254. Going Public via SPACs and PIPEs, The First Mover in Ridesharing That Lost to Uber, and Building the Online Marketplace for Used Cars, Shift (George Arison)

George Arison

George Arison of Shift joins Nick to discuss Going Public via SPACs and PIPEs, The First Mover in Ridesharing That Lost to Uber, and Building the Online Marketplace for Used Cars, Shift. In this episode, we cover:

  • Walk us through your background and path to tech.
  • What was the outcome of taxi magic? Shut down?
  • When you spoke with Bill Gurley – rumor has it he pushed back on the model.  Did you consider switching?
  • What is Shift?
  • How are you different than Carvana?
  • How accurately can you price a car sight unseen?
  • It feels like you are effectively CarMax online…  If CarMax is such a good value prop for seekers and buyers, why do you think they only have a 1% market share?
  • There were lots of ways you could have expanded early on… your offerings… geography… and even product/business lines (like financing)… talk us through the early decisions that were made and how they were made
  • The name is great but does Gen Z get it?  No one shifts anymore
  • Online marketplace solving an extremely frustrating and time-consuming consumer life event but it’s a very Infrequent transaction so you need to be top of mind when someone is buying a new car or ready to make a transaction… How are you thinking about that?
  • Talk about your decision to go with a SPAC to go public.
  • The decision to go direct-listing would be in cases where the company is more of a household name?
  • SPACs were a four-letter word in the ’90s… apparently, there were some bad situations… what is the risk here, and how has that been addressed by the modern SPAC structure?
  • Do sponsors get 2% or 20% off the top?
  • What was the value of the SPAC vs. the valuation of your company… were you (and other shareholders) diluted by the SPAC investment amount
  • And the rest/the balance of capital comes from a PIPE, correct?
  • As an investor, wouldn’t the preference be to invest in the SPAC vs. the PIPE?
  • Building a company in SV or not, and where that is headed?
  • What advice would you have for founders before selecting VC partners?
  • What was the experience as an openly gay man building a tech company — do you think that presented a more difficult path to success?

Guest Links:

Transcribed with AI:

welcome to the podcast about venture capital, where investors and founders alike can learn how VCs make decisions and reach conviction. Your host is Nick Moran. And this is the full ratchet.

George Arison joins us today from Palo Alto. He is founder and CO CEO of shift, a leading end to end auto ecommerce platform transforming the used car industry. Prior to founding shift. He was co founder of taxi magic, now known as curb, he also worked with Google and the Boston Consulting Group. George, welcome to the show. Thanks for having me excited to be here. Yeah, we’re excited to have you. So you know, you’ve got to, you’ve got a great story, a great background, can you kind of sum it up for us and give us your kind of quick path to technology and founding you know, these two companies, totally, I never thought I’d be doing technology founding honestly, was not my plan at all. I started politics in college, and I thought I was going to be in politics for most of my life. But I met a really awesome guy named Tom DiPasquale, who is a founder on the East Coast had started a bunch of companies and through him got really interested in selling a company. And in 2007, toby Russell, and Tom and I, and a bunch of people started tax magic, which was a really incredible experience. You know, in some ways, actually. Now, a lot of what I do is very similar to politics, because it’s so much about motivating people and making sense of kind of tough decisions and making those decisions. But I never would have made that connection. Back in the day, after taxi magic, I moved to Google checks, which was a really incredible experience, we kind of learned a ton, the business was quite interesting, but obviously made a ton of mistakes along the way, given that there is no Uber and Lyft, which should not have existed had had we won. And then after tax magic, I went to Google, I got my green card was actually rejected. So I needed to go to a big company to stay legally in the US. And I was able to do that, while also learning a ton of great things at Google. And eventually, after that, you know, I knew I was gonna start another company. This one was top of mind for a long time, I spent a ton of time talking to people in the automotive industry to learn more about whether it made sense or not. And in 2013, started working on this full time.

That’s great. So what were the notable issues with with taxi magic? Would you guys mess? Well, I think the product itself in the beginning was not exactly what the consumer wanted. We had a thesis that the business traveler would book, a taxi, ride around when they were booking a flight, or a hotel as well. Turns out, people will, you know, our travel like hotel and air really far in advance of the actual travel, but then don’t really want to do any kind of ground transportation until the minute they need to take it. So our initial thesis was, hey, work with online travel agencies that do business travel bookings, work with a company called concur, which was kind of the dominant player in that space to get a lot of customers, but that actually wasn’t really working very well. On the other hand, the consumer side of things like consumers being able to use the product worked really, really well. But our model initially was very much on Hey, every time somebody uses their product, they need to pay for it. And that doesn’t really work with a consumer consumers, I think, would have wanted a more freemium model, where they initially got something for free, or for very low cost, and then over time started to pay for it. And, you know, we made a mistake in not transitioning to a freemium model a lot sooner. So there was one really big mistake. The second big mistake was to rely on the taxicab companies to provide the service for us. If you think of Uber, if you think of Lyft, they have a full set offering, right, they control the experience end to end, from the driver on to the app. Actually, that’s why they have such a big issue in places like California in terms of should they be employed or not, because although they do have some early days, right, which they always have. Now, even in black with black cars, they still had a ton of control over the experience, right, because they like the the driver would be using an app from Uber right to book it to get the bookings. We relied on the dispatcher, dispatch app companies, right, and kind of gave the cab company a lot more control. And the result was that the experience was not as good as it should have been right for the consumer, because the the taxi driver wasn’t in any way incentivized to really help our customer. And if they saw somebody on the road to kind of pick up, they would pick up that customer but then go to our customer. And so this dependency on cab companies was kind of wrong. In many ways. We probably could have gotten around it over time. But you know, by then it was too late. Because we had built so many things that were reliant on the cab company versus not. Some of this came from the fact that we had people from the cab industry on our board. They were all kind of like why would you ever want to be in the Operations Business? Let the cap come and handle that you provide the software, which at a theoretical level made sense but turns out what’s really valuable as a full stack product, which obviously is very different from a software only business. My

more of what we build that ship now but kind of back then I did not really know that distinction between the two. So I came across something this is yours it probably a couple of years ago, I read something on this about how I think it was Bill Gurley that connected with you guys early on in your journey. And if memory serves, forgive me if I’m misremembering this, but if memory serves, he even suggested potentially changing the model. Is that accurate? He did. Yeah. So Adam, Adam Dell, who is the brother of more famous Dell, actually, he was using our products a lot in New York. And then he told Bill Gurley about our product. And from there, garlic became really interested in kind of feel fit into the thesis of girlies investments where he had an open door. And this was a similar product to open door, except for run transportation versus restaurants. And so she really liked the product and, you know, became very engaged. I mean, actually had this like totally surreal experience. Because I was really young at this point, it didn’t really have a lot of excuses like this, where he was sitting on my desk, like looking at my spreadsheet in terms of where the traffic was really high and where it was low. And you know, where should we focus our business, etc. Anyway, so he really did push us that we should become more of a consumer product rather than a SaaS product for businesses. And I think he was 100%. Right. And there was very much where my mind was where Toby’s mind was, but the rest of the the executive team, and in particular, the board was not quite there, because they had so much kind of experience in SAS only businesses and enterprise businesses and wanted to move more in that direction. And so we never ended up, you know, taking money from Google, which was obviously, a huge mistake, in many ways, and probably cost all of us many of 10s of millions or hundreds of millions, and maybe in some cases, billions of dollars. So your model was the precursor for Uber. He’s looking through your data and that ultimately, I think, eventually, like once I was no longer at taxi magic, but Oberer kind of was launching things. I’m like, Yep, this is sort of very connected to what we talked about doing or we’re actually doing a taxi magic, right. So there was a lot of similarities in the early days of Uber in terms of what they did, frankly, like, everyone gives Uber the credit for inventing something new in reality was lifted, invented something totally new, right? Ralph was the one who came up with a notion of, hey, let me put a random car, totally random driver, not in any way licensed, right? be picking up consumers and call that not to be a taxi service. And initially, they wouldn’t even charge you for that you had to do a donation for to work.

That was the true innovation, the space, Uber just was very smart and kind of follow that as quickly as possible. And since it had so much presence in so many markets with black cars already, it was able to grow faster than Lyft. But in practice, Lyft was the true innovator. And it was Zimride. Right? Or it was Zimride was different. Zimride actually was before Lyft. And it was a different business. Oh, actually, yeah, we actually talked to them about stuff. Early days. Zimride was an idea where like, if you were driving from, say, LA to San Francisco, they will hook you up with somebody along the way to ride with you as a way to share in a trip. Got it. Okay, I was thinking that was sidecar. But maybe I’ve got my things mixed up. Cool. So yeah, I want to talk about shift. What ended up happening with with taxi magic, though, did that end. So taxi magic was renamed as curb eventually, because viewing was there was a better brand for them. This is after I was no longer there. And eventually, it’s so to Verifone. It’s still around. So in a lot of cities, New York, for example, or Las Vegas, you can actually still use it in cab cab companies, right? Like you can use a curb app on your phone to book a cab. And you can use a curb app to pay for a cab as well. So it’s still there, which is you know, in some ways, obviously awesome, because it’s awesome to have a company B still around, obviously is not the dominant player in the taxi industry is really suffering. So it works best in markets where the cab industry is a little bit stronger because of the regulatory environment. So in this one, European Vegas are kind of better for it. But it’s still around and it’s operating. So George, now you’re addressing one of the things that have has been one of the more frustrating experiences in my life. It’s, it’s been some time since I’ve sold a car, or bought a used car. But what is shift, tell us tell us what you’re doing, we shift. And shift is a marketplace for buying and selling cars. So if you have a car to sell, you come to shift.com you submit your car information to us, we then price that car for you. And if you want to work with us, we’ll take the car away and you’ll never see it again. And then on the flip side, if you want to buy a car, company shift.com Find the car that you want. And then you can either buy the car sight unseen and have it be shipped to you. Or you can book a test drive and the car was brought to you to try out first in the market where we have operations. And those are primarily markets on the West Coast. And so that’s kind of the broad product in between those two transactions right between somebody selling us a car or buying a car from us. We actually recondition every car we sell. So every car goes through a certain amount of work to make sure that it’s in really good condition. So it is

is in many ways, the exact opposite of the taxi magic model, which was to try to not very operational at all shift is very operational and almost the entire consumer experience end to end. Got it? And how are you guys different than Carvana. So, Corona is a great company, there’s another company called the room in this space as well, our model differs in kind of two big ways from Carvanha. And room from the consumer experience perspective. So number one, we bring the test drive to you. So we in the markets where we have operations, and you know, because of places like LA, San Diego, Sacramento, Los Angeles, San Francisco, Portland, etc, you can book a car to show up at your house, it can be same day or next day, and you can test it out first before buying the car. And that’s something that a lot of consumers want, you know, vast majority consumers upwards of 85 90% are not willing to buy a car without seeing it first. And so having that test drive experience is really unique and differentiated what percentage of of cars do get sold after the test drive experience. So 80% of our sales involve a test drive. Normally, our conversion on a test drive to sale is in the range of 40 to 55%. Okay, about hands on. Yeah, it’s pretty high. And it’s really awesome. Now, we do offer the Carvana experience as well, which is find the car on line sight unseen by it, and then it has to be shipped to you, as well. So we offer that product also. But that’s not the core part of our product, we very much expect that to grow, right, because over time, we would expect more and more people to be willing to buy a car online. So I haven’t seen COVID obviously has helped with that dramatically, in some ways, because people are much more inclined to do that. But it’s still, you know, for most people, the test drive so important. So that’s one difference from Corona. And the second one has to do with the types of cars that we sell. If you think of kind of the use car, world overall room is in the most expensive part of the business. So rooms average sale price on cars, last year was roughly $30,000, a Caranas. Next one down their average ASP kind of ranges between 18 and $20,000. And then we’re below that our average ASP is about $16,000. And so we offer what we call value vehicles, in addition to everything else, value cars are ones that are over eight years old, or over 80,000 miles. And that’s something that’s very unique to us. And nobody in the digital ecosystem offers most of them wholesale, or most people would, you know, if you want to buy the kind of car would you have to go to like an independent dealer in your local market to do it, where obviously, the experience is nowhere near as good as online. And so if you want any more kind of digital high quality experience, you really can’t get that for that type of vehicle other than if you buy from shift. But amazingly, those cars are massively in demand, we normally sell those cars faster than all our other cars. And our front end margin on those cars is higher than on our regular cars. So the the interesting thing is that the demand for those types of vehicles is really high. It’s just something that most people don’t want to touch, because you have to do more reconditioning on them. So you have to have expertise in how to recondition the vehicle, if you want to sell it. So higher margins for the value cars. But I would, I would imagine also with your your high touch model of the test drives and delivering the cars to the people that eats into your margin, you know how to, how does the margin compare on, you know, the test drives you do versus sight unseen, you know, purchase online, yeah, there’s obviously a slightly higher cost to doing the test drive fulfillment, versus shipping the car, because when we ship the car to you, we charge you for the shipping separately. And so we don’t have that kind of cost. You know, compared to our peers, actually, it’s a little bit, probably cheaper to do a test drive, because our peers don’t charge for shipping, they kind of do their own fulfillment as part of the overall product, because that’s the core product they offer. And so they have that extra cost to eat as well. And, you know, the logistics are, obviously a cost. But that’s by far not the most challenging cost in in the automotive space. That is a challenging problem to solve. And you have to be really good at both technology and operations to eat really well. But if you’re able to optimize your technology, and your operations, you can actually get it done pretty cheaply. You know, an average person doing a test drive for shift is making somewhere in the range of 15 to 20 bucks an hour. And an average test drive takes roughly three hours, right? So it’s not like a bad expensive gas have experienced. The really more complicated operational problem at shift is reconditioning. Like doing reconditioning really well, to eat in the right amount of time. And moving the cars quickly through the process is definitely a challenge and something that, you know, we’re always working to perfect and you have a partner that helps on the reconditioning side or no, we do that ourselves. So when we started out, we actually did want to work with partners for that and you

There was kind of the thinking that, hey, let’s outsource all this. But you learn over time that if you outsource, you’ll fail. It’s both a cost issue because if you outsource, it’s more expensive. But also the quality issue, you have to do a lot more quality control on outsourced operations. And you can’t quite get things right during the process. And so we’ve brought all reconditioning in house, we still do a little bit of outsourcing when we need to have excess capacity, right? If it’s like really busy, we might outsource, as we did, for example, this past summer, because it was such a busy period. But normally, steady state, we do all our reconditioning ourselves. So if I’m buying a used car, I go to a local dealership, or maybe a car Max, and it’s certified or reconditioned to some degree, or I guess the alternative is I go to Craigslist or something online and, and transact directly with the seller. Yeah, those kind of the traditional way of doing things is one of two, right? One is by peer to peer. And in the peer to peer ecosystem, buying from,

you know, from a Craigslist seller is probably the most common. And that’s a huge part of the market, about half the cars sold to us in the US, that are bought by consumers are soaked through peer to peer transactions. And then the other half is through dealer. So you can go to like a local dealer, whether that’s a franchised dealer, or an independent dealer who only sells used or Carmax, you know that those are kind of the big players, big three players in the market. Carmacks is the largest used car dealer in the country, but they only have about one and a half percent market share. So it’s an extremely fragmented market with very, very, you know, many very small companies in it. Incidentally, most of these independent dealers actually very large businesses in each district that they operate in. It’s just that, you know, there’s so many of them, right? There’s like, 30,000 car dealerships in the US. Yeah, Georgia, to a certain degree, you it almost feels like you offer the car Max online, right, affordable vehicles that have been certified and reconditioned and verified. And that’s, that’s Yeah, that’s very much. A lot of what we do is what Carmax offers as well. Carmex is overall pricing is higher than us, they sell at a higher price than we do to market. They have such a strong brand, that they’re able to command a really high premium price. And comments as inventory is generally newer than ours. And so they don’t kind of dabble in the more value segment of cars, they primarily focus on cars that are seven years or less in age. But in terms of the experience, it is similar, right, like a certified car that you can really trust bought in your local region where you operate. Why do you think they have less than one and a half percent market share? Is it distributions? Well, it’s to fit a few things, right? It’s a massive market. This is a used car market is about $850 billion

on average, in a given year. 800 billion. Yeah, single, it’s the single largest retail market in the US economy. Wow. And so it’s next to impossible for anyone to have a really huge portion of it. Because even if you’re selling like 3 million cars, it’s still a tiny portion of the market. So that’s number one. Number two is, you know, the Carmax model, and because it’s all kind of store based, or they have to have a store operation in the market they’re in. And normally there weren’t many stores in the market is extremely expensive to build out. So each store costs so many million dollars to build, it takes a long time to build those. And so they can only launch so many stores at a time. They’ve been added for Yeah, they’ve been added for like 30 plus years. And they have something like 225 stores, I think, or something like that, which is obviously a lot of stores because they have by far the largest, but it’s still nowhere near enough to cover anywhere near, you know, even 10% of the market or something. And so that’s why the digital model is so much more scalable, and so much better. And why over the long term, it’s such a huge opportunity for both Carvana and shift, and frankly, room as well to all grow together and grow really well. Right? I think realistically, like shift could grow 40 40x or Carvana could grow 10x. And we still be very small in the market overall. And so I think the the opportunity then to capture market share here is massive, because the digital model is so much more scalable than your traditional kind of store based model. Last thing I’ll add here is you know, if you think about Amazon, like what has made Amazon so successful, as a retailer, it’s not just that they sell their own products really well is that they also offer products from third party sellers, right? They have a huge portion of sellers that that sell items on Amazon. And I think over time, we have an opportunity to do the same thing with car dealers, letting small independent dealers listen shift, and then use our fulfillment approach to sell those cars. Well, if you had prime delivery, then I’ll sign up as a customer of George. We kind of do right

Test Drive delivered to, you know, prime delivery. So, so how are you able to price the cars sight unseen, right? Like, if I take my car to Carmax they’re doing, I don’t know, some sort of mechanic is looking at it to, you know, get an estimate of what kind of condition it’s in, I assume that you know, the sellers on your platform, they’re taking a variety of pictures, and then you’re pricing that vehicle. So we actually don’t require you to do that, we, you can just give us your car information, like mileage age, the VIN number, and we might ask you a few other questions around kind of, you know, specific specifications of your particular make and model. And then we have a lot of data that we use to be able to price it to kind of through that information that you provided. So that isn’t going to AI and the machine learning problem, which we’ve been working on for the last six and a half years, it is proprietary to us. So we do pricing kind of all on our own, or based on the data that we collect from you our own data plus data that we buy from third party sources, because a lot of the the pricing kind of is based on what will happen in the market, right? We need to know how our people are pricing cars in order to know how we’re going to price the car as well. Got it. Got it, you know, talking to

a co founder of yours, Mini and a mutual friend. And she was she was asking she said I should ask you, you know, what were the major shifts in the model. Overtime, you know, there’s there’s a lot of different ways you could have expanded totally Well, I remember one of my kind of most vivid memories, actually, in kind of the journey of shifters, we were all sitting in my living room in the Castro of San Francisco.

Pricing cars, because we had like, just gotten a bunch of different cars coming our way. And we had no idea what to price them on. And so we’re sitting kind of looking at

KBB, trying to use KBB to price cars, bad batch of cars did not do very well for shift. We lost, we lost a lot of money on that. But so one of the first shifts was kind of to realize, hey, we need a much better capabilities for pricing. And we need to have technology to do that. Like it has to be a Core Advantage, core unique differentiator for the business. We can’t rely on third parties, we have to build our own. So that was definitely something we did early early. But in terms of the model shifts going on more generally, I think, to start with initially, my thinking this is kind of even before any of my co founders join me, I just kind of me and Toby, thinking about the idea was to say, hey, let’s let the consumer and the meaning of the seller and the buyer do the transaction like they normally would today, private party, right, you will find somebody on Craigslist. But then we come in as the neutral arbiter that helps them with pricing, that helps them with how much you know how to get a loan for that car. And that helps them with warranty, as well. It’s kind of closing the transaction. So a little bit more of an Airbnb sound rather than a full stack, only entire experience type of model. And that was our initial concept. And what we found as we went out and talk to more and more consumers on both on the sell side and buy side, this is against the like, pre shift as existing as a business and more in a world where we’re still testing and learning was that most consumers didn’t really want to be selling the car themselves. They were only doing it because they had no choice, right? They couldn’t think of a better way to do it. And so people would tell us things like, you know, this is all good and dandy, but why don’t you kind of sell the car yourself? Meaning do do the sale and take the car away from me. Yeah. And so I was like, wow, yeah, I feel like you’re gonna give me the car. It’s like a crazy thing. Right? So that’s how we got into the actual transaction business, because consumers kind of pushed us in that direction. So that’s one really big change that happened, George, quickly did you ever consider like a consignment model? Well, so that’s the other big thing. So the first thing we actually started out with was consignment, we would allow a consumer to give us the car, we would guarantee them a certain amount of money on that car. And then anything that we made above that price, we would split 70% of shift 30% of the consumer. So it allows the customer to kind of share in the profit that we made on the car. And that’s how we scaled the business for years, like through 2018. consignment was the core part of our offering. And then what we were finding is that a ton of users loved it. But a lot of users wanted to use consignment but really couldn’t use it. Because they needed the money quickly. They needed transportation, probably if they’re selling a car, they needed the money.

Exactly. They oftentimes needed that as a kind of way to deposit to put a deposit down for the for the next car. And so we started to kind of get into the BIOS money where we’d give them money upfront from the perspective of hey, how do we help these users that wanted money upfront? And eventually, you know, we, what we basically found is that more consumers overall, are willing to do a buyout versus consignment. And while we probably would get more consumers total if we offered both products

We didn’t want to be in a place where we’re offering two products at once, we wanted to offer just one product at a time. And so we stopped being concerned and got into into the buyout model roughly in October or November of 2018. So, just under two years ago, I wouldn’t be surprised if in the future for a more high end vehicles, like cars that are, you know, 30,000 Plus, we still might offer some form of consignment in the future, because those users in particular, really loved the consignment offering, because they’re, you know, normally less price sensitive, and have less of a need for money upfront, but really love the fact that they could kind of be part of the winning, meaning if a car sold really well, they would do better. So that’s, that’s another really big change that happened in the history of shift.

Yeah, go ahead. I was just thinking, you know, the name shift, shift itself, like, does do the Gen Z or get that I mean, you know, I I understand I’m 40 years old, you know, I, I learned to stick shift when I was young. I think the younger folks don’t even know what shift in the car means. Well, we play with a lot of names, early days of shift. One of the concepts was like car savvy or car smart, etc, like a bunch of different names that involve the car or vehicle or auto. But what we found was that the best names are ones that are one word, yeah. And kind of are able to build a brand around it. And that was actually an engineer, friend of mine, who, for a while, was going to join shift as a co founder, but eventually decided not to who came up with it. So you don’t usually think of engineers as branding experts. But this one did a really good job at that. And, you know, it’s worked out really well for us. Yeah, thank you. Appreciate it. Cool. So one other question on the business, I wanted to ask you about this back stuff as well. But you know, it’s an online marketplace, you’re you’re solving this extremely frustrating and time time consuming consumer life event. But it’s also a very infrequent life event or transaction. Right? So totally, you’ve got the unique challenge of you need to be top of mind when somebody is either buying a new car, or selling a car ready to make that transaction. You know, we’ve looked at a lot of businesses over the years, like the mattress companies, for instance, that’s another very high price transaction, high value transaction, but it happens seldom. So how do you think about that? And how do you, I don’t know incept, the users or the consumers just at the right time, totally. So

most of what we’ve done in terms of marketing, customer acquisition at shift has been around, kind of lower funnel, so digital marketing, Google, Facebook, have a digital channels, SEO, SEM, etc. And that’s really effective at capturing the customer, when they’re actually thinking about a vehicle purchase or vehicle sale, what we haven’t done, and that’s actually a huge opportunity for shift is more awareness and brand building, where people are aware that we exist, even if they’re not in market to do something today, but we’ll be later on that awareness takes a time, it obviously costs money, because you won’t necessarily get a return for it right away. But it you know, over time, the return is really strong. I mentioned earlier comics is able to sell actually at much higher price than an average dealer. The reason they can do that is because they have such a strong brand people know about them, even if not a lot of them have ever used Carmax. And so brand really helps in a lot of ways. So the next big kind of push for shift as a company is to do a lot more brand building. That’s kind of one of the reasons why we raised the capital that we raised in this transaction is to be able to invest dollars behind building awareness and building brand. We actually just launched our first brand kind of ad with Morningstar. formerly Google Guilfoyle being the spokesman for shift. It’s quite funny, and we call it littering, but the kind of big push for the business over the next, you know, 234 years will be to build brand and the markets we’re in because we know that that will have a really big impact with consumers over time. Well, hopefully going public helps with that a bit. Obviously, I mean, being public always improves the standing of a company in the consumers mind because they kind of trusted more. So that’s obviously very helpful, and we’re super excited about it. Okay. So George, I do want to talk a bit about your your process. I’m not sure if you’re public yet or not. I should have looked at it. We are our listing date was last Thursday. So right, congratulations. Thank you very much. Appreciate it. Well done. I’m sure that that was no easy effort there. But I believe you guys did use a spec. And I’m not sure if you use the pipe or not. But you know, first can we just talk about the decision to go with a spec in order to go public? Totally. Yeah, we use the spec and we did do a pipe. You should never do a spec without a pipe. Okay. So they’re kind of intertwined. And I can talk about why in a second. But we so we decided to head in the direction of us back in late April or early May. I don’t remember the exact date when it first became

My Top of Mind topic. But you know from there very, very quickly, by the beginning of June, we had a partner in terms of a sponsor that we were working with and had signed an LOI. So we moved pretty quickly. The thinking here was the following. You know, initially, the plan was to raise private capital this year, sometime in the spring or early summer, and then go public a year later, sometime in the summer, or the fall of 2021, that was kind of the last round of private money would have been our last round, and would have been kind of the mezzanine round before the IPO. And that made sense for us pre COVID. But then we’ve covered a few things changed. One was that the public markets very much made a decision that there are winners and losers in the COVID economy. And the winners are digital ecommerce players. And so the demand for E commerce investment opportunities jumped dramatically. And number two is private markets actually did not work as well as the public markets did in the months immediately after the lock downs, and even to this day, like private markets actually having a harder time functioning at a growth stage company level versus public markets. And so yeah, and so when you combine those two factors kind of together, that like demand in the public markets for commerce was really high. And then concurrently, private markets are not working really well, for growth stage businesses, then suddenly, you know, it made more sense to move towards going public sooner. And given that we had always been building a company towards being public in every way, you know, we were very prepared for that type of a transaction. But a spat made a lot of sense, because it allows you to move quickly in terms of the process. And so the risk of market kind of collapsing, or things going badly in the market is much less there versus a traditional IPO. Because when you decided to an IPO, it takes many months before you actually can get to the market. And number two, it allows you to actually raise substantially more capital, versus a traditional IPO. Which obviously, for a business like us, which is more capital intensive than a software only business is beneficial. And then thirdly, with dispatch, you can actually talk not just about what your performance has been historically, but also what you plan to do in the future. And so it allows you to kind of market both of historicals. And the future story, which again, for a business like ours, which is only you know, we’re going to be seven years old in December in terms of incorporation, we’ve only been selling cars for a little over six years now. It’s beneficial to be able to not talk just about history, but also what we want to do in the long term. So is it is it the sponsors of this back? I mean, you partner up with them, you team up with them, do they put up? What percentage of the capital do they put up as a total part of the transaction is it 20% in you know, does that that capital hit your dilution them in the common stockholder. So the way the stock works is that a sponsor like you and I could get together and raise a spark we need, we could establish a company file in us one, raise money in the public market, that money sits in a trust, and people who invest their money get shares in return, the shares are sold at 10 bucks a share. And in addition to these shares, they also get warrants. So each person will get like a third of a warrant or half a warrant per share, which they can, you know, has additional value in the future. And that’s one of the big reasons why people invest in specs in the beginning, when specs shares are sold is to get the warranty as well. And that money sits in a trust, it can’t be touched until the transaction happens. Then the sponsor goes out and looks for a company to merge with, they fund the company, they sign an LOI with them around a price they get out into the market. In a private sense, this is all done through an NDA and raise a pipe where they go out to a small set of shareholders, you know, like 2020 3040 investors and raise money from them for a foreign transaction.

That’s called the pipe the private investment in a private, private public company. And, and so that’s the next step. And that money comes into the public company. So it’ll come into the transaction when the transaction is fully completed. And then you announced the deal. So when kind of sparks announced that, hey, I’m merging with XYZ company, usually at that point, the pipes already been done. And there’s a formal merger agreement that’s signed between the private company and this back, then you kick off the process of engaging the SEC on the actual transaction. So you file what’s called an S for statement and it goes through the exact same review that a normal s one would go through, as far as just for a merger versus one is for initial public offering.

You go through the s four process that takes you know, a couple of months. I think we found ours like

July 17, and we were done by early September. And then the SPAC shareholders like the

Who bought the stock initially, or whoever they sold the stock to, because that stock is fully tradable. And so people are buying and selling it all the time. So the SPAC shareholders vote on whether to approve the merger or not to approve the merger, right. And, you know, 90% of time these mergers are approved, that’s not a problem. But in addition to that, they also get to decide whether they redeem their money, or do they keep the money in the company, right. And so they don’t have to stay in the company, they can take that money out, if they redeem the money, money comes out, but the word stays with the buyer of the warrant. So they still could make money on the deal. Even if they redeem the pipe money stays in the company regardless, right. So let’s say the initial IPO of the spark was $200 million. And then you raise the number $100 million in the pipe. And then let’s see, say that of the $200 million, that was initially raised 100 million choice to redeem and $100 million, so chose to stay in the right in that scenario, the company go forward will get $200 million total. So 100 million from the from the initial spec trust, and $100 million from the pipe, in shifts case, we actually had zero redemption, so not a single shareholder chose to redeem in the deal. So we got the full money that was an interest, something like $152 million, plus the full amount of money from the pipe, which was I think, roughly $185 million. So all the capital came to shift from the transaction, there was zero redemptions. And that’s obviously like a really good transaction, meaning the the investors were in favor of the deal in a strong way. But normally, you know, somewhere between a third and a half of the spec trust, will redeem capital and not stay with the company once the transaction happens. Got it? Is, it seems more beneficial to be an investor in the spec directly then in the pipe? Is that fair? Um, well, I mean, all depends, right? The spec investors themselves, you have water, you have optionality. Those are very, like situational investors, meaning they are not people who invest in specific themes or specific types of businesses. And their whole focus is to invest in Spax to make money on that. So it’s kind of like a special situations, hedge fund type of thing. Whereas people you want in the pipe are more long term holders, right, because they’re people who work on investing in E commerce businesses, or who work on investing in automotive retail businesses who know the space that you’re in really well, those are the types of shareholders as an institutional shareholders that you want to keep for the long term. And so the pipe is really beneficial, because you want to market to those types of investors, and you want them to buy into your business for the long term. Ideally, what you get is a very strong amount of interest in the pipe, right. So like, you have two or three times as much demand as what you’re actually willing to take in. And then those shareholders turn around and buy in the public market as well, from the from the hedge fund shareholders that initially bought into the spark, so that they they will basically replace the hedge funds with these long term holders got. And so that’s one of the reasons you want to do a pipe is because it’s a great way to not only raise additional capital, but also to create interest in your business for the long term so that you can replace these investors who are actually not meant to stay in your company wanted some pricing validation. Yes, exactly. Yeah, exactly. And, you know, specs got sort of a bad reputation, like 20 ish years ago.

What is the risk in the specs? And, you know, has that been addressed? Have they fundamentally changed somehow, over time? Well, yeah, I mean, the historical Spax, the ones that didn’t do very well, usually did not involve redemptions. So they didn’t have the investors in the stock didn’t have the right to redeem redeem shares. And so that, obviously, is a very big difference between historical and now, and then pipe is a more newer concept. You know, five years ago, most specs did not involve a pipe. Whereas today, almost all the specs that are done involve a pipe. And so they provide really good validation for the public market shareholder in this back of the price and the deal, right. So basically, you got new investors to look at the deal carefully and price it is very, very helpful and kind of make sure that the deal is not overpriced. Um, so I think Spax are better. Now, frankly, the other thing to mention is that a lot of really good issues came into the market, right? So we did our deal with with a group last names, colons. So it’s Daniel and Betsy Cohen and have a family of Spax that they’ve been sponsoring over the years. They’re really really capable and very good. They have many instruments out there in the market they’ve done for companies now that open up so five companies that have a defect, and they have a few other specs kind of looking for, for targets. And then there are two other really prominent issues TPG and Coors that have done a bunch of deals as well. The fact that you have these like

very experienced, good financial players, like Betsy and Daniel, in the market is really good validation for the stock market, and has been very helpful. What has happened this year is that there’s just a little bit too many people getting into the spec business as far as raising capital for the spathe. And frankly, it’s a little bit not ideal. And the reason it’s not ideal is because the specs are all about execution, once the deal is announced, it’s actually not that hard to raise the IPO money for us back. And what’s really hard is finding the right company to merge with and actually executing properly on that deal during the transaction period. And so I am a little bit concerned that a bunch of people with virtually no experience in this market are raising, you know, spec capital, because I’m not certain that they will do a very good job execution wise. And then you might have old people saying, oh, Stefan are good, because the spec failed. That’s backfield. But in practice, you know, people who really know what they’re doing, know what they’re doing. It’s just that there’s a bunch of people that don’t know what they’re doing. And so if I were a company, looking at his back option, like to do a spot, I would look really carefully to make sure that the sponsor group has ever had experience sponsoring specs, like Betsy and Daniel have done or involves people who have done a SPAC as executives, right. So, you know, Paul Ryan, just raise this path, as you know, of a CEO. That’s back as somebody who was a president of a company that dispatched a year ago. So like, he actually hasn’t gone through the process, right. So Paul Ryan might have never done this back. But like he has somebody involved in the business, who knows exactly how the stock process works. And so I think that’s facts that involve people who’ve done Spats before, either as sponsors or as kind of operators, will are much more likely to to succeed, versus sparks that kind of, you know, have a bunch of business people coming together that haven’t really done these transactions before, but are finding this to be an interesting opportunity today. Got it? I imagine you selected your your sponsor very carefully. Yeah, we were, you know, we were lucky because we, we were the first Silicon Valley company, to, to do a spec this year notion and if Wow, yeah, if not the first and at least definitely one of the first. And we’re going to open up the floodgates for everybody else to do it, which is great. And I’m really excited about it. Because I’ve always been, you know, hugely supportive of kind of companies going public versus being private for too long. And so it’s been really good. And so we were very fortunate that our sponsor has had a lot of experience, like I mentioned, your Betsy Daniel, have kind of worked on five d specs over time, and have three more kind of sparks that are looking for targets right now. So they have a lot of expertise in the space, and then really helped us. And so we are really happy with, you know, the process in our on our sensing, as I mentioned, like we had zero redemptions, which I think is a really good outcome for the business. And it tells you that kind of I think that would not have been possible without a really quality sponsor involved, for sure. Congratulations on that.

So I assume that retail investors have access to purchase shares of shift at this point. Yeah, and retail investors can buy shift, it’s SFT, on NASDAQ. And obviously, we’re trading and anyone’s Welcome to continue to buy. The, you know, one of the thing about specs that I really liked, actually, is that it almost democratizes, the IPO process, in some ways, because it’s next to impossible for a retail investor to buy into an IPO when an IPO is being launched, right, because it’s all goes to the institutional investors. And then only once the deal is kind of fully out there, and the stock has a big run up. And that’s when the retail investors can participate. And so in verses with a SPAC that retail investor can buy in, during this back process, even before the deal is announced or right as the deal is being announced, and still get in at a lower price. And so that’s one advantage of SPAC it’s a democratization of the gold public process, which I think is really good. And the decision to do is back over just direct listing is, is that because direct listing is more appropriate for household names? I mean, did you direct I mean, they’ve not been that many direct listings for me, like everyone talks about them, but it’s actually a very small part of the, of the ecosystem. The reason for us a direct listing to not make sense is because you can’t really raise a lot of money in a direct listing, right. And so for shift, raising capital in the transaction was really critical, because we are a capital intensive business. The second thing is like I think direct listings work well for companies that have a very, very large consumer base. So you know, Spotify is a great example of that.

And Airbnb when they were planning on doing it pre COVID also made a ton of sense. Or, alternatively, you need to have, you know, founders or a couple of shareholders who have just massive amount of capital, and as a result of that the company’s need for capitalism.

up lower. So again for Palantir. And for Asana, that totally makes sense, right, given kind of who the shareholders of that of those companies are. But for coming like shift adrift, listening would have made no sense. I frankly don’t actually understand the Silicon Valley obsession with direct listings that much. Like, I think Spax make a ton more sense because they are a way vehicle for companies that are slightly earlier in the process to go public, which otherwise in the current environment that have might have stayed private, long, longer, which is I don’t think ideal, you know, companies used to go public a lot earlier before. But then Sarbanes Oxley, and whatever has made it harder to do, but specs are kind of pushing in the opposite direction, actually enabling companies to go public earlier, which is good for shareholders, it’s good for employees, it’s good for the venture market in general. So it’s in every way positive, I think, and specs are able to kind of help facilitate that. But that’s a very different kind of Proposition versus, you know, a direct listing, which very few companies have done, but then everyone wants to talk about them as like this massive phenomenon. Anyway, you know, maybe a couple quick wrap up questions for the founders out there. Yeah, of course. George, you’ve built a company outside of the valley and and in the valley, you know, what’s your, what are your thoughts on the future of, you know, building in the bay area or, or not? It’s, it’s a really tough question, but one that I’ve been thinking about a lot. So I actually moved to Silicon Valley, you know, 510 years ago now.

Because I wanted to build a company here. I think taxi magic suffered a lot from not being in the Bay Area. And I really wanted to make sure that I was here for the next company that I built. And frankly, I’ve massively benefited from that, right. I joke sometimes that most of the money I raised was in Silicon Valley. But the most important money I raised was in Silicon Valley, because if I hadn’t had early angels in Silicon Valley, and then my series A investors in Silicon Valley, I would have never been able to get to the next stage of capital, which was not here. So it’s kind of like a rite of passage to go through Sand Hill Road, to be able to build a company. And you know, it’s so much harder to build from outside in terms of meeting investors in a pre COVID days, like, everyone would expect you to be here in person. So if you were based in Austin, or New York, or whatever, and you had to work and you wanted to meet investors, and in the valley, that means like flying out here, trying to set up meetings in advance, which is very difficult to do with the VA VC schedules versus like, if you’re in San Francisco, or Palo Alto, it’s a half hour drive, you can meet anytime you really want. So there’s a huge advantage from the capital perspective to have been here. But the flip side is, the cost of living in Silicon Valley has gotten out of control. It’s frankly, a little bit insane what it costs to live here. And the result of it is that the cost of of capital, Emelia, the amount of copper you have to raise has also dramatically increased because you have to compensate for the cost of living by paying people more money. There is no way if I was studying in our company today, I could pay my initial employees the same amount of money as I was paying them previously. Sure. So the result is that the raise more money, that means more dilution. And it kind of makes like very little sense. And so I think that as long as we are in this environment, where the cost of living in the Bay Area is what it is, and a lot of it’s been driven by the larger companies, right, like Facebook’s of the world. And so it’s not just about startups, it’s the really large tech companies that are using their monopolies to pay people way too much. That’s thriving some of this. But as long as that’s happening, the reality is, is that I think you will need to think about alternatives. And so I still think there’s a massive advantage to being in the bay area as a founder, but you need to be prepared to put a lot of your team somewhere else. And so I think a founding team being in San Francisco, or South Bay makes a ton of sense. But most of your operating team has to be somewhere else, because the costs don’t make any sense. And then from there, you know, the next thing is like do the founders have to be going out and people are getting so used to operating in this more decentralized manner, that over time, I think people will become more and more used to investing in founders that are not based in the Bay Area. One of the biggest reasons why VCs choose to not invest in founders that are not in San Francisco, is that they have to then travel to meet with those founders for board meetings and other things. And that’s just too complicated. And it’s up too much time. But as you know, zoom and you know, video connectivity is something that becomes more and more standard. I’m guessing you’ll see VCs investing more in founders not based here, because more board meetings will take place over video. Now is that ideal? Who knows? I mean, I think that personal connections are really, really critical. And you know, frankly, my personal relationships with my initial investors have been instrumental in helping me get through the shifts kind of early and difficult.

phase. But I think that we’ll see that more and more. And so I think that you will end up seeing more places become kind of prominent from the founding perspective versus what you’ve seen before, because of this kind of pandemic environment that we’ve had been in. And frankly, that’s a good thing, right? Because the concentration of talent and wealth and money in the Bay Area isn’t great for the Bay Area. And it’s definitely not great for the rest of the country, because it creates, you know, division is not really that good. And so I think having more kind of founding juror stories in the middle of the country will be really good. Yeah. You, you mentioned in there to pick your VC partners wisely. Is there one piece of advice that you would give to early stage founders about selection of their investment partners? I mean, I said this publicly in a post I did the day that shift was listed publicly last week. But you know, I would not have accompany today had it not been for Emily Melton, and Manish Patel, who are my series A investors from threshold ventures and Highland capital, respectively. And, you know, I, if I had thought of kind of famous series ABCs, I wanted to take money from seven, eight years ago, I might not have thought of EVA Emily and Nish because they’re not very PR focused. And they’re not in the news that much. And plus, this was eight years ago, so they were even use even less. But, you know, they have been amazing, amazing partners, and the company would not have survived with without their help, whether it has been kind of thinking through how to solve some of the difficult challenges we faced and from a product perspective, or the team perspective, or capital perspective, and so, like, inherently massively grateful for what they’ve done. For us and for me, and, you know, early process of kind of finding a partner is almost like speed dating, right? Because you do it so, so fast, in the early days. And so my advice is ignore from names, and ignore the very famous kind of people. Yes, there are some famous VCs, who are really great series, a investors, Bill Gurley, who we talked about is an example of that. But actually, some of the best VCs, don’t spend the time attending the kind of talk, talk show, let’s call it a circle, meeting, going to going to events, they actually just kind of there behind the scenes doing really great work. And so spend time figuring out who those people are. And the partner that you work with is what really matters the most, right? So make sure that you have a really, really good connection with that specific individual. Because everyone’s going to be your friend when things are great. And what really matters is who’s going to be your friend when things are bad. And that’s why like, for me, I’m so so passionately grateful to Emily, and Monique, because they have been with me through good times. And they’ve been with me through really hard times. And they’ve been more supportive of me in hard times. And then in good times, which is what you really want from your VC partner, for sure that I’d be remiss if I didn’t ask, but you know, being an openly gay man building a tech company in an immigrant as well, I’m not sure at what age you came to the States. But do you think that presented more a more difficult path to success? It’s a really good question. And thanks for asking. Yeah, I mean, um, you know, he kind of a unicorn, in some ways, we were looking at how many gay founders had taken companies public, and there’s not a lot of us, for better or for worse.

And even fewer CEOs. Look, I have never had that be an issue. For me in Silicon Valley. It’s been actually an incredible privilege that it’s never come up as an issue. And I’ve never felt discriminated against or treated in a different way. Because I’m gay. To be honest, actually, everyone has been insanely supportive of me in that way, from from the perspective of my investors and colleagues and employees and partners. And you know, when my husband and I started to work on having children, two and a half years ago now, like, everyone has been an incredible supporter, through that process, you know, the game and having kids is a pretty time consuming and difficult process, because you have so many people and, and so much science, as well as love. And it’s been really, really awesome to have everyone’s support. So I’ve not felt that obviously, like, I think my experience is probably more unique than other people. Because, you know, a lot of people do go through discriminatory experiences in that way. And that’s very unfortunate. We’re probably lucky because we’re in the Bay Area. And here, you know, people are very, very respectful of this versus other parts of the country, though that say, you know, the awesome thing about America is that today, you know, support for gay marriage is like at 70 plus percent, which is a record high, obviously, where I remember days when I first moved to the US when I was 14, you know, and even in my 20s when that number was kind of one

Isn’t 30% wage. And so the change that we’ve witnessed visa vie gay rights, and, you know, our ability to have normal lives over the last two decades has been incredible. I think it actually speaks amazing things about this country and our constitutional system that that’s possible. And so to me, it’s an awesome thing, um, that that’s going to happen, frankly, and I’ve been very, very lucky, because I’ve never had problems from that. But obviously, that’s not, you know, that’s not an expense from for everyone. On the immigrant side, you know, I do want to mention that as well, like, immigrants have been amazing founders. You know, you we’d have no pool, no SpaceX and Tesla, without immigration. And so yeah, I think it’s a huge advantage to America. And in my particular case, right, I remember one of my co founders telling me early on, he’s like, you know, for us, immigration is going to be a competitive advantage. And what he meant by that is that I knew immigration rules really well, because I hadn’t gotten through so many of them myself. And I was a lot less nervous about hiring immigrants, so I was much more okay hiring people on a Trump visas or sponsoring people for visas or green cards or whatnot. And it has proven to be a massive advantage, because we brought onboard great talent that otherwise we might not have been able to hire, had, we been hesitant to do some of the immigration related things that we needed to do. And so for us has been a big advantage. I don’t think the government makes it easy. And in this environment, in particular, it makes it very, very difficult. I mean, the fact that there are people on h1 visas right now that can’t have those visas renewed, for example, because the government’s trying to prevent that from happening is kind of ridiculous, because we’re really messing with people’s lives. And we’re messing with companies right, as well. So it’s really unfortunate, really sad. And that is something that I don’t think people fully appreciate the extent to which immigration has been a massive competitive advantage to the US for, you know, 200 plus years, but especially today, on the technology side, and I say this right, by as like a fairly conservative person, who very much believes in the rule of law, and totally understands why people have concerns about it. But it’s really, really critical to distinguish that of legal immigration from everything else, and appreciate the benefits that it adds to our economy and our entrepreneurial start. Well, let’s hope for the future of of tech and what we do for a living that, you know, those those laws and, and whatnot end up on the right side and encouraging more immigration in the future. But, George, you know, thank you so much for spending the time here today. You’re a man of firsts in many respects. And you know, you’ve you’ve learned a lot of lessons over the years, and it’s clear to me that you’ve put them to good use. So you’re an inspiration to me and many in the audience, and I appreciate you spending the time today. Thank you so much for having me. It’s been a pleasure.

All right, that’ll wrap up today’s interview. If you enjoyed the episode or a previous one, let the guests know about it. Share your thoughts on social or shoot him an email. Let them know what particularly resonated with you. I can’t tell you how much I appreciate that some of the smartest folks in venture are willing to take the time and share their insights with us. If you feel the same, a compliment goes a long way. Okay, that’s a wrap for today. Until next time, remember to over prepare, choose carefully and invest confidently thanks so much for listening