling out. It'll put a lot of

SPEAKER_157: soft bank invested 18.5 billion. Oh my God. Oh my Lord. So they got a triple up here. The

SPEAKER_57: company's gotta become more 27 billion for them to break even. Well, yeah. Uh, but you know what,

SPEAKER_04: to get a save to save a third of your money on your worst investment, pretty good, right? Uh, expected revenues, 3.2 billion, uh, over 450,000 members. I mean,

SPEAKER_57: it's not a terrible business. I actually think I'm curious what you think. Isn't this business perfectly aligned for the, you know, work from home hybrid where people are going to need to use space

SPEAKER_27: on a more flexible basis. Well, that's the irony of the whole situation, right? You know, if,

SPEAKER_16: if he'd committed, if Adam Neumann had committed slightly less fraud, had made it to the pandemic, this would seem like a smart business to have emerging from the pandemic. You would have even had sort of this nice reset period where you could have sort of fired a bunch of people, cleaned up the business. You know, there is an alternative storyline where if he just held on slightly more normally, he could have like come out of the pandemic and pitched the business as having, you know, an excuse for why it suffered a bunch of losses and layoffs. But yeah, I totally agree. I mean,

SPEAKER_171: this is a great time for WeWork. Uh, we're seeing more people like myself become sort of solo entrepreneurs. So the, you know, people want offices and, and also just temporary workspace and companies are distributed. So the, the thesis, I mean, it was always sort of a cool idea. Yeah. I mean, and that's what becomes dangerous, right? The idea is so gripping and compelling and socially resonant that people stop paying attention to the financials and the losses. Unit economics. Exactly. It's easy to just like, oh, it's a story stock, like, and in this environment that can go forever. And obviously Adam Neumann, uh, pushed that theory too

SPEAKER_57: far. Yeah. I mean, if you, you, you need only look at the on-demand economy, which they were part of

SPEAKER_04: with Uber, Postmates, Lyft, DoorDash, Airbnb, the on-demand economy really, you know, was super promising because users loved it. It was a great product. All of them were great products, but we

SPEAKER_57: had things like Lux, the valet that would meet you anywhere and park your car for less than it cost

SPEAKER_24: to park it in a lot. Right. And economics there didn't work. You know, uh, some food delivery didn't work until they put minimums, Instacart wasn't working, they had to put a membership fee on.

SPEAKER_57: And so it's sort of like the great reckoning of unit economics feels like it's upon us.

SPEAKER_180: Right. I still feel, I mean, there was an interesting column, uh,

SPEAKER_16: Greg, Greg Bensinger at the New York Times used to be the Wall Street Journal,

SPEAKER_10: a beat reporter had a smart column on Uber and sort of the reckoning on unit economics. I mean, we're still seeing that play out. I mean, it's been a terrible experience getting Uber and some of these cities. And obviously it's a two-sided marketplace and they have to be able to get drivers and that drives up, you know, uh, price. So I think that, and I mean, Instacart is still a private company and they really saw an advantage from the pandemic. So I think it's still possible. There's, there's more of a reckoning there, but you know, WeWork has reset expectations.

SPEAKER_80: And, and so hopefully there's some upside down.

SPEAKER_186: Well, and even Uber and Lyft are like, this is the quarter where they just started to hit,

SPEAKER_41: you know, like a reasonable break even or a modified EBITDA. And actually, if you raise the prices, this is what I always said, like, if they were losing 50 cents a ride, if you raise the price a buck or two, now they're wildly profitable. Like, why don't they just raise it a buck or two? And they've been doing that and they cut their staffs, you know, at Airbnb.

SPEAKER_16: The reason I think is just that they were predicated on being able to disrupt transportation

SPEAKER_10: wholesale, which required underpricing. You know, people are very price sensitive. And so if you want to show a big TAM, you need to keep prices low. And they wanted to downplay the inherent trade-off

SPEAKER_80: between their profitability and the potential TAM. And so I think that's why they delayed for so long.

SPEAKER_04: Yeah. And if you think about it, you know, they were trying to make UberPool and Lyftline work, and maybe there was something there, maybe the algorithm could make it work. And it maybe that those products just don't work.

SPEAKER_16: Definitely not. Don't work. Use the... I mean, my friend, Tom Doton at Business Insider, write a piece basically about this. I mean, the pandemic was definitely like a cover to get rid of pool, which wasn't really working. And they had pitched for years. I mean, that was

SPEAKER_27: supposed to be the future of the business, sort of more sustainable, lower prices.

SPEAKER_193: Well, it would build liquidity, right? Because you'd have so many more cars on the road, and they would always be running.

SPEAKER_27: Yeah. I mean, I love the vision, but it doesn't work. Vision was good. They didn't, they really start, couldn't execute it, execute it.

SPEAKER_57: And there's other visions that work easier. So, you know, do you just capture the top 50% of the market or the top 60% of the market and say, you know what, for people who are in the bottom third, yeah, public transportation is a better option at $3. There's not going to be a $3 or $4 Uber. The minimum in Uber is going to be in a Lyft is going to be seven or eight bucks.

SPEAKER_196: Are you, are you all sold out of Uber?

SPEAKER_57: No, I mean, I still believe the company is going to do well, because if they weren't the leader,

SPEAKER_03: like if I was in Lyft, I might feel slightly differently about it. But because they have the trucking business, the eats business and Uber, I mean, have sold a lot of it before they went public. But I think the company will be, you know, they're growing 20, 30% a year on big numbers.

SPEAKER_57: And I think, you know, they have the perfect guy in there in terms of optimism, optimizing it,

SPEAKER_04: he's like really good at that. And they've got, you know, whatever it is, $14 billion worth of equity and other companies and a big balance sheet. So I think,

SPEAKER_199: I know this is your show, but do you ever see Travis anymore?

SPEAKER_41: Uh, you know, I try not to talk about Travis, but we've remained friends and we see each other. Yes.

SPEAKER_57: Um, and so I just, you know, he is being very low key and does not want to talk about cloud kitchens.

SPEAKER_200: But, uh, you know, yeah, every friend of his, I talked to you there, they're extremely, they claim to know nothing about cloud kitchens, whether that's true or not, but I know nothing.

SPEAKER_41: Um, well, here's the thing, you know, like he, he really helped make my career. I helped him

SPEAKER_153: obviously, uh, in a minor way. And, um, you know, he got, you know, really destroyed and he wants to

SPEAKER_03: focus on his business. So focus on your business. And, you know, uh, I respect that he's got his head down and he's just working, but you know, I, I think he will build a business with cloud kitchens that will be, uh, as big or bigger than Uber. Uh, and I, I, I still believe, I don't believe

SPEAKER_10: that's the consensus view. I mean, I, I have no idea, but yeah, it'll be, I mean, the pandemic was obviously talk about, I mean, if we work, uh, is a cool coming out of the pandemic story. I mean,

SPEAKER_80: cloud kitchens with these, you know, ghost kitchens was built for the pandemic where food delivery goes crazy. Restaurants are shutting down. So yeah, I think your instincts are probably

SPEAKER_120: absolutely correct. Heads up the days of the 60 40 portfolio might be over, you know, 60% stocks,

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SPEAKER_57: All right, let's get into your recent story. This is a pretty crazy story. Everybody knows GitLab when public GitLab was essentially there's GitHub and GitLab. GitLab, yes. So explain to people the difference between the two companies. Obviously, we know that

SPEAKER_59: GitLab recently went public. And it was a massive windfall for a lot of venture capitalists. But

SPEAKER_57: as you are really good at doing, you found the backstory here. So tell us about the companies

SPEAKER_180: and the backstory. Yeah, so you know, GitHub was sort of the early movers, a code repository,

SPEAKER_16: where you could, you know, go and show what projects you've been working on, work on open source, it became sort of a mix of like a LinkedIn for coders and sort of a resource for finding code. And then GitLab comes out of Y Combinator, you know, years after the founding of GitHub. And it's basically trying to build tools for enterprise, it's less, it's not the social network, it's more like, okay, if you're a big company, where can you, you know, your coders sort of keep all their code. And

SPEAKER_27: you know, so it comes out of YC. And I just sort of I write these story of the cap table pieces, which are really, you know, you look at the S1, and you say, who's the biggest holder. So I saw, okay, it's Coastal Ventures is one of them. August Capital is one of them. Iconic is one of them. And Google Ventures, GV now is one of them. And then I tend to be people who own

SPEAKER_225: over 5% get listed for over 5% get disclosed, right?

SPEAKER_120: That's why I always dodge the bullet. Yeah, I know multiple entities. So even if I do own more than five, they're, they're broken up.

SPEAKER_16: Some of these I try and go back and you know, if there's a good angel investor story, I'll tell it this one, I didn't as much. But this guy Casar Unis at YC, I think, you know, was sort of a big

SPEAKER_80: proponent of theirs there. And he introduced this. So Ben Ling was at Coastal Adventures, and he was sort

SPEAKER_16: of just, you know, going through the YC portfolio. He meets with Sid, the founder of GitLab. This is

SPEAKER_27: back in March 2015. And then basically, you know, Ben believes in it, hands it off to Sven Stroband, the CTO at the time at Coastal. And it sort of just documents, you know, how investing works, which is just, it's extremely interpersonal. It's like, who you know, who can refer you, even on something super technical as GitLab. Obviously, Sven is sort of more the coder guy,

SPEAKER_16: so he can assess the company, and come to a view of whether this is actually like a good idea. But to get the deal and start thinking about it, it's like, who do you know, YCombinator? How does

SPEAKER_27: it work? And so, so I love to chart that out, you know, how even within the firms, it's, it's so interpersonal, and that there's so many random things that happen, that make, you know, I did one of these on DoorDash. And literally, Saar, who was at, who's at CRV, he was going to invest in DoorDash. He was looking at another company, and he happened to talk to the General Merringer at Orange Hummus in San Francisco, who said, actually, I don't like that other company you're looking at,

SPEAKER_229: but I like DoorDash. And that's how he found it, you know, and it, so I love sort of just,

SPEAKER_230: the randomness of it is, it's very real. It's so human, you know, you get all these numbers,

SPEAKER_229: you're starting from an S1, you see ownership, and they're huge, you know, we're talking about

SPEAKER_16: billions of dollars. But at the end of the day, as you know, as well as anybody, I mean,

SPEAKER_193: these are such like, personal things, right? So YC gets 7% of the company for 150k, they get diluted down, obviously, so they probably didn't show up on the S1, I assume.

SPEAKER_16: Right. I, you know, I was talking to someone the other day, I think the standard YC is like owning, like three and a half percent, probably so that yeah, it's below the five. And if you do that math,

SPEAKER_10: maybe they own like 450 million, I mean, that's extremely ballpark on YC, but obviously, it's a great return.

SPEAKER_57: If you did, if you did three or four rounds at 20% each, you're looking at 50, 60% dilution,

SPEAKER_04: if you started at 7% of common, you get down to three and a half. And but they do have a continuation fund that continuation fund might have put money in, but that would also be under a different entity. So that I wouldn't go above five, you wouldn't see it either, because it might own 1%, 2%. So then August invests at that $27 million post money valuation,

SPEAKER_10: right? August is the best part of the story. I mean, yeah, tell us that.

SPEAKER_225: That's where the drama is here. I mean, basically, August Capital had this guy, AB Katz, who's an associate, so sort of, you know, the total growth.

SPEAKER_242: And by the way, Ben Ling, he's at Bling Capital now, Ben Ling Capital, he did the seed round with

SPEAKER_57: Khosla, which means they put in a million or two and own 10% and the A. Yeah. And so then

SPEAKER_240: August Capital, they, so this guy, AB Katz, after the seed round, you know,

SPEAKER_16: An associate. An associate. It's just like on Hacker News, sort of a nerdy guy, super deep in sort of the San Francisco tech scene, starts tracking GitLab and is bringing up

SPEAKER_27: to his partners. So Trip Jones, who's a partner, they meet with GitLab CEO, Sid, and they bring him into the partnership and the partnership, you know, some of them, like, you know, old school VCs are really skeptical. You know, I have this great quote, the company seems like, quote, the antithesis of everything a smart VC held to be true, you know, because GitLab was open source, it was fully remote when nobody believed in that. And then, yeah, it was coming behind GitHub, and it was competing with Atlassian. So it just seemed like such a crazy company. So then August Capital doesn't invest in the A, Khosla invests in the A. And then, you know, then this guy, Vili Ilchev, comes in in May 2016, joins August. He had worked at Box, LifeLock, Salesforce. And most importantly, while at Salesforce, he looked at GitHub around the acquisition of Heroku. And so then Illy really gets becomes a big believer in GitLab and really like vibes with

SPEAKER_248: GitLab CEO, and then really pitches the founders. And he's a partner. He's a partner. Got it. And then August Capital, you know, they're still like, I don't know, we're worried about it. And David Hornick,

SPEAKER_27: who's sort of like, the big time guy who'd invested in Splunk and made a bunch of money, has some reservations. I mean, Hornick was very defensive.

SPEAKER_255: I saw the quotes. I mean, he gave you a lot of quotes.

SPEAKER_16: Yeah, he sent me like a long email because, you know, I was like, oh, I'm gonna say you were like, not into this deal. He's like, you know, everyone had some reservations about the deal. It was anything but a sure thing at the time. I was no more vocal about my reservations than anyone else.

SPEAKER_256: Anyway, and Vili is very, you know, nice to remember.

SPEAKER_60: Probably directionally correct. But your guy told you he was dead set against him. He was fighting.

SPEAKER_229: No, no, I just said he had some reservations. It's just, there's a certain irony. I'm not saying like, I mean, obviously the deal happened. The partnership has to agree. Hornick was super

SPEAKER_27: key in selling it. So I'm not trying to insult him. It's funny in light of how the story ends. It's not so, which I'll get to in a second. It's not so much that he was like dead set against it. It's just like, this wasn't, he wasn't like the champion in this. Like Vili was the champion of this. This guy, AB was the champion of this. And then, you know, Trip, who is another partner, had sort of been involved in bringing it in. It was really listening to AB about it. So anyway, Vili gets it done. They invest 14 million and they end up with an 11.1 stake in GitLab at the IPO. The stake's worth about $1.6 billion. So you invest like 15.5 million altogether and you get 1.6. Yeah, exactly. It's

SPEAKER_94: more than a hundred X return. On a big number. It's not a hundred X on a 25 or 50 K check. It's a hundred X on a 14 million, 15 million. It's huge. I mean, and the fund itself that they're investing

SPEAKER_16: out of was only 450 million. So they've more than 3X the funds. $1.2 billion in profit, which means 20%

SPEAKER_57: of that carry would be $250 million. Yeah. And there are other companies. And they might have a ratchet there where if they, you know, double, they get to 25% or 30%. So this could be 300 million in carry.

SPEAKER_266: I would put it at 250 in carry. They're, they're always more, you know, VCs hate to talk about it.

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SPEAKER_27: So then August capital, you know, they're trying to raise their next fund. And there's some resistance from LPs, you know, it's just, there hadn't been a lot of exits, you know, people were constantly people have been worried about a bubble forever, you know, and it, you know, it was hard.

SPEAKER_44: August didn't have tremendous returns. They didn't have a big breakout like this.

SPEAKER_16: And it's hard, it's hard to know GitLab is going to be huge, you know? Right. But they didn't have

SPEAKER_04: a GitLab in the previous fund or the past two funds, I would guess, which is why they were having a hard time. If they did return four or five times the fund cash on cash, they would have an easy time

SPEAKER_27: raising a fund. Yeah, I'm not, I'm not sure. I mean, I know they exit Fastly. That was a good one. And they exit, I have it in this story. I'm looking for it. It's like Fastly and Bill.com. I'm not

SPEAKER_16: sure which funds those were, but I guess they hadn't exited yet. But then once they exit,

SPEAKER_27: LPs are more commits. So basically, you know, Hornick and another partner sort of say,

SPEAKER_16: we're not going to take more. We're not going to invest more. We're basically in a pause.

SPEAKER_27: We're not going to take in all this money. And it takes all the people around GitLab, which is like the great investment of fund seven by surprise. And so Billy leaves like the, and everybody's sort of in this weird position because if you're a VC, your funds vest generally. So it's not like you need to stick around because it's supposed to be a long-term business. So basically the story is just like the guys who made this firm a fortune were sort of screwed over by the sudden shutdown of August Capital. Now, August Capital exists. So they shut down August Capital because they

SPEAKER_286: can't raise a new fund. Shut down, you know VC. They say we're going to stop investing seven.

SPEAKER_27: Right. They didn't, they weren't going to raise a new fund and they were just going to sort of manage out seven. And then suddenly some of the guys who are involved in August start Lobby Capital, which is, you know, a very related firm that has some control over August Capital. So you can sort of see.

SPEAKER_57: August Capital had started a conference over 10 years ago called The Lobby. I never, I was invited. I never went because I was running my own conference at the time.

SPEAKER_146: Right. The key thing is to run a conference, not to go to conferences.

SPEAKER_57: Yeah, exactly. And so, but people love the conference because it's just a boondoggle. It was invite only two or 300 VCs and founders. And so they shut down August,

SPEAKER_03: but then they create lobby capital with the same two founding piece.

SPEAKER_80: Right. So it's, it's sort of, it feels like a little bit of a game to, to shed maybe some of the, um, partners and still have, have control, but I, I don't want to say anything beyond, you know, what I said in this.

SPEAKER_04: Well, the cynical view of it would be if you have a seven year carry, so let's say the associate, I can do the math for you here. An associate would get 1% of the firm's carry. Okay. 20 points of carry. They might get 20 basis points, uh, which would be 1%, right? Uh, 10% would be two of the 20 points. So 1% of the $250 million carry, uh, in that one deal would be $2.5 million. So she's getting paid 150 grand or something, a hundred grand, 200 grand, who knows? Um, so it's a pretty

SPEAKER_41: nice payday to get, you know, 20 times your, in your first job associates, like the first job.

SPEAKER_04: The other partner is a junior partner, or maybe not one of the two founding partners. The two founding partners are probably getting 6% each, six points each, which would be five times that 30% of the carry. That partner maybe has, let's say, um, instead of 1% of the carry, maybe they have 5% of the carry. 5% is, you know, 15 million, 12 million, something like that. Now, if they're on a seven year vest or three years into it, where does that other half of their, the money go? Where does the 1.25 go? Where does the other half of the 15, the seven and a half go? It goes back to the original founders because they don't have to pay it out. Just like if an employee leaves Uber or Google early, those shares don't get issued. They go back to the founders or they just, all the shareholders, uh, get that benefit of those shares not being issued, right? So that would be

SPEAKER_57: the most cynical view of this. Um, now, if they did shut down the firm, they might say to the other

SPEAKER_04: fan, the other partners will accelerate your investing by a year or two as a thank you. And then they would make them sign a non-disclosure, which means you would not get it. Cause if they did,

SPEAKER_311: everybody was paranoid around the story. It was, uh, that's cause there's a clawback. They probably gave them two thirds of it. And if they talk about it, they get their money. They,

SPEAKER_314: the founders get to take the money back. So, so it seems like Vili, the guy who really landed

SPEAKER_16: the GitLab deal, um, probably got at least some of his carry accelerated. And then AB, the associate, I mean, he was just an associate and it seemed like they gave him some carry for playing the role. So I'm not saying they've been totally ungenerous. I mean, it seems like one of the other partners sort of stuck around after it really made much sense. I would infer that that was, um, to keep vesting, but, but it was a very painful situation for everyone involved. And there is like, even in stories where you don't have a firm shutting down, you know, there's a lot of credit taking in the VC business because everybody has a fair position, right? The top guys are like, well, I worked my way up.

SPEAKER_171: And part of the value is you have some associate working for you who does deal flow. They find stuff and you have to decide whether to do it. And then you get the credit and then they get to get promoted and then they get credit. That's sort of the old school flow of it. But then, I mean, I think we're in a world where it's much more individualistic. People don't stay at their firms forever. And so now I think there is much more like who actually found this deal? Like, and then what parts of sourcing and see, you know, getting the deal done were most important.

SPEAKER_16: And these stories dig up, you know, get into the specifics of that in ways that firms would just like to say, you know, the venture firm did it instead of, but I thought this was a funny quote from David Hornick. He's like, sometimes the deal business is more mundane than modern folklore would suggest. And in the end, great successes like GitLab have many fathers, while great failures die as orphans, which is both true. But then also, obviously, that's true because of how people

SPEAKER_80: tell these stories where they all want to make themselves the key player and getting a deal done.

SPEAKER_57: Yeah, you know, and great reporting, by the way. And I just love the format you're doing at newcomer.co to break down the cap table like this very informative, you know, we get to see this, you know, and now cap tables are getting tightened up because of Carta. You know, when I go look at a cap table in the old days, like I have in my email, the Uber and Robinhood cap tables, like they would just send them to you in Excel sheet. And that's how I met a lot of my contemporaries, I would this

SPEAKER_41: was a hack I did and I actually wrote about in my book was just take out the cap table, look at the other names, Google them, find those people and then say, Hey, are you an investor in Robinhood? And if they say yes, then go have coffee with them and ask them to share a deal flow. Literally, one of my big playbooks of how I became successful was, I just looked on the cap tables like who's this guy, Chris Osaka, who is this person cyan banister, I'll invite them to my next event. So I built my network that

SPEAKER_03: way. Now when you go in Carta, it obscurifies, it's opaque, who's on the cap table, what you'll see is the seed round has this many shares, it's this percentage you have this many shares, pro rata is

SPEAKER_328: this but it blurs all that. So whether you're using that way, you can you can restrict by levels.

SPEAKER_80: There's so much information in cap table. I mean, it is Yeah, I love just going through pitch book. And that's my version of it when you're not getting the real thing. And just seeing

SPEAKER_57: Yeah, pitch book has, you know, a little bit more granularity. And then people would leak, you know, cap tables now and again, there's very famous stories about cap table. I mean, that's how people the Wall Street Journal did the story about my Uber position was somebody leaked the early cap table and okay, well, there it is. And some of these stories, I think the DoorDash when I, you know,

SPEAKER_27: I'll get, you know, the cap, the the people below 5%. It just depends how interest what I'm focused on.

SPEAKER_80: Yeah, in this story. I mean, they're not that tightly held, obviously. Um,

SPEAKER_57: No, um, and you know, and there's all kinds of wacky stuff that happens on cap tables, and people get bought out. And there's all kinds of stories like of early Uber investors who sold in the series B. Like, there's very famous that tech stars, I think, you know, had a fund and I think they got offered, you know, at maybe four, I know it was a passive survey. It was maybe like 4 billion. And there was a secondary and I talked to Travis and it was just like secondary going on. I was like, what's this? Who's emailing me? And he's just like, yeah, don't sell. And I was like, right.

SPEAKER_146: Thanks pal. And that's soccer, you know, with Twitter and I think Stripe has made a bunch of money just

SPEAKER_10: buying from other people who are foolish enough to sell. I mean, obviously some of it is, you know, if you're an exec and you want to be rich now and not rich in five years or whatever,

SPEAKER_57: If it's your only holdings, if it's 95% of your net worth, it's a very smart idea to get it down

SPEAKER_04: to 50% or something, right? You want to ride your winners, but you don't want to, as we've seen with

SPEAKER_41: WeWork, you would have been wiped out and got zero. So you're sitting there with the 47 billion dollar WeWork with an 18 million dollar preference, right? There's probably more 25 million in the

SPEAKER_03: company, 25 billion rather. Now the company's worth 9 billion. You know what that means to the common?

SPEAKER_343: Zero dollars. Like you get nothing, you're wiped out. And maybe some early investors got just severely wiped out as well. Uh, I don't know. Honestly, I'm interested to know

SPEAKER_80: what happened in the, uh, if, if a direct listing versus an IPO would have had a different impact on

SPEAKER_04: the preference stack or anything, if there was, uh, well in an IPO, all shares convert to common. But what can happen is if it, if in those later rounds, because they're so spectacularly large,

SPEAKER_57: there's a clause that says, if this is, you know, we're buying into 30 billion for Airbnb,

SPEAKER_13: let's say I'm just making this up. If it goes down to 15 billion, you got to give us 50%

SPEAKER_27: Yeah, yeah. I get preference stack. I'm saying that a direct, that, uh, um, a SPAC is technically

SPEAKER_10: a merger. And so I, I, I don't know. It's just reportable. I just like, you know, whether they're, you know, whether they knew to protect against a SPAC versus, uh, I think probably, you know, with

SPEAKER_04: SoftBank owning 65%. Right. That was a recapitalization moment where they recapped the company.

SPEAKER_57: Yeah. Exactly. They fixed it then. Yeah. They fixed it then to that. And a lot of times when they do those like really ugly cap recaps, I've been involved in them. It gets really ugly. Um, and the best thing is when they just say it's pay to play. So, okay, the company's going from 47

SPEAKER_04: billion down to a $6 billion valuation. We're raising 3 billion. All the common is now wiped out. All the, all the other preferred is wiped out. Everybody's wiped out unless you participate

SPEAKER_57: in this. So you have to put more money up. So, and that's the way you legally protect yourself.

SPEAKER_358: Does that make sense? Like, because you had the opportunity to buy, it's not like you were excluded

SPEAKER_03: from buying the shares at this new price, you know, this discounted price, uh, or they do warrants.

SPEAKER_151: They can say, Hey, you know, for every share you buy. I'd love to know whether, how benchmark,

SPEAKER_125: if they're going to make some money on this, because they were the seed,

SPEAKER_03: my understanding and the rumor I heard, just a rumor is that they may have took opportunity, took an opportunity to sell in secondary. Yeah. Uh, in those increasing rounds, because remember,

SPEAKER_94: they were, were they the series A or the series A? Yeah. Series A. So I think when Masi Yostasan

SPEAKER_03: shows up, he's buying as much as possible. And if they owned, you know, let's say they owned 15% at that point, completely conceivable that they sold 10% to Masa for $500 million or something at a $5 million valuation, locked in their returns. That's been my assumption that they've made money

SPEAKER_125: off this thing. I mean, I think so. Right. I mean, with the WeWork story, you know, the, the,

SPEAKER_16: the reporters love to make it sort of an indictment on everybody who touched it, but there is a degree to

SPEAKER_11: which investing in this charismatic Messiah founder at a series A can make sense, even if they're sort of out of control. Um, Well, you know, the thing is, you don't know they're going to be out of control.

SPEAKER_04: Right. And actually it looks like SoftBank's first investment in 2017 benchmark cashed out $129 million for an 8X return on the initial investment. And I assume they had some idiot insurance. They still had some shares. Right. But to your point about the, the craziness going on right now,

SPEAKER_57: the amount of fraud, the amount of, you know, bending of- Well, WeWork traders are going to come

SPEAKER_373: after you. They're, they're insistent. There was no fraud allegation. You can say whatever you want. Yes. No, no, no, no, no. I, I wasn't talking about WeWork. Yeah. I know you're not saying about WeWork. I'm saying the amount of fraud I've seen at the industry

SPEAKER_256: writ large. But I do think it's funny that they're running around, uh, be very, I think so. Yeah. That is why- Oh, wow. That's interesting. Yeah.

SPEAKER_57: Yeah. Well, I would just say unethical behavior on the part of what I would consider unethical. I wouldn't say the word fraud. Yeah. Yeah. But what I'm saying is there's a lot of people right now, uh, I think who are, I think the industry has probably got a five to 10 X the amount of bad behavior, malfeasance, borderline fraud, shaping of stuff. I think we're going to see, you know, so many lawsuits and

SPEAKER_03: allegations in the coming months. Cause I, I don't know if you saw there was the person who had a SAS company. What was the name of it that just got, um, sanctioned by the sec. Cause he faked a headspin. Oh yeah. I saw that. Yeah. It was headspin.

SPEAKER_390: I mean, that one was egregious. That one, I never really just straight up lying. Right. Right.

SPEAKER_112: I mean, they had like 40 million revenue or something in GV. Um, yeah. So it was legit investors.

SPEAKER_57: Well, here's the thing. That's really scary that you should really be, um, you know, as a,

SPEAKER_61: you know, somebody who's deep in this, uh, my, my, my little, like, Hey, look over here kind of moment.

SPEAKER_04: If you're, um, if people are dipping down and they're relying on the series a and the series Bs, uh, or the series a and series, uh, the seed and the series a investors diligence, and they're just coming and saying, I can do a deal in 48 hours. Right. At this crazy price or global. Yeah. Well, I'm not talking about anybody in specific, but let's just say they say as part of their aggressive approach, we don't need to do diligence.

SPEAKER_24: We can just do a quick investment. We know you got great investors. What I can tell you is, you know, I do a very serious diligence process. People think I'm nuts. Um,

SPEAKER_04: because we'll ask to see bank statements. We'll ask to see the iTunes sales reports. We'll ask to see, we'll ask to talk to their accountant. We'll ask to talk to the top three employees. We'll ask to talk to the top three customers. I mean, we do diligence, like we're a series a firm, even though we're doing seed. Um, and since we started doing that, we found a lot of,

SPEAKER_41: we uncovered a lot of problems that then led us, I'd say it used to be one out of 10 times. Now it's maybe one out of five times. Wow. And we'll pass on a deal.

SPEAKER_03: Now I'm pretty sensitive. I'll see something like somebody owns 30% of the cap table, because they went to some Fakaka crazy, um, accelerator and they gave 30% to a dev shop. And I'm like, I'm not investing in this because I know it's going to screw up the future rounds. Right. I'll, I'll buy them out or you can buy them out or get them down to 10% so we can clean the cap table up. But that's your choice as the founder. I don't want to force you to do that. I'm just

SPEAKER_57: telling you it's going to be hard. So what the problem is, is I look at my contemporaries and some

SPEAKER_120: of them don't read their legal documents. They don't sign, they don't take the time to spend a

SPEAKER_41: thousand dollars or $2,000 on a legal review of the documents. They don't even know what they signed. They don't do diligence. They say, you do diligence, J Cal. I'm like,

SPEAKER_402: I always do diligence. They're like, oh, okay, great. I'm like, okay, great. What? And it's like, okay, great. I don't need to. And I'm like,

SPEAKER_403: Right. We can free ride off of you.

SPEAKER_41: Well, and I think what's happening is there's a lot of suspending of disbelief in order to win deals. So what are people doing to win a deal in a competitive environment? Not doing diligence,

SPEAKER_24: not taking a board seat. Okay. How does that play into a sociopathic person like, you know,

SPEAKER_41: Elizabeth Holmes or somebody who's just a freak like Adam Newman? Right. No governance. How did he do with that? Not well. Okay. No diligence. How did that go for Theranos? Not well. Now add to it. In order to win the deal, I will give the founders a bucket load of new equity. I'll re-up the founders. And now the founder is looking at three term sheets. One is doing no diligence, no board seat,

SPEAKER_44: and they're going to give them an extra 10, 20% of shares of the company. And the other two are from

SPEAKER_24: Bill Gurley and Sequoia and whoever. Right. And they're saying, let's do diligence. We're going

SPEAKER_04: to take a board seat, of course. And then, uh, yeah, no, if you want to give yourself more shares,

SPEAKER_03: let's we'll have a compensation committee. We'll do a proper review. And the founder picks that one.

SPEAKER_411: That to me is fraud, you know, or it's borderline fraud. It's just, it could be if you were not

SPEAKER_99: acting in the interest of the shareholders. It's funny that you're taking the more conservative

SPEAKER_146: line than I am on this. I mean, there's a degree to which, yeah, it's the, the sort of Andreessen

SPEAKER_10: philosophy that like some of the disasters will get washed out in the good, and then it's better to deploy a bunch of cash and get in. It has been validated in certain ways, you know, um, yeah,

SPEAKER_146: until the, uh, until it goes out, but even, even soft bank, right. I mean, which is the sort of,

SPEAKER_10: you know, we saw what we were, I mean, couping DD now, some of those, they might get hit in some of

SPEAKER_171: the China retrench. No, no, they'll still return. But they're still getting tons of exits. So there is a degree to which if you're playing for big and you're like, well, I want to be the king of the bubble, you know, the bubble blows up. I'll be the most destroyed, but I'll be infamous. And if the bubble goes, I'll be the biggest. That, that's sort of a worldview that says,

SPEAKER_418: yeah, exactly, diligence. I'm kind of like, I obviously respect the benchmarks that you're

SPEAKER_229: doing it the right way. That, that is, I'm a reporter though. I'm sort of like, that's, yeah, obviously I'm inclined to manage downside. Show me the train wreck. I want the truth. No,

SPEAKER_171: no, no, I'm saying I like, I like people who care about the truth. You know what I mean? And don't say like, well, enough money will, you know, solve the truth or whatever. But,

SPEAKER_177: um, but clearly the people who have been, uh, bananas have been rewarded in certain ways. So I can see why people just keep playing that strategy. Well, I mean, also just look at crypto,

SPEAKER_57: you know, like people are suspending disbelief. They're like, you know, here's my next NFT project. Right. Yeah. I'll put 50 million into that. It's going to buy me tokens. And it's going to go into some offshore, you know, Panamanian Zerg nonprofit. And we don't know who's on the board of it. Like,

SPEAKER_59: there, there's a lot of suspending of disbelief. Well, this is sort of my position on Coinbase,

SPEAKER_27: right? They've, they've become so successful despite, you know, I sort of, I, I wrote this story

SPEAKER_292: about Gary Tan, right? Gary Tan, uh, was a Y commoner. He starts initialize. He's great. He, um,

SPEAKER_16: he invested in Coinbase super early because he thought Bitcoin would not be some speculative tool, but like, but a medium of exchange, like something that, you know, people could pay with

SPEAKER_27: that, that has not been borne out. You know, it is still a speculative tool, but it doesn't matter.

SPEAKER_229: He got rich on Coinbase anyway. You know, like the reality is that Bitcoin has gone up so much

SPEAKER_27: that even if, you know, it comes crashing down, a lot of the people who bet on it early have made

SPEAKER_16: their money. And so what's it, what's reality at that point when it's like, well, it, the speculation

SPEAKER_10: went on long enough that they've been able to exit, you know, a hundred billion or, or whatever valuation Coinbase is company. Um, uh, you know, it's sort of like, you throw up your hands about

SPEAKER_11: reality at some point because it worked for me. It's like, if you're going to do this stuff,

SPEAKER_103: it's worth doing right. And to do it in a button up fashion. And so that, that's just been my

SPEAKER_105: message to founders. You know, you take these shortcuts, um, you know, you, you, you might

SPEAKER_41: be building, you know, this giant building on a shaky foundation and it could collapse. And you know, who gets hurt the most, not the venture firm or the angel investor with a hundred investments or 200 investments and seven funds. It's the founder and the team members who

SPEAKER_436: are, you know, living in the building who just got crushed when it crumbled. You're the one who's going to take the biggest hit. Right. I know you're not, you're not going to talk about your

SPEAKER_10: friend, but there is a degree to which if Travis had listened to Bill Gurley more and moderated slightly, I mean, maybe Gurley was wrong on going to China or whatever. It still probably would have

SPEAKER_373: meant that he was still in his job, you know, which might've been worth it. It was a, uh, that's

SPEAKER_57: certainly going to be an interesting, um, you know, in 10 years from now, we'll have an interesting

SPEAKER_440: debrief on that one. I think, uh, clash of the titans. So yeah, the show is still going to come

SPEAKER_11: out. You know, it's like amazing that this is the story, even though Uber, the business is not like a once in generation, uh, company at this point, Uber, the story is like a, once it's a huge, it's

SPEAKER_03: cultural phenomenon. I, you know, I, I have a feeling like Uber will be worth five times as much 10 years. Really? Yeah. I think, you know, people are underestimating, you know, what being sold

SPEAKER_99: everything off something. What's that? I feel like they've sold everything off. Um, you know,

SPEAKER_368: they still own those positions in Aurora and the veto companies, and they get to monetize them without

SPEAKER_57: having to run them. And then they get to focus like a laser just on transportation, logistics and shipping, you know, things. I think it's going to be a very prescient play, uh, for them. And I think self-driving, you know, which everybody thought would be the death of Uber and Lyft. That's why the New York Times story didn't make sense. They were like, oh, it's, that's going to be the thing that saves them. It was like, that was the thing that was going to kill them. Right. And I think self-driving without the person in the vehicle is, uh, you know, 10 years off in San Francisco,

SPEAKER_41: New York, LA, Tokyo, you know, like at least 10 years. I do think Tesla autopilot works. I've used it

SPEAKER_57: all the time. I don't have the most recent beta, but, um, you do need, you do need to intervene. So I think regulators are not going to allow the driver and the steering wheel to go for at least 10 years.

SPEAKER_80: Yeah. I, I have not been, I've been skeptical about self-driving for a long time, but, uh, yeah, it was a fun story for a while. Yeah. All right. Listen, everybody go subscribe right now.

SPEAKER_453: Let's get another hundred subscribers for Eric so we can hire somebody so it can take three weeks.

SPEAKER_10: I have a podcast called dead cat too. You can listen to that.

SPEAKER_454: Oh yeah. I didn't know you have that. Wait, you're doing that with somebody?

SPEAKER_10: I'm doing it with Tom Duton at Business Insider and Katie Benner at the New York Times. Uh, we had Parker Conrad on for our first episode. We just, we just. Oh, from Ripple and Zenefits? Yeah. Rippling. Yeah, yeah, yeah. Rippling and Zenefits. Yeah. We just had Max Chavkin on to talk about the contrarian. I had him on last week. Oh yeah. You're ahead of us.

SPEAKER_165: So, uh, did you, did you happen to hear my interview with him?

SPEAKER_459: No, I haven't yet. Sorry.

SPEAKER_24: I basically got into it a little bit because there were two things in the book I noticed. Did you notice that he was talking about like white supremacy, adjacent people like seven or eight

SPEAKER_105: times in the book? Okay. Yeah. And then maybe six or seven, five, six, seven times in the book, he was like, Peter really likes young, attractive, outspoken men. And I was like. Yeah, he did say that a lot.

SPEAKER_466: A lot. But I, I do think there's a fact pattern there that a lot of the people he likes to associate himself with are.

SPEAKER_402: It's like, what are you getting at here? And he was like, it's just, he has a type and it's attractive young men.

SPEAKER_57: And I was like, okay, what about, I said, I just asked him straight up, Max, do you think he's a white nationalist? Cause you, you keep mentioning the white national stuff. And he's like, no, I think he just likes those provocative people. And he, you know, has the Milo, you know,

SPEAKER_10: I mean, I'm not saying let's make somebody a white nationalist. I mean, he's very anti immigrant clearly. I mean, that's, he's like a hard line on immigration.

SPEAKER_146: And he definitely is big on the, you know, we should be able to say whatever we want,

SPEAKER_475: which is often coded as I should be able to like, you know, say bad words.

SPEAKER_476: Well, no, you're just right.

SPEAKER_11: Have dark thoughts about race and like, you know, just like, that's often the subject people, when people say, oh, I am not allowed to say what I think.

SPEAKER_54: It's like, well, what's, what's the thing that you really want to speak about?

SPEAKER_477: Um, I don't know, I, you know, this is a huge, I believe, you know, knowing the,

SPEAKER_24: knowing all the principles in the book or most of them, right. And having watched, you know, the last 20 years, you know, by their sides, it filled in a lot for me. I actually like, I thought it was a well-written book. I thought he did a good job at it. I thought he was like overestimating how scared and, you know, Peter Thiel's footprint in Silicon Valley. Like Peter, I don't want to say Peter Thiel is not relevant in Silicon Valley. Um, but he's not in Silicon Valley. He's not really since Facebook and, and you know, Palantir. It's not like he's, he's not even running founders fund. Like there's people Brian runs founders funds. It's nothing to do with Peter. Really?

SPEAKER_221: It feels like.

SPEAKER_297: So, yeah, yeah. It's always hard.

SPEAKER_146: It is a key question is like, how big is Peter Thiel?

SPEAKER_16: Because then, you know, it's like, how worried should we be? How, how much should we hold it against founders fund? Yeah. I don't have, it's, it's hard. I mean, still on the board of Facebook. I mean, to me, that is an extremely powerful place to be. I mean, Palantir is a huge government contractor. Andrew is probably going to go public in the next 18 months.

SPEAKER_10: Like, I think that, you know, he's doing a lot.

SPEAKER_146: And obviously this is someone who took down Gawker, sort of in a long play, sort of quiet game. And then he's.

SPEAKER_165: I think for media. He's donated. That's the thing.

SPEAKER_41: Media people overestimate because, and I told them, I was like, Max, he's, he's like, this is a big existential threat. I was like, how many other publications has he shut down?

SPEAKER_330: It's a big impact on freedom of speech. I mean, just as somebody who's writing independently, like I think about it a lot, you know? Yeah.

SPEAKER_487: But you also don't print revenge porn and sex. Sure. So you're not ever going to get sued.

SPEAKER_229: The fact that you can sort of lose a sort of, I mean, the one they lost, I, I, you know, there's, it's a long argument. It was a sex tape, a stolen sex tape.

SPEAKER_41: Yes. I mean, if they, they had the, if the stolen sex tape for Hulk Hogan was in your inbox, you would not print it. Right. 999 out of a thousand publications wouldn't.

SPEAKER_274: If the law isn't there to protect you, it's good to avoid having enemies and doing things

SPEAKER_16: that might antagonize people needlessly becomes risky, which impedes journalism.

SPEAKER_10: So, you know, that's, that's the flip side of it because you don't want unnecessary enemies or, you know, obviously I'm much more conservative than Gawker was, but that lawsuit didn't exist. I would be a little freer than I am today.

SPEAKER_103: That's interesting. Wow. I didn't think it was actually impacting people's behavior. All right.

SPEAKER_03: Listen, thanks for coming on the pod.

SPEAKER_59: Bye bye. All right.

SPEAKER_105: Welcome back to this week in startups. Matt Newberg runs something called hungry TV.

SPEAKER_57: It is H N G R Y dot TV. Get it hungry without the vowels, a cool naming convention. He's been doing that for a couple of years now. And it's just a platform exploring how technology shapes food, you know, the stuff we eat. And he's got a trends newsletter and he covers food tech. And that obviously is something that is becoming a giant business from Whole Foods and Amazon to Postmates, Uber Eats, Door Dash and everything in between. So we're going to talk with Matt about the state of the industry.

SPEAKER_169: Welcome to the program, Matt Newberg.

SPEAKER_496: Thanks so much for having me, Jason. Awesome to be here.

SPEAKER_57: Oh, you probably heard my introduction of you. Did I get it approximately right? You run a newsletter company and a media company. If people want to sign up for your newsletter,

SPEAKER_03: they go to hungry dot TV without the vowels and you are on the Twitter at the new be the new

SPEAKER_24: and the new to put it together the new. So why don't we kick off a little bit with how the COVID pandemic impacted food delivery, grocery delivery and everything in between because you also have beverages in there and convenience stores is a big sort of sweeping revolution that happened where people who had not previously used these services were stuck at home in quarantine and obviously downloaded the app. So I'm curious as to not only what happened during the pandemic, which I think we can all guess, but what's happening right now in what we hope is the waning days of the pandemic. And depending on which state and city you go to here in the United States, there's either an incredible pandemic and people are wearing masks and socially distancing or it's a free for all depending on the state.

SPEAKER_328: So tell us what's what's happening now in this hopefully waning days of the pandemic to the food delivery industry.

SPEAKER_504: Yeah, it's a it's a it's a great place to start. So like looking at the overall food industry across restaurants and groceries, there's

SPEAKER_505: constantly been kind of this food away from home food at home kind of paradigm. So in aggregate, it's about $1.7 trillion in spending. And what happened during the pandemic was as restaurants closed their doors, we saw about a 20% decrease away from from restaurants and a real big boost to grocers as people stocked up on groceries. But simultaneously within that, we had a massive growth in both online ecommerce for restaurant delivery for takeout and delivery. And we also had a huge, huge boom to online grocery, which I think is probably the biggest amount of growth. So in restaurant food delivery, I believe we went from about takeout, don't call me exactly on this, but like something like, it's like 7% food of total food sales going towards delivery to somewhere now about 10%.

SPEAKER_504: It's mostly takeout. And then we went when it comes to online grocery went from like two to 3% to 10%. Wow. So that's, that's the major jump. That's where Instacart really came in and saved the day for a lot of grocers. And now here we are, people are waking up and saying, we need to do this ourselves. We need, grocers need to become technology companies, which is a very big challenge. And, and that's why now you're seeing a lot of the, the 10 to 15 minute vertically integrated

SPEAKER_505: players eyeing this, this TAM of delivery of, of grocery, uh, which is about 1.1 billion dollars. Um, $250 billion of which is going towards your traditional fuel convenience stores. And then the rest, the other 850 billion is, you know, your grocery, um, your grocery outlet. So, um, we went from, from 3% to 10%.

SPEAKER_504: And in the next five years, we're expected to go from 10% to 20%. Wow.

SPEAKER_509: Um, so that's a steady, you know, 2% growth every year for the next five years. And, um, yeah.

SPEAKER_04: So based on what you're saying there, it feels like, uh, the grocery stores and the convenience

SPEAKER_24: stores are saying, you know what partnering with, you know, Instacart, DoorDash, um, Postmates, Uber Eats, uh, might be fine, but you're saying, you're saying some of them are just going to decide to do it for themselves and go it alone and maybe stop in the grocery space. Are you saying that Instacart is going to see their delivery service go down because Vons or

SPEAKER_03: whoever Safeway decides, you know what, this is our core business. If one out of five customers is going to take our services by delivery, why are we even having Instacart in the building? Why are we enabling their business?

SPEAKER_328: Why don't we just be fully integrated? Which I believe is what Whole Foods chose to do, correct?

SPEAKER_505: Well, yeah. I mean, they sold to Amazon and Amazon is building a very compelling omnichannel offering now across in store with Whole Foods as the high end kind of banner. And Amazon Fresh is kind of the middle market kind of Kroger, uh, banner, um, and then the online component, which is Amazon Fresh, right? And, and then the other grocers I don't think can even compete because they need a player like an Amazon to come in and completely revamp everything from their purchasing all the way down to the consumer experience and the logistics. So they've kind of cobbled together these solutions. And I believe that over the longterm, um, you know, the Albertsons and Kroger's of the world will just buy their technology from the lakes of Ocado, Instacart, et cetera. Um, and use them as picks and shovels if those companies can offer those picks and shovels. Um, but the, the real interesting thing is the, the, the rise of the vertically integrated grocer that's going to try to attack these guys at the, um, at their, at their knees. So, you know, by offering faster delivery, obviously not the same 40,000 items of, uh, products that you would find in a traditional grocery store, but a much more curated set of grocery items, um, and pantry items for this category of instant needs, which we can get into. But, um,

SPEAKER_453: So the strategy for these vertically integrated ones are those like the jokers and the getters and the corner stores, uh, which was obviously bought by Uber.

SPEAKER_24: This is this new category of lower number skews, but quicker delivery time. Correct.

SPEAKER_505: Vertically integrated. Yeah. And, and that's kind of the key here. It's that, you know, a lot of the labor laws in this country and abroad, uh, do not support,

SPEAKER_504: you know, sustainable delivery at high penetration volumes. And you see this, but door dash is now betting heavier, um, more and more on dash mart, which is their vertically integrated solution. So they're actually making margin off the product. And I think you're going to see a lot more players enter the space because, um,

SPEAKER_505: there's been proven models abroad with the likes of get here, as you mentioned, um, or however you pronounce it, getter get here and delivery hero that have, you know, really built billion dollar businesses through dark kitchens and dark, um, supermarkets, D marts, uh, dark, dark stores, um, that are basically transformed, you know, vacant retail on main street or off of main street and can transformed it into kind of a last mile infrastructure that house, um, commonly, or, you know, uh, commonly ordered items from local bodegas or, or random, you know, corner stores.

SPEAKER_24: So what we're seeing is there was this model where Postmates or Instacart, uh, I think were the ones who pioneered this would send a Postmates. I don't know what they used to call them, but a Postmater, I don't know.

SPEAKER_57: Uh, they would call them your Postmates. It was like a person, uh, personal shopper basically, uh, or Instacart would send a

SPEAKER_24: personal shopper for you, a shopper to a store that already existed in the world, buy your stuff, deliver it, charge you a markup.

SPEAKER_57: But if you're, you know, Joker, or I guess this new, uh, corner shop, um, the concept is that Uber's corner shop would inventory the items themselves, have the drivers there.

SPEAKER_24: It's one app. It's not two different parties involved in the delivery. It's just one party and it's a lot more seamless. If you have a return, if you have an issue and then it knocks 10 minutes off the average delivery time or something.

SPEAKER_505: Yeah.

SPEAKER_504: I mean, you go from a, you know, a traditional, I guess, Instacart was offering one to two hour delivery. Now they're offering 30 minute delivery to, to kind of compete against these guys. You know, Gatir kind of pioneered the 10 minute model. You know, we're splitting hairs at some point. It's like, you know, really what this is about is a land grab for, you know, for customers and certain markets. And the way to do that is to go plaster a bunch of billboards and say, you're going to offer free delivery in the fastest amount of time. Gorillaz is doing in 10 minutes. Joker's doing it 15 minutes. There's one that's even called 1520, which in the name implies 15 to 20 minutes. Does it really matter? We can talk about that.

SPEAKER_505: I don't think it really does between 15 and 30, but it is a land grab right now.

SPEAKER_57: So let's, let's talk about that. When I order my groceries at the house, you know, we have three or four different people who might be contributing to the order. We have a little iPad in the kitchen that we all use. Hey, the order is going in today. The groceries will be here later tonight or tomorrow. And like you're saying, uh, we're ordering like, you know, two or $300 worth of groceries,

SPEAKER_453: which is what, you know, with the five person household, what we're kind of ordering. I think it's probably 150 to $200 every time we order something.

SPEAKER_41: We don't care if it's fit. I mean, it'd be nice if it was 15 minutes, but we're not ordering that for food to eat tonight.

SPEAKER_24: We're ordering that food for the next three or four days.

SPEAKER_57: So there, this might be marketing or it might be unnecessary sort of what you're saying for

SPEAKER_24: grocery delivery, but for, uh, you know, I ran out of deodorant or razors or milk. Maybe that's what you want 15 to 24. Am I correct in my, uh, assessment of that?

SPEAKER_504: You might want, you don't need it. And do you really need it in 15 minutes? Not at all. No, it's just, you're doing a calculation on your, your time is very valuable. Jason. We know this and your, your arbitrage, you know, there's this now there's this like flexible, you know, you could do this arbitrage now where you can outsource certain parts of your life.

SPEAKER_505: Lots of it. Um, and so it just has to be better than whatever you can do yourself and you're willing to pay that

SPEAKER_504: premium and they're making it, you know, they're, they're using the margin of the products that they're selling to subsidize the delivery and some VC money as well. But, um, you know, you're, you're going from a world of, of door dash making, you know, contribution margins as a percentage of the GMV that they process up 3% to a potential model where you get about 17% net margins at the store level for these dark stores. And that allowed, and that's after you account for the cost of delivery and maybe charge a $2 fee to make sure that no one's abusing it and just getting a single tube of toothpaste delivered in 15 minutes, which a lot of New Yorkers are doing right now just to, to kick the tires.

SPEAKER_453: Um, so they don't have a minimum on some of these, therefore people are abusing it. And that is exactly, uh, for a little history lesson in 1998, 99, Cosmo had no minimum.

SPEAKER_24: And at our office, we did as a joke, five of us all ordered a pack of M&Ms because we were writing a story on it at the same time and had five people show up at the Silicon Alley reporter office,

SPEAKER_03: each of them with a pack of king size M&Ms we bought for $3 or $2 at the time. And, uh, you know,

SPEAKER_57: gave them a $2 or $3 tip. And we're like, these guys just lost 20 bucks delivering this.

SPEAKER_529: Um, but I guess that's their way they're acquiring customers. So if they let you have no minimum for

SPEAKER_24: your first order, who cares on the converse side, I just saw news that Amazon for whole foods is saying starting, even if you have a prime account, it's going to be $10 per delivery flat rate. Explain why the smartest kids in the room who have the most experience with e-commerce have decided to go another direction.

SPEAKER_504: It's a great question, Jason. I think it's my take on that. And as I told my readers the other week was that $10 basically positions you. I don't know if you've ever read like, um, predictably irrational by Dan Ariel, but he talks about, you know, pricing pages and everyone always goes for like the middle tier. Sure. You know, so you, I think my personal take is that they did a test. They did a test in like a few key markets like Detroit and maybe boss, a few other metros. They saw that there was basically very little, um, price, you know, people were fairly inelastic as the demand was fairly inelastic when they raised the price. They realized that that actually like helped the bat, you know, the average order economics, and then basically use that as a way to propel Whole Foods as the premium tier offering for of, uh, Amazon and that whole, um, Amazon fresh would be the kind of free, the, you know, default middle tier kind of offering. And they're going to expand that banner across the US very aggressively to augment, you know, to give you that kind of 360 omnichannel experience that's emotional to connect back to the online ordering. So I think this is a very calculated play. A lot of people looked at it and said, Amazon is doing this because they can't get grocery, right? I mean, I was actually actually signed up last summer to be an Amazon flex driver to do some of these Amazon fresh deliveries. And I can tell you that their costs per order, as far as the, the delivery or some of the cheapest, if not the cheapest in the industry, about a dollar per bag that I delivered

SPEAKER_532: went to the fulfillment cost. Uh, and when you say fulfillment cost, do you mean to you as the

SPEAKER_59: driver? Yes. So what was the typical order size five, six bags? And that means you as a delivery

SPEAKER_505: person would deliver it in half an hour for six bucks? Um, I was making, uh, a lot more than that. I was probably making somewhere in the range of 20 to $30, including tips and whatnot. But I,

SPEAKER_504: I can pop the drop off her drop off. I mean, per delivery. Yeah, six, six or so. It depends on depends on the, the basket. It really ranged. There was one guy that had like 12 bags and I had to schlep it up a staircase and 98 degree heat in North Hollywood. You know, there's a couple people that just had two or three bags. And some people I had to get these six pack cases of, um, you know,

SPEAKER_515: vitamin water, whatever. So it, it kind of ranges. How do people treat the drivers overall? I mean,

SPEAKER_453: I try to be absurdly generous. I've done okay, but I'm curious how people treat these drivers. How

SPEAKER_57: did, how were you treated, you know, anecdotally? Did you feel like people were really respectful and thankful to you? Or do you feel they were giving you terrible tips and just abusing you and

SPEAKER_504: abusing the service and kind of took it for granted? I mean, my interaction with these Amazon customers was pretty much non-existent. They stayed inside their, their nice homes and their gated communities. I drove in, I had a very calculated route. The reason why Amazon is so good at this is they have a milk run. I, you know, I do a single pickup and multi point drop off within an hour and able to make some of the best rates in the industry because they've, you know, basically has, they have all this demand and it's been promised within a two hour window that, you know, maybe came in in the

SPEAKER_453: morning. How many orders would you, would they send you out with two, three, four?

SPEAKER_504: Yeah, maybe like four or five max. And they, they know this, they knew that I had a jeep, so they knew exactly how many packages to give me or how many bags to give me per pickup. And then you just kind of do like a, you return back to the store. And this is kind of why the, the vertically integrated model works really well is because when you deal with like a DoorDash, you could be one minute picking up fried chicken sandwiches at Dave's hot chicken, the next minute they're going to send you into an Albertsons and go shop a, you know, 50 item order. And, and the context shift, the context shift for me as a driver is significant. And, you know, the efficiencies are kind of lost when you start running around the city and it's just dealing with all sorts of random, you know, temperatures of food and perishables and non-perishables. I got no, I don't want the eggs to break. I don't want all this stuff to happen. So it's very tough when you're doing all this crowdsource labor. And we can talk about the labor. There's definitely lots of nuances there.

SPEAKER_57: One more point on the $10 per Whole Foods order. I saw that as a way I interpreted slightly differently, but I do appreciate your interpretation. You're probably right. Maybe mine is the second reason.

SPEAKER_03: I thought if you are going to do an order and you know, it's $10, you and many people do this, and I do it, even though probably doesn't apply to me anymore. I go, Oh, it's 10 bucks. All right. I'm going to not do a $50 order. I'm going to do $150 order because I might as well get the pasta I was going to get next week. I might as well think this through. Whereas with Amazon Prime,

SPEAKER_328: they specifically trained me to not care. And they're like, would you like these all in one box, you know, on Thursday? Or would you like two boxes, Monday and Thursday? And I'm always like,

SPEAKER_03: well, of course, I'll take it faster. You know, sometimes I feel a little bad about the environmental stuff. And I really don't need it. I will wait two days just to get one box instead of two. And it's literally I think I'm making that decision based on do I want to open one box or two? But I mean, talk about privilege, the 15 seconds it takes to open a box is part of my thinking. This is how far we've come in our entitlement. And then the second one in terms of entitlement is like, I'm just feeling guilty about the environment and saying, you know, I want one box, not two boxes,

SPEAKER_328: which, you know, I guess is the more valid one. But is it also a play to get the ticket sizes to go up? And what role does ticket size play in all of this, if any?

SPEAKER_504: I think, yeah, I think that's a really valid point. I think you have to think about as a consumer,

SPEAKER_505: not what's the percent, you know, what percentage of the delivery of my spending on the actual delivery cost. And, you know, if it costs more for me to order, if I'm spending more on the delivery fee for my dinner tonight than the actual food itself, we have a problem. And that's when you start to see

SPEAKER_504: people try to think about what they might need in advance, you know, for the rest of the week and become a little bit more economical about the number of frequent, you know, trips that they're going to take. And, you know, the one thing tying back to the quick commerce is that I think these quick commerce guys are doing 1520 minutes aren't targeting the weekly stock ups that, you know,

SPEAKER_505: Amazon Whole Foods and fresh are targeting, they're targeting, you know, the two to three top offs that

SPEAKER_504: you would do on a week that for the random recipe that you're trying to cook that day, you need some veggies, you need some spices to complete that recipe, you didn't necessarily know what you're

SPEAKER_505: going to cook that when you did that Sunday, you know, weekly stock up. These guys are attacking the grocers by by going after those supplemental trips.

SPEAKER_57: Yeah, so you're cooking dinner, you realize you're out of lemons, you're like, I do need lemons in 10 minutes, I'm going to take advantage of that opportunity. And hey, since I'm buying lemons, I might

SPEAKER_24: as well buy some ice cream for dessert and, you know, get some croissant for tomorrow. That's kind of what these 10 minute commerce companies are aiming to do. Am I correct?

SPEAKER_505: It's funny, because I spoke to a guy named Barnaby Montgomery, who runs yummy.com. And he says that customers don't have oops moments in the kitchen. And he says that like, no one, no one is just cooking a recipe and says, I'm missing an egg. Let me order it right now. Yeah. But it is more convenient. And it is a better way of living because I can spend more time doing doing my working on my

SPEAKER_504: job, making more money than you know, and let someone else go and deliver that for me. It's because I have to go drive to the store, pick it up, shop and check out and that could take, you know, an hour

SPEAKER_57: just to get a few things. Why did this happen in Europe so quickly? Because we're now looking at 10 companies that have gotten significant funding. This get here or getter is from Istanbul, they have a total funding of a billion grills from Berlin has raised over 300 million. They're at a billion dollar valuation. Um, and cooking with oil, obviously. And then you have like flink in Germany. Uh, zap is UK

SPEAKER_24: based, uh, Deja in UK, uh, small gop. Um, and that was acquired by go puff and they had jiffy cage. I know this was also very big in China, but why is this landing in Europe as a major trend?

SPEAKER_169: Um, any, any theories there? I have some, but I'm curious. Yeah. So there's, there's,

SPEAKER_504: it's definitely a lot more mature overseas. So I think, you know, delivery hero may have been the

SPEAKER_505: first one to get into this. Um, but I think a lot of it has come, it comes down to the fact that they know that the, the labor laws and what's going on as far as, you know, being able to, you know, you saw what happened with Uber in the UK. Um, the, we know that you, that there, the, these,

SPEAKER_504: the, this is at risk as far as, you know, being able to rely dependably on gig labor. And so a lot of these guys are doing full time, you know, whatever their equivalent of w twos are. So they

Chamath Palihapitiya: actually, so they're doing shifts. Yeah. Yeah. They're doing shift workers who come in for eight hours or 10 hours or whatever it happens to be, as opposed to people being able to set their own

SPEAKER_24: schedule, which fits into the model of the European way of looking at employment, which is you've got, you know, employment that is much more stable and less entrepreneurial saving the

SPEAKER_03: judgments. You know, I'm sure some people in Europe would like to have flexibility, but their system, I think trades flexibility and entrepreneurial nature for, you know, um, more security,

SPEAKER_24: right? Uh, is it also because of the density of European cities and the fact that these little convenience runs, the propensity, uh, or the, um, how adapted the cities are towards, uh, mopeds or Vespas? Yeah. Because one thing I noticed is just, it seems like all these services are using Vespas, which can go 35 miles an hour, and they typically will outrun a car. Whereas in the United States, we're talking about largely suburbia infills, which is between suburban areas and the city. So you would have like the city of San Francisco, you might have some infills, which might be, you know, I don't know, uh, the, the areas surrounding the city. And then you have

SPEAKER_59: the suburbs. We kind of think about infill and suburbs first for delivery here. And then the

SPEAKER_504: density of cities, maybe second. Exactly. So they're attacking these kinds of cities where there's a lot of East e bikes that are roaming the streets. And, you know, like there's a guy named Carlos Marino, who I believe is, is French, and he's pioneered this idea of the 15 minute city. And this is the idea, a very European idea that within 15 minutes, you're within a subway,

SPEAKER_505: um, or a walk, a subway ride or a walk from, you know, every major, um, you know, social service that you might need. Um, you know, bars, restaurants, grocery stores, hospitals, um, all, all of these essential services are within a fifth, are accessible within 15 minutes. And that's kind of, um, kind of where these guys are, are playing, they're playing in cities like Berlin, where they're, I don't remember the name of the, uh, what they're called, what they call their bodegas, but there's a bodega like that on, on every block. And, you know, a convenience store. Yeah, a convenience store. And, you know, they tend to purchase a lot of their, you know, daily, like fresh produce and, and meats from, um, these corner stores and then, and get their, like, you know, weekly stock up of their, you know, pantry essentials. Um, so it's kind of this, like, their express orders are, are more of the fresh stuff that, that Gorillaz is really over indexing on, which is like the meat and the produce

SPEAKER_563: that they do on a daily basis. They go and shop for their fromage and their meats.

SPEAKER_453: Yeah. Yeah. It does seem like these Vespas and e-bikes are a, uh, a part of this. So what's your

SPEAKER_24: prediction, uh, for these, uh, you know, 15 minute services, because they're losing money on every order. It seems they're under pricing it to get people to create accounts. Is this a sustainable business? Is it a bad business or is it a good business? Because if they are, if they do have to actually put the cost of the driver in there, I'm assuming they're adding 10 bucks in Europe, 15 bucks to each order in terms of expense, because people get paid well and they have to have benefits and you pay a lot of taxes in Europe. So in Europe, if they're adding 15 or bucks to every order, does convenience store delivery of $30 ticket makes sense when the delivery cost is 50% of the order

SPEAKER_453: and are people not going to walk downstairs and just buy it themselves when they get home?

SPEAKER_504: Yeah. I mean, that's a great point. And that, that, that is going to be the test of time is for, for these guys is that the percentage that they're spending on the basket on the delivery

SPEAKER_505: cost and, and certain markets, you're going to have higher spend and higher costs, right? And then certain other markets, I think in Turkey, the labor is much cheaper. So, you know, the, the, the, the delivery cost is a percentage of the AOV. The average order basket is, um, is, uh, you know, it's lower. So, um, Um, so that's kind of, it's, it's all about the ratio there. Um, and so what the opportunity that these guys are, are seeing is that this, this could eat, you know, the small to mid middle tier, um, convenience stores and retailers in the US. So obviously that's a $1.1 trillion TAM in the US. Um, it, I don't have the figures for global, but, um, that's kind of the, what they're looking at. And, and, and, and they, they think it's a more sustainable model because you're, you're, you know, basically inventorying a store based on, um, what people are ordering the most frequently, uh,

SPEAKER_57: You're skipping the cream. So you don't have to have as many skews instead of, you know, a grocery store has 30, 40, 50,000 skews. You're talking about what at these stores, like 5,000 or

SPEAKER_504: something. Uh, it can range from, so good tier does like 1500 go pop. It's like up to a 5,000.

SPEAKER_506: Some of the BevMo's it's acquired. We can talk about that, but, um, yeah, BevMo got acquired.

SPEAKER_453: That's incredible. That was a, uh, you know, very popular company with its own built-in delivery

SPEAKER_24: service that I use BevMo here, here in the Bay area, and you can put your order in on their site. It has a certain window. Is it as good as like using Instacart, good eggs, Uber Eats or Postmates? No, it's janky, but I used it on the website and it was okay. It wasn't terrible. It was kind of

SPEAKER_57: like a 1.0 if, you know, Uber and Instacart are 3.0 in terms of delivery service. It's like a 1.0 delivery service, but you pick a window and it came. They were using outsourced drivers at BevMo when I used it here, um, over the summer in the last couple of months, but I had an okay experience. Um, the, it seems to me convenience stores might be not a great business. It's okay. Maybe they have a low margin, but alcohol is high margin. So is the play here that you have an okay business that creates a floor and then you make your profit on alcohol like restaurants do?

SPEAKER_504: Absolutely. I mean, I think that's why I, I would put GoPuff as the, one of the winners in the space. And I think there's going to be different winners for each part of the market. And you might have to segment that by east coast, west coast, you know, Biggie Tupac. Um, but you know, um, yes, I, I do think that the gross margins of a GoPuff are much higher because they've actually gone through the,

SPEAKER_505: the difficult work of acquiring offline retailers. Um, and they'll go acquire it for like halftime sales and then go raise at a, you know, 13 X multiple off of that total revenue base between GoPuff and BevMo. And that's what you kind of saw.

SPEAKER_57: All right. Here's a question from our live audience, uh, from LinkedIn's live stream. Thank you, LinkedIn for including us in the live streaming beta, uh, works really well, by the way. Bram Berg asks, what unique real estate conversations, conversions or repurpose plays are you seeing in the last mile industry retail space, especially in the commissary slash cloud kitchen space? So what's happening there in terms of real estate plays? Cause those are real estate businesses more than delivery businesses, correct?

SPEAKER_575: You're talking about cloud kitchens. Cloud kitchens.

SPEAKER_57: I mean, she's asking about cloud kitchens commissaries. Yeah.

SPEAKER_576: Yeah. Specifically.

SPEAKER_505: Yeah. I mean, I think the number one player here is Travis Kalanick's cloud kitchens, which is, you know, basically buying distressed real estate and converting it into, you know, basically this last mile infrastructure that is quietly powering, um, lots of, uh, you know, delivery transactions, mostly delivery, although they have like a facade in front, um, just so it's not blight in a neighborhood and it's not looked at as a, you know, some tech companies, Abandoned building or whatever. Yeah.

SPEAKER_453: They look good. I, there was one across the street from my office in the city in San Francisco that looks great.

SPEAKER_57: And there's some decent technology going on there. I would order from, um, Starbird and Belcampo, two really great brands. Uh, and when I would order from those brands, which just have incredibly high quality chicken and beef

SPEAKER_343: for Starbird and, um, Belcampo respect, respectively, um, I would go there to pick up.

SPEAKER_529: And it was incredibly sophisticated where they had all the drivers coming in.

SPEAKER_24: The drivers could see, you know, on panels where their stuff was. The food was in lockers and man, they were cranking over there.

SPEAKER_328: And if you pick up your stuff on Uber Eats, it was $0. So I was like, I need to get fresh air. I want to go for a walk. So I'd walk across the street and pick up my chicken and come back and I'd save seven or

SPEAKER_03: eight bucks on the delivery cost. And it was the reason I did, it was faster. Like, I don't want somebody to drive around the corner with my stuff. It would take twice as long.

SPEAKER_453: Um, but that seemed, they seem to have some pretty great technology going on cloud kitchens. Yeah.

SPEAKER_504: They basically had to build it all themselves from the ground. So if you look at cloud kitchens is really just a, an umbrella, uh, it's just one business in an umbrella of a lot of other companies. Um, there's a company that owns the real estate. There's a company that owns a tablet that pipes into all the third party marketplaces. There's a company that owns these virtual brands with funny titles that sound like buzz feed, um, articles. There's another company that is cloud kitchens. And so it all kind of accrues back to the, the real estate and they're able to generate,

SPEAKER_505: you know, abnormal returns, uh, on the real estate because they buy them cheap and they're

SPEAKER_515: able to charge very high rents per square foot that are abnormal.

SPEAKER_24: If you're a chef and you're looking to open a business, you know, in a city, what does that cost compared to opening a delivery business in, I mean, for every one restaurant and storefront you would open as a restaurateur, how many cloud kitchens could you open in how many cities?

SPEAKER_585: I mean, yeah, five to one, 10 to one. I don't know. I'm taking a guess. Yeah.

SPEAKER_504: You could, I mean, so you, you need to spend about, uh, 50 to a hundred thousand dollars

SPEAKER_505: in, in upfront, uh, capex just on the kitchen equipment. And then you need, then you're gonna spend about, uh, the least is about, you know, maybe I need to, I haven't, I'm a little rusty on these numbers, but maybe some in the right range of around $6,000 plus they take, you know, something around 5% of your sales. Um, so all in, you're looking at, you know, 80, 90 K and if it costs you a hundred, you know, it costs you a million dollars to open up a store. Yeah.

SPEAKER_588: So it's, it's about five, five or 10% probably five, five, yeah, five cloud kitchens for every

SPEAKER_505: physical restaurant, but you can amortize the cost of that kitchen equipment.

SPEAKER_487: Yeah. And so you think about it, like if you are a restaurateur and you've got some amazing brand,

SPEAKER_03: man, and you could always open three brands. I mean, that's the other thing that's amazing about this. I, I heard you're talking, uh, on another podcast about the early days of Uber Eats. And I guess Jason, who was running it at the time said, they knew that, you know, from the data, Hey, there's no ramen. People keep searching for ramen. There's no ramen store or we're under, uh, we're under ramenized. They just said, Hey, you know, to three or four other kitchens or cloud kitchens, you might want to think about ramen and you might, you may hit a winner there. Um, so I think that's pretty extraordinary, no?

SPEAKER_504: Yeah, absolutely. And that's kind of where this is all going. I think the tech companies own the demand, right? DoorDash, Uber, Instacart, they have so much great data. Now they need to go, they go back to their retailers and say, Hey, we know that there's this demand at this hour of the day for this particular item, whether it's, you know, a late night burger or pizza, whatever it is. And they figure out if you have the right ingredients, you could go and, you know, satisfy this demand on this, on our marketplace.

SPEAKER_505: And it's bet. And it kind of works for the restaurant because it's incremental. It works for the marketplace because they get increase in, you know, GMV and, you know, and the customer gets to have some product at the last mile delivered in, you know, 15, 30 minutes that they wanted that that wasn't there before.

SPEAKER_537: Yeah. I mean, one example was Boba.

SPEAKER_24: Like you could be running any food service and you see Bobas trending in one neighborhood, but there's none in this neighborhood. Buying a boba machine is de minimis. You know, it just slaps the label on it. So now you're making, you know, uh, chicken fingers and, or chicken wings. And you just add Boba may add another Boba brand and it just sort of combines it there.

SPEAKER_57: Here's a question from Bob G. What innovation in both hardware and software in the future will have the most impact on food delivery? Great question. What hardware, let's start with hardware, what hardware, you know, software combination is going to have a big impact.

SPEAKER_505: On the hardware side, I think, you know, these automated make lines. So sweet green acquired a company called spice.

SPEAKER_504: There's another company called hyphen. Um, what you're going to start to see some, probably sometime next year is that a lot of the major QS, you know, fast casual brands, the, uh, Diggins and Chipotle's and sweet greens of the world experiment with, you know, some physical, you're still going to have somebody greet you in the store, but for the, for the off premise orders, which could be two thirds of their sales, they're going to have some sort of automated conveyor belt that comes down and you're going to have, you know, your bowl being just, you're going to have different hotel pans at these big pans where they store all the grains and the tomatoes and the lettuce,

SPEAKER_505: and it's just going to come down, dispense it neatly in a nice little radial pattern. And, you know, you won't even know that it was made by a robot.

SPEAKER_453: So this, uh, will take out the need for, you know, prep shafts or shafts or whatever, maybe

SPEAKER_57: they'll just be prep shafts. And the people who put the salads together, we're investors, of course, in cafe acts, which just reopened at SFO and is doing just amazing. Like they are outperforming the other coffee stores and they can be 24 hours a day, seven days a week and require one hour of intervention per day just to change out the milk and maybe, you know, do a couple of quick cleaning things. So the other one that I think is interesting. Um, so you have robotics to prepare the stuff.

SPEAKER_03: You have full robotic solutions, which is really only one cafe X. I don't think anybody else I've seen tea and frozen yogurt. It's a, everybody's tried a different full service. I eat some, my friend, David Freeberg was kind of starting or with that kind of process. And then he moved on to doing software. Um, there doesn't seem to be anybody who's figured out a full

SPEAKER_57: robotic kitchen yet, right? Like the hamburger one, I guess it was called momentum. I really was rooting

SPEAKER_24: for them or the pizza one. This does seem like we're close enough there, huh?

SPEAKER_505: I think you're going to have like, you know, it's going to free up a lot of the labor to focus

SPEAKER_504: on hospitality and there's still going to be probably prep that needs to be done. But as far as the make line, the actual production process of, you know, whatever you do, uh, from, from a scratch cooking perspective that, um, you know, a lot are the assembly lines of a burrito,

SPEAKER_505: those kinds of really mechanic things that someone's doing kind of almost that in a robotic like fashion to begin with are going to be automated. Um,

SPEAKER_05: Yeah, we just, there's one company doing a French fry automation for fast food restaurants,

SPEAKER_57: um, and, uh, Miso Robotics and I had them on the pod recently. And that seems to be pretty, I mean, they've only got like five or 10 of them. I think he said in operation, but I think you'll

SPEAKER_03: see like, if you can really define the, the, uh, work like French fries, you could have the French Fry station just operating and behind plexiglass and the, you know, people who are making the

SPEAKER_57: burgers could be keeping an eye on it. It's really interesting. And then you had, of course,

SPEAKER_24: Mr. Beast burger, uh, which was a lot of fanfare. He organized a bunch of restaurants to just be his cloud kitchens. So it's kind of like a reverse cloud kitchen. He said, Hey, if you can make burgers, you can be part of this. And then he used his brand. What do you think of these virtual

SPEAKER_03: dining concepts? Is that, uh, something that we'll see a trend on, or do you think that's just like a one-off experiment that didn't work or did work? I think this is just the beginning. I think, um,

SPEAKER_504: I'll call them host kitchen. So you have, you know, Chili's created this thing called it's just wings. And they were able to do that out of their exist, you know, existing stores. And so you're going to see a lot of like multinational brands are already getting into these secondary concepts. Um, and sometimes it's franchise stores, sometimes it's corporate owned stores. Um, but it can really

SPEAKER_505: be a boost to their bottom line. Um, and it is incremental because it's not like someone, um,

SPEAKER_504: if someone orders it on the delivery marketplace, um, you're happy to pay that commission because they weren't looking for, you know, Chili's they're looking, they're looking for wings and it just so happens to be fulfilled by Chili's. So, um, you know, there's a company, you know, order mark in LA that's, that's doing similar stuff with next bite. Um, they're getting celebrities in on it. I think

SPEAKER_505: that the celebrities will churn and burn, but I think the, the premise of, you know, restaurants are able to crank out, you know, multiple of what they were able to do in the off hours, um, to fill

SPEAKER_504: that underutilized capacity is here to stay, whether it's a celebrity brand or Jason's brand of

SPEAKER_505: nuggets or whatever it is you can dream up is anyone's guess. And that's kind of the fun of it.

SPEAKER_165: That's kind of interesting. This Denver based next bite I hadn't heard about, uh, but they did hot box by

SPEAKER_24: whiz Khalifa, uh, get it, uh, brisket burn ends with barbecue sauce, a turkey burger. Basically, I guess

SPEAKER_14: stuff to, um, eat when you're high, hot box, get it. Uh, of course. Yeah. Gene Simmons, uh, and Paul Stanley of kiss, uh, getting into it. They'll do anything. They sell their brand for anything. Um,

SPEAKER_24: but it is a really good idea. And what an interesting idea for Chili's and I guess they own that, uh, Maggiano, but you have this incredible footprint and you say, yeah, let's just start. Wings are easy. You can teach people how to make wings. People love wings. Wings are high margin. So at some point, like Starbucks is going to look at this and say, Hey, we have X number of Starbucks stores. We could have like a little thing in the back of the Starbucks store, or we could be come up with a Boba brand. And we don't even have to put Boba on the menu. We just have a Boba cloud kitchen, although they would, they have a strong brand. I think they do have kind of Boba

SPEAKER_03: s drinks now I saw. Um, but yeah, this, this will be a, a, a trend that stays. Yeah. Something new

SPEAKER_57: comes out trends and then everybody in the country can experience. It reminds me of the cronut. Remember the cronut came out in New York and everybody went lost their minds about it. And then people started in,

SPEAKER_03: on the west coast. I remember they made their own version of like donut croissants. They got sued or whatever, you know, you can't trademark a recipe, but you can trademark a name. But in the cronut,

SPEAKER_24: cronuts example, cronuts could have been deployed nationally within, I don't know, 30 days or

SPEAKER_57: something. Uh, you could just share the recipe and have a cloud kitchen open in every city. So that's what we're going to say. Exactly. What about robotic delivery? Is that going to happen? You think, you know, all these little R2D2 robots we see running around cities, it's been five years of this, you know, they get made fun of on, um, you know, Silicon Valley and whatever, but it does seem like, you know, if one of those gets in an accident or gets destroyed or gets run over, it's no big deal. It's like somebody who lost their burrito, nobody lost their life. Are those going to become

SPEAKER_504: a thing? Maybe if so, when? I, I, I wish I could tell you, Jason, I, I think it's going to be,

SPEAKER_505: you know, if you think about drone delivery, that's a huge headache because of the FAA regulations. Um, autonomous cars, very difficult as well, because you just have so many municipalities you have to go through and, and you're not going to be able to, you know, just, you know, force your way through here the way Uber used to. So it's just not going to work like that. It's going to have to involve the cities. Um, and so you're going to see pilots right now already, you know, KiwiBot on, you know, college campuses and, and I think it's going to work in like corporate campuses, educational, you know, like colleges, universities. Um, but as far as like, you know, connecting the

SPEAKER_504: whole us into a network of autonomous last mile delivery, it would probably be DoorDash's dream to have that, but you know, that could be decades away.

SPEAKER_453: The most interesting thing I saw as an investor, an angel investor, somebody pitched me on

SPEAKER_59: this, um, food delivery service on campuses where students would have a big backpack with,

SPEAKER_470: you know, 50 items in it, bubble gum, you know, whatever, mixers, whatever, and, you know, uh,

SPEAKER_03: beef jerky, and they could just run around the campus. Anybody who wanted something, meet me here, I'll bring it. Have you seen anything like that? Like, that would be like the five minute,

SPEAKER_504: getting down to a five minute. It's like a pocket watch guy in New York City, like, Hey kid, you want a Rolex?

SPEAKER_529: Exactly. Exactly. Uh, did you, do you remember that company? I was trying to figure out what the name of it was, uh, or had you ever heard about that one? No, but there's one at UCLA called Duffle

SPEAKER_504: that's doing, you know, basically the last, you know, the 10 minute, the 15 minute delivery on,

SPEAKER_24: on college campuses as a franchise. Ah, maybe it was jet pack. Yeah. Sugar, formerly jet pack. I'm looking at it right now on Republic. Um, interesting problem. There are countless moments when you just need something right away on every college campus. Students need certain product right away. I think they're talking about condoms during these moments. Stores are either too far or close. Yeah, that would describe it. Uh, or students just don't

SPEAKER_628: have the time or energy to travel. Uh, traditional delivery firms take too long, blah, yada, yada.

SPEAKER_504: Interesting. There's a cool one I, I covered recently that was out of Y common air called hash. And it's basically a standalone kind of, I think it's temperature controlled kind of vending machine that only, uh, door dash and Uber eats and delivery drivers can access. And you can create any kind of virtual store front and house that with a certain number of skews. And you can deliver, um, kind of in any area. You don't necessarily need a physical retail presence.

SPEAKER_527: Um, that's an interesting one. That's interesting. So they make the software,

SPEAKER_504: the vending machines, um, and the hardware. Ah, interesting. C A C H E.

SPEAKER_41: C H C A C H E. Like browser cat. Ah, cache. Cache. Ah, gotcha. That's interesting. There was another one, which I think was called bodega originally until they got changed for cultural appropriation,

SPEAKER_24: which was a, I would say that's an homage, but okay. Um, don't cancel me. I thought it was an homage. Um, that seemed to be a brilliant one. I don't know what they changed their name in their name to, but I had seen one of them and it was a beautiful, like credenza with glass doors. And you could see all of these different beautiful items. You use your app, the app unlocks it. You say what you want to order and it says, yeah, the Kit Kats are there and the battery pack is there and your lightning cables there. Just take one of each honor system. Yeah, you could clear the whole thing out, but it's got a camera in it. We know that you were the one who opened it. So we got your credit

SPEAKER_03: card. If you steal everything out of there, you're going to be in trouble. I'm going to charge you for it. Uh, bodega is now called stock. Well, that idea is going to work or not.

SPEAKER_505: That one, I think had a hard time because, um, you know, they were targeting a lot of offices and, and then, and it was like hard to replenish these things.

SPEAKER_504: Yeah. So I don't know. I think, I think the, the trend of like co-locating like ghost kitchens inside of apartment buildings that are like, you know, expensive rent. Um, it's like a, a captive market for, you know, a guy like Sam Nazarian has a company called C3, um, which I think SoftBank invested in and he's doing, you know, all sorts of concepts out of a single kitchen, crispy rice, umami burger, all that sort of thing. And that's coming, real estate developers are actually partnering with him, putting these kitchens in the

SPEAKER_505: ground floor retail. You could come and order it off the menu, or if you live in the building, you could get free pickup delivery. Um, same thing with office buildings.

SPEAKER_24: That's fascinating. So you basically, um, create like a little single kitchen that will get you crispy rice or whatever, but if you have, well, that's super efficient. So it's almost like having a room service at a hotel. And if you're in the building, wow, they can just run up with it. Amazing. The innovation here. Uh, well, listen, how can people find out more? You have a paid

SPEAKER_453: newsletter that if people are obsessed about this stuff, they can give you a hundred bucks a year

SPEAKER_504: or something. That's right. They can, they can pay up 20 bucks a month or $200 a year for now

SPEAKER_505: until the prices increase. People pay for that. Who's paying for it? Yes. You gotta, um, shout out to all my readers out there. The, um, you know, a lot of entrepreneurs in the space and investors and operators. Um, but yeah, it's just hungry.tv H N G R Y hungry with no U dot TV. And you can sign up for the free newsletter. If you want to get a taste of the digest or head over to the paid, um, subscription with hungry trends. All right, Matt, uh, Newberg of hungry.tv. Thanks for coming

SPEAKER_169: on the pod and sharing, uh, all of the great wisdom you've learned, uh, from studying the space and we'll

SPEAKER_506: have you on again soon. Amazing. Thanks so much, Jason. All right. Take care.