Andrew Wilkinson: The Hardest And Easiest Businesses To Start

What are easy businesses that you've, you started where you're like, 'cause I, for me, Milk Road was a way easier business than any business I had ever started. Um, what, what's been an easy business for you?

And where does this, 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.

All right, Andrew Wilkinson. You're back. What's going on?

Not too much. Good to be here.

Sean, did you know that the Sahil one that we did, we had Sahil Bloom on the other day. Two things were interesting to me. One, people thought when we were making fun of him 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's surprising. I mean, we were all making fun of each other. I thought, I 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.

That's not to be like— to be fair, the guy is like stupidly handsome. I met him, uh, when I was in New York. Very, very handsome guy. So we got to shit on him. Yeah, yeah. I mean, I can take down the handsome guys. You want— the worst part is You want to hate those guys, but if they're nice, it's almost worse.

He was very nice.

Yeah.

The one thing that was really good is he's pretty prone to like taking a pretty, like a cookie cutter response to things. Cause 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. So he's like doing things where, you know, public perception kind of 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 him. It's good for business. But 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, uh, for just being normal. Like, like if we were normally hanging out, that's how he was on the pod. It was perfect.

What do you want to start? You want to start with some postmortem stuff? You want to— where do you want to go with this?

Andrew, Andrew always sends us the best topics in advance where we could just pick and choose, like, what's this word mean? And we could riff 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, um, I was like Mr. 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 good business model is via pain. So it was just constant pain. And then also running an agency, you get to see all of these startups 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 profitable. Because I think one of the things that happens is people start their first business and fail, and then they just say, I don't like this entrepreneurship thing, I'm out. And so I was able to keep going and started another 5 to 10 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 3 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, well, you start all these businesses, you've like tweeted out all these businesses, what actually happens to them? So I was going to go through a couple of those.

And by the way, for the, for the listener, this is Andrew Wilkinson. You're on— he's on the pod all the time, owns this thing called Tiny. Although, are you guys— do you want to go by Tiny Capital now or just Tiny?

Just Tiny. I hate Tiny Capital.

Yeah, I know you. I know you hated it, but everyone was like using it. But owns Tiny, which is I think one person called you online the Warren Buffett or Berkshire Hathaway of internet companies. So you basically buy, uh, and hold a bunch of internet companies that collectively are now doing a hundred north or hundreds of millions of dollars in revenue, whatever the number is that you say publicly.

How much did you pay your friend to say that about you?

I actually, it's really funny because there's been all these, uh, uh, uh, like on the COVID of Newsweek or whatever, it'll be like the next Warren Buffett. And Sam Bankman-Fried 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. Uh, I, and I'm, I'm different from Warren Buffett, but I've copied a lot of his ideas.

Well, the next Steve Jobs, that was, uh, Elizabeth Holmes from Theranos. So that was, uh, another, another one you didn't want to get tagged with. I think Chamath was calling himself the, the, the new Warren Buffett or like the brown Warren Buffett or something like that.

He called himself that.

He called himself, uh, or I don't know if he called— I don't know. I don't want to put like the quote on it, but he definitely insinuated it. And he definitely said, we're trying to build, you know, the next Berkshire Hathaway, blah, blah, blah. And so, you know, he was given that, or he named himself that way.

My favorite thing about Chamath, um, was that in his annual shareholder letters, he would, uh, he would compare himself to Berkshire Hathaway. So he would track Social Capital's results versus Berkshire. Then one year he just stopped. I think it was the one year that he didn't actually beat them. I think. I don't recall. That might be unfair characterization, but that's my recollection.

So where are you going with this? Do you want to do the postmortem thing?

Sure.

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 Meta Lab. I, uh, was like an early Tumblr user and I met David Karp just via Tumblr. 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 Tumblr 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 going to make a premium marketplace where other people can pay to buy Tumblr 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 want. And so we ended up calling it Pixel Union and it started doing like $10,000 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, $500 worth of these Tumblr themes. And, uh, Shopify noticed what we were doing for Tumblr and they said, and at the time they were a tiny company, there were about 15 people. They said, "Hey, can you guys also do the same thing for us?" So we got into the theme world for Shopify and Tumblr. Tumblr obviously died post-Yahoo acquisition, and the business still exists today. It's a really interesting story actually. So I incubated the business, didn't raise any outside capital, spun it out of Meta Lab, became its own independent company, Um, we ended up selling it in 2014, and then I stayed on the board. I kept 20% of it. And then a couple years ago, I bought it back, and then we ended up taking it public, and that became WeCommerce.

What did you sell it for, like $10 or $15 million? I think I read about it publicly.

I sold it for $7 million.

$7 million. Why would you sell that?

And then what did you guys pay for it when you bought it back?

So we bought it back for $26 million, and then we did a bunch of acquisitions, and then we took it public at $200— What was it doing when you bought it back?

How big was it when you bought it back?

And when you, uh, you said, I didn't know anything about investing and blah, blah, blah at that time. I think today people look at you as somebody who knows a lot about investing and they want to be like you when it comes to investing or buying businesses. Um, what year was that when you said that statement, when you felt that way? Because I, I'm guessing it wasn't like that long ago. Is that 10 years? Is that 12?

It was 8 years ago, 2014.

So that's basically 8 years, 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 like in the top percentile, uh, you know, in our, in our industry and have had phenomenal success. I think that's just sort of a, a nice thing. It's like if you were willing to put in a decade, um, 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 Um, 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 spent probably 2 full years just reading every single book I could get on— I could get about value investing. Um, so yeah, I think with 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 3 easy things that we did at our company. And I think 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 20%, not realizing that in order to do that, you have to convince 100 people to change.

Um, what, uh, piggyback off that real quick. So have you, did Sam, did we talk about this Warren Buffett See's 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 just brought it up.

So Andrew, you're like a, you know, Warren Buffett PhD, so you, you probably know this, but maybe not. I had never seen this before. So there was a letter in 1972 that Warren Buffett wrote to the CEO of See's Candy after they had bought See's Candies. And, um, have you read this before? If not, I just put it in the, in the chat cuz it's kind of amazing. I don't, I wanna talk about it. This was, this was very surprising to me, so I put it in the chat here on Riverside. But, um, 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 a, you know, he's not— doesn't look like an operator. He's like a geezer, right? He's just sitting there at his, at his, at his table and he reads all day and, you know, he makes investment decisions. He's, he's a capital allocator. But when you read this letter, you realize like how detailed and in the weeds he was and how business savvy he was. So I actually want to 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 got, he's, he's got such a good voice.

He goes, dear Chuck, uh, I was at Brandy's a couple days ago and have a few strong impressions to pass along. So he visited the store and here's his, here's his impressions. He goes, um, 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 editorial environment for Lord Taylor ad than it does for Village Voice, so do the surroundings of our candy, uh, affect the way that our potential customers' mental and gastronomical 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 merchandising of the store and how it feels and how that's gonna affect how people taste the stuff. Then he goes and he talks about, let's see, what's the next good bit?

So he's like—

Number 3. Yeah. He goes, at Brandy's, our product suffers in comparative way against Stover's. He goes, They have extremely well-organized, well-displayed, attractive area put, uh, featuring nothing but their candy. Um, we've taken a number of our boxes, put them on the counter with 25 other offerings offering cheap bulk candy and other run-of-the-mill products. And they, you know, and so he's talking, he's like basically comparing this, the store design. And then if you go down, he goes, um, so he's talking about the merchandising for a while. And then he goes, um, he's like, we may well want to have a, have descriptive material, maybe our own little booklet. Called the most famous kitchen in the world or something of that sort. Coors 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 mystique attached to products from, with a geographical uniqueness. Maybe grapes from a little part of Italy or France, um, are really the best in the world. But I've always had a suspicion that 99% of it is just in the telling about it and 1% is in the drinking. Right? So he is talking about like, you know, like sort of this marketing psychology about, uh, you know, giving them like, ideas for catchphrases and slogans. This is way more active and sort of like the brain switched on in terms of operating than I had thought. Was this a surprise for you too, Andrew, or is this something you knew about?

That's one of the things I found really inspiring about Buffett is everybody— To be honest, my impression was always like, okay, entrepreneurs are the people that do the work. The investors are 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 businesses 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 BlackRock doesn't build value. They just index. They own a bunch of pieces of paper. Warren Buffett actually grows 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 Munger a couple of years ago, and we asked him, how involved do you get with the CEOs? And he really said, um, I'll never forget this. He goes, I've never been able to change someone's mind. If someone has an idea about something they want to do, um, 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 brains and they want to do their own things. And to man with a hammer, everything looks like a nail.

Do you ever get bored just being an investor?

Yeah, very.

That's why he starts all those businesses.

Yeah, exactly.

Dude, it's so boring. That's why I don't like doing it. It's so boring.

I totally— It's like, yeah, it's like imagine if 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's 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 for example, we bought Aeropress and when we first bought it, I helped drive the redesign of the website, which I was proud of, but I very quickly had to let go of it. I knew I couldn't keep holding onto the business. And so we hired a CEO and I had to pass him the baton and let go.. And yes, I get a sense of like pride of ownership, but as the business progresses, I don't feel the lifts. I don't feel the gains.

Can we talk about that acquisition? Sure. So the background here is AeroPress for like, it's almost like a coffee snob product. Uh, I, I owned it. I loved it. It was basically like a more convenient French press that you could travel with. I love it.

Sorry, owned? Owned or own?

I still own. I own two of them. I have one that I, I have one that I travel with and I have one that just stays 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 were on Amazon, but like, so the retail wasn't that great, but like, it was clearly like a good product. It's one of those products that like consumers can buy for $20. But even the coffee snobs are like, This is the best way to do it. 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 seemed 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 50 years, there's a very, very small number. I mean, most businesses die. And I think that AeroPress is something that has potential lasting impact and can be around for decades. And it was just an incredibly 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 Kleenex, right? The word for the way of making coffee that's written on grinders 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, uh, because it's not my thing. But it does remind me of, like, I was looking at SodaStream 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— another device that gets in— that can get into every kitchen. And has like this sort of consumable, refillable component to it. So that's great. And then if you become the de facto device, like you said, I think you just said like the verb, basically, like if you could become a verb. I just read this recently with someone who was like, you know, I learned 25 years ago, if something becomes a verb, just invest. And, you know, it's pretty true, right? Google it. Well, Uber there, you know, like you realize that these verbs tend to become like de facto winners of their category. And so I definitely think it's a good idea. I just don't drink coffee myself, so it's not for me.

It's the only business that I own that people, when I tell people, and if I'm in tech and you say, "Oh yeah, we own Dribbble," and they're a designer, they know what that is. They think it's cool. They might give me a little nod or something like that. But if you tell, I'll talk to the carpenter working in my house and say, oh yeah, I own AeroPress. 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 really amazing business.

I remember reading about this in Priceonomics. The guy who created it, he was like this, you know, now, now he's quite, quite old. I think, I think he's in his 80s 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?

Aerobie.

Aerobie. Do you remember those commercials? It was like we could throw this Frisbee over a football field or something like that. And he created all this amazing stuff and he just had owned AeroPress that he created. But he wasn't like a business guy, wasn't he? Just wasn't this kind of just sitting kind of just like on autopilot?

So, oh shit. Yeah, I read about that person because I was researching SodaStream and I was like, oh damn, this person was like, you know, they, they were, I don't know, the driver or the trigger of a lot of, a lot of growth that happened for SodaStream. Because so didn't SodaStream sell a couple times? Um, like it's owned by who, Pepsi now, something like that?

I think it's owned by, um, what is it, um, Oh my God. I think it's, it's an Israeli company. I don't know if they've sold, they might've sold to JAB Holdings or someone like that. I forget.

I think they have.

So yeah, no, no. It's a SodaStream was acquired for $3 billion in 2018 by Pepsi. Um, but maybe now it's owned by somebody else. I don't know. There was, there was some story like that where it had kind of like flipped hands, I thought. Um, and I, I was thinking that there should be like more competition for this. Like there's a, there's so many D2C brands and I feel like the D2C SodaStream competitor should win. 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 100 million, you know, a D2C SodaStream competitor that's doing, you know, north of 100 million in sales. I feel like that's a— like, that should be a thing because SodaStream is very not D2C.

Totally. Should we talk about some of the terrible businesses?

Yes.

Restaurant was my first business.

Um, so what— and then he went into e-com, and now I have e-com.

You know, the road less traveled, baby. Uh, so, so what, uh, what are easy businesses that you've, you started where you're like— because I— for me, Milk Road was a way easier business than any business I had ever started. Um, what, what's been an easy business for you?

And where does design— 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, 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 5 or 6 years. And I mean, they have to have about, 40 or 50 employees, someone has to wake up at 2 in the morning and go into the basement of the bakery and bake 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 manager of that bakery bails, who's going to go out and find a new manager?

What about SaaS? Where would you put SaaS businesses that you've run?

How many agencies do you own right now?

Um, or partially own? Probably own 10, 10 or 12.

There was, there was, what's the guy's name who's the richest Black guy in America? Robert Smith, I think his name is. Is it Vista Equity? Vista Equity. So basically Vista Equity is a PE firm that owns— they're mainly SaaS. And I think if I remember correctly, the article said that they own $200 million— sorry, was it $100 billion? Whatever it was, it was, it was north of $100 billion 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 20% decrease from where we thought we would be this year, meaning like only a 20%. He's like, we're growing at 20% a year. We thought we were going to grow at 25%. So we're seeing a small decrease in the growth that we expected. Therefore, we actually are pretty bullish on the economy. With your agency, since you mostly sell to big companies like Slack, Slack and whoever else you sell to, are you seeing a slowdown from American companies buying services?

And 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 always— I'm a designer and I always fetishized the idea of having brick-and-mortar businesses. I was so sick of doing all these internet things. I wanted to do something in my own city. And so I came up with this restaurant concept of like a 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 egotistical. We're like, oh, we're great entrepreneurs. We're going to be able to nail it in restaurants and Sean, as I, I've definitely heard you talk about your experiences here, uh, and nodded along. We just learned it was the most brutal business in the entire world. And we were shocked by how much money we could lose. And so we, you know, hired the wrong management. We got the incentives wrong. Uh, we overspent on the build-out to the point where we could never get our money back. Um, you know, labor shortages, we had slippage. There was, there was 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 25 years. Stable earnings, great general manager.

What type of food were you selling?

Uh, pizza.

You could screw up a pizza place. I would've thought that'd been one of the easier places to— easier of the hard.

Yeah.

Because like, you don't need— it's like pretty simple ingredients. I wouldn't have thought you were going to ruin that one.

No, we managed to do it.

Our software is the worst.

Have you heard of HubSpot?

See, most CRMs are a cobbled-together mess, but HubSpot is easy to adopt and actually looks gorgeous.

I think I love our new CRM.

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 little 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, gonna 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 have a story about this. So my best friend, his name is Jack Smith. He sold his company called Vungle for $800 million right before the pandemic when he was like 29 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 an accelerator called— what was it called, Sean?

Do you remember?

AngelPad.

AngelPad.

And the guy who ran it was named Thomas, and Jack missed the 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 100 people a day. And he's like, wow, you can go to 100 people a day. What if I just moved it to like 10 people a day? And they allowed him to. And it says, all right, only shows to 10 people a day, but make it so they have to work in San Francisco and they have to work at AngelPad. 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 let him into the incubator. And 6 or 7 years later, the company sold for $800 million. 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 going to 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 Dharmesh's email and I run it through some sort of database and I go, what email newsletters does he subscribe to? Or what podcast? 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.

I would love it. If someone wants to start that business, please email me because I think it's a great idea. But yeah, there's— I mean, again, I come up with tons of ideas, but that one has stuck with me for 3 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? Um, okay.

He's buying a billboard by his house.

So that's one. Uh, what about some 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 you guys know what investment bankers are?

Yeah.

I know a lot of people who call themselves that.

Yeah.

But a lot of people kind of go like, oh, that's like a stockbroker or, you know, they work at a bank. It's not 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. Um, so like I, like I said earlier, I have only understood finance for 8 years. And I would say really only over the last 2 or 3 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 would come and talk to me and they would use terms like EBITDA 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, um, that I can use to either sell small businesses. And when I say small, I mean like kind of $1 to $5 million of EBITDA, or help founders do secondaries or all these sorts of things, or even just finance M&A. And I'm yet to find someone. Everyone seems to specialize in larger businesses or they're too small.. And so, um, 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 were starting this business called Tenzing. We started like a month ago.

What's Tenzing?

And the idea is Tenzing Norgay is the most famous Sherpa of all time. So he helped Edmund Hillary climb Mount Everest. Um, and so basically the idea is, um, 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&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 focused. So we're basically starting our own little investment bank.

Is that going to work, dude? Because if you are— if you're, if you're a startup and you're in the— if you use the word bank right now, I hate you.

No, it's not. I mean, it's not.

They're not taking your money.

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. Uh, there's no tokens. I'm not going to Argentina.

I mean, yeah, it seems to be pretty lucrative.

Yeah.

Yeah. Tens of billions.

Yeah. Do you like billions of dollars or not?

I think like, I don't know if you guys have experienced this, but like even here in Canada, so Um, for like 5 years, I wasn't aware of this, but the government will actually pay 30% of your R&D when you're a small company. And I just didn't know about that. And so I literally lit $1 million on fire. I could have gotten $1 million 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. Um, I could 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? Um, and giving people tools to do that. And it's just, I wish this had existed when I was starting out.

Yeah, I totally agree. You know, most investment bankers don't work with startups, um, because they're too small or the deals are too small or whatever. So how are you going to get it to, how do you get, how are you going to get the numbers to work? Cause I don't think they're doing it. Because they discriminate. I think they're doing it because the money's not there for them. So how do you make that work?

Well, it's not small businesses, right? I mean, we are really focused on bootstrap businesses because that's where we come from. And these are companies that are doing $2, $3 million, maybe $500K of profit. Some of them are actually bigger. So we've talked to founders that are like, hey, I've got a $10 million ARR business. I'm doing $3 million of profit. I I was thinking I want to sell 30% of my business. And we kind of go, okay, well, we have the network. We've gone and raised all these funds and met all the people in finance. Let's connect the dots between these people and be the financial translators. I just linked you guys to the website. It's tenzing.co. Um, but you can kind of 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. Uh, if I remember correctly, you tweeted out, if you see another page like this, you're going to kill yourself or something like that.

No, no, no. It was the, um, the like weird Russian looking ones that Dropbox was using for a while. They were like so weird and depressing.

What, uh, 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. It's such a circle jerk world that we live in. Do you just like call— 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 runs, uh, Outway, the sock business. That's right. They just launched a custom— they just launched a custom sock business. You guys should get some MFM socks made.

We did. Or I've gotten them for this other thing. But what, uh, what's been the biggest business that you've sold so far? Was it the, uh, fitness thing or the meal plan thing?

Yeah, yeah, we bought a business called Mealime, um, and we sold it to Albertsons.

Did you buy that? I thought you started it.

No, we bought it. So, um, there's a guy, um, up in Nanaimo who's a developer and, um, he, uh, started this business with two co-founders and his two co-founders after the first year didn't want to be in the business anymore. And so we, they own 70%. 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 want to do. Just leave me alone. Like we tried to write the Warren Buffett letter 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, Albertsons 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 going to sell anything? Are you just going to keep on buying and keep on holding? I mean, do you— because you don't want to sell, do you?

No, I don't like selling. And I think that, um, it's really hard to predict what's going to end up being large and how large it can be. And then, um, 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 downslope. You might get like 1x profit. And so you're basically making a bet that it's going to 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, um, you know, you will see like Warren Buffett sold off his newspapers. I think that was partly because the writing was on the wall, but also because it's like unions and a lot of complexity and they wanted to get out of that. Um, but no, I mean, I, I don't ever want to sell businesses. And the only reason we sold MeLime was because Mitch wanted to sell the business. He came to us and said, I want this exit. And we weren't going to hold him back because he was the founder.

We, we just did this thing on the FTX saga. And I know that you like have historically been— I don't know if you call yourself anti-crypto, but you're definitely not pro-crypto and you're for sure not pro-NFTs and all that other bullshit, of which I agree with you. What's been your take so far on watching all this drama?

I think it's really, really bad for crypto. I think that Sam Bankman-Fried 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 he seemed like a smart guy. And I think that when the number two— If you think about these like banks, it's like that's the equivalent of JP Morgan going out of business just suddenly and everyone losing their money. So I think it probably has a lasting negative effect on crypto and trust. It's been fascinating watching the price of crypto not react the way you would think where inflation you'd think would drive the price of Bitcoin up. It doesn't appear to have done that. To be honest, 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 XYZ 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, um, 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 missed Amazon, you had until 2010 to invest in it. There's a lot of time to wait and sit and watch to find these great businesses.

And now either in hindsight No, I mean, I, like you guys, um, I, I, um, I just haven't followed— I guess I hadn't followed it super closely and I hadn't really spent a lot of time on that particular business. Um, 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 psychopath who's building a Ponzi scheme, or is he just somebody who got in over his head and used too much leverage and messed up? And I don't really have an assessment of that yet. And to be honest, I'm not following it super closely. I'm kind of waiting to read the book. I find like waiting for this stuff to all blow up and wait 4 months for like, you know, The Atlantic or New Yorker or 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 who wrote The Big Short, has been like embedded with him for the past 6 months writing a book and that he's still involved. And so I have a feeling we're going to— we're going to— it was meant to be something good.

It was meant to be like The Blind Side. It was meant to be this, like, you know, this, like, you know, sort of like this was, you know, one of the Blind Side style story. What's that?

You said it's supposed to be like The Blind Side?

Yeah, like a positive story. The Big Short was basically like, here's, you know, this thing that was, you know, destined to fail. I think he was following him not thinking FTX is destined to fail, but thinking, you know, these are the challengers, 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 SBF let 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 2. Um, you know, so, so I think that that's the interesting part. It's like, well, here's your, here's your surprise twist ending, uh, that you got here. I will say there's this one guy, Jason Choi, that wrote a Twitter thread that is the best. Andrew, if you want to 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 SBF 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 happened to happen. And this guy Jason Choi wrote out this Twitter thread that's very clear and 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 never— I've like never met someone who like was a blatant liar about things that like kind of became well known.

I've told the story about the guy worked with the King of Coal in Indonesia who ended up in jail and passed away in jail.

But he wasn't a fraud, was he? He was just a criminal. I mean, he did that like he, he like, like, like, well, no, no, no, it's way different. It's like, uh, uh, someone, you know, who's like, like, what do you do for a living? Well, I, I fucking rob people versus like Bernie Madoff who's like, well, I, I run a bank.

People who steal tend to lie. Um, and, and, you know, so I think that yeah, this guy was bribing people, but it wasn't just, let's say, bribery. You know, there was obviously going to be other things in an organization, 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, um, but you're not doing a ton of the value creation yourself, you know, there's, there's often a, um, 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 kind of got to grease the, the, the guy in the middle and that's how you get the thing. You know, the sort of bribery corruption is very common in India and Indonesia and a bunch of different places. And so that part was known. It was an open secret. But I'm, you know, it's not like if you had, if you asked 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 have bet a lot of money that there was something else going on. And part of the reason why I wanted to leave eventually.

How much did they make from it?

Probably made— I don't know. I could probably do the math, but it's, I would argue, probably $5 to $20 million doing this. And, you know, he's bragging about it and the stock is down, I think, to like $0.10 or something, right? It 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 reputation 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 the industry.. And then those people lost all their money. And so it's, they hurt, let's say, 10,000 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 2021. And I said, eSport investments are a joke. There's so much dumb money in the 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 EGLX. So I showed this graph and I was basically like, look at this thing, it's trading at $8.59. So I said, um, you know, it's basically, it's a holdco of random assets. It's got like a website for The Sims. They own a minority stake in the Overwatch team of Vancouver. Um, 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 Luminosity, the team, uh, the esports team. They bought it for $1.5 million in cash, $7 million in stock.

What's the company called again? I wanna look it up.

Uh, I'll tell you in a second cuz, uh, the, the prediction came true. Here's the spoiler. So, uh, EGLX is the ticker. So it was $8.59 when I wrote this. It is now trading at what? $0.83.

Point 84.

Oh my gosh. So yeah, what's the market cap? So it's down 90%, uh, since I wrote this thing. Um, $127 million.

$126 million. How does it even have $126 million?

It's not worth $100 million. Yes, spoiler, it's going to go down another 90% from here, is my guess. Not to pick on these guys, but just like there's a lot of this happening. I met other people, you know, who are doing the same thing, and it seems to happen on these small exchanges in Canada and stuff like that. So they bought Luminosity for $1.5 million in cash, $7.5 million in stock. They bought some agencies for $13 million in cash, some more stock, and they started trading on the TSX, and then they were up 4x in a year. And it's basically an ad agency, and then they own, you know, a couple niche websites. Um, and like, you know, if you add in all of the things that they bought, you know, they did $30 million in revenue with $50 million expenses. You know, they lost $20 million this year, and they call themselves a, um, you know, billion-dollar company. And so, you know, like I said, people want to invest in a rocket ship, and this is a sparkler. They have $8 million of cash left in the bank. It looks like they're going to need to raise more money if they want to keep this going. And so, uh, you know, I didn't even remember that until you just said this thing you said. I was like, I think I saw some bullshit eSport thing in Canada. And sure enough, this was it.

Yeah. There's endless numbers of these. I mean, it happens in the States too. You guys saw Nikola where, you know, even the name you're like, okay, Tesla, Nikola Tesla. Like you're just trying to grab onto this trend and they, you know, basically faked that they had this, um, uh, what is it? I forget, hydrogen-powered, um, electric semi-truck. And it turned out they were just rolling it down the hill and turning the camera. So it looked like it was driving on a flat surface. Um, complete fraud, complete fraud.

Like, is that really what they did with that commercial?

Yes. I'll, I'll link you guys to, um, so there's this amazing guy named Nate Anderson. Um, he has a short-selling, uh, hedge fund called 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 Nikola, 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, uh, I mean, he's a short seller, so obviously he's going to be a hater, but his stuff is usually well-researched and fun to read.

Yeah.

I mean, I think there's, there's crappy short sellers who are going to, 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, you remember Bird in San Francisco?

Scooter company.

Okay. So scooter company that I don't remember how much they raised, but I believe it was a $2.5 billion valuation and I bet they've raised North of $400 or $500.

I think they've raised over $1 billion. Let me see.

They've raised over $1 billion.

Yeah, they've raised more than it's currently worth. And I think it's currently—

$70. Okay. They raised $883. Million.

Is that crazy? This company is— is— is— the market cap is $73, I think, million bucks.

Wait, which company?

Bird.

Bird scooters.

Do you guys think they have to have at least 70 million of scooters? Well, and how much secondary— how much secondary did the founders take out too?

Which I— I don't—

I can't blame them, to be honest, because it was so hot. But still.

But I— 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 $10 million home in Santa Monica or tech entrepreneur buying $20 million home in Miami. So he's— he bought— he's— I think he's bought two houses that are worth tens of millions of dollars. So he's definitely—

there's something— 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 of years ago?

Yeah. So you're on that non-binary train before everyone else was.

I don't love it for two reasons. One is what you just said, which is like, why would a founder do it? Uh, like if I think about it from the founder's perspective, If I don't have to do that, I'm not going to do that, right? Like traditional venture would just be a better deal for me as a founder in that case. And then 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 going to set these benchmarks? And then what happens when the thousand different things can happen in business? And like you said it yourself, like we got close, but we didn't get there. Then there's this crazy urge to do something to nudge it over the top, but now you're doing something that may not be long-term right for the business. So you create some weird dynamics. I wouldn't say it's worse dynamics than currently exist. It's just more like, if I'm the founder, I would rather— I'd rather do that. 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 EBITDA. Like, yes, we want to grow it, but it's like, this thing needs to make profits every year. Whereas when we did venture things, it was like, we don't think about that. We think about, you know, how are we going to grow users, let alone revenue, let forget about profits altogether. And so there is like, sort of like a, there is a benefit and 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 try to have profits, but I'll try anything.

Sorry, go ahead.

But Andrew, the— my whole, like, I see all these— I think there's this, like, I've seen this, like, this thing called the, like, Hustle Fund 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, well, we are getting our desire.

An example, Sam, of where that's not true. No, that's necessarily, there are certain businesses that are good businesses, but they're not good venture businesses. Um, 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, it's kind of like an indie VC thing they're doing. They created Tyler. Is it Tyler? That was it called the SEAL agreement or something like that. They have like some new type of doc that's like the non-binary term sheet.

That's not— but that's not VC, right? I mean, you would consider that's almost like PE. That's a different category.

Yeah, but I guess what I'm saying is it's a funding— it's a funding option. It's an alternative funding option for a technology business, right? You could—

right. So I'm 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 way it's supposed to work is some get it, most don't. And the some that do get it, most fail and very few become huge life-changing things.

But isn't the problem like, let's say I take that $10 million and I take it where I sell, let's just say 10% of the company in that round. And what you're saying is that in the event that things don't grow as fast 2 years now from now, Um, that 10% becomes 30% for the same $10 million. It becomes whatever, just numbers like that. Totally. So, um, but isn't the problem that they probably burned the $10 million along the way trying to get the thing to grow? Um, hiring people, marketing, whatever else they're going to do. And now they still need money. Now they have all these people. So you're going to have basically like a combination of things. It's like, we're going to 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 who go from 10% to 30%. The $10 million is gone. So I still need money to run the thing. Most likely I need to maybe raise additional capital. So I'm going to 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 only the bad stuff?

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. So you've seen a lot of this. There's lots of people in our world who have raised very— on businesses that we've looked at and would value at maybe $5 or $10 million, and they've gone on crowdfunding platforms or something.

Can you give an example of one?

And raised tons of money. No, I won't say any names. No, but there's lots of people, and I'm not singling anyone out. Literally, there's like 10 or 20 examples I can think of. And frankly, it's opportunistic. I get it. You want to 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 5% chance, and positioning it as you're investing in this super solid, awesome thing that's going to be huge or is 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 is a bag of garbage. But because they're in real estate, they go, oh, this looks great.

Yeah, I actually, I agree with you 100%. And I really, really dislike that. I tweeted something out that I want to get you guys' reaction to. So I tweeted something that kind of, I don't know, ruffled some feathers, I guess. So I go, I go, one lesson, uh, let me pull it up exactly.

Yeah, I like this one. I don't say it wrong, but, um, I don't understand how this ruffled feathers, but go ahead.

I go, this year I learned there is no quote smart money. Andreessen, Sequoia, Chamath, Tiger, Tribe, Coatue, SoftBank, Paradigm, Alameda, FTX. They all made terrible financial decisions at huge size, and yet most will get richer. They play a rigged game. Uh, Chamath made money off of a bunch of his shitty SPACs because he's the promoter, and these funds manage billions of dollars, and they'll make hundreds of millions in fees along the way as a reward, even if they lose their investors' money. Um, they don't invest, uh, they didn't— these aren't just companies that they invest in that start to underperform. 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 and I did 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. Um, come on, the courage to comment and get into a tiff about this? No way. There's no way they're gonna, they're gonna take that chance. Um, 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, like you said, like, you know, they play a rigged game. I stole that from Chris Sacca, who was a VC. He goes, venture capital is a rigged game. You make money on the fees regardless of whether you get returns or not. And then you get the carry on the returns too, down the road, 7 to 10 years later, before, you know, before anyone figures out if you're any good at this or not. Um, 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, um, and I got to remember to like, you know, not use their conviction in something to override my own either cluelessness 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 in. These guys are doing the FOMO investing style. I got burned on it.

I think this is one of the dirtiest things in our industry. 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. When you're playing venture, it can take 10 to 15 years to see what a fund really does. Yeah, there's markups 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 $100 million and then $500 million and then $1 billion. And on $1 billion, they're getting a 2% management fee. So they're getting $20 million 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 3 or 4 employees. I know Benchmark manages $3 billion plus. With like 12 or 15 people. So these are not expensive businesses to operate. And I think that, um, they make money guaranteed every year. And by the time that investors realize that over a 10-year period they've underperformed, 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 going to hire 3 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 $20 million of fees, and if you spend $2 million a year on the office, you make $18 million 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 am allergic to this. I find it really gross.

Yeah, that is crazy.

2 years of my fund, I took zero management fees. And then as I hired people, then I added the fund. But also, my fund is so small that 2% management fee of my fund is $200,000 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, uh, you know, with that management fee. But 2% of a billion dollars every single year is $200 million over the life of that fund that you got as risk-free reward, which is insane. And so, and then, you know, the other point I was trying to make was that like, there are times when 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 2x instead of a 20x or something in the market dynamics changed, a competitor or regulation or the economy slowed down 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 invest in FTX. If you're putting like, like Paradigm— Paradigm is the number one, like, you know, crypto VC, crypto-focused VC— and they put $290 million into FTX, right? $300 million bet. Um, and they came out the other day, they go, we are writing our investment down to zero. Um, we want to 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. And you think about it, you're like, first of all, the fact that a $300 million 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 $3 billion or whatever fund. But man, when people— when, when an outsider reads that Paradigm puts $300 million into FTX, they assume a couple of things. FTX 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 trading hedge fund and like going and gambling with that money or not? Right. Like, you would hope that somebody is doing the diligence. And so, you know, I think that that's, that's not to pick on Paradigm. 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 could or probably should be.. And secondly, like you have people like, um, like Chamath when he was doing his SPAC for MetroMile, 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. Uh, they're super smart and successful. That's— there's no, no doubt about that. But you talked about Bird, you know, David Sachs was the lead investor, I think, at Bird for like multiple rounds, uh, if I, if I'm not mistaken. And, um, you know, Bird now is a $70 million 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 Solana and how they, you know, just received all the Solana at the super low price, they can't wait to dump it. And, and, you know, now they're, you know, finger pointing at other people in crypto for doing the same, that we're doing the same thing, but not acknowledging it. Or, you know, Chamath took Friedberg's company, Metromile Public, through a SPAC and said, Buffett had GEICO. I have MetroMile, a better business in all these ways. And like, I don't know, less than a year later, MetroMile sells for a third of what it went public for, um, you know, to Lemonade. And so, you know, you see this stuff and you think, are these people lying? No, I don't think that they're lying. It's just that investing in business 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 dumb 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 winner or a good thing. That's my rant.

When you just think about how much more powerful it would be if Chamath— like, I would have a lot of respect if he had said, look, you know, we took MetroMile public. I thought it was my Geico. I put $200 million, 20% of my net worth into this business and I lost it alongside of you. Um, or I invested my warrants into equity and I locked it up and I held it for 3 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. Um, you know, they're, they're incentivized to do the bad thing.

What was the general sentiment of the DMs, Sean? Uh, like, fuck you, or like, you're right, like, semantics, little stuff first.

Like, we— wait, we weren't in FTX. It's like, dude, I'm not talking about FTX, I'm talking about these other 3 shitty bets. If you need me to name the names, I'll, I'll do it. That, you know, this thing you invested 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 fund, like, you know, you're gonna have a bunch of zeros. And I said I totally agree. You know, I invest in seed, you know, startup ideas that are, you know, somewhere between a pitch deck, a prototype, or, you know, early stage product. I know a lot of these aren't going to work out. It's very different than I put $50 or $100 or $300 million into a business that was fundamentally like, you know, fraudulent, or was like doing something that was, uh, um, you know, sort of self-dealing. That's, that's very, very different than, um, you know, we bet on this technology and it turned out the cost weren't, and, you know, it just didn't work out, or that traction wasn't, it didn't grow as fast as we had hoped, or whatever. There's, there's different ways to lose. In the same way, I always say in our business, like, there's errors of action and errors of inaction. If you're trying really hard and 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 the same thing in investing. When here you can, you can misjudge a business and think it was going to grow faster, or, you know, um, it got side-swiped by something else versus you put money into something that you should have diligence and you didn't.

To me, this is like, yeah, if a16z on average delivers value, so as a portfolio, they've created all this innovation, they've invested all these great companies, and yes, there's going to be some colossal mess-ups where they're going to 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 10-year period, they made tons of money and all their investors lost a bunch of money, or all these businesses were zeros. That I think is the hard part. And again, this is a decades game, right? Chamath, we won't know if Chamath has actually built value for another 10 or 20 years. And frankly, like his it's all very like secret. Cause 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, um, what's been successful, what hasn't. There's a bit of a smokescreen there. Um, and I, I, you know, I've talked to Chamath before. I think he's like a super nice, charming, smart guy. And I, like you, I listen to All In and 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. You can't outsource your conviction. So that was really what I was 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. It was actually, they are smart, but even though, 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 sounds so simple, but it's like a reality is we all do this. We all take mental shortcuts. Oh, if 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 or you can't function. I can't sit here and diligence every business on earth. But, uh, you know, you have to be, you have to, at, 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 FTX, for example, but let's say I was, or an investor in crypto, or promoted Sam as a smart guy, you have to try to not lean on other big names as your source of conviction.