Rich People's Tax Credit Scheme, Harvard's Healthy Finances & My9

28:32$600 basically. So$600 million market cap company. and I believe, he can confirm or deny this, but I believe less than$10 million of total equity was put in. So how much cash did it take to start this business? And most businesses don't take a ton of cash, but this is an acquisition-based company. So they were acquiring companies. And so I think less than$10 million of seed capital was put in. I could be wrong on that. And the seed capital came from the profits of the agency. So in reality, it's like he started this as an 18 year old or 19 year old. He said he was working as a barista in the papers.

29:10It has the stories like I was working at a, as a coffee shop person. And then I started doing this on the side and it just, we just kept going. And so the takeaway here is like simple shit. It's, it's hard, but it's simple. But for since 2007 or something like that. Amazing. Honestly, kind of honestly, it's amazing. And congrats. It's amazing. Congrats to our buddy, Andrew for going public. That's a big deal. You know, that's a decade plus of hard work, 15 years plus of hard work to get there. So, you know, kind of amazing for him. I love that. Any other takeaways you have? No, those are the main ones.

29:46You know, I think, you know, one other thing that Chris, his business partner, had told me at dinner was, I think I might've already shared this in the pod, but he said when he got hired and he met Chris at a bank, Chris was a banker, literally like a branch. Like a bank teller. Yeah, like at a branch. they met Chris and they hit it off about cars they were talking about cars because Andrew had rolled up in a cool looking car and Chris was into it or whatever so they hit it off, they end up talking for a little while he's like, what's your story, what are you doing? he's like, oh I'm starting to get my CPA license I'm going to be a finance person or accountant or whatever and Andrew's like, awesome, I need help my business MetaLab is just getting off the ground it's working pretty well but we're super disorganized come work with me and Chris takes the leap of faith, goes to work with him And he says that on day one, he's like, I showed up at the office and there's nobody there.

30:37Like Andrew's not there. Nobody's answering the door. And then Andrew pulls up in his Uber or whatever, his car. I guess there's no Uber back then. But pulls up in a car or taxi, hops out, and he's like, opens the trunk, takes out this giant box full of paper. He's like, here, here's all of our numbers, fat angels. Like, this is where it's at. make sense of this and help us get organized. He hands him this huge box. He's like, oh, by the way, I got to go, so I'm not going to be able to train you right now. And there's no room in the office for you. So I talked to my neighbor. They have a basement.

31:10You can sit at their desk in there and he's like, just knock on the door and tell them you're the guy and then they'll let you into the basement desk or something. So he tells the story, how he started, whatever. Gets it organized. As they're looking at it, they're like, all right, you have a very profitable agency. what do we do with these profits? We're just going to accrue them? That doesn't seem very good. And they're like, well, what do other agencies do? And they're like, they looked around, I see other agencies like, all of a sudden there's a giant ball pit in the office, there's a basketball court, they're flying fancy everywhere, they're hosting just basically spending money on status stuff or appearances.

31:47And he's like, we shouldn't do that, that doesn't seem to have any ROI. right? Like adding the ball pit to the office doesn't, yeah, it makes it more fun, but like, I don't think that's the best use of money. What if we just thought of ourselves like a really profitable law firm? And like, you know, what if we were a boring business? What would we do with this money? Well, we would just go try to find a place to reinvest this. What if we take this business? That's okay. Agencies aren't the best business, but we use it to buy better businesses. And then that was kind of like the conversation that they had.

32:14And that's when they started going out and acquiring other businesses, using the profits from MetaLab. But there's two, or there's one part of that story that you're missing. And this is because it's probably not fun for them to tell, but they will tell it because they blog about it, which is they actually started other things. So they did the same things that we make fun of and that we've done as well. They started a to-do list. It was called Flow. And he said he spent like$400 ,000 or$500 ,000 or maybe even close to a million, a lot of money of the profits. And they created this thing, which was basically like Asana, but different.

32:44And he goes, Asana crushed us because they spent way more money. And then they started, I think, one or two other things. I think another thing called Ballpark. So they actually started things right away and it failed. And then they go, yeah, let's just buy that. And that's what they did. And they still start things like Supercast or he's got a bunch of different ideas that he's started since. But if you just look at them in the grand scheme of things, it's almost like a big company, right? It's like they have the innovator's dilemma. It's like, this business is at 1 million in revenue in nine months.

33:11It's like, cool, who cares? That's 1%. It didn't move the needle this year. It probably took a lot of creative energy and recruiting and promoting to get to that level. So you have a tough thing where you enjoy starting new things. So you want to do it, you keep having new ideas, but it's hard for those new things to really break out and make a difference. And most new things generally will fail or not go exactly to plan either. So it's a tough balance, I think, to have. And I know what they paid for Dribbble. And do you think, I think you know too, but we can't say it. Do you think that you can buy companies like this?

33:49Like, is this one of those things like, you know, or am I just being a noob here where people say, oh, you can't start a newsletter now. There's too many newsletters. I'm like, no, that's not true. But do you, what do you think about the competition now to buy companies versus 10 years ago? Yeah, certainly more, but there's also more supply, right? Like the number of like interesting, you know, interesting internet companies in 2007 versus 2023 is going to be obviously like many fold more because the internet has just become so dominant there's so many businesses that are successful so many playbooks of how to build a good sass business or a good marketplace or whatever having said that there's probably the type of business where you make one good decision one good deal a year or two good deals a year and that was a great year and um that i think that speed is just very hard for most entrepreneurial people to go at right well yeah i agree with what you said this is pretty inspiring and awesome so that's the lowdown on tiny good stuff um can we talk about i see you have harvard's revenue on here i have an interesting story about harvard's revenues i want to hear your take yeah i was doing some friday night research and uh as one does yeah i got to thinking how much money is harvard making I'd like to tell you some things about Harvard.

35:04So Harvard is this thing that if you really like zoom out or you're like an alien and you're looking down at Harvard and you're like, what is that thing on the map? Not be you, the other one. What's over there in Boston? What you would see is basically some combination of a church, a hedge fund, and a luxury daycare. And I'd like to tell you about each of those components and how Harvard is basically this multi-billion dollar tax-free juggernaut. All right. There's a lot of taxes in this episode. Yeah. All right. Buckle up. Okay. So how is it a church? Well, universities are tax-exempt. So they don't pay taxes.

35:45They don't pay it on donations. They don't pay it on tuition, room and board, or even capital gains from their hedge fund, which is the second part. So they have an endowment that's about$50 billion that they invest across a wide portfolio. I'll tell you their portfolio in a second. So they got a$50 billion hedge fund. They're tax exempt on the gains from the hedge fund plus all the revenue from their students. Well, I should say revenue from their luxury daycare because parents will pay$50 ,000, $60 ,000,$70 ,000 a year to send their child to this place for four years. And so they take your kids off your hand for four years and they say they're going to come out in a better place.

36:19And so here's some of the numbers around this mashup juggernaut. Last year, $5.8 billion in total revenue. $2 billion of that comes from the profits of their endowment. Hell of a year for them. Actually, this wasn't last year. This was, I think, 2021. So two years ago. So$5.8 billion in total revenue,$2 billion from their endowment,$1.2 billion from education. So what that means is 80 % of the revenue is coming from not education. That's the other way to look at that. So where does the rest come from? So they have the endowment. You have a billion dollars of grants. So the government funding research for their professors, 500 million of donations, and 300 million from something you'll know pretty well, which is their publishing arm.

37:04I can tell you all about that. Their in-house media company. So a couple observations here. The school earns more revenue than both Twitter and Snapchat. Twitter's at 5 billion. Snapchat's 4.6 billion. Harvard has more revenue than both of them. And it's been doing that since, when was Harvard created? Harvard's like 100 plus years old, I think. And so it's been doing that forever. Not forever, but for a very long time. Amazing business, right? The publishing arm makes$300 million just selling case studies to other business schools and publishing the HBR, the Review Journal, which is basically a really fancy paid sub stack.

37:38It's got 350 ,000 subscribers who pay for the HBR, the Harvard Business Review. But the majority of that revenue, I think, I can try to find it, but I studied this a lot. I think that a lot of the... So if you go to Harvard Business School, they release all their... They break it out. They break it all out. And so if I read it here, so 34 % of the... So their revenue actually went down. In 2019, it was$900 million. In 2021, it was$800. So 34 % of that is whatever you said, $300. It comes from publishing. The next thing down is 14 % came from tuition. And of the 34 % for publishing. Most of it is from selling.

38:14I think it's like they've sold like they sell like 5 million case studies a year. To other business schools. Yeah. Which is insane. It's a lot. And the Harvard Business Review has a lot of revenue from international. So here's the other kind of like dirty secret from Harvard, which is that they make a ton of money off of executive education,$464 million. So almost like not quite half, but like, you know, almost half of the money they make from their degree, their actual school, they make on executive education, which is Basically, you pay to get professional development credits, aka you get to put Harvard on your resume without actually having a Harvard degree.

38:47If you go to Tyra Banks, you remember Tyra Banks? Of course. The model? If you go to... Yeah, that's right. Big T, for sure. If you go to her LinkedIn, it says Harvard Business School. And then you got to scroll down and you'll see parentheses and you'll say extension. Uh, it's a very classic technique, right? My cousin did this. He went there and I was like, whoa, you're going to Harvard. He's like, I'm going to a, I'm taking classes at Harvard. He's like, yeah, I'm taking classes at Harvard. So you, you got into Harvard. Uh, yeah, you know, like, sure. I got into the executive education program at Harvard and, uh, and he's like, yeah, like, you know, on my resume, it says Harvard.

39:40and he's like, you know, one out of three people understand what it is and two out of three don't. I like my odds. Yeah, statistics are the classy time. International arm. Their international revenue is up like 80 % because they're selling the business review over there. They're selling executive education. Come on, come to America. Come to the best part of America. Come to the Louis Vuitton of education. So basically, you got billions in revenue, zero taxes owed, huge barrier to entry, a brand that's lasted over a century, The government loans your customers money and gives you grants for your R &D.

40:15Like, what a business. Dude, that's absolutely crazy. And a lot of people don't realize this. And to put these numbers in perspective, let's just say that... So you said their endowment. I'm just doing all this math right here. So I might be off, but I bet you if we Google it, this will be true. If their endowment is 50... You're not doing public math, are you? Well, yeah, I am. Sorry. But if they're in debt... But it might be wrong. If their endowment is$55 billion and their expenses some years, I just Google it right now, is around$5 billion. That means theoretically there are some years that they can pay or charge their students zero tuition and pay for everything still.

40:55The way that the endowment works is it's a$50 billion issue endowment. And the plan is they distribute 5 % of it a year. So 5 % of it a year is used, but the rule is this endowment needs to last forever. So they're only going to distribute 5 % because they need the other 95 % to stay in and keep rolling. And in 2022, when my portfolio was down like 45%, they lost 1.8%. Well, they're doing it right, right? Goddamn fervor geniuses. Somehow lost only less than 2 % when the whole market has been terrible this year. Here's their portfolio, by the way. 3 % cash, 32 % into hedge funds, which headphones doesn't say it doesn't say which ones now 44 in a private equity plus venture capital but most of it's private equity so what do they buy so that's the bulk of it um and then there's six percent real estate three percent bonds five percent treasuries and six percent foreign equities okay so what's this private equity stuff all right does that mean they're in actual p.e.

41:50like like blackstone black rock or whatever black rock wow dude this is like a circle jerk to the max everyone's hands full on this one this is crazy right because yeah because you if you think about it like if i look up where the hedge fund guys went i bet you know 70 of them went to harvard i mean this is just it's pretty it's a very circular thing going on here it's pretty wild like it it is it's i would say it's almost corrupt and if you think about 50 billion a 50 billion dollar endowment that's bigger than i than i would imagine 95 % of countries GOP. I mean, it's like, that's massive. GOP?

42:30Sorry, GOP. GOP, that's the, what's that, the Republicans? What's the, GDP. Yeah. And yeah, we think these VC funds like Sequoia and Andreessen are really big. I don't know what Andreessen's total AUM is, but I'm guessing it's between 10 and 15 billion. It ain't 50. yeah yeah exactly 50 billion and they're i think i mean they're they're okay they're now at 35 they've been scaling it up like crazy but that's our full-time job it is more that's their thing you know what i mean yeah that's their thing this is just like you know i i would imagine there was a i forget what i was watching but there was some show where it was like a lot of people don't realize this but like venture capital and pe like the biggest when people i i always hated when people celebrated a venture capital company going bust like uh what was that one guy who uh the disney guy who went started uh the thing that quibi you know it raised like billions of dollars and went and it went bust what a lot of people don't realize is this money for so the money that is given to andreason horowitz into this and that it comes from the universities it also comes from the california's teachers pension plan or the the police pension plan or firefighters or and like you'll like I think if I remember correctly I believe like Nevada for some reason I think it was like the state of Nevada for their pension plan for government government workers something like that had one of the best uh returns and they were basically like one dorky guy and he's pretty much just like Warren Buffett you know he has a similar style or um a similar budget where he has all this money and he just would sit in this office and except unlike Warren Buffett he's getting paid by the state and so there was a story about how he was making you know a nice amount of money a year but he would bring brown paper bag lunch and he just drove a four he's on windows 95 yeah yeah and he's like look i'm on the and and this guy was like a fiduciary of fiduciaries where he was like i don't waste taxpayer money and because of that i read all this stuff i very rarely make big bets and but when i do it fucking crushes it and so like these guys yeah he's he's great and he's like and so anyway it's just like these guys making these decisions, they're just government workers in a way, but they're making, they're basically mini Warren Buffett's.

44:43And so it's really fascinating, like the world of these like endowments and these pensions. I met a guy once who worked for Alaska's permanent fund. I don't know if you know about this. They have 79 billion in assets under management. So Alaska has all this money from the oil stuff or whatever. And then they give everybody who lives in Alaska, like three grand a year or something like that, which is basically like, well, you know, when people were talking about universal income, they're like, oh, that sounds crazy. I'm like, you know, they do that in Alaska. I think you get 15 grand a year if you live in Alaska.

45:08Right. Yeah, I don't know. I thought it was like maybe three or four, but yeah, maybe it's more. But yeah, and then I met a guy who manages that money and he's just like... What was he like? He wasn't the main principal, but he was a guy who worked there and he was like, he was at the farming conference and I was like, what are you doing here? And he's like, I'm looking for, you know, intelligence and investments. Farmland is a great investment. I was like, wow, good for you. This is, you know, Who would have thought this guy's managing way more money or these people manage way more money than like the famous kind of hedge funds or venture capitalists that you hear a lot about?

45:43Dude, I wonder if this topic is interesting. Ben, let me know in the Slack because I like I'm geeking out on this stuff. I found this to be crazy fascinating. So he's typing now. You want to do one more thing? Yeah, let's do one more. I have a quick idea. My nine. My nine. Okay, so. Sounds a little bit sick. Last 24 hours. You have a great haircut, by the way, though. I really like the uptown fade. You got, you know, high fade. It's the uptown fade with the downtown brow.

46:15I don't know what that means. I just wanted to say something cool. It looks good. You look sharp. Have you been, how much weight have you lost in the past three years? I think I've gained weight in the last three years. I just changed the composition. Like I put on a lot of muscle, too much muscle in a way that's like not good. like not like it's like i'm not neither a bodybuilder nor am i ripped i'm just thick and thick is like i don't know anybody who puts thick on their vision board like some people do i mean look at your your right arm right now or something dude your right arm right now i definitely hit you with a little i definitely see tricep yes i see a great teardrop man that's a that you got a good tricep muscle that's my uh what do you call it like your your highlight your keystone asset that's my case don't answer your tries thank god it's in the zoom view imagine if my quads were what was good i'd just be wasting it every day welcome to my life my friend yeah you should make an excuse to stand up every day every every episode just to you know flex on them a little bit quadzilla no you look good you definitely look svelte uh and people in the comments are saying it but sorry go ahead uh well i mean that was great uh anytime anytime you want to take that tangent and we can go there.

47:25All right, so I was in a fever and I had a little fever dream. I thought of an idea that I'm pretty sure would go viral. I'm not going to do it, but you know our friend Nikita who has created the same app twice and sold it twice to the same to similarly stupid tech companies that didn't realize it's like just like a nothing app? Oh, you're talking about Nikita the asshole beer? That's his nickname, right?

47:54That's his official name, right? For those of you who don't know, very true. We call him D.B. Cooper, but it just stands for douchebag Cooper.

48:04Yeah, I know Nikita the asshole beer. Yeah, the funny thing is he's got this persona online of being kind of like a shit poster and kind of a shithead. But usually when you meet those people, if you ever meet somebody like that, you're like, what are they like? It's like, dude, total sweetheart. Love that guy. Totally not like you see online. No. you know how like you know it's a very common thing where you're like oh you know sean you know sam whatever oh yeah great guy great guy i don't know if that knows that phrase may not be used with him is he getting great guy he's not getting great guy yeah yeah he's more of a he doesn't get a wow he gets a wow you know what i mean that that's him so anyways the genius of what he's done because undeniably created uh you know these like really viral teen apps is his app works as follows you download the app you take a quiz that says who in your school or who in your contact is most likely to whatever and they try to figure out in your context who you talk to the most or whatever so that they could surface maybe the right person in a multiple choice so that you you say sam is is the guy who i'd want to bail me out of jail and at the end of the thing it's like wow those are awesome do you want to know what sam says about you and you're like yeah for sure and basically it texts you in the background and it's like sam someone said that you would be the most likely person to bail them out of jail do you want to see who and you're like of course click download you take the quiz and that's the viral loop do you remember back in the i think i have another one of these uh do you remember back in the day the myspace top top eight i think it was called it was like uh was that like who was in your top eight friends yeah you just got i mean this was this was like a pretty wild concept to be honest with you just put on your profile, yo, these are my top eight friends in order.

49:47Which is like, I don't know. Today, that'd be considered like, you know, bullying to the 10th degree. Well, you know, I think where that came from was like, do you remember blog rules? Or it was like, if you would go to a blog and it would say like, here's who else. Yeah, on the right hand side, you would list like eight other blogs that were similar to you that you were friends with, which by the way, I thought was awesome. I always like, I go to, I try to find, whenever I read blogs. Yeah, it's a great way to discover things. Yeah, I love doing that. And then a lot of people don't know this, but Tony Hsieh, the founder of Zappos, he created...

50:17What was it called? It was called MediaLink, I think. And it basically went from zero to a$400 million acquisition. And all they did, I think, originally... It was called Linky Exchange, is what it was called. They helped broker the deals where eventually it was a pay-to-play for the blog rolls, which is the things on the side. And I think that is where MySpace got this idea of, here's my top eight or whatever. Like here's the people I, to help you discover new people. Right. And, you know, Tom from MySpace would always be your, your automatic number one when you start and then you have to fill in your friends.

50:50And it was this awesome thing. You could go to someone's profile and you could be like, oh, they're best friends with this person. Oh, this girl moved to number one. Maybe they're dating. It was like this little, like this like signaling thing. And it was cool to be, it was felt so good to be in someone's top eight and it felt so bad to be out of someone's top eight. So, but it lets you know where you stand. And there's something I really appreciate about that. So I think you can recreate that now with something I'm calling my nine. And what my nine is, you download this app and it just says, who are your nine people?

51:17Who are you rocking with? And you just designate, of my context, these are my nine. And it lets you publish that as a photo to Instagram or as a video onto TikTok or whatever. It just lets you share that out. Just saying, hey, here's my nine. And you tag them and it texts them also from your phone. And somebody puts you in their my nine. Do you want to see who? And of course, you're going to download. Of course, you're going to sign up to see who you're going to connect your address book. And then you're going to select your nine and you'll reciprocate because that's what people do. And so I think this would also go super viral because I think it just has those like human psychology triggers where if you've got that message, you got to know who did it.

51:54And then when you're there, you'll do it too, because it's kind of fun, like a little personality quiz. And then that triggers the next nine invites that go out. And nine invites is enough to go viral. So like, even if you have a 15 % conversion rate, on which this would have like more like 40 % probably, you will, by definition, your K factor will be over one. You will go viral. Dude, I always wanted that for when I die. You know, like my nine for when I die. My die. My die. So like, I've always wondered like, if I die, how is anyone going to know? Because like when you, I imagine, this sounds douchey.

52:28On your tombstone, just here's my nine friends. Top nine friends. I don't know. again, I'm going to preface this. It sounds douchey. But when you start having a little bit of something, you eventually you have so many different accounts. And like, there's companies that I've invested in. And I fucking forgot. When I when I sold the hustle, we there's this one guy, he what was his name? Jonah, he started moat.com. And he sold it for like a billion dollars. He's just a rich guy. And he gave me very little money, enough that like, he probably makes that a day in interest. And when we sold, it took me a year to get in contact with him.

53:00I swear to God, it took the lawyers were like dude we cannot get in touch with this guy like his because he sold his company so it's and like he just we can't get in touch with him we don't know how to we have to give him his money but he's owed money it's just sitting here and i'm not close to that but there are some investments that i've made that i've forgotten about and i've always wondered like if i die how is anyone in my family gonna know like who get like where the stuff is or if they're who are they gonna contact my like is there like a like a like a like a next of kin like checklist.

53:31You know what I mean? And it changes all the time, too. So even if you wrote it down once, this is going to change. I actually don't know how this works when you die. How do they discover all your assets, especially now with like crypto or angel investing? I don't know. Discover all this stuff. And who are they going to know what to contact? Because particularly with crypto, it's a lot of single young guys. Like who's like the next the next of kin for that? I have no idea. You know, there was I do watch Succession. Hey, this is producer Ben. Quick note. Sam is about to drop a massive spoiler for the HBO series Succession.

53:58so if you plan on watching it and you're not all the way caught up skip ahead like two minutes enjoy they're like he he just left everything to this emoji yeah dude on on succession it's like a you know the thing it's basically rubert murdoch's family and the the rubert murdoch character dies and they find his will and he wrote it in pencil but they and they there's this part where he's giving stuff the company to his son and they can't determine if he's crossing it is yeah well no they couldn't determine is he crossing out the guy's name or underlining the guy's name because he like it was like a crooked line they're like is he crossing it out or underlining we don't really know what that is but i thought about that i'm like when i die if i die and my wife dies at the same time let's say we don't have kids whatever i'm like how are they who are they gonna know to contact it like they gotta figure out where my mother lives like it just seems like an ordeal you're gonna have a really rich dog yeah i guess uh so they need my nine but like that's like now like you took this in terms of like a uh a trust and will solution yeah my teenage viral app idea yeah my nine probate is what it's called that it's just like you really uh yes and did that one he went full improv kid on that one and took it to an holy place dude i've just been thinking about that have you not thought about that because like there's some shit that you've probably done it could be small like every once in a while like just do a deal like i'll just invest like five grand into something and i don't tell anyone about it like you know you and i you and i were joking five grand is about the limit where you like tell your spouse that you're doing it and like you know there's been things that i've done like oh i don't even fucking remember and i guess there's a scratch-off ticket that i won somewhere i have no idea dude um yes i've thought about that especially with crypto but then when crypto crashed i was like hey never mind forget forget forget what i told you it doesn't matter anymore you know those instructions i told you about how like you know it's written on this fireproof you know platinum card that's stored in this safe in this foreign country yeah forget about it you don't need to go retrieve it anymore particularly with crypto it seems crazy um so i need my nine but for my will god damn okay fair enough i guess that's the pot did i i meant to be a yes man on that one by the way not uh not uh yeah you did all right good that's good all right uh is that the pod that's the pod

56:46All right, this episode is brought to you by Mercury. They are the finance platform of choice for over 200 ,000 companies. Shouldn't be surprised because I use it myself for not one, not two, but I have eight different Mercury accounts. I have seven for different companies that I'm a part of, and then I have my own personal account because now they have personal banking, which is a really cool feature. I highly, highly recommend it. Like I said, I use it myself. And the reason why is because the way that Mercury works is beautiful. It's very intuitive. And you can tell that it's actually made by a startup founder.

57:14It's an entrepreneur. You can tell it's made by somebody who used other banking products in the past and didn't like all the different rough edges and annoyances and decided to actually fix it himself. And really, any type of entrepreneur you are, let's say you're an agency, well, one of the things every agency has to do is be able to send invoices, easily create them, send them to customers, and stay current on your balances with all your customers. Well, you can do that inside Mercury. And so I think that Mercury is great. Highly recommend you check it out. And thank you for sponsoring the show.

57:39For more information, check out Mercury.com. Mercury is a financial technology company, not a bank. Check show notes for details.