Arena Show Part I: Idea Dinner + YC Continuity

[0] Oh, holy crap.

[1] Wow.

[2] Hello, acquired listeners.

[3] You don't tell me you're going to say that.

[4] That's good.

[5] I'm ad -libbing.

[6] I got up here and I was overcome with emotion and none of this is scripted.

[7] Thank you so much for coming tonight.

[8] I, like, prepared things and I should read them off my iPad.

[9] here.

[10] But the only thought that can occur to me right now is how different this is than what you and I normally do.

[11] David and I are very used to being on Zoom, talking to each other through the internet.

[12] There are zero people watching live, and if we say something wrong, we delete it, and that's not happening tonight.

[13] But more important than that is, you know, we get evidence that people listen in the form of analytics or tweets or anecdotes here and there of someone saying, oh, I listen to the show.

[14] But there's no human visceral way to feel that.

[15] Like we literally just refresh an analytics dashboard and a number goes up.

[16] And this is so cool to see you.

[17] Real.

[18] Well, as fun as it is going to be to watch the show and we've got some great stuff planned, I think it will be much cooler to meet each other.

[19] For as many, they call it parasocial relationships where you hear us talk, but we don't get to meet you.

[20] We're going to try and meet as many of you as possible.

[21] We want a lot of you to meet as many other people as possible because you have an easy opener.

[22] Like, what's your favorite episode?

[23] Or how did you hear about a choir?

[24] Like, my buddy dragged me here tonight, and I never heard of it before this.

[25] But everyone's got some answer to that question.

[26] So meet each other, take selfie.

[27] enjoy the time together.

[28] We have freaking climate pledge arena and enjoy the time in it.

[29] Thank you to pitch book.

[30] Holy crap.

[31] John's not kidding.

[32] A pitchbook is Seattle's like monster amazing business hiding in plain sight.

[33] And it's been really cool to get to another team more and more and more and understand the business and just learn how on four million dollars they've been able to build this multi -hundred -million dollar business, and it's inspiring to us.

[34] So thank you to John, thank you to Kai, thank you to Lauren and Val, thank you to Nas.

[35] Everyone we work with at Pitchbook is just awesome.

[36] So thank you to them.

[37] Happy Star Wars Day, Ben.

[38] Happy Star Wars Day.

[39] May the fourth be with you all.

[40] I hear Paul McCartney is here.

[41] Yes, Paul McCartney is here tonight.

[42] We have a great show for you.

[43] you, that was last night?

[44] That was last night.

[45] We do have a great show, though.

[46] Tonight we have Jim Weber, the CEO of Brooks Running, another Seattle monster business that we're very excited to talk to you about.

[47] We have Anu Hariharan tonight from Y Combinator, the infamous Pachie McCormick from Not Boring, Mario Gabriale from the Generalist, two of the internet's finest publications, so very excited to chop it up with them.

[48] we learned from arena shows past, live shows past, very small live shows past, that our normal format of telling a three -plus -hour story of a business doesn't work very well in this sort of time where you're sitting down and, you know, you could feel the audience getting antsy in those long stories.

[49] So we got three just like fast -paced, great stories, great segments for you tonight.

[50] be in and out in a couple hours.

[51] I know.

[52] We'll enjoy it along the way, but it's going to feel fast relative to your normal acquired episode.

[53] Speaking of, should we start our normal acquired episode?

[54] We've got to do it the way that, I don't know, it feels like we have a way that we start acquired episodes, so we should do that.

[55] We should do that.

[56] Is it you, is it you, is it you, is it you, is it you, is it you?

[57] Welcome to season 10, episode seven, the arena show presented by Pitch Book of Acquired, the podcast about great technology companies and the stories and playbooks behind them.

[58] I'm Ben Gilbert, and I am the co -founder and managing director of Seattle -based Pioneer Square Labs and our venture fund, PSL Ventures.

[59] And I'm David Rosenthal.

[60] And most days, I'm an angel investor based in San Francisco, but today I'm an angel investor based in Seattle.

[61] And we are your hosts.

[62] Okay, listeners, now is a great time to thank one of our big partners here at Acquired, ServiceNow.

[63] Yes, ServiceNow is the AI platform for business transformation, helping automate processes, improve service delivery, and increase efficiency.

[64] 85 % of the Fortune 500 runs on them, and they have quickly joined the Microsoft's at the NVIDIAs as one of the most important enterprise technology vendors in the world.

[65] And just like them, ServiceNow has AI baked in everywhere in their platform.

[66] They're also a major partner of both Microsoft and Nvidia.

[67] I was at Nvidia's GTC earlier this year, and Jensen brought up ServiceNow and their partnership many times throughout the keynote.

[68] So why is ServiceNow so important to both Nvidia and Microsoft companies we've explored deeply in the last year on the show?

[69] Well, AI in the real world is only as good as the bedrock platform it's built into.

[70] So whether you're looking for AI to supercharge developers in IT, empower and streamline customer service, or enable HR to deliver better employee experiences, service now is the platform that can make it possible.

[71] Interestingly, employees can not only get answers to their questions, but they're offered actions that they can take immediately.

[72] For example, smarter self -service for changing 401k contributions directly through AI -powered chat, or developers building apps faster with AI -powered.

[73] code generation, or service agents that can use AI to notify you of a product that needs replacement before people even chat with you.

[74] With ServiceNow's platform, your business can put AI to work today.

[75] It's pretty incredible that ServiceNow built AI directly into their platform, so all the integration work to prepare for it that otherwise would have taken you years is already done.

[76] So if you want to learn more about the ServiceNow platform and how it can turbocharge, the time to deploy AI for your business.

[77] Go over to servicenow .com slash acquired, and when you get in touch, just tell them Ben and David sent you.

[78] Thanks, service now.

[79] David, what do we have in Act 1?

[80] Well, for Act 1 tonight, we start back in February 2021, when we were all boarded home, clubhouse was a thing, GameStop was going to the moon, and we decided to call up.

[81] our best internet friends, Pachy McCormick and Mario Gabrieli, and pick some stocks.

[82] Like everyone was doing.

[83] Like everyone was doing.

[84] Real quick, this is not investment advice.

[85] Do your own research.

[86] I'm glad you remembered that.

[87] And tonight, we are going to recreate that magic live here in person.

[88] Ladies and gentlemen, please welcome all the way from New York, Pachie McCormick, And Mario Gabrieli.

[89] Whoa.

[90] Oh, right.

[91] Oh, my God.

[92] Let's go.

[93] Look how dirty my sneakers are, too.

[94] This is perfect.

[95] This is a weird start to just change shoes from the beginning.

[96] Let's do it.

[97] Yes, so the only rule is you will lose the idea dinner unless you are wearing.

[98] Did you ask us for our shoe sign?

[99] I don't remember that.

[100] This is actually the second most embarrassing thing to the pick that I'm about to make.

[101] Well, we needed to delay a little bit because we have one more thing.

[102] Well, special surprise.

[103] We wanted to raise the stakes tonight.

[104] So we brought in a judge who is going to grade each of our picks acquired style and declare a winner and a loser at the end of the night.

[105] And a loser.

[106] This is very harsh.

[107] Very neat.

[108] Yeah.

[109] Please welcome from the capital of Silicon Valley, Miami, Florida.

[110] Great longtime friend of the show and former SoftBank Latin America managing director, Shu Nyada.

[111] Thanks, Alan.

[112] So let's dive into the idea dinner.

[113] I'm happy to report when we were deciding the order that we were going to go in.

[114] I came up with the criteria, which was whose picks historically have performed the best.

[115] That would be my.

[116] That would be me. This is so rigged.

[117] In the way that you chose to select whose picks have performed, the best, yours, perform the best?

[118] Yes.

[119] Not private picks, not blended, but just public picks.

[120] Yes.

[121] So I'm going to back cleanup, and Mr. Mario Gabrieli is going to lead us off.

[122] Why is that?

[123] Yeah.

[124] Well, I don't agree with the judging so far, but...

[125] Before you tell us your pick, for all two people that don't know about the generalist, tell us about the generalist.

[126] Oh, wonderful.

[127] Thank you so much.

[128] The Generalist is a publication that covers tech, crypto, and venture capital.

[129] I aspire to the level of depth of these two gentlemen and always enjoy collaborating with them.

[130] We cannot write the way that you write, so there's no aspiration.

[131] So for people who haven't read The Generalist, it is deep writing about technology companies in the most whimsical style I can possibly imagine.

[132] Like Mario is a novelist at heart who covers tech companies, and it's very fun to read.

[133] Thank you so much.

[134] I feel honored.

[135] Now, before we grill you on your pick, a little, like, rules of the game here.

[136] We're all coming with our best investment idea starting today.

[137] What is today?

[138] May 4th.

[139] So the idea is to espouse something that you think would be a profitable investment, not investment advice, starting today, going forward on a time frame that you choose to specify, and then Shu ultimately will be the judge because we don't have the benefit of all that time to know how we'll actually play out.

[140] I love the godlike powers.

[141] Yes.

[142] So, yes.

[143] So Mario, lead us off.

[144] Well, since Shue is really my audience, I think I'll just...

[145] All right, gentlemen, my pick is Snowflake.

[146] Ooh.

[147] Thank you.

[148] Heard of it.

[149] So for those who perhaps are less familiar, what is Snowflake?

[150] Snowflake is a managed data warehouse, and their sort of initial genius was that they separated storage and compute.

[151] Made it super easy to take in all of this data that a company is managing and to run queries against it super fast, so you can get the insights and information from it.

[152] That initial idea was quite brilliant and has formed the company into the sophisticated, elegant product that it is today.

[153] that made it, you know, something of a pandemic, darling, if we recall.

[154] It was, you know, one of the craziest sort of IPO day pops that I think any of us have seen in a long time.

[155] And the stock traded as high as, I think, 403 a share.

[156] Today, it's about 183, 185.

[157] So it has taken quite a hammering.

[158] Multiple compression, as they say.

[159] Indeed.

[160] In especially this first quarter, it really got, like, I think, a 45, percent drawdown.

[161] But when you look under the hood at what, you know, the company has been doing, certainly some of, you know, the multiple compression is merited, but the growth on revenue, the net retention, the free cash flow, all of those things have moved in a stellar direction.

[162] So revenue's up about 105 percent.

[163] Net retention is 178.

[164] It was 168 the year before.

[165] Which I think is like a record for a public company net retention.

[166] It may well be.

[167] It's pretty wild.

[168] And yeah, they're generating 80 plus million in free cash flow.

[169] And, you know, the business in Q4 of last year actually got contract value of 1 .4 million coming in, which is all of the revenue they had the year prior.

[170] So I would submit to you that this is...

[171] You would submit to shoe.

[172] You would submit to shoe.

[173] I would submit to shoe, Judge Shue.

[174] Don't forget.

[175] that this is a business that has the potential to compound for many years.

[176] I think over a three -plus -year time horizon, it can do extremely well.

[177] It is a play that summarizes the growth of data in the technology industry, which feels like a safe bet.

[178] And it's run by one of the biggest ballers in the executive world.

[179] Frank Slutman, who has done this now at least two and a half times.

[180] depending on how you parse it, and who is sort of the quintessential sustainable growth CEO.

[181] He is someone who knows how to manage in difficult circumstances.

[182] He's compared himself to general patent.

[183] And this is a time for a patent -like figure, I would submit.

[184] And so my pick is Snowflake.

[185] It doesn't come without risks, but those risks I'm willing to take.

[186] You've come a long way from, I think your first pick was a SPAC.

[187] Bridgetown specs Can we put a moratorium on bringing up people's old picks?

[188] Nobody's portfolio looks good right now.

[189] Except you're out.

[190] Sorry, David's less negative than everyone.

[191] Any thoughts from the peanut gallery on Snowflake?

[192] I mean, you have every sector tailwind in the world, and the question is going to be like, so of course more companies are going to be using cloud data warehouses in ways that you want to have good UX around, and then the question is, are they going to continue to capture all the value?

[193] Like, how do they stand competitively?

[194] Yeah, I think the sort of net retention shows that they're very good at growing with this customer base.

[195] They're growing faster than any other cloud company, which isn't super surprising given their relative size.

[196] But I think that's a fair question, but not one that I'm hugely worried about given, like, the overall growth of the, of the sector.

[197] Sweet.

[198] No further comments.

[199] Wow.

[200] You're there.

[201] All right.

[202] Shoe?

[203] So, wait, how are we doing this?

[204] I'm not going to do real -time graded.

[205] I'll be skewed by the first one, and then I'll be adjusting mid -course.

[206] Oh, wait, I'm taking notes.

[207] Okay, that's very fair.

[208] Mr. McCormick.

[209] All right, so I think for all of us.

[210] You asked the internet for your pick.

[211] the internet for, you know, their favorite stock.

[212] I ended up going, actually, with an oldie, but a goody, but we're going to get there.

[213] So I think one of the most important things about 2020 and 2021 for a lot of people was learning about themselves.

[214] And what I learned is that I'm a terrible, terrible stockbacker.

[215] Wait, wait, wait, but you're on CNBC like all the time.

[216] Like I said, I'm a terrible, terrible stockmaker.

[217] And, you know, as we did the rankings, I gave Mario a little bit of gut, but I think we were going back and forth for last place.

[218] And so the safe move, we also decided to only do Publix because we didn't want to shill our private market portfolio companies.

[219] So Composer is one of the companies in my portfolio that makes it really easy to invest in automated trading strategies.

[220] I'm going to go with one of the strategies that they have that's risk on, risk off.

[221] It looks at treasuries and actually, actually NASDAQ outperforms S &P as an indicator, and then puts you in a basket of like 3X, like TQQQQ when things are good, and it puts you in like long dollar when things are bad.

[222] So if I wanted to be super safe, that's my pick, and that's actually where I'm putting my money.

[223] I'm not going to do that because we're all the way out in Seattle.

[224] Second thing you could do, but we can't invest in this, but maybe there are shares going around.

[225] Apparently it's possible to get into the equity tranche of Elon's Twitter take private.

[226] Oh.

[227] At least, like, he's aggressively trying to find people to take some of the equity charge.

[228] He's aggressively, so if any of you want a piece of the Twitter take private, $43, 44, whatever, billion dollars.

[229] Minimum check.

[230] I think, actually, they are taking relatively small checks from what I've seen.

[231] Here's the question.

[232] Is not boring capital?

[233] Stalk -sized checks?

[234] Is stock -sized checks?

[235] Yeah, exactly.

[236] Is not -going capital investing?

[237] Not Boring Capital, that is outside of Not Boring Capital's very, very broad mandate.

[238] So maybe I'll throw a Yolo check in there, but...

[239] Dude, you invested Not Boring Capital's money in buying the Constitution.

[240] And this is too far.

[241] And this is outside.

[242] That one was a 15 billion percent IRA for a little while.

[243] Time has gone on, but that was a 15 billion.

[244] Not investment.

[245] It wasn't an investment.

[246] I was donating or contributing to the Constitution.

[247] But, so the Twitter thesis, and this isn't the pick, but the Twitter thesis is that everybody in this room, half of us are here because of Twitter, if you pulled the audience, the average that it would take to pull people off of Twitter has to be in the hundreds, if not thousands, or tens of thousands of dollars, yet they're monetizing, like, Android right now, right?

[248] Like, Twitter needs to be the Apple of social media.

[249] It has a small but loyal and a valuable user base.

[250] The board doesn't use Twitter.

[251] Jack is doing whatever Jack stuff.

[252] But somebody's going to come in and monetize that thing.

[253] I think you charge for verification.

[254] You get rid of the bot problem.

[255] If the 80 million people who use Twitter in the U .S. paid $3 a month, you're looking like a $3 billion recurring revenue opportunity annually for Twitter.

[256] And he's going to fire head count.

[257] He has to pay his debt service.

[258] But I would imagine 90 % of people at Twitter, and if there's anybody in the room, I'm so sorry.

[259] But don't do very much.

[260] So there's a lot you can do on the cost side.

[261] And then I think with somebody like Elon, it's either going to go horribly, horribly wrong or it's going to go really, really, really well.

[262] And I think that you can kind of build the missing WhatsApp of the US kind of on the Twitter platform where you have all of these valuable, passionate users.

[263] So at $43 billion, do you think when he takes this thing public again in three years that he can do that at, you know, a fifth of whatever Facebook's valuation is at that time?

[264] Like, pretty safe to X. Not the pick.

[265] So we are...

[266] Just a straight -off...

[267] We can't.

[268] I mean, it's not a public market pick.

[269] We're not getting out of here at 8 p .m. tonight.

[270] There's not a chance.

[271] We're just admitting that now.

[272] The reason that I'm in last place is because of a company named Open Door.

[273] Oh, yes.

[274] Yes.

[275] Yes.

[276] Not the pick?

[277] Open Door is the pick.

[278] And here's why.

[279] Because we're in Seattle, and Open Door vanquished a Seattle company, Zillow's Eyebuying Program, own the ibuying market themselves now did eight billion dollars of revenue last year and now this is i came from breather where we counted topline revenue as like anything that you know it's a it's a generous top line i soft bank knows about this as well the general's kind of top line shot fired just the we work thing and we competed with them and what a wonderful company but um but still eight billion dollars of home that open door did last year they're currently at a $5 .00 billion market cap.

[280] Housing is a multi -trillion dollar market, and everybody in the country, it seems like, this past year, learned how awful that process is.

[281] And so this is a point, and I've written about the company, but this is a point that I am taking from Twitter, which is somebody said it is the worst UI, U .S., customer experience in the biggest market out there, and they have the best solution with eye buying.

[282] Sometimes it doesn't have to be hard.

[283] I'm treating this more like a venture bet, like two months ago, $5 billion was a like series B valuation.

[284] So treating this like a venture bet that they're the leader in this huge market that is inevitable.

[285] They're operationally super sound.

[286] They finally turned an adjusted EBITDA profit last year so they can make money on this business.

[287] And they did like thousands and thousands and thousands of homes and their biggest competitor is dropped out of the market and Zillow is no longer doing eye buying.

[288] So this market is there to lose.

[289] Eric Wu, is an absolute monster and it can't go any lower.

[290] So I am doing what you're not supposed to do, doubling down on my biggest loser, open, ladies and gentlemen.

[291] All right, all right.

[292] Excellent.

[293] What about Redfin is still in the market, another great Seattle company.

[294] Are you concerned about them as a competitor?

[295] Are they above or below a billion dollar valuation right now?

[296] No, I think, I think actually the mistake I made last time was, I did a basket of these real estate stocks.

[297] It is a massive market that is awful to operate in right now, as a lot of people who bought a house over the past year have realized.

[298] I think that Redfin's going to do really well.

[299] I think that Zillow now that it's kind of back to its original focus is going to continue to do really well.

[300] I still love Zillow.

[301] And I think that Open Door is going to do the best.

[302] I think they have the biggest lead in I buying, and I think that's a huge, huge opportunity, particularly because they have the best company value in all of the world, which is BIPs for Breakfast.

[303] Like, they pull every basis point out of operating these houses, and that is a really, really valuable thing.

[304] Like, it does remind you of another Seattle company, Amazon, and that, like, that you really need to get your costs right, and they're the best by far at doing that.

[305] There it is.

[306] Okay.

[307] There it is.

[308] Ben?

[309] Because David is theoretically winning, I will go next.

[310] So my, I did actually what Packy did.

[311] I made a list of things that I was contemplating, and I thought, I'd share some of those just because I think they're interesting things you could buy with your pick right now.

[312] Literally anything, because everything's on sale.

[313] I thought about Google again, which was, I think, the best pick any of us made, except Solana.

[314] Still an amazing business.

[315] still cheap by valuation, you know, any way you want to slice it, price to earnings, price to sales, whatever, not my pick.

[316] I kind of like the thesis that's going around Fintuit right now where people are saying Amazon has gone so low that they're basically valuing the retail business at zero and it's only AWS contributing to its market cap.

[317] And I think you can build some models to sort of show that.

[318] Would I take Amazon's retail business as a free option.

[319] Absolutely I would.

[320] Again, not my pick, just like Pecky.

[321] There's a Twitter one that I had too, which is buy Twitter right now because there's free $5 bills attached to every single share.

[322] And for folks that don't get that joke, there's basically an arbitrage you can run.

[323] If you think that Elon is actually going to close this deal and pay out every single Twitter share at $54 .20 per share, you can go buy a Twitter share right now for like $49 or $50.

[324] I don't know what market closed at today.

[325] But, I mean, that's free money if you think Elon is actually going to complete the deal.

[326] Not my pick.

[327] So what I'm going with is one that I know David and I have discussed at length.

[328] I can't remember if we've done it on air, but I looked back at our idea dinner picks, and we haven't actually picked it on the idea dinner, and that's Coinbase.

[329] This is a value investment.

[330] and I'll explain myself, but this is a crypto value investment.

[331] So let's set the anchor point that we should all think about this business.

[332] In the last 12 months, they've done $10 billion in free cash flow.

[333] That's astonishing.

[334] That is money that piled up in their bank account based on the profits of the business that they're operating.

[335] So they're printing money.

[336] The market cap at close today was $34 billion.

[337] Wow.

[338] So if I was running a business, that was generating $100 of cash per year, just to make the math easy, would you buy that business from me at $340?

[339] That seems like a pretty good pickup, especially one that has network effects, the leading brand in the space, growing incredibly fast, in a gigantic wave.

[340] Now people can think crypto is going to crash or the bubble's going to pop.

[341] they're the most established company in the space, and it is still the first inning of all of crypto.

[342] So you have the opportunity to do, and here's where it gets kind of interesting, a Berkshire -Hathaway -style investment into a crypto company that is the leading crypto brand in the world?

[343] It seems pretty safe to me, famous last words.

[344] But to me, you're like very cheaply valuing their unbelievable business.

[345] business that they have today, and sure there's going to be margin compression, and sure the take rate's going to go down over time.

[346] But like, I think you have a lot of resilience based into the price, not to mention all the free options that come stapled to that business, which are the NFT business and every other venture that they're going into.

[347] And on top of all of this, I think a great way to play crypto and Web3 is to look at the companies that have centralized all the activity and are able to run Web2 style businesses or Web2 business models using the heat and light that's all shown on Web 3.

[348] And Coinbase is literally the best example of that and has, I don't know.

[349] Not only that, but Coinbase and FTX, they make money whether crypto goes up or down.

[350] Right.

[351] As long as it's moving.

[352] And if it goes up or down faster, they make more money.

[353] Right.

[354] So my pick is Coinbase.

[355] I got to say, I really like it.

[356] I think it's really good.

[357] I was thinking about this one, too.

[358] And I think what talked to me out of it were a couple of things.

[359] One, I see a lot of pitches from senior ex -coinbase people.

[360] And so it feels like there's a post -IPO brain drain happening a little bit, which is natural, and you also don't love to see.

[361] I think FTX is, I mean, there's a lot of comparing FTX and Coinbase because they're right around the same market cap right now.

[362] FTCS has like 200 people.

[363] or something crazy.

[364] And it's moving really, really fast.

[365] And like 14 engineers.

[366] Yes.

[367] That was still, that was one of the most surreal.

[368] Okay, this is the most surreal moment of acquired.

[369] But that might have been second when we were interviewing Sam.

[370] This is Sam Bankman Freed, the CEO of FTX, who Mario wrote a three -part unbelievable series on.

[371] And he was just in the middle of his office and people were like trading behind him.

[372] 100%.

[373] And almost certainly playing League of Legends.

[374] over here.

[375] Yeah, fair packy.

[376] I mean, the FTX bear case on Coinbase would be that derivatives are actually a much bigger market than trading direct equities or direct crypto.

[377] I think it's like 3x to the volume in any given market is derivatives rather than the underlying asset.

[378] And FTX is better poised for the derivatives market than Coinbase is.

[379] I still think Coinbase that this market cap is an absolute steel.

[380] I agree.

[381] I think like FTX is, you know, scary in lots of ways and are so efficient as a business.

[382] But especially factoring in the NFT play, I think there's like a really nice upside here.

[383] The stuff that they've shown, at least, on the NFT side, I think looks pretty promising.

[384] Yeah.

[385] Yeah, I love it.

[386] It's a bet that crypto stays big and that decentralization is probably not as important to the next billion users as It was to the first.

[387] Which is a pretty safe bet.

[388] I love the pick, actually.

[389] Also, would any of us have thought at Coinbase IPO time that they would be shipping enough to do, like, a big NFT play?

[390] Like, I had kind of, in my head, thought, like, okay, we sort of have reached product staleness, but they've actually shown, like, a rejuvenation on it.

[391] Yeah.

[392] Another way of framing this is I liked this pick so much in January, and other people on this stage did, too.

[393] that there were investments made in the company.

[394] And I'm speaking with passive voice for fun.

[395] I like it a lot more today than I liked it then.

[396] Me too.

[397] Me too.

[398] Ben, you made me nervous.

[399] For two reasons.

[400] Because I'm going to beat you.

[401] All right.

[402] That was one.

[403] The other is when you were doing your not picks, which I'm not going to do, I got really scared that you were going to take my pick because my pick is, the company that built this arena, which is Amazon.

[404] Or bought the naming rights.

[405] Built as an aggressive.

[406] Well, okay.

[407] They didn't actually build the arena.

[408] And so I was thinking about this.

[409] It's trading at about a one -and -a -quarter trillion -dollar market cap.

[410] Most folks probably know, probably a lot of folks here work at Amazon.

[411] The stock got hammered last week after reporting earnings.

[412] But just looking at the fundamentals, Amazon did $470 billion of revenue in the last 12 months.

[413] That is the second highest amount of revenue that any company has ever done ever.

[414] The only larger one being Walmart, which Amazon will almost assuredly pass very soon.

[415] So that means that Amazon is trading at two and a half times revenue, times last 12 months revenue.

[416] What are Amazon's margins, David?

[417] Well, it's I thought about that.

[418] About 400 billion of that is retail revenue, but about 75 billion, more than 70 billion, is AWS revenue, which is very high margin revenue.

[419] So each of those retail an AWS, I think there is a bare narrative around that I just simply don't agree with, now.

[420] On AWS, I think the bare narrative on AWS is, yes, it's amazing, high margin business, hats are off to Bezos to Andy Jassy for building it, but its days are numbered.

[421] Azure and Google Cloud are growing faster, and Amazon, despite being the early leader in Cloud, might actually end up losing this market.

[422] I think that's utterly ridiculous.

[423] AWS is growing at 37 % annually on a $75 billion base.

[424] Google and Microsoft are growing at 45%, but their market share combined is still significantly less than Amazon.

[425] So yes, it's growing slower, but it's bigger than both of them combined.

[426] But then just like none of that matters.

[427] The market that we are talking about here is the internet.

[428] Like, this is the internet.

[429] This is the picks and shovels of the internet.

[430] And Amazon is the clear market leader, growing 37 % a year.

[431] I cannot imagine any other asset I would rather own period anywhere.

[432] So that's AWS.

[433] On the retail narrative, like you said, literally Goldman issued a research note last week.

[434] Now it was a thought exercise.

[435] They didn't actually mean this, but valuing retail at zero.

[436] that's people have been doing this for 20 years how does that work they issued a research report as a thought exercise well they have a buy on the stock and I think they were saying that like the upside is so much that even if you just valued Amazon based on AWS you would still buy the stock they think retail is worth something but that was the thought exercise so let's AWS has over a 33 % market share of cloud of the internet the largest application of the internet by revenue is e -commerce.

[437] Amazon has a 56 % market share of U .S. e -commerce, a 56 % market share.

[438] So there's a really cool feature.

[439] If you go to your account in Amazon, of course, this is so Amazon, you can download CSV reports of your own spending.

[440] It's scary.

[441] I did this.

[442] Which they intentionally make it that you have to download a CSV report, and you can't actually, like, see that in the web UI.

[443] That would be very scary.

[444] So just me. Over the last five years, I've grown my spend on Amazon by 34 % a year, and in the last 12 months, I ordered 230 items on Amazon because we had a kid, but, you know, we have garage delivery, set up.

[445] We have the Amazon credit card.

[446] They're launching Buy With Prime on the internet.

[447] I'm highly influenced by Amazon sponsored listings, which is a $30 billion high margin revenue business within retail.

[448] Which was approximately zero five years ago.

[449] Exactly.

[450] So this is my point.

[451] The narrative that retail is worth zero completely misses the point.

[452] The reason that retail lost a billion and a half dollars last quarter is Amazon invests so far ahead of the curve.

[453] It's unimaginable to me that I would buy things anywhere else but Amazon, and that moat is so deep that if they were to stop investing, they would become incredibly cash flow positive, and they'd still have years of runway before any competitor caught up.

[454] And to your point, I think their CAPEX last year was something like 3 or 4X, any of the other big tech companies, because they're just building out these warehouses and data centers.

[455] Yep, totally.

[456] Okay, so to borrow a Bezos framework, I think you've got to think about what's not.

[457] going to change in investing.

[458] And I think what's not going to change is one, the internet is going to keep growing, so I want to own AWS.

[459] Two, I and others are going to keep buying more stuff online, so I want to own Amazon retail.

[460] And I think that on the retail side, they'll keep adding credit cards, advertising, buy with Prime, leveraging their infrastructure across other retailers on the internet.

[461] And all of those are high margin products.

[462] That's my pick.

[463] No argument.

[464] No. I got to play to the hometown.

[465] I mean, what happened, though, to Apple Stock after Steve Jobs, right?

[466] I mean, that's a good pick.

[467] I think Andy Jassy could be the Tim Cook of Amazon.

[468] I love that.

[469] I love that analog.

[470] That's a good one.

[471] That's a neat little framework.

[472] All right.

[473] So, Shoe.

[474] So I'm going to change the rules a bit.

[475] But first, I'm going to make some comments.

[476] some generalist comments.

[477] Thank you so much.

[478] Lowercase G. The first is you all said we're not good public stock pickers.

[479] And I'm going to posit that the future of investing is people who understand and create narratives.

[480] And that's what you all do.

[481] And you actually are very good stock pickers, period, because you understand the power of stories and narratives.

[482] So this is the future of investing, in my view.

[483] You're getting invited back to the next arena show.

[484] It's no surprise you all have or are launching funds.

[485] I love how this is starting so far.

[486] So that's overall comment number one.

[487] Overall comment number two is you all think like venture investors.

[488] Nobody talked about downside.

[489] You guys said about investment advice, right?

[490] Like enough time?

[491] Nobody.

[492] I was waiting for the bare case and what could go wrong and it didn't come up.

[493] For example, Coinbase over -earns from, a consumer pricing point of view compared to any other platform you look at that sells to consumers by some dramatic it's a total outlier and so if that collapses 80 % what happens to the stock maybe 120 is really expensive etc so there was none of that generally I'm not picking up and the third thing is you are all focused on companies that are cheap there was a focus on now's a good moment because it's cheap expensive companies can be great investments expensive so to speak is probably because we're in this part of the market cycle and so everyone's focused on.

[494] Everything's dirt cheap at these prices.

[495] Who said that?

[496] Who said that?

[497] Yeah.

[498] Somebody said.

[499] By the way, the consensus biggest Twitter between the two of you.

[500] So I had five criteria.

[501] One was upside.

[502] The other was downside.

[503] The other was timing.

[504] Why now?

[505] The other was novelty, which you all failed on, by the way.

[506] Fair.

[507] Snowflake may be the most novel and there's no science to novelty I mean, obvious stock can be a great investment and the final one was Flair very scientific criteria I liked bips for breakfast and General Patton that got me going All right, let's go man And so I have my ranking But we're going to get the audience involved So I'm going to hold I don't know if you know this from like an old show I'm going to hold my hand above a head and then you clap a certain volume and I'll go one by one and the loudest clap wins and then I'll tell you if that was my pick or not, okay?

[508] So we start with random order open door, okay?

[509] Let's go.

[510] All right, this way nobody hates me. That's open door.

[511] Okay, I kind of got that clap.

[512] That was like a five out of ten clap.

[513] Then we go with Amazon.

[514] That's a whole time.

[515] Really came through there.

[516] That's a solid eight out of ten clap.

[517] Yeah.

[518] We are in the Amazon arena.

[519] So I'll notch it down to a seven.

[520] Home crowd.

[521] Coinbase.

[522] That was pretty hot.

[523] That was good.

[524] That was better than the Amazon.

[525] on clap.

[526] So that's an 8.

[527] And then Snowflake.

[528] All right.

[529] Wow.

[530] So just like the French elections, this is going to go to a runoff.

[531] Between Snowflake and Coinbase.

[532] Okay.

[533] Do we get to clap?

[534] Oh.

[535] No, because it'll sound louder.

[536] You can do...

[537] Okay, so think about it, okay?

[538] One of these two, Snowflake or Coinbase.

[539] Snowflake Coinbase My pick was Snowflake for the record Only because of General Patton Wow I think I leave now right As excited as I am to be victorious And I am excited How many people own crypto in this audience That's probably why Yeah Time will ultimately be the judge And there is a tracker There's an idea to enter tracker spreadsheet that listener James Avery, I think James started it, right?

[540] Maintains, and so we'll get to, at any given point, look back and see who actually won tonight.

[541] And I think Open Door reports tomorrow, so we're going to have a little fun with that one.

[542] But we're talking, what, five -year hold period?

[543] I think that's right.

[544] Yeah.

[545] So we reconvene again here.

[546] Yep, great.

[547] In 2027.

[548] Perfect.

[549] See everyone.

[550] See everyone.

[551] And judge this contest.

[552] You'll need to use, you know, the rest of arena at that point.

[553] That's right.

[554] That's right.

[555] Well, Packy, Mario Shue, thank you so much, not only for doing this, but for like flying five hours to do this.

[556] Let's give him a hand.

[557] Six and a half.

[558] Thanks so much.

[559] Even more important than flying five hours.

[560] Thank you guys for being our friends.

[561] Oh, thank you guys.

[562] It's the best.

[563] I'll take a hug.

[564] NotBoring .com.

[565] Read thegeneralist .com.

[566] You should follow Shue on Twitter.

[567] The future of public investing.

[568] If you like tonight, you're in for a treat on the internet.

[569] Thanks, Shue.

[570] All right, listeners, our sponsor is one of our favorite companies, Vanta, and we have something very new from them to share.

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[590] All right, David, what is act two of our evening?

[591] All right.

[592] We're ready for act two.

[593] And for Act 2, we have a story that I think most of you know, but that we have not yet told on the main feed of Acquired itself, and that is Y Combinator.

[594] Specifically, tonight, we're going to tell part two of the YC story.

[595] I think most people know about YC's accelerator business that produced Airbnb, Dropbox, Stripe, Brex, Friends of the Show Modern Treasury, Vouch, Vanta, came out of the...

[596] accelerator business, but most people don't realize that that is only one half of what YC is today.

[597] They are also one of the biggest and most active late stage growth investors in the valley, and they have deployed literally billions of dollars into series B, C, D rounds, in startups, both YC alumni and non -YC alumni alike over the past several years.

[598] So tonight, we have Anu Haraharan, the managing partner of YC.

[599] continuity fund, which leads all of these late stage investments, here to tell the story with us.

[600] Anu's had an amazing career.

[601] She went from a junior engineer at Qualcomm, great semiconductor company, to partner in Andreessen Horowitz, to now running YC continuity, where he serves on the boards of Brex, local fan favorite convoy, whoo, Faire, Monzo, Gusto, Revenue Cat, Rappi, and Vouch.

[602] And vouch.

[603] Ladies and gentlemen, welcome Anu Hariharan.

[604] Thank you.

[605] Well, I'll give you a half.

[606] We got you some shoes.

[607] Oh, great.

[608] So great to have you here.

[609] Thank you for having me. I don't know if you noticed, but we picked that walkout music just for you.

[610] I don't know who can save San Francisco.

[611] Oh.

[612] Shots fired.

[613] So, Pat Mahahan, I think, the lead singer of Train.

[614] I was at San Francisco band.

[615] I think he wrote that song because he moved up here to Seattle.

[616] Oh, interesting.

[617] So, Ani is foreshadowing your next...

[618] Yeah, so when YC is, you know, ready to move up to Seattle.

[619] I think YC will...

[620] YC right now is remote first.

[621] Oh.

[622] So we all live in San Francisco, but we don't have an office.

[623] So the Mountain View facilities...

[624] We own the Mountain View building.

[625] We have that, but since the pandemic, all our batches have been fully remote.

[626] Wow, so there's no requirement.

[627] It used to be before the pandemic, no matter where you were, in the world, you had to come to Mountain View.

[628] Yes, that's not been true for the last three years.

[629] And we have learned to do everything remote.

[630] We always read applications online, but we learned how to do interviews remote.

[631] That was strange for us, because we believe in bringing everyone to Mountain View for the interview, and we had to learn how to test for that on Zoom.

[632] And then we also learned how to run the batch on Zoom.

[633] And we learned how to do a demo day on Zoom.

[634] Wow.

[635] And this is the new normal going forward?

[636] This is the new normal going forward except there will be tweaks for the new batch.

[637] It has not yet been announced, but there will be a little bit of mix of in -person as well as, you know, largely remote.

[638] But going remote really helped us.

[639] 50 % of our batch is international.

[640] Wow.

[641] What's the application deadline for the next batch?

[642] The deadline has passed, but we are still accepting applications.

[643] YC always accepts even late applications.

[644] YC .com slash acquired.

[645] Get your laid application.

[646] Great.

[647] All for it.

[648] Not a real URL.

[649] All right.

[650] So wait.

[651] Let me kick us off here with just like a very, let's drive right in.

[652] We wanted to ask you what is YC continuity, but in a very mechanical way, like literally what is YC continuity?

[653] Is it a fund?

[654] Is it a set of funds?

[655] It's literally the word continuity.

[656] So the way it was formed, a lot of our founders, the alumni came and said, hey, you took us through the 12 -week program.

[657] This is really why we started a company.

[658] It would be so cool if VICEC can continue to support us in the form of investment and in the form of programs down the line too.

[659] Why do you stop at the accelerator?

[660] And so that's really how we came up with continuity.

[661] So it is a multi -stage fund.

[662] We pretty much do primarily the growth stage, Cedes B and above.

[663] We have invested in primarily YC companies, actually.

[664] We double down in YC companies.

[665] Our goal is to be a lifelong partner for all the enduring companies in YC to the extent possible.

[666] We also do a tremendous amount of post -patch programming.

[667] So people don't know this.

[668] If you go through YC today, You get 10 times more what you got in 2012 batch or 2014 batch.

[669] So we run three programs in continuity.

[670] We run the Series A program.

[671] We help you and teach you how to raise the Series A. So we work with you on pitch decks, how to negotiate term sheets, how to identify investors.

[672] And that happens well after the batch.

[673] Usually the Series A, most companies raise Series A two to three years.

[674] after the batch.

[675] Very few raised during the batch.

[676] So we pretty much help them nine months, six to nine months before they raise the A. We sit down with them and say, are you ready to raise the CEDs A?

[677] Do you really have metrics that you need to see for a typical CDSA investor?

[678] How to put the pitch tech together.

[679] We run workshops for how to help you raise the CDSA, how to identify all the prep work.

[680] And we have, you know, YC runs on WhatsApp.

[681] I don't know if you guys know this.

[682] Did not know that.

[683] We have around 4 ,000 companies and more than 8 ,500 alumni.

[684] So literally every morning, my phone is buzzing because I have so many WhatsApp groups depending on...

[685] No Slack.

[686] So we actually can vouch for this, listeners.

[687] So you're on the board of Revenue Cat, so we're doing our diligence, and we texted Jake because Jake's another fellow Ohio State alum.

[688] And he actually was at our very first acquired meetup in San Francisco.

[689] And I was like, well, tell me about some stuff with Anu.

[690] And he was talking about how you WhatsApped him.

[691] I don't know exactly how much of that I can share, but that you proactively were WhatsApping him before a round was coming together to tell him you were considering an investment.

[692] Yes, so we actually know our founders from day one, right?

[693] YC is one team.

[694] So even though continuity was launched seven years ago, by the way, You know, WIC itself is 17 years old.

[695] But we are one team, so we actually know the companies through the batch.

[696] So I knew Jacob in the Revenue Care example.

[697] I think even at the time of Demo Day when he was trying to figure out which investors to work with, he had reached out to us to say, hey, how should I think about this?

[698] You know, whether to raise from seed investors or CEDA.

[699] And then he went through the CEDA program, so that's how we helped him figure out, you know, how to which partner to go with, he decided to go with Index.

[700] Behind the scenes, we had actually helped him a ton with how to pitch, how to negotiate the term sheet, and all of that.

[701] So by the time, I usually say by the time we're investing, I'm not waiting for the founders to come tell me I'm fundraising.

[702] Well, it's kind of like, I mean, acquired has been an investor, not acquired.

[703] White Combinator has been an investor in these companies for years at this point.

[704] Before continuity started, was YC, were there any experiments in doing investing after the seed stage before continuity, or was continuity the beginning of?

[705] Continuity was the beginning.

[706] Partners always invested in companies that graduated from Demo Day.

[707] And I'll give you an example.

[708] A lot of people may not know this, but Coinbase, which was the idea winner, did not get any money, or I think he got 20 to 30.

[709] percent of his ideal goal on Demoday.

[710] That's right.

[711] He went out and said, I want to raise 750K, only 30 percent of the round got fell.

[712] Oh, my goodness.

[713] It's crazy.

[714] So because no one understood Bitcoin at the time.

[715] But our early stage partners have worked with these founders for 12 weeks.

[716] So they're not picking companies, so they don't go by idea.

[717] They are going by who are the most earnest founders that I want to give them a shot to build.

[718] And so quite a few of the YC partners helped fill Brian's round so that he can go back to building.

[719] Initialize being one of them, if I remember, right?

[720] One thing?

[721] So Gary, in fact, was the one that accepted Brian into the badge.

[722] But that was the culture in YC before continuity.

[723] It was more the partners helping out the founders.

[724] Individual investors, you know, there was no YC follow -on capital.

[725] No, there was individuals who built those relationships.

[726] Contiudity was the first time there was follow -on capital.

[727] Wow.

[728] So who, how did this idea come together?

[729] I mean, it's sort of obvious now when you say all these things, but thinking back to it was 2015.

[730] July 2015, when continuity was started, the idea of raising a fund, a growth funder, like, I mean, most people would have thought that was crazy, right?

[731] So how did this happen?

[732] Or people would have been skeptical and been like, then we're picking winners.

[733] Yeah, so I think that at that time, because growth -stage capital itself was frowned upon, right?

[734] Remember, the narrative was, you need to go public, you know, the late -stage investors are just throwing cash.

[735] They were only, like, I think, less than 10 people who could write $100 million checks there.

[736] And so, but what you saw was there were less than 10 funds that could write $100 million checks, but the median time to IPO, can you guess what it was in 2015?

[737] Oh, 11 years?

[738] 11 years.

[739] Yes.

[740] And so YC Alums came to YC partners often and said, I, you know, you train us so well at Demodei and you teach us how to race.

[741] And like then we are in the woods, right?

[742] And we tell our founders it's never going to be as easy as Demodei.

[743] Well, it's, yeah, like the pyramid has widened, it's still a pyramid.

[744] But I didn't thought about that, like back then, yeah, there were, I don't know, less than number of investors you could count on two hands that were writing $100 million checks.

[745] And so if you're like, I can't go public, but I need $100 million plus to finance this stage of growth in my company, you know, it's a supply demand equation, right?

[746] So it was primarily that, but I think WIC's mission has always been, how do we support our founders more?

[747] And, right, WIC was learning through its evolution.

[748] Remember, like, seven years ago was when Dropbox had raised a late -stage private run.

[749] So YSEA itself was learning what are its companies going through.

[750] When do they get help versus when do they not?

[751] So we saw an opportunity.

[752] We saw that these companies still need help.

[753] And we are in a great place and an amazing platform that really kudos to PG and Jessica on how they built it.

[754] Weiss can play a significant role.

[755] And you know, one of the things that people don't understand, and I didn't.

[756] I was at Andreessen Horowitz before, right?

[757] is the YC founder never views YC as an investor.

[758] They view YC as the parent.

[759] So what does that mean?

[760] Anytime a company is going through any issue, five years after they've graduated, they will first come to their YC partner.

[761] They don't have to talk every quarter, they don't have to talk every month.

[762] They may not even have talked for a year, but they would reach out of the partner and say, I need urgent.

[763] There's an urgent.

[764] issue.

[765] I need you for five minutes.

[766] I need you to help start this through.

[767] Does continuity change that relationship, knowing that you are available capital now?

[768] No, I mean, we worked very hard not to change that.

[769] So it goes back to our mission.

[770] If you ask venture funds, most of their mission statements are, I want to own 10 to 15 or 20 % of the best companies.

[771] Our mission statement deliberately doesn't have that.

[772] It is we want to help more founders start companies and more founders build enduring companies.

[773] So what that means is there are many times we may offer term sheets and they would say out of, you know, we would not want YC this round and we would like YC in the next round because you're already in the captive and we will respect that.

[774] Yep.

[775] Because it's one D. We don't say, oh, you know, let's play all the tactics that we need to play in the close process.

[776] But we also know that if you've really helped them and earn the trust, we will earn the right to win.

[777] Yeah.

[778] And so we often internally have a saying that you have to earn the right to win.

[779] And as long as it's the right decision for the company, sometimes we're the right partner and sometimes we aren't.

[780] And we have to be honest about that.

[781] For us, Vise company succeeding is more important than what the returns of our funds are.

[782] But if we do write by them, we know that we can have incredible returns.

[783] History has shown that.

[784] How do you structure the partnership?

[785] Like, are YC partners one big pool that sort of comprise one investment committee across accepting into the accelerator, making growth investments, or is it more like a couple people are YC continuity, and then a handful of people are the accelerator partners making those admission decisions?

[786] Yeah, so the early stage has group partners that run the groups, and on continuity, It's Ali and I, Ali Rogani, who was the former CEO of Twitter and CF of Pixar.

[787] So we both run the continuity fund.

[788] So on the early stage, it's only one group partner needs to say yes.

[789] Then the company is accepted into the batch.

[790] So they apply.

[791] We shortlist a bunch of them, and they go through the interview process.

[792] But as long as one group partner said a strong yes, I really need them in the batch, they're accepted.

[793] Now remember, the group partner.

[794] is taking them and working with them for 12 weeks.

[795] So if they didn't pick the right team, the feedback loop is really fast.

[796] So they learn and they evolve for the next match.

[797] Right?

[798] So that's kind of why we went with the model of one yes is enough.

[799] On continuity, it's a three people investing team, investment committee, so it's just me, Ali, and one early stage vote in case Ali and I don't agree.

[800] But it's primarily the continuity decision.

[801] Fascinating.

[802] And one other question, just to help sort of, of frame up the continuity operations, you're not a very high velocity investor.

[803] The continuity fund, I think only does a handful of deals a quarter, maybe like leads two, three investments a quarter?

[804] Yeah, so we've done 35 investments in seven years.

[805] Wow.

[806] Wow, so even less than I thought.

[807] Yeah.

[808] And we have 3 ,500 companies that have gone through Vicer, so we've done less than one percent.

[809] Wow.

[810] Now, it's for two reasons.

[811] We were, so, we pretty much are a startup within YC.

[812] So when we first launched, we were honing our investment strategy.

[813] What's right and what makes sense for the broader YC too, right?

[814] And then I would say we've always been undercapitalized relative to the success of YC company.

[815] And we are changing that.

[816] But every time we change that, the bat size grows and they're more successful.

[817] I mean, YC's just had a ridiculous track record.

[818] If you look at, I'm sure there's some vanity stat that you know off the top of your head.

[819] like total combined market cap of all YC companies.

[820] It's on the Pittsburgh wall out there.

[821] What is it?

[822] It's well over $500 billion.

[823] Pittsburgh says $600 billion.

[824] $600 billion.

[825] Yeah.

[826] So I think no matter how much capital you raise, you're probably always going to feel like you're under.

[827] Yeah, we always feel undercapital.

[828] Also, we do global, right?

[829] Our entire team is sitting in San Francisco, but we have investments in India.

[830] We have three investments in India.

[831] In fact, the top three breakout companies in India, the last two years are all YC.

[832] Wow.

[833] We have investments in London.

[834] We have investments in Latam.

[835] We have investments in Middle East.

[836] So we, because for us, it's about enable entrepreneurship globally.

[837] That's the mission.

[838] And continuity needs to support that mission.

[839] So you said continuity is this startup within the, it's just crazy to me that YC is 17 years old.

[840] I mean, I guess that's true, but like, that makes me feel really old.

[841] In my head, it's still like an innovative.

[842] in the venture capital landscape.

[843] That probably says more about the venture capital landscape than anything else.

[844] So that's why we have a new tagline, the YC mob.

[845] How many have you heard that?

[846] We hear noise about that.

[847] We never thought of the mob, but I was like, oh, we're the YC mob.

[848] Well, it's like I used to be on the other side of this because I quasi used to compete with YC and leading seed rounds.

[849] and the number of VC firms throughout the whole life of YC that talk about YC, often in negative terms, can you believe what they're doing?

[850] Can you believe how many companies they're taking?

[851] Can you believe they're investing now?

[852] It's just like the Andreessen story that we told, you know, if your name is on your competitor's lips, you're winning.

[853] It doesn't matter what they say.

[854] You're winning.

[855] It is so true.

[856] I mean, I also think it's really hard to understand and appreciate an organization like YC from the E. outside.

[857] You really deeply understand YC in only two ways.

[858] If you're a YC founder, and if you work within YC.

[859] And I mean, outside, when I was at Andresen Horowitz, I actually did not understand the depth and the cultural nuance with which YC was built.

[860] And it's really hard to grasp that.

[861] Can we talk about that for a minute?

[862] I would like, so my, I put this in the notes.

[863] my current mental model of YC is like a university a top call it an Ivy League university it's very hard to get into you take classes every year or every six months there's an endowment attached to it which is continuity now and wait wait David what do you mean by endowment I want to are you saying that all of the proceeds from YC exits go into a big pool of capital that then funds continuity?

[864] Is that what you're suggesting by endowment?

[865] No, but I'm curious if that's the case.

[866] I meant more just like, it's really weird that a large part of the private capital markets and the venture capital markets in America, those dollars come from educational institutions, mostly private educational institutions.

[867] That's just very bizarre.

[868] But anyway, that's kind of what I meant.

[869] Is that a good mental model of my ceiling?

[870] In fact, we say that.

[871] We say WIC is University for Startups.

[872] So think of the accelerator as the undergraduate program and continuity is the graduate school.

[873] And we are modeled after a university in the sense of we have applications.

[874] You don't need to know anyone to apply to YCE.

[875] Right?

[876] Second, we were the first to do mass production of investments in a batch of startups.

[877] No one had ever done that.

[878] Everyone usually does.

[879] I met a set of companies.

[880] We have a Monday partner meeting and you pick one or two, right?

[881] And Visei from day one was a batch.

[882] They always received investments together.

[883] And that, I think, goes to the insight that the founders of Visey had at the time, which was entrepreneurship is lonely.

[884] Being in a group is how you motivate each other to learn from each other, and that's your peer group.

[885] And so fundamentally, it came from the approach of a university.

[886] And continuity is graduate school.

[887] As I talked about, like, CDSA is just one of the programs we run.

[888] We have two others, Post -A and growth.

[889] Post -A focuses on two months within you raise the CD -A.

[890] There's a six -week program.

[891] We rebatch you.

[892] So now you have a new set of peers.

[893] And our scale founders come teach how to form a recruiting team, how to hire engineers.

[894] Because your job changes as a CEO.

[895] Right.

[896] And no one is writing a book about how your job changes and how to learn.

[897] And remember, the median age of a vice -ee founder is 23.

[898] which means they have probably managed a sum total of three people in their life before these founded company.

[899] They really are like undergrads coming.

[900] Yeah, so you cannot expect them to know.

[901] So how are you going to provide resources so that they do, they can learn from others, and they do as few mistakes as possible, and as quickly as possible.

[902] Because when you're scaling, you just go on a rocket ship path.

[903] The amount you demand out of these founders is a lot.

[904] and their ability to learn in four years is, I mean, the bar you're setting is really high, right?

[905] And so in our community, that's why, like, Brian Chesky comes to speak every batch.

[906] He's the opening speaker of every batch.

[907] Wow, every batch.

[908] Every batch.

[909] And right now, for all these programs that we run, the growth program is how to scale as a CEO.

[910] That's literally the program.

[911] It's an eight -week session.

[912] It talks about hiring execs, performance, management, culture, and so on.

[913] And we have scaled founders and scaled exec, like Tony Shue comes for that, his execs, the CFO of Doodash, the head of engineering of Doodash, they come for the respective session.

[914] So it's really good to see the entire community working to transfer their learnings to the next batch of companies.

[915] I actually want to ask on a thing that I, for some reason, asked David, even though I probably should have asked you.

[916] When a company exits or has a liquidity event, such as Airbnb, what does YC do with that liquidity?

[917] And is YC an LP in itself for future continuity funds?

[918] So right now it's set up just like any other funds, right?

[919] So we have incredible LPs, primarily university endowments, because our mission is more university -oriented.

[920] So the structure is very similar to other funds.

[921] And I think that's a new change.

[922] for YC since 2015, because when YC was started, this model wasn't proven.

[923] So it was actually self -funded by the founders.

[924] Yeah.

[925] Okay, so self -funded by the founders.

[926] I know Sequoia was involved at one point putting up capital, and I think that was the capital invested in two batches for, I don't know, five -ish years.

[927] Yeah, so I think that different people, there were quite a few LPs that came.

[928] came in on a batch basis.

[929] Remember, the first check in YC, the first batch was $20 ,000.

[930] I know, my gosh.

[931] So when you're self -funding something, that's how you start, right?

[932] But then when we asked as time progressed and when we asked startups to come to San Francisco, you know, they needed at least 100 to 125K given all the inflation, even if they wanted to stay in Montembourg for a period of time.

[933] So that's when we brought in, you know, LPs based on a batch so that if they could pretty much fill the rest of the gap that YC was not able to fund.

[934] And so is that still how it works, is each batch and each continuity fund has its own set of LPs that you go on an individual sort of fundraising mission for that specific vehicle?

[935] Yes, so both we have early stage fund as well as the late stage funds, and we have pretty much the same set of LPs across both funds.

[936] And as we've, because our ambition is to grow the batch.

[937] And why is that?

[938] because we actually, you know, we want to keep the bar high, and it's not that.

[939] And when we say the bar high, it is we want the founders to be working on the right problems, not the wrong problems.

[940] There are amazing founders.

[941] But if they're working on a problem because it's following a hype cycle and it's not a unique insight, then accepting them, we are doing a disservice to them because they've decided to stop doing whatever they're doing to work on this.

[942] but we're not like an Ivy League institution that thinks that the bat size has to be only like Princeton probably has a fixed class size that doesn't grow.

[943] We don't want to be that because we think there are incredible founders everywhere and if we have a chance to give them that first opportunity and that really opens up doors for them we want to be able to do that.

[944] So we could see batch sizes of 1 ,000, 2 ,000 YC companies in the future.

[945] So our criteria is if there are, if our application volume keeps going up, and if there are that many really good applications, we need to learn how to scale.

[946] Yeah.

[947] I mean, it's not, you're already approaching the scale where...

[948] Yeah, we have around 400 companies for batch now.

[949] You're like a liberal arts college at this point, like where you're graduating that many number of companies.

[950] You know, our acceptance rate is still below 3%, but yeah.

[951] Our acceptance rate is only decreased.

[952] But, I mean, I think this is why I think it's very hard to compare YC to a venture fund.

[953] Because if you look at the types of opportunities we have given people in different parts of the world, they would not have stood a chance anywhere else.

[954] That was true for Airbnb, that was true for Coinbase, that was true for Doodash.

[955] One of the partners at YC kept funding Doodash because nobody believes.

[956] believed in the idea.

[957] It was the third food delivery startup that came out when they came.

[958] Rapi, same.

[959] Rapi.

[960] It was the first, I mean, it was a late application.

[961] He applied one week after the batch.

[962] And we were pretty much like the bat started.

[963] But I think, like, that's why it's such a powerful and mission -oriented organization.

[964] And, you know, it's very different.

[965] What, maybe that's a good place to wrap.

[966] You know, we talk about powers unacquired.

[967] We can speculate a lot, and I think we probably have on the show about YC's power at various points in time.

[968] But, you know, you're in it.

[969] What do you think YC's power is, you know, in the Hamilton -Helmer sense of, like, enables YC to earn better differentiated returns versus your competitors in the venture ecosystem?

[970] Is it, the traditional VC power is brand, but it feels like it's something else with YC.

[971] Yeah, I think brand also comes much later, right?

[972] Unless you can either get brand because you have a lot of things you've built before and you launched, or you just launched something and it takes, I mean, just the way you all started acquired, it takes incredible amount of time to build brand.

[973] It's never an overnight success.

[974] At YC, I would say, if I had to pick one thing, YC is really good at across both early and continuity is we go by based on founders.

[975] And I know it sounds cliche, but I think we also have an incredible advantage in assessing what makes a founder a really good founder.

[976] And we have incredible about of data and pattern recognition and learning that we have honed it to a point that we know to spot them.

[977] You know, you all have heard of the famous 10 minute YC interview and everyone asks, How do you know in 10 minutes?

[978] The fact is we probably know in the first two minutes.

[979] So we actually don't need the full 10 minutes.

[980] But, you know, sometimes one or two people will surprise us with the end of the interview.

[981] And I think the three things I can articulate what it is on the founder we look for.

[982] One is at the continuity stage, right?

[983] Often on the growth stage, people, I think, pay attention to the founder, but they don't.

[984] Like if you're at a venture fund or a growth fund, you probably hung out with the founder for a week or two weeks before the investment, some total of three hours.

[985] By the time continuity invests, I probably know them for years or months, and I've had hours of interaction.

[986] So you're saying that you're paying attention more to the qualitative founder properties, even at the growth stage than you are to their specific growth rate or, you know, what their margins look like or anything like that.

[987] Yes, but, you know, if the three qualities hold, the metrics will show.

[988] I can either look at metrics, but sometimes metrics don't tell you how good the internal sausage making is.

[989] Right?

[990] And many people can package the metrics in a fundraise deck.

[991] It's very well done.

[992] I mean, we teach you to do it on demo days.

[993] We're the experts at it.

[994] So therefore, we know it's going to look great, right?

[995] So we also teach them what points to emphasize on.

[996] We actually do practice runs.

[997] We write in Demo Day, actually even write the scripts sometimes, if they don't understand what it is.

[998] So we know how that's done.

[999] That's a how can I help moment.

[1000] And so what we look for is how fast does the founder move?

[1001] What does how fast do they move mean?

[1002] How fast do they ship?

[1003] How fast do they iterate?

[1004] It's a single biggest indicator and correlation to how successful they're going to be how soon.

[1005] Because you won't be right about memos many decisions early on.

[1006] But at least are you learning from them fast, and are you making changes?

[1007] So that's one we measure.

[1008] Second of the growth stages, how well are you hiring?

[1009] And if you're sloppy in hiring, it always hits a lot.

[1010] So one of the things we look for is how well are they hiring engineers, how good are they hiring execs?

[1011] Will they be able to convince an incredible exec to come join them, right?

[1012] That's second.

[1013] And third is clarity of thought.

[1014] Clarity of thought in the growth stage for us is, can they write out two pages what makes this a $5 billion or a $10 billion company really well?

[1015] And if you're doing those three things, you're going to be on top of your metrics, your product market fit, your attention.

[1016] Now, there'll be rough edges.

[1017] But I think because of wisely, we've had the benefit of watching everyone from day one, we know how Tony scaled.

[1018] We know deeply well how Josh had gusto scale.

[1019] So we know a lot of those founders.

[1020] So we then know, okay, these were rough edges, these are okay.

[1021] You know, these other founders had, and this is how you are now.

[1022] Well, you also had the benefit.

[1023] I mean, we've told a lot of these stories unacquired.

[1024] If you're a growth investor looking at these companies new, you're like, oh, I know that this is all going great, but you know those companies don't always all go great.

[1025] Like, Tony had some serious near -death moments.

[1026] Airbnb was not up into the right journey the whole time.

[1027] If I had to summarize, I know this is we're interviewing you, not me here, but it seems like you invest based on the inputs rather than the outputs, or maybe the leading indicators rather than the trailing indicators, where if somebody's operating with those three principles, the business probably won't consistently produce the results that someone would like to look for in a growth stage investment, but they have a much higher probability at any given time of producing high -quality results because those are the inputs that matter.

[1028] Yes, absolutely, and that's kind of why we feel strongly that inputs can be influenced, right?

[1029] If you're learning best practices and those are your inputs, then you can actually influence company building.

[1030] So when Tony comes and teaches our growth program and says, these were my darkest moments, these are my mistakes I made, and I sure hope you don't make these three mistakes, but these are two things I did really well.

[1031] That's incredibly valuable.

[1032] And so that color is very hard to get outside of YCE.

[1033] Yeah.

[1034] All right.

[1035] As we wind to a close, long -time listeners know there's a way that we need to close this, and that's grading.

[1036] And with these episodes where we're covering a company in flight, the only real way to grade it is to try and forecast future paths that could happen.

[1037] So, Anu, I'm curious in your mind, paint us the easy.

[1038] A plus, the C, and the F for YC a decade from now.

[1039] And let's start with EF, because I think it's interesting.

[1040] Like YC is so dominant.

[1041] How could the whole thing go up in flames at this point?

[1042] I think YC is the only platform that has strong network effects, and as all network effects have shown, if we mess up the YC community, that is the, that is the, because we have this platform only because of the YC founders.

[1043] and there are community values.

[1044] I mean, we have written down community values.

[1045] We have an internal book phase.

[1046] We have an ethics code.

[1047] I mean, name one VC fund that has all that.

[1048] Right.

[1049] So that's why we don't look like a venture fund.

[1050] So for us, as long as we do right by the community, we'll be good.

[1051] But if you, as negative, you know, network effects are very powerful, but they also decelerate very fast.

[1052] Right?

[1053] If we do any mistake with the community, then that would be the F. It's almost like operating leverage.

[1054] Like a heavily community -dependent business is just heavily levered.

[1055] It reminds me of acquired, right?

[1056] Yeah, that's right.

[1057] Exactly.

[1058] Yeah, absolutely.

[1059] This is an amazing group that you have, and like, congratulations from how far you've come.

[1060] But we feel the same way.

[1061] It's like it's so amazing, but that is our fear.

[1062] Like we nurturing the community and keeping it.

[1063] the amazing thing that it is, is the number one thing that we do.

[1064] Okay, but the C is boring, so we won't cover it.

[1065] But I want the A plus.

[1066] Like, give me the B -Hag for YC from here.

[1067] Like, how do you change multiple orders of magnitude from where you are?

[1068] Or do you want to?

[1069] B or the A?

[1070] The A. The A. What's the...

[1071] Oh, the A. Yeah, A -plus.

[1072] We definitely want to.

[1073] We want to be...

[1074] Our mission is to be the partner of the companies for the life of the companies.

[1075] And continuity, I would say, has only strengthened the VIC community.

[1076] Because before, they would reach out whenever they wanted help or once in a while.

[1077] But now we have a full machine all the way to IPO.

[1078] And we have programming, as I talked about.

[1079] And it's really gotten the community super close.

[1080] And so, I mean, as I said, we are highly undercapitalized for the success of YC companies.

[1081] Wait, wait, when you say all the way to IPO, so is IPO the end?

[1082] 10 years from now, is there a YC post -IPO component?

[1083] Maybe, right?

[1084] We already have post -IPA.

[1085] We already have, so, it's so funny.

[1086] So we had the, you know, we started with the growth program, which was just this CEO scaling program.

[1087] And the post -A companies were like, well, we need a program.

[1088] And so we said, okay, we did the post -A program.

[1089] Now our companies have come and said, we need a pre -IPO program.

[1090] Yeah.

[1091] You've got to get Airbnb and CoinBase to come to teach us this free IPO.

[1092] And I'm sure soon they'll be like, we need a, it's never really.

[1093] It's not like there's some magic moment and Brian Chesky and Brian Armstrong and Tony don't have problems anymore.

[1094] Yeah, they all have problems.

[1095] It's company building.

[1096] It's as hard as it gets.

[1097] It never gets easier.

[1098] I mean, you do it so many times that you get better and better at the job, but you have other questions to ask, and you need a peer group for it.

[1099] Yeah.

[1100] Right?

[1101] So I think our ambition is how do we scale YC to support more amazing companies and to especially also do it globally?

[1102] Yeah.

[1103] Because I think the remote world will show us that companies can come from anywhere.

[1104] We already see that.

[1105] A lot of B2B startups are based outside the U .S., but they serve as U .S. customers.

[1106] I mean, I'm sure you all have heard of deal, and Alex lives in Israel.

[1107] Right?

[1108] So WISI has to learn to scale globally because talent is everywhere.

[1109] That it is.

[1110] Anu, thank you so much.

[1111] Thank you for having me. Thank you.

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[1143] Our next episode will be the part two of the arena show with Jim Weber, the CEO of Brooks.

[1144] I mean, I was just listening back to the segment this morning and truly an unbelievable business growing from like 20 to 30 million in revenue two decades ago to clearing over a billion dollars in revenue last year.

[1145] part of Berkshire Hathaway, deep personal relationship with Warren Buffett, purpose -driven brand.

[1146] There's just so many great things about this story.

[1147] Oh, Jim is so wonderful.

[1148] We realized we had to make it its own episode.

[1149] Yes.

[1150] So we will be launching that in a couple days, and we really wanted to give it the space that it deserves.

[1151] So if you weren't in the Acquired Slack, you should come join the 11 ,000 other smart, creative members of the Acquired community there.

[1152] our thanks also to Pitchbook, their whole team.

[1153] Oh my gosh.

[1154] This was such a life experience, like, whoever would have thought seven years ago that Acquired would be doing this.

[1155] There were 44 people on and off the stage involved in the production of that event.

[1156] So too many to think, but definitely the Pitchbook team came out in full force to put it on.

[1157] We're super excited to share the gym story with you and the story of Brooks.

[1158] And we'll be doing that in a few days here.

[1159] and listeners.

[1160] We'll see you next time.

[1161] We'll see you for the arena show part two.

[1162] Who got the truth?

[1163] Is it you?

[1164] Is it you?

[1165] Is it you?

[1166] Who got the truth now?

[1167] Huh