205. Unicorn vs Pegasus, The Softbank Effect, & Impacts of a Recession on VC (Jason Calacanis)

205. Unicorn vs Pegasus, The Softbank Effect, & Impacts of a Recession on VC (Jason Calacanis)
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Jason Calacanis joins Nick to discuss Unicorn vs Pegasus, The Softbank Effect, & Impacts of a Recession on VC. In this episode, we cover:

  • Last time we had you on the show was July 2017. What big things have happened over the past (almost) three years with yourself and Launch?
  • Last time you talked a bit about the “Goldilocks zone”… sort of that post-seed, pre-A round. Is that still the stage getting most focus from you?
  • I read an article where you suggested that SoftBank is changing the way Silicon Valley thinks about going public.
  • What are the biggest positive effects you’ve seen from the Vision Fund?
  • What about negatives and adverse effects?
  • The volume of startups seems to be ever increasing… Any advice for founders on how to stand out?
  • Lots of people talking about an upcoming recession in 2020. If a recession were to hit, what happens to venture? How do you think it could potentially impact startups as well as investors or VCs?
  • How does your investment strategy change in a recession?
  • Anything founders should should do to prepare for a correction?
  • As part of the fallout from WeWork… I’ve been hearing a lot of VCs talk about a shift from growth at all costs to a focus on profitability. Are these empty words or are you seeing a material change amongst VCs?
  • Want to get your input on investment and selection…
  • First off, in the book, if memory serves, you suggest angels should focus exclusively on SF-based startups and founders should relocate to SF. We recently committed to a Launch Accelerator company that is not in SF, they’re in Chicago. Have your thoughts changed on location?
  • What is a unique requirement or heuristic you use that you don’t think other investors consider?
  • What are your biggest red flags or dealbreakers?
  • What are some acceptable risks or issues vs. what’s not acceptable?
  • I notice you talking about Pegasus startups (vs. Unicorns). What the heck is a Pegasus?
  • What tips do you have for founders to reach the Unicorn as well as Pegasus status?
  • You also talk about the “Dark Pegasus” can you give us some insight into what that entails and how to avoid these startups as an investor?

Guest Links:

Key Takeaways:

  1. Jason explains his funnel as “taking freestyle capital,” and combining it with their accelerator as well as their fund and syndicate. People thought this would be a conflict of interest however their founders see it as a feature. 
  2. Often VCs will forget that in this business, their customer is the founder. Jason shares the importance of staying humble, remembering to covet your customer and serve founders the best that you can. 
  3. Jason believes in order to be a good Angel investor you need to be in Silicon Valley. However, a great entrepreneur can come from anywhere and due to the difficulties of building a tech team, it’s best for founders to find a way to scale their companies outside of Silicon Valley.
  4. When a company comes out of the LAUNCH Accelerator, Jason typically co leads, participates in or even leads their next funding round, which in his experience creates alignment rather than a conflict of interest. 
  5. Jason see his role as an investor to anoint and prepare companies for downstream investors by solving as many problems as early as possible and removing objections that later stage investors may uncover while doing their diligence. 
  6. At LAUNCH they’ve created an alumni network that includes a Slack channel for all of their companies that have graduated from the accelerator. This allows founders to ask tough questions and get real answers from other founders that have experienced the same problems. 
  7. A Pegasus is a company that skips a round of financing or two because they’ve been able to run off of profits and reinvest them, keeping the company very lean. 
  8. The founders of Pegasus companies are realizing how diluted rounds can be and maybe they shouldn’t give up as much equity. They make sacrifices early on, such as, having less runway and smaller salaries, leading to bigger wins and more control of their companies later in the game. 
  9. As a result of the WeWork fallout, it has created a ripple effect that has polluted the ecosystem. Now we see VCs shifting from a “growth at all costs” mindset to being more profit focused. 
  10. In Jason’s opinion, it’s great that Masayoshi Son is thinking globally and making big bets, however smaller, more staged bets would have a more positive impact. 
  11. Making big bets and giving a founder of a successful company massive rounds of funding at once, has the potential for positive impacts, Uber as an example. Although, this also has the potential to create distractions and hurt the company more than help it. 

Transcribed with AI:

0:03
welcome to the podcast about investing in startups, where existing investors can learn how to get the best deal possible. And those that have never before invested in startups can learn the keys to success from the venture experts. Your host is Nick Moran, and this is the full ratchet

0:23
Welcome back to TFR today Jason Calacanis is back on the program. Jason is a serial entrepreneur, author, podcast host and one of the best angel investors in the business. He’s also founder and CEO of launch, which invests in early stage startups with over 200 companies in their portfolio. In today’s interview, we discuss an update on the firm and their investment focus since we spoke last in 2017. What’s unique about his investment process, the Goldilocks zone and also the Pegasus startup, the impact of SoftBank and Masayoshi son’s Vision Fund on startups and investors, what happens to venture in a recession, and we wrap up with Jason’s thoughts on the WeWork Fallout, and if there’s been a shift from a growth focus to profitability, here’s the interview with Jason Calacanis.

Jason Calacanis is back on the program joining us today from San Francisco. Jason is founder of inside the launch accelerator, the LAUNCH conference, host of This Week in Startups, and he leads one of the largest and most active syndicates in the world. He has invested in over 200 startups, seven of which have reached valuations over a billion dollars. And of course, Jason is the author of the popular book Angel, which we discussed last time on the program. Jason, welcome back.

1:42
Hey, thanks for having me. Great job with the podcast. By the way, you’re, you’re really cooking with oil over there. Appreciate that.

1:48
And you’re at what 1000 episodes? Yeah,

1:51
we had the 1,000th episode party here in Silicon Valley, just a small little affair with some of the guests who’ve been on and yeah, it’s, it really is like when you do something twice a week, it doesn’t seem like much, right? And then all of a sudden, you look up and it’s been 10 years of doing it twice a week. And last year, I think I did 130 episodes. And all of a sudden, podcasting is a thing. You know, when I started, podcasting was not available on phones because phones didn’t have the app store. And there were no podcast players. Podcasting was available on iPods, which was a device that came before the iPhone for people who are young, right listening to this, right. So I, I’ve gotten so old that I have to explain to people that the name podcast is because of the iPod. And I literally had somebody say, what’s, what’s an iPod? Imagine a wheel on a device and all your mp3 is we’re on it. What about the internet? Nope, no internet connection.

2:46
It’s amazing how the downloads change when something happens in technology to facilitate podcasts, like better apps, and all of a sudden, huge bump in downloads or when the air pods came out, got this massive uptick and surge and downloads. Yeah,

3:01
technology unlocks things, you know, it’s I, we have an internal term at launch, where when we talk about market size, I feel like that’s like, a very unsophisticated way to invest. It’s like what’s the market size, and you’ll find like some Tam, slide and you go to like the YC Demo Day, and they get up there like, and we’re operating in a tam of $18 trillion. And you’re like, what, what’s $18 trillion? You’re like food? And like, what? People eat $18 trillion worth of food a year and you’re a delivery service. But does that mean you have access to that whole? Tam, you know, it’s like, ridiculous, right? The best companies build bottom up Tam’s and they typically induce a market to exist. It didn’t exist before it. And when you think about podcasting, the internet had all the ingredients for podcasting. But RSS was one of those radar locks, right, Dave Winer that you had this great unlock of the iPod that had storage, it was in your pocket and headphones. And then another unlock with the App Store another Unlock With overcast with the Apple podcast player, which came out of a company called swell that we invested in, which was the original podcast player that Apple bought CarPlay CarPlay air pods, 4g, you know, because it used to be you’d have to download your stuff before you left the house or Wi Fi or else you’d get a huge bill. So unlimited. data plans also played into it. So you just thanks, cascade, right?

4:31
It’s amazing. It’s amazing. Well, for today, we’ll we’ll consider you the founder of modern podcasts for startups. Dave

4:38
Winer, should get the credit Dave Winer and Adam curry and Leo Laporte. Really were the pioneers. Wow.

4:45
taking us back. All right. So tell us we had you on the show in July of 17 talked about the book. Yeah. You know, what are some of the big things that have happened for you guys over the past? I guess three years, almost three years.

4:56
Yeah, I mean, the big thing is after the book In our Syndicate, which is@syndicate.com took me a little while to get that domain name has gone supernova. Back then you could only have 99 investors per deal. Now you can have 250, that’s a major change, as long as the deal doesn’t go past 10 million, and the number of people who understand private market investing, thanks to things like Angel List, funders, club, Republic, seed invest, you know, this whole thing has become a movement. And the same way that the Sequoia scouts and Angel List and Open Angel Forum, which was my little get together of angels kind of brought in a new group of people into angel investing. I feel like a whole nother group of people from my book and from Angel List and other efforts. From those other platforms I mentioned, like seed investing Republic, all of those things have just created this groundswell of I think it’s got to be in the low 10s of 1000s of people who are now angel investing as either a career a pastime or something in between those two. And once you start, and you get the thrill of working with the smartest people in the world, and in a way that can create incredible outlier results, it gets pretty addicting. And it’s very hard to give up. I know very few people who gave up being an early stage investor, for a reason other than getting too rich by Christakis, like I’ve made too much money, I’m done. And I see that happen. But I very rarely see people go, You know what, this is boring, or this doesn’t seem like it’s gonna work out. Everyone’s like, wow, this is working out. As long as you get to 2030 investments, you have enough diversification that you can hit an outlier. You know, unless you’re making the crazy mistake, which we talked about last time making one bet or two bets. Following a basic playbook, like I talked about my book, or AngelList, talks about of having that diversification, in high quality deal flow. Man, it’s an addicting pastime or sport, you

7:15
know, who I see leaving are the people that take on the entire lift themselves, right, they’re trying to they’re an independent Angel, they got a full time job. And they’re trying to do all their own sourcing, all their own diligence, cutting to bigger checks, and they can burn out on it if they’re not leveraging channel and not leveraging access points, like yourself, and folks that are doing this full time and have access to great deal flow and are choosing the best.

7:42
Yeah, when people ask me, I’m like, sign up for every single Syndicate, you can’t just every single one sign up. And if you sign up for all of those syndicates out there, and all the different platforms and read the deal memos, and just bet the smallest amount possible, while you’re learning, you’re gonna do I think, yourself a real justice, because you’re gonna take your time while you learn, and not make these big, huge, you know, bets when you’re a neophyte, and you don’t know what you’re doing. And paying 20% carry to somebody, if they do diligence, if they manage the investment, it’s a small price to pay you only, you know, pay it if you win, and, you know, paying 20% is, it makes it really easy if they’re sourcing deals that are much greater than the ones you can get to and if I have a podcast with 1000 people, you know, been on it, obviously, my network is going to be better than most angel investors. And if angel list is the number one platform and seed investor Republic are doing really well, they’re going to draw a certain high quality deal flow, hopefully. And you you should feel good about paying that carry I have some people who tried to make an end run around our, our syndicate. So they’re members of the Syndicate, they get the Deal Memo, and then they go to investor act. Oh, yeah. Then we get people tell us and then I go to them from the syndicate. Because I just think, you know what, it’s not even worth explaining to this person that that’s like, unethical, you know, or immoral or lame. So I just literally go something like, I haven’t got to do a meme. I’m like, Yeah, I wonder why that is. And then I tell them, like, you know, if you if you do an end run around the Syndicate, you don’t get access to these deals anymore. We don’t need you. We have 3900 members like 39 Or literally, that’s massive 1900 have done a deal so far. So we’re really trying to, you know, convert more people into making deals and for as far as I’m concerned, I like to see people making more investment, smaller dollar amounts. So with 250 slots, you know, people put in $4,000 Each I can fund for a million dollars and any one person’s exposure is $4,000. So let that sink in how amazing that is, in terms of for society to be able to run experiments and fun to come For a million dollars, with no one having more than $4,000 at stake, which is, like one of their cross country round trip business class tickets, who cares, right? For an accredited investor? They’re like, whatever, 4000. I was like, when did I lose it? Who cares? I’m going to spend more on New Year’s Eve.

10:14
So is that your minimum now? 4000.

10:18
We try to make the minimum as little as possible. It’s $2,000 on most deals, on deals that are like a million dollars, or two and a half million dollars, which we’ve done a couple of seven figure deal low seven figure deals, now. We raise it up to 10k or 20k. And then we tell people, if you want to do less, let us know. And if we can accommodate you, we will. And then I’ve had people ask me, like, listen, I tried to do 1k. And I’m like, go for it one day. The last thing I want is somebody overextending themselves, in their pursuit of learning, you know, the art of angel investing, I want them to learn and not put an only bet money they can afford to lose. And so if you know somebody $5,000 is too much to risk. If we can fit them in for 1000. And they ask, we’ll be like short.

11:07
I mean, we’ve we’ve got a syndicate as well, not not nearly the size and scale of yours, but like 950, folks, and yeah, it’s I mean, it’s amazing the money we’re able to put to work between the fund and the group, you know, get more ownership, take more significant positions help startups more, but we’ve set our minimum to five, maybe I’ll ease off of that based on your feedback. But well, you

11:28
could have five be your minimum. And then you could say, if you want to do last noted on the form, yeah, let us know. Are you using AngelList? Are you using a shore? How are you doing?

11:38
We’ve done some of both? We’ve done I mean, we built it on AngelList. And we’re ranked I think number two overall of syndicates on AngelList. So that’s where we have the most attachment and the the highest set of fans, and we can raise the most capital, but we’ve experimented with both.

11:51
Yeah, I mean, that was part of the reason I left angel list was because I was ranked number one. And then they wouldn’t count my deals out of my accelerator, because they felt it was tainted. And so then I dropped like number three or four. And I was like, Oh, you guys are literally taking. Like, it’s like being like LeBron James or something. They’re like, yeah, by the way, we’re gonna dock you 10 points a game. And then that’s how many you score per game. And I’m like, that’s not fair to evolve. And I was. And they were like, well, that’s how we see the world. And I was like, alright, well, I see the world as the syndicate.com. And I’m out. Wow.

12:24
I mean, was that the primary primary motivation for leaving? Oh, there was

12:27
that. And also, you know, in the fall, and I are friends and hope still friends. And they at the time, they wanted everybody to give them 25% I had negotiated a better deal. I think they kind of resented that I, you know, push them so hard to give me a better deal. And they want it to revert that deal back and have me given 25%. And I was like, I’m the best at this, I have a book coming out of a TV show coming out. If you want me on the platform, you need to count my deals, and I want to pay you 0% carrier just want to pay you the fees. And I’ll bring attention to the platform and I want to be ranked properly. And they were like, we’re just not going to negotiate with anybody. And I was like, Okay, I’m gonna leave. And they were like, okay, and I was like, okay, and that was that. Wow. And so it was a really dumb move on their part, I think because, you know, but they don’t need me. And I think they’re doing fine. But if you look, I have the most successful deal in the history of Angel List, which is calm. And until anybody has a 200x deal. I think I’m still number one. Wow. No, I haven’t been there for years. And

13:33
here’s the thing. I mean, you still speak their praises, you still talk about an angel list a lot you recommend for people to join the platform. And yeah. So everyone’s friends.

13:42
I think they also changed their policy. Now. I think they’re only charging fees now, right? Or they only charge fees for people who owe if you bring people to the table, so they don’t charge carry on that. That’s right. And they had started offering me that kind of thing. So I think Nevada and they were thinking about that, like we’ll take 25% of your carry on people we bring to the table you bring people you don’t have to pay carry on it. But you know, we wound up a sure fund management was backing was doing the back end for all their stuff they left. Yep, we invested. We put in about a million dollars into assurance last round. So we’re now investors and onshore and offshore provides a service for like, I don’t know, eight 910 $1,000 and SPV. And anybody who wants to start a syndicate on AngelList, and do it, pay them carry or you can just pay it yourself and go directly to a shore. So Right. And I think there’s other lawyers who are getting onto this now and the rumor is that carta is gonna go heads up against AngelList that’s what I’m hearing. That’s what I’m here. Yeah. So I think AngelList had to shift gears a little bit. And, you know, I’m all for everybody making money, but navall You know, you’ve heard his podcast where he’s like, I just don’t like to negotiate with people. You know, he and I am like, rabid negotiator did say Jason Calacanis. And so I kind of do The relationship just blew up based on the nature of our two. I think personalities. Yeah, if I had been negotiating with somebody else there, he had been negotiating with somebody other than me on my team, I think I might still be on that platform. But for the two of us, I was like, I want Max money. He’s like, I want everybody to get paid the same. You’re a socialist, so that your capitalist socialist is how we give deals to people. But I’m a capitalist overall. Okay, good to know. Well, good. Well, but I loved of all, and I love his podcast, he’s been doing great podcasting, his philosophy stuff is awesome. I kind of miss him too. Like we used to be kind of friends and hang out a bit. And we don’t. So it’s kind of a loss. For me on a personal basis.

15:39
Interesting. I know he’s very protective of his time Or so he says in the in the podcast. That’s what happens

15:45
when people make a lot of money and they kind of get famous, like, especially introverts, I noticed it happened to Tim Ferriss too, like and Tim just wrote about it. Actually, yesterday, he wrote a really good blog post last night about just what it’s like to get famous. I think my perception of my friends who get famous who are introverts, is it becomes a really draining reality for them, and they don’t enjoy it. And then for me, and my friends, who are extroverts, like getting micro famous in our industry, or getting attention or getting engagement becomes an energy growing proposition. And so I’ve had to learn like with my friends who are introverts to like, just shift gears a bit.

16:24
Interesting. Any idea why Ferriss shut down his syndicate?

16:30
Oh, yeah, he talked about it on the random show with Kevin Rose just last week, and it was a great episode. No, no, actually, just like, the best part of the episode, just talking podcasts was you could just see they had such a great friendship, Kevin, and Tim, and he just felt I felt very happy for them that they had each other as friends. And it was this great like to our like them talking about their love lives and what they’ve learned over the last decade, and I knew them both have left that, you know, watch the boat mature. So it was it was just charming episode to listen to. But for him, he felt like that was taking all of his time. And it was a huge obligation, and that he enjoyed the work of writing books, and doing that work more. And the only way for him to be able to deal with the onslaught of people sharing deals with him and his friends, sharing deals with him and his people who we thought were friends who were actually using him to try to get them to tweet about these companies, was to just make a public statement. I’m not doing this anymore. And I was like, Oh, wow. So this is something that somebody picked up from either Tim or Nevada, because you didn’t saw the same kind of circle. Because navall just made a public statement. I’m no longer appearing on anybody’s podcast. Yeah. So when you make they’re operating under the same thesis, which is make a public declaration, so nobody feels bad about it. Yeah. And now Tim has expanded that to he did I’m no longer writing blurbs for anybody’s books. And then he just said, I’m no longer reading books that were published in 2020. I’m only reading old books, so that he can work purposely get people to not do things. And I did it in our life. I said, we invest in Goldilocks zone companies. And here’s our Goldilocks zone, not too cold, not too hot. When people come to me, I’m like, You’re too hot. You’re too far for too long for us. Thank you for thinking of us. And then when it’s too cold, they say, oh, not yet. But here’s what you need to do to get into our accelerator.

18:21
Got it? Yeah, I

18:23
think Fred Wilson did that as well. years ago, no podcast. But although I think he’s done some recently, or at least he was at the upfront Summit.

18:30
It’s one of the weird things that happens when you get successful. You have to like, You drowned an opportunity. And that was something Mark Cuban told me when I was running weblog, zinc, I would forward him all these. Because he’s really mentoring me on how to run a business. I would for them all these opportunities. He’s like, let’s not drown an opportunity. Like let’s launch the next Engadget. Let’s do the next Autoblog was to the next joystick, let’s, let’s remember what got us here. What are you sending me so don’t drown an opportunity. And let’s remember what God is you’re launching great blogs on topics people care about, right? It’s very important when you get successful is to be able to say no. And for a person who’s an introvert, it carries like, I find a a massive amount of cognitive and emotional load. When I say no to people, like somebody asked me to do something like Oh, yeah, that’s just what I want to do build your business. And they’re like, yeah, no, I just took a shot. And I’m like, yeah, no, I we have commercials on my podcast. I used the commercials to make money for people who want me to promote their stuff. Like I’m not just gonna promote yourself for free. Why would you even ask me that and like I took a shot. But for you, can you imagine Devala Tim Ferriss saying that to somebody? No. Like this just that would be emotionally, like, maybe draining for them. So I’ve gotten a lot more respectful of the introvert mindset. I realized that I’m so you know, fifth gear all the time that I just steamroll introverts and at Are Tim Ferriss on his podcast talking about people who were always asking him for stuff. And I was like, Oh my God, I hope he’s not talking about me. And he just happened to call me because we were talking about something that we both had in common. And he needed some advice. And we talked and I said, you know, Tim, I heard you on this podcast with Jerry Kelowna say that people are always asking you for stuff. And I just want to let you know, I think I’ve asked you for two things. Like if you wanted to come on the podcast, and this other thing, if you wanted to come to dinner, I hope that I’ve never over imposed on our friendship, because I consider us friends. He’s like, no, no, no, no, no, you have no idea. The amount of days I’ve been asked to do. You’re the like, Most Gracious, nicest person like, you’ve never asked, I never asked any of my friends for anything, I find it like, a horrible thing to do to just like, lean on people to solve your problems. And understand it when I was coming up. You know, I needed to get some things going. But sure.

20:50
Yeah, so So Jason, you mentioned the Goldilocks zone, I wanted to ask you to last time, I think it was like a post seed pre a round, is that still the sage that’s getting the most focus from you? Yeah, so

21:03
what I’ve done is I’ve built a funnel. And I’ve never really explained it publicly. But I’ll do it here now. Because why not, you’re nice enough to have me on the pocket for a second time. So at the top of the funnel, is a podcast called This Week in Startups and my events, LAUNCH Festival scale, all that stuff out of university, and all that stuff is free, it lets me engage with a large number of founders, you know, millions a year at scale. And then we have the launch accelerator. And that’s where we invest six $100,000 for 6%. So like the Y Combinator original deal, and I spend 12 weeks and 200 hours with those companies. And I actually do that that’s my actual primary job now is to sit with those startups and help them with their companies and introduce them to other investors. And that group tends to have 5000 to $100,000 of monthly revenue. They haven’t done a Series A, but they have their product in market. And somewhere between 25 and $75,000 a month in revenue, those companies get funded to the tune of 750,000 to $10 million after they graduate from the accelerator, but probably more on average is the million to 3 million. And so we will then participate in that round, typically co leading it. So we do 6% there at that launch accelerator phase. So that’s like our Y Combinator, you know, TechStars kind of competitive slot above that as the podcast, which would compete with, you know, TechCrunch, Rico, deca, whatever contents out there for startups. And then after that, we have our fund and the Syndicate, do seed rounds. And the average of $700,000 For this, you know, in 2020, will probably go up to a million million and a half on average, for various reasons. And that then gives us another 10% ownership in the company on average. So between those two bets, we get to 16% ownership. So it’s like taking cowboy ventures or homebrew or freestyle capital and combining it with an accelerator, which people thought would be a conflict. But our founders see it as a feature. So when somebody comes to our accelerator, we tell them we’re going to co lead, participate in or even lead your round coming out of the accelerator, like always had a conflict of interest. I’m like, No, it’s alignment. You we want to get down. Well, actually, technically no, because we have the right to do it. So we put in the document that we have the right to do it, which is a little polarizing, because some people refer to that as super pro rata. What we tell our founders is we’re going to introduce you to 200 investors, they know that if you graduate from our program, we’re going to have skin in the game and put more money in. So we’re not trying to do the Y Combinator game, which is this really smart way to play the game, which is we got our 7% at a 2 million or sub 2 million valuation, and now we’re going to pop the valuation 5x I’ll let you suckers pay 10 15 million for this company that 12 weeks ago, we paid 2 million for, like, you know that game. And that’s why there’s a lot of resentment for Y Combinator is that they’re able to do that. And God bless them, they figured out how to do it, they provide value for it. And then we do is SAS to the tune of 400 companies a year. I mean, they’ve made the most of that franchise, say what you will about the what I’ve said is we’ll have skin in the game at the accelerator phase and will put skin in the game at whatever the market valuation is. And so I think that’s a little more intellectually honest. And then what we do is if the company breaks out from there, and all of our companies are required to send us 10 monthly updates or monthly updates. And I’d say they probably do it six, seven times a year but they’re required to do it monthly. Just short ones. Hey, here’s how much we spent. Here’s how much we made. Here’s what’s working, here’s how you can help. Here’s how much runway we have. And we do that mainly because we want to know when they’re gonna go out of business and run out of money. So we can help them get more money. Sure. Putting that aside, we study that data. And then we offer the best companies, ones that are doubling revenue and under six months, which means they’re tripling it year over year or more, we will say to them, Hey, when are you planning our fundraising? Like, we’re not or we’re going to do it next year, we got 15 months runway or we’re profitable. Now. We don’t need to raise money. And I’ll say, How do you feel about us giving you 500k Or a million dollars from the syndicate and our fund at this valuation? And four to five times? We’re now five out of six times we’ve done that the companies have said yes. And that got us to the 20% ownership market. In one case, I think 23% Wow. So the round. Yeah, I mean, so we’re, we’re basically topping it off. And in one case, the person was like, No, I want to go to market. They went to market, they took three meetings, who was an enterprise software company, they were doing great. They had like 3 million, maybe, yeah, 3 million in revenue. And they were like, This is gonna be harder than we thought, you know, to hit the numbers we want, can we take that million? I was like, offer still on the table? I’m like, Oh, can we raise the valuation this much? And I was like, alright, I’ll meet you halfway there or whatever. Sure. And so that’s my new playbook, which is to try to remember when I started as a scout, I had under, you know, had low double digit basis point ownership discoveries, 1020 3040 basis points. Now we’re then in the middle of my career five years ago, you know, 2%, of superhuman 5% of calm, that kind of range start to feel a little bit more real right. Now we’re starting to hit these bigger numbers, you know, 1015 20% ownership. So I’m trying to do something that hasn’t been done here in Silicon Valley before. And that’s really what I’m uncovering here. On the full ratchet for the first

26:41
time. Are you still investing outside of the launch incubator? Or the launch accelerated companies?

26:47
Absolutely, yeah. So when we see a company that’s got to, let’s call it a million dollars a year in revenue, they’ve doubled revenue in the last six months, we can come in and do what other firms can’t, which is just say, Hey, you want to do 500k? Or a million dollars? You know, okay, it’s a $20 million valuation, it’s a $12 million valuation. We don’t need to hit an ownership target. We just love the founder, we want to be in business. So let’s run a syndicate. And if it hits 750, great if it hits, 2 million great, sounds good. And they’re like, Yeah, sounds good. Want to work with Jake, I’m like, Great, let’s go. And so we’re building out our team. So we can evaluate more companies like that, candidly, we’re overwhelmed right now, we sort of you, you probably are experiencing this yourself for the success of your podcast, at a certain point, you tip over from chasing deals, to being drowning in opportunity, and like, it’s a day lose. And you’re literally like, you got this incredible, you know, incoming inbound, that you can’t even keep up with,

27:48
we have three people that are just filtering constantly. And this

27:52
is where I think, you know, VCs lose their minds. Sometimes I don’t know, if you saw the whole thing about, like, here’s how to email me. On Twitter, yeah, Vc is losing their mind. Like, here’s how you, the founder need to email me, and then I just kind of dumped on them. And I was like, you can email me anytime. My name is Jason calacanis.com. While these dipshit VCs tell you how to email them, and are so precious, I am happy to get your email and I get back to as many as I can. And literally got like a, I got like, 500 emails at night, great companies, I mean, be careful what you wish for sure. But like VCs are so delusional, that they forgotten that, like, their customer is the founder, and that they should covet the customer. And they’re literally telling them, like, here’s how to email me, or they put on these like, autoresponders like, I can’t get back to your email, because that’s my job. And emails, so arduous. And I’m busy in Kyoto and Aspen. But there’s somebody might get back to you. There’s still a

28:47
huge contingent of VCs out there that fancy themselves as the boss of the founder, instead of the servant. And it’s, I just, I do my best to avoid those people.

28:57
It’s very easy to get high on your own supply. You know, when all these investments all of a sudden turn into shares and publicly traded companies, and you’re like, Oh, my God, this is real. Oh, my God distributions are happening. Like, that’s what the last couple of years have been. For me, like the first five or six years. I was like, this is fun. I wonder if it will work out and turn out to be anything. And the last, like four or five years have been Oh, yeah, wow, there’s distributions and K ones. And oh, my God, I got a lot of tax issues I got to work on like, all of a sudden becomes real and you can get high on your own supply. And you have to stay humble like, and that’s why I specifically didn’t join and we had the opportunity to make our thing part of bigger things. Leave it at that. And I could just be writing one $20 million check for a very large fund right now, or a couple different of them. Sure. And that would be a pretty great lifestyle, put 20 million to work and one company I put 25 million to work in 80 companies last year and this year, I’ll put a similar amount in to 120. Maybe, you know, it’s a lot more work. doesn’t scale as gracefully You know, I have to be available for founders who are calling because they’re running out of money or their businesses are blowing up, or they lost their co founder or, you know, people crying and you know, people having nervous breakdowns like it’s a lot of work. It is. So,

30:13
you know, while we’re on this topic, I’m going to call you out here.

30:17
Okay, we got let’s do it. Yeah, I

30:18
think from the last show, and from the book, if memory serves, you suggested that angels should focus exclusively on San Francisco based startups. And I think you might have said the founders should relocate to SF.

30:30
Yeah, that may suddenly change. Yeah, yeah.

30:34
We recently committed to a launch accelerator company. And guess what? They’re based in Chicago. Nice. I was asking the founder, Michael, you know, what’s Jason’s stance on this? And he’s like, You should ask him yourself.

30:47
The opposite. Ya know, what I said was to be a great angel investor, not forget about founders, just angel investor, chapter five of the book was to be a great angel investors, you need to be a Silicon Valley? I said, Yes. Because I think you need to have access to the great deals. Does that mean a founder has to be here? No. And what we’ve seen over the last two or three years, you know, in Silicon Valley is you cannot build a tech team here. You can’t build a company here. Unless it’s a very small management team, you have to find a way to scale your company outside of Silicon Valley. Yeah, it just it no longer works. The city broke. And when did the city break was it three years ago, two years ago, one year ago, four years ago, we can debate it, it was sometime in the last four or five years. It it feels like the last two or three years, like almost like right, when the book came out, which means four years ago, I would have written the book. So it broke in the last four years, for sure. I mean, its impact. You can hire somebody, if you were to put up a job description for $50,000 here, or $60,000, even somebody might punch you in the face. Like they literally would write a Medium post about you. So then that leads when to say, if you can hire sales executives, or a great marketer, or a developer working from home or start a sales office in Utah, or Colorado, or Houston, or Miami or Chicago, and you put out a $50,000 job description, and you get 300 resumes. And when you do that, in San Francisco, you get 300 emails flaming you for putting up a job within a livable wage. But take a genius to figure out something’s changed, right. So yeah, roll with the punches. In my day, 1520 years ago, your term sheet came with a clause that said you will be within 75 miles of the VCs office. Yeah, not anymore. VCs are like, please do not burn our money, irresponsibly. Go burn it slowly somewhere else. Because they don’t want you coming back here and be like, Yeah, I spent, you know, $175,000 on a marketer. It’s like, well, you can hire a marketer in New York for $80,000, you know, or in Miami for $60,000. And you’ll have just as many resumes, so why don’t get two, for one. Quite

33:01
a few VCs that passed on Amazon because of that clause. 75 mile clause. Yeah.

33:06
And the fact is a great entrepreneur can come from anywhere. And people want to leave San Francisco because at the same time that it got too crowded here. It became a horrible place to live. So you have this doubly oppressive thing happening. You’re paying so much to live here. And it’s so horrible at times due to the crime and the homelessness, car break ins and just dysfunctional government. So people are starting to go like wait a second, I can live in a I can live in Austin, not pay state tax. I can live in Florida, not pay state tax. And there’s a pretty great a great story of somebody who had a gaming company here, sold his gaming company, but he kept one of the games. And then he went back to Atlanta, and he told the team, I need 15 people to come with me to Atlanta, if anybody wants to come let me know. And he was he told me like I thought I’d get like three of them. He pulled off 15 positions. Wow. And people are like, eff San Francisco. I don’t want to raise my kids here. This is oppressive. The crime situation is scary. Yeah. You know, it’s just it’s scary here. You know, I’m a kid from Brooklyn. I’ve seen some really rough stuff on the streets. And like seeing people on methamphetamine or you know, heroin or crack like, and nobody is cops are doing nothing. They’ve been totally neutered. And you just get the sense of like, this is spiraling out of control. And there’s a you’ve seen the videos of like this poor woman being beaten up in her doorway. And then the judge lets that person who attacked her at out on bail the next day. And it feels like it’s really coming apart. It’s it’s, it’s a really strange feeling to be in a city with so much innovation and optimism and wealth and growth and then to see so much suffering. It’s really confounding you Nice, nice. Somebody’s got to fix it. Well,

35:04
yeah, certainly a huge issue and probably not enough time on this show to talk about all the issues with San Francisco. But yeah, let’s talk a little bit more about investments and investments election. We talked about geography, how you’re willing to invest in founders from anywhere, what about like, unique heuristics or requirements that you use that you don’t think other investors consider?

35:27
Yeah, I’m a risk taker. I don’t care about the total addressable market, as defined by Gartner Group or whatever we’re looking for, you know, three, four or five clients customers paying for your product that we can talk to, and where you source them from? Yep. Because if you look at those first five, you know, the first two might be like, I worked at those two companies. And the third might be like your cousin. And then you look at like, the engagement of those first three customers are not actually using the product, but they put the corporate card down. And then I say, Well, what about the timing, what the fourth and the fifth company and the fourth or fifth, were sourced? From, and I think, actually, Jason Lemkin is the one who pointed this out to me, so credit to him for this thesis. The fourth or fifth were like, Yeah, we got this one, because they read an article about us in a trade pub, and this one, we email cold, you’re like, Oh, okay. So you know how to get customers other than your fraternity brothers? Great. Let’s continue. And then we like, we, like founders who are running experiments with pricing, and testing that were amazed at the consistency under which people set prices with no thought. Like, people come to us or when they’re like, yeah, what are you charge for the product? Like $10 $10? What? Like, per month, per seat per month? And they’re like, Yeah, we yeah, we did, what we did one person, 500 per month was at about 30 people, and then we’re doing 10 per month for this group. But we just got this one to five. And we’re like, okay, how do they do? How do they use your, before they had your product? What did they spend to accomplish this? And if your product went away, what would they have to spend to accomplish it? Like, yeah, we haven’t thought about that. I’m like, Yeah, all right, well, here’s something for us to work on in the accelerator, you might be charging way too little. And giving up a huge amount of margin that could be put into the flywheel of acquiring new customers, or you might be charging so much, that you’re not getting people to even try the product because they think it’s not worth it. So let’s be considered about how you’re charging for this product. And it’s amazing to me, sometimes we’ll have a company come to the accelerator, we’ll have them double the pricing, or triple the pricing. And they’ll see no difference. And people will convert in three months to the new pricing. And all of a sudden, the company that came in with 5000 a month in revenue is now a 20,000 interest because they tripled the price. And people perceive the company completely differently. I’m talking about downstream investors. Sure. And so we what I look at our role is is we anoint, and we prepare companies for those downstream investors. And we know what the downstream investors are going to say, because I face those downstream investors as an entrepreneur. And I’ve worked with them at Sequoia as a scout, I know what they’re thinking, well,

38:26
you bring them in to, I’ve heard a bit about your accelerator, and it’s so easy there.

38:33
We walk them in the door, sometimes we’ll walk them in the door, it happens. And what you’re referring to is that sometimes we’ll do little visits to certain VC firms. But we, you know, we know that cap table issues will kill a deal down the road, we know that IP issues, we know that founders having invested all their shares up front could cause an issue. And so what we’ll do is we do diligence. When people come into the accelerator, that’s the level of the Series A, which is probably two or three rounds from when we are investing, what they would go through, and we make them make a document locker and we make them you know, get all their bank statements and make them get their accounting, they usually don’t have an accountant, we introduced them. Here’s a list of five accountants. They don’t have their document, they don’t have a proper Silicon Valley attorney. Here’s five attorneys, you know, pick one, if you want to, you know, get this worked out in the next 12 weeks. And we try to let them know, here are all the issues and red flags that will go off when you’re meeting with Bill Gurley at benchmark or chamar, that social capital or Rick Thompson, you know, like, here’s what those investors are going to be looking at, or their diligence people will be looking at so let’s solve those problems now. Yeah. And at least that you know that their problems and why and so then people come into the accelerator like, oh, wow, these people are really thinking like the third or fourth move down the chessboard, not just the first move like product market fit

39:58
when they’re less expensive. too early, right? Remove the objections early if you can.

40:04
Yeah. And then the other thing we do is we have the format of our accelerator. The launch accelerator is we have about 10. Investors come every week and ask questions. And then we record all those questions, and we kind of analyze them. And we let people know, this is why investors keep asking the same question about your go to market strategy. Because you don’t have one, where it’s because it’s weak. And here are companies in our portfolio that went to the accelerator who had kick ass go to market strategies. Here’s how they discovered that go to market strategy, here’s how they executed it. And here’s how they explained it to investors, why don’t you talk to them. And so that has led to us having an alumni network now. And that’s really the best reason to go to TechStars, or YC isn’t the program itself, those are good to great depending on which city you’re in, and your opinion of them. But the alumni networks are extraordinary. And so we created a Slack instance, with all of our companies in it. So now we’ve got hundreds of companies, or between 102 100, I should say, but hundreds of founders talking to each other. And so I’ll you know, put my girls to bed, you know, and watch an episode of something, get on the peloton, get off and check my slack. And I’m like, Oh, this is a great Slack message. Somebody wants to know how to solve this issue, I can go solve that. And they go read the answers. And there’s six other founders who’ve answered it better than I could. Interesting. And I’m like, Oh, this is great. I’ve worked myself out of a job there. The founders are helping each other. So really now what I’m trying to do is take our accelerator. And as good as it is, if you’ve met some of the people who are graduating, I’m sure they’ll tell you, it’s pretty great. We try to make what I’m trying to do for 2020 is make post accelerator better than the accelerator. So can we be better investors for the people who are graduates than the people in the program. And that’s gonna take more work. But I like to give our team like additional challenges. So now we’re doing checking calls, proactively, and we’re doing accountability calls. So I just had this last week, our 15th class had their accountability calls last few times. And it’s really like they look forward to it. They look forward to hearing each other and seeing each other’s faces on the Zoom call. And they’re kind of proud to show what they solved

42:17
from the last call. And they all do it together the entire code, we do

42:20
it together like a mastermind group. And so five out of the seven showed up for the second one, and I think six out of seven for the first one. Some of the companies are just off to the races. So it’s like you really don’t need to tell a company like Fit BOD like, hey, come join us for this accountability call. It’s like they got over 10 million in revenue. You don’t need but when you’re still trying to close that round, or trying to hit the million dollars in revenue mark or hit breakeven you might want or you might appreciate this thing they call the mastermind groups in the real world. Yep. Yep. And then they usually have some Svengali charging $5,000 Each to hold you accountable. And oh, sure. It’s predatory

42:55
IPO is kind of like that.

42:56
Is YPO like that? Yeah. I mean,

43:01
it’s an expensive mastermind group. I think they’re really helpful. I mean, people talk about singing their praises, but, you know, yeah,

43:08
I mean, being an entrepreneur is like a really isolating.

43:13
You know, yeah. Yes. So talk

43:16
to me about this. These Pegasus startups. I’m hearing, I’ve been reading some articles you’re talking about? I mean, I’ve heard about the Centaur. The 100 million, of course, the unicorn billion. What’s a Pegasus?

43:29
A Pegasus is a company that skips around to financing work, too. So the first one I encountered was com.com. We invested in the company when it was a four or $5 million company, we did a syndicate, I put a little in for my fun. So it was $378,000 invested, we had about 7% of the company. And the next round was 250. And the next round after that was 1.2. So that was really eye opening to me. And I talked to founders and like, well, you know, we, we got the flywheel going. And so we just skipped those rounds of funding, and we got the valuation higher. And so that, to me, is happy to second time with fit, bought another subscription based service went through our accelerator, we tried to invest more, as I told you in that funnel that were working to try to get that second investment in. But they didn’t want money. And we just wound up investing in the company later on, but you know, much higher valuation, but they they basically have been able to run off of profits and reinvest them and keep the company really lean. And I think the company notion, the like wiki company that people are crazy about I heard they raised 10 million at $500 million valuation or something crazy. Wow. And it was from some rich dude who just put in 10 million or something or 5 million, and they too have just got the flywheel going and they’ve just don’t need to raise money. And these founders are becoming there’s a group of them who are starting to realize the How dilute of rounds can be. And they’re starting to say, Wait a second, is there a way I can suffer some pain now? not have as much runway not have as high of a salary, live with a little more austerity early on, in order to have a bigger win later, and even more control of my company. And actually, what’s the what’s the big survey? Qualtrics? I just had the Brian from Qualtrics. On the podcast, they did the same thing. They were a Pegasus they didn’t they owned, like 70% of the company by the end or something crazy. Wow. So you’re starting to see founders realize maybe we shouldn’t give us up as much equity. Interesting.

45:38
I mean, is this related to a larger profitability versus growth question? I mean, I’m seeing all these VCs on Twitter talking about how they’re there’s this massive shift kind of from the WeWork Fallout, to not be grow at all costs, but to focus more on profitability. I mean, it’s not just a bunch of hot air, are you seeing kind of a shift in the mindset of the the AMB VCs?

46:04
Wait, Sagan. I lost that script for a second.

46:10
Basically, I’m saying is this is this Pegasus thing related to a larger point about profits, and focusing more on you know, self funding and profits? And and then my question was about these, the WeWork Fallout and how I’m hearing a lot of VCs talk about how they’re shifting from growth at all cost to more profit focus. I mean, is that hot air? Is that actually happening?

46:32
Yeah, that’s definitely happening. So I think they’re two different issues. One has to do with the early stage and being having austerity measures locked in place. So at the early stage, you don’t need as much capital in those highly diluted rounds for small amounts of capital. The second issue, the WeWork, issue is, and obviously, Uber, Lyft, DoorDash, etc, is the private markets wanted growth, they wanted to see how much market share, you could take how many hundreds of millions of people, you could get to use the product and see how big the base of users could be, and worry about profitability later, because you can always flip that switch. In some cases, flipping the switch might be an easy thing to do, I think for ride sharing, I think for delivery of food, I actually think it’s gonna be pretty easy to do. Because people did pay for rides before and they weren’t profitable before. And the same thing with food delivery used to I read a statistic that they used to make $1.50 to 250 per delivery, some of the other platforms that came before the UberEATS DoorDash post mates era. So that’s been a pretty radical shift, because nobody really thought the public markets were so out of sync with the private markets, everybody thought, public market investors, so Amazon lose money or breakeven for extended periods of time, therefore, they are going to be cool with us, you know. And so they weren’t, and they didn’t buy the story. And I think we work is the reason, because we work was so farcical and insane. And the founder was so deranged, and his behavior was so too, ranged, that that has now polluted the entire ecosystem, to which the public markets say, you know, what, we don’t want to deal with this nonsense. Prove it to us. If we work hadn’t been so ridiculous, I don’t think the markets would have been so harsh on Uber, Slack, Lyft, etc. And I think Postmates and DoorDash would have been public already. And then maybe not growth at all costs. But growth is what’s important investing and building the base of these things is what’s important, would have continued. So as an entrepreneur, you’re in a system, and you have to respect the system that you’re operating in. And I think, you know, Uber is I’m kind of sad that Uber is not in Conquest mode anymore. But as a shareholder, if the mark public markets want to see profits, okay, give it to them. Because you know, what’s going to happen, they’re going to deliver the profits, they’re going to cut costs, they just got out of India, they’re going to cut anything where their third, fourth or fifth place, they’re going to double down on first and second place to raise prices, modestly. DoorDash will run out of money. Lyft is running out of money, and they’ll have to cut the subsidies and get to profitability. And then the public markets in two years, like where’s the growth? Can you focus on top line growth again, and then we’ll have the cycle switch. So you just as entrepreneurs, I think, and investors have to be respectful of what the public markets want.

49:22
It’s kind of amazing how one big personality and one company can create such a ripple effect.

49:28
Of course, yeah, I mean, listen, people are emotional creatures, you know, and when things go up or down, yeah, you know, I mean, look at like the Tesla queue versus like Tesla long. That whole insanity is like, you know, just mind boggling like that. You literally have people who are so deranged that they’re flying drones over parking lots trying to find you know, Tesla’s or dead Tesla’s or the Tesla graveyard and Tesla deliveries and Vin no Members and they’re like trying to figure out some grand conspiracy. And you know, back to what I do as an investor is talk to the customers. Hey, dipshit Tesla que idiots talk to people who own the car. They all say the same thing. You have to get one you have to get one use my code, you have to get one investors out there. The short investors are the stupidest people I’ve ever heard of like literally instead of talking to customers, they’re like holding GoPros on sticks trying to look at the tent where cars are getting belts, right? And they’re obsessing over the things that are probably not important. While what is truly important is the number of cars delivered. And do those people love the cars. The people love the cars. I mean, do you want a Tesla? I don’t. Okay, do you know somebody who wants a Tesla Mini? Do they ever shut up about it? Candidly, have you ever shut up about

50:56
now the testing, folks? I mean, you know, there there were some issues right with the early cars, little things corner but largely speaking people love them. And I’ve never heard of

51:06
I’ve ever heard a Tesla owner tell you about their latest software update. Like no, no,

51:12
I get it all the time. Or sorry, sorry. Yeah, of course, like,

51:17
oh my god at Spotify now. Oh my god that, you know, Robert Scoble. Oh my god, I got the 3.1 self driving oh my god, I chose topsides oh my god, it shows that like, they’re updating the software every month in their cars, like the base of users are on Tesla’s will never buy another car

51:29
delighting users on a regular basis. Ridiculously so. I mean, the short investors are likely valuing this as just another automotive company, right? A manufacturer of cars. And the whole premise is just I mean, Tesla could be overvalued. But that premise is just not accurate. Because it’s, the company does a lot more than just print static assets that lose value over time, right? I mean, it’s very arguably you could say that the lowest value that the car is is the time you buy it, and it’s just going to keep increasing in value over time with these software updates.

52:07
It is crazy how much better the car the model three is now compared to when I bought it like they just keep delighting you with new things.

52:14
I was that what you have the three I have one of each.

52:19
Super obnoxious flex, but you know, I bought the Roadster, I have number 16 of the Roadster, I have seen signature 16 of the Roadster. Right and that signature, one of the Model S that Elon gave because I was the first person to order it before they were even available during the financial crisis. So that’s those two are collector’s editions that I have to get in a museum somewhere like, I want to put them in the Smithsonian or something. So if the Smithsonian is listening, the Ford Motor Company they have their Henry Ford Museum they offered to take so I may do that and just take the tax deduction or something. Love it.

52:50
Well, we could geek out on Tesla, but going back to work a little bit. So yeah, Softbank was Softbank was, you know, also had their hand in it and was a, you know, significant funder of we work so and you’ve kind of suggested that Softbank may be changing, you know, things in Silicon Valley and companies going public. Give me your thoughts on, you know, how things have changed, because soft banks in influence, maybe for the positive? Let’s start out with, you know, one of the best positive effects of the Vision Fund.

53:25
Yeah, I mean, if I don’t know that, it’s if you were to compare going public, versus extending going public by taking a giant round, that that would be positive. I think everybody uniformly agrees, like getting public and having more discipline is overall the better model. Now, making a big bet on and giving a founder of a successful company like two rounds of funding at once and letting them just charge ahead to win. That did work with Uber. And I don’t think it worked with Zoom pizza or brandless. So you just have to think about the amount of fuel you’re putting into the vehicle or into the rocket. And sometimes there’s an amount of fuel, which the rocket is not capable of deploying, and it becomes too dangerous. And I see it up close and personal when people do big rounds. The founder starts when the founder starts getting involved in like, the design of the reception area. And like how big the custom reception desk is, and then they start worrying about their jet or their jet share. And you are like, wait a second, the jet is the reward after the company goes public, maybe but you know, Adam got a G 650 or something crazy like that. 70 million RP laying eggs, like, this shows you when a lack of governance and a large amount of money does, it gets people unfocused. And that’s just human nature, you know, and I have to contend with it on a micro basis, just okay, I have to find meaning in writing 100 paychecks, that a 500 to a million check after Uber goes public, or, you know, eventually Robin Hood and calm, you know, if they have big outcomes as well, hopefully, I have to contend with that. And, you know, I’m a 49 year old man who’s comes from humble beginnings, I think I have my feet on the ground, and I’m pretty stable. But, you know, when I was 30 years old, if people gave me, you know, that amount of runway, I might not be able to do and then you have improper governance setup. You know, which YCombinator kind of started this, like, you know, anti investor, anti governance movement, don’t have a board, do a party round, nobody’s in charge, don’t send updates, don’t give information rights. Like this was like a very Paul Graham reaction, because he had a bad experience with investors. And I understand that, you know, and some investors are bad and can ruin a company. But there’s some middle ground here that I’ve been trying to work on, which is just educating people on how to have proper governance. So one of the secret weapons we have at the accelerator is when companies graduate, and they’ve raised the seed round with us, we have them do board meeting training. So we’ll have four or five board meetings in a day with our founders, and they sit in on in on each other’s first board meetings. And then we do a debrief in between. So in one day, I can have five board meetings, you know, 1011 30, you know, one o’clock, etc. When our board meetings, show them how to do the deck, show them how to do the employee stock option show how to do the minutes have their attorneys on the phone. And then when our companies go through their series A they’ve already had four board meetings, they’ve already had four minutes approved, they’ve already done their employee stock option plan. They know how to conduct a board meeting. It just is better hygiene. And that’s what I’m hoping for Silicon Valley. And I think, you know, Masayoshi started thinking globally and making big bets, I think it’s great. But maybe smaller, more stage met. So my understanding what brandless was they put 200 million and but it was $200 million tranches, and was some sort of lawsuit. If he wants to make that bet that big bet, it might be better to break it into four tranches, and say, Listen, I really believe in brand. Listen, I thought it was a great company. And I’ll put 50 million in now and have three options to put 50 million in over the next six years. And every at every board meeting, we’ll discuss what the targets are. And if we hit them, and if you hit the targets, then we’ll approve the next tranche. And you never have to think about fundraising again, until we go public. That to me would seem more reasonable if you really want to place $200 million bets on small companies.

57:56
Well, if he’s the only game in town that can do that size and scale, then you would think that he would be I think it’s over man, you think it’s

58:04
over? So I think this style of investing is a failed experiment. And it will not continue. I think even he will, you know, shift gears on it. And they’ll just make smaller bets and have some optionality in the future. But you know, they, I think they just put the money to work too quickly. Not everything is Uber or Lyft. Or, you know, Slack or you know, really big companies, right? That there are only so many of those, there’s only so many Facebook’s or Airbnb is to put this money into. And so I think that fund at 100 billion once he got through those top 10 companies, they started searching for companies zoom pizza, I know the founder said that’s a really great idea that doesn’t need the amount of money they put in. Brand listed me the amount of money. Too much capital leads to leads to too much distraction.

58:56
Interesting. Shifting gears hear lots of people talking about a correction, upcoming recession. Yeah, at some point in 2020. If this recession were to hit, you know, what happens to venture? How do you think it impacts both the startup side and the investors?

59:20
So I’ll tell you what happens generally in a down market, in a down market, the number of photo printers, people who are just faking it go away. They go back to wherever they weren’t coming from Hollywood, Wall Street, corporate Madison Avenue corporate. So my job gets a lot easier. The only people around are the people who are really serious about it, you get rid of a lot of noise. And then you don’t have as much competition for apartments in San Francisco or developers or growth people and so that will that could eventually happen. And so if it does, you get lower valuations and a lot less noise so the job becomes easier, but Maybe the outliers and evaluations come down by 50% or 100%. Even. So your paper wins are not as big. But if you’re a founder, you generally, you build through the doubt markets. And as I always tell people fortunes are made in the down market. They’re just collected in the up market. And so the chat now, let’s go ahead. The second one is like what’s happening? Well, we’re in the longest bull market ever. And the companies out there are selling a lot of product and consumers are global. And we’ve unlocked a lot of the friction on a global basis to global trade. So the companies we used to invest in 20 years ago, it would take them, you know, a decade or two to have their products spread around the world, witness Google, right. There was a whole time when Google was translating language by language, going from country to country, region to region, and it took them decades to do that. Now you look at a company like Uber. And all of a sudden, they’re in, you know, 1000 cities around the world. And that’s because Facebook coming after Google, they were able to go global in what five years, five to 10, as opposed to 10 to 20. Yep. So it’s almost like the half life of going global, it keeps getting cut. And the tools are out there. So you know, when a new product like calm comes out, they just I believe they’re translating it to the first language. Other folks are going to be just very quickly making their products, international global products and unlocking two thirds of their revenue outside the United States. And you look at a company like Canva.

1:01:43
Yeah. Is

1:01:46
you guys in on that? Cam? Now, unfortunately, I just had the founder on the podcast, but that, you know, we totally missed that one. Bomber. I mean, I use the tool, but we have made time. I know we use it all the time to we’re paying customers. And you know that we found out about that it was way outside of our thing. But yeah, I think I would love to see the market, maybe just take a pause for a bit, you know, and digest, but there’s no specific reason I don’t see it to continue or to crash, which makes me nervous, right. Like, I don’t have a specific theory of why this is going to crash. I’ve heard people say like, people’s student loans, that doesn’t seem to me to be that big of a deal. The things I worry about is like I think China having a civil war, Trump, Russia, you know, like, these are very big wildcards. Like there’s black swans, or obviously Iran was one we just saw that sort of, but even when that happened, that didn’t rattle the market so much. So it’s almost like they’re priced in some global instability with Trump.

1:02:55
What about the negative interest rate policy?

1:02:59
Yeah, that that one is above my paygrade as well, like, I don’t know, if giving free money away forever is sustainable. And at what point you need to start paying down the debt of a country and what percentage of debt to your GDP is reasonable. But I’ve been reading about that. I don’t know if you have feelings. I

1:03:20
have no expertise. But I know that if you’re already negative interest rates, and a correction of some sort happens, there’s no recourse. What can the Fed do? You know, can’t just lower them to to help? You know, stem the tide? If they’re already effectively negative? So I don’t know it feels very bubbly. And it feels like something that’s not sustainable? I don’t know. Yeah, it’s a concern, especially for I mean, founders, I feel like a lot of capital will dry up. Not as much from the funds, but maybe, you know, all the other ancillary people angels

1:04:01
tend to run. Yeah, yes. Family Offices. Yeah. Because what happens is like, all of a sudden, your public equities position in the last great recession goes in half. And then you’re like, you’re not supposed to make LP capital calls. You know, we’re like, Yeah, let’s pause on the capital calls until the portfolio recovers. So I did hear that the last time.

1:04:22
Interesting. Any any advice for founders? I don’t know, preparing for this. Let’s let’s assume they’ve already got

1:04:30
I think, always focusing on the customer, always, you know, having as much skills in that early team as you can no dead weight. And having that skill set, be crisp, so that you can operate the business Lean is great. So I see a lot of times like, people construct a bad team. They got three business people, no developers, three developers, no business people. You really want to construct that team. So that if it’s only ever those three people that say or four people or two people, the business has a chance of of making forward momentum without having to hire people that are having to spend money on people. So if you have somebody who’s a great marketer, and a great sales executive combined with a great product person and a great developer, and they can just grind to keep building, you know, notion or Fit BOD, they’re kind of immune to what happens in the world, because they only have to worry about those three people salaries. The problem I see is when some visit three business people come up with an idea, they split the cap table up with those three founders. One of them’s a marketer, one of them’s a business person, I’m using quotes business head, I don’t know, the other one’s a salesperson, whatever. And then they have to hire a development team, or they have to fire developers, and they’re doing it in Silicon Valley for 150 a pop and they’re burning 400 a month, for 2000 a month, and they’re spending $5 million a year and like, then they don’t get that next investment, where even if they’re just spending, you know, 50,000 a month and they’re burning 500,000. They’re not taking salaries, they can’t find another investor. The product is not profitable yet. And then the whole thing implodes, I see it over and over and over again, hard

1:06:01
to right size, the team when the the founding team is the part that needs to be right sized.

1:06:05
That’s exactly right.

1:06:08
What do you know, you need to get better at

1:06:12
get better at? Ah, good question. I try not to be super critical of myself. And give myself too much of a hard time at this point, you know, as I’m on the back nine, but I could be a better leader, certainly, and let my team know what I’m thinking, or why I’m doing what I’m doing, or how we’re doing, we’re doing and I consider myself pretty good at that. But being able to make sure the team is really invested is really important. And so I’ve been trying to take more time, as busy as we are to talk to the team and slow down for a second say, here’s how I would make the decision. How would you make the decision now, we were just having a debate about the three or four companies on the bubble for the accelerator. And how we’re going to give up the last two slots. You know, it’s actually maybe four or five companies vying for the last two. And I’m trying to get them to feel heard and make their own decisions. And so I try to come up with architectures and I’m trying to get better at this for them to have their opinions count for something right? Because I’m a big shadow right? And it’s like playing with Lebron might not be easy for some players, right? Because it’s the Lebron show. And so I gotta be good like LeBron is actually really good at making Anthony Davis shine or other players shine right? Yeah, but he wasn’t when he started right? He just put the whole team on his back. So I said I’m trying to do is as my knees get bad and I’m, you know, like a 35 year old LeBron trying to just get those last couple chips. You know, you see him making those other players better. You see him racking up eight assists before he does any points.

1:07:49
And you mentioned this before, but what’s the best way to for listeners to connect with you?

1:07:55
twitter.com/at A twitter.com/jason instagram.com/jason That’s my Flex. If you’re accredited and you want to see my deal flow, you don’t have to commit but you can go to the bus syndicate.com dope domain name to me well, to get it, go to the syndicate comm and sign up. If you want to hang out with me in Napa, if you’re an angel investor, we do the launch Angel summit.com In the summer, we go to the best restaurants and hang out talk shop and jason@calacanis.com for life. First Name and Last Name. And my DMs are open DMS are open.

1:08:25
He is Jason Calacanis. Jason, you’re the man. Thanks for doing this.

1:08:28
Thanks for having me back on the pot. I appreciate has anybody else been on twice?

1:08:33
We’ve got Schuster’s coming up. We’ve had. Yeah, we’ve had a handful. pullover suits

1:08:37
this great. Sherman’s, my boy, he’s on density with me. And he asked him about passing on Uber at the Open Angel Forum. He talks about it openly and do that. You got to ask. All right. I know it’s a big lesson for him, which, you know, we’re all learning like what you pass on is a big lesson, but we’re on the board at density together. And I have to say, if you’re a founder like series A investors go Mark Schuster. That’s a hard work. And that’s a hard working individual. You can do a lot worse than have Marc Schuster on your board. He’s hard working. Well, I

1:09:05
love it. Thanks again, Jason. That will wrap up today’s episode. Thanks for joining us here on the show. And if you’d like to get involved further, you can join our investment group for free on AngelList. Head over to angel.co and search for new stack ventures. There you can back the syndicate to see our deal flow. See how we choose startups to invest in and read our thesis on investment in each startup we choose. As always show notes and links for the interview are at full ratchet.net And until next time, remember to over prepare, choose carefully and invest confidently thanks for joining us