SPEAKER_00: maybe we got a little bit too generous in believing the pitch as an industry but not looking at performance and i think people were being funded on their pitches and the promise but not the performance and now it has gone exactly the other way everybody wants to know our performance as lps we want to know how many customers you have the churn rate so it's gotten very quickly to brass tacks and uh some might say it's an overreaction but i think you have to play

SPEAKER_03: the game on the field as we were talking about on all in about politics i've been really thinking about the game on the field and the game on the field right now is survive this week in startups

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SPEAKER_08: at investwithroots.com slash twist all right everybody it is a huge news week with me to read the news

SPEAKER_11: your favorite producer nick nick what's on the docket so today we're going to talk about uh two

SPEAKER_06: major ipos that are coming up instacart and klavio just files for ipo on friday um we're going to talk a little bit about the exit market for lps and how that might kind of be

SPEAKER_14: spurring these companies to go public and how um specifically venture capitalists need a win because shockingly there has not been a venture-backed tech ipo in a long time shockingly long time and then we'll talk a little bit about open ai and some lawsuits that are being filed by sarah silverman uh stephen king's piece in the atlantic and just uh we'll get jason's general thoughts on you know whether these large language models the special the super big general ones that open ai and others are

SPEAKER_15: building whether they are going to be a liability more than an asset in the future very interesting

SPEAKER_17: okay let's get started i mean these ipos are very important for the market these are not

SPEAKER_19: kava the mediterranean food company or shark ninja which went public those are both like five six billion dollar companies four five six billion dollar range and uh one makes electronics consumer electronics items like vacuums the other one makes really good hummus i understand um and so those are not major tech ipos but these two are very very important companies uh so tell us where we're at with

SPEAKER_05: those yeah so i think before we even get into them you know it's important to understand these are the

SPEAKER_14: first venture-backed tech companies to go public since the end of 2021 and according to cnbc the last venture-backed tech company to go public was hashing corp in december of 2021 there were no venture-backed tech ipos at all in 2022 now there are a few companies that did that did what's called the d-spac basically when the spac turns into the new company in 22 but yeah almost all of those

SPEAKER_06: went really poorly uh get around which is a peer-to-peer car sharing car sharing service was down 95 since it's d-spac last year they're trading 39 million dollar market cap rumble which you know the free speech right wing ish sort of youtube down 23 but still at a 2.1 billion dollar market cap so they've actually fared okay uh grove collaborative whose founder was on the podcast like three or four years ago uh which is a b corp for natural household and beauty products they're down 93 since their d-spac last year trading at 125 million dollar market cap uh and then dave which is a neobank for focused on uh cash advances for individuals uh and like short-term lending down 98 trading at an

SPEAKER_14: 81 million dollar market cap um right so we put those all together and yeah yeah i mean putting rumble

SPEAKER_11: aside um which is kind of a weird meme stockish kind of situation and they probably actually have some sort of a business because it's basically right wing youtube um and i think they have a decent amount of traffic um they're burning money but they're growing rumble yeah um get around i'm kind of surprised at because that is a much loved service and people literally buy cars like used cars to put them on get around because it's profitable so just like people might build up an inventory of three or four uh apartments and or home small homes to put on airbnb and make that into a business there's a get around business which is a smaller version of that buy a twenty thousand dollar toyota prius or a used model three tesla and put it in the network rent it and you can actually i think make a decent living but to be trading at a 39 million dollar market cap is crazy um you would think that somebody would buy it or they would go private and somebody would offer you know some amount of money for that um so yeah

SPEAKER_03: this is um it's pretty it's been pretty bleak out there for sure and i guess the question is are these companies different and the answer is yes instacart is qualitatively and quantitatively

SPEAKER_19: very different and we'll get into i think their run rate which their run rate is pretty spectacular

SPEAKER_06: yeah and john real quick if you just pull up this chart i think this is the best way to sort of show people how insanely dry it's been out there this is usvc exit value by quarter um and you can see it peaked in q2 exactly two years ago to this quarter or to last quarter rather um and it's down 98 percent

SPEAKER_14: over two years from q2 2021 to q2 2022 267.9 billion um to only 5.5 billion in q2 2023

SPEAKER_33: uh yeah which is why so there's a couple of things happening here um you also see the number

SPEAKER_36: of exits so on this chart on the left you have dollar amount on the right you have the number of

SPEAKER_11: exits the line is the number of exits and you can see the number of exits kind of at an all-time low for this five-year period or so uh since 2018 so that makes sense um there's no ipos uh and i i think this probably includes as exits things being purchased so uh the frequency is very low so now

SPEAKER_03: why is the frequency low uh all of a sudden well ipos aren't happening right the public markets don't want to buy shares in companies um and then the the other issue is if you're running one of these companies and your value's gotten crushed what's your motivation to go out in a down market right so i think part of this is people opting to not go public people opting to not sell their company because they don't want to sell it for a bargain basement price and so that's people who part of

SPEAKER_05: this is choice part of it is uh circumstance i think there's a third prong too which is like the

SPEAKER_14: regulatory environment right because lena khan is going after small acquisitions yeah so the regulatory

SPEAKER_11: environment would impact acquisitions but not ipos obviously so in fact the regulatory environment

SPEAKER_03: kind of pushes people more towards ipo and independent businesses so that is uh probably a minor factor here that'd be like you know distant third probably to one uh people don't want these companies going public but then you know the bankers are saying hey we can't find money to buy these shares and then two people not wanting to take a haircut and sell their company for pennies

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SPEAKER_06: can you give an update on the sort of lp market right now and how it's going to trickle down to founders i think it would be interesting for people to hear your sure you know i'm out there raising

SPEAKER_52: launch fund four meeting a bunch of lps the previous three funds we raised we raised them mostly from friends of mine high net worth individuals 10 million 11 million 44 million dollar size fund

SPEAKER_11: this time we're trying for 100 million and you know it's it's always a very humbling experience for an investor or somebody who's successful i've had some some amount of success in my career to go out and ask for money and i was on a hike i'm up in the mountains in the adirondacks and i was on a hike with another person and we were talking about fundraising and i said you know it's this is a really good practice being the manager of the fund and having to go ask for money because it reminds us of

SPEAKER_03: how hard it is to be an entrepreneur entrepreneurs have to do this every 18 months or 12 months they go out they try to raise money they try to convince people you get tons of nose and what's happening is

SPEAKER_00: you know if you look at uh this um problem of what percentage of your endowment your fund of funds etc is um in venture that got very high um public markets came down so people were over indexed in venture and then they maybe did too many venture funds so what we're hearing quite consistently from

SPEAKER_03: lps is not only are we not adding a new fund like yours we're taking the 12 funds we have to commit to and we're uh these four funds we're not going to continue with as is their right right like the venture fund doesn't perform they're not obligated to do the next one now they might tell the person uh you know as people have told me hey we're in it for multiple funds just like somebody might tell a startup hey we're in it for multiple rounds um but if the performance isn't there we're obviously not in from multiple rounds and so they are pairing their positions or they might be saying to people hey i said i would put 25 million in your next fund we're going to go to 10. um and so there's a lot of that going on what that means is less dollars to be deployed uh and that means less dollars for and less venture capitalists i think we're going to see a lot of people close up shop because it it will take a certain type of individual who fight through this many knows this many people saying we're basically um not doing commerce in the world we're hunkering down so the way startups hunkered down and got rid of employees and cut spend that's happening with lps not that they're getting rid of employees but they are saying we're going to deploy less capital in fewer funds maybe not add as many funds so large pools of capital belt tightening and austerity up and down the stack so you have to fight for every dollar and if you you might lose lps right so i'm in a very lucky position that i have a very

SPEAKER_00: public following between this podcast and and all in both getting 50 million listens a year you know that kind of reach allows me to reach a bunch of um investors and then i might have a higher

SPEAKER_37: top more people in the top of funnel and so i can get meetings and i was talking to one um lp they said they have six thousand people contact them and they're able to meet with you know a couple of hundred of these funds like say 200 of them 300 of them a year so you start 300 a year 50 weeks

SPEAKER_00: a year maybe you're working 45 but let's just use 50 that means you're you know are you meeting with you know i don't know five six five a fund manager a day basically but then you have to decide which one

SPEAKER_37: of them do you take a deep dive on so if they were meeting with 300 maybe they take a deep dive into

SPEAKER_36: 60 of them like one in five but that one in five so now you're down to 60 so basically one percent of

SPEAKER_37: people might get to the point or maybe it's even 30 go to a deep dive in other words they look at your data room and they decide they take a really deep look which would be due diligence in a certain maybe

SPEAKER_00: it's 50 basis points of the people who who apply to get funding so i'm very lucky that i kind of get into that pool in four to five cases i get the meeting but that doesn't mean i get the money so it's pretty hard out there and uh uh it's been great for me because it's made me sharp uh i really believe in our strategy i really believe in what we're doing i don't care what the number we wind up making is i just want to get back to work so november 1st is the hard date for me to stop raising and i'll just stop whether we're at 30 million or 100 million doesn't matter to me we'll just put that money to work get really great returns for investors fight like dogs to find great companies support the companies and then we'll just start the next fund but i think a lot of people are going to quit just like a lot of founders are quitting um this really is the kind of shake up that gets rid

SPEAKER_68: of you know um it trims the herd yeah if you think about it like a herd right like who do the lions

SPEAKER_37: take out do they take out the strong members of the herd that are at the front of the pack nope they

SPEAKER_03: just wait they pick off people at the end of the pack who are meek and weak and you know who are liable to give up so i feel like it's a test of everybody's will right now and so if you're a founder or a fund manager they're testing the market is testing your resolve how bloated do

SPEAKER_14: you think the venture capital industry got in 2020 2021 if at all well you know i i think there are a

SPEAKER_00: lot of great ideas out there that need to be funded and i almost feel like there's like a never ending pool of ideas that need to be solved so i don't think that we want for ideas that require great entrepreneurs to tackle them so then you look at oh the number of entrepreneurs now i do think we started to have people who maybe didn't have the grit or the resolve the passion the work ethic even the skills or just raw horsepower to take on those challenges so it's possible maybe we funded twice as many companies as we needed um or that were qualified let's say they just had the teams that had the horsepower to be the leaders of a company that doesn't mean those people are worthless and weak or something it just means they probably would have been would have been instead of ceo chief product officer and the vp of engineering at this startup they should have been the number two in each of those positions at another startup so that would roughly mean probably twice as many vcs backing twice as many companies the bottom half of which maybe we got a little bit too generous in believing the pitch as an industry but not looking at performance and i think people were being funded on their pitches and the promise but not the performance and now it has gone exactly the other way everybody wants to know our performance as lps we want to know how many customers you have the churn rate so it's gotten very quickly to breast tax and uh some some might say it's an

SPEAKER_03: overreaction but i think you have to play the game on the field as we were talking about on all in about politics i've been really thinking about the game on the field and the game on the field right

SPEAKER_11: now is survive or venture funds especially new ones like ours you know we're uh only like a 10 year old

SPEAKER_03: fund that's new we were on our fourth fund that's new you know under six or seven funds you're new so

SPEAKER_85: vc is a very long-term and prior to the third fund very long-term take management fees right

SPEAKER_68: no the first two funds were kind of like you know fisher price my first whatever piano my first yeah

SPEAKER_00: you know whatever those were like my first funds like let me see part-time if i want to be a vc

SPEAKER_03: more full-time and i really made that commitment between the second and the and the third one that this was going to be i don't say full-time commitment but this is going to be my life's

SPEAKER_00: work right it was going to be a big part of it and so the lps will aren't going anywhere and i think for venture capitalists it's a matter of proving to lps i'm not going anywhere i'm staying i'm going

SPEAKER_37: to be here you're going to have to deal with me so if you met me for fund four and you said no that's

SPEAKER_00: fine but you will get an email from me and you will see me for the next three years investing you will have to review and you're going to have to deal with me for fun five and six and seven and it's the same thing for startups hey instacart didn't go away other 15 minute deliveries went away so now the

SPEAKER_37: market has to deal with instacart and what did instacart do going back to our ipo stories they had to resolve to make the cuts to cut their valuation you know which was really hard multiple times they cut their valuation twice i believe this is hard work so i have a ton of respect they also switched out i think the ceo position if i remember correctly so this is a company that went through the war and now they're on the other side potentially and going public so what this means to me

SPEAKER_00: is that this um six quarter process of cleaning up the mess of the crazy party we had for five years where things got out of control and people broke a bunch of lambs and you know lit the couch on fire

SPEAKER_03: and things got a little crazy the party's over we cleaned it up and now the public markets i think they know if a company is going public right now that is a company of substance that is a company with real numbers and uh i think there's a good segue maybe to talk about the numbers behind these

SPEAKER_11: two yeah professional um try to try to be fresh and by the way for those of you looking i am in the

SPEAKER_03: adirondacks uh at a lake uh and a little corporate retreat with a couple of friends not corporate but people i've worked with before um and i went e-foiling so i'm trying to as i get myself fit fat jason could have never done this nick producer nick i got up on the e-foil woman said i was one of her fastest like students and i just took to it immediately this is an incredibly complex sport it's a surfboard and then beneath the water is a blade spinning really fast you have to balance on

SPEAKER_11: this board and it lifts out of the water nick oh so you know the thing you saw zuckerberg with the um

SPEAKER_03: yes yes flag yeah i don't think that was an e-foil i think it was the one where you pump up and down to get the momentum this one you have a handle like a little joystick like you're you know and you hit the blade but i'm now fit enough to take on a new sport i would have just quit probably when i

SPEAKER_105: was 40 pounds heavier so you know what i think your next step of fitness needs to be you can run

SPEAKER_06: this by your fitness coach to run up the flagpole salutes yeah uh but um i think you need to get prison strong that's your next thing i think yeah what that means is you need to get rid of the tonal i i am of the belief strong using things that come out of the wall you need to never do rubber plates you need to buy a bench press and a squat rack and buy a bunch of iron 45 and 25 plates stick those on plates plates prison strong that's it plates don't worry about tracking it don't worry about anything you got to go i'm go i'm going for it i'm going prison strong 2020 that's what i

SPEAKER_11: want to do on that journey with you do a little prison strong journey yeah i specifically have

SPEAKER_03: always kept my career very straight and down narrow never never cut corners because in prison it would go one of two ways for me i'd be running the place or i'd be dead in it in 48 hours so one of my good

SPEAKER_06: good friends is uh deploying to iraq shortly he's an apache helicopter pilot he actually was a

SPEAKER_114: yeah west point wrestler he's a total stud uh and he's like so excited because they that's what they call it on the base because all they have there is like squat racks yeah bars he's like it's you get

SPEAKER_115: prison strong on there you never you're never stronger than when you're on the base uh my friend

SPEAKER_11: was in one of the i wouldn't say exactly which one but one of the elite forces uh not navy seals but

SPEAKER_03: one of the other you know corollaries in the other military and he said i don't know what they're putting into our food but we get we get deployed and we work out and they're putting stuff in our food

SPEAKER_118: because we all got jacked right away it's the plates iron plates i'm telling special protein

SPEAKER_119: and other enzymes into the food source to make you listen if you're in the tech industry you know

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SPEAKER_00: use the promo code twist for 10 off all right let's speaking of getting strong and getting fit

SPEAKER_37: let's do the numbers here we'll get a double segue into the instant car sorry by the way shout out instacart i love instacart i use instacart uber eats and good eggs and i'll talk about how we use

SPEAKER_11: those different ones um and what's interesting when i think of the product but let's talk about the

SPEAKER_38: numbers all right so obviously instacart's business on demand grocery delivery everybody knows that

SPEAKER_14: founded in 2012 the founding ceo apurva meta was actually replaced by fiji simo in 2021 instacart was at its peak was valued at 39 billion dollars in 2021 last year it reset its valuation multiple times most recently to 13 billion dollars so a 66 percent haircut basically um its 2023 run

SPEAKER_06: rate is about 2.9 billion dollars which would be about a four and a half x multiple on its projected

SPEAKER_11: 20 23 revenue 2.9 billion dollars the question i have that's not the value of the food that was delivered that's the value of the fees they captured so it's very important just for people who are listening who are wondering how these things are valued that's not 2.9 billion dollars worth of

SPEAKER_03: milk and egg and cheese that's the fees that come off of that just like uber you know uh or uh airbnb you know they have a certain fee structure that comes off they don't get the whole night so let's

SPEAKER_06: keep going instacart's just for the numbers instacart's uh gross transaction volume which is

SPEAKER_38: the total value of the you know orders 29.4 billion dollars over its last 12 months yeah okay so that's

SPEAKER_11: very interesting the reason it's interesting is they delivered 29 billion dollars worth of groceries and they made a top line revenue of 2.9 billion off of it so about they're able to extract 10 percent

SPEAKER_03: of the value of deliveries they made yeah and just for us to keep our mental model these numbers are

SPEAKER_06: close but the gross transaction was its last 12 months the 2.9 billion is what it should make for

SPEAKER_14: 2023 so slightly different but but generally closer um oh i i wanted to run this by you so rich barton

SPEAKER_110: school of branding instacart unique word in the cart three syllables so that's no good no no no high price scrabble letters so that's no good either no but unique very generic word it's a generic brand

SPEAKER_64: it doesn't feel unique um yeah it doesn't feel unique when compared to uber yeah okay so let's get into

SPEAKER_06: some metrics uh instacart's last quarter which ended june 30th revenue 716 million of 15 year-over-year

SPEAKER_14: ad revenue and we're going to go deeper on this in a minute 206 million of advertising revenue up 20

SPEAKER_06: year-over-year net income profitable 119 million dollars they have 600 000 instacart shoppers which

SPEAKER_14: are obviously akin to dashers from doordash or uber drivers etc and uh sort of their top

SPEAKER_64: shoppers are the people who put your food in the bag they do the ice cream last and if you wanted

SPEAKER_03: coffee ice cream you know from haagen-dazs and they're out of that they will text you to swap so those are the shoppers and they get paid both for shopping and putting things in bags and for delivery

SPEAKER_06: yep and uh just their top line user metrics 7.7 monthly active orderers that's their like monthly active user metric that spend an average of 317 per month on the platform in 2022 instacart's average basket size so the average order size was about 110 which if you put those two numbers together on

SPEAKER_11: average users are yep about three times a month that tracks tracks perfectly i mean if you have kids whatever because i'll tell you what's happening there you probably shop one time a month yourself

SPEAKER_00: so that's what i see the pattern is you go shopping when you have time and you don't have time and mom or dad are busy or dad dad or mom or whatever combination you got are busy you hit the instacart or you forget something and so you're seeing that order size is actually like 110 if anything you said that's like replenishing that's not for a family of five or whatever full like when you have a family of five or something like that or four people living in a household you're earning three hundred dollars worth of groceries when you go to the store two three hundred so i think this is increasing the frequency um so you run out of milk whatever so i think people are probably yeah ordering more frequently be interesting to compare this type of shopping which i think is city shopping i think they're mostly in metros um not suburbs and they're kind of getting to the burbs so that that also probably is a factor

SPEAKER_03: you might have some single people in there you might have some couples in there you know two people

SPEAKER_06: and a dog no baby yet so this is instacart's advertising revenue scale up from 2019 to 2022 it's pretty amazing advertisers on instacart grew almost 6x from one that around a thousand to

SPEAKER_14: 5700 uh from 2019 to 2022 at the end of the year ad revenue grew 11 times from 67 million in 2019 to 740 million just three three years later last year and in 2023 instacart's on pace for more than 800 million dollars in ad revenue which is on pace to make up for the year which is on pace to make up about

SPEAKER_19: 28 percent of instacart's total revenue it's a little troubling to me because um you would think it

SPEAKER_00: might be 10 of their ad revenue or something of their overall revenue mix so this seems like a very high number which i think is because groceries are such a low margin business and people are hard to extract money from it because if you charge too much for the delivery for the fees

SPEAKER_03: people get in the car and they go shopping because people don't necessarily not like shopping yeah um so maybe this is the business maybe it's an advertising business ultimately well it sort of is so

SPEAKER_06: john if you go to that next graphic this is one of the red flags i wanted to bring up to you jason um which actually i heard alex wilhelm point out so i'll shout out to him on today's uh equity podcast is what he does this is instacart's gross transaction volume quarter over quarter it's relatively flat for the lat basically since covet started so you're right on yeah see i think what's happening is

SPEAKER_00: um the the the main business is not it's hard to make profitable just like some segments of uber's business might be hard to make profitable or even airbnb it's like it might be hard to be profitable for somebody sleeping on a couch kind of situation for under 100 a night and they make most of their profits from the two three four hundred a night stays or uber maybe doesn't make money on pool they make a little on x they make a lot on black cars yada yada um so this is a disturbing trend this would be a reason to not invest in the company which is they're they're not if they're not growing their base of users are not growing their product shipped and they're extracting more value out of people they're going to hit some optimization moment so how much more advertising they charge now i just want to talk about the advertising this is a revolution in advertising the question you really have to ask yourself nick is when advertising is moving to a new platform and you're seeing this you know advertising on amazon advertising on uber advertising on instacart okay where do those advertisers come from they they didn't suddenly procter and gamble or unilever they didn't suddenly decide you know what we need to spend more on advertising they're moving the advertising dollars they have a certain advertising budget they're moving it so where did it move from well it turns out um the end

SPEAKER_03: cap uh or you know the end of the aisle is called the end cap in supermarkets i think they've created a new end cap in um commerce which is when you're about to check out they upsell you so if you've used doordash or uber eats you're about to check out they take the three or four most ordered items on the menu and they give you one more shot you sure you don't want to add french fries sure you don't want to add a drink sure you don't want to add a dessert that's happening also you check out of uber eats or good egg i don't know if good eggs does it uber eats does it constantly and i think instagram does constantly okay you're checking out we noticed you didn't put the fage greek yogurt you love we noticed you didn't put this in and you didn't put ice cream you didn't put this sugary cereal in do you want to add it because you can just click add right here now those are advertising slots and then when you do the initial search or you open the app they'll have rewards and offers so

SPEAKER_00: i was ordering ice cream the other day on uber eats and i was like two for one ice cream what literally buy a pint of ice cream and get a pint free so i was like are there any brands in here i like they got me and i literally just ordered like eight pints of ice cream i ordered four i got four for free or whatever and it was a bit of a mess because it was kind of bait and switch they were sold out of the one i wanted so it's like it was i think they were kind of putting the weird flavors that maybe don't sell but anyway it was a great hook and so i think getting people at the point of sale whether it's amazon whether it's uber where the closer you get to that transaction and i think that also would signal maybe less broadcast advertising less radio advertising because radio and broadcast advertising okay i'm telling you about some ice cream or some beer

SPEAKER_03: okay but you're not purchasing right now so maybe you have to move some of those dollars so i think this

SPEAKER_18: will affect media yeah you made that point before about the closer you can get to the transaction the higher value the advertising will be yeah i mean and it's also quantifiable so you can go back

SPEAKER_00: and say to people listen the person took an uber we upsold them on in and out burger they clicked on in and out burger there was an in and out burger that they were passing in the uber or by their house or by their destination or the starbucks is by their destination they're getting out of the car to go to a meeting and there's a starbucks there and we told them where the starbucks is like that kind of stuff just did not you couldn't buy that in inventory just like you couldn't before google buy somebody typed in volvo you know 2010 used santa monica like that inventory did not exist before uh and so when you create that new uh highly valuable advertising that can be quantified you got a winner on your hands so there's an argument here maybe they'd lower the prices

SPEAKER_03: for instacart delivery and then just make it an advertising business and yeah i mean if you just

SPEAKER_06: look at their like last quarter's earnings right if you take out their ad revenue 206 million they made 119 million dollars in profit the ad revenue was 100 margin so that's really where that's

SPEAKER_14: their profit center right it's like 80 90 margin you have sales people right you have a little bit of

SPEAKER_00: accounting um you have to do some post-sale support but i would call it 80 90 margin business

SPEAKER_03: yes you get to keep 80 90 percent of every dollar you sell a great business yeah for a great business

SPEAKER_00: and you know there's costco right my understanding of costco is you pay a membership fee and they make the majority of their profits from the membership fee and then they just make the prices so low that

SPEAKER_03: people lose their minds and they just get there's some people who are just costco disciples right yeah

SPEAKER_171: uh so it's one of the most brilliant business models of all time costco it really is i think so i

SPEAKER_03: think amazon prime as well you know you buy prime membership and you know you get to have access to all this great inventory and they solve the shipping problem for you so maybe instacart ultimately

SPEAKER_00: becomes because there's a membership that we pay 10 or 20 bucks for and we pay for the uber one membership i don't think good eggs has a membership yet and those memberships give you a pretty steep discount on delivery costs and you get prioritized so i shout out uber one i think it's one of the great

SPEAKER_03: unknown subscriptions out there it's really up there with amazon prime now for me last question on

SPEAKER_06: instacart do you think post covid instacart starts to see a little bit of a tail off as people are okay

SPEAKER_31: with going back to the grocery store you think that's it i think you know the the biggest issue

SPEAKER_03: for them is um doordash and uber eats so um i'm close to both those companies and they both are already

SPEAKER_00: delivering you your dinner and picking you up in cars and i think those are the two major headwinds because if you um were going if your food's coming out of a cloud kitchen and that cloud kitchen has

SPEAKER_127: the 15-minute grocer like was it called joker was the one that we always talked about a couple years

SPEAKER_179: ago there was get get to get here joker uh yeah all these 15-minute deliveries gorillas yeah yeah all

SPEAKER_03: that belongs in a cloud kitchen so imagine you have a cloud kitchen like travis's company in diego there's 20 you know restaurants or maybe there's 50 restaurants you know in 20 restaurant areas in there well it doesn't take much to have you know a 7-eleven which they have in the network i believe cloud kitchen supports 7-eleven or something like that and doordish has 7-eleven so then you could have other brands there and it's quite possible eventually that somebody like procter and gamble will have like a png direct store where they just go into a cloud kitchen and procter and gamble's line of products are there and they disintermediate the grocery store yeah that was gopuff's business

SPEAKER_110: that is gopuff's business right they own the store they own all the inventory and then yes right but

SPEAKER_03: now imagine you're but they still have to buy procter and gamble's cereal they gotta buy cheerios they gotta buy irish spring saw you know soap they gotta buy edge gel now imagine you're the maker you're gillette you're png i don't know which brands own what and they start opening stores direct consumer now you've got really uh you know a straight path and that could lower costs and then the profits if you take out the supermarket's profits you could give that to the delivery and

SPEAKER_00: then you know everything becomes more efficient it's actually kind of probably arguably better for society in terms of traffic and in terms of real estate um in terms of time that you get your groceries delivered actually because if they're delivered there's a chance that two or three people

SPEAKER_03: will be along the stop um and then you don't have to have this giant warehouse that everybody goes into you don't have to have all these cashiers it just all happens seamlessly uh and you don't have to drive to the grocery store and back so it's net net net a benefit for society i think it's probably

SPEAKER_110: lowers the carbon footprint them yeah it's cool it takes the entrepreneurship from the retailer right you're not going to see a lot of mom and pop grocery small stores anymore but it takes

SPEAKER_06: the entrepreneurship from the retailer to to the brand side right you're seeing a million new

SPEAKER_16: different kinds of gummies and you know any kind of cpg thing you could think of yeah it's a cool

SPEAKER_11: it's a cool kind of shift that's happening yes if you were an entrepreneur in a hundred years ago you

SPEAKER_03: might start a grocery store or a deli now you start something that can be purchased in a deli or a

SPEAKER_193: grocery store and you have more product innovation hey everybody today i'm joined by root ceo dan

SPEAKER_122: dorfman dan welcome to the show thanks for having me jason tell everybody here in the audience what is roots and what makes it different than the other real estate investing platforms i'm a complete

SPEAKER_195: neophyte roots is a reet with a little twist sorry i had to do it we are the first real estate portfolio that we know of that builds wealth for both our investors and our residents and we've created a

SPEAKER_194: unique win-win model that creates partners and not tenants so you're telling me instead of putting

David Friedberg: down a two thousand dollar one month security deposit you get two thousand invested into the

SPEAKER_195: reet so you're day one an owner absolutely and so it kind of goes against um you know when we first started this two years ago i wasn't really looking to build a product out to be honest i was looking to find a product that i could offer my residents in my other portfolios that would help them get to home ownership or help them participate in this in this market and all i saw was you know rent to own and in theory those are great except for the fact that less than 10 percent of them actually convert into home ownership so you're kind of just putting a carrot out in front of your resident and you're not really actually impacting so we wanted to really develop a program and a model that said hey we believe in you you're a partner from day one help us take care of this thing and we can all win at the end

SPEAKER_122: head to invest with roots.com twist to sign up and start investing today that's invest with roots no spaces no dashes dot com twist to sign up today all right you want to move on yeah to klaviyo oh

SPEAKER_06: klaviyo is great yeah yeah so klaviyo marketing automation platform helps businesses reach customers

SPEAKER_14: via email sms push notifications and more then it collects all that data and puts it into like an easy to read dashboard it was founded in 2012 by two co-founders andrew bielecki and ed hallin the company so this is a great lesson for founders the company got profitable really early um they didn't raise any capital until its seed round in 2015 so they waited three years incredible they went on to raise 778 million dollars between 2015 and 2022 and kind of go for that hyperscale it was last valued at nine and a half billion dollars in a 2021 series d where they raised 320 million that would be about 15x it's projected 2023 revenue upcoming uh just for you know a little rich barton school of branding klaviyo is named after klavia which is the spanish word for a mountain spike and the idea is if you're going to climb a mountain you need the right tools to do it which i think is pretty cool uh under the rich barton school of branding unique word yes deeper meaning yes not two

SPEAKER_188: syllables s3 but they do have some meat v and k are pretty good yeah k is five point letter v and y

SPEAKER_11: are four point letters so decently decently yeah um yeah if you were doing e-commerce you kind of have

SPEAKER_00: to use klaviyo um it's for marketing automation uh so you know when brands um like i i don't know if nike is their customer but i got into nike for a little bit i really like the products and the nike app was really good and they had like a lot of different types of shoes so i started trying like getting into it and it was just really good like i would get these emails and marketing emails or sms's from nike and they were very fine tuned to me and i think they're using klaviyo as my guess um so they're studying what you've purchased what pages you've looked at and then they make custom emails programmatic emails they know if people unsubscribe you know they will upsell you on hey how often do you want to get these emails some people like to get a nike email every three days some people might want it every three weeks or three months so there's a lot of nuance and what people used to do was they would use a generic email provider to send you know a bulk email to 10

SPEAKER_03: million emails in the database and that makes no sense um you have probably a group of people who are on the website every week and browsing and they order 10 pairs of sneakers a year you're going to treat them very differently than somebody who comes you know twice a year and they buy sneakers on some pattern and they buy only running sneakers and you know they're replenishing and they buy the same model so when i was a marathon runner i bought the same sneakers you know i'd buy three pairs of them at once and then i would rotate them you know or two pairs wear one one day wear one the next and you

SPEAKER_06: know yeah it's like have you gotten that email where you look at something on a page and then three days later you know nike will email you and say hey that pair of sneakers you were looking at is now 20

SPEAKER_00: off and you're like oh yeah that's klaviyo and businesses yeah that's klaviyo yeah so they were like building those tools so that each e-commerce vendor doesn't and they get a pretty penny for it and i think it's like uh one of these win-win-win situations and that's if you're thinking entrepreneurship encourage people always to think about win-win-win um klaviyo wins because they make money selling the tool put that aside they wouldn't exist if they didn't but then the customer wins because they get a better experience and then the brand or whoever's using that tool they win because they don't have to build it themselves and then like squarespace or other tools as the prices they can keep investing in making the product better but keep the price the same and everybody just keeps winning more right

SPEAKER_03: and so uh klaviyo is going to be that's going to be like a hubspot or an atlassian both tool makers who help other people grow their businesses and they're more efficient um shout out to scott from

SPEAKER_110: atlassian dharmesh from um we have a little atlassian tie-in here coming up in a second too so just for

SPEAKER_14: the metrics klaviyo's last quarter um which again ended june 30th revenue 164.6 million up 51 percent year over year free cash flow of almost 40 million dollars 39 and a half net income 11 million

SPEAKER_06: basically cash position for 40 million dollars klaviyo is profitable and it's growing quickly

SPEAKER_11: also the founders i think have the highest ownership percentage 38 or something 39 i saw somebody had

SPEAKER_03: tweeted this um jason lemkin jason lemkin tweeted it he has a tracker on the shout out to jason lemkin um and so uh most founders wind up with 10 to 20 of their company and if there's two founders they split that five each ten percent each like larry and surrogate i think why not with about ten percent each of google here you know the the co-founders uh or the founders had 38 of the company i believe in the next one of the highest ones was obviously atlassian and then ryan from qualtrics also had

SPEAKER_14: a massive ownership position so this is why can you pull a graphic up please so this is from saster

SPEAKER_06: obviously jason lemkin's um platform yeah this is pretty shocking right klaviyo ceo and co-founder andrew

SPEAKER_14: bia lecky 38.1 of the company like jason just said but what i found even more amazing is so scott the founder of atlassian and scott's co-founder mike um if you look right underneath atlassian obviously is the second most in terms of most ownership for a single co-founder but look at the

SPEAKER_222: ownership between the two atlassian co-founders at ipo 37.7 for each that's almost 80 percent of the

SPEAKER_151: company it's crazy yeah 75 percent of the company yeah yeah it's amazing yeah it's extraordinary

SPEAKER_26: jason you want to talk about you also find here sorry is that founder one and founder two don't

SPEAKER_03: always have the same ownership percentage so there's most people think what atlassian did is you know typical um usually the person who comes up with the idea brings on the second co-founder see cloud fair there 16 and then the co-founder 5.6 um you know you bring on the co-founder you make them an offer um you know hey i'd like to be a co-founder you get this amount some people have it in their head that you know all three would get the same amount and you cloudflare is a good example the

SPEAKER_26: founder had 16 the second founder had five the third founder had one percent so it's not always

SPEAKER_14: as it seems you want to talk about the importance of founders sort of retaining ownership percentage early on if they can and how staying profitable kind of plays into that i mean it's so obvious that

SPEAKER_03: you know and this is why i've been very upset about some of these new accelerators asking for free equity that is not commensurate commensurate with the value they're providing if you want free equity 25 50 basis points maybe even a point as an advisor over two years for doing some predetermined amount of work and both people can cancel the arrangement at any time if they don't feel it's providing the right amount of value for either party um so your equity is valuable and so what i would just encourage every founder to do imagine you're a billion dollar company and when people ask you for one percent of your company you can say well that will be ten million dollars so in the case that we become a billion dollar company which we know is one in a hundred or one in five hundred whatever you think it is um you know the you can get kind of get an expected value for those shares uh which is if you look at it's a one in ten occurrence one in a hundred occurrence well it's one in a hundred it's like a hundred thousand dollars in expected value right uh so of you know a ten million dollars you know one one in a hundred chance of getting it so um i think that's a uh

SPEAKER_00: reasonable way to do it and yeah to the extent you can not blow money on stupid things and instead

SPEAKER_03: be frugal um then you will have a larger ownership percentage on exit which is super meaningful now that you do still want to have build a big pie so you know airbnb very big pie google uber these are very big pies so getting a smaller slice of uber or airbnb at you know 80 90 100 billion or you know a small slice of google or apple obviously tesla these are worth a lot more so you always want to concentrate on building the biggest company possible but part two of that is yeah you don't want to dilute the cap

SPEAKER_19: table because you suffer from it and farmers have common so if you build a big preference stack as we've talked about many times that can be problematic as well can i ask you what it is about the email

SPEAKER_06: sort of marketing platforms like mailchimp like klaviyo where they can grow profitable into multi

SPEAKER_16: multi-billion dollar businesses where the founders retain huge ownership percentages yeah um they don't

SPEAKER_26: take a lot of money to build so that's number one it's just software right there's no physical component in the real world you're not building spaceships or cars or dealing with the you know

SPEAKER_03: networks of real world stuff like airbnb and uber so they're very efficient uh so small number people can build them number two once a customer gets onto a platform you know we remain mailchimp customers

SPEAKER_00: even though i took a bunch of lists down for mailchimp because they were infrequently used mailing lists so they're free on substack or free on some other platforms so that is uh one of the reasons they work

SPEAKER_03: really well same with website builders if you're a squarespace customer and you're delighted by their product you might stay 10 20 years if you're a mailchimp customer i've been a mailchimp customer for over 10 years i still have like our high frequency stuff on there because i like the interface i like some of the tools same thing with klaviyo once you put it in or twilio once you lock it in send grid willio mailchimp once they're locked in to rip them out probably not worth it now you could negotiate your price and that does happen so the margins can come down a little bit and so there's pricing that can change and you can negotiate pretty hard i can tell you that with a lot of these products you can say hey listen we've got two quotes from these other ones but they also know on the other side nick oh you're gonna have to learn a new interface you're gonna have to move your data over so the portability is friction therefore if you got an offer from klaviyo's competitor or mailchimp's competitor or squarespace's competitor for 50 percent less but it may not be that big of a number so you might have like a hundred million dollar e-commerce business and it doesn't matter to you if you spend a hundred thousand or 150 right that doesn't it's such a minor portion of it would be like oh i have a new lawyer who's charging me 600 an hour but i have the lawyer i love and i trust for 800 an hour it's 25 seems like a huge amount until you realize like it's kind of nice to work with the same lawyer for 10 years you know and have that personal touch and you know the product and the switching cost is high so um yeah what i always advise people is you know pay for it and

SPEAKER_75: then yeah you can negotiate on the margins but if you're getting good value out of it switching can

SPEAKER_173: be very expensive all right last question on this before we move on to a final thing but um if instacar

SPEAKER_06: goes out around 13 and klaviyo goes out around nine and a half uh which do you like more at that price

SPEAKER_03: i would say klaviyo um i like more uh because i think that's a business that you know will not see as rabid competition has more lock-in has higher margins doesn't mean i don't like instacart i love it as a customer um but i do think that that product is not as differentiated as klaviyo like awesome instacart is slow uber is fast and like i've started using uber eats more often because i like fast i like picking what i want and getting it within the hour instacart you're picking a window it's it's not as instant as the name might have you believe so i prefer yeah uber eats and doordash you know like i like that more speedy thing and then i think you also have the 800 pound gorilla amazon yeah which you know owns whole foods and they haven't i don't know if you started getting same day delivery of some products uh certainly when you were near manhattan you did yeah and that's a very weird thing that's starting to happen they have new outlets in south san francisco that are servicing the peninsula so they've started to build these big warehouses and i think they know what the high frequency skews are in a geo and they're in that facility and they're going out anyway so to drop off your usb cable or you know whatever popular item your battery pack you know your anchor power back or whatever you know air pods or something um they're going to get

SPEAKER_158: you pretty fast yeah sorry do i look ridiculous in my uh blue blocker sorry everybody but my eyes are

SPEAKER_257: straining so i'll put them on for a second you look like you look like you're about to like

SPEAKER_259: have a sawzall on some wood yeah yeah yeah like a right angle drill i got a tree i got to fell the

SPEAKER_06: tree all right um so there are some writers notable ones that are suing open ai and stephen king one of

SPEAKER_14: jason's favorites wrote a little piece about artificial intelligence being his books being trained on ai in the atlantic so comedian and author sarah silverman sued chat gpt maker open ai and meta in separate lawsuits for copyright infringement last month uh because both platforms uh had their data sets trained on her 2010 memoir which is called the bedwetter um from the ap story here's a quote silverman's lawsuit says she never gave permission for open ai to ingest the digital version of her 2010 book to train its ai models and it was likely stolen from a shadow library of pirated works it says the memoir would was copied without consent without credit and without compensation um silverman and two other authors are obviously as i just said suing meta for copyright infringement um and the reason is because they're claiming that meta used a data set called books three to train llama which is their open source llm and books three allegedly contains a hundred and seventy thousand dollar books things worked by stephen king and others and some other notable authors have separately sued open ai including mona awad who's known for 13 ways of looking at a fat girl and bunny and paul tremblay who's known for a head full of ghosts the cabin at the end of the woods and survivor

SPEAKER_19: song so any thoughts on that generally jason yeah so i want to actually read from the um specific uh stephen king short piece um and do some analysis of his sort of take on it which i think is probably the great take that's why i put my glasses on we explained on the podcast that if you want to pirate books

SPEAKER_03: pretty easy to do screenplays also very easy to do people put them in google drives they make them public drives and shout out google drive great product but you can uh use it for that so if you if you just type in sarah silverman's not book or my book or the name of any book and you do site colon docs.google.com there is a strong chance you'll get the pdf and then there's something called a shadow

SPEAKER_00: library so there are hackers out there or freedom of speech people or just people with extra time on their hands who build websites that host these things and they get advertising from ad networks on those websites so they get free content i.e my book other people's books tim ferris's books whatever sim king's books and uh they kind of make advertising the good news is 99 out of 100 people in the western

SPEAKER_03: world are not going to steal your book they're going to buy it and if your book gets stolen and

SPEAKER_00: it actually trends on those things it's just a sign that there's a global audience for it who can't afford it right demand when your book gets it's demand right and it's flattering in some ways it's a bummer in other ways but you know somebody in singapore you know or manila or brazil might not be able to afford it or it might not be in their language yet whatever but because the web is open and because these uh lms language models crawled the web they inadvertently or quite by design got these and what will happen in discovery is somebody will have said in a slack room hey you know what we should do we should search every pdf on the web and put site colon google and get all those too because that'd be great training data so there's probably some rogue people at open ai and every other model and when discovery happens they're going to have a discussion and then they're going to get pulled into a deposition nick where 10 open ai developers are going to have conversations of hey um you know twitter times out when we get to the sixth or seventh page how do we you know um scrape twitter how do we scrape this and you know the use of the product is what matters so the argument against sarah silverman and these other folks is like is anybody using it in any way to harm sarah silverman

SPEAKER_03: so that's going to be their argument like it's probably no harm and we'll just take her out we build the next one we'll just take you out um and then when people ask hey what's sarah silverman's book about it will just say we don't know so there's the search engine aspect of it which sarah

SPEAKER_00: certainly wants to be in and then there's um does this is this infringing on people's ability to make a living with some new or some new product so it's not infringing on sarah silverman but maybe there is a new product sarah could have made based on her book certainly stephen king could create an ai where you pay stephen king 99 a year and you get to go in there and say make me another version of misery where it has this character and i wanted to do this and can you make me a short story in stephen king's genre that's about my life or about star wars and make me like a mash-up of something and that could actually be a product in the future it could be a really good

SPEAKER_03: product um like a stephen king ai that makes new stories every day and then people vote them up and

SPEAKER_36: down and they tweak them so maybe like the next job is like i could be a stephen king curator where i am such a stephen king fan and instead of writing fan fiction i work with the ai to massage it and

SPEAKER_00: prompt it to make interesting stephen king fan fictions you take some character out of misery and

SPEAKER_03: then you write the prequel or the post put them in or whatever the shining whatever yeah or there's

SPEAKER_00: a character in the the shining had a second version right with all the people who shined and so there's

SPEAKER_03: all these like i think interesting ideas and products that could come out of it um there was another uh person who did a really interesting product and this is where you can see like maybe there's going to be a little bit of overreach or we've got some things to work out so um there's uh this guy benji benji smith and he had a website called um rosecraft.io and uh he basically took it down um and it

SPEAKER_00: i think it forwards now to a um a post and he did this really interesting thing where as a writer he was trying to figure out well how many books how many words are there in a book and so he started putting that into a google sheet then he was trying to figure out which words are like exciting words adverbs verbs high energy words low energy words and he started analyzing books to become a better writer um because he had heard the story on mpr about how kurt vonnegut invented the idea about the shapes of stories and he gets into this in his blog post um and that they could kind of understand the emotional arcs in books and do sentiment analysis a fancy word for like the ups and downs in the book and he's you know this person started to build really interesting graphics and charts and stuff like that in order to do this you have to ingest the book i would say if this went to the mat that this person would win because he's not interfering with their ability to do commerce in the world um although he's using the whole book um he's just doing an analysis of it and i think it's fair use and he's not

SPEAKER_03: monetizing it anyway it's not like he was selling this as a subscription or a product or something to the best of my knowledge so uh as i've always said these fair use tests are a test and people are going to take it to the mat and i think publishers will have their content removed from opening eyes future crawls and i don't think it will matter i think they'll be able to build synthetic content uh to analyze or they'll be able to find enough open source content like open source books to do this um and then there could become a licensing fee where the book industry could just say you know what um any lll any language model that wants our corpus of books at harper's um can pay us and it's a yearly fee and we distribute it across equally across our writers and we take some percentage of it and we've got their permission and they can opt out of it and hey new business model new licensing fees just like for music whoever thought that like the rolling stones and bruce springsteen would be making more money

SPEAKER_26: from the commercial use like literally in commercials uh or marketing of their music or licensing loops of songs i think tiktok pays to license some loops of these songs and put them into

SPEAKER_06: you know stuff so the license i just signed a deal with i think umg uh where there will be some or no sorry youtube not spotify where there will be some sort of payout for songs used to train ai

SPEAKER_03: sure why not yeah so i think everybody's going to have to just sit around the table

SPEAKER_00: hash out how much value is being created and is it fair right so i could summarize i could read all of stephen king's book and write in stephen king's voice there's nothing he can do about it i could

SPEAKER_03: say like i'm the heir to steve just like there's a there's a band um that is kind of like a led zeppelin band i forgot the name of it but greta van fleet greta van fleet and like the guy's like uh they asked the led zeppelin guys like what do you think and they're like oh that's freaking great that somebody is like taking on the legacy and he's inspired by us and that just sends more people to us as the source material great everybody carry on um so it's uh it's going to be a negotiation and some people will feel very passionately about it and they will win and in some cases and i think some new business models emerge i encourage everybody to sit around the table and say how much value is being transferred what's a reasonable what's what's a reasonable number and and just talk about what's a reasonable number and i think that's where technologists could improve they like to just do and have no ramification for it i was technically able to do it therefore it's legal that's not actually how the world works all right you want to wrap all right thanks to producer nick for reading the news and we'll see you all next time on this week in service bye bye