Rich People's Tax Credit Scheme, Harvard's Healthy Finances & My9
So you put down, let's say $150K, you, you put down $150K of cash and you get a million dollar deduction. Oh my God. So let's say you're in California, a million dollar deduction is saving you $400,000 of taxes.
All right, we're live. What's going on?
Can I tell you about a cool rich people tax credit scheme I discovered? Yep. So actually a mutual friend of ours is the one who put me onto this, but I won't say his name because, you know, never talk about another man's taxes. So when we sold the Milk Road, I was like, oh man, how do you reduce taxes in a situation like this? Is there anything I could do? And I think we sold in October. So it was like, you know, you get this windfall of profits in October. Is there anything between October and December I could do to lower taxes? And I looked into what are the different options. Like, what are the legal, clear, by-the-book options that I could do? And, uh, when most people try to generate large, you know, uh, deductions or write-offs, they typically think of what? A car. Car. Even bigger, right? Because let's say you need millions of dollars of, of depreciation. Real estate. You'll go for real estate. So, so real estate's typically the one. But, um, your boy's lazy and your boy doesn't don't like to go and own things and have to like, you know, manage properties or anything like that, um, you can always put your money with somebody else and try to, try to do it that way.
Um, but this is pretty interesting, but you still got to research all of them and, and yeah, it's still a little bit of a pain.
Exactly. And you have to buy size. So like, how do you get, you know, let's say you buy a typical, a property, you know, you're only going to be able to write off like a portion of it, right? So you'll get the, the sort of the depreciation, then you can get the bonus or accelerated depreciation if you maybe do cost seg or something. You'll get 20 or 30% of the value of the property to write off. But let's say you needed, I don't know, pick a number, right? Let's say you needed $10 million. Let's say you had $10 million of taxable income. You would need to buy like a $30 million property or so just to be even close to deducting enough to make it significant. That's a big deal, especially for somebody who's not in real estate. So I was like, okay, don't want to do that. And our friend put me onto this thing. He's like, there's this other form of depreciation in the form of financing movies. Have you heard about this?
No, but tell me about this.
Okay. So, okay. So here's, by the way, I have—
this sounds like a horrible idea.
No, it's a, it's a great idea. I think, I think it's a great idea. So basically there's this thing called film production tax credits. And what ends up happening is the following movie needs to get made. Let's just use some numbers. And by the way, I'm not an expert at this., but I, I get the broad strokes. So, uh, forgive me if I get some of the ratios and percentages wrong.
Instead of bro science, this is bro tax.
Yeah, exactly right. Numbers, numbers and words aren't my thing. I'm a body language guy. So, so let's just pretend you have a filmmaker wants to make a movie for $1 million. So in order to make a film for $1 million, they need to raise that money from somewhere. And what happened was there was always these, um, there was always these kind of depreciation incentives. But when Obama came into power, he added to them. So what Obama did was he changed the rules, I believe, during his time to say you can write off 100% of a film's cost before they even make the film, before the money's spent on that film, just on the budget. So let's say it's a million-dollar movie. If you buy that movie, you can write off a million dollars right then and there. Nobody— like, you don't have to wait for the whole thing to be shot. Before, you had to wait for certain days of production in order to write off those costs. Now you can just write it off from day one as an incentive to get people to fund more movies and fund more art and culture and this sort of thing. Because movies aren't really the best moneymakers. So you needed a little bit of an additional incentive if we want wealthy people to do this. So now what happens? You put down, let's say, $150K. You put down $150K of cash and you get a million-dollar deduction. Oh my God. So let's say in California, a million-dollar deduction is saving you $400,000 of taxes. So already you see the spread, right? I put $150K in, I save $400K in my taxes. Um, now it gets better. So where does the rest of the money come from? So you need the other, other $850K in order to finance the movie. You could go to, uh, you know, a bank, get a loan for that. So you can go get loans on it. You can also get, um, basically rebates in the form of taxes. So I don't know if you know this, but like most movies are not made in Hollywood. Do you know where they're made?
I think as of recently, Georgia.
Is that right? Yeah, Georgia, Alabama, basically a bunch of states come in, they say, hey, if you got a million dollar movie, we'll give you 30% of the film's, uh, we'll give you 30, up to 30% in tax credits. And so you get a, you basically, you don't need a million dollars to fund the movie. You're going to get $300,000 from the state in order to do it. Why does the state want it? Right? Because state wants jobs. State wants— if something's filmed there and it looks cool, that's tourism. Maybe if you, let's say you filmed in New York and New York looks really glamorous, now you get additional tourism appeal, you get jobs, and you get culture or art in your community, and you get business coming there. Where otherwise, who's going to Georgia to do something cool, right? Like, who's going to Alabama? No shots fired at Georgia or Alabama, but it's human. So basically, so that now you get funding on that side, which by the way, you could just go sell those credits. You could just sell those credits for 90 cents on the dollar if you wanted, or you could use them to fund the movie. And so this collection of things is part of a system that wealthy people use in order to get write-offs. So what happens is there are companies that throughout the year are buying up rights to movies or scoping out rights to movies, like, and they're looking at it not in terms of like, How's the plot? How's the script? They're like, what's the budget? I need a $1 million budget. I need a $5 million. I need a $15 million, uh, because I'm gonna, I need options available for my clients at the end of the year. So they basically hold options on these things till the very end of the year. And then they go to their clients and like, how much of a write-off do you need? Oh, you need $3 million. Cool. Here's a $10 million project. We're going to buy, right? We're going to put in this much cash. We're going to get that much of a write-off. We're going to finance the rest. And we could do this as a group of investors, not just one person.
But you're forgetting the, the, the, the second part and the more important part, which is the movie needs needs to be made and make a profit.
Not necessarily. The movie needs to be made, not necessarily needs to make a profit. So what happens? The movie starts to get made. Once it gets the funding, it's going to start getting made. And then they'll do things to help. But what you have to do is pay off the loan. So where am I going to— let's say in this example of $1 million, where am I going to pay off this $850K from? Well, they'll get the tax credits for part of it. They'll go sell the international rights before the movie's made, or they'll go sell an option to Netflix, and then they'll get some revenue in that way while the movie's being made. And they're using that to pay down this loan. So that you get, you know, 5 years later when the movie's finally made, hopefully the movie's paid off. If it's not fully paid off, it's getting close. And then you basically have the revenue from the movie once it happens. And so it doesn't even need to be this awesome, you know, 20% annual return because you got your tax benefits 5 years ago. And so you just need to make sure it's going to pay off the loan amount.
Dude, this sounds like such a racket. Where is there like a—
it's Hollywood, baby. It's Hollywood.
Just because you say it that way doesn't mean that it's less of a racket. You know what I mean? Just because it's best cup of coffee doesn't mean it is. It ain't. Where do you go to a website? You got a guy? You got a movie guy?
I got a guy now. I haven't done it, by the way. So I should say I didn't do this last year because I learned about it like 4 days before the end of the year. And then I was like, what the hell is this?
I was like, we need to make a movie, baby.
I was like, oh my God. I won't say his name. Let's just pretend his name's Charlie. I just got off the phone with Charlie. He's got a $10 million movie for me. All right. Hey, why are the funds— it was a little too rushed. But the more I looked into it, it is a legitimate thing. It's completely by the book. You can go read Section 26 of the tax code. You could do the bonus depreciation of 100% of the film's cost in that time. I think the key part is there's some nuance, just like with real estate, you got to be an active investor. So you have to be an active film investor. In order to offset against your active income. So you have to go to film festivals and do like 36 hours of film study online in order to be qualified as active or whatever the rules are. I'm making up those exact numbers, but there obviously is a lot of nuance to these things. But just broad strokes, pretty interesting that rich people can get huge tax write-offs financing movies.
So I'm just looking at this. So you said Obama did this or he accelerated it?
He increased it so that you can depreciate 100%.
Um, so coincidentally, the Obamas now have a wonderful production company, uh, they did a beautiful home in Georgia. Yeah, so no, they do. It's called Higher Ground Media, and they've made a handful of movies that I've, I've noticed or that I've seen. But they— so if you go to highergroundmedia.com, they also have podcasts. So they are the, uh, so they have an Audible deal. Michelle Obama did. It used to be with Spotify. Now it's with Amazon Audible. They have The Sum of Us. I don't know what that is. The big hit show, whatever. They have all these. Oh, they have Renegades, which is like this, uh, Barack one. So does this work for podcasts is the question.
What's that smell?
Is that opportunity?
Self-dealing? A little Barack special, as you call it.
Uh, do they Does this work for— by the way, he did it right, man. Have you heard? You haven't heard a peep from Barack. He just did his thing. He did an all right job. Whether you like him or love him, he either did great or he did fine. So he did all right job and then he bounced. You know what I'm saying? He just bounced. He's out. And so he's hanging out with Oprah and David Geffen on their yacht. So he did it right. But does this count for podcasts? Do we have a—
well, I don't know, my camera's on. You got video over there?
That's a great point.
People would call— I've seen in the YouTube comments people consider us, you know, a film, a premium production. Exactly. I think we need to change the LLC name to Premium Productions. And you're in Texas. Texas is not far from Alabama. We could do a little road trip.
Yeah, that's interesting. Hopefully this works for podcasts, but That's an interesting find. I thought it was stupid and it's actually more interesting than I thought.
How was your pod with Ramit?
It was awesome. You want to do a recap?
Yeah, I haven't listened to it. So what's, what was the best parts?
He made fun of you a little bit. He took a jab. Not at you. Well, because there was a podcast where I asked you if you could get 8% consistently, but you can't invest in anything other than your own private business. Would you do it? And he was like, Sean was crazy. I was yelling at the— I was yelling at the screen, furious that he wouldn't accept that. But he didn't actually give you a hard time. That was it. He's very— he's very principled, which I actually like. I think you are the opposite. No, I think you are one extreme. And I actually think I'm closer to you a little bit than I am to him, where he is just like, this is what I want, I'm going to do it and I'm going to do nothing else. Like he's laser-focused on a couple of things, which I admire. And then he—
What is he focused on?
He was like, I can make more money with my business. I can do— I could have done a podcast years ago, but I just wanted to wait until I felt it was the perfect right time. So he just calculated, well, you know, you and I like to just throw little things out there and see what catches. He's not so much that. He also did a really good job. Have you ever heard him talk about the rich life?
Yeah, I've heard him explain. It's kind of like he made a list of like what's the rich life to him and then sort of use that as his financial blueprint.
Exactly. And he's got like a handful of things. Like, he's like, I just wanted to have the best assistant because I want them to book things perfectly. So he's like, when I fly, I try to fly on a very specific type of airline with a very specific seat. So I want a certain plane when I fly. I want a certain type of food ready for me when I arrive in my hotel room. And it was just very exact. And I love how exact he was. It sounded like a lot of work to set it up, so I found it intimidating. But like, he knew exactly.
I hate people who are that particular. I hate people who are particular in general. I find it to be extremely spoiled and snobbish. You know, I have like sort of like, it's sort of like you are what you admire. And I have the opposite of admiration for people that are extremely particular about how they want everything managed and taken care of in their life versus people who are like, look, I'm blessed. I'm going to roll with the punches. You don't have to cater to me. I'm going to make, you know, you could serve me food I'm allergic to and I'm going to find a way to have a party in the ER, right? Like, you know, that is more of the mindset that I admire is somebody who is what I call unconditional, meaning their happiness or their mood is not contingent on anything. I find that to be an absolute superpower. And I say this because not to hate on Ramit, I say this because I kind of only ever hear about the opposite, especially in this kind of like life hacking, productivity porn, like kind of hustle culture type of thing where I think people get praised for being super meticulous, for being super organized, for planning out everything, for scoping it out, for working backwards, all that stuff. And I never hear about anybody who's praised for being like, you know what, this guy's always in a good mood regardless of what's happening. But to me, that's the superpower.
Yeah. And I'm closer to you in that regard. Recently I went to a place and I ordered a steak and they brought me a pizza that was pesto chicken and I didn't, and I didn't, I didn't tell like, yeah, I didn't even tell my wife was like halfway through like, didn't you order a steak? I'm like, yeah, but it was here and whatever. And so I'm, I'm more like you, but I respect that he knows what he wants and he wants any and he lives that way. So I respect that. And then, um, Martin Shkreli, do you want to talk about him really quick?
Yeah, we never got to debrief that. So Fun pod.
I got a lot of shit. Did you get shit? I got a ton of flak that we had him on. From where? And dude, just online and friends were messaging. They're like, why would you give this guy a platform? And I don't think they even listened to the episode because my response to why would you give this person a platform? It's twofold. It's number one. I'm like, well, did you watch the documentary about him on Netflix? And if they say yes, then I say, well, then he has a platform. Did you criticize Netflix? You know, you watched it.
Yeah. Like you watch Netflix. Do you watch the news about him? Because you, he has the platform. And second, I'm like, how'd you like that Ted Bundy docuseries?
Pretty good, huh?
Yeah. Did you watch that? Did you, did you watch that? Cause that's the same thing. And then second, I'm like, well, we actually did challenge him quite a bit. I think I explicitly said, uh, why'd you act like an idiot? Uh, and why are you such an asshole when you shouldn't, didn't have to be an asshole? Like, we had a very productive conversation, I think.
And so there's a fair criticism, which is he has an explanation about, like, you know, why, how the healthcare system works, blah, blah, blah. And we're not well-versed enough about the healthcare system to know where to push back. Because, like, let's say, I don't know if he told us anything that was incorrect or sort of sleight of hand, but if he did, there's no way I would have known because that's not my area of expertise, right? Like, um, you know, it's like, but why is that wrong? I don't know if that's wrong. I'm saying that would be a fair criticism. Let's say you did know. Yeah. And then somebody comes on here, they say something that's either not true or sort of misdirection or besides the point or not really how things work, and the hosts don't push back on it. It can be very frustrating if you do know. And so I'd say that's a— if that's what happened, that would be, I would say, a fair criticism. On the other hand, I thought the most interesting thing he talked about was just sort of like, he's like, I could be the Pfizer CEO corporate speak. Don't, don't toe outside the line. Don't give the media anything to get mad about. Just quietly make your millions. Just do whatever you're gonna do, right? Raise prices, uh, you know, whatever, whatever it is that you're gonna do. It's not like most pharmaceutical companies are seen as like, you know, angels, but they don't get the same level of flak because he was very loudmouthed. He was very vocal, and he, he poked the bear constantly. And what I liked was this moment in the thing where I was like, dude, you're not dumb. So you probably knew what you should say, or you had a person on your PR team tell you at some point, hey, when you go to Congress and they're asking you questions, don't be doodling like a dog on your piece of paper and smugging, having a— don't smile.
Yeah.
Don't have a smug look on your face. He knew what to do, but he lives that troll life, baby. He's like, I don't want to be that. I don't want a world where everybody who's successful has to be this robot, and I'm going to be me, and I'm going to have fun with it, and I'm going to call BS where I see BS. I'm going to fight with people who don't know what they're talking about. And I got to say, that is one part that I really do admire about him. And I think somebody said this to me after the episode. They go, you know, you guys had Billy McFarland from the Fyre Festival on, and he seemed like a dumb cheat. They go, Martin seemed like the opposite. He seemed like a genius cheat, which is basically like, you know, Billy came back, he's like, next thing I'm doing, another fire festival. Or like, actually, and he's doing it. What he had said to us on air was, I'm going to do this thing where you could micro do— people are going to go to this island and then you could vote with micropayments to get them to snorkel with sharks. And we're going to jump up the water. We're going to jump up the water if people donate. And I was like, wow, that's your comeback? That's a dumb idea. But with Martin, I would say, I think you could question whatever his ethics or if he's gone straight after whatever what he did to go to jail. But I think it's hard to deny that the guy's very intelligent and has a lot of interesting things to say. And frankly, you can learn a lot from somebody who's highly intelligent, has interesting things to say.
Yeah, what I was telling people, I'm like, I can like how Michael Jackson dances and I could learn how to moonwalk from him, but also not like everything that he did, right? You know what I'm saying? So I can like both those things. How's your moonwalk? You know, it's a, it's a 3 out of 10, I'd say. But I also, there's one criticism that we're starting to get now that we're a little bit bigger that I've been thinking about, which is they're like, you have a responsibility to do X, Y, and Z. And my gut reaction is like, F you, I don't have a responsibility. I'm doing whatever the hell I want. But then I'm like, it is journalistically a bit. And that's like a really weird thing to like, uh, kind of approach, particularly when no one got in for— we didn't get into this for that reason. Like, we didn't want to pursue truth. We just wanted to have fun. You know what I'm saying?
Yeah, I think that's— I mean, to be perfectly clear, we are not journalists. This is not journalism. We are not, we are not reporting anything. This is me and Sam shooting the shit, talking about business and interesting things we see. And then when we meet interesting people, we have them on the podcast and we have a conversation with them. And sometimes we like what they say and sometimes we don't. Sometimes we buy what they're selling, sometimes we don't. Sometimes we defend people because 95% of people hate them. But that doesn't mean we think that they're perfect. So, you know, that's my stance on it. All right, let's move on to something else. You tweeted out that you had nothing to say today, which is always great to hear.
I found a few things last minute though.
Did you like my, uh, did you like my meme?
Yeah. Uh, uh, the Jesus meme. I thought it was wonderful. It was, uh, it was a, there's like this famous, is it Catholic?
I don't know where it's like Prince in the Sand is the name of the story.
Yeah. Whenever, you know, we saw two footprints on the beach or two sets of footprints and then all of a sudden I didn't see the point. Well, then if it's no, it's then all of a sudden I didn't see the second footprint. What happened? And it was like, that's when I was carrying you, son. No, it was good. It's like, where were you when I needed you the most?
Why were there only one footprints? All right. So do you want to go first? You want me to go?
I'll go first really quick. This is something that I think both of us are interested in, but I have a feeling you didn't, uh, you didn't care enough to look into this because it was like a shit ton of reading, but Tiny, our friend Andrew Wilkinson, he took his company public. It's officially public. I think the Friday, I don't know what it is today. It was $750 million, I think Canada, which is $560 million.
USD, somewhere between 1 and a billion.
Yeah, so hundreds of millions of dollars. And, you know, whenever you go public, you got to release a huge report, and it's 300 pages. And I read through a lot of it, and I found a bunch of interesting stuff. You want, you want me to tell you some of the interesting things? All right, so the foundation for— so Andrew Wilkinson's our friend. He owns this thing called Tiny. Tiny owns, either outright owns or partially owns, something like 10 to 30 things, 30 different businesses. The whole thing started with MetaLab. MetaLab was an agency that he created by himself in 2008, and he basically made websites. It was nothing fancy at first. He made websites for Silicon Valley companies, but that's a little bit glamorizing it because it was like someone paid him like $20,000 to make like a fairly straightforward, simple website. Then he just kept going and kept going and kept going. Well, It's listed in his, uh, I actually don't know what this document's called. Uh, in America, I think it's called the 10-Q, uh, or just whenever they file for, uh, to go public. This company's in the, I think, Vancouver Stock Exchange, so I don't know what it's called there, but it's listed as digital services revenue. In 2021, it did $62.8 million, and that's interesting because it actually has been growing, not crazy fast, so it's been growing something like 23% a year, or for the last handful of years, we can only see a couple years here, but it does a 45% or 40% margin. So for every $100 they make, their net income is something like 40%, $40, which is crazy. Now, if you start in 2008 and you only grow 20% a year, you actually get to significantly higher than where he is at now. So there was years where it was lumpy, where it didn't grow or it grew a lot and then it got smaller. But not significant of a business for something that's been around for, what's this now, 15 years. And this has been the foundation of everything. He has the CEO of that company and that CEO is paid $1.1 million, which is a good deal, I think, for everyone. So the CEO gets to run an established company that's working and they get paid a million dollars. So here's something that's really interesting. If you scroll down to on this document, I, they have a list of a bunch of the dividends paid since 2021. And if you add them all up, it's something like $15 million that he's took out of the business. They took out a bunch more dividends because they actually took down, I think, something like $100 million in debt. So he, he had a debt facility in order to grow the company as opposed to equity, which is awesome because you just take a loan and if that works, it's significantly cheaper than equity. If it doesn't work, it's— that's not good. You owe a bunch of money. But he did it and it worked out. But as he's been growing, he took money like $15-ish million according to these documents out. Additionally, they had a company called Mealtime, which is like a meal prepping software that he sold for $25 million. So he had a— and they gained— they profited $13 million off that. So collectively, he's been making tens of millions of dollars along the way. Super fascinating.
While this business— do you remember when we were having lunch with him? We're going to have to bleep out this number, but Do you remember having lunch with him and you asked him some question? You're like, at what number did life sort of change for you? Or what numbers mattered in your kind of climb? And then he says, he's like, yeah, that's when blah, blah, blah. And you go, okay, so that's a net worth? And he goes, no, per year. Yeah. And you go, what? And we were both like, wait.
And then he skipped over it. He told another story.
He's like, yeah, yeah. So like, you know, every year we were like, what the actual fuck is this guy talking about? You were making that much? He's like, yeah.
And now we see that it, that it's all like, it's all on paperwork. And by the way, everything we're saying, this is strictly from the document where, so there's nothing else that we know. Uh, but yeah, like you kind of killed it there. And then one last interesting thing is they own this thing. It's the company called, it's called Tiny Boards. It's really just weworkremotely.com. And it makes, I think it's like $6 million a year roughly. So it grew during, you know, 2020 to '21, it grew from like $3 million to $6 million. Then it went back down to like $3 or $4 million. But I looked it up on LinkedIn. I'm pretty sure there's like 3 people running it. Very fascinating.
And they bought that from 37signals, from Jason Fried and DHH. So that's pretty cool. Yeah, you know, when, uh, so I invested in this right before it went public, so private, just privately. And when I had gone into that kind of the data room, um, I was looking around and I was like, okay, so it seems like really there's kind of like two interesting observations. One is he creates these like what they call platforms, which is basically means you're going to buy a bunch of the same type of company. So he has an agency platform. MetaLab is the big one, but I think they have like 7 or 8 other agencies. They're just a lot smaller.
There's a no-code agency. There's a whatever agency. So then there's job boards and they own a couple of job boards. Then there's creative tools, which is like they own Dribbble, then Dribbble bought Creative Market and grew that way. And then they have whatever, they have a couple other, and then they have like this like long tail of random things. Like they own BeFunky, the photo editing app. They own Mealtime. Like they own some random things. And I would say a couple things really stood out to me when I looked at it. I was like, Okay, so you, if you look at where the bulk of the revenue and EBITDA comes from, it's two companies. So yes, he's got a portfolio of 30 companies, but it's MetaLab and it's Dribbble that are carrying the thing on his back. I guess the other one would be WeCommerce, which had split and gone public, which was a roll-up of Shopify apps, but that one had done pretty well too.
And I think, and that one's at $25 million in revenue, I think.
It was like something like $10 million. If you just look at the EBITDA numbers, right? It was like And I'm not quoting this off, I'm not looking at the sheet, but like just ballpark, I believe that WooCommerce ballpark was at about $10 million in EBITDA when it went public. I remember you saying that on the pod. That's where I'm getting that from. The second one is, you know, Meta Lab, which you just talked about, you know, let's say $50, $60 million in revenue, 45% margin. So roughly $30 million in EBITDA. And then, which is just a juggernaut. And then you have Dribbble, And Dribbble does what? Um, does it have it broken down?
So in 2000— yeah, in 2021, Dribbble— so here's the numbers for 2021. Digital services revenue, which is considered agencies, that was $63 million. Creative platform revenue, which I think is only Dribbble, or it's Dribbble plus a small thing. In 2020, it did $23 million. In 2021, it did $34 million. And then they have other, which is all this small stuff combined, which was about $14 million.
So just those first two. Digital Services, which is almost all MetaLab, um, you know, the rest might add up to less than 20% of that. So if you just add up 60 plus 30 plus 13, right, this is roughly 100, a little over 100 million, and 111 of that comes from, uh, MetaLab and, uh, and Dribbble.
And the EBITDA on that, I don't know, actually, people are gonna laugh, people are gonna laugh at me, I don't know what adjusted EBITDA means versus just normal EBITDA, but the normal EBITDA, which is earnings before interest, tax, and depreciation, that was $50 million on that revenue.
Yeah. And you know what I think is remarkable? The amount of equity that they put in to create this. So now this thing is valued at, let's call it $800 million right now. $811 million market cap right now.
Which is Canadian. And it's, I didn't realize it's a 75, uh, 25% decrease from USD.
Sure.
So let's say, uh, so it's, that comes out to be a little less than $600.
$600 basically. So $600, uh, $600 million market cap. Company. And I believe he can confirm or deny this, but I believe less than $10 million of total equity was put in. So how much cash did it take to start this business? And most businesses don't take a ton of cash, but, but this is an acquisition-based company. So like, you know, they, they were acquiring companies. And so I think less than $10 million of seed capital was put in.
I could be wrong. And the seed capital came from the profits of the agency. So in reality, it's like he started this as an 18-year-old or 19-year-old. He said he was working as a barista in, in, in the papers. It has the stories like I was working at a, as a coffee shop person and then I started doing this on the side and it just, we just kept going. And so the takeaway here is like simple shit. It's, it's hard, but it's simple. But for since 2007 or something like that.
Amazing. Honestly, kind of, honestly, it's amazing. And congrats to, congrats to our buddy Andrew for going public. That's a, big deal, you know, uh, that's a decade plus of hard work, 15 years plus of hard work to get there. So, you know, kind of amazing for him. I love that.
Any other takeaways you have?
Um, no, those are the, those are the main ones. Uh, you know, I think, you know, one other thing that Chris, his business partner, had told me at dinner was— I think I might have already shared this on the pod— but he said, uh, when he got hired and he met Chris at a bank— Chris was a banker literally like a bank teller at a branch. He met Chris and they hit it off about cars. They were talking about cars because Andrew had rolled up in a cool looking car and Chris was into it or whatever. So they hit it off. They end up talking for a little while. He's like, what's your story? What are you doing? He's like, I'm starting to get my CPA license. I want to be a finance person or accountant or whatever. And Andrew's like, awesome, I need help. My business Meta Lab is just getting off the ground. It's working pretty well, but we're super disorganized. Come work with me. And Chris takes the leap of faith, goes to work with him. He says that on day one, he's like, I showed up at the office and there's nobody there. Andrew's not there. Nobody's answering the door. And then Andrew pulls up in his Uber or whatever, his car. I guess there's no Uber back then, but pulls up in a car or taxi, hops out, and he opens the trunk, takes out this giant box full of paper, and he's like, here, here's all of our numbers, financials. This is where it's at. You know, make sense of this and, uh, and help us get organized. He hands him this huge box. He's like, oh, by the way, I gotta go, so I'm not gonna be able to train you right now, um, and there's no room in the office for you, so I talked to my neighbor. They have like a basement. You can sit at the desk in there. And he's like, just knock on the door and tell them you're the guy, and then they'll let you into the basement desk or something. So he tells the story how he started or whatever, gets it organized. And as they're looking at it, they're like, all right, You have a very profitable agency. Like, what do we do with these profits, right? We're just gonna like accrue them. That doesn't seem very good. And they're like, well, what do other agencies do? And they're like, they looked around, they see in other agencies, like all of a sudden there's a giant ball pit in the office. There's a basketball court. They're flying, you know, fancy everywhere. They're hosting, you know, just basically spending money on like, like status stuff or like appearances. And he's like, we shouldn't do that. That doesn't seem to have any ROI. Right? Like adding the ball pit to the office doesn't— yeah, it makes it more fun, but like, I don't think that's the best use of money. What if we just thought of ourselves like a really profitable law firm? And like, you know, what if we were a boring business? What would we do with this money? Well, we would just go try to find a place to reinvest this. What if we take this business that's okay, agencies aren't the best business, but we use it to buy better businesses? And then that was kind of like the conversation that they had. And that's when they started going out and acquiring other businesses using the profits from MetaLab.
But there's two, or there's one part of that story that you're missing. And, and this is because it's probably not fun for them to tell, but they will tell it because they'll, they blog about it, which is they actually started other things. So they did the same things that we make fun of and that we've done as well. They started a to-do list. It was called Flow. Uh, and they, he said he spent like $400,000 or $500,000 or maybe even close to a million, a lot of money of the profits. And they created this thing which was basically like Asana but different. And he goes, Asana crushed us because they spent way more money. And then they started, I think, one or two other things. I think another thing called Ballpark. So they actually started things right away and it failed. And then they go, yeah, let's just buy them. And that's what they did.
And they still start things like Supercast or, uh, he's got a bunch of different ideas that he's, he's started since. But if you just look at 'em in the grand scheme of things, it's almost like a big company, right? It's like, uh, they have the innovator's dilemma. It's like, this business is at $1 million in revenue in 9 months. It's like, cool, who cares? You know, that's 1%. You know, it didn't move the needle this year, but probably took a lot of creative energy and recruiting and promoting to get to, to get to that level. So you have a tough thing where you enjoy starting new things, so you want to do it. You keep having new ideas, but it's hard for those new things to really break out and make a difference. Um, you know, and most, most new things generally will, will fail or, or not go exactly to plan either. So it's, it's a tough, tough balance, I think, to have.
And I know what they paid for Dribbble. And, um, do you think, I think, you know, too, but we can't say it. Do you think that, uh, you can buy companies like this? Like, is this one of those things like, you know, when, or am I just being a noob here where people say, oh, you can't start a newsletter now, there's too many newsletters. I'm like, no, that's not true. But do you, what do you think about the competition now to buy companies versus 10 years ago?
Yeah, certainly more, but there's also more supply, right? Like, uh, The number of like interesting, you know, interesting internet companies in 2007 versus 2023 is going to be obviously like manyfold more because the internet has just become so dominant. There's so many businesses that are successful, so many playbooks of how to build a good SaaS business or a good marketplace or whatever. Having said that, this is probably the type of business where you make one good decision, one good deal a year or two good deals a year. And that was a great year. And that I think that speed is just very hard for most entrepreneurial people to go at.
Right. Well, yeah, I agree with what you said. This is pretty inspiring and awesome. So that's the lowdown on Tiny.
Good stuff.
Can we talk about— I see you have Harvard's revenue on here. I have an interesting story about Harvard's revenues. I want to hear your take.
Yeah, I was doing some Friday night research and that's one. Yeah, I got to thinking. How much money is Harvard making? And I'd like to tell you some things about Harvard. So Harvard is this thing that if you really zoom out or you're like an alien and you're looking down at Harvard and you're like, what is that thing on the map? Not BU, the other one. What's over there in Boston? What you would see is basically some combination of a church, a hedge fund, and a luxury daycare.. And I'd like to tell you about each of those components and how Harvard is basically this multibillion-dollar tax-free juggernaut.
All right.
There's a lot of taxes in this episode. Yeah. All right, so buckle up. Okay, so how is it a church? Well, universities are tax-exempt, so they don't pay taxes. They don't pay it on donations, they don't pay it on tuition, room and board, or even capital gains from their hedge fund, which is the second part. So they have an endowment That's about $50 billion that they invest across a wide portfolio. I'll tell you their portfolio in a second. So they got a $50 billion hedge fund. They're tax exempt on the gains from the hedge fund plus all the revenue from their students. Well, I should say revenue from their luxury daycare because parents will pay $50,000, $60,000, $70,000 a year to send their child to this place for 4 years. And so they take your kids off your hand for 4 years and they say they're going to come out in a better place. Here's some of the numbers around this, this mashup juggernaut. Uh, last year, um, $5.8 billion in total revenue. $2 billion of that comes from the profits of their endowment. Hell of a year for them. Um, actually, this wasn't last year, this was, I think, 2021. So, uh, 2 years ago. Uh, so $5.8 billion in total revenue, $2 billion from their endowment, $1.2 billion from education. So what that means is 80% of the revenue is coming from not education. That's the other way to look at that. So where does the rest come from? So they have the endowment, you have $1 billion of grants. So the government funding research for their professors, $500 million of donations, and $300 million from something you'll know pretty well, which is their publishing arm. I could tell you all about that. Their in-house media company. So a couple observations here. The school earns more revenue than both Twitter and Snapchat. Twitter's at $5 billion, Snapchat's $4.6 billion.
Uh, Harvard has more revenue than both of them, and it's been doing that since— when, when was Harvard created? In the—
And so it's been doing that forever. Not forever, but for a very long time.
Amazing business, right? Uh, the publishing arm makes $300 million just selling case studies to other business schools and publishing the HBR, the review journal, which is basically a really fancy paid Substack. It's got 350,000 subscribers who pay for the HBR, the Harvard Business Review.
But the majority of that revenue, I think I can try to find it, but I studied this a lot. I think that a lot of the— so if we go to Harvard Business School, they, they release all their— they break it all out. And so if I read it here, so 34% of the— so their revenue actually went down. 2019, it was $900 million. In 2021, it was $800 million. So 34% of that is whatever you said, $300 million comes from publishing. The next thing down is 14% came from tuition. And of the, uh, of the 34% from publishing, most of it is from selling. I think it's like they've sold, like they sell like 5 million case studies a year to other business schools.
Yeah.
Which is, which is insane.
It's, it's a lot. And the, and the Harvard Business Review has a lot of revenue from international. So here's the other kind of like dirty secret from, from Harvard, which is that they make a ton of money off of executive education. $464 million. So almost like, not quite half, but almost half of the money they make from their degree, their actual school, they make on executive education, which is basically you pay to get professional development credits, aka you get to put Harvard on your resume without actually having a Harvard degree.
If you go to Tyra Banks, you remember Tyra Banks, the model? If you go to— yeah, that's right. Big T for sure. If you go to, uh, uh, her LinkedIn, it says Harvard Business School, and then like you gotta scroll down and you'll see, you'll see parentheses and you'll say, I'll say extension. Uh, it's a very classic technique, right?
My cousin did this. He went there, uh, and I was like, whoa, you're going to Harvard? He's like, I'm going to a— I'm taking classes at Harvard. He's like, yeah, I'm taking classes at Harvard. So you, you got into Harvard? Uh, yeah, you know, like, sure, I got into the executive education program at Harvard. And, uh, and he's like, yeah, like, you know, on my resume it says Harvard. And he's like, you know, 1 out of 3 people understand what it is and 2 out of 3 don't. I like my odds. Yeah, there's also the international arm. Their international revenue is up like 80% because they're selling the H— the Business Review over there. They're selling, uh, you know, executive education. Come on, come to, come to America. Come to the best part of America. Come to the, the Louis Vuitton of, uh, of education, right? So basically you got billions in revenue, zero taxes owed, huge barrier to entry, a brand that's lasted over a century. The government loans your customers money and gives you grants for your R&D. Like, what a business, dude.
That's absolutely crazy. And a lot of people don't realize this. And to put these numbers in perspective, let's just say that— so you said their endowment— I'm just doing all this math right here, so I might be off, but I bet you if we Google it, this will be true. If their endowment is—
you're not doing public math, are you?
Well, yeah, I am. Sorry. But if they're in debt— but it might be wrong. If their endowment is $55 billion and their expenses some years— I just Googled it right now— is around $5 billion. That means theoretically there are some years that they can pay or charge their students zero tuition and pay for everything.
Still, the way that the endowment works is it's a $50 billion-ish endowment, and they're— the plan is they distribute 5% of it a year. So 5% of it a year is used, but the, the, the, the, the rule is This endowment needs to last forever. So they're only going to distribute 5% because they need the other 95% to stay in and to keep rolling. And in 2022, when my portfolio was down like 45%, they lost 1.8%. Well, they're doing all right. Goddamn Harvard geniuses somehow lost only less than 2% when the whole market has been terrible this year. Here's their portfolio, by the way. 3% cash. Okay. 32% into hedge funds.
Which hedge funds does it say?
It doesn't say which ones. Now, 44% into private equity plus venture capital, but most of it's private equity.
So what do they buy?
So that's the bulk of it. And then there's 6% real estate, 3% bonds, 5% treasuries, and 6% foreign equities.
Okay, so what's this private equity stuff? Is that mean they're in like actual PE, like Blackstone, BlackRock or whatever? BlackRock. Wow, dude, this is like a circle jerk to the max. Everyone's hands full on this one. This is crazy, right?
Because everyone's hands full of this one.
Yeah. Because you, if you think about it, like if I look up where the hedge fund guys went, I bet, you know, 70% of them went to Harvard. I mean, this is just, it's, it's pretty, it's a very circular thing going on here. It's pretty wild. Like it, it, it is, it's, I would say it's almost corrupt. And if you think about $50 billion, a $50 billion endowment, that's bigger than I, than I would imagine 95% of countries' GDP. I mean, it's like, that's massive. GOP. Sorry, GOP. GOP. That's the— what's that? The Republicans. What's GDP?
Yeah. And yeah, we think these VC funds like Sequoia and Andreessen are really big. I don't know what Andreessen's total AUM is, but I'm guessing it's between $10 and $15 billion.
It ain't $50.
Yeah, exactly. $50 billion. And they're— I think they're— okay, they're now at $35. They've been scaling it up like crazy. But that's their full-time job.
That's their thing.
You know what I mean? That's their thing.
Yeah, that's their thing. This is just like, you know, I, I would imagine there was a— I forget what I was watching, but there was some show where it was like, a lot of people don't realize this, but like venture capital and PE, like the biggest— when people— I, I always hated when people celebrated a venture capital company going bust. Like, uh, what was that one guy who, uh, the, the Disney guy who went and started, uh, the thing that— Quibi, you know, it raised like billions of dollars and went and it went bust. What a lot of people don't realize is this money for— so the money that is given to Andreessen Horowitz into this and that, it comes from the universities. It also comes from California's teachers' pension plan or the police pension plan or firefighters or— and like, you'll like, I think if I remember correctly, I believe like Nevada for some reason, I think it was like the state of Nevada for their pension plan for government. Government workers, something like that, had one of the best returns. And they was basically like one dorky guy and he's pretty much just like Warren Buffett, you know, he has a similar style or a similar budget where he has all this money and he just would sit in this office and except unlike Warren Buffett, he's getting paid by the state. And so there was a story about how he was making, you know, a nice amount of money a year, but he would bring brown paper bag lunch and he just drove a Ford.
He's on Windows 95.
Yeah. Yeah. And he's like, look, I'm on the— and this guy was like a fiduciary of fiduciaries where he was like, I don't waste taxpayer money. And because of that, I read all this stuff. I very rarely make big bets. And, but when I do, it fucking crushes it. And so like these guys, yeah, he's, he's great. And he's like, and so anyway, it's just like these guys making these decisions, they're just government workers in a way, but they're making, they're basically mini Warren Buffetts. And so it's really fascinating, like the world of these like endowments and these pensions.
I met a guy once who worked for Alaska's permanent fund. I don't know if you know about this. They have like $79 billion in assets under management. So Alaska has all this money from the oil stuff or whatever, and then they give everybody who lives in Alaska like $3,000 a year or something like that, which is basically like, you know, when people were talking about universal income, they're like, oh, that sounds crazy.
I'm like, you know, they do that in Alaska. I think, I think you get $15,000 a year if you live in Alaska, right?
Yeah. I don't know. I don't know. I thought it was like maybe $3,000 or $4,000, but yeah, maybe it's more. Um, but yeah, and then there, I met a guy who manages that that money. And he's just like, what was he like? I mean, he, he wasn't the main principal, but he was a guy who worked there. And he was like, he was at the farming conference. And I was like, what are you doing here? And he's like, I'm looking for, you know, intelligence and, and investments. You know, farmland is a great investment. I was like, wow, good for you. This is, you know, who would've thought you, this guy's managing way more money or these people manage way more money than like the, the famous kind of hedge funds or, or venture capitalists that you hear a lot about.
Dude, I wonder if this topic is interesting. Ben, let me know in the Slack because I like, I'm geeking out on this stuff. I find this to be crazy fascinating. Um, so he's typing now. Um, you want to do one more thing?
Yeah, let's do one more. I have a quick idea.
My 9.
My 9. Okay. So, uh, sounds a little bit sick, uh, last 24 hours.
You have a great haircut, by the way, though. I really like the uptown fade. You got, you know, high fade.
It's the uptown fade with the downtown brow. I don't know what that means. I just wanted to say something cool.
It looks good. You look sharp. Have you been— how much weight have you lost in the past 3 years?
I think I've gained weight in the last 3 years. I just changed the composition. I put on a lot of muscle, too much muscle in a way that's not good. I'm neither a bodybuilder nor am I ripped. I'm just thick. And thick is like— I don't know anybody who puts thick on their vision board.
Like, well, some people do.
I mean, look at your, your, your right arm right now, dude.
Your right arm right now.
I definitely, let me hit you with a little, I definitely see tricep.
Yes. I see a great teardrop, man. That's a, that you gotta get a good tricep muscle.
That's my, uh, what do you call it? Like your, your, your, your highlight, your keystone asset. That's my keystone asset right there.
Your tris.
Thank God it's in the Zoom view. Yeah. Imagine if my quads were what was good. I'd just be wasting it every day.
Welcome to my life, my friend.
Yeah. You should make an excuse to stand up every day, every, every episode. Just to flex on them a little bit.
Yeah, quadzilla. No, you look good. You definitely look svelte, and people in the comments are saying it. But sorry, go ahead.
Well, that was great. Anytime you want to take that tangent, we can go there. All right, so I was in a fever, and I had a little fever dream. I thought of an idea that I'm pretty sure would go viral. I'm not going to do it, but you know our friend Nikita, who has created the same app twice and sold it twice to the same to similarly stupid tech companies that didn't realize it's like just like a nothing app.
Oh, you're talking about Nikita the Asshole Beer?
That's his nickname, right?
That's his official name, right? For those of you who don't know.
We call him GB Cooper, but it just stands for Douchebag Cooper.
Yeah, I know Nikita the Asshole Beer.
Yeah. The funny thing is he's got this persona online of being kind of like a shitposter and like kind of a shithead. But usually when you meet those people, if you ever meet somebody like that, you're like, what are they like? It's like, dude, total sweetheart. Love that guy. Totally not like you see online. No.
You know how it's a very common thing where you're like, oh, you know Sean? You know Sam? Whatever. Oh, yeah. Great guy. Great guy. I don't know if that phrase may not be used with him.
Is he getting great guy? He's not getting great guy.
Yeah. Yeah. He's more of a— he doesn't get a wow, he gets a wow. You know what I mean? That's him.
So anyways, the genius of what he's done, because undeniably created, uh, you know, these like really viral teen apps, is his app works as follows. You download the app, you take a quiz that says who in your school or who in your contacts is most likely to whatever, and they try to figure out in your contacts who you talk to the most or whatever so that they could surface maybe the right person in a multiple choice so that you say Sam is the guy who I'd want to bail me out of jail. And then at the end of the thing, it's like, wow, those are awesome. Do you want to know what Sam says about you? And you're like, yeah, for sure. And basically it texts you in the background and it's like, Sam, someone said that you'd be the most likely person to bail them out of jail. Do you want to see who? And you're like, of course. Click download, you take the quiz, and that's the viral loop. Do you remember back in the— I think I have another one of these. Do you remember back in the day, the MySpace top Top 8, I think it was called.
It was like, uh, was that like who was in your top 8 friends?
Yeah, you just got— I mean, this was, this was like a pretty wild concept, to be honest with you. You just put on your profile, yo, these are my top 8 friends in order, which is like, I don't know, that today that'd be considered like, you know, bullying to the 10th degree.
But well, you know, I think where that came from was like, do you remember blog rules? Or it was like if you would go to a blog and it would say like, um, Here's who else. Yeah, on the right-hand side you would list like 8 other blogs that were similar to you that you were friends with, which by the way I thought was awesome. I always like, I go, I try to find whenever—
great way to discover things.
Yeah, I love doing that. And then a lot of people don't know this, but Tony Hsieh, the founder of Zappos, he created— what was it called? It was called MediaLink, I think. And it basically went from zero to like a $400 million acquisition. And all they did, I I think originally it was called LinkExchange is what it was called, is they helped broker the deals where eventually it was a pay-to-play for like the blog rolls, which is like the things on the side. And I think that is where MySpace kind of got like this idea of like, here's like my top 8 or whatever, like here's the people I— to help you discover new people, right?
And, you know, Tom from MySpace would always be your automatic number 1 when you start, and then you have to fill in your friends. And it was this awesome thing. You could go to someone's profile and you could be like, oh, they're best friends with this person. Oh, This girl moved to number 1, maybe they're dating. It was like this little, like this like signaling thing. And it was cool to be, it felt so good to be in someone's top 8 and it felt so bad to be out of someone's top 8. So, but it lets you know where you stand and there's something I really appreciate about that. So I think you can recreate that now with something I'm calling My Nine. And what My Nine is, you download this app and it just says, who are your 9 people? Who you, who you, who you rocking with? And you just designate of my contacts, these are my 9. And it lets you publish that as a photo to Instagram. Or as a video onto TikTok or whatever. It just lets you share that out, just saying, hey, here's my Nine. And you tag them and it texts them also from your phone. And somebody put you in their, their, their, their My Nine. Do you want to see who? And of course you're going to download. Of course you're going to sign up to see who. You're going to connect your address book and then you're going to select your Nine and you'll reciprocate because that's what people do. And so I think this would also go super viral because I think it just has those like human psychology triggers where If you've got that message, you gotta know who did it. And then when you're there, you'll do it too, because it's kind of fun, like a little personality quiz. And then that triggers the next 9 invites that go out. And 9 invites is enough to go viral. So like, even if you have a 15% conversion rate, which this would have like more like 40% probably, um, you will, by definition, your K-factor will be over 1. You will, you will go viral.
Dude, I always wanted that for when I die. You know, like my 9 for when I die.
My die.
My die. So like, I've always wondered, like, if I die, how is anyone going to know? Because like, when you— I imagine this sounds douchey.
I don't know. Tombstone, just here's my 9 friends, top 9 friends.
I don't know. Again, I'm going to preface this. This sounds douchey, but when you start having a little bit of something, you eventually— you have so many different accounts. And like, there's companies that I've invested in and I fucking forgot. When I sold The Hustle, we— there's this one guy, he's, uh, what was his name? Jonah. Uh, he started moat.com and he sold it for like a billion dollars. He's just a rich guy and he gave me very little, money enough that like he probably makes that a day in interest. And when we sold, it took me a year to get in contact with him. I swear to God, it took— the lawyers were like, dude, we cannot get in touch with this guy. Like, because he sold his company. So it's like, he just— we can't get in touch with him. We don't know how to— we got to give him his money, but he's owed money. It's just sitting here. And I'm not close to that, but there are some investments that I've made that I've forgotten about.. And I've always wondered, like, if I die, how is anyone in my family gonna know, like, who get, like, where the stuff is? Or if they're, who are they gonna contact? Am I like, is there like a, like a, like a, like a next of kin, like, checklist? You know what I mean?
And it changes all the time too. So even if you wrote it down once, this is gonna change. Yeah. I actually don't know how this works when, when you die. How do they discover all your assets? Especially now with like crypto or angel investing? Like, how are you even gonna discover all this stuff?
And who are they gonna know what to contact? Because particularly with crypto, it's a lot of single young guys. Like, who's like the next, the next of kin for that? I have no idea. You know, there was— have you watched Succession? Hey, this is producer Ben. Quick note, Sam is about to drop a massive spoiler for the HBO series Succession. So if you plan on watching it and you're not all the way caught up, skip ahead like 2 minutes.
Enjoy. They're like, he, he just left everything to this emoji.
Yeah, dude, on, on Succession, it's like a, you know, the thing, it's basically Rupert Murdoch's family and the, the Rupert Murdoch character. Dies and they find his will and he wrote it in pencil, but they, and they, there's this part where he's giving stuff, the company to his son and they can't determine if he's crossing. Yeah. Well, no, they couldn't determine, is he crossing out the guy's name or underlining the guy's name? Because he like, it was like a crooked line. They're like, is he crossing it out or underlining? We don't really know what that is. But I've thought about that. I'm like, when I die, if I die and my wife dies at the same time, let's say we don't have kids, whatever. I'm like, How are they— who are they going to contact? Like, they got to figure out where my mother lives. Like, it just seems like an ordeal.
You're going to have a really rich dog.
Yeah, I guess. So they need My9, but like, that's like now—
like, you took this in terms of like a trust and will solution instead of like my teenage viral app idea.
Yeah, My9 Probate is what it's called. And it's just like—
you really, uh, yes-anded that one. He went full improv kid on that one and took it to an holy place.
Dude, I've just been thinking about that. Have you not thought about that? Because like there's some shit that you've probably done. It could be small. Like every once in a while I'll like just do a deal. Like I'll just invest like $5,000 into something and I don't tell anyone about it. Like, you know, you and I, you and I were joking, $5,000 is about the limit where you like tell your spouse that you're doing it. And like, you know, there's been things that I've done. I'm like, oh, I don't even fucking remember. I guess there's a scratch-off ticket that I won somewhere. I have no idea.
Dude, yes, I've thought about that, especially with crypto. But then when crypto crashed, I was like, hey, never mind. Forget what I told you. It doesn't matter anymore. You know those instructions I told you about how it's written on this fireproof platinum card that's stored in this safe in this foreign country? Yeah, forget about it. You don't need to go retrieve it anymore.
Particularly with crypto, it seems crazy. So I need my 9. For my will. Goddamn.
Okay, fair enough. I guess that's the pod.
Did I— I meant to be a yes man on that one, by the way. Not a— not a—
yeah, you did.
All right, good.
That's good.
All right, uh, is that the pod? That's the pod.