The Pinterest IPO

[0] Oh, the users used to drop by the office.

[1] That's so crazy to be.

[2] I know.

[3] And the woman dressed up as Pinterest for Halloween.

[4] Yeah.

[5] And oh, here's ornaments for all of you.

[6] How many people work at your company?

[7] Great.

[8] I'll hand -make -you -25 ornaments.

[9] I know.

[10] So great.

[11] Welcome to Season 4, Episode 5 of Acquired, the podcast about technology acquisitions and IPOs.

[12] I'm Ben Gilbert.

[13] I'm David Rosenthal.

[14] And we are your hosts.

[15] Today we are talking about a company that is not a social media company, or is it, Pinterest.

[16] For context, this is a company that has more users than Snap, though a little bit less than Twitter, is used by 80 % of moms in America and is actually a pivot of an early failed mobile shopping app, but we will get into that.

[17] Indeed, we will.

[18] As always, here and acquired.

[19] This is episode two of the A -plus IPO saga.

[20] we are proud to be coming at you, what, two days here after trading.

[21] We started trading on Thursday and then yesterday the stock market had the day off.

[22] Yeah.

[23] So we've got one day of data here and we'll be, of course, talking about the entire story of Pinterest, but had a nice little pop in the market as well that we'll touch on.

[24] Yeah, we've got, so far, we have the P &L of the A -plus.

[25] Indeed.

[26] Indeed.

[27] All right.

[28] So listeners, today we were talking about a company's exit.

[29] And really, that's what we do on every episode of this show.

[30] But there are lots of company creation topics that David and I can't help but discuss.

[31] And as many of you know, we have a second show for that, the limited partner show.

[32] So last week on the LP show, we spent an hour diving into a required topic for every entrepreneur, the term sheet.

[33] We went through line by line analyzing each term of a standard series seed term sheet, and of course offering our editorial on each one.

[34] If you are interested in hearing us, two non -lawyers try to put it in as plain of English as we possibly can, you should definitely consider becoming an LP.

[35] And we have a big announcement today, is big news on that front.

[36] We have heard from a lot of you that you wanted to listen to the LP show, but you weren't sure how it worked.

[37] So we decided to change the sign up and offer every new person who joins a seven -day free trial, just so there's no need to take the plunge blind.

[38] You can listen right here in the podcast player of your choice and sign up in two taps.

[39] only two taps by tapping the link in the show notes or going to glow .fm slash acquired.

[40] Yes, note the new and official name of the company, Glow.

[41] And as the person who works on the product behind the LP show, I am selfishly very excited to see how well the new trials feature works.

[42] So please do not be shy to check it out.

[43] Yeah, big congrats to Ben and team for getting all that out.

[44] Thank you, sir.

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

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

[47] 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.

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

[49] They're also a major partner of both Microsoft and NVIDIA.

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

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

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

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

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

[55] For example, smarter self -service for changing 401k contributions directly through AI -powered chat, or developers building apps faster with AI -powered code generation, or service agents that can use AI to notify you of a product that needs replacement before people even chat with you.

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

[57] It's pretty incredible that ServiceNow built AI directly into their platform.

[58] So all the integration work to prepare for it that otherwise would have taken you years is already done.

[59] So if you want to learn more about the ServiceNow platform and how it can turbocharge the time to deploy AI for your business, go over to servicenow .com slash acquired.

[60] And when you get in touch, just tell them Ben and David sent you.

[61] Thanks, Service Now.

[62] All right, David.

[63] That is all I have before the illustrious history and facts.

[64] We're ready to dive in here.

[65] We are.

[66] Well, let's do it.

[67] So today, we start our story in the 1980s, mid -1980s, early 1990s.

[68] Special time for me, probably, probably it was a little bit later for you, but for you, Ben, too.

[69] We're all, all of us millennials growing up.

[70] And there was another Ben, Ben Silberman, who was growing up in the middle of the country in Des Moines, Iowa, around this time.

[71] And I remember growing up, my parents always used to joke whenever they talk about, like, shipping me off to somewhere random when I was, like, being bad growing up, they'd say, you know, I'm going to send you to Des Moines.

[72] Apparently, Des Moines is a really great place.

[73] Man. Anyway, Ben Silverman talks about how it is a really great place, and it's going to play a big part in the story here.

[74] Have you been to Des Moines?

[75] I have not, no, but it looks beautiful.

[76] It's actually really awesome, yeah.

[77] Yeah.

[78] is it part of the Quad Cities or is it that that is deeper than my knowledge on yeah on the area on Midwest geography okay anyway regardless whether it is or isn't Ben Silberman is growing up there around this time and he is a he's a middle child he has two sisters an older sister and a younger sister he comes from a family of of doctors of MDs both of his parents are doctors they are ophthalmologists in Des Moines his grandparents were doctors and both of his sisters would go on to become doctors later in life.

[79] So Ben thinks, you know, this is basically his destiny.

[80] He can't escape this.

[81] But he's a, he's a quiet kid.

[82] And he actually says at a talk later that he wants to be known in life for the things that he makes, not the things that he says.

[83] Quite in contrast to your typical Silicon Valley Unicorn founder.

[84] This is going to be a theme here.

[85] Yeah, I was going to say, listeners, like, Dave and I were chatting before the show, it actually takes quite a bit of research to find a lot of the best stories about Pinterest because they're a very sort of do the work and let the work speak for itself company rather than beaten a drum that many of their other companies do to attract talent and, you know, share the spotlight and be in the news a lot.

[86] Pinterest just never really had that in their personality.

[87] No, totally.

[88] I mean, this is probably the most work we had to do researching the history of the company and founders, you know, in a long time.

[89] Not because there aren't great stories here.

[90] There are.

[91] We're going to tell them.

[92] But, you know, unlike Airbnb or Lyft or Uber, you know, the founders, Ben and Evan and Paul just don't talk about them.

[93] But we found him nonetheless.

[94] So Ben's growing up.

[95] And he's, he's quiet kid, likes to, you know, let his work do the speaking.

[96] And he's very good at work.

[97] He's a very good student, as you would imagine, coming from the family that he comes from.

[98] He also supposedly collected stuff.

[99] hard to verify if this is true or this was this was added as part of the lore later feeling like i know ben after watching basically every talk he's given for the last 10 years in the last couple weeks um i actually believe him famously he supposedly had a bug collection you know like where you uh where you'd have a oh that's awesome and then you would pin bugs onto it i remember i think there was a calvin and hobbs uh yeah oh yeah so great so midwest love it so ben uh is a great student Ben Silverman.

[100] Ben Gilbert was probably also a great student in high school.

[101] Silverman, though, goes to Yale, and he does pre -med as he is destined to do.

[102] He majors in political science and does pre -med on the side.

[103] And, you know, I remember I had tons of friends.

[104] I was in college right around this time, too, also do the same, you know, be pre -med, but major in something else.

[105] And one day, though, Ben wakes up.

[106] It's his junior year and he talks about he just kind of has this feeling that, you know, he's been doing pre -med.

[107] and, you know, he's doing well, of course, but he's just not sure that medicine is right for him.

[108] Not his destiny.

[109] It's not his destiny that he might have thought it was.

[110] He's interested in other stuff and in particular, and I can so relate to this because I was in basically the same moment in my life and history when I went to college.

[111] When he went to college was the first time he had his own laptop and his own, you know, dedicated broadband high speed connection to the internet.

[112] And he basically fell in love with it.

[113] he was like, this is so cool.

[114] This is the industrial revolution of our time.

[115] And, you know, I have a young person I see this and he gets access to it in school for the first time.

[116] And he just starts tinkering.

[117] He, uh, he builds a bunch of, you know, what he calls toys with friends while he's in Yale.

[118] He builds a website, uh, where you can try on eyeglasses.

[119] Remember, his parents are ophthalmologists.

[120] So he's in college.

[121] He builds this website where that you can virtually try on on eyeglasses.

[122] I don't even know how he did this at the time with whatever web technologies were.

[123] Yeah, because in like 2014 or whatever, when Warby Parker rolled it out, it was like, whoa, it's incredible.

[124] Yeah, he basically invents Warby Parker, just a little bit ahead of his time.

[125] So he's tinking around with all this stuff and he decides, you know, I think I'm not going to go to med school, at least not right away.

[126] And so he goes and he talks to his other friends who were at Yale and also liberal arts majors, but weren't pre -med and ask them, what are you guys doing?

[127] And they're like, we're, going to all these consulting interviews and investment banking interviews because that's what you did.

[128] And Ben says, oh, okay, cool, I should do that too.

[129] He does the whole consulting interview circuit.

[130] He ends up getting an offer and joining a consulting firm, which I think has been acquired now.

[131] I remember these guys, corporate executive board.

[132] They were based in Washington, D .C., and so he joins them.

[133] He moves down to D .C. after school.

[134] And two big things happen there, really important things that are important for the future of Pinterest.

[135] One, he gets assigned randomly, I believe, to the IT consulting practice within C .E .B. He's like, this is great.

[136] I love the internet anyway.

[137] I'm going to work on IT, you know, consulting related projects.

[138] And he gets really into it.

[139] And he starts reading TechCrunch, which had just come out around them.

[140] Of course, I remember this too.

[141] And he's reading about all these startups out in California, like Dig and, you know, Yelp was just getting started.

[142] This was the Web 2 .0, Donna, the Web 2 .0 era.

[143] And he's like, man, I really kind of want to be a part of this.

[144] The other really important thing that happens during his couple years as an analyst at C .E .B. He meets his girlfriend, who would become his wife, Divya.

[145] And Divya worked also at CB in the HR consulting group.

[146] So Ben's in the IT consulting group.

[147] Divya's in the HR consulting group.

[148] And as the story goes, one night, they're watching a movie in D .C. And they watch the Pirates of Silicon Valley.

[149] Oh, yeah.

[150] I still have not seen.

[151] I need to watch this movie.

[152] I've heard it's so great.

[153] It's kind of, it's like a crime that I haven't.

[154] watch this movie.

[155] I'm not sure if it's more cringe -worthy or more like legitimately awesome, but it has so much of both that, yeah, I can't believe it was only ever a TV movie.

[156] I know.

[157] And it's about Steve Jobs and Bill Gates and the rivalry between them and Microsoft and Apple.

[158] Highly dramatized in like whatever 90s or early 2000s, sort of like camera angles and lighting and it's just so, so utterly dramatic.

[159] There's this.

[160] ridiculous line in there.

[161] Ben talks about it.

[162] He gives a talk that I'll reference later, where he literally has a slide and he has this line, this quote on the slide.

[163] There's this super cheesy line in there that I think Bill Gates' character says, there might be something going on in California.

[164] And according to Ben, this inspires him in Divya.

[165] And they're like, you know, what are we doing in D .C.?

[166] We got to move out to Silicon Valley and be where the action is.

[167] so they do a little while later this is this is 2006 i believe they move out to silicon valley out to palo alto ben ends up getting a job at google in ad operations divia gets a job she wants to work at a startup so she gets a job at a cool startup right off calav in uh in palo alto uh you may have heard of it it's called facebook uh she joins them in 2006 she's the first HR remember she was doing HR consulting at CB she becomes the first HR person at Facebook oh I didn't know that's It's pretty awesome, and it's also going to have a huge impact on Pinterest.

[168] Ben works at Google for a little under two years, I believe.

[169] He really wants to do a startup.

[170] He's obsessed with TechCrunch.

[171] He's tinkering with all sorts of stuff on the side, and every night he's talking to Divya.

[172] He's like, oh, what about this?

[173] I want to work on this.

[174] And again, supposedly, they're having dinner one night, and Divya is just sick of this.

[175] She's working at a startup.

[176] And she's like, Ben, you know, you might want to just either do this or just stop talking to me about it.

[177] And I could so imagine this.

[178] Jenny and I have had many versions of this conversation.

[179] And Ben's like, you know what?

[180] You're right.

[181] So it's fall of 2008 at this point.

[182] And he decides he's going to leave Google.

[183] He's going to launch his own startup.

[184] He's going to live the dream.

[185] He has an idea.

[186] And he's got a couple friends that he's going to work on this company idea with.

[187] and they want he wants to build a website that holds your that that stores your medical history your family's medical history so not like an EMR but a place where you can store you know what what is your grandparents family medical history your parents medical history you know your siblings um and actually seems you know really relevant so it's fall 2008 he goes off to do this he quits google he walks out and then like a week later Lehman brothers collapses it's amazing we'll get back later into the show to how impactful that event was on so many things in the world.

[188] I think there's probably four or five episodes now where that's been a turning point in the history of each of these companies.

[189] Yeah, totally.

[190] And the most direct impact that that has on young Ben Silverman and the company that would become Pinterest is nobody else who he was talking about doing with this ends up leaving and joining full time.

[191] I think some people made to Google.

[192] Some people might have been friends.

[193] He's talked about that we're in PhD programs.

[194] Everybody's like, nope, the world's fallen apart.

[195] Yeah, everybody go to cash, keep your job, don't do anything risky.

[196] Yep.

[197] And so Ben's out there.

[198] He's all alone.

[199] He's quit.

[200] He's gone.

[201] So he goes out and he tries to raise money.

[202] He has this idea, this website he wants to build.

[203] But a, nobody, no angel investors or early stage VCs at that point are investing in like anything, let alone some random ad apps guy from Google, who's a solo non -technical founder.

[204] Come on, the bottom's the best time to buy.

[205] This is when you should be investing.

[206] I can't wait to do the Airbnb episode, hopefully later this year, where we tell their version of this story, which is also very similar.

[207] So he can't raise any money.

[208] He has no co -founders, no ability to build a product.

[209] He does a bunch of things just to kind of pay the bills and get by.

[210] Fortunately, Divya is working at Facebook and doing pretty well.

[211] So she keeps the, keeps the, the, the fledgling family afloat.

[212] And they're still well, well pre -IPO at this point.

[213] I mean, they hadn't found mobile yet.

[214] They hadn't, this is, this is still, uh, this is 2008.

[215] Facebook's doing well, but it's doing well on venture dollars, not on its, uh, its real business model.

[216] Yeah, totally.

[217] So Ben ends up moonlighting.

[218] He, he helps design a product and a company called Mighty Quiz, which was a Y Combinator, uh, company.

[219] I forget, were they in the first batch?

[220] it wasn't the first but it was an early very early very early batch they might have been in the same one as dropbox I think drop box was in the was drop box in the reddit batch because reddit i think was the first dropbox may have been yeah it was it was first two or three years it was definitely early on they powered trivia games for other websites out there doesn't work of course but that's how he gets exposed to ycomeda i was always wondering ben goes back and he does talks at yC's startup school and I was trying like Pinterest did they do YC didn't do what but that's how Ben became involved with YC he's doing this and he's looking for something to do he he comes upon he realizes you know he loves this iPhone and the iPhone SDK had come out earlier that year in 2008 and it just started to open up to third -party applications because remember the first year year and a half of the iPhone it was only apps from Apple there were no third -party apps on this iPhone OS2 that had the app store on the SDK.

[221] Yeah.

[222] And famously, Steve Jobs was against the idea initially of having third -party apps on the iPhone.

[223] But Bezos -style disagreed and committed, and they shipped it anyway.

[224] Yeah.

[225] How different history would have been if that had not been the case.

[226] So Ben sees this and he's like, okay, this might be the wave that I missed the sort of Web 2 .0 wave, but this might be the wave that I can ride to build a big company here.

[227] And so he hooks up with another friend from undergrad from Yale named Paul Skiara, who very random that Paul would end up becoming his co -founder because Paul lives in New York is also not technical.

[228] But Paul had a very important aspect to his background and skill set.

[229] He knew investors.

[230] He had been an associate at a venture capital firm called Radius Ventures in New York.

[231] And he knew investors.

[232] And what was one thing that they needed?

[233] money money and paul of course was also saw the opportunity that the opening of the app store would unlock says okay great we're going to build a company we're going to build iPhone apps they decide to call the company cold brew labs because it sounded cool like listeners we try and pour over like what's the real origin story what's you know what is the company espousing a oh this is like this is all we could find like it's that it sounded cool and they just rolled with it yeah i mean I think that was the actual story.

[234] Paul, though, because, you know, they need to raise money.

[235] And Paul has all these investor relationships.

[236] They decide it's natural.

[237] He should be the CEO of the company.

[238] So he's in New York, and Ben is out in Palo Alto.

[239] And he's the CEO.

[240] And they hit the fund.

[241] They decide, well, first they decide, what are they going to do to build iPhone apps?

[242] And they, Ben has this idea.

[243] I actually don't know whether it was Ben or Paul.

[244] They come up with this idea for a product that they call tote, T -O -T -E.

[245] And we should pause here before, diving into what tot is.

[246] This was like aha moment number one for me doing the research that Ben Silberman was not the initial CEO of Pinterest.

[247] I think that David, you even texted me like, whoa, did you realize this?

[248] This is just one of those things that ends up buried in the lore that's the sort of super fun when we're diving in and trying to figure out what's going on.

[249] Ben, while the sort of visionary and, you know, the person that we chose to start the story with in his upbringing was not the CEO of the company.

[250] And despite having left his job at Google earlier, and been searching around for a company to start.

[251] They decide that they're going to build this app called Tote and release it on the app store.

[252] How they got the idea for this?

[253] I don't know.

[254] The idea is that you get all these paper catalogs, you know, direct mail catalogs sent to you in the mail for all sorts of things, you know, fashion, home decor, you know, pottery barn, what have you.

[255] Wouldn't it be interesting if instead of getting those in the mail, you could get them on your new smartphone?

[256] phone device.

[257] David, that is just what I want.

[258] Just what I want.

[259] Oh, man, I can't wait to read more catalogs.

[260] And so they decided they're going to do this.

[261] But there's no like API for, you know, getting products in catalogs from companies.

[262] So they start getting catalogs and just like by hand, ingesting the product data into into the app, like typing in like, oh, here's this, you know, uh, dress at Forever 21.

[263] It's priced at this.

[264] Like take a picture of it.

[265] Here's the picture.

[266] So talk about doing things that don't scale.

[267] And this is 2008.

[268] Like there was zero evidence that anyone wanted to do anything that resembled shopping on mobile yet.

[269] Yep.

[270] End of 2008, beginning of 2009.

[271] So they think, okay, we've got this great idea.

[272] We're working on this product now.

[273] We're going to go out and we're going to raise money with, you know, our new great VC connections.

[274] Everybody turns them down.

[275] They meet with like everybody in Silicon Valley.

[276] People more or less laugh them out of the room.

[277] rightly so at that point in time.

[278] So they get so desperate.

[279] This is this is later on in the spring And actually David, I'll push you on rightly so because if they had invested, they would have been the first investor in Pinterest.

[280] So it is interesting.

[281] It's like rightly so on potentially on the idea.

[282] Rightly so for this idea.

[283] Yes.

[284] Well, and that's the that's the art of early stage investing, which we'll we'll get into more as we go here.

[285] So they're so desperate for money to.

[286] pay the bills that they start applying to business plan competitions at colleges that they didn't even go to.

[287] They're just doing anything to try and get some money and presumably also some money to pay some developers to actually build this because they can't build this.

[288] According to Ben, they go to one, I believe this was NYU.

[289] I couldn't, I couldn't verify, but I believe this was NYU's business plan competition.

[290] They end up getting second place in the competition.

[291] So they don't get any prize money.

[292] But what they get for coming in second is a meeting with a VC.

[293] And that VC happens to be a VC in New York, a brand new firm that has just gotten started at this point in time, which side note must have been incredibly difficult to start and raise a first time fund in the middle of 2008, 2009.

[294] Man, it was hard enough doing it at Wave in 2017, 2018.

[295] And David, to double down on that, imagine how hard that is, you're an early firm, you're making one of your first few investments and it's Pinterest.

[296] Yeah, exactly.

[297] Well, so these guys, First Mark Capital, which is now great, much larger VC firm based in New York, they'd just gotten started.

[298] They were the second place door prize in this competition.

[299] And so they meet with Paul and Ben and this app called Tote.

[300] And for whatever reason, they take a shine to them.

[301] And they say, okay, great.

[302] We'll throw you guys a couple hundred K. Like, let's see what you do with this.

[303] So First Mark becomes.

[304] the first institutional investor in Cold Brew Labs.

[305] You can read the Form D that gets filed.

[306] Paul signs it as the CEO of the company.

[307] They invest a couple hundred K. And we do this part later, but just to sprinkle some numbers on this, Pinterest, their IPO price was at $19 a share.

[308] And when they opened trading, it was at almost $24 a share.

[309] These shares were bought for one cent per share.

[310] Yeah.

[311] So they do pretty well.

[312] And I believe First Mark still owns about $9.

[313] nine -ish percent of Pinterest.

[314] Man, the art of early stage venture capital and betting on teams.

[315] Great investment there.

[316] With these resources, they hire some developers.

[317] They ship the app, but nobody really uses it because, you know, again, who wants to really be shopping catalogs on your, at that point in time, 3 .5 inch iPhone screen.

[318] There's a few things there.

[319] It's like no one was conditioned to that behavior yet.

[320] Phones weren't rich enough in their functionality to sort of give you the confidence that doing things like shopping or booking travel or anything on them was was like actually going to work.

[321] And you had sort of the richness of the software required to do those things.

[322] At this point in time, you had 3G.

[323] I think you were past the edge days of the iPhone.

[324] But, you know, loading high quality images still took a while.

[325] Totally.

[326] You know, this was the era where trying to update your app took like two weeks.

[327] So, you know, anytime that anything was wrong, it's not like that we have sort of the number one, the update speed that we have today.

[328] But number two, the ability to change a lot of stuff on the server, I think the apps weren't that sophisticated yet and had just a lot of really heavy stuff on the client side.

[329] And so I think that not only were, was there only a small segment of people willing to do this crazy thing called shop on their phone, but then even more so, it was really hard to actually iterate on this thing.

[330] Yep.

[331] Hard on all fronts.

[332] So one day later on, a couple months later in 2009, Ben is visiting New York.

[333] I assume he was visiting because Paul is still there.

[334] And a mutual friend says to Ben, hey, there's this guy here.

[335] I know that I'm also friends with, you guys seem really similar.

[336] Like, you should just, like, grab a drink.

[337] I think you would really like each other and meet while you're in town.

[338] The friend that the mutual friend was talking about is a architecture grad student named Evan Sharp.

[339] Boy, Pinterest really keeps finding the exact right people for these roles with just the right backgrounds.

[340] Exact right people at the right time, man. with all of these stories, it's so funny when you dig into them, you know, the number of just random events that lead to these incredible stories and companies being created.

[341] You know, the same thing with the Lyft co -founders meeting on Facebook.

[342] So Evan was, he had an architecture background, but he actually had some super applicable skills from, from tech companies, right?

[343] Was he Facebook?

[344] Not yet.

[345] Not yet.

[346] So he's just an architecture grad student in New York.

[347] Ben and Evan grab a drink.

[348] They're chatting.

[349] And Evan's, you know, saying like he has talking about how he loves you know he's so into architecture and design and he's curated he has thousands of architectural photos and drawings and designs that he's saved online but it's so hard to keep them organized and he's got this whole system and uh and they're riffing and bed is like oh yeah like I love collecting things too and you know yeah I had a bug collection and I've had this idea of of um you know I love tinkering with stuff and like one of the things I'd always wanted to bill is, is a product that would let you collect things online and save them and organize them.

[350] And they start riffing.

[351] And eventually, Ben's like, man, like, we're really, we're really in sync.

[352] You should come join me and Paul at Cold Brew and, like, work on what we're working on tote.

[353] And like, maybe we can, maybe we can move the product in this direction.

[354] Evan, though, you know, he's still in grad school.

[355] And he's super passionate about architecture and design.

[356] And he does want to work in tech.

[357] He wants to be a product designer.

[358] But he's not super interested in a really early stage startup that doesn't have a lot of great prospects.

[359] So, in fact, what he's interested in, and I don't know if he already had this lined up, but when he graduates from architecture school, he goes and he works at Facebook as a product designer.

[360] But he's like, you know, I like you guys.

[361] I don't think I want to do this full time and drop out of school, but I'll work with you on the side.

[362] And if he didn't have the job at Facebook yet, I imagine this helps him in his interview process that he's working on the side with a startup.

[363] up that would become Pinterest.

[364] So they all start working together.

[365] And there was, you know, along the same vein, Tote did have this feature that they already had in there that let people save items for later that they were browsing in the catalog.

[366] And the very few people who were using tote, they all seem to be using that.

[367] And as when they talk to users, they seem to kind of like it.

[368] You know what it makes sense.

[369] I was talking with, um, uh, with my wife Jenny about, you know, what she uses Pinterest for these days and likes it.

[370] And the analogy that she said to me is, you know, Pinterest is like the online version of when you're reading a magazine and you see something interesting and you tear the page out or you fold the page down to save it for later.

[371] And that's literally what was happening in Toad.

[372] And so they decide to focus on that and build out this feature a little more.

[373] And they combine it with, you know, sort of this broader idea, like, okay, let's get beyond just shopping and catalogs, but kind of organizing everything that you come across on the internet.

[374] So Evan designs it in his free time.

[375] And he comes up with probably the most important unlock that really makes this happen from a product standpoint.

[376] He comes up with the grid layout.

[377] Now it doesn't seem all that remarkable.

[378] You go to Pinterest and everything is laid out in a grid of images.

[379] But at the time, this was really novel.

[380] The idea of laying out all these images in a grid in front of you.

[381] But there were a couple things.

[382] One, it was liquid and adaptable.

[383] So depending on the sizes of the images, the grid would readaptive.

[384] and make the images all look good instead of resized to fit in, like, very specific size squares.

[385] The other thing that they did, and I don't know if this was intentional or not, but the grid was oriented around vertical photos, not horizontal photos.

[386] Oh, interesting to allow more of them to be across the screen at once.

[387] Yeah, I imagine that's why they did it.

[388] And at the time, the first version of this, of Pinterest, was only on the web, not on mobile.

[389] And even despite Tote being, you know, coming out of coal brew labs to build mobile apps, they said this product needs to live on the web.

[390] Wouldn't even come to mobile until 2011.

[391] But then when it did, this vertical image prioritization was perfect for mobile.

[392] I remember back at this time, when Pinterest shocked the world with what is canonically the Pinterest layout, there were so many little clones.

[393] Like everybody tried to add a Pinterest style view to their purpose.

[394] product.

[395] Or you'd see on Hacker News, oh, Pinterest for X. And Pinterest meant that fluid layout.

[396] That was sort of the board that was laid out in the, you know, adaptable fluid way to lay out images.

[397] There's sort of an interesting meta topic here that products get shaped using the technology available and what is easy using that technology.

[398] And so it makes sense that on the web for the longest time, what we saw were tables and what we saw were, you know, sort of articles that had in -line images.

[399] And it's not an obvious and easy thing to do in early HTML and CSS to lay something out in this way, and particularly to do infinite scroll and a lot of the things that we come to expect knowing that these layouts exist now.

[400] And it's fascinating to think whenever you're designing a protocol or a platform or a core technology that you're really shaping the first five years or whatever, the first several set of use cases of what people actually do with it.

[401] Evan, he's an architecture grad student in New York who designs this and would go on to be one of the most influential, you know, internet and mobile UI paradigms, you know, the last 10 years.

[402] Super cool.

[403] So they have this.

[404] They're pretty excited about this new version of the product.

[405] It's now November 2009, Thanksgiving.

[406] And over Thanksgiving, Ben and Divya are at Thanksgiving.

[407] They're watching TV.

[408] Ben had been trying to think about what are we going to call this new product because Tote doesn't make sense anymore and of course talking with Divya about it.

[409] They're watching TV I assume at least most U .S. listeners are going to remember the commercials that were all the rage at the time, the Dosaki's commercials with the most interesting man in the world.

[410] And those are commercials were so great.

[411] How is this related, David?

[412] Where are we going?

[413] It's related because they're watching TV a most interested, a Dosakis commercial what the most interesting man in the world comes on.

[414] And Divi is like, that's it.

[415] That's the name for the company.

[416] Pinterest.

[417] Because they were talking about pinboards and the interesting man in the world.

[418] And that's when inspiration strikes.

[419] And that's where Pinterest is born.

[420] Wow.

[421] Yeah.

[422] So I don't know what the moral of the story is there.

[423] Like spend more time watching TV with your loved ones.

[424] That's it.

[425] I think, I mean, spend more time with your loved ones feels like a great lesson to take away from any of this.

[426] Yeah.

[427] Yeah.

[428] So great.

[429] They've got a name for the product.

[430] They've got this super innovative grid UI.

[431] They're ready to ship January 2010.

[432] They launch.

[433] They email all their friends in Palo Alto, everybody that they know from Google and divvious friends at Facebook.

[434] And Evan, of course, is going to Facebook at this time.

[435] And nobody uses it.

[436] Everybody's like, what is this for?

[437] What are I supposed to do with this?

[438] What's interesting to me, too, about this point in the story is it's not like they had done an exercise and said, okay, who's our core target user?

[439] What is our ideal customer profile?

[440] You know, we all know today Pinterest is, I believe it's like two thirds used by women.

[441] And they didn't come up with it and say, okay, what product can we build for moms?

[442] You know, it was very much, here's a thing that is very agnostic to who's using it and what they're using it for.

[443] And let's just.

[444] see.

[445] I'm sure you'll get into this, but how did they find that the right use case and who the real target user was?

[446] Yeah.

[447] Well, so before that happens, though, they're trying to do everything they can to get their friends to use it, to, you know, do growth hacking, you know, all the raids of the day.

[448] So what they think is going to be really cool.

[449] They go to the Apple store, Ben goes to the Apple store in Palo Alto.

[450] I don't know if he does this every day or just for a couple days.

[451] He just pull it up on all the computers.

[452] Yeah, he goes to the, he goes to all the computers, and he changes the home screen to Pinterest on all the computers in Palo Alto has precisely zero impact.

[453] They apply to TechCrunch Disrupt, and they get rejected.

[454] Didn't they, like, pull some strings to, like, get in somehow?

[455] I guess First Mark was a sponsor, and they pulled some strings, and they get them, like, a booth at TechCrunch Disrupt, but they're not part of, you know, the battlefield.

[456] Like, it's, things are bad.

[457] Everybody.

[458] but he's pretty down.

[459] But there's a ray of hope.

[460] And then some of the people that they've been trying to get to use it, they were literally anyone they know, were Ben's friends back in Des Moines that he'd grown up with.

[461] And these people were like so far from Palo Alto Techies, but they seemed to like it.

[462] And the other thing they had going for them back in Des Moines was Ben's parents and Ben's mom.

[463] You know, they're still ophthalmologists in Des Moines.

[464] They have all these patients.

[465] And Ben's mom just starts telling all of her patients to use Pinterest.

[466] God, this is like the equivalent of like when the Snapchat story where it was Evan Spiegel's mom was a teacher at school.

[467] No, no, no. His cousin, I think.

[468] That's right.

[469] His cousin was a high school student.

[470] And they were using it to message.

[471] Yeah.

[472] Yeah, because I messaged another apps were banned.

[473] Messaging apps were banned.

[474] Yeah.

[475] So great.

[476] But they all had their iPads.

[477] This is like the Pinterest equivalent.

[478] So they start seeing this.

[479] And they're like, oh, okay, interesting.

[480] I'm not sure if this was related or not.

[481] But on a whim, Ben goes to a conference in Salt Lake City that January called the Alt Summit, which is a big women -focused design and blogging conference.

[482] I think a friend had suggested that he should go there.

[483] But I don't think he had really that much intention of, oh, this could be the promised land of our user base.

[484] He goes there, he's talking to everybody about Pinterest, gets a bunch of people signed up, and they start using it.

[485] And then on the flight back from Salt Lake City to San Francisco.

[486] Francisco, well, at the conference, he meets a woman named Victoria Smith, who's a blogger who lives in San Francisco.

[487] She has a blog called S .F. Girl by the Bay.

[488] She's actually moved to L .A. now, which is, of course, breaks the hearts of, you know, all San Francisco people.

[489] But at the time, she lived in San Francisco.

[490] And so they kind of hit it off, and they're on the flight back.

[491] And they decide, like, hey, let's do a collaboration together.

[492] So Pinterest is going to work with S .F. Girl by the Bay.

[493] And we're going to do this thing called pin it forward, where Victoria will create a pinboard with all the things that mean, quote unquote, mean home to her, things that inspire her of home.

[494] And then they're going to tag another blogger and ask the next blogger to create a board doing the same thing for them and then just kind of pass it around through all the bloggers that are in this network and have been at the Alt Summit.

[495] And they do it.

[496] Sounds like a growth hack.

[497] It sounds like a growth hack.

[498] The bloggers get really into it.

[499] And they of course all have their, like, you know, small but rabid fan bases of their blogs.

[500] Their audiences love it.

[501] They start using Pinterest.

[502] Lo and behold, things start to turn around and, and the company starts to work.

[503] So this is a total aside.

[504] This is like, this is 2010.

[505] A couple of years later, 2012, Pinterest is now a hot startup in the valley.

[506] I'm starting business school at GSB at Stanford.

[507] And in my electronic business class, we had this great professor, Hyme Mendelso.

[508] He's like a It's an amazing name for our class.

[509] I know.

[510] Electronic business.

[511] He's a old school guy.

[512] This is a holdover.

[513] But he's super smart.

[514] And he made us, like the first week in class, do the same thing on Pinterest.

[515] And I never understood why he had us do this random assignment on Pinterest.

[516] And now I know.

[517] This is why.

[518] What?

[519] The pin it forward exercise?

[520] Yeah, the pin it forward.

[521] He didn't tell us.

[522] It was the pin it forward exercise.

[523] It was just like, all you guys, like, go create a Pinterest board of your hometowns and what, like, home.

[524] means to you.

[525] And only now, years later, do I see where you got the idea for it?

[526] It's interesting thinking, too, about why it made so much sense for bloggers, because for them, whether it was part of their own process as a tool, so you can imagine it's kind of difficult to go and collect good links and good images and put them somewhere if you're trying to go look at 100 different websites and then write a blog post about sort of a synthesis of all this stuff.

[527] So it's both an interesting tool there, but then also it's probably the best way to showcase at that time a set of things that you want your your fans or followers to go and look at much better than, you know, making a separate WordPress blog post for each thing that you want to show off.

[528] Totally.

[529] There's a great talk.

[530] Ben goes back to the Alt Summit in 2012.

[531] And that's where he has the slide that has the, there might be something going on in California in that talk.

[532] But one of the questions from the audience is this woman who says, Pinterest is something like the best thing that has happened to my business and my following, and the worst thing that has happened to my actual blog, because I now do everything on Pinterest.

[533] Like, yeah, it's just so much, it's so much a better vehicle for if you're, you know, a design blog and you're sharing ideas and products that you find with people to use a service like Pinterest than it is to use a blog.

[534] The site starts growing about between 40 to 50 % month over month at that point.

[535] It's still really small, but it really starts taking off.

[536] And it sustains that growth rate for years.

[537] And I mean, that's, that's a magic number for startups.

[538] If you're growing 10 % week over week or sort of that 40, 50 % range month over month, I mean, that is, you are a high growth startup.

[539] And that is how you know you're on to something.

[540] Yeah.

[541] All these angel investors that two years ago would, would barely even take a meeting with Ben, they start to notice that something's going on here.

[542] So in May of that year, Shauna Fisher, who was the head of M &A at IAC, she had started using Pinterest, probably heard about it from a blog, and she loved it.

[543] She emails them, and she's like, hey, guys, I want to invest.

[544] Their minds are blown.

[545] Catch me up.

[546] What year is this?

[547] Is this after they were out of private beta?

[548] They were still in private beta, and they would be in private beta for the next two years.

[549] So you had to, you had invites and you could invite your friends.

[550] So the site is still growing like crazy, but, and a lot of the invites were distributed via these blogs.

[551] Ah, interesting.

[552] So, Shana invests, and then she introduces Kevin Hartz, who's the CEO of Eventbrite, co -founded CEO of Eventbrite with his wife, Julia at that point, and also a prolific angel investor in Airbnb and others.

[553] He invests, friend of the show, Scott Belski, invests, and there's like serious momentum behind this company.

[554] This is a fun aside, but also part of the story.

[555] July, a couple months later, they do the first real -life Pinterest meetup with Victoria, with the SF Girl by Bay by the Bay blog at a store in Noe Valley called Rare Device, which is now moving to Hayes Valley, but is like right down the street from where Jenny and I live now in Noy Valley.

[556] Too funny.

[557] That's the first physical Pinterest meetup, and Ben goes, and all these people come out.

[558] It's not like a huge amount of people, but they're all like so engaged and they love the products so much, and they're talking about how all the things that each other is pinning on about their homes and about everything else on Pinterest is inspiring them to go do these projects and they're supporting each other and working with each other on these projects and Ben is like, this is it.

[559] We have figured out what Pinterest is, who it's for, and we're going to double down on this.

[560] And at this point, Ben is doing things like giving out his personal phone number, giving out his address, saying like, hey, please reach out to me anytime you have any feedback or you really started doubling down on building this sort of wildly intimate relationship with the Pinterest users around this time.

[561] Yeah.

[562] And meetups start happening all over the country.

[563] And so at this time, this is great.

[564] Remember, Divya was the first HR person, Ben's wife.

[565] Now, I don't think they're married yet, but a girlfriend, soon to be wife, Divia, was the first HR person at Facebook.

[566] Ben is so inspired about how fast they have to move here.

[567] He copies, he gets a poster of Facebook's move fast and break things motto.

[568] And he makes that the Pinterest motto.

[569] And then they redesign it in Pinterest font and, and, and, and, you know, they redesign it in Pinterest font.

[570] And, and, and, and.

[571] you know, red lettering, and they posted all over the office.

[572] So the opposite of Pinterest's, like, actual mantra as a company for years and years after that.

[573] Yep.

[574] But in these very early days, this is when he realizes, okay, we got something here.

[575] We got to move fast.

[576] So they've just raised this angel round.

[577] They keep growing.

[578] And then the next spring, they end up raising a $10 million, which was Series A from led by Bessemer, which was a very large Series A for the time.

[579] Which closed in May. I want listeners to pay attention to the timeline here.

[580] This round closed in May just to continue tracking the share price here.

[581] That's at 17 cents a share.

[582] Yeah, 17 cents a share.

[583] Wow.

[584] And what was interesting about this.

[585] So Sarah Tevel, who's now who's a great investor and now a GP at Benchmark.

[586] She was an associate at Bessemer at the time.

[587] And she had heard about Pinterest.

[588] And she had found them and she had lobbied the firm to do it.

[589] And Jeremy Levine, the partner who ended up leading, the deal.

[590] He was coming out to San Francisco one day for to meet with a total, he writes a blog post, to meet with Minted, another company.

[591] And she'd convinced him like, hey, we got to go down to Palo Alto.

[592] We got to meet with these Pinterest guys.

[593] And Jeremy had like 10 minutes before his flight.

[594] He was like, okay, fine.

[595] I'll go go down.

[596] And then ends up canceling his flight stay and they do the deal.

[597] But it was totally Sarah who was like found it and lobbied it.

[598] It was supposed to be a longer meeting.

[599] And then there was traffic because it was raining or something.

[600] And by the time he got down there, there was only 10 minutes for the meeting.

[601] And then, of course, it's interesting enough that you just skip your flight.

[602] Yeah.

[603] But yeah, like I think we should put a stake in the ground right here and say, just let's notice a trend of amazing women doing things like naming the company, like pounding the table to make the investment.

[604] I think Sarah should get a huge amount of credit for this spotting it super early.

[605] Exactly.

[606] You know, it's, it's DIVU comes up with the name.

[607] It's Victoria Smith and the Alt Summit, which is all women -focused bloggers and designers that come, you know, lands the product market fit for the company.

[608] It was Shauna at IAC, who was the first, you know, elite angel investor to recognize the potential of the company and want to invest.

[609] And then it was Sarah who found them and led to and pounded the table to do the Series A. At the same time, this is super fun.

[610] So SB Angel on Conway's firm, they had passed on the company during the Angel round.

[611] Ben and I, a great friend of ours, Leslie Kincaid, was working at SB Angel.

[612] at the time here in Silicon Valley, and Kevin Carter, who was also there at SB Angel, he was like, man, I think we might have missed this during the Angel round that had happened with Scott and Kevin and Shauna the past summer.

[613] And maybe we should like see, you know, we don't really do Series A, but like we might want to really try and take another look here.

[614] And so Leslie and Kevin lobbied within the firm that SB Angel that, hey, we'd made a mistake.

[615] We should try and push our way into this round too.

[616] Kevin specifically was like, Leslie, what do you, like, what do you think?

[617] This is a female focus site, or at least that seems to be the user base.

[618] So Leslie pulls together a focus group of three women, I think at the firm, and basically went back to him and said, yeah, I know we pass, but there's no way we can miss this.

[619] So SB Angel ends up coming in to this series A as well.

[620] And then this is so great.

[621] Both Sarah and Leslie, Sarah leaves Bessemer, Leslie leaves Sveenel, go and join the company.

[622] as early employees.

[623] And we have to give a shout out to Leslie, too.

[624] She's helped us with a bunch of these stories and research here.

[625] And she now runs the office and his chief of staff to the CTO at Convoy up in Seattle, which is another great company that will be an acquired episode someday.

[626] Thank you, Leslie.

[627] Thank you for the stories that are to come in this episode.

[628] And listeners, you can find links to some cool posts from Leslie's Instagram over the years from 10 employees onward at Pinterest.

[629] Yeah.

[630] Yeah, it's super fun.

[631] Go look at these pictures that Leslie has documenting all this because I think this is the first time we've had like actual visual accompaniments to the stories that we tell here.

[632] Yeah, across three different offices and yeah.

[633] Yeah, super fun.

[634] So we're now in July of 2011.

[635] They hit a million users.

[636] Remember, it's still not open to the public.

[637] You still have to have an invite to join.

[638] In August of 2011, they're listed as one of Time magazine's 50 best websites, which actually meant something back then.

[639] Now, probably less relevant.

[640] Remember, it was May when the series A got done.

[641] We're still in August.

[642] And Andreessen Horowitz, spearheaded by Connie Chan, who was on the deal team at the time there, had gotten wind of all this great stuff that was going on at Pinterest.

[643] And they come in, Jeff Jordan and Connie come in and lead the series B just a few months later in the company.

[644] there is $27 million at a $200 million valuation.

[645] Yeah, for those keeping track at home, share price is now up to $0 .72.

[646] And in that time from May to August, the valuation goes from $40 million to $200 million.

[647] This is what happens when you hit that exponential growth curve.

[648] So they now have tons of resources.

[649] A couple months later, though, in April 2012, a transition happens.

[650] And this really was at this point a long time coming and probably had de facto already happened, if not officially.

[651] Ben Silberman finally becomes the actual CEO of Pinterest in April 2012.

[652] Paul leaves the company very amicably ends up doing a few things.

[653] And he is now actually the chairman of an electric, yeah, an E .V .TAL company, vertical takeoff and landing flying cars company, yeah, called Joby Aviation.

[654] Oh, that's awesome.

[655] Yeah, super fun.

[656] It's an LP show prediction for the, what was it from our 2019 predictions.

[657] Yeah, EVTol.

[658] becomes the thing.

[659] That spring, though, the growth just continues on a tear.

[660] So the 2012 presidential campaign is in high gear at this point in time.

[661] And Obama's running for his second term and Mitt Romney's running against him.

[662] And both actually first and Romney, Mitt Romney's wife, and then Michelle Obama joined Pinterest.

[663] And on the campaign trail, start, you know, building pinboards of their life and inspiration.

[664] And it is huge for the company.

[665] In May. So we're now one year from when the Series A had happened, the Bessemer and SV Angel Series A, we're now in May of 2012.

[666] Rackerton, the Japanese e -commerce company, comes in, leads a $100 million investment in Pinterest at a $1 .5 billion valuation.

[667] Man, think about when you're raising money for a company and you're like, you're selling 20 to 30 % of it.

[668] The leverage that they had to have at that point to say, sure, we'll accept $100 million.

[669] But it's going to be on a one and a half.

[670] For one -fifth of the company.

[671] You know, when Leslie had joined, she had joined in November of 2011.

[672] So just a few months before, she was the 10th employee.

[673] So there were only like 10 people at the company.

[674] Is this a good time to talk about the really forward -looking investment in general administrative, uh, creating infrastructure?

[675] Okay.

[676] So listeners, one thing that, if you remember one thing from this episode to take away, it's Pinterest thought so far ahead on a lot of things that most companies say, ah, we'll think about that later.

[677] Think finance, think HR, think people ops, think workplace, think culture.

[678] It was amazing starting really at the, you know, very early on from the company that Ben wanted to build and also, you know, in bringing Leslie and an employee 10, really starting to invest ahead of their growth rather than, you know, a ship that's burning down.

[679] and you're trying to patch it while it's on fire.

[680] Well, and I feel like this is really where the story of Pinterest and the history of Pinterest diverges from a lot of your typical kind of Silicon Valley hypergrowth company.

[681] They just, they'd done the A, then they'd had this crazy growth.

[682] They'd done the B a couple months later.

[683] And like, your average Silicon Valley company at this point would have been like, great, let's pour all this money into growth and like, go, go, go.

[684] And to Pinterest and Ben's credit, I think, in the long term, but this really impacted the trajectory of the company.

[685] They said, now is the time to pause and build the foundation to support this hyper growth that we know we're going to go through.

[686] So yeah, they brought in Leslie as site operations manager.

[687] They got really serious about hiring executives.

[688] And they start bringing over, again, remember Divya was the first HR person at Facebook.

[689] They start bringing over some great, great, great people from Facebook to come in and build out all the infrastructure around the company.

[690] So a guy named Tim Kendall comes over.

[691] and Tim had been an early Amazon guy and then had joined Facebook also very early, was head of all monetization within Facebook.

[692] He joins Pinterest in March 2012, at first running product.

[693] He then eventually runs product engineering and all of builds the whole ads business for the company.

[694] He becomes president of the company.

[695] They bring over Barry Schnitt, who was running marketing and communications at Facebook.

[696] He comes and joins Pinterest.

[697] Don Fall, who is running operations at Facebook, comes and does the same at Pinterest.

[698] and really a whole suite of, and I remember I have lots of friends who also were at Facebook and moved over to Pinterest at this point in time.

[699] And they start really building out a lot of the senior management and functions to scale up the company.

[700] And all these people end up staying a really long time.

[701] So Tim is now CEO of a company called Moment.

[702] But he stayed about six years and built out all of these things at Pinterest.

[703] The other thing that they start really investing in playing to their strengths is women engineers and women on the engineering team.

[704] And this becomes a huge ass.

[705] I mean, this is well ahead of, you know, all of the, all of the things we'll cover in the Uber episode.

[706] The philosophy was our team across all functions should reflect our user base or, you know, trend much closer to that than most of the industry.

[707] So they have an early Pinterest engineer named Tracy Chow really becomes an absolute leader in recruiting for the company and diversity in engineering and in Silicon Valley more broadly, Pinterest has way higher percentage of female engineers than your average Silicon Valley company and is a huge asset to them.

[708] It's interesting.

[709] I was looking at it right before this.

[710] It was, it hovers around 25, 26 % of their engineering team right now.

[711] A fun story, too, around all this time.

[712] And right as Leslie was, was joining the company.

[713] So they had been in Palo Alto and their first office there, which you can go look at all our photos and their great early photos.

[714] They end up moving to San Francisco, and this was a huge moment at the time.

[715] I remember this.

[716] Because Palo Alto was still headquarters of Silicon Valley and where startups were.

[717] There were very few companies that were in the city.

[718] And Pinterest moving up from Palo Alto to SF was the start of really the center of gravity shifting up to San Francisco.

[719] And it happened because Tim had just joined Tim Kendall, and he had a friend who knew about, they were looking for a big office space to support all this hiring they were going to do.

[720] Is this the chicken factory?

[721] Yes.

[722] He had a friend who knew about an abandoned chicken factory in Soma in San Francisco right next to the Cal train station.

[723] Like perfect location.

[724] And so they jumped on it.

[725] And the Pinterest now, the core of what's now the Pinterest campus right around the Cal train station there, started in an abandoned chicken factory.

[726] There you have it.

[727] They have it.

[728] So through all this time, though, in all these fun stories, there's no revenue.

[729] There's no business model.

[730] The product is seeing tons of usage and engagement and growth, but they're not making any money, not a dollar or revenue.

[731] And they're even making noise about the fact that they're not.

[732] They're getting pressed for this.

[733] They're getting, you know, Ben Silverman's getting asked at conferences and his party line is we want to be really thoughtful about this.

[734] We want to have something like measured growth or thoughtful growth.

[735] And we want to do monetization when we feel it is right for our users, which they towed for years after you would think they would.

[736] start experimenting with monetization, which is too, and also fits their personality, but also they have a very traumatic experience with this right after the series B, but before Tim Kendall joins to come in and ultimately build out the ad and monetization platform, they were seeing that one of the things that started happening on Pinterest from the early days, and especially coming from the blogging community, is people posted pins, and the pins were based on they put affiliate links in them.

[737] So when you click through the pins to the link, it would be an affiliate link to whatever the retailer was that was selling the product.

[738] And then the bloggers or whoever posted the pin, they'd make a cut on that transaction.

[739] And so Pinterest definitely saw that this was going on.

[740] They thought, well, this is pretty interesting.

[741] It was probably designed as an experiment from the get -go.

[742] But they worked with a company called skim links in early 2012.

[743] And they, without warning, they pulled all of the affiliate links, rewrapped them with skim links powered Pinterest affiliate links, and Pinterest took over all those affiliate links that were running through the site.

[744] It caused a huge uproar.

[745] And to ban on Pinterest credit, they pulled the plug on it immediately and they apologize.

[746] And actually, later on in 2015, they would kick all affiliate links, period, off the platform and just ban them totally.

[747] But it was so powerful and demonstrated the monetization.

[748] potential and Pinterest place in the commerce flow that for years afterwards they were still getting checks from like that week or two that they had affiliate links on.

[749] They were still getting affiliate checks and it was like a very powerful way to prove the potential here.

[750] Yeah.

[751] But then they bring they bring Tim on and they don't do anything Ben as you alluded to for for the next two years around monetization after this.

[752] Like 2014 is when they started doing it.

[753] It was May May 2014, they launched promoted pins, and by this point in time, they had built all the product and engineering and ad sales functions and organizations to do this right.

[754] They launched promoted pins.

[755] The first promoted pin is from Vineyard Vines, the East Coast fashion retailer.

[756] It goes well.

[757] They work, just like we talked about with Emily White on the Instagram episode, they work with a few select partners to start.

[758] And then in December 2014, they open it up to everyone, and it starts working really well.

[759] So much so that in March of 2015, there's so much hype around the company.

[760] They were about to hit 100 million users.

[761] They've just launched this advertising platform promoted pins that's going well.

[762] They raise at an $11 billion valuation going from.

[763] They had raised a few times at successively higher valuations from the 1 .5 earlier, but this is a massive jump up.

[764] This is a pretty firm.

[765] commitment to we're going to be a public company.

[766] It's really hard when you raise money at higher than a $10 billion valuation to say, you know, we're on an acquisition track of some sort.

[767] Not just a public company, but like this is the next Facebook.

[768] There are all these people that have come over, great people from Facebook.

[769] There's all this potential.

[770] The ad platform is working super well.

[771] User growth is going great.

[772] You know, think about this, $11 billion evaluation March of 2015.

[773] And we'll get into the IPO just now.

[774] So that's been four years.

[775] Yeah, exactly.

[776] Four years since at $11 billion valuation.

[777] So things do continue to go well.

[778] However, user growth at this point, right after this, basically flat lines.

[779] And they had just hit 100 million users.

[780] But as we've been alluding to, they have started having a huge problem.

[781] They've saturated most of their core target market in the U .S. They do eventually start going internationally back in starting in 2016, 2017, and that reignites growth.

[782] but they just can't get men to use the product and is still a big issue to this day.

[783] Yeah, to flash forward to some numbers from the S -1 listeners.

[784] So today in the U .S., they're up to, what, 250 million users.

[785] Globally.

[786] Globally.

[787] But in the U .S. here, it's 82 million.

[788] If you go and you look three years ago in Q1 of 2016, that was 65 million users in the U .S. So when you look at their very nice user growth, albeit not monetization growth internationally, and compared to the United States, international looks like, oh, great, a high growth company.

[789] A U .S. looks like, okay, it's been pretty flat for a while.

[790] When they did that big fundraise, the vision, like we were saying, was this is going to be the next Facebook.

[791] And I think what happens over the next couple of years is they realize, the market realizes this is going to be a great company but has a very specific target market that is not every person in the world.

[792] A very specific target market and a very specific time in place for use rather than all day, every day, like Facebook.

[793] So that said, though, the monetization engine starts really working.

[794] By 2016, two years after they launched it, they did $300 million in revenue in 2016.

[795] 2017, that grows over 50%.

[796] They do $4702 million in revenue.

[797] 2018, that grows hugely, again, they do $755 million in revenue.

[798] which is a serious amount, especially given the, and speaks to the power of, like they saw with the affiliate link test, the power of where they sit in the commerce flow, that even though they have a relatively smaller user base compared to other big social networks, there's an incredible monetization potential here.

[799] Yep.

[800] If you think in like a Porter's Five Forces sense, they have a tremendous amount of power in this value chain from when the user sees something, they're interested in into where Pinterest can sort of steer their attention and how they can derive monetization from doing that.

[801] They go into great detail in the S -1, but this isn't just point of purchase.

[802] It's awareness.

[803] It's reminding people about the product.

[804] It's steering them to a purchase and then it's actually executing the purchase.

[805] So it is sort of all across the life cycle of you buying something.

[806] On the back of all this, just last month in March of 2019, two very big things happen from the company, two very big announcements.

[807] First, Leslie Kilgore joins the board.

[808] Do you remember Leslie Kilgore, Ben?

[809] I do.

[810] And I was trying to remember from where.

[811] So I went and looked her up on LinkedIn.

[812] I thought it was something where I, like, may have known her personally or something like that.

[813] And then I looked up on LinkedIn and I was like, oh, previous Acquired episode.

[814] Yes.

[815] It's almost like we know her personally.

[816] The acquired superhero with the writing shotgun alongside Barry McCarthy from our Netflix two -parter, Leslie Kilgore, who was the CMO on Netflix and now on the board at Netflix.

[817] Yeah, yeah, I think that's right.

[818] So she just joined the board of Pinterest, which is awesome.

[819] I'd love it when the heroes and not Carl I can come back into these stories.

[820] And then, of course, second, on March 22nd, Pinterest files, publicly files it's S1 to go public.

[821] And then over the next week and a half, as we covered, on the Lyft IPO episode, the Lyft IPO happens.

[822] We'll talk about that in a minute during narratives.

[823] But when Pinterest sets the range for its IPO on April 8th, this is after the dip and trading from Lyft, they set it at $15 to $17 per share, which equates to about a range of $8 .5 to $11 billion valuation below the last private round, which they had done another private round in 2017 that valued the company at $12 .3 billion.

[824] So this is, pricing below.

[825] It is.

[826] And listeners, like, they've done a series D, series E, F, G, a G1 or something like that, and then they stop counting the letters.

[827] But there's six rounds that are in this sort of $200 million, $300 million range of amount of money that they're raising.

[828] They had that rapid acceleration in valuation and then continued to raise sort of hundreds of millions of dollars over and over again, somewhere around that price point for a while.

[829] As the user growth, especially domestically, was flatlining, so then on this past Wednesday, April 17th, they price the IPO at $19 a share above the range, and that equates to a $12 .6 billion market cap very slightly above the last private valuation.

[830] And then on Thursday, they start trading and they pop up 28 % close at $24 .40 a share or a $16 billion market cap.

[831] So a nice, you know, nicely above the last private round, but still not a 10x here.

[832] The share price is now above where every shareholder bought.

[833] So, you know, we've only had one day of trading and I think we can discuss this, but we saw sort of what happened with with Lyft in the couple of weeks after they started trading.

[834] But from what we know so far, it looks like the strategy of pricing modestly and and being below the last round and then letting the pop sort of happen in the market has worked.

[835] Yeah, as opposed to Lyft, which we saw increased its range during the roadshow several times, then priced above the road show, then popped big time on the first day, and then, of course, it has been down since then.

[836] If there's one thing we should probably learn for ourselves on Acquired, is it's very likely we'll see a pop on the first day no matter what, and then it's, you know, in the weeks and months that follow that we should really be paying attention.

[837] Yeah, yeah.

[838] So, you know, I think we and everybody were very excited and still are very excited about Lyft and their IPO.

[839] But there was a lot of euphoria that has been tampered over the last several weeks.

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[859] So let's go into narratives here.

[860] So listeners, what we decided to do in these IPO episodes is walk through what the bulls are saying and what the bears are saying.

[861] And that way, as we get into kind of our discussion, we can kind of have a baseline representation of both sides.

[862] On the bull case, I think their growth rate relative to their comps of Twitter and Snap is really encouraging.

[863] They're growing much faster than Snap or Twitter.

[864] To put some numbers behind that, Pinterest grew its user base 23 % last year.

[865] Twitter and Snap saw user numbers.

[866] decline.

[867] And so when you think about sort of this, this tier of, uh, of ad -based, you know, internet social, I think we can leave social out for, for Pinterest, but social -ish business models.

[868] Platforms.

[869] Platforms.

[870] Yes.

[871] That's, uh, very interesting to compare there and, and, and very promising.

[872] The other thing is, and this is from a great financial summary on seeking alpha that we'll put in the, in the show notes.

[873] If the growth rate for both revenue and expenses stays the same in 2019 as it did in 2018, Pinterest will be profitable.

[874] They'll earn pre -tax $65 million.

[875] Because of the way that the business is monetizing well and user base continues to grow, especially internationally, more monetization domestically and then growth internationally, there's really going to be a business here.

[876] And I think you got to really whip out your discounted cash flow models to try and understand is it worth $13 billion over some time frame.

[877] but contrasting this against other IPOs that we're seeing recently where there may not be profitability in sight, wouldn't shock me if it happened in the next year, 18 months.

[878] Yeah.

[879] Well, Pinterest is a classic case of the historic technology company business model of very high fixed costs and basically zero variable costs that get leveraged over a large user base.

[880] And once that user base passes a point where the revenue from per user is covering the fixed costs, everything about.

[881] of that is basically pure margin.

[882] Now, that is definitely not the case with marketplaces and especially real world marketplaces, as we saw with Lyft, and we'll talk about soon with Uber.

[883] But it doesn't mean they're bad businesses, but it's just a very different business structure.

[884] Right.

[885] Do you anything else in bowls before we go into bears?

[886] You know, I think the bull case, we alluded to this earlier, but I think Pinterest actually does a really nice job.

[887] in the S -1 laying this out, and Ben has, Silverman has always said this about it, that it is, you know, you were joking about not a, or is it a social network?

[888] Is it not a social network?

[889] You know, in the S -1, they say, Pinterest is the productivity tool for planning your dreams.

[890] Dreaming in productivity may seem like polar opposites, but on Pinterest, inspiration enables action and dreams become reality.

[891] Visualizing the future helps bring it to life.

[892] In this way, Pinterest is unique.

[893] Most consumer internet companies are either tools or media.

[894] Pinterest is not a pure media channel, nor is it a utility.

[895] It's a media rich utility that satisfies both an emotional and functional need, et cetera.

[896] We call it discovery.

[897] And I think that is perhaps one of the strongest bullcases here is that for product discovery, there is nothing quite like Pinterest in the funnel.

[898] You know, for Google, uh, Google serves demand fulfillment better than anything known to man. You know, Facebook also serves discovery, uh, to a certain extent, but I think it's not quite in the same way or as effective at it as Pinterest is.

[899] Pinterest is where you go to specifically look for something at Facebook.

[900] You're being shown products as you're looking at other things.

[901] The Facebook News Feed is like the best ad format of all time, but it can be a little disruptive.

[902] Yeah, it's like ads in a newspaper, whereas to bring it full circle, Pinterest is like browsing a catalog where you are intending to get inspiration and then act on that inspiration.

[903] Yep.

[904] So the biggest bear case, at least to me, is that they will not be the only ones to own this market for long.

[905] We've seen Instagram before try to get into both commerce and a Pinterest style functionality of discovery.

[906] Both of them have not gone well.

[907] Their recent effort into commerce is much more serious and they've launched collections, which is going to look a lot like Pinterest boards.

[908] If Instagram can do to Pinterest, what it did to Snapchat with stories, they'll be in big trouble.

[909] But I think to flip back to bowl real quick, it's a reasonable argument to make that Pinterest actually fulfills a much different emotional need when you open that app than Instagram does.

[910] And Instagram may not be able to offer the same solution to that job to be done of getting inspired and collecting things in its format that Pinterest has been able to do by really solidifying its brand and this is what you go to Pinterest for.

[911] Yeah, I mean, totally, too, having gone and watched, you know, all these talks by Ben Silverman over the last few years, to his total credit, you know, he's been, if you were to listen to the narratives leading up to the IPO, he and Pinterest are talking about how Pinterest goal is not to get you to spend more time online, it's to inspire you to do projects offline and take action in the real world.

[912] That sounds like a soundbite he came up with to market Pinterest in reaction to everything that's happened with Facebook and Instagram and the rest of the internet over the last, you know, 24 months.

[913] That's not true.

[914] He's been saying that since 2012.

[915] And Pinterest has always been about that.

[916] And so, yes, the potential mitigation to that to Instagram is like Instagram's cultural DNA and Facebook's business model is about the attention suck.

[917] And that is not neither the cultural DNA nor the business model of Pinterest.

[918] The biggest reason to be a bear here isn't that it's not going to be a good business or they're not going to be able to maintain the size of the business unless, of course, you think that Instagram's going to come and eat all their lunch.

[919] It's that, frankly, it's just the smallest of these online ad platform companies.

[920] And when disruptive markets are created, the biggest opportunities tend to get filled first.

[921] And then the smaller ones tend to get filled over time.

[922] So, you know, when we saw, let's take marketplace businesses, for example, in the sharing economy, if you look at what people's spend in GDP.

[923] They spend on their house.

[924] They spend on transportation.

[925] Then they spend on food.

[926] And you look at sort of Airbnb and then you look at Uber and Lyft.

[927] And then you look at DoorDash and Instagram.

[928] And, you know, when you see a new paradigm like online advertising, you know, you see the biggest ones that are taken are intent -based search.

[929] And then there's, you know, what we didn't realize was going to be such a big market, but social media advertising.

[930] And then there's this new thing that is, you know, I guess discovery -based or inspiration -based or curation -based advertising, which is just smaller.

[931] Like, it's just not a bigger thing.

[932] I was going to wait to make this point in grading, but since we're already here, I want to make the point that when I first started researching, I was thinking there's basically two distinct online advertising markets.

[933] They're social -based and they're search -based.

[934] But Pinterest is really somewhere between there with the curation and discovery based.

[935] And I think now I'm thinking about it more as more as a spectrum.

[936] And I think if you think about it as sort of a smiling curve where there's way more value creation if you go pure search or pure social, there's there's less in the middle because frankly, you're not spending as much time there and you're not doing mission critical things there as much as you are during search.

[937] But, you know, it's still a super sticky product, a super useful product and a product that monetizes well, it's just not one of the other two.

[938] Yeah.

[939] Well, I think this is building off kind of the end of history and facts here where we alluded to this.

[940] I'm not sure that it's not that the values, I think there's a ton of value in Pinterest and what they offer to advertisers and this discovery engine works incredibly well and is very unique.

[941] The problem, though, is just the product itself, the consumer product, is a niche product.

[942] very large niche, but, you know, we alluded to it in history and facts.

[943] There are 86 million -ish MAUs in the U .S. And a very, very, very high percentage of them are women.

[944] And men, despite years of trying on Pinterest's part, just don't use the product in nearly as high a percentage.

[945] They've tried to fix it.

[946] I just don't know that it's fixable with what the product is.

[947] So thus, it's just a smaller market.

[948] Everyone is aware that they need to, search for stuff and a third of those or a quarter of those people are aware that they need to be inspired and curate stuff based on what inspires them.

[949] Yep.

[950] Hard to know if it is specifically men or women are.

[951] That's just the way the psychological profile of users of Pinterest tend to fall out.

[952] But there is a huge segment or segments of the population, at least domestically, that despite years of knowing about Pinterest trying to use it just really isn't going to become engaged and use it in the same way as the other segments.

[953] So, you know, I mean, I think when you really think about it, maybe this is the way to think about it with, with Pinterest.

[954] The market for the core Pinterest product is the same market as lifestyle magazines.

[955] And if you think about what is the market for lifestyle magazines, it tends to skew heavily towards women, design magazines, home magazines, fashion magazines.

[956] There certainly are men that read lifestyle magazines, but just at a much smaller degree.

[957] And that is the market.

[958] That is where there is core fit with the Pinterest product.

[959] And I think it's had and probably will continue to have a very hard time expanding outside of that.

[960] All right.

[961] So that's our bare case.

[962] Let's talk how did the IPO go?

[963] So despite my pure burning hatred for this term, under corn.

[964] That's a terrible.

[965] Terrible, terrible term.

[966] They effectively had a down -round IPO.

[967] And let's talk about sort of flat -round, flat -round.

[968] Flat -round.

[969] Well, yes.

[970] Yeah, I think it was technically flat.

[971] The share price was lower, but because there were new shares issued, the end -market cap was higher.

[972] Okay.

[973] So this has happened before, and we covered it well on the Square episode, where it was so significant of a down -round of the IPO that it actually took, what, a year?

[974] more to climb back up to their last private valuation price.

[975] And so, you know, you saw people who had stock options at a strike price before the IPO, where then they actually had to wait years and years for that to recover from being underwater.

[976] So they actually had a compensation issue across the board at the company.

[977] That's not at all the case with Pinterest.

[978] Basically, you know, everyone is in the clear now.

[979] Now, of course, if you look and see that people bought shares at an $11 billion valuation four years ago, and it's at 13 now.

[980] That's not a phenomenal return like it is for any of these early investors.

[981] But I'm not sure that they could have done anything better.

[982] And I think it was probably smart of them to not try to make this an upround for vanity purposes.

[983] They obviously saw what happened with the aftermath of the Lyft IPO.

[984] And they swung the pendulum hard the other way in being conservative here.

[985] It's interesting to know that we have another data point here of the public markets valuing companies within range of where the private markets have been.

[986] And I think like there was a lot of fear coming into this wave of IPOs that those two things were going to be dramatically, dramatically different.

[987] It doesn't feel like they are.

[988] No. It feels like they were, they've been at the very least priced appropriately in the private markets, maybe appropriately a couple of years ahead of the curve, but not completely mispriced.

[989] So I do think that's actually a great segue into what would have happened otherwise in talking about, so why did they go public?

[990] Could they have not gone public?

[991] Could they have done a direct listing?

[992] One thing that I found really interesting was that they actually have $600 million of cash in the bank, and they've raised about a billion and a half over time.

[993] Their net operating loss right now after tax in 2017 was $126 million, and last year was 63 million.

[994] So, you know, they're trending toward profitability.

[995] They actually probably didn't need to raise any money in this IPO.

[996] Yeah, this is really puzzling to me. And we were talking about this before the show.

[997] So by those numbers, even if they maintain the same burn rate, which they won't because they're trending to profitability, assuming revenue keeps growing, they have years of runway still in the bank.

[998] Why did they just raise all this money and dilute themselves?

[999] This seems like a clear -cut case for me for doing a DPO.

[1000] Yeah, David, it does feel like they totally could have done a direct offering here.

[1001] I mean, they've got cash in the bank.

[1002] They're going to get profitable.

[1003] I do wonder, are they...

[1004] They have Leslie Kilgore on their board, you know, access to Barry McCarthy here.

[1005] And, and, you know, it's, that went well enough that we're hearing rumors Slack is going to do a direct listing here in the near future.

[1006] And so there could be two things going on.

[1007] One is they feel that their ability to raise cash right now is on really favorable terms.

[1008] so it's great to get that cash into the company for an unknown purpose.

[1009] The other is maybe they're gearing up for some serious spend and they're going to branch out into something that requires a lot of new cash the same way that Stitchfix used a lot of the cash from their IPO to actually start retail brands that are first party brands.

[1010] So, you know, I'm not sure that this international expansion is interesting because it's growing really fast from a user perspective because they actually started caring about that in 2016, whereas they were very domestically focused until then, but they're really not monetizing at any significance internationally.

[1011] So it could be to spend aggressively on bringing advertisers into their international funnel.

[1012] But it's honestly a little puzzling.

[1013] I agree as well.

[1014] This all would have had to be in the works long before the Lyft IPO.

[1015] But the only reason I can think of is just to be conservative as well and make sure things go well because DPO's are still relatively unproven.

[1016] But again, if you don't need the cash, which, to be clear, Lyft and Uber need the cash, and we'll talk about that on the Uber episode.

[1017] But if you don't need the cash, and companies have raised so much in the private markets, DPO really seems like the way to go.

[1018] There's no lockup period.

[1019] You're not diluting yourself.

[1020] You're not selling more at the company.

[1021] It has a lot of advantages.

[1022] You can tell I'm of the Barry McCarthy School of Thought here.

[1023] Yeah.

[1024] Well, you know, we've seen one DPO and here we are now asking, like we're looking at every deal going, why not DPO?

[1025] Why not DPO?

[1026] Why not DPO?

[1027] I mean, look, they did the standard thing and they did it pretty well.

[1028] And I think it's not like just because Spotify did it.

[1029] That's a thing that everyone feels like is a one of two options they can pursue now.

[1030] Yeah.

[1031] Yet.

[1032] Yet.

[1033] We'll see on Slack.

[1034] Okay.

[1035] So we move to our newly retitled next section.

[1036] Yes.

[1037] So David, tell us about this retitling.

[1038] Yeah.

[1039] So, okay, this is ordinarily where we would do tech themes.

[1040] But Ben and I were texting the other day.

[1041] And we love tech themes.

[1042] It's one of our favorite parts of the show.

[1043] But we realize that, like, it's actually something more than that.

[1044] And tech themes kind of sells it short.

[1045] So we're going to rename this section to Playbook.

[1046] And what's actually really interesting here is not just what themes in tech this particular company's story reflects, but what are like the actionable things that we can learn from this story that we can all put in our playbooks, you know, as operators, as investors?

[1047] And we think this will be really cool in a good way in the spirit of Pinterest to catalog all the things we're learning from this show over time.

[1048] Hey, you.

[1049] So we're going to, this is going to be our first experiment with Playbook.

[1050] Yep.

[1051] All right.

[1052] So we focused on this one, but I just want to highlight it.

[1053] What makes Pinterest different is a significant focus on building out infrastructure in the company ahead of growth in wild contrast to other unicorn cousins.

[1054] Yep.

[1055] I worry a little bit that people will take the wrong lesson from the surface level facts here, and this is one of the reasons we do this show.

[1056] You look at the way Pinterest has carried itself over the last 10 years, and then you look at the way, say, Uber or Lyft have carried themselves or Airbnb 2, and, like, there was definite craziness going on within those other companies, and their markets are so much bigger, and they will probably end up being bigger companies in the long run.

[1057] Pinterest, the market is smaller.

[1058] It's extremely well managed and will be a smaller company in the long run, but I feel like much better managed.

[1059] The lesson is not don't manage your company well.

[1060] The lesson is target big markets, one, and two, manage your company well such that you have the highest probability of succeeding within them.

[1061] Yep.

[1062] It's a great elaboration there.

[1063] another point that I wanted to I think this is really more a point of discussion and David we talked on the LP show about the downsides of being a tools business rather than a platform or a network or a marketplace.

[1064] Pinterest is kind of a tools business in that it's much more about me and maybe a handful of other people I'm sharing a board with and it's much less about communicating with other people seeing what other people are up to so it has has, I think, less significant network effects.

[1065] How do you juxtapose it sort of being a tools business, but competing for the very same advertisers that these, like, strong, strong network effect businesses are compared to for?

[1066] Yes.

[1067] Great.

[1068] Okay.

[1069] This is one of my entries in the playbook here.

[1070] You could debate on the network effects aspect and certainly social network effects in the way that Facebook, Instagram, you know, et cetera, have the.

[1071] Pinterest does not, but I think they do have a very strong flywheel.

[1072] We should do a whole LP episode where we've talked about this where we just nerd out on like what we think the differences are between network effects and flywheels and whatnot.

[1073] But the flywheel is users add content and pins to the site.

[1074] The more pins there are in the site, the more things there are that users, new users, and existing users get inspired by and then repin.

[1075] And so there's a super strong flywheel where as people come on and they add content that content drives more engagement from more users who add more content which drives more users within the segment of people who find this whole thing attractive even if it's not a super strong network effect you can still have a super strong fly yeah like i don't care i mean well maybe we should have an acquired pinboard so in that case i would care that you ben are on the service but if we don't have a reason to collaborate i don't care that like you or like any of my other friends are specifically around the service but i care that a lot of other people are, because then they're adding content, they care about the content.

[1076] Right, right.

[1077] And like, I don't mean to say there's not network effects.

[1078] I mean, you could imagine a way worse version of Pinterest, which is you can't discover anything that anybody else uploaded.

[1079] Like, there's not a business there.

[1080] Yeah.

[1081] Yeah.

[1082] So it's a tool, but the back end of that personal tool is powered by the incredible amount of data and work that everyone else on the platform is down.

[1083] What I think a lesson there is like an interesting one of to maybe modify the from our LP show with, you know, the lesson wasn't quite don't build tools, but it was like tools are limited.

[1084] But if you can figure out how to make a tool that gets better for users as more people are on the service, sort of like Jake was talking about on with his coaching network's thesis at emergence, that can create a powerful flywheel.

[1085] Yep.

[1086] Do you have more?

[1087] Nope, that's it.

[1088] Cool.

[1089] I had a couple real quick.

[1090] One, I was just struck in the history and facts, like, when we talked about it, 2008 and the recession and the Lehman Brothers collapse, like, these massive events that happen in the economy and socially can have, like, such opportunity, you know, even like recession.

[1091] And so, like, Airbnb, and again, we've talked about this before and we'll cover it in depth on when we do an episode on them someday, like what enabled Airbnb was the recession and specifically the housing crisis.

[1092] And same in a much less direct way, you know, led to the history that led to Pinterest and led to the history that led to Lyft.

[1093] Whenever these big events happen, it's always a good idea to just pick your head up and say, hmm, okay, what is this going to, what retilling of the soil is this going to enable now, both as an investor and thinking about starting companies?

[1094] The other thing I wanted to, that I think this story illustrates is just the power sometimes of just not stopping, you know, like Ben's story.

[1095] and Tote and Cold Brew Labs and Pinterest and, like, doing the business plan competition, you know, it would have been so easy to just give it up, you know?

[1096] And not stopping doesn't mean banging your head against a wall with something that isn't working.

[1097] It means not giving up on the idea of, like, building something, period.

[1098] Like, pivot what you're doing into something that's going to work and listen to users and find product market fit.

[1099] But just calling game over means literally game over.

[1100] Yeah, it's funny.

[1101] It reminds you of a great quote.

[1102] So Bo, Lou, the CEO of Future Advisor, spoke at one of the first startup weekends that I organized like a decade ago or something.

[1103] And I remember him saying, the way to succeed is to just never admit failure.

[1104] Like, as long as you don't shut down, you haven't lost.

[1105] And that's not fully true.

[1106] Like, that's a good way that you can have a, you know, small business that doesn't grow at all and just keep going.

[1107] But like, I think what you're saying is if what you're looking to do is build something big and impactful, as long as you don't give up and build in the direction of what could catch, it's unlikely that you will do that for your entire life and have something that never works.

[1108] So just keep trying.

[1109] And of course, I think it's that there's two versions of giving up or failing.

[1110] One version of it is what we are doing is not working.

[1111] We have failed at that.

[1112] We are going to give up doing that.

[1113] That's great.

[1114] Like when that's clearly, the case, like, you should do that and do that as soon as possible.

[1115] But don't do the other version of giving up, which is saying, and thus we are going to call game over and shut down the company and, like, go get jobs somewhere, you know?

[1116] As long as you still have the desire and the resources to keep going.

[1117] Like, keep going.

[1118] And there's tremendous value in keeping a team together.

[1119] You know, this is something I think that we realize at Pioneer Square Labs, the 25 of us that all sort of like systematically build companies over and over and over again is after you fail on a few things together or maybe even succeed on a few things together you know in your small group who's good at what you have norms and communication patterns and operations around how you work together and you get way more efficient at building together so if something didn't work like keeping the team together and keeping your processes intact and and keeping your knowledge of what each other's competencies are is hugely valuable.

[1120] And so I think for for anyone considering a pivot, I mean, it's, it's almost like, yeah, you bring some baggage when you pivot, but you bring far more value from being a team that knows how to work together.

[1121] Yeah, it's almost like the playbook is, if you think you need to pivot, you probably should have pivoted, you know, a month ago.

[1122] But if you're thinking about shutting down your company and you still have a team, me like and money in the bank or whatever resources you need to keep going, you should definitely not shut down your company.

[1123] Yep.

[1124] All right, grading.

[1125] So the way that we grade these IPOs is rather than issuing a grade, we discuss what a few years from now an A plus would look like versus, you know, say a C, D or F. David, I'll go first.

[1126] I think an A plus looks like cracking international monetization.

[1127] I think this company can continue to grow to become a $20, $30 billion market cap company over time if they can figure out how to continue growth internationally and how to monetize internationally like they do domestically.

[1128] I don't think it's a crazy playbook to do that, but I don't think there's a bigger success path than that.

[1129] Yeah, it's funny.

[1130] I was going to say, like, the A plus to me is they take this they yeah i think that's an a that's like an a minus to a the a plus is they take all this money they just raised in the IPO and they have some vision that they are keeping secret for now and ben isn't telling anyone yet about how they're going to expand the market here and they use these these resources whether through acquisition or or investment internally to do that that would be like yes that takes them to you know multi hundred billion dollar market cap company i think it's really hard like i have no idea what that vision would be so Um, so I think that's hard.

[1131] But yeah, so I, otherwise, I think the scenario you described is like super solid a minus to a. You know, there's a possibility that they won't be able to monetize internationally like they, they can with the US.

[1132] Um, or even that people start churning off of them because Instagram manages to launch something that that sort of leverages their really close relationship with users to get them to start using a Pinterest like experience.

[1133] Um, and you know, Facebook is a total shark at figuring out whether they have something there.

[1134] or not, and rolling it out broadly.

[1135] So my F there would be if, one, they can't monetize internationally or two, they get their legs cut out by Facebook.

[1136] You know, one thing that we didn't, usually we find these things when we do our research, but for whatever reason we didn't this time is, do you think Facebook ever tried to buy Pinterest or anybody else tried to buy Pinterest?

[1137] So Facebook did not, not that I found tried to buy Pinterest.

[1138] there actually was a story very early on in New York, where, yeah, Ben tried to encourage a magazine publisher to buy them.

[1139] This is back when they were to meet the founders.

[1140] Yeah, it was like 2010 or something.

[1141] Yeah, yeah, yeah, so that doesn't count.

[1142] But, yeah, I don't know if that's because nobody ever did try to buy Pinterest or their valuation grew so quickly or just like the company is so quiet and introverted that the stories never got told.

[1143] But this is a rarity in that there aren't.

[1144] stories like this out there.

[1145] It's kind of interesting to think about, could anyone buy them?

[1146] Maybe Facebook.

[1147] Yeah, I mean, their valuation is, you know, their $16 billion market cap company.

[1148] Of course, somebody could buy them.

[1149] Facebook could buy them.

[1150] Amazon could buy them.

[1151] Or I guess where would it make sense, yeah.

[1152] And also, like, culturally, you know, I think Pinterest would be very attractive to Facebook right now for lots of reasons, but could it work culturally within the company?

[1153] I think that'd be hard.

[1154] Yeah.

[1155] Well, I think Facebook needs to do something to change both public perception and retain employees.

[1156] So it wouldn't strike me to see Facebook do something dramatic soon.

[1157] And so the C -minus D case, I think, is that they have fully saturated monetization in the U .S. They can't monetize internationally.

[1158] And this is a break -even $700 million to a billion -dollar revenue business going forward.

[1159] Yeah.

[1160] And frankly, like, they just raised a bunch of cash.

[1161] Like, the way that we grade these acquisitions is when you acquire this asset, are you able to do something interesting with it?

[1162] You know, with this IPO, it's like they've just raised all this money.

[1163] What are they going to do with it?

[1164] So I think, you know, I'd like to see them take a shot on goal with that.

[1165] Seed IPOs.

[1166] Got to spend the money.

[1167] All right.

[1168] Should we move on to Carvouts?

[1169] Yeah, let's do it.

[1170] Mine is, I've done this podcast before, but there was, It's just an exceptional episode.

[1171] Invest Like the Best.

[1172] It's a great podcast.

[1173] So good.

[1174] Really good interview show.

[1175] Recently I had an episode with Eugene Way.

[1176] And Eugene wrote this great blog post Invisible Asymptotes, which shouldn't even call it.

[1177] It's an essay.

[1178] It's a half novel.

[1179] And Eugene is super brilliant.

[1180] And there's five or six very interesting takeaways from this Invest like the best episode.

[1181] My favorite of them is applying blockchain theory.

[1182] to social networks.

[1183] So if you think about what makes a blockchain work, there is proof of work and then there is a reward for doing that work.

[1184] And the reward is sort of synonymously the proof of work and a has an intrinsic value thing.

[1185] And that propagates out over a network.

[1186] And I had never thought before to use that paradigm to apply it to a social network.

[1187] And so when you do something like post on Instagram, you're doing a proof of work and you're putting up that picture.

[1188] That picture has, you know, value and you get likes and follows in exchange for doing that work.

[1189] And the people who are the most successful on that platform are the people who are able to work within the constraints of that social media to basically do the most interesting thing within those constraints.

[1190] And a successful social network happens when you are able to create a format that where that proof of work is extremely variable.

[1191] So the, the breadth of skill is you can do really crappy things with it and you can also do amazing, wonderful things with it.

[1192] And also that the perception of the value of the proof of work is variable.

[1193] And so it's not everybody agrees that that is the best picture.

[1194] And everybody can sort of have a different interpretation of what high quality is.

[1195] And a new social network can emerge when there is a tool set to do that proof of work, to make that profile, to do that image, whatever it is, that enables, and of course I am, Eugene says it much more eloquently.

[1196] I'm only even trying to follow along because of my respect for you and Eugene.

[1197] Otherwise, you would have lost me at blockchain.

[1198] Sorry.

[1199] Well, anyway, suffice to say, it's interesting fodder, if you're thinking about how do new social paradigms emerge and what creates explosive growth social network and what doesn't.

[1200] And I think the comparison to blockchain is a, uh, um, a metaphor it's an interesting framework yeah yeah so great so great Patrick does an awesome job with the invests like the best podcast and I love it if if you're an acquired listener who doesn't listen to that yet you definitely are going to love it too so add it to your your playlist okay mine is well first I want to underscore Ben your carve out on the Lyft IPO episode Bill Gurley's talk about running down a dream and finding and succeeding in a career you love.

[1201] I did run, not walk to go watch it.

[1202] And it is so good.

[1203] I sent it to so many friends.

[1204] Like, so great.

[1205] I just have so much respect for Bill and, uh, every dimension.

[1206] But, um, so cool of him to like do this talk.

[1207] Go do it at his alma mater at UT.

[1208] It's really inspiring no matter where you are in your career.

[1209] So I would definitely want to underscore if you haven't watched that yet, go watch it.

[1210] But my, my carve up for the week is, uh, similar to somebody who has found a career that he loves and is succeeding at it is Alex Rodriguez.

[1211] Arod.

[1212] Arod's interviews on ESPN and on YouTube are so good.

[1213] I just love watching them.

[1214] Whatever you think about Arod, the baseball player, like Arod, the post -career, you know, video and television journalist and interviewer is amazing.

[1215] He's so smart.

[1216] He's so dedicated to, was so dedicated to his craft of playing baseball and hitting and now to being an interviewer and just like watching him nerd out with with other people who are also dedicated to their craft is is great so every interview is great uh one of my favorites is his interview with uh astro center fielder george springer um so we'll link to that he also has a great one with young carlos stanton at the yankees and um but you can't go wrong watch sir j rod on youtube you'll you'll you'll enjoy yourself thanks david our sponsor for this episode is a brand new one for us.

[1217] Statsig.

[1218] So many of you reached out to them after hearing their CEO, Vij, on ACQ2, that we are partnering with them as a sponsor of Acquired.

[1219] Yeah, for those of you who haven't listened, Vijay's story is amazing.

[1220] Before founding Statsig, VJ spent 10 years at Facebook where he led the development of their mobile app ad product, which, as you all know, went on to become a huge part of their business.

[1221] He also, had a front row seat to all of the incredible product engineering tools that let Facebook continuously experiment and roll out product features to billions of users around the world.

[1222] Yep.

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[1226] So what does that actually mean?

[1227] It lets you tie a new feature that you just shipped to a core metric in your business and then instantly know if it made a difference or not in how your customers use your product.

[1228] It's super cool.

[1229] Statsig lets you make actual data -driven decisions about product changes, test them with different user groups around the world, and get statistically accurate reporting on the impact.

[1230] Act.

[1231] Customers include Notion, Brex, OpenAI, FlipCart, Figma, Microsoft, and Cruise Automation.

[1232] There are, like, so many more that we could name.

[1233] I mean, I'm looking at the list, Plex and Versel, friends of the show at Rec Room, Vanta.

[1234] They, like, literally have hundreds of customers now.

[1235] Also, Statsig is a great platform for rolling out and testing AI product features.

[1236] So for anyone who's used Notion's awesome, generative AI features and watched how fast that product has evolved, all of the that was managed with Statsig.

[1237] Yep.

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[1239] They can now ingest data from data warehouses.

[1240] So it works with your company's data wherever it's stored so you can quickly get started no matter how your feature flagging is set up today.

[1241] You don't even have to migrate from any current solution you might have.

[1242] We're pumped to be working with them.

[1243] You can click the link in the show notes or go on over to Statsig .com to get started.

[1244] And when you do, just tell them that you heard about them from Ben and David here on Acquired.

[1245] Well, listeners, if you aren't subscribed and you like what you hear, you should subscribe.

[1246] We'll be gloriously covering all of the big upcoming IPOs.

[1247] And if you want to go deeper on what it's like to build a startup, get interviews with expert operators and VCs, and explore some of my personal beliefs, and I know David's as well, you should become a limited partner.

[1248] You can go to glow .fm slash acquired.

[1249] Seriously, I promise you'll be overjoyed with how buttery smooth it is to get more acquired right here in your favorite podcast player.

[1250] And as of today, everyone starts with a free seven -day trial.

[1251] And with that, we will see you next time.

[1252] Yeah.