ASX 20 Bubble, Jumbo Deep Dive, Fyxer, Halloween and Jordy from Great Wrap

24:18They do disclose one KPI, though. Not this year, but in previous years they've disclosed it, which is the main KPI's speed of deployment of capital. That means how fast can we push the money out of the door? Then I looked at their, I just want to say this, I looked at their profit and loss statement. I went through this same process a year ago, and I was talking to Four Corners, I think. Oh, you talked to Four Corners? Yeah, yeah. I didn't want to go on camera for Four Corners. Oh, really? I should have. Well, that jacket, I would have blown the socks off everyone. I didn't have it. And so maybe I would have had it.

24:46But anyway, it's the same story. They've got this profit and loss statement, income statement, and people say they lost money, right? They lost$5 million. But the thing is this. It's not a real income statement. Like the expenses are real. That's money. You know what the income is? They've got$350 million of cash sitting in the bank from the government, and that's the interest they're earning on the cash. Now, think about this. It's obviously out-cash. It could be taxpayers could be earning that interest directly. It's much worse than being out-cash. Think about this more logically. This state runs at deficits.

25:18It has huge debt. Where's that cash from? Huge generations. It's borrowed money. Yeah, the huge generation have to repay at some point. It's borrowed. So they've gone to someone and said, we want to borrow$350 million as part of a much bigger borrowing at an X interest rate and we're going to put it in the bank at some interest rate lower than X. We're making a negative return on borrowed cash on behalf of the Victorian taxpayer. These people are... It's actually... It would be more infuriating if it wasn't as dumb as this. They're criminally inept. But it's pretty infuriating, right? It's just...

25:50It's what happens when any government is in power too long. Like, is it Labour, Liberal, whatever? Like, you put any of these lunatics in power for too long and Dan Andrews is a classic example. I agree with you. I agree with you. Like, you know, it's too long in power. But also, like, this Breakthrough Victoria, this is like, it's pretty much, if they would have sold it the right way, it was a smoking gun. Should I tell you what I told Matthew Guy to do before the last election? Oh, which time? I haven't ever spoken about this. So I was quite involved in some policy stuff with him, which was never going to go great, to be honest.

26:23And so it makes you feel better. and nothing I suggested was to. I think one thing was used. But I said, go and say that you're going to get the breakthrough of Victoria money and you're going to give it to taxpayers as a cost of, because remember it was high inflation, as a cost of living bonus, which is hopeless, right? It's basically buying votes. But welcome to the game, right? And I thought this was like this smoking gun, John Brumby run, totally dodgy. And like the opposition has been nowhere on this breakthrough. This is hopeless stuff. It happens in everything. I've no great want to go into politics but I would just love to just like every day be bagging the hell out of this government like getting it it's the easiest job in the world they're so inept I think I'll go into politics but I'll do what about the pod?

27:06I know it's going to well it might get more listeners no time soon no time soon but like it might be brief right because the people are very nasty to politicians and also politics it's horrible the way people treat each other in politics is so bad my friend Georgie who does he runs an amazing business at the South Melbourne market she ran for I think we told her she ran for Albert Park in the state contest last time and didn't credit she got like 12 % of the vote as an independent who only came super late it was an unbelievable effort I think she's actually a decent chance at getting up so hopefully she does next time she's a genuine independent who will be amazing because she just knows how to do stuff in the Senate no you mean in the lower house the legislative council whatever they don't call it the Senate that's right MLA, MLC whatever it is Yeah.

27:52Just a couple of quick things I've got. One is, do you see there was an IPO of a business formerly known as Trip Action, now called Nevan? Is that on your run sheet? Just skip this. This is the deep dive on the run sheet. That's your deep dive? Yes. Oh, I know a lot about that business. Oh, great. Well, perfect. You've done some research. Oh, you're going to be happy about this. Well, I didn't. I wouldn't say research. You've just been given a sneak preview of our first deep dive presented by our partners at Terram Capital. So we'll get into that shortly. Is that what? Oh, okay. Well, that's good.

28:16Scott's are. All right. Let me try and figure something else out that's not on the run sheet. How about this? Mike will like this. I mean, this podcast is nothing if not professional. Is there anything else on the run sheet that you want to preempt? No, I just want to say, since the attack has turned on me, let's flip this and say, I was talking to someone this week who said, you know, it is quite crazy that Adam went and got a quiz and printed it out. And it wasn't even legible for him to be able to read the quiz. And if it wasn't so funny, it would have been crazy. And I said the same thing.

28:45That's professionalism. At least you know that we're authentic on this podcast. All right. I should have actually looked at the printout before I printed it. It was fine. Then I printed it out. You think so? I mean, that would be one approach. Okay. Here's something Mike's going to like. You know there's been a big change in the economy around Counter-Strike this week? No, I don't know. You don't know what that was? This is a computer game. Yeah. So Counter-Strike is a game by Valve, is it not? Yeah. Who is Steam. Steam, yeah. So that was one of their early games. It's like a... Call of Duty type thing?

29:21It got really popular because it's a multiplayer shooter. It's actually a mod for another game. Wolfenstein, the first ever shooter that you claim wasn't. Like Wolfenstein, yes. We can go back to that era. It's like Wolfenstein. But, well, you don't mean like Wolfenstein. You mean like Wolfenstein 3D. Do you know what it was a mod of? Is it Half-Life? Yes, exactly. It's a Half-Life mod. And so it's still huge on servers. And so they've got an economy around this game. Like skins and stuff? Exactly, skins. And so what they did during the week is, so this is what happens when you have digital goods and they're being produced by a monopoly provider of the digital goods who owns the game and the goods.

30:05They basically changed what is rare and not rare in the game. And so all of a sudden the entire skins economy went bananas. Things that were worth$1 ,000 were now worth$100 and vice versa. Sounds like Amex. And it is pretty interesting that you have these economies developing and they feel like free markets, but they're not really free markets because unlike the regular economy, God is very visible in these markets and when God makes a decision that there's going to be a different number of resources or a different mix of what's rare, it totally upends the economy. and so it's a pretty fascinating case study in these types of things because they're becoming more popular, right?

30:49Digital goods. So I thought that was an interesting story this week. You know a business called Fixer? F-Y-X-E-R? I've heard the name but I don't know what they do. You know, have you heard of this business? What if I told you, I think their revenue is increasing, their annual recurring revenue is increasing by$1 million a week. A week? How have you got that to start with? They'd be, I think they're at 100 mil. Oh, so 50 % growth. So they're just rocketing. They're basically an AI to help workflow with your inbox and scheduling. But their growth rate is actually insane. I had never heard of it until I read this article during the week.

31:26I looked at it. I use an email. I don't use Gmail's own app. I use like an email client called Edison Plus. I use Outlook. It plugs into Outlook. Yeah, you should. I mean, I think it's like$30 a month. It's not cheap. but people some people well many many people really swear by this it's just this is Fixer or this is Edison Fixer F-Y-X-E-R and what's incredible or just do like write emails for you well that's one thing it does oh wow that's pretty good it writes a reply and you just say yes or no or something like that yeah that's right that's pretty cool it will go in and try so like what Copilot was meant to do but never could do right and it will figure out what do I think's urgent emails what are not urgent I'll automatically draft responses to them that's pretty cool actually you know it's pretty interesting so you should try it and tell me I've never seen anything like this works.

32:10It'd be interesting to think that it works. Yeah, you should try it and see if it works. I just think, you know, you get these businesses now because of these large language models, and, like, they get coded up by – they could be coded by one person and AI, and within, like, six months, they've got$50 million of ARR. It's a crazy time to live in right now. I just think it might be, like, an inverted V-shaped – these might be inverted V-shaped revenues. Like, it might go up very steeply, and it might just collapse, right? That's the thing about these businesses. Always the worry. If it's a good product, we'll road test and see what it's like.

32:44You should road, yes, road test it, exactly. You see that James JT had an article in Toronto Clear about the outrageous valuations of the bluest of blue chip companies on the ASX 20? Did you say that last week? Yes, I did. So JT noted in the past three years - James Thompson. James Thompson, who's a fantastic journo. He noted that the ASX 20, which includes the big four banks, the big three, iron ore miners, which is obviously Fortescue, BHP, Rio. Two supermarket giants, Macquarie, West Farmers, Telstra, Goodman, Transurban, Woodside, Bramble, Santos, increased 51 % to the end of September. It has pushed higher since then with a never-ending rally on global markets.

33:21Dion Hirschen, who I'm sure you know very well, who obviously runs Yarra Capital, said, and Dion made a really good point. If you look at the ASX 20s run, the valuation grew 51%. What do you reckon earnings grew? Well, I mean... Hint, not 51%. 15 %? Yeah, 19%. So there's a massive what's called valuation change. So PE multiple expansion. By the way, that's pretty big. Considering we're not a tech index, we're just digging holes. Yeah, or the opposite of a tech index. Digging holes and selling money index. Yeah. That is pretty rapid growth, 19%. There's not a single... No, that's over... How many years?

33:57That's over like three or four years. Oh, sorry. That's not one yet. Shocking growth. Oh, okay. It's terrible growth. Inflation. It's barely like 2 % above inflation. Look, there's not a single tech business in that list. We don't have a single... Like, if you put Canberra and Atlassian... I think WiseTech, I mean, until last week, is the most valuable tech business on the basis. Yeah, absolutely it was. But if you look at the most valuable tech business in Australia are Atlassian and Canberra. So Canberra, number one now, it's well over, it's 100 billion Australian, and Atlassian's down to about 60, 70, but it's still a lot bigger than these guys, or most of these guys.

34:27Hershens analysis said 14 of the top 20 companies are expected to earn less this year than they have in the past, and eight of the top 20 are set to earn 25 % below their peak earnings, which is catastrophic. And as JT noted, you could have bought Woolworths for$41 in 2021. It's now$27. You could have bought Woodside for$66 in 2008. It's now$22, which is actually unbelievable. Westpac was$39 in 2015. It's now below that. And in 1999, remember, petrol was$0.80 a litre and bread was under$2. So you're seeing massive inflation in everyday goods and deflation in these so-called hero top ASX 20 businesses.

35:05it's clear and Dion said it's clear that ASX-20s are blue chips and broken blue chips I would say almost the vast majority of which have been broken there's a couple of okay performers Colt's doing well I mean miners are miners right miners are just linked to the commodity prices that's mine to an extent large that's large because their cost of production is not going to change much unless they dig a new hole that finds something but if you look at BHP the history of BHP obviously since probably 1995 and they've fixed it up they had a 15 year period of just like blowing up cash. Like they did that.

35:36One of the worst acquisitions of all time, the built-on merger where they gave up like 80 % of value away to the rogues of Africans. They're by a guy called Brian Gilbertson. And you had Rio Tinto that blew up the Junkin Gorge and had run by that idiot Frenchman. So a lot of these wounds are self-inflicted. Like they're, and then you had, Coles had a bad period. West Farmers has generally been pretty well run. Well, Coles and Woolworths just oscillate, right? Essentially. Yeah. Transurban's been very well run. Sandhaws have been terribly run, but had a he's done nothing Bramble Santor's got big problems at the moment massive problems four suitors walk away yeah and like all of their senior executives kept quitting and the CFO wouldn't sign a non-disclosure agreement or something it's because she got effectively couldn't work with the CEO Mr Private Jets Goodman's been a great Goodman's probably the most tech linked business he's a property business right it's a data centre business now and Greg Goodman's done an unbelievable job he was an heir to the Burns Philp fortune right so that's been a great story Macquarie's been a great story but there's sort of few and far between.

36:34Like, why would you invest in these businesses? It's just, where's the growth coming from? Well, since you mentioned mining, I'm going to say this little story to you. So obviously Kevin Rudd hung out with Trump and everybody thought that one might go badly, but it went really well, which is great, right, for Australia. And like Kevin Rudd... Do you mean Albo? Oh, what did I say? You said Kevin Rudd. They're all hanging out together. But Kevin Rudd didn't do well with Trump. Kevin Rudd was the fall guy. He was the guy who like, Trump could have a go at him an elbow come and fix it up correct correct so do you need to keep going that's fine okay and so um exactly and so um i actually i think rud came out of it as well as he possibly could i wouldn't be getting rid of him as ambassador personally i think he's got a strange kind of rapport with trump now i'd play you that card right yeah but you know the main reason that it went well was because of rare earths that is why those meetings went well and also trump wants an ally with this whole China conflict, essentially, in this region.

37:31And I think he looks at Australians and says, oh, I kind of recognise you. Like, I can trust you. But rare earths is a big thing. And so... I think we're the third or fourth biggest... Obviously, China's massive. And then we're the third or fourth most rare earths in the world. So what do you think... So rare earths are very interesting. Yeah. So what would be something about rare earths that you think would be an absolute fact, given the name of rare earths? I'm assuming you're going to say rare earths aren't actually rare. They are the opposite to rare. There is something rare about them. But do you know why they're called rare earths?

37:58It costs a fortune to turn it into a reusable mineral. But the original reason they were called rare earths, I was very intrigued by this, so I did all this research on it, is originally they were elements that were found with rare gemstones. And so they were the earths found together with rare gemstones. And so the thing about them is that there's like, I don't know, 17 of them or something. and they're like mostly they're this element on the periodic table called lanthanides with these other weird things. My favourite element on the periodic table which is called yttrium because it starts with a Y.

38:35That is pretty cool, right? What number? And like I don't know what number it is but I know you have this periodic table puzzle which everyone bought from Kmart or something. It costs nothing and I've done it about 312 times with my son and then my daughter. My son loves that. I might get it for him. Yeah, that's a great puzzle. and anyway so um and so the thing about it is that there's actually a lot of these rare earths they're just very scattered across the world to process them essentially but especially because they're not in large clumps which means setting up a mine somewhere to mine them is very difficult to do it's like as if you had 200 trees over here and then 100 kilometers away there are another 50 trees.

39:16How would you ever log, right? It would be hard to log. That's the rare earths problem, and yes, it is hard to extract, but the main thing is they're so spread out, and what are you going to say, Mike? Mike's looking at me like he wants to say something. Oh, no. Tell him something about rare earths? Come on. No, no, sorry. I was just trying to find the number of the yttrium. It starts with a Y. Yeah, I'm just trying to find it. Rare earths are also very... I think something scandium or something like that is... It's 39. Oh, it's low. They're also quite polluting, rare earths, which is the big issue.

39:45It's why China, I think it was in the 90s, they said, we're going to be really good at this stuff. We're going to create this scale economy, this competitive advantage. And they have unbelievably done so. Yeah. It's an incredible force. The largest mineable piles of them by far are in China. Australia's got tons of them relatively small. Brazil's very big. And so do you know what they're used for? Like what industries or what are they in? Batteries use it? Chips. Chips use them. Yeah, chips use them. So they're big for defence. They're big for electronics. Things with screens need them. Magnets need them.

40:18So that's a big deal, like magnets. And so they're basically essential for the functioning of modern society. And the fact that China has got the vast majority of it is problematic for, like, the US. And China's played an absolute blinder with this. They've said, you give your tariffs to Trump, but if we've got these rare earths, you want to make anything, come back to us. Amazing, right? And so what's incredible about Australia? So I think these roads are kind of like, they're interesting, right? I mean, they're just elements on the periodic table, yeah, effectively. But like what's interesting about them is, about Australia is, like whenever things look like they're going to go badly for Australia, like we had all of this agriculture and it was like, I don't know, like in the early 20th century, it was like on the sheep's back, right?

41:04And then it was like, well, this is going to run out eventually. And then we start digging holes. and then all this amazing stuff comes out of holes. And like, well, how long can this keep going with these holes, right? Like iron ore, gold. Coal. Coal, uranium. I mean, the irony of uranium, right? Yeah. I think we might be the biggest miner of uranium in the world. We're the biggest. We've got more uranium than anyone else. No nuclear, though, for ourselves. Yeah. Except that Lucas Heights, but yeah. Yeah. Well, yeah, that's right. Nuclear for medical predominantly. And so then it's like, well, there's this new thing now that everybody needs.

41:33We're going to call it rare earths. Yeah. Dig a hole in Australia. Find the rare earths. Gina, is it Arafurin? Yeah. Gina Reinhardt? Yes, exactly. And so it's kind of incredible that, I mean, it's obviously incredible because it's like a geological basis for it. But like this country, you know Australia's called the lucky country. Well, that was, you know, Donald Horne who wrote that, that was meant to be ironic. You didn't actually mean it was meant to be lucky country. Well, I think in a way. It's like Dutch disease. Yes, we're like very lucky and very unlucky at the same time. Because basically.

42:02We got Dan Andrews, that wasn't lucky. Well, that's true. But there's like, basically this country. A Viking stolen wasn't lucky. This country has developed essentially almost no tertiary industry. Yeah. Like you look at the great countries around the world that have really flourished in the current tech era. The Taiwan, the Singapore. Yeah, like the US, obviously, Israel. Like these are countries. Like Israel had no resources until they found the huge gas, whatever it's called, off its northwest coast. I think Woodside was going to mine at one stage. I forgot what it's called. It's a word for an enormous thing.

42:34I know, I can't remember what it's called. Gas reserves. A huge gas reserve, yeah. And so, like these countries, I mean, the US obviously has resources, but like you have these countries that really have no natural resources and they've been forced to turn to human capital. Singapore is the ultimate. Singapore, Taiwan, as you said. Yeah. And so they've turned to human capital and they've ended up being leaders in the tech, like the tech revolution that's flowed through. And Australia, this is a very rich country. I mean, it's got some of the most expensive property in the world. There's a very high cost of living here.

43:08Australians are very rich on paper, very rich by global standards. Yeah, I think we're like top three or four. Switzerland is like number one, but we're not far behind, right? Not like a Hong Kong, but these are low tax. Yeah, and so the bottom line is though that because basically you can dig a hole and whatever comes out you can sell to someone, probably China, it really has left us in a situation where the need to develop human capital and therefore tertiary industries just hasn't really been present in Australia. And I think that's kind of one of the sad things. You look at med tech in Australia, there's so much potential, but we don't really need to focus on it because we can just dig holes.

43:46And it's kind of sad to me. I'm just looking up the definition of Dutch disease from Wiki. It's the apparent causal issue between increasing economic development of a specific sector, i.e. natural resources, and decline in other sectors, i.e. manufacturing or agriculture. Oh, I've never heard of that before. Oh, that's very interesting. It was coined in 1997 by The Economist, described the decline in manufacturing in the Netherlands after discovery of the large gronagen gas field. So it's a really common thing. So Australia is a classic Dutch disease. So what's interesting in Israel, I remember the name of that gas field, it's called the Leviathan gas field.

44:17I remember it was something big, right? And so the thing is this, they found that gas field and it has not in any way impacted the focus on start-ups and tech. Now it might have been because it already reached critical mass, but like yes, I think that is a perfect perfect explanation, that Dutch disease. When the Spanish found gold in South America, it didn't help them. They just ruined it. Exactly. And so I think Australia needs to make a conscious effort to shift away from this mentality that whatever happens, I mean, like WA are jumping up and down about GST and they kind of have got good reason to like this country's...

44:55After they conned that idiot Scott Morrison and Turnbull into giving them a greater share of GST cut. But the bottom line is... That's why they're in surplus, because they're just ripping off the rest of the country. I know, but a lot of this country, we need to be honest, a lot of this country is being powered by holes in Western Australia. I know, but the question is, is it Western Australia's minerals or is it Australia's minerals? Like, they don't charge enough royalty. They should be charging a higher royalty if they want to fix up the GST. But don't you think Western Australia, like if they seceded from Australia and became their own country, do you think they'd end up better off or worse off?

45:28You know what I would do if I was Premier of Victoria? One of the things I'd do, I would say, you fix up this GST, or those two Perth teams can play in the waffle. Right. I don't think Perth people want to be separated from Australia. I think they want to be part of Australia. I'm not sure about that. I mean, I don't know. No Western Australia. You can stay in Western Australia. You're not coming in Victoria, like the reverse of COVID, unless you fix up this year's team. You know, if they did succeed. They're stealing money from the rest of Australia. But if they did break away from Australia.

45:54Let them succeed. They would be. Good luck with an army, guys. Nah, they would be. What are you going to do? You're going to invade them. I mean, like, listen, they would be so rich. I wouldn't think about it either. They would be so rich. I think we should have made them. We can't even get police on the streets of Victoria when you're in a fake WA. I wouldn't be riding my bike over there. You know there's a desert between us and them, right? This is quite big. Yeah, I think we can take them out. But definitely the people in WA that say we're funding this country because of our mining, it's not entirely untrue.

46:24Well, it is untrue because it's not them. It's Australia's minerals. It's not WA's minerals. We're one country. Well, I think maybe we're making that argument because we're on the east coast. Actually, your point on Dutch Seas though is a really interesting one because we also talk about technology a lot on the show. It's no different to when you've got a classic case of a startup that gets too much money and they just waste it. So necessity is often the mother invention. We were bootstrapped from day one and Catapult effectively bootstrapped in many ways. And because we had so little money, we had to make do with what we had and become a much more efficient, better business.

46:54If we'd be able to raise 20 or 30 million bucks back in 2012, we would have been a terrible business. All our competitors who raise money all died. Every single one of them. Yeah. So there's no doubt. I think what you're basically saying is an abundance of resources drives complacency. Yeah. And you just throw money at problems. And, you know, Australia largely, all of our top exports are holes or gas. It's not exactly a hole, but it is a hole of one variety. Yeah, absolutely. And so we basically export holes, what comes out of holes. And I'm sure you know this, but when we export iron ore… And education is a big export.

47:30Right, and education. But when we, although that's reduced, right? Because we've stopped taking so many foreign students. Oh, no, it hasn't reduced. The growth has reduced, but the number is still increasing. But you know, when I say this, then we can move on to your run sheet. But like - Say so disdainfully. But when, you must know this. Mike, you might not know this. Because I was shocked to find this out. I think, like I've known this for maybe a couple of years, but not for 10 years. You know, I mean, you must, you know, Australia exports a lot of iron ore. So ore, that means rock. And you know when we export it, we basically just get the rocks.

48:06We dig rocks and then we put them on a train or in a truck and take them to a ship. And then we just chuck the rocks in the ship. And we don't even take the iron out of the rocks. We just send all of the rocks as rocks to China or wherever. And we say, you worry about the metal that's inside the rocks. Well, there's no pollution involved in that as well. So we say, well, we're not polluting it. We're going to do zero stuff. because we're exporting the pollution. Apparently we've got a different atmosphere to the one over China, right? So it is, when you think about that, that Australia's wealth is largely built on sending rocks overseas, it is a crazy concept.

48:41And, you know, like, I think there are some problems with this tech council. I think the main problem is the guy that put it together, to be honest with you. Who was that? Let's not get into it. But like, I've got a long and sordid history with that thing. But the sordid side was not on my... We're just a lobbyist for the big tech businesses. That's what it is. And so, yeah. And so, I don't think, I don't think, I mean, directionally, have pushing harder for Australia to support tertiary industry. Look, rather than calling it tech, I call it tertiary industry, okay? So, for Australia to support tertiary industry, that's a great argument.

49:19Having, like, companies with vested interests, predominantly who don't pay tax in Australia, maybe that's not the way to go but um but i do think that um at some point in time it's gonna it's gonna be too late because and i know this has been said so many times in australia over 200 years or whatever it is but like um it can't last forever like we surely we can't just have this endless economy yeah making us rich on sending rocks overseas like it doesn't seem like that couldn't go on forever okay because you run out of rocks yeah and also people want to like People find stuff in other places. The mineral need changes.

49:57Exactly. So I think we've got to get smarter. Speaking of it last year, and this wasn't on the run sheet, but you said they announced their results last week. The market liked it. It pushed them up 5%. Although the results, as usual, the revenue growth of 20 % was fine, or 21%. But as usual, that was pretty much all expansion revenue. But that's good. I'd be happy with 20%. They've lost another 100 plus million bucks. They're losing even more money. So the losses are wider. The market somehow likes this business. Let me guess. They didn't halve their expenses and suddenly grew their expenses. Supreme profitability.

50:22They didn't listen to us. Yeah. But the more pressing note was they've lost another exec. The CFO's now quit. It's like an exec leaves this business every two weeks, I reckon. Yeah. What is wrong with these guys? Well, who knows? But I think if you're getting paid a lot in stock, even if you can sell it relatively quickly. Three months later. I mean, if the share price is falling, although it didn't after these results. Oh, but the directory's been bad. It's down to like$47 billion. I think that puts pressure on. The thing about - is significantly larger valuation-wise than Alassia now. Like if you've gone back two years, Alassia was 10x.

50:56Well, did you see Canva's pitch, what Canva's pitch was this week? AI pitch. We could basically summarise it as, so I say this about Canva. You know how I love talking about workflow. So there was workflow which was putting together designs. It was very hard yet to be an expert. Canva said we'll simplify workflow. They did a great job of it. Amazing job. Now there's an even easier way to simplify workflow. Why would I go and do little cutting and pasting and this when I can just type in prompts? and so that's an even simpler workflow for design. And so Canva's war right now is trying to convince the market and its customers that it is not going to be the victim of the next simplification of workflow.

51:32It seems to me, I've been very impressed by Canva's ability to deploy AI. They're so smart, these guys. They're really smart. Such great product people. But I still find it hard to believe that with all the money that has poured in to these much larger, large language model driven businesses, that long-term canvah is going to be able to compete with those businesses. It does show that, right? What we were talking about a few minutes ago, resources breeds complacency. I would love to be wrong about it. I would love to be wrong about it. And so far, I've been pleasantly surprised. Like they've been competing well.

52:04They're experts at product. They get product. They understand product. They've got three incredible founders. So remember I said you were a very smart guy that listened to this pod. Very great tech guy. That's all that guy. That's true. Great tech guy I know. he said, I think there's going to be a real space for niche offerings driven by large language models. Canva, like design feels too big for a niche, but it is possible. Yeah, it is possible that they will end up beating the general LLM businesses in this niche and remain dominant. You know what they may have? A power? Process power. Well, I know you want them to have a process power.

52:40They definitely have brand. They've probably got brand, but they just - They've got no switching costs. They just build products better than anyone else. We talk about Microsoft being the big risk for them. Yeah, you might be right about that. They're a much better product than everyone. You might be right about that. Do you agree there's no switching costs? Minimal. Yeah, minimal. There is a bit of a hassle, because I've got all my stuff on cam, but I don't really want to switch, but it's pretty minimal. One out of ten, not zero. Yeah, it's not a power. Do you agree there's no network? No, no network.

53:04Oh. There's not. No, there's scale economies. What's the scale? As in when eight people in the organisation have it, then everybody sort of has it. And you move organisations, they bring it with them. There's some scale economies there. I think they've got negative scale economies because their competitors are all bigger and richer than them and they can deploy more money. And OpenAI can say, oh, we want to make our model better. Oh, we just did a one gazillion dollar deal over there. Let's just pump that into the model and make the model better. They're building their own model, right? They've got their own model canva.

53:32Yeah, speaking of OpenAI, you segway beautifully into my next topic. I'm sure you weren't on a run sheet. Is this a run sheet topic? This is a run sheet topic. You said in Wall Street Journal reported last week that while Anthropic and OpenAI do different things, Do you read this article? No. It's a pretty interesting article. And they basically develop AI models, which chatbots, image generators, and a host of other AI tools are based. They have a very different approach to generating revenue, and one would hope profit. Well, they have the same approach to generating profit. They generate no profit.

54:01Well, certainly OpenAI doesn't, but Anthropics, not as far away. So listen to these numbers. So JetNAP has 800 million weekly users, which is pretty incredible, and their annual revenue run rate of 13 billion. so crazy of which they're losing like 20 billion so and 30 % sorry they're losing 7 billion 30 % of their revenue comes from business yeah Anthropic has obviously much less mass market appeal I think Anthropic's like 3 % of the market and OpenAI's oh I can guess where this is going can I guess their revenue is B2B revenue absolutely because as a coding tool it's incredible what do you reckon what percentage of Anthropic's business you said 80 yeah you sure you read the run sheet I didn't but I knew is your question what percentage comes from B2B?

54:4580. It's 80. Yeah. I'm not surprised by that. It had 300 ,000 B2B customers. Oh, you're finally, because you're finally talking about something I know something about. It's a new experience for me on the podcast. So Menlo Ventures, which invests in Anthropic, estimated that Anthropic has a 42 % market share of coding compared to OpenAI's 21%, which is remarkable. So this is a totally different business model because I've said to you before, I think that ChatGPT ultimately is going to try and become a competitor to Google and they're going to try to monetize what people are looking for. Whereas I think Anthropic is going to be a much more sales force-y type model where they sell to be.

55:22I actually think it's an incredibly good point that you're making. Wall Street Journal is making, I'm just repeating that. Lots about these businesses are similar. As businesses, they're fundamentally different. If you look at the, they've got this great graph on enterprise market share over the last three years. So three years ago, what do you reckon the split was of enterprise? well I think as in what do I how similar were they or how much what was it oh I think each of them would have been three years ago probably they were each 15 % enterprise so three years ago open AI was 50 % this is share share of enterprise market sorry oh share of enterprise market I see well I don't know so open AI was 50 % yeah Anthropic was like 10 % because everybody had heard of open AI and no one had really heard of Clawed yet yeah they were barely around yeah Meta was actually the second at 15 % And Google was down at six.

56:14Now you've got Anthropic at 33%. OpenAI is down to 25%. So that's a problem. Google, this is enterprise generally. Not coding. Google's at 20%. So it's gotten better, a lot better. And Meta's dropped to sort of 10%. So it's really Google. It doesn't really feel to me like Meta's in this game. The llama thing, yeah. So they're in the game. They are benefiting from AI probably more than anyone because they obviously customise their ads really well with it. But that's an internal use of AI. Their external LLM obviously is kind of an irrelevance. And who owns Perplexity? Is it independent? That is, that raised at a pretty big value.

56:52It's independent. That's not on here. That's owned by whoever founded it. So I wanted... Aravind Srinivas. All right. So a founder and some investors. And he's got raised in heaps of cash. All right. And so I wanted to find out, I'm going to be coy about this because Joe Astin wrote something in Rear Window about a particular individual. It was not the nicest thing to write about him. Not that. It was like actually, at least it was like years ago, okay? A few years ago. And I wanted to find the exact name that he called this guy. I'm not saying the guy because it was too nasty. Like I don't want to repeat it.

57:26And so - I want to know now. I'll tell you off air. And so I asked, I tried to find it in Perplexity. Perplexity couldn't find it. I tried to find it in Google. What's Gemini? couldn't find it then I went to open AI to ChatGPT and it found the exact quote and I said how the hell can you find this exact quote and they can't and the answer was because like I can check I can read the whole articles and I'm like but they're behind the paywall and ChatGPT was like I can access them behind the paywall because I access them through these mirror sites like ABC and then I said well but like don't you have to pay for that and then ChatGPT said yeah this is how it's paid for basically these mirror sites pay the fin we pay them they've paid the fin review and so we are OpenAI is indirectly paying for this content which makes me like losing so much money but so I think for a simple search nothing is as good or as fast as perplexity I've come around to your way of thinking but when you want like a bit of a needle in a haystack you still have to go to chat GPT I find GPT very rarely is good for me I just never have great results with it I'm doing itineraries I think it's good but like for that kind of stuff information gathering I find perplexity by far less what made me happy is that perplexity was equally as prepared for just to hallucinate and lie to me as all of the other platforms I've found that's been pretty good yeah but like I knew that like it said oh this is what this person was called I'm like that's not what they were called they weren't called that he goes oh yeah they weren't they were called this and it's like no they weren't called that and so like that hallucination I'm happy because like you know I said to you I've always thought hallucinations were fundamental to vector space and now like some research papers are coming out saying yeah they are fundamental to vector space like they are there's going to be hallucinations i like i really fight with the clawed code to try to get it sometimes to do things where it really just does not want to follow instructions so like there are fundamental like that's why i'm not the world is ending with like open ai and and their ilk i will say there are a lot of job losses coming that was a quick topic i was going to talk about we won't save that for next week actually we've got so much on the run sheet On that note, we'll go to a super quick break, but back in no time at all.

1:00:14They wanted to create an alternative to petroleum-based plastic wrap, and they did it. They created a company called Great Wrap and was Australia's first combustible cling wrap company, initially funded by a very small manufacturing grant from the federal government. Across the journey, they raised, I think, almost$30 million from various investors, including a$24 million Series A in 2023. Had multiple manufacturing facilities and around 30 staff. Quite devastatingly, last month, the business entered administration. And what really I felt was a real tragedy, obviously knowing Jordy and Julia so well and really liking them.

1:00:51And Jordy has really impressively come on the pod to talk us about the business and the journey. And we're super grateful for you coming on, Jordy. No, thank you so much. Thanks for having us. So do you want to just tell us when you started the business, what you thought the business could become? and how big it did become? Yeah, look, I think we went in pretty eyes wide open. I think when we started it, we actually didn't really start with the idea of taking on investment. We thought, oh, we could build this into something, you know, we could own ourselves and sort of slowly chip away at it. But then really the demand from, you know, we had all the major retailers, we had companies from Unilever to Coca-Cola reaching out saying, hey, like we really want your solution.

1:01:39And we kind of thought, okay, maybe we're sitting on something here that's a lot bigger and we should go down the sort of high-growth venture sort of path. And that's what we did. And we went in thinking we could end Petrochem, Stretch Wrap and Kling Wrap. And with the idea of starting it here in Australia and we set up our own pilot facility first, as you said, with some government support. And then we went and raised further capital to go set up a much larger facility. And, you know, the goal for us was to then go and build other facilities around the world or enter into joint ventures of licensing agreements and really trying to create a system that could end the standard, yeah, petrochem wrap industry.

1:02:28And it was super ambitious. And I think it's like, you know, as you said, it's start there, you know, we're former winemaker and former architect. and it's nice to kind of go into this not knowing necessarily how the industry works. Obviously, we did a lot of research before starting the business, but I think it was that kind of naivety to go into this gave us that ambition to set out to do something quite large. And, yeah, it didn't end the way we wanted it to, obviously, but I'm just super proud of us and the team and having a real crack at trying to do something quite bold like this. And, Jordi, in just a few sentences, I think people don't really understand what cling wrap is.

1:03:10Like, the traditional way that cling wrap is made with petrochemicals, can you just describe that in a few sentences so people understand what you were trying to eradicate? Yeah, because we were going after two products, so cling wrap and stretch wrap. So cling wrap is obviously what you use for wrapping your food at home, but it's also used a lot in food service industry and meat processors and retailers as well. And so it's made up of PVC and plasticizers, which one, they're not recyclable, but two, they are very damaging to human health. So there's a lot of research that are coming out there.

1:03:52Obviously, we're seeing lots of information about microplastics in our body. And a lot of that comes from problematic plastics like PVC. And so we're really trying to take on that industry. And as well, we were also focused on stretch wraps. So freight logistics, when you think of a warehouse full of pallets wrapped in plastic that's used once maybe for a week or two at a time and then ends up in landfill. We were trying to offer a solution there that instead of it being potentially recycled or go into landfill, it could be composted back down into organic matter and used in agriculture and other industries through organic recycling.

1:04:29I think a lot of people still haven't caught on to the fact, I mean, I think more people understand now, but all of these plastics are using byproducts of oil refining effectively. And so it's not fossil fuels because they're not fuels, but like the fossil base is the same as fossil fuels. and so all this plastic that's floating around, I mean, this is just all part of the fossil economy, I suppose. Yeah, that's it. I mean, it kind of, it sort of kicked off in the 70s when, to your point, they figured out a way to turn what was a by-product that was adding no value into plastic and then I think a lot of the petrochem companies sort of thought, well, how do we monetize this?

1:05:12and it was very well linked to consumerism in the 1970s, also kicked off where you had a lot of brand owners saying, hey, we want to make more products, we want to keep it fresher for longer and get it onto the markets and ship it globally. And so in the 1970s, you kind of had these two things collide, which really gave birth to this massive consumption of plastic. And what did you try to use instead of petrochemicals to make your cling wrap and stretch wrap? We were on a very long journey of different products. We always went through the lens of what's the most sustainable material readily available today.

1:05:52And then, you know, how can we look at what's coming down the line in the future and kind of build for that? So we started off working with potato waste. And we were using that for a long time for our product. So the waste was converted into a starch and the starch goes through a process to convert it into a polymer. And then we've been working or had been working with CO2 emissions. So converting CO2 into a polymer via a fermentation process. And that was really what we were kind of building for the future. So then we also would always use like standard, you know, sort of plastics. There's lots of sort of different additives that we'd use to get, you know, high performance sort of characteristics.

1:06:34So we would use things like plant-based oils and rosins from agroforestry waste to get, you know, the tackiness that you're looking for or the other sort of certain tensile properties. So in the end, we actually had about 16 different biobased raw materials that went into our actual formula. And, you know, we were still researching and developing that CO2 pathway for the future. Jordy, can you talk us about, so you had the B2C business and the B2B business. Can you talk about sort of a scale? How did they grow over the years? I think when I saw you guys, it was what, 2021, probably 2022. How did you grow the business over sort of the last four years?

1:07:11What was the trajectory? Yeah, look, we launched in consumer. And I think for any startup, I would strongly recommend trying to get a consumer product out first, even if the long-term play is, you know, selling to enterprise. Because obviously, you know, enterprise is, you know, usually where the impact is, usually where the scale is. but it's very cost sensitive right and so we started off on the consumer side because we could produce something and sell it at a slight premium but we knew that consumers would be willing and hoping to pay for that and so we launched our cling wrap for home and by over the sort of life cycle of the business we'd sold to about 70 ,000 homes around Australia which I just like I never thought you could do a direct-to-consumer cling wrap brand and reach nearly 100 ,000 customers in Australia alone.

1:08:05We never took that overseas. And that in itself, I was really excited about. And that ended up being just a really good way to bring more customers into the business on the enterprise side. So that was sort of the first phase of the business. And once we got our second facility set up where we did the Series A, we took on some debt and equity. And really to play in the enterprise space, like I said, price is critical, but you need scale. And that's why we had to raise so much money. And a lot of hardware, deep tech startups face the same problem where you need 10, 20, 30 mil to get that first commercial plant.

1:08:46And it was the exact same thing for us. So we set up that factory in Melbourne and got that scale. But really, by the time we sort of got to that point, the market had begun to shift away from compostable materials, more driven by sort of larger brand owners and retailers and being sort of going down the direction of recycled content and still using virgin materials. and really there wasn't much of a market or a big enough market for us to keep that factory operating, which was, like I said, quite large. But we needed the sales, you know, to really keep that going. And I think, you know, the biggest thing that happened to us that really hurt us at that scale as well is when we were building that factory, resin prices for polyethylene, so what usually makes up stretch wrap, were$1.70 a kilo.

1:09:37Our formula was$1.80 a kilo. So, you know, we knew eventually resin prices would keep going up and there would be this trajectory where one day our product was cheaper. But unfortunately, resin prices have just plummeted. They're under a dollar a kilo now. So, you know, we were sort of left there with this huge factory and a product that was nearly double the price. This is because oil prices have dropped up, I'm assuming? Yeah, it is linked to oil prices, but it is still sort of like a waste product from the process. So it sort of follows sort of like a different commodity pricing mechanism. But yeah, resin price, and even for people producing recycled content now, recycled content products are just too expensive.

1:10:18So we're seeing a huge sort of push really back into just using virgin resin because it's so much cheaper and everyone's obviously trying to compete on price. And I don't know if you've got cellar bags or food packaging and you can save 10 cents per unit, then people are opting for that. And so, yeah, it's a really, it's a bit of a tough time in the plastics industry. Like I think, you know, there's not really like a super positive outlook where we're seeing much higher recycled content out on the market or we're seeing, you know, compostable solutions out there because it's just so hard to compare on price right now.

1:10:53And so, look, I've had a lot of involvement in physical product and like trying to get atoms to do what you want them to do is much harder than getting bits to do what you want them to do and writing software. And so when I, I'm going to ask, like now I'm going to ask you a few kind of, hopefully not too direct or tough questions, but when I read about, I was trying to figure out what happened to the business at arm's length, right? Because I thought it was, it's absolutely tremendous when people try to do something that's physical, especially something that I guess has the high ideals of what you were trying to do.

1:11:28And so I went and like looked at these review sites and some of them said there had been some problems with the product itself and it might have been hard to take off the role, et cetera. Do you feel like that's just the usual whiny minus three standard deviations people that write reviews sites? Or do you feel like there was still work to do to get the product right? Yeah, look, I think in the early days, for sure, the product was not very good. And we knew that. And it was sort of, I think, you know, it's a hard one. Like when you've got a physical product and, you know, I chat to other founders doing similar things in the physical product space.

1:12:03It's like, do you wait for your product to be perfect and release it to market with the risk of it taking much longer than expected? Or do you put it out of the market and then just keep trying to build and improve it? And, you know, we obviously, we put it out there knowing that we had a long way to go, but let's just sort of get it out there and keep improving it and, you know, keep bringing the customers on that journey. And I'd say probably for the last 12 months, maybe 12 or 18 months, the product was at that point where it was perfect in terms of, you know, we were outperforming standard Petrochem stretch wrap on tensile sort of testing units.

1:12:43And people were really happy with the product. So we did. I'm really happy that we got there with the product. It wasn't this sort of like, oh, we just need six more months or 12 more months and we'll sit here kind of forever thinking about whether it would have got there. But the product itself got to a point that we were super happy with and the feedback was fantastic from customers. And on the larger enterprise side, we've been working with retailers in the US to do meat wrapping there. And again, product feedback was fantastic. and we were sort of getting close to, you know, getting to pretty big deals across the line.

1:13:20So really, really happy where we got to on that side of things. So basically, I mean, a lot of things went right. Like you managed to create a product that was at least as good as the incumbent, which is hard and presumably there was some pretty, I don't know if you had protected intellectual property on that, but you probably did. I mean, there's some pretty sophisticated intellectual property presumably involved in that. and then it was fully compostable. It's not made with petrochemicals. It's much better for the environment but ultimately it sounds like what you ran into is that ultimately it's still a very price sensitive industry especially in the B2B space and in the end you just couldn't get the volume of sales given the price differential despite all of the benefits that you provided to make it economically viable to manufacture this stuff.

1:14:13And you and all your investors felt that the time horizon required to make it economically viable and to reach that volume was going to exceed kind of the willingness to lose money in the meantime. Would that be kind of a fair summary of the way it played out? Yeah, it was 100 % perfect. Yep. Couldn't have explained it better myself. That's pretty much exactly what happened. And, you know, it's an unfortunate one, But I think it's a pretty common sort of story in this sort of startup landscape. I think sometimes people don't get the opportunity to even get the product there, which, again, is something we're really happy with.

1:14:50But, yeah, it really, like at the end of the day, I think with a lot of this new sort of technology, especially in sustainability, price is the biggest delta. And, you know, I think now when I look at new startups and I'm chatting to other founders in this space or sort of adjacent fields, you know, I'm just sort of that's really kind of the next wave of deep tech startups that are going to be super successful is, you know, here's the incumbent product and we've figured out a way to make it 50 % cheaper and it's sustainable. And if you can figure that out, those are going to be the new kind of unicorns in this space.

1:15:30And maybe it's not a bad thing. I think it's okay that there's kind of been this kind of green premium associated with products like ours. And maybe we need to get rid of that. Maybe we need to start to see sustainable products that are cost-saving by 10 % or 20%. And that's how we're going to reach the scale. Well, you say cost-saving. I will say the externalities aren't priced in is the problem. It's not priced in, right? Like there's no penalty for dropping microplastics into the environment. Not just microplastics. Think of what happens to normal gladrap, Geordie, when it's used. It's just chucked in landfill, right, and stays there forever.

1:16:04Yeah, at best. At best, yeah. And it works. That's why it's more expensive. And so this is a bit of a strange question to ask you, but if someone had come along and said, we're going to give you a$50 million loan, that there's no recourse against your house, but and like you know I'm trying to kind of create a situation where there's another big pool of money and it's not going to dole at you to inconsequence would you have kept going like were you ready to stop or was this something where effectively you couldn't see a way forward with investors etc to keep going yeah look I think um we were pursuing every possible opportunity to keep it going and really like deep down I feel very passionate about this and and you know would have loved to have kept going you know I don't think it I don't think it was sort of we were at a brick wall I think there was challenges ahead and and we needed to figure things out and and we could have eventually got there um and I would have loved to have done that so yeah I think um that's the unfortunate part to it as well.

1:17:12And what do you think you got wrong? Because there's two things you might have gotten wrong given like this particular issue you ran into, which was effectively a cost issue and an input cost of petrochemicals issue. Either you possibly thought people would be willing to pay a premium, a big premium, or you didn't realise that you were so exposed to the potential of resin being so cheap in the future. And so like it's hard to know what the real risks are going into a startup, especially if you're new to the industry, which I think kind of is a great way to go into something if you're trying to revolutionize it.

1:17:46Like which bit of it do you think you didn't quite understand in terms of risk or you did understand it and you took the risk and it just happened? Like, how do you think about that? Yeah, look, I would probably put it down to like if I could do anything differently is our location. Like Australia is a very great country for supporting businesses like this, but the population is just too small. So we needed to get, you just had to get the factory to a certain scale for it to make sense. But we should have probably put that factory either in North America or Europe where there's just a bigger pool of customers that would pay for this product, even if it was more of a premium.

1:18:25And so I think we were just unfortunately in the wrong location. And we even thought about that at the time when we were setting this up, but it was also during COVID and, you know, the idea of setting up a factory overseas during COVID was kind of like, yeah, just seemed too outlandish, too crazy. So we just said, let's really give it a red hot crack here in Australia. And yeah. That makes sense. And by the way, you know, we talk about Breakthrough Victoria. I mean, this is exactly what they should find, right? Where the commercial imperative is not there because maybe of the time horizons, but you think it's going to be a great product it's going to be it's a tertiary industry it's going to pay back and it's and reducing externalities of of horrid plastic everywhere it was just this is 100 like i don't like saying taxpayer dollars invested in businesses but if you're ever going to do it i think jordian and this is the business and julie were the ones we should have so jordie thanks so much coming on you're you're an absolute star you you did such a great job with the business we uh we need to see more people like like you and julia in in australia and victoria uh taking risks and and And you spent six years of your life giving everything you had.

1:19:32And we're devastated it didn't quite make it. But you couldn't have done any more. Are you out of, are you out of foundership? Do you think? Or are you just recoup? Because you sound remarkably upbeat. I mean, I know you're coming on the podcast. We're probably not talking to you at your low point, right? And like, it's hell to be a founder. People don't understand how hard it is. Adam and I often talk about it. It's like soul destroying at times. It's like, but like where, like, how has this left you feeling, this experience? obviously gutted and and i think anyone who's kind of been through something like this it can be a bit isolating and and it's tough but i've got like you know a lot of our investors i'm still speaking with regularly and have great relationships there and speaking with other founders and things like that i've had awesome support and and like 100 i'll be back you know like um i love i love this space i love the community and i love trying to drive real change and would love to take all of the lessons learned from Great Rap and apply it to something else that could have some sort of meaningful impact on the world.

1:20:31I think there's nothing that gives you greater joy. There's also nothing that's harder, but it does give you a lot of joy when you do start to get some success and see your product out there. It's a lot of fun. And yeah, there's no doubt I'll be back in the future. It's a perfect summary. Nothing gives you greater joy and nothing is harder. It's the summary of being a founder and parenthood. I think which are not that dissimilar in some ways exactly we actually had our had our first child four months ago congratulations oh my gosh thank you been a pretty crazy experience yeah 2025 I'll never forget on that we're going to run Jordy but that was that was amazing thanks so much for coming on we really appreciate it I think most people wouldn't come on and it shows what a great entrepreneur and founder founders you guys both are and we really appreciate your time today.

1:21:24No, thank you so much. Really appreciate it. And our deep dives are so popular. We actually got a new segment on the show, which will be hopefully a weekly segment, which is called our M &A Deep Dive, brought to you by Terrem Capital, T-E-R-E-M. They acquire technology companies to grow sustainably over decades. If you're thinking about selling, discuss how it might work at terrem.capital.com. So we know Scott and the team, and they do an amazing job. I've known Scott for quite a while. and he's got a sophisticated way of looking at businesses. I think he doesn't treat you like the way that private equity generally might treat people.

1:22:01So I think - Much more Buffett like you, I say. Highly recommend speaking to him. So if you want to, obviously, everybody wants to sell their business because you want to cash out. So obviously they don't buy anyone. But if you've got a great business, obviously go to Terum Capital slash Contrarians and they will happily look into it for you. And they're sponsoring this segment. So our deep dives. You've got the first deep dive. We didn't think of all people. I'd ask the person, I thought you would come so well-research. Who have you got? Well, it's not, I mean, it might be somewhat coincidental.

1:22:31So there's a business on the ASX. It's worth, I think,$750 million. So what's that? It's outside ASX 300. I don't know. I think it's just outside, but it might be, and I'm not sure. It used to be worth more. Okay. It started off life called Jumbo Mall. Have you heard of that business? Not Jumbo Interactive? Yes. So now it's called Jumbo Interactive. It's the lottery business, right? So this business, its core business is effectively selling lottery tickets on behalf of whoever's running lotteries. Like Tats Lotto and stuff. For example, or whoever's - It's like a big news agent, an online digital news agent.

1:23:09That's right. And so they've got that business. They've got a second business, which is, I guess you'd call it a SaaS business that provides the software for facilitating these lottery ticket sales. And so those are kind of its two core businesses. How many dollars of raffle of lottery tickets do you think they sell every year? I've no idea how much lottery tickets are sold. It'd be well into the billions. Call it five billion. Well, they sell a billion dollars of tickets. I'm going to just ask you some questions because I think these are interesting. I didn't know any of these, by the way. but like the average person that's buying lottery tickets through Jumbo Interactive, I think Oz Lotteries is their brand in Australia.

1:23:53What do you think the average per annum spend is of a customer that buys through them? Let's say you're spending$10, call it$600 a year. Well, you're pretty close. I think it's$500 to$600 a year. Exactly. That's the typical spend. And they keep, of the$1 billion of sales, they keep about 140 145 million dollars of that and that flows through effectively to an adjusted EBITDA of something in the 60s and an NPAT of about 42 million dollars that's a decent good margins I first came across this business I'll tell you this story very very briefly I bumped into this business like in 2009 I took one look at it I'm like that at that stage they were reporting their revenue as their total transaction value and their margins look terrible and I took one look at it and I said this is a rapidly growing business with incredible margins and they bought it oh really bad margins are gonna be good margins incredibly good that looked like incredibly bad okay yeah because they weren't reporting properly yeah and so I reached out to this guy who had sold his business into them and owned 20 % of the company and I said how about I buy your 20 % of the company off you because like I just thought this is a great business I want to get into it but I didn't have the money to do it like it was like 20 years 15 years ago and so So I managed to get him to agree to sign a document that he would sell me his shares for two cents above the prevailing price at that point in time.

1:25:18And then I went around to a few people and I said, can you please lend me the$2 million? Because I don't have the$2 million. And nobody would give me the money to do this. Nobody would give me the money. I didn't do it. And the price that I could have bought those shares for was 32 cents. Have a look at its share price today. Well, it did hit its peak, obviously, during the COVID. Oh, it's just pre-COVID. It hit$25. Yeah, so I didn't feel great. And what's even - Could have been a 75 bag for you. I mean, what is even sadder about it? It's filled up pretty well, actually. Well, they pay more than$0.32 a year in dividends.

1:25:48That's a 5 % yield. Yeah, I could have basically made all of my outlay back in a year of dividends. Nobody would give me - One guy that passed has basically passed on every great opportunity that I've shown him. And so this, I couldn't - In fairness, it didn't do much for a long time. It hovered around 30 cents for like 15 years, and then went to like$3 in 2013, went back down to 90 cents, and then between 2016 and 2019, it went from$1 to$25. So 25 bagged in that period. And so it was a rapidly growing business selling lottery tickets with great margins. The weird thing is, we'll talk about this later, but what's their franchise?

1:26:29Can't anybody sell lottery tickets? So they had some sort of exclusive deal online. that was the key risk i thought about back in 2009 but they signed long-term agreements and it also turns out there is some magic in the software that facilitates this because it's a financial transaction and you cannot sell someone a lottery ticket and then get it wrong yeah and then they win it's like 100 million bucks yeah and so nowadays their code is j-i-n so when you looked at like a 20 million dollar business right even less cool yeah yeah and i could not convince anyone to give me the money to buy into them.

1:27:03And so basically they've got some problems now. And their problem effectively is that they've stopped being a growing business. They shrunk last year. They shrunk last year. What's - 5%. Fascinating. So what do you think, Mike, what do you think is the number one driver that determines how many lottery tickets get sold in any given year? There's one core driver. The jackpot price. Yes, you're right. The number of mega jackpots you have. Mike's a master of these quizzes. He's very good at quizzes. He's very good at quizzes. You buy lottery tickets? Really? I've occasionally bought them. You buy lottery tickets.

1:27:36I'm shocked to hear that. A man who loves math so much. You won't be surprised to know I always lose. I would have thought a man who's dedicated to understanding probabilities would realise it's the biggest waste of time ever. No, but I think it's kind of like... It's not if you need the money. It's the reverse of insurance. It's such a tiny outlay where the probability... No, it's the same as insurance. They're both stupid. No, the probability... Well, you think insurance is stupid? Well, you should self-insure. Like, financially, it's a stupid decision. Oh, it's not... It's not if you can't afford to pay.

1:28:03For the average person, yeah, it's different. But for you, who can afford to cover whatever risk? It's stupid. So anyway, this company, they went backwards last year, predominantly because there were not enough big jackpots. So 5 % TTV, 8 % revenue went backwards. 8 % EBITDA went backwards. Because they're leveraged, right? There's great margins. And so now they have to do something. The jaws are closing, which is not good. That's not good, right? And so now they have to do something. Well, they felt like they had to do something. Yes, this business makes 47 % EBITDA margins. Unbelievable, right?

1:28:29It's pretty good. And it's still, even in a bad year, it spits at 42 mil of NPAT. Yeah. And it's got, so it's got market cap of like 600, 700 million marks. That's right. What's that? 15 times. Remarkable. So 17 times PE multiple. Which is. But going back, but going backwards. But it'd be a bit, almost all of those earnings are paid out as dividends. It's a cigarette butt, clearly. Yeah. Well, so then, so what you mean by that is maybe it's been almost completely smoked and there's only a few puffs left that you can have for nothing. 17 times earnings is not nothing by the way. but they don't want to be a cigarette butt they want to be a business and so before I tell you what they bought let me tell you it's not the worst thing in the world I'm going to tell you the most fascinating five minutes of your life right now so gambling it's an incredible industry like all of the great billionaires that have been minted that are under the age of 35 in the last few years in Australia have predominantly been in gambling why don't they say all that's probably exceptional predominantly predominantly been in gambling Ed Craven at stake.

1:29:29And Escalante. Lawrence's crypto business, crypto casino. And Adrian Pateli. Yeah, all right. So let's talk about Adrian Pateli. So Adrian Pateli, we're not, so I don't know. I think you've met him. I kind of went in this very room. Like I've had very nice things about him. He's a lovely guy. Yeah. And so his public persona is different. Like Ruslan Cogan, who is a lovely person and historically has been quite bombastic publicly, not so much now, but actually he's a lovely guy. And so we're not going to call him the Lambo guy because he hates that and we don't want to be nasty. What do you want to call now?

1:30:01It's a new name. I'm going to call him the billionaire formerly known as Lambo guy or we can just call him Adrian because we'll debate the billionaire bit in a minute. And so everybody wants to run a lottery, but nobody wants a license because you can't get them and they suck. And so every country has a way to run a lottery without a license. Loopholes. And the reason the government doesn't go after these loopholes is because nobody loses enough money for it to be a problem. And if the government shuts it down, then hundreds of thousands of people are angry. And so the government largely turns blind eyes to these loopholes.

1:30:36So in Australia, the loophole is this. If I buy a can of Coke, there might be a little sticker that says, every time you buy this, go online, and you can enter the prize. You call it sweepstakes. Sweepstakes. Prize with purchase. The US is the same issue, by the way. The US is the same rule. We'll get to the US. and so imagine though instead of selling a can of coke what if I sold a can of air and what if when you bought that can of air if for every can of air you bought you got a different number of entries into a sweepstake for an expensive car for example or what about I didn't want to sell lots of cans of air because that's annoying so what about if I just put different colours on the can and as you bought nicer colours you would get pay more and you would get more entries and instead of selling cans well Adrian also wraps his business around something that's a little bit different.

1:31:23He also gives discounts. Yes, it's better than a can of air. Yeah. He basically says, here's a product that gets you discounts at all of these different stores. Like affiliate. And the more you pay for this discount card, the more entry, the more it costs you. Yeah. And the more entries you get into these prize draws. And the final prize you can win is some Luxury Escapes holidays, incidentally. Is that right? It is. Or cars is how it started, right? Luxury Escapes is a very small. So Luxury Cars is the cornerstone of this lottery, not a lottery industry. And of course, the block. And he did some great things with the block.

1:31:52And the block, right? Not this time over. We don't know how many people are actually using the cards to get the discounts. Like no one. But we know that if you buy these discount cards at increasing values and get entries into a lottery, then you're not actually paying for the lottery under the laws of states in Australia. Except for South Australia. Except for South Australia is trying to take him to court. Yeah. Which I think is kind of a bit dumb, to be honest, because it's not really hurting anyone. We all know it's a lottery, but it's not a lottery. But it's a lottery. It's a victimless crime.

1:32:19So that's how he works. Now, his business a few years ago was reported as making$50 million of profit. I thought it was more. I thought that was the number. I thought it was like 90 he made. Let's come back to what multiple he should get on that business and whether he's a billionaire. And by the way, he's obviously bought other stuff since then. So there's a different way of getting around it in England. In England, it's much simpler. In England, you can run a lottery as long as you provide a way to enter for free. And so - How does anybody make money off free lotteries? Well, you don't have to only provide free entry.

1:32:50You just have to also provide free entry. And so if I create a lottery and I say, you're going to win this Ferrari, you can buy entries for five or 10 pounds. But also if you fill out this envelope by hand and you write these particular things and your name, you'll get one entry and it has to be in by this date, then that is a lawful lottery in the United Kingdom. and so there's a business called dream cars that's right that runs that very lottery where less than fewer than one percent of people sign up with the free offline method how are they able to reduce the free to one percent because it's very tedious to do it and nobody wants to do it yeah and the cost of people are quite happy to buy lottery tickets yeah there's just a legal problem running a lottery but if you can get around the legal problem so that in england all you have to do is you say you can also enter for free and so there's this business in england that um does this very thing and it generates something like a hundred million dollars aud of revenue yeah and it keeps about a quarter of it yeah gives away its prizes and um and so that is a business that Jumbo Interactive decided they wanted to buy.

1:34:11And so they've now bought this business. And instead of just selling tickets for other people's lotteries, they're now in the lottery business in the United Kingdom. This is a business where people spend $200 or$300 a year. So that's the average. It's growing like a rocket. Is it bigger than Adrian's business? It does$25 million in profit. So it's smaller than Adrian's business. it has 650 ,000 customers. So that's a good customer base for Jumbo. So Jumbo already has the software to facilitate all of this. And now they've got 650 ,000 consumers in the UK that might buy other products from them as well if they sold other lotteries, for example.

1:34:55But they have, and so the other good news is, so what multiple of EBITDA do you think they pay to buy this business? It's well, there's a well set precedent. like there was another business similar in the UK that was sold for the same multiple. EBITDA, I would have thought seven or eight. Well, so six and a half times EBITDA. So people are very happy like, oh, that's much cheaper than what Gin is trading on, right? So let's go and buy this. And so it seems like a great idea, but obviously - It's earnings accretive, you could say. It's earnings accretive. And probably faster growing. But they've just changed the business that they're in from a business where we provide software and facilitate purchasing tickets.

1:35:33How much do they pay for the business? So it's seven times, 150 mil. So it's a much smaller part of the business. It's smaller, correct. But people love it because they look at it and they say, oh, they're in lotteries and they're buying a lottery business and they're buying it six and a half times. They've been done, they've been done with 68 mil, so to say 10 or 11 times. That's great. It's like accretive and they're buying it really cheaply. But they are fundamentally changing the nature of the business they're in and they're exposing themselves to regulatory risk because in the UK, this is currently being reviewed by the regulator for a voluntary code of conduct, which is what's going to last five years before it's formally regulated.

1:36:07I'm not sure they'll take it away, but that's definitely a different business. And they also bought the US equivalent, which was smaller. It was only 25 mil of revenue. But they've got this added thing that they do. This is a fascinating world of lottery non-lotteries. So as well as letting you enter for free, they want a mechanism in the US to be able to sell across all states because it's state regulated. So here's the mechanism. if it's a charitable donation, they can sell across all states in the US. Is that what Lance does as well with his one? Is that Australia? Escalante. Oh, well, he's a casino.

1:36:48He calls it a sweepstakes. I know, but that's a whole separate thing we won't go into. It's like prediction markets are their own thing. Basically, there's 100 different ways of gambling that doesn't look like gambling. It doesn't need to be regulated. And so in the US, if you say it's a donation, then you can market it across the whole of the US. And like in this case, the larger the donation that you make, what do you think happens to the number of entries? More entries. The more entries you get. And so they make these - But I don't think you can call something a donation, but it's not a donation.

1:37:16Ah, well, this is how it works. They go to a charity, a registered charity, and they say what looks like, we'll collect like donations for you. And for every$1 of donation that we collect, we'll keep 80 % of that for running this machine. and we'll remit 20 % to you. It's debatable if the whole amount should be tax deductible because you're only meant to, in the US, it should be tax deductible on the bit that's non-commercial, right? So maybe the 20%. And so they're running a business where they take in 25 mil of... Which this is a tax arbitrage, basically. Oh, they take in 25 mil of revenue and they keep 21 mil of it.

1:37:48Like the TTV is 25 and they keep 20. It's unbelievable, right? So they bought that business as well, Jumbo Interactive. And so now they've kind of transformed their company from a business... to the LMCT Plus equivalent in the US and the UK. And so now we come back to, and so I think it's a fundamentally different business and has changed the risk profile of this company is my personal view dramatically, but they've brought growth, right? Also, yeah, but you can argue that the previous version was not risky, but also very uninspiring. Well, this is the trade-off, right? And so now we come back to LMCT Plus.

1:38:25So do you think that - So just the challenge I have with an acquisition like these is like, I think the best, and you catapult the masters, you want to get an acquisition that plugs into your distribution. So you've got this existing asset called scale economies or whatever it is. And you buy this other thing, or look at Coke buying vitamin water. You buy this thing, you chuck it across your massive distribution platform. Suddenly you can sell 10X of this product. You can make it at a 90 % margin. That's the beautiful, that's a beautiful acquisition. This one is a gambling business buying, sorry, a software business in gambling buying a sort of tangential business, but isn't really related to the core business.

1:39:00It's a software business supporting gambling, like lotteries. But they do different things. Buying gambling businesses. But what if I told you to look at it in the reverse way? What if I said to you, they just picked up 650 ,000 customers in the UK and they are, and whatever it is, 100 ,000 in the US and they're a software platform. And so now all of a sudden they have distribution using their software platform in a new market and they can sell anything they want down that channel because they're getting$500 a customer in Australia and$200 a customer in the UK. I don't know. I'm always very sceptical to be able to sell a different product to a customer.

1:39:38If people like betting, they like betting. It's the same thing when we buy a business, we change the name. So when we say buy Living Social and change the name to Kudo, customers don't buy Kudo because they're used to Living Social. This is even worse. This is not only changing, this is selling them something completely different. I think these customers go, what the hell is this? I swipe to that. I just swipe to this. What do you think the customer base is for all of these businesses? Describe the demographic. 68-year-old female widower. So for which business? This is for the lotteries business.

1:40:08So buying like Oz Lotto or something? So it doesn't have to be female. It's like about equal male and female. But you're right, it skews pretty high. Yeah. What do you think the business is for these? I don't know if it's LMCT +, but it is these dream car businesses. I would say 38-year-old wife. so it's actually 35 to 65 year old males males yeah it's almost exclusively or telly i would say yes but no because they're all selling cars yeah they're all selling this is where the and so it's a younger demographic than lottos like and it heavily skews towards males and so it brings back to the the original question i had which is what multiple you're giving adrian's business So my friend Poodle, who used to work here, is actually running one called Exclusive Holiday Giveaways, which is a really similar concept as well.

1:40:57They're doing pretty well. So they say - Instead of cars, it's holidays. Here's a discount card. Yep, exactly. However many discounts you buy, you get that many entries. Yeah, and I think that's probably much more female than most. I think Adrian's business should be a four to five times multiple. Right. Maybe six on a good day. And so that's not a billionaire, right? No, but he's got a bunch of dividends in the past five years. I agree. And look, he might be a billionaire, but that business is not worth anywhere. No, I think he's probably got five, six hundred million bucks plus whatever the business is worth.

1:41:25It's possible. But remember though, you do pay tax on dividends. That's true. And so I think if he would have gone to, because he wanted to exit his business for ages. He's trying to sell it. In all the media, right? Yeah, yeah. If he would have gone to Jumbo. Yeah. Well, he's bigger than Jumbo though. Well. Making more profit. What number, let's say. He should have merged with Jumbo. You think he was making 90. So let's call it 90. Yeah. So 90 of EBITDA. No, I think 90 of EBIT. 90 of EBIT. Okay. Well, there's not much DNA in these depreciation amortization. Like, because, all right, there's software developers, but let's just.

1:41:59He's got a time. In one point, he had no staff. So let's say he's doing 90 of EBIT. Yeah. What number would you have taken in cash to sell that 90? You. You've got his business. 500. 500. So I think you're right. he should have merged his business into jumbo. Would have been a great merger. They should have. Let's do what I do it. So he would have been smaller, but not by much. Yeah. He would have all of a sudden had liquidity in his shareholding. Yeah. And actually makes a lot more sense now. He's the, he's an unbelievable operator. Now I've got these other businesses. He can actually run the whole thing globally for them.

1:42:36Actually makes a lot more sense now. So if I was him, I would say I would even take, if he doesn't have cash needs, which presumably he doesn't, I would even take one third of the stock to take. That's a 250 mil. No, it's not. It's at 750. And so if he takes, if he takes. Oh, if he merges together. Yeah, yeah, correct. So like, I mean, I'd happily take that kind of number if I was him. Yeah, 400 mil. Yeah, 400, right? Let's say it's 800, you take 400. Yeah. I would take that number in pure stock if I was him. Because the dividends are going to just pour out still, right? But you get all this liquidity.

1:43:12I presume he'd do a much better job than the UK and the American guys are doing. so to me like that would be the logical absolutely step for that business yeah if but you know he's a very agent's very much a soul he just does it all himself he's got a couple of contractors how he'd go in a listed environment i'm not sure like he's an amazing operator but like i'm just not sure that's the environment for him well you know what there are lots of people in the listed environment that are big personalities no but no that's the way he works he's just he's a credible social media operator. He does all that.

1:43:43Maybe he'd be fine. Maybe I'm just getting it wrong. It's an interesting thought. And do you think, so I think these spaces, I mean, we might spawn 200 copycats now, but like that. People know about it. That travel business though. Exclusive holiday giveaways, yeah. That's going to be big, right? I think so. I think people do a great job with it. Like basically, if you offer people the chance to gamble, they're going to take it. Yeah. That's my view of betting. Absolutely. And the reason it has to be regulated is this. And you win luxury escapes. so what better prize could you get than a luxury scapes holiday?

1:44:12A dinner with you. No, I think the holiday's better. But that's the reason why gambling has to be regulated, not just for the dodginess, because if it's not, our whole society will just only be gambling because people that don't earn that much money, like an average salary, like this is their ticket to being rich, literally. But as we've talked about winning the lottery and it's different winning a car, but winning the lottery is nothing worse that can happen to you than winning cash lottery. Yes, but maybe not winning a car and a million dollars, right? Maybe that's okay. It's not that much money.

1:44:42I think winning a holiday, winning, that's perfect. I think winning a couple million bucks, that's a surefire way to ruin your life. I talked about this before on an episode a couple of years ago. So are you long, short or nothing on Jumbo after all of this? I am, I'm not long or short. Yeah, what are you? Well, I think you're, ironically, you have gone from not quite a utility with Jumbo, but it's got some utility characteristics. Yeah, absolutely. So you've gone from almost a utility to now you are being forced to make a bet on Jumbo buying this stock, right? And so I don't think at 17 times earnings, I want to bet.

1:45:27If it was nine times earnings, I probably would take the bet. But also I don't want to bet against it because I think what they've done is not -

1:45:37Yeah, but presumably it's now the share price jumped after these acquisitions. Only jumped about 15 to 20%. So presumably it's stayed at 17 times four, the earnings including this. Maybe. You know what I mean? And so I don't think, I think, I don't want to short it at 17 because it's not 40. Yeah. But I don't want to buy it at 17 because I don't want that bad. No, I'm with you. I agree. Yeah, it's an awkward place where the market's got it right, which we hate. And so if you were in their shoes, and my last question to you, if you were in their shoes and someone, you are the chairman of this business and this is what management brought to you as an acquisition, would you have taken it or not?

1:46:10It's tricky, right?

1:46:16I probably wouldn't have taken it. Yeah, I think I would have. Maybe what we would both say is we would start with a null hypothesis and we would have to be very convinced to take this. But the market likes it. Well, the market likes it because I'm not sure they totally understand it, to be fair. I just don't – like I'm naturally anti-M &A unless there's a really clear revenue and expense synergy. I was not sure I see the revenue synergy. I know you talked about there is the possibility of the cross-sell. They say we're great at marketing. We've got the software platform. I find cross-sell a shocking revenue synergy.

1:46:48The revenue synergy you get is a bolt-on revenue synergy. You know what they say? They say we've got process power. That's Jumbo Interactive's pitch. We've got process power in selling lottery tickets and running a really efficient machine. We want to bring our process power to this business. And then they've probably more got, obviously got brand and they've got scale because people know them and people are straight. And they've got a cornered resource, which is the agreements. They've got a lot of power in this business for a not that valuable business. I know, but... And they've got counter positioning against the old school lotteries.

1:47:19They've got pretty much every power, yet they're only worth$750 million, which is a bit bizarre. And they went backwards. It's because we're seeing them at a mature stage of the business when all of their growth is fundamentally the system growth. The question is, with this business, so I tell you what I would be much more interested in knowing about this business rather than running off and buying these things. Why can't they grow? Why can't they double their market share of their existing lotteries business? Well, presumably that time of lotteries isn't growing itself. Like, who's buying lottery tickets now?

1:47:49It's not, but they're not 50 % of sales. Yeah. So I think this is like a very interesting business for the relatively small size of the business. Super interesting. Well, the whole sector is a fascinating... We've talked about the... Is it LCTM or MCT? The LCT... LMCT Plus. LMCT Plus business before, which is incredibly... And you've got, obviously, Escalante's business. It's a good name because, you know, LMCT, Licensed Motor Car Trader. Yeah, that's right. That's a good name. That's a good point. It kind of hangs on something well-known and, you know... Yeah, no, exactly. That's a great deep dive.

1:48:23Obviously, our friends at Terram Capital have come on board, so check them out. Thank you, Odee. That was a great episode. We got a lot done. thank you Mike that was another fun one we will see everybody for our famous Ask Us Anything episodes on Saturday see you then