Andrew Wilkinson: The Hardest And Easiest Businesses To Start

what are easy businesses that you've you started where you're like because for me milk road was a way easier business than any business i had ever started what what's been an easy business for you and where does does that where does the where does agencies rank on the easy to hard scale i'd say it's medium i mean the hardest let's just say the hardest possible businesses or brick and mortar or where you have to move physical goods and you have a lot of employees alright andrew wilkinson you're back what's going on not too much good to be here sean did you know that the sci hill one that we did we had sci hill bloom on the other day two things were interesting to me one people thought but we were making fun of them that we disliked him they thought i disliked him which is not true and two it was shockingly popular did you see that well that part's not that surprising the first part surprising i mean we were all making fun of each i thought thought it was a fairly even give and take but maybe not maybe it was a bit of a roast battle but you don't you only do that with people you like yeah exactly if you actually don't like somebody you don't just come out and start busting their balls it's not to be like to be fair the guy is like stupidly handsome i met him when i was in new york very very handsome guy so we got a shit on him yeah yeah heavy i sure part down the hands and guys do you want me the worst part is you wanna hate those guys but if they're nice it's almost worse he was very nice the the one thing that was really good is he's pretty prone to like taking a pretty like a cookie cutter response to things because he's like he's got like a good image he wants people to generally like him like he's you know he's on tv sometimes he's got his like book deals he's like doing things where you know public perception kinda matters whereas if you're just an entrepreneur who owns some business like you don't need everybody to like you but for his things you know it's good when people like it it's good for business he came on and he was like super honest super open about everything and was not giving us politician answers even though i do think he's a future president he wasn't doing that though so i thought you know mad props to him for for just being normal like like if we were normally hanging out that's how he was on the pot perfect what do you wanna start you wanna start with some post mortem stuff if you wanna what where do wanna go with this andrew andrew always sends us the best topics in advance where we could we could just pick it you like what's this word me mean and we could rip off that but andrew i bet you have a sense of what you think the most interesting topic is so let's not bury the lead what do you think is the most interesting topic that you have when i started my business i was like mister business builder like i'd say yes to absolutely everything i'd be in the shower and have the idea of like oh you know why doesn't this exist and then that day i would start it and i would just constantly be starting new businesses like every single month and i think it was really good because it was like throwing spaghetti against the wall right so it was like seeing what a a good business model is via pain so it was just constant pain and then also running an agency you get to see all these startups ups make mistakes and learn from them and i had this really painful experience of starting an agency getting really really lucky that my first business was actually prop because i think one of the things that happens is people start their first business and fail and then they just say i i don't like this entrepreneurship thing i'm out and so i was able to keep going and started another five to ten other businesses and almost all of them failed like it was incredibly incredibly painful and after that i kind of swore off starting businesses and i've only just come back to it over the last three years so i can talk a little bit about my experience in some of those businesses sam was texting me before and he's like will you start all these businesses you've like tweeted out all these businesses what actually happens to them so i was gonna go through a couple of those and by the way for the for the listener this is andrew wilkinson you you're on he's on the pot all the time owns this thing called tiny although are you guys do do wanna go by tiny capital now or just tiny just tiny i hate tiny capital yeah i i know you i know you hated it but everyone was like using it but it owns tiny which is i think one person called you online the warren buffett or berkshire hathaway of internet companies so you basically buy it in hold a bunch of internet companies that collectively are now doing hun a hundred north or hundreds of millions of dollars in revenue whatever the number is publicly how much did you pay and your friend to say that about you i actually it's really funny because there's been all these like on the cover of news week or whatever it'll be like the next warren buffett and sam bank freed was one of those people and so everyone's sharing all these covers from all these things so being called the next warren buffett is not good i and i'm i'm different from warren buffett but i've copied a lot of his ideas well like the the next steve jobs that was a was with holmes from there notes that was a another another one you didn't wanna get tagged with i think sham was calling himself the the and the new warren buffett or like the brown warren butter or something like that for he called himself that he called himself or i know if he call i don't i don't wanna put like the quote on it but he definitely ins it and he definitely said we're trying to build you know the next berkshire hathaway blah blah blah and so you know he he was given that or he named himself anyway my favorite thing about cha was that in his annual shareholder letters he would he would compare himself to berkshire hathaway so he would track social capital results versus berkshire and then one year he just stopped and i think it was the one year that if he didn't actually beat them i think i don't recall that might be unfair characterization but that's my recollection so where you go with this you wanna do the post mortem thing sure is that is that where you're going i don't know yeah let's do it we can go through a couple of those i think it's kind of interesting can you start with pixel union i think that's incredibly interesting yeah so was running metal lab and i was like an early tumble user and i met david carr just via tumble like he was he was the ceo of tumblr and he kind of knew all the early users and stuff and i ended up making a tumble theme that i wanted to use myself and he was like hey this is really really cool i would love it if you could create some more of these and we're gonna make a premium marketplace where other people can pay to buy tumble themes and so i'm kind of thinking like oh this is a favor for a friend and this is a really small platform i'm not thinking of it as a business but i end up going to a bunch of my designers and saying hey look you know over the weekend would you be able to whip up some themes and so i go to one of my interns like like literally a guy who is like my brother's friend who had like just finished like doing a i think a philosophy degree and i was like hey like turn this into whatever you you want and so we ended up calling at pixel union and it started doing like ten thousand dollars a month of revenue and it was my first taste of automatic revenue like i would go to sleep and i'd wake up in the morning and we would have sold you know five hundred bucks worth the worth of these tumble themes and shopify noticed what we were doing for tumblr and they said and at the time they were a tiny company they're were about fifteen people and they said hey can you guys also do the same thing for us and so we got into the theme world for shopify and tumble tumblr obviously died post yahoo acquisition and the business still exists today it's a really interesting story actually so we so i i started inc incubator the business didn't raise any the outside capital spun it out of metal lab became its own independent company we ended up selling it in twenty fourteen and then i stayed on the board i kept twenty percent of it and then a couple years ago i bought it back and then we ended up taking it public and that became we commerce what did you sell it for like ten or fifteen million dollars i think i i read about it publicly i sold it for seven million seven million dollars why would you sell that well at the time it was doing i think five hundred k of net profit and i didn't to be honest it was one of those things where i didn't know how good the business was and i hadn't read anything about investing yet and so i didn't know how to value a business and so it was a double edged sword because i sold this incredible business for you know a good amount of money it would allowed me to kind of have a sense of comfort and retirement and all that kind of stuff but doing so i suddenly had this pile of cash and i had to learn how to invest it and so i started reading about warren buffett and reading all the investing books and going oh my god i can't believe i just sold that incredible business you know it was growing at fifty percent a year and you know i thought it was great to get a fourteen x multiple but not when it's growing that fast so i regretted it and then what did you guys pay for it when you bought it back so we bought it back for twenty six million and then we did a bunch of acquisitions and then we took up public a two hundred and when you bought how big was it when you bought it back i think it was doing about four million dollars of annual profits so it grown a lot and we paid twenty six and then we bought four sixty and a couple other businesses and then we took it public at a two hundred and sixty million dollar valuation and when you you said i didn't know anything about investing and blah blah at that time i think today people look at you as somebody knows a lot about investing and they wanna be like you when it comes to investing or buying businesses what year was that when you said that state when you felt that way because i i'm guessing it wasn't like that long ago is that ten years is that twelve yeah it was eight years ago twenty seventeen fifteen so that's basically eight years so less than a decade going from i feel like i know nothing about any of this to you know i don't know what it you're know like in the top percentile you know in our in our industry and have had phenomenal success i think that's a sort of a a nice thing it's like if you were willing to put in a decade you can go from literally the bottom to the top and that's pretty cool yeah i think it was you know getting obsessed right i think that when you there's no better feeling than you know picking up a book about something and just desperately reading it like you can't stop going through it and i spend probably two full years just reading every single book i could get on i could get about value investing so yeah i think was intensive time you can do it and the nice thing is there's that great buffett quote where he says i'm a better businessman because i'm an investor and i'm a best better investor because i'm a businessman and chris and i we were natural investors within our own business we knew how to allocate capital within the business to drive growth and profits and margins and all that kind of stuff so when we became investors we were much better at it i think because we had the operational lens we could look at a business and say oh that's really hard or hey they're not doing these three easy things that we did at our company and i think so one of the big problems with investors these days is they're often what i call spreadsheet investors they look at a business like a spreadsheet and they go oh it's easy we'll just increase margin by twenty percent not realizing that in order to do that you have to convince a hundred people to change what let let back off that real quick so did sam did we talk about this warren buffett seized candy letter i know i had it on our list i don't know if we ever did it on the pod did we did we talk about this you it's been on your list you've never you've never did prod it up so andrew you're like a you know warren buffett ph so you you probably know this but maybe not i had never seen this before so there was a letter in nineteen seventy two that warren buffett wrote to the ceo of seized candy after they bought cs candies and have you read this before if not i just put it in the in the chat because it's kind of amazing i don't i wanna talk about it this was this is very surprising to me so put it in the chat here in riverside but okay so i think of warren buffett as this like kind of like what i see today there's this guy who's super smart really like you know likable storyteller he's an investor he's you know he's doesn't doesn't look like an operator he's like a geez right he's just sitting there and his and his at his table and he reads all day and you know he makes investment decisions he's he's a capital all but when you read this letter you realize like how detailed and in the weeds he was and how business savvy was so i actually wanna read out parts of this real quick so that you know people who aren't reading it can dude this is this is terribly i mean sorry this is incredibly well written he's he he's he's got such a good voice he goes deer chuck i was at brandy a couple days ago and have a few strong impressions to pass so he visited the store here's his here's his impressions he goes people are going to be affected not only by how our candy tastes but obviously what they hear about it from others as well as the retailing environment in which it appears this means like the class of the store the method of packaging the condition it appears the surrounding merchandise just like the new yorker creates a different and editorial environment for lord taylor ad than it does for village voice so do the surroundings of our candy affect the way that our potential customers mental and gas impression of our quality you know of course you know of course you of course know this better than i right so that that was the first piece which he's basically talking about like you know the the store environment you know like the way that apple you know sort of recreated the the retail store he's already thinking about this and sending this like more like an operational and almost like it's like a design note right he's not talking about margin he's not talking about like you know debt he's talking about the the the merchandising of the store and how it feels and how that's gonna affect how people taste taste stuff then he goes and he talks about let's see what's the next good bit so he's like number three yeah he goes at brandy our product suffers in comparative way against stove he goes they have extremely well organized well displayed attractive area put out featuring nothing but they're candy we've taken a number of our boxes put them on the counter with twenty five other offerings opera in cheap bulk candy and other run of the mill products and they you know so he's talking he's basic comparing this the store design and then if you go down he goes so he's talking about the merchandising for a while and then he goes he's like we may well wanna have a have descriptive material maybe own little booklet called the most famous kitchen in the world or something of that sort coo gets a lot of mileage out of the fact that all their beer comes from one brewery and i do think there's certain there's a certain my mistake attached to products from with a geographical uniqueness maybe grapes from a little part of italy or france are really the best in the world but i've always had a suspicion that ninety nine percent of it is just into telling about it and one percent is the drinking right so he's talking about like you know like sort of this marketing psychology about you know giving them like ideas for catch phrases and slogan this is way more active and sort of like the brain switched on in terms of operating that i had thought what is this is was a surprise for you too andrew or is this something you do about that's one of the things i found really inspiring about buffett is everybody like to be honest my impression was always like okay entrepreneurs are the people that do the work the investors or people that shuffle paper around on wall street and what i realized with buffett is that he actually was someone who yes he owned the businesses but he influenced the business massively and he made them grow and you know brought them together and did acquisitions there's so many ways where he built value right which you can't say about a lot of people like black rock doesn't build value they just index they own a bunch of pieces of paper warren and buffett actually grossed stuff what's fascinating though and i'd be curious to know whether he would still write a letter like this is chris and i had dinner with charlie mu a couple years ago and we asked him how involved do you get with the ceos and he really said i'll never this he goes i've never been able to change someone's mind if someone has us an idea about something they wanna do i've never been able to talk them out of it and so you know he said there's always opportunities within their businesses to tweak them and make changes and all that kind of stuff but it's just very hard to actually get ceos to do stuff ceos are not puppets they have their own brands and they wanna do their own things and you know two man with a hammer everything looks like a nail do you ever get bored just being an investor yeah barry that's why he starts all those businesses yeah exactly i so boring i that's why i it's so boring i told like it's like yeah it's like imagine if you know someone came along and was like hey look you don't have to work and you can have all this free time and just read all day and it sounds like a luxury when you're a stressed out entrepreneur but actually doing it in practice you have to find new things to fill your time with and you don't get your hands on the tools right so you don't get the sense so like for example you know we bought aero press and when we first bought it i helped drive the redesign of the website which you know i was proud of but i very quickly had to let go of it i knew i couldn't keep you know holding on to the business and so i you know we hired a ceo and i had to pass in the baton and let go and yes i get a sense of like pride to ownership but as the business progresses i don't feel the lifts i don't feel the gains can can we talk about that acquisition sure so the background here is aero press for like it's almost like a copy sn product i i owned it i loved it it was basically like a more convenient french press that you could travel with i i love owned i own a still own i i owned two of them i have one that i i have one that i travel with and i have one that just days in the cabin i use it every morning i love it but it was only sold i'm almost positive i would only see them in mom and pop coffee shops and maybe amazon i don't even know if they're on amazon but i like i the so the retail wasn't that great but like it was clearly like a good product one of those products that like consumers can buy for twenty bucks but even the coffee snaps are like this is the best way to do it and and you guys purchased it recently which it's not exactly an internet business but you're trying to make it a little bit more internet related but are you happy with this deal i know you guys paid it seems like a lot of money you paid a premium for it absolutely i mean i think when i look across all the businesses that we own and i think about what business could exist in fifty years there's a very very small number i mean most businesses die and i think that aero price is something that has potential lasting impact and can be around for decades and it was just an incredible unique business i mean when do you get the opportunity to buy a way of making coffee it's like how do you value buying k x right the word for the way of making coffee that's written on grinder and is a verb almost no i think it's sick man sean did you see he bought this yeah i'm not a coffee guy like i literally don't drink coffee so even though i had heard of the brand it didn't i didn't know enough about it or didn't sort of didn't have too much of a you know opinion on it because it's not my thing but i does remind me of like i was looking at sodas stream and i was like i really love this type of this category of product i think it's a fantastic category where it's a thing that get you another device that gets in that can get into every kitchen and has like this sort of consumable you know refill component to it so that's great and then if you become the d facto device like you said i think you just said like the verb basically like if you could become a verb just read this recently with someone who was like you know i learned twenty five years ago if something becomes a verb just invest and you know it's it's pretty true right google it will uber there you know like you you you you realize that these verbs tend to become like d factor facto winners of of of their category so i definitely definitely think it's a good idea i just don't drink coffee myself so only business that i own that people like when i tell people and you know you know if i'm in tech and you say oh yeah we own dr and they're a designer like they know who what that is they think it's cool they might like give me a little nod or something like that but if you tell like i'll talk to you know the carpenter working in my house and say oh yeah i own aero press and if they know what it is they are passionate about it and they're excited about it and that is very rare so it's a guy amazing business i remember reading about this in price economics the guy who created it he was like this i know now now he's quite quite old i think i think he's in his eighties and he was like an inventor he was like a wacky scientist inventor like stereotype guy where he also created like the frisbee or like what was the frisbee there obi you're do you remember those commercials or was like we could throw this frisbee to me over a football field or something like that and he created all this amazing stuff and he just had owned aero press that he created but it he wasn't like a business guy wasn't he just wasn't this kind of just sitting kind of just like on autopilot i wouldn't see say it was on autopilot he had a really great president who is running the business side but they were both older guys and they were really focused on the retail channel which you can see there's a reason why if you walk into ninety five percent of gourmet coffee shops anywhere in the world they sell aero press but when we looked at it just a very very small percentage of sales were online it just wasn't a focus for them so we came in and there's just a ton of best practices and sean it's funny you mentioned sodas stream we actually hired the president of sodas stream us who grew the business to two hundred million in the united states that's the new ceo of aero press so shit yeah i read about that person because i was researching soda and i was like damn this person was like you know they were they were i don't know the driver or the trigger of a lot of lot of growth that happened for sodas because so didn't sodas stream sail a couple times like it's owned by who pepsi now something like that i think it's owned by what is it oh my god i think it's it's an israeli company i don't know if they've sold they might have sold to j b holdings or someone like that i think they have so yeah no no it's sodas stream was acquired for three billion in twenty eighteen by pepsi man but maybe now it's owned by somebody else had don't out there there was some story like that where it had kind of like the chance i thought and i i was thinking that there should be like more competition for this like there's there's so many d brands and i feel like the d sodas stream competitor should win i i know there's a few of them out there but i'm surprised i don't hear about these more i'm surprised there's not a hundred million you know a d sodas stream competitor that's doing you know north of a hundred million in sales i feel like that's a like that should be a thing is very not d totally should we talk about some of the terrible businesses yes those are more fun so and then i've i wanna talk about a new business i'm starting actually because i've got yet another one with stomach glut for punishment okay so some of the early stuff that i did so i had the idea that cat i had cats and i was like okay all cat furniture is hideous like it just ruins your house it looks horrible and so i went out and i found a couple like kinda of mom and pop brands that we're doing this and i said hey i'm gonna start an online store for cat furniture called h j muse spent a whole bunch of money designing an e commerce website and i you know poured probably three hundred grand into it which at the time was a lot of money for me you know my whole business was maybe making eight hundred grand of profit a year and i just learned how brutal a business commerce was that you know i was basically e out these razor thin margins whereas in my agency or in pixel union i was making thirty to fifty percent eb margins i was making like two or three percent and the amount of work required to move physical goods around by inventory i realized that while on paper is profitable i was constantly taking my profits and putting them into buying more inventory and so i ended up shutting that business down and losing i think i lost all the money i put into it but it was a great lesson and in just hard businesses i didn't realize that different businesses were harder than others right like you kind of just when you when you you you're inexperienced in business you stumble into these things and i always go like got them so lucky i didn't start a restaurant as my primary first business right because it's so brutal right it teaches you so much but it would be so easy to tap out and just think you don't like entrepreneurship a restaurant was my first business so what and then he went into e com and now have eco come know the road less travel baby so so what what are easy businesses that you've you started where you're like because i for me milk road was a way easier business any business i had ever started what what's been an easy business for you and where does does that where does the where does agencies rank on the easy to hard scale i'd say it's medium i mean the hardest let's just say the hardest possible businesses are brick and mortar or where you have to move physical goods and you have a lot of employees so one of the hardest businesses i own is i own a bakery and deli in victoria bc where i live and i bought it because i'd my my brother had grown up working there it was a neighborhood place the owner wanted to sell and i've owned it for about five or six years and i mean they have to have about forty or fifty employees someone has to wake up a two in the morning and go into the basement of the bakery and baked croissants and the amount of coordination that has to go right where if a couple people are sick how messed up the business can be is just night and day compared to any internet business dude if the if the if the manager of that bakery bail are you gonna who's gonna go and find a new manager i have i have a restaurant group like a food and hospitality group so i have a guy who runs that now before i was me i mean they would text me and say andrew the deep fryer is broken i need an approval to buy a new one or whatever it is so i've put people in place between their in the medium camp of challenge i would say agencies so agencies are beautiful in that their asset light so really you you don't even need an office these days but you really just need an office and internet connection and a keyboard and you can hire generally the people as you need them and so you don't really need any investment they're they're scalable but they're hard in that you're constantly balancing supply and demand so meta lab for example if meta lab was to do all the work that came to it at any given time it could probably be five times bigger but in order for us to get five times bigger we would have to grow the company too fast and we would ruin the culture and so i would say that agencies are a little bit like a law firm or an accounting firm or or consulting firm where you've got this kind of flat linear growth that happens over time so i think they're great businesses but there's feast famine right and you really have to be prepared for a downturn and you need to be unfortunately ready to make radical changes in the business at the drop of a hat if your pipeline is not looking good and that kind of stuff so it's just very very difficult in that way of course every agency i owner i know wants to own a saas software company and every saas software company owner i want or or that i know wants to own like a consulting business or something that grows really fast so grass always greener the easiest business that i own is a company called we work remotely this is a job board that we bought from jason freed and david hana hansen at base camp they had started it and it was like the remote job board they had written a book about remote and they had great seo they ended up ranking number one from remote remote jobs and as you know remote work has taken off over the last five years and so we bought that business from them and it really was just kind of sitting idle and so with some very simple best practices and a very very small team we're able to build it into a very large business and what what about saas where would you put you know saas businesses that you've run well i've lost a lot of money doing saas i mean i think a lot of people know the story of flow the project management software that i built where i basically poured ten million dollars into it because i was competing with asana and didn't understand the dynamic of when you're competing against you know you're fighting an army that has unlimited budget it's like fiji fighting the united states right and i'm going like i'm gonna win this it's ridiculous and so i lost ten million dollars doing that and that was a great lesson but incredibly painful and i wish someone like me had tweeted and i could have read it instead of losing all that money how many agencies do you own right now or partially owned probably owned ten ten or twelve there was there was what's the guy's name who's the richest black guy in america robert smith i think the same yeah is it visa equity vista equity so basically vista equity is a pe firm that owns they're they're mainly saas and i think if i remember correctly the article said that they own two hundred million sorry was it a hundred billion i whatever it was it was it was north of a hundred billion of of saas revenue i think it was second only to salesforce in terms of their reach and he had this thing where he was saying look on our companies we're actually only seeing a twenty percent decrease from where we thought we would be this year meaning like only a twenty percent he's like we're growing at twenty percent a year we thought we were gonna grow at twenty five percent so we're seeing a small decrease in the growth that we expected therefore we actually are pretty bullish on the economy with your agencies since you mostly sell to big companies like slack and whoever else you sell to are you seeing a slowdown from american companies buying services yeah absolutely i think we're seeing softness over the next six months and things are definitely slowing down or if they're not slowing down people wanna achieve the same things but for less money and so there's these pressures you know like i said it's this supplier demand problem and you've got the labor market where people are demanding more and more pay and then you've got your clients crunching you down right so right now you know i think that it's unclear so the other problem is it's really hazy and so you get into these situations like when covid hit we had a brutal three months period where the pipeline dried up and then everything was fine it really depends on what the market sentiment is whereas if you own a saas business what are the odds that someone's gonna take especially a sticky one what are the odds they're gonna rip it out of their company and retrain everyone on that and plus they're only being reminded they pay for it once a year right it's i always think it's better to have ten thousand people paying you a small amount of money that a hundred people paying you a lot of money and what a what's famous original so i would say the theme for me is that i will often do the wrong business before i find the right business so for example i started a i i always i'm a designer and i always fetish the idea of having brick and mortar businesses i was so sick of doing all these internet things i wanted to thing in my own city and so i came up with this restaurant concept of like bar and pizzeria called famous original and me and some friends did it together and we basically learned the hard way that restaurants are brutal you know we were like super ego we're like oh we're great entrepreneurs we're gonna be able to nail it in restaurants and sean is i i've definitely heard you talk about your experiences here and not it along we just learned it was the most brutal business in the entire world and we're shocked by how much money we could lose and so we you know hired the wrong management we got the incentives wrong we overs spent on the build out to the point where we could never get our money back you know labor shortages we had slippage there was there's tons of issues but what i learned from that was what does a badly run garbage restaurant look like and then when the deli and bakery came up i was like oh oh this is a good one like this has been around for twenty five years stable earnings great general manager what type of run pizza you could screw a pizza place i would thought that'd have been one of the easier places to easier of the hard yep because like you don't need it's like pretty simple ingredients i i wouldn't have thought you were gonna ruin that one no we managed to do it our software is the worst have you heard of pub hubspot see most crm are a cobb together mess but hubspot is easy you to adopt and actually looks gorgeous sweet i think i love our new sierra our software is the best hubspot grow better you have a couple on this list you got things you did in the past you have things new businesses you're doing now but i'm curious do you have i guess like we haven't talked to you in a while have you have you had any ideas for businesses that you're not starting currently but you're like someone could do that or someone should do that or i wish someone is you know you capitalize on this opportunity or trend is there anything that that comes to mind for ideas that you're not currently acting on so i might have talked about this idea in the past but i've had this idea for a long time i like the idea of a service that allows you to get on one person's radar right so i choose let's say that i let's say i wanna sell my company in the next two years and i think the right buyer is this you know this x let's say hubspot right i wanna target da so everywhere da goes on the internet i want him to see stuff about my company and i want him to think we're huge there's i forget where the quote comes from but there's this idea that if someone sees you five times they think you're everywhere so if you're on five podcast podcasts they listen to they deem you a huge celebrity in this success or whatever it is right so i think i want that but hyper targeted and i think it's worth a lot of money so i would pay ten thousand dollars a month to be on da radar everywhere he goes and so i don't know how it gets done it's like a advertising sniper rifle essentially but i really like the idea of something like that so i have a story about this so my best friend his name is jack smith he sold his company called v for eight hundred million dollars right before the pandemic when he was like twenty nine years old the way that he started it was he was in england living in england as a college student and he had this idea and he wanted to go to a accelerator called what was it called sean do you remember angel pad is angel japan and the guy who run it run ran it was his named thomas and jack missed a deadline to join the incubator and so what he noticed on linkedin he goes let's advertise just to thomas and he said on linkedin the way it worked is you could advertise to like it said like only show this to people like a hundred people a day and he's like wow you can go to a hundred people a day what if i just moved it to like ten people a day and they allowed it in him to and it says alright only shows that ten people a day but make it so they have to work in san francisco and they have to work at angel pad and the ad said hi we're trying to reach thomas please tell us to contact us and he did that and it worked and they led him into the incubator in six or seven years later the company sold for eight hundred million dollars and we at the hustle wrote an article about this it went viral and linkedin changed how they did it you can't actually advertise they won't tell you how many people you're gonna reach per day or something like that totally something like that would be amazing or even just figuring out like okay what let's let's just do this so so i get da email and i run it through some sort of database and i go what email newsletters does he subscribe to or what podcast podcasts like how do you i don't know if it's possible but what is his information diet and then how do i appear in all those things that's crazy yes i think that would work wonderfully so there's a i i would love it if someone wanna start that business please email me because i think it's a great idea but yeah there's i mean again like i come up with tons of ideas but that one is stuck with me for three years so i feel like it's something good yeah what could go wrong just targeting somebody wherever they go everywhere they look what can go wrong here okay he's buying a billboard by his house so that's one what about its with other ones i know you got more let me let me talk about the new thing that we're doing so and this has been something that's been driving me crazy forever so do you guys know what investment bankers are yeah i know a lot of people call themselves that yeah right but a lot of people kinda go like oh that's like a stock broker or you know they work at a bank confused clear investment bankers are realtors for businesses they go and they represent you and they sell your business for you or they raise capital for you and i didn't really understand that world at all so like i like i said earlier i'd have only understood finance for eight years and i would say really only over the last two or three years have i actually tapped the world of finance like gotten proper banking credit learned how to sell businesses learned how to use investment bankers but i think those that stuff is not really accessible to founders and frankly they don't speak the language of investment bankers the investment bankers are the spreadsheet business people right they look at your business as a spreadsheet and they want something that's simple and easy to understand and frankly like i was kind of allergic to them because i didn't speak their language they come and talk to me and they would use terms like eb and you know gross margin and all these things i didn't really think about as a founder and so i have been looking for a firm for years that i can use to either sell small businesses and when i say small i mean like kind of one to five million dollars of eb or help founders do second or all these sorts of things or even just finance m and a and i'm yet to find someone everyone seems to specialize in larger businesses or they're too small and so last year chris and i met this young investment banker and he was just a normal person like we had him out for lunch and he was not wearing a suit and he was saying how miserable he was and how much he hated you know his his old job doing it and we we kept saying like look like you should quit your job and come work with us and we'll start a modern investment bank for founders really focused on bootstrap founders because they don't know how to access capital and so we we're starting this business called tens we started like a month ago what's ten and the idea is tens ts nor is the most famous she of all time so he helped edmund hillary climb mount everest and so basically the idea is you can go to him and say look what are all my options right i you know can i get credit from the bank can i raise debt to do m and a can i do a secondary can i sell my business and they can basically walk you through all of that stuff in a way that's aligned and not fee driven and more long term focus so we're basically starting our own little investment bank is that gonna work dude because if you are a if you're if you're a startup up ed and the if you use the word bank right now i hate you no it's not i mean it's not and not taking it any money i i mean i could just call it business we're starting a business realtor firm but the term is investment bank there's no banking we're not holding anyone's money there's no tokens i'm not going to argentina i mean seems seems very unique yeah yeah but yeah had some billions yeah i do you like billions dollars or not i think like i don't know if you guys have experienced this but like even here in canada so for like five years i wasn't aware of this but the government will actually pay thirty percent of your r and d when you're a small company and i just didn't know about that and so i literally lit a million dollars on fire i could have gotten a million dollars of these tax credits and i didn't right i could have used a credit line to buy ads for my saas business but i didn't know how to do that i could've have sold businesses that were working but i didn't really want that just kind of died like i let them die right so i think it's about like how do you get how do you get the most out of what you have and giving people tools to do that and it's just i wish this had existed when i was starting out yeah but i i totally agree you know most investment bankers don't work with startups because they're too small or the deals are too small or whatever so how are you gonna get it how do get how you gonna get the numbers to work because i don't think they're doing it because they discriminate i think they're doing it because the money's is not there for them so how do you make that work well it's not small businesses right i mean like we're really focused on bootstrap businesses because that's where we come from and these are companies that are doing you know two three million dollars maybe five hundred k of profit some of them are actually bigger so we've talked to founders that are like hey i've got like a you know ten million arr business i'm doing three million dollars of profit i was thinking i wanna sell thirty percent of my business and we kind of go okay well we have the network we've gone you know raised all these funds and met all the people in finance let's connect the dots between these people and be the financial translators what's i just linked you guys to the website it's tens dot c you can kinda see what we're doing what's been the biggest oh dude i thought you said you hated these graphics you have the graphics of like the people with like the funny arms and funny fingers if i remember correctly you tweeted it out if you see another page like this you're gonna kill yourself or something like that no no no it was the the like weird russian looking ones that dropbox was using for a while they were like so weird and depressing what what oh dude i know you i know these folks i've met rob before rob is in our world i don't that's funny you it's such a circle jerk world that we live in do you just like c you just collect people on twitter is what you do rob actually lives in victoria so i've known him for a long time he he runs outweigh the sock business that's right i just launched a custom they just launched a custom sock business you guys should get some m m socks made we did we're i've gotten them for this other thing but what what's been the biggest business that you've sold so far was it the fitness thing or the meal plan thing yeah yeah we bought a business called me lime and we sold it to albert you did you buy was i thought you started it no we bought it so there's a guy up in nana imo he's a developer and he started this business with two c cofounder and his two c cofounder founders after the first year didn't wanna be in the business anymore and so we they own seventy percent we came in we bought them out and mitch the founder was basically like look guys like i'm already growing this business i know exactly what i wanna do just leave me alone like we tried to write the warren buffett ladder and say like oh you should do this on growth or whatever and he basically just said leave me alone and so we said okay fine we'll leave you completely alone and a couple years later albert came and they bought it for tens of millions of dollars and it was a great deal for everyone and yeah it worked out really well do you think that in the future you're gonna sell anything are you just gonna keep on buying and keep on holding i mean do because like you don't wanna sell to you no i don't like selling i think that it's really hard to predict what's gonna end up being large and how large it can be and then also if you think about it like if you have a business and it's dying it's hard to predict how quickly it will die and how much profit will come out of it and usually when a business is dying you can't sell it for much right let's say the business is on a major down slope you might get like one times profit and so you're basically making a bet that it's gonna die before a year which very few businesses die that quickly and so usually it's better off just to hold forever i've found you know you will see like warren buffett sold off as newspapers i think that was partly because the redding was on the wall but also because it's like unions and a lot of complexity and they wanted to get out of that but no i mean i i don't ever wanna sell businesses that's some the only reason we sold me lime was because mitch wanted to sell the business he came to us and said i want this exit and we weren't gonna hold him back because he was the founder we we just did this thing on the t x saga and i know that you like have historically been don't know if you call yourself anti crypto but you're definitely not pro crypto and you're for sure not pro n t's and all that other bullshit of which i agree with you what what's been your take so far and watching all this drama i think it's really really bad for crypto i think that you know sam ban free is somebody who i certainly had thought oh maybe this is one of the good guys and i'd seen him do the podcast circuit and seemed like a smart eye and i think that when the number two you know if you think about these like banks it's like that's the equivalent of like jpmorgan going out of business just suddenly and ever losing their money so i think it probably has a lasting negative effect on crypto and trust and it's been fascinating in watching the price of crypto not react the way you would think where you know inflation you'd think would drive the price of bitcoin up it doesn't appear to have done that to be honest i'm not i was saying this to a friend of mine i think i've probably said it on the show before but if you came to me and you said hey i think british pound sterling i'm super bullish on them because x y z macro event was happening i would just say why are you currency trading you're a tech entrepreneur and i think that bitcoin is currency trading right like just buy great businesses do the thing you know and i think everyone is just speculating on this stuff and there's a ton of fascinating arguments for it and i follow it but i have just fully steered clear and i'm sure that we'll invest in a crypto business at some point but for now i'm just waiting for it to play out more one important reminder is if you if you missed amazon you had until twenty ten to invest in it there's a lot of time to wait and sit and watch to find these great businesses two things one that thing you just said reminds me of some of kevin van trump oldest this one he we go what you know you've been trading for twenty plus years you know one of the biggest lessons or something like that and i asked him some some stupid question like that and he goes well well you know there's no less blah blah then he goes one thing there's always a second chance on the train it goes even when it's a winner even it's a good thing you'll always get a second chance on the train and you know so so that sort of takes away a lot of the fo when you realize that that you know they're they're you do get the second opportunities you know it happened with amazon it happened it was facebook it happened with many many businesses where even if you weren't early and correct these things go up and now now the hard part is it's when they go down that you have the lease conviction so could be that's that right now is the right time you know now might be the second time to get on that train because prices are down but now is when people are the most scared on and the most hesitant to act on if you were hesitant before you're probably triple hesitant now and so i think that's the hard part for for to get to try to get back on the train when when there is a dip the second thing is we talked about red flags and fraud i think on the last time you're on here we talked about people who were lying or our partners who had screwed you with the f t thing did you hear of anything or or was there anything red flag that you had heard either along the way or once it started to come out that you're like oh that sounds pretty bad actually that's that was a bit of a tell now and either in hindsight no i mean i like you guys i i i just haven't fault i i guess i hadn't followed it super closely and i hadn't really spent a lot of time on that particular business i was quite shocked that he was known for risk management and he had been talking you know was very assertive about talking about the security of the balance sheet and it seems like there's a lot of loans going on between related party businesses where he's bailing out his own business and stuff so very sketchy what i find fascinating is is this a bad actor right is he a psycho path who's building a po scheme or is he just somebody who got ian over his head and used too much leverage and messed up and i i don't really have an assessment of that yet and to be honest i'm not following it super closely i'm kinda waiting to read the book i find like waiting for this stuff to all blow up and wait four months for like you know the atlantic or new yorker someone to write like an amazing piece on it is always more interesting than following the day to day my favorite twitter feed autism capital who's been covering this whole story has said that michael lewis the guy here at the big short has been like embedded with him for the past six months reading a book and that he's still involved and so i have a feeling where gonna we're gonna it was meant good it was meant to be like the blind side it was meant to be this like you know this like rag you know sort of like this is you know one blind side style story what's that you said it's supposed to be like the blind side yeah like a positive right big short it was basically like here's you know this thing that was you know destined to fail i think he was following him not thinking f is destined to fail but thinking you know these are the challenger you know and look at look at the crazy craziness that's going on but like not i don't think he was following him and i don't think spf led him in because michael lewis was thinking it's just a matter of time until this blows up and this will be the big fraud and the big scandal like just like the big short part two you know so so i think that that's the interesting like well here's your here's your surprise twist ending that you got here i will say there's just one guy jason c that wrote a twitter thread that is the best andrew if you wanna read the equivalent of the book or the the new yorker piece like i wouldn't wait for them because a the new york times put out a piece on on spf that was supposed to be the you know the sort of like the recap and it was like incredibly soft on him it was sort of just made him out to seem like a good guy and you know some oh some bad things happen to happen and this guy jason c wrote up this twitter thread that's very clear and it has all of the evidence in a timeline that we know so far and it is it's pretty compelling you should check that one out have you guys pulled it up have you guys ever come have you guys ever had contact with someone who's now famous fraud i've i've never i've like never met someone who like was a blatant liar about things that like kinda became well known i've told the story about the guy worked with the king of cole in indonesia who ended up in jail and and passed away in jail and but he he wasn't a fraud was he he was just a criminal i mean he did bet well like he he'd like like like tomorrow why like well no no no it's way different it's like someone you know who's like like do you do for living well i've i've fucking rob people versus like bernie mad who's like why i run a bank you know people who still tend to lie and and and you know so i think that yeah this guy was b people but it wasn't just let's say bribery you know there was obviously gonna be other things in an organism in an organization like that where you're if your primary agenda is to make as much money as possible as quickly as possible and you have great success doing it but you're not doing a ton of the value creation yourself you know there's there's often a you know both there's often both going on and you know i i was able to see a little bit of it what i what i saw mostly was just the sort of like the the fact that okay i guess that's the way you do business in these countries you kinda got grease the the the guy in the middle and that's how you get the thing you know the the sort of bribery corruption is very common in india and indonesia and a bunch of different places and so that part was known i it was a open secret but i'm you know not like if you're had if you'd ask me at that point in time is there anything else going on i wouldn't have been able to tell you anything specific but i would've have spent a lot of money that there was something else going on and it's part of the reason why i wanted to to leave eventually so so i am most of the fraud that i've met have always been small time so it'll be like i meet someone and i asked around about them and someone's like hey like you know they've gone through the city and got like ten thousand dollars from all these investors and like def fraud them but it's a small time enough that they get away with it charlie mu calls them the rats in the gran you can't really do anything about them because they're too small they're always gonna be there and if you you know you hammer them once they're just gonna come back in some other form i met a guy this is a bigger one so in in the canadian stock market there's tons of fraud and there's very little enforcement and often what you'll see is something will get hot so like you know oh vertical farming is hot so they'll find some you know guy with like five employees who's a vertical farming business and some investment banker in the public market will say hey let's dress this up because the next great thing and then what they do is they dump it to retail investors so they go to mom and pop and the investment banker calls them and says hey i've got this amazing deal we're gonna ipo it it's gonna pop whatever and they hand the candy out and often what ends up happening is you know as the trend goes so you know is marijuana stalks or fake meat or cubic farming or whatever it it is it pops and then it drops and what happens is the investment bankers often make a killing because they get paid in warrants and they get paid a percentage of the money they raise so if they raise a hundred million dollars they might get paid five million dollars plus warrants and if it pops maybe those warrants end up being worth ten million dollars and this is all legal this is totally legal and so it's basically legal stealing right so they go out they raise all the money from a bunch of you know grandma and doctors and normal people stock pops they sell and then it goes to zero and all the employees get laid off and the company goes bankrupt or it's kind of a shell of its former self and i met a guy at a party you know last last summer and he was bragging to me about this ipo that he had done and how much money he made and i started digging into it and it was literally a the equivalent of taking a corner store public this was like a two location business and he dressed it up to match a trend how much did they made from probably made i don't know i could probably do the math but it's i would argue probably five to five to twenty million dollars doing this and you know he's bragging about it and the stock is down i think to like ten cents or something right it's just it turned into nothing and so it's crazy because it's literally legal it's legal stealing right like everything he did is technically legal they do all the right documents when they take it public they disclose all the details they just write it in the right way it doesn't hurt his invitation because he's behind the scenes and like you know no one knows and lots of people flip the stock too right so many of his early investors probably just sold when it peaked out to oh you know what are called bag holders in in the industry and then those people lost all their money and so it's they hurt let's say ten thousand people in a very small way and so it's just not the sort of thing that gets a lot of attention from regulators so i find that kind of gross and crazy and there's a ton of that up here in canada so i tweeted this out let's see when was this this was basically last year february twenty twenty one and i said e esports investments are a joke there's so much no money in this space look at this billion dollar publicly traded company in canada and esports is another one of those like kind of hot industries that that you're talking about and the ticker is e g x so i showed this graph and i was basically like look at this thing training at eight dollars and fifty nine cents so i said you know it's basically it's a hold c of random assets it's got like a website for the sims they own a minority stake and the overwatch team of vancouver it's not necessarily a bad company but it's definitely not a billion dollar company and so it's like here's some of the things that they bought they bought lu the team the esports team they bought it for one point five million in cash seven million in the stock what's the company called again i wanna look it up i'll tell you a second because the the the prediction came true here's the spoiler so e g lx x is the ticker so it was eight dollars and fifty nine cents when i wrote this it is now trading at what eighty three cents point eight four oh my gosh so yeah what's the market cap so it's down ninety percent since i wrote this thing a hundred and twenty six million how does it even have a hundred and twenty six million worth a hundred guess smaller it's gonna go on another ninety percent from here it's my cat not to pick on these guys but just like there's a lot of this happening i met other people you know who who are doing the same thing and it seems to happen on these small exchanges in canada and stuff like that so they bought lu monopoly for a million million and a half in cash seven and a half million of stock they bought some agencies for thirteen million in stats cash some more stock and they started trading on the ts x and then they were up four four x in a year and it's basically an ad agency and then they own you know a couple niche websites and like you know if you add in all of the things that they bought you know they did thirty million in revenue with fifty million expenses you know they lost twenty million dollars this year and they called themselves a you know billion dollar company and so you know like i said people wanna invest in a rocket ship and this is a sparkle they have eight million dollars of cash left in the bank looks like they're gonna need to raise more money if they wanna keep this going and so you know i didn't even remember that till you just said the thing said i was like i think i saw some bullshit esports thing in canada and turn off this was it yeah there's endless numbers of these i mean it happens in the states too you guys saw nicola yep where you know even the name you're like okay tesla nicola tesla like you're just trying to grab onto this trend and they you know basically faked that they they had this what is it i forgot hydrogen powered electric semi truck and it turned out they were just rolling it down the hill and turning on the camera so it looked like it was driving on a flat surface complete fraud complete fraud like because i really when was like commercial yes i'll i'll link you guys to so there's this amazing guy named nate anderson he has a a short selling hedge fund called hi hindenburg research and he writes these amazing research reports where he takes down these companies and it's just facts right it's like all he does is just basic diligence and he'll find like oh like it turns out trevor milton the guy who is the ceo of nicola was accused of all these crimes and if you just do basic research on this guy obviously this guy's a fraud and he'll write these amazing research reports here i'll send you guys one no this guy his his stuff was good he's he's he i mean he's a short seller so obviously he's gonna be a hate but his stuff is usually well research and fun to read yeah i mean i think there's there's crappy short sellers who are gonna you know make stuff up or you know hint at stuff and then there's short sellers that are basically journalists that just share what's going on do you guys do you guys remember bird sean do remember bird in san francisco course scooter company okay so scooter company that i don't remember how much they raised but i i believe it was a two point five billion dollar evaluation and i bet they've raised north of four or five hundred i think i think they've raised over a billion dollars let me see they've they raised over a billion dollars yeah i they're they've raised more than it's currently worth and i think it's currently listen to this listen to this google what it's worth right now so they took it public at a three billion dollar valuation i think it's currently trading right now at seventy million dollars seventy okay they raised eight hundred eighty three million is that crazy this company is is is the market cap is seventy three i think million bucks with which company bird bird scooters do you guys we have to have at least of of scooters well how much secondary how much secondary to the founders seal too which i i don't can't blame them to be honest i don't blame it was so hot but still but but i don't know how much he took but i always like stick with like the best way to figure out you know how wealthy someone is is by looking at how expensive their home is because it's kind of hard to like get a fake mortgage that way and travis the guy who founded it if you google his name and like house you'll see like you know tech entrepreneur selling ten million dollar home in santa monica or tech entrepreneur buying twenty million dollar home in miami so he's but he bought he's i think he's bought two houses that are worth tens of millions of dollars so he's there's they're selling i've got a really quick thing if we have time yeah so do you guys remember i did this thing called a non binary term sheet a couple years ago yeah so you're you're i binary train before everyone else wanted to do exactly exactly so so i've always found i've always found venture really tricky right because someone will come to you and they'll say you know i am going to revolutionize x y z industry and i'm gonna create a billion dollar business and i always say okay well if you don't create the billion dollar business then i lose all my money right and to me that a it sucks for the founder because if they you know get a bunch of money at a valuation that's too high they can never make their investors happy and it sucks for the investor because it's binary either they lose all their money or or it goes and so when i was raising money for super cast a couple years ago i wanted to get what the market rate was for valuation but i also wanted it to be fair because for me i didn't wanna feel like shit if the business didn't pan out i knew that if the business didn't pan out to be a huge business it could actually be a good smaller business and so we raised at a ten million dollar valuation which at the time was kind of a good you know angel angel round valuation but it was structured so that within two years if the business doesn't do a million dollars of revenue that turns into a five million dollar valuation and so it ended up we we did close to a million dollars but we didn't hit it and so i crammed myself down by fifty percent to make it fair now i know a lot of founders wouldn't wanna do this because why would you do this you know other than to be a boy scout and you know have a sense of fairness if no one else is doing it and if feces expect this but i think it's a really interesting structure and we've been offering it to more and more founders as the environment changes where we say look we'll invest but it has to be structured so that if you don't deliver on what you say you're gonna do we can still get our money back what do you guys think about that i don't love it for two reasons one is what you just said which is like why would a founder do it like if i think about it from the founders perspective if i don't have to do that i'm not gonna i'm not gonna do that right like traditional venture would just be a better deal for me as a as a founder in that case and the other thing is i think it creates weird incentives like i like the concept behind it like i like the spirit of it but then i'm like okay who's gonna set these benchmarks and then what happens when the thousand different things can happen in business and like you you you said it yourself like we got close but we didn't get there and then there's like this crazy urge to like do something to nudge it over the top and now you're doing something that may not be long term you know right for the business and so you create some weird dynamics i wouldn't say it's worse dynamics than it currently exist it's just more like if i'm the founder i would rather i'd rather that and i also say i'd rather take the venture path where i'm getting a higher valuation and selling less of my business i would also say there is a sort of like we're going for it or we're not like you would if you're running a pro like my e commerce business we run to maximize eb like yes we wanna grow but it's like this thing needs to make profits every year whereas one of you did venture things it was like we don't think about that we think about you know how are we gonna grow users let alone revenue let forget about profits altogether and so there is like sort of like a there is a benefit in knowing which path which blueprint of business you're trying to build and then being able to go all in on a strategy that's aligned with that versus a strategy where you're hedging but you're like maybe we should yeah try to rough sure go ahead but andrew the my whole like i've see all these i think there's just like i've seen this like this thing called the like hustle fun and a few other funds and they're like we're trying to do things differently and my opinion on that is why like the game isn't broken the game works as it should the the the thing that's broken is people who are joining and playing the game and they maybe shouldn't be playing the game but it works perfectly fine like we are getting our example sam of where that's not true there's necessarily there are certain businesses that are good businesses but they're not good venture businesses and then they have they have a lack of access to capital so i forgot the guy's name i feel bad now he's kind of like kinda like an d vc thing they're doing they create a color is it tyler that what's it called the the seal agreement or this something like that they have like some new type of doc that's like the nine bot not non binary term sheets that's not but that's not vc right i mean you'd would that's almost like pe that's a different category but i guess what i'm saying is it's a funding it's a funding option it's a it's an alternative funding option for a technology business right you can right what saying it's alternative to vc what i'm saying is venture capital as we know it i think it works perfectly fine like it's the the way it's supposed to work is some get it most don't the and the some that do get it most fail and very few becomes huge life changing things and the don't but don't you think like k so sean let's say that you got really bullish about your commerce concept and you'd raise ten million dollars like let's say like in the age of casper when commerce is super hot and d is crazy and the valuations are high and you go out and you raise ten million dollars and now you're stuck where you're going you know what i really want is to pivot this into a lifestyle business because that's what's logical for what you want and imagine if there's a structure where you didn't have to feel feel like a piece of shit because you can never get your investors money back right and what i've seen is the incentive creates this situation where the founder is sitting on a business that could make them happy and give them a great lifestyle but they have a gun to their head and so they continue down the venture path even when it's actually futile and won't work and they drive the business into the ground so it's worse for the employees it's worse for the founders it's worse for the investors as well because the investors just go to zero instead of at least making a reasonable return so and it is kind of like private equity but you gotta remember private equity doesn't take risk on what could be right private equity invest in what is they they will say your business does ten million dollars eb i'm gonna assume it's gonna be eleven twelve thirteen fourteen not venture which is your business does two hundred k revenue you're assuming you're gonna get to two and then twenty over the next three years right right so it's a different form of capital in my but he's in the problem like let's say i take that ten million and i take it where i sell let's just say ten percent of the company in that round and what you're saying is that in the event that things don't grow as fast two years now from now that ten percent becomes thirty percent for the same ten million dollars becomes whatever it just yeah numbers like that totally so but isn't the problem that they probably have burned the ten million along the way trying to get the thing to grow hiring people marketing whatever else they're gonna do and now they still need money now they have all these people so you're gonna have basically like a combination of things it's like we're gonna have to lay off a bunch of people probably as we shift strategies to more of the lifestyle type of business to be more profitable we're gonna ratchet up those investors we go from ten percent to thirty percent the ten million is gone so i still need money to run the thing most likely i need to maybe raise additional capital i'm gonna raise more money but on those lower terms dilute everybody it just becomes kind of like it's like it's a sad rainy day now or am i thinking about it almost my bad i think i just fundamentally have a problem with founders who raise money at a very very high valuation with the knowledge especially from people who are not vcs right so you know you've seen a lot of this there's lots of people in our world who have raised very like on businesses that you know we've looked at and would value at like maybe five or ten million dollars and they've gone on crowd funding platforms or something can you give an example tons of money but i say names no but there there's lots of people and there's i i'm not sing anyone out literally there's like ten or twenty examples i can think of and frankly it's like it's opportunistic i get it you know you wanna raise on great terms but i have a fundamental problem with taking money from someone when i know i can't give them a return or there's like a five percent chance and positioning it as you know you're investing in this super solid awesome thing that's gonna be huge or as cash flowing or whatever and you're basically just taking someone from it's like going to someone in real estate and selling them on your tech startup that we would all know as a bag of garbage but because they're in real estate they go oh this looks great yeah i actually i i agree with you a hundred percent and i i really really dislike that i tweeted something out that i wanna get you guys this reaction to so i tweeted something that kind of i don't know ruffle some feathers i guess so i go i a one lesson let me pull it up exactly so i like this i don't say it wrong but i don't understand how this ruffled feathers but go ahead i go this year i learned there is no quote smart money and since sequoia tiger tribe c two soft bank paradigm alameda f t they all made terrible financial decisions at huge size and yet most will get richer they play a rig game jam off made money off of a bunch of his shitty specs because he's the promoter and these funds manage billions of dollars and they'll make hundreds of millions and fees along the way as a reward even if they lose their investors money they don't invest they didn't it these aren't just companies that they invest in that start to under perform these are huge bets on fundamentally flawed assets it's crazy but the lesson for me remember to think for myself don't use the justification that the big name is investing as any sort of signal and remember that the smart money is just as dumb as me so i tweeted this out i didn't it really fast i probably should have worded it differently but a bunch of people from these firms didn't really like what i was saying i think did they dm you or comment dm they're come on the courage to comment and get into a a tip about this no way there there's no way they're gonna they're gonna take that chance you know what and i think the the i think part of it is i worded it poorly i think they thought i was saying these people who are supposed to be smart are dumb and evil and i think it's because i said like you know they play a rig game i stole that from chris taco who was a vc he goes venture capitals is a rig game you make money on the fees regardless of whether you get returns or not and then you get their carry the returns to down the seven to ten years later before you know before anyone figures out if you're any good at this or not but you know i think they people thought i was calling them dumb and evil and actually no i think they're very smart my point was actually that even the very smart people are doing some really dumb things because it's a really hard game and and i gotta remember to like you know not use their conviction in something to override my own either clueless or lack of conviction in something and be like yeah this is a good this is i guess it's a good idea these guys are doing it i guess i should put money and these guys are doing like the fo investing style you know i got burned on it i think this is one of the dirtiest things in our industry so you know if you're in private equity or you run a hedge fund you know if you're an idiot or a genius in months or years right when you're playing venture you can take ten to fifteen years to see what a fund really does and yeah there's markup ups and all this other stuff but at the end of the day to see realized gains takes a very very long time and so what you'll see is you know someone raises a hundred million and then five hundred million and then a billion and on a billion they're getting a two percent management fee so they're getting twenty million dollars a year and let's think about what are the costs to run a venture capital firm you've got someone as a custodian managing your fund you could if you wanted probably have three or four employees and a benchmark manages three billion plus with like twelve or fifteen people so these are not expensive businesses to operate and i think that they make money guaranteed every year and by the time that investors realize that over a ten year period they've under performed they've already made hundreds of millions of dollars it's just absurd for taking very limited risk themselves and they win no matter what and so i think this is something that will go away in the long term and i'm frankly shocked that when you raise a venture fund you don't have to say this is my budget i'm gonna hire three associates and my salary is this that's all i'm charging you in fees instead they get this thing where it's like you get twenty million dollars of fees and if you spend two million dollars a year on the office you make eighteen million dollars a year it's total hustle and this is why like our rolling fund and our private fund we don't cover we don't do any management fees whatsoever because i'm am allergic to this i find it really gross yeah that is crazy for two years of my fund i took zero management fees and then as i hired people that i added the fund but also my fund is so small that two percent management fee of my fund is two hundred thousand a year it's less than what i'm paying people to doing it i am i am taking a loss on my on the salaries you know with that management fee but two percent of a billion dollars every single year is two hundred million dollars over the life of that fund that you got as risk free reward which is insane and so and then you know the the other point was trying to make was that like there are times did you bet on something that's a business that's doing really well a really healthy business that hey you know it didn't achieve the maybe it didn't get as far as we thought it would so it was a two x instead of a twenty x or though something in the market dynamics change the competitor or regulation or the economy slowdown and then they slowed down and they they didn't end up you know achieving the dream that they had versus like the the investors are investment in if you're putting like like paradigm paradigm is the number one like you know crypto vc crypto focused vc and they put two hundred ninety million dollars into f t right three hundred million dollar bet and they came out the other day they go we are writing our investment down to zero we wanna assure you that this was a small portion of our overall funds and we had no idea what was going on like we didn't know about this you you think about it you're like first of all the fact that a three hundred million dollar bet is a small portion of your overall thing like that's true i'm not saying that that's not true because you have a three billion dollar or whatever fun but man when people when when an outsider reads that f t that paradigm puts three hundred million a into fda they assume a couple things is probably a good business and that paradigm the smartest guys in the room are probably doing diligence to say hey is this guy literally funneling customer money into his like his own trade hedge fund and like going and gambling with that money or not right like you would hoped that somebody's doing the diligence and so you know i i think that that's that's the and i'm not to pay on paradigm they i still think these guys are really smart it just sort of shows in general that the amount of diligence you would assume happens on large bet sizes like that is actually you know nowhere near what it what it could or probably should be and secondly like you have people like like come off when he was doing this back for metro mile right like you know we've named basically a couple businesses that all in pod i think these guys are super awesome i love the podcast they're super smart and successful that's there's no no doubt about that but you talked about bird you know david sacks was the lead investor i think it bird for like multiple rounds if i'm if i'm not mistaken and you know bird now is a seventy million dollar company but you know these guys cashed out at the ipo probably you know over a billion dollars and you know you know there you go you're done these guys were months ago laughing about and how they you know just received all the at the super low price they can't wait to dump it and and you know now they're you know port finger pointing and other people in crypto for doing the same we're doing the same thing but not acknowledging it or you know cha took free burke company metro mile public through spa and said buffet had geico i have metro mile a better business in all these ways and like i don't know less than a year later metro mile sells for a third of what it went public for you know it's to lemonade and so you you know you see stuff you think are these people lying no i don't think that they're lying it's just that investing in businesses is a really really hard game and even the smartest people in the room are making really dumb things really making really dumb decisions or dump bets and in some cases they have unfair advantages that you don't have so it was a reminder to myself and to many other people out there who don't have those unfair advantages that you cannot take their backing or their involvement in a project as a signal that this is a a winner or a good thing that's my rant when you just think about how much more powerful it would be if cha like i would have a lot of respect if he had said look you know we took metro mile public i thought it was my geico i put two hundred million dollars twenty percent of my net worth into this business and i lost it alongside of you or i invested my warrants into equity and i i'd locked it up and i held it for three years or something like that but no there's nothing like that there's no alignment and i think so often this comes down to alignment of incentives you know they're they're incentivized to do the bad thing what was the general sentiment of the dm sean i got you or like right like semantics will stuff first like we wait we weren't an f t do dude i'm talking about f t i'm talking about these other three shitty bets if you need me to name the names i'll i'll do it that you know this thing you invest that made zero sense you know blah blah so it's like some was we didn't make this mistake and then the other one is look this is just the nature of the game it's venture you should know this but you have a venture of fund like you know you're gonna have a bunch of zeros and i said i totally agree you know i i invest in seed you know startup up ideas that are you know summer routine a pitch deck a prototype or you know early stage product i know a lot of these aren't gonna to work out it's very different than i put fifty or a hundred or three hundred million dollars into a business that was fundamentally like you know fraudulent or was like doing something that was you know so of self dealing that's that's very very different than you know we bet on this technology and it turned out the costs weren't and in a custom work out or that traction wasn't it didn't grow as fast as we had hoped or whatever this there's different ways to lose in the same way i would say in our business like there's errors of action and errors of inaction if you're trying really hard if you make mistakes totally acceptable if your error is that you didn't think about it or you didn't do anything you forgot you just dropped the ball on it that's where i have trouble and then same thing in investing when you you can you can mis a business and think it was gonna grow faster or you know it it got sides by something else versus you'd you put something into you put money into something that you should have diligence and you did to me this is like yeah if a sixteen z on average delivers value right so as a portfolio they've created all this innovation they've invested all these great companies and yes there's gonna be some colossal mess ups where they're gonna lose a ton of money i think that's great what makes me sad is when you take the holistic result of an entire firm and you go wow over a ten year period they made tons of money and all their investors lost a bunch of money or all these businesses were were zeros that i think is the hard part and again this is a decades game right come off we won't know if cha has actually built value for another ten or twenty years and frankly like his it's all very like secret because i think a lot of his stuff is private so we really have no clue how much money he has how much money he made what's been successful what hasn't there's a bit of a smokes screen there and i you know i've talked to cha off before i think he's like a super nice charming smart guy and i like you i listen all in and i i like those guys and at the same time i go you know wow there's some there's some games yeah and again i'm not saying that they do a bad job or that they did anything bad i'm just saying the reminder to myself was just because this really smart person who you respect and is generally successful and has made money and probably will continue to make money is in something like you can't outsource your conviction like you can outsource a lot of shit mh you can't outsource your convictions so that was really what i trying to say i think i got a little too heated up and made it sound like they were dumb or evil but that really wasn't what i was trying to say was actually they are smart but even even though they're smart they're gonna make some colossal mistakes along the way they will probably end up fine but you gotta make sure that you know that you go in eyes wide open that smart person can do dumb things and it's not so simple but it's like a reality is we all do this we all take mental shortcuts oh these guys are in we're in if this if they say it's good it probably is good right and you have to do that to some extent you can't function i can't sit here and diligence every business on earth but you know you have to be you have to at the at the end of the day you have to the reminder was to myself make sure if i bet on anything and i wasn't an investor in f for example but like let's say i let's say i was or investor in crypto or you know promoted sam as a smart guy like you have to try to try to not lean on other big names as your source of conviction totally i i remember i read howard marks book so he's like a famous billionaire investor value investor and specializes in distressed debt and i read his book and i went wow this guy's amazing what a great investor and i realized there is ways to see what they were buying so you can find out what all your favorite investors buy in the stock market and so i went well i totally trust this guy i read his book it's incredible i'm gonna buy into this weird greek shipping company that he just bought you know fifty million dollars of equity in and so i put like a hundred grand into it and it goes out of business and what i didn't understand was two things one he has thousands of positions right or hundreds at least and for him it's just a a tiny little relationship that he's put down and two he's a distressed debt investor so he might buy the equity but he's buying mostly focused on the debt and expecting it to go out of business so i actually screwed myself by not understanding it and just blindly going along with it and i've made that same mistake you know hundreds of times