Eucalyptus Sale Deep Dive, is Waymo an Uber killer, Winnings’ Winnings, Victoria becomes an official Crime State, Adir Visits Lakemba and special guest business publishing legend, Chris Janz

25:17I know. Your point's good. Your point is basically a lot of their pricing power doesn't come just from brand. It comes from what's effectively a monopolistic position in most markets or many markets. I agree. That's absolutely true about that. The same argument could be said and has been said about Google when AI came and there was all this search and you love perplexity. And so, you know, that was also the human imagination, imagining that Google was going to die, you know, in three weeks and lose all of its monopoly search. And since then, search has gone up for Google. Now, search share hasn't really moved much full stop.

25:54It's still early. But what I'm saying is we don't, people, you know, these futurists. What do you think about futurists? You know, you won't love that, right? There's no more ridiculous job than a futurist. Yeah, yeah. So we don't know what's going to happen in 20 years. It's impossible to know. we maybe don't even know what's going to happen in 10, but maybe you can have a guess five years out. And so I think five years out, like this autonomous car battle, some of it will have played out and we'll start to see who the winners are. Like AI injecting itself into day-to-day search, I think we'll start to see who some winners are with that.

26:28It's not at all clear in either of those situations who the winners are going to be. The trick is how do you find a way to bet on the industry rising without having to pick winners? like a la airline industry, like you would have been a winner if you picked the industry but not the players. And so that's an interesting question I don't have an answer to, but that's where I think we're kind of at. I think the best hope for Uber is they did what they did, essentially did, remember when Uber disrupted taxis and people looked at the taxi TAM and what happened was Uber just increased the TAM because Uber was so much better than taxis.

26:59I think the upside for call it Uber, call it Lyft, is like self-to-autonomous driving. So you can start putting your teenage kids in a car not having to drive them to school, for example. So it increases the market significantly. So even though Uber loses a huge amount of market share to Waymo, we've seen Waymo charge more and get a huge growth in San Fran, LA. So that's how much people prefer it. They're willing to pay more. So I think as Waymo price drops significantly, as Tesla come in with a really low price, then that has to disrupt Uber somewhat. The question is, can the market be increased in volume?

27:35So that's such that Uber captures that loss back. I think it will definitely increase. I think you're like 100 % right on that increase in market size. Like it is a bit of a fascinating moment right now. But remember, like all of this is going to come to a halt briefly when the first few accidents happen, right? We know that. Oh, I think you're being over. Accidents have happened. And I think people are smart enough and media have been smart enough not to pay too much. There definitely is sort of stories written about them, but there's definitely been deaths and accidents. Any kids killed yet?

28:10I can't tell you the ages, but it's obviously 99%. It's 99.9 % less than actual idiots driving around in cars. But so people have been killed by autonomous vehicles? Absolutely. Yeah, absolutely. Well, that's terrible and a good sign that it didn't stop the rollout of autonomous vehicles. Well, I'll tell you, it's not terrible at all because you've got to look at the ratio. Look at how many people, 100 ,000 people in the US die every year, a million people in China die every year. What's terrible is the fact that we still allow people to drive. That's actually what's terrible because we know that there's millions of people dying every year because of cars and the quicker we can roll out EVs.

28:42And this is kids walking down the streets. This isn't just sort of people driving into poles when they're drunk. This is like innocent people who are walking down the street getting killed by cars. Australian governments, state governments, federal governments should be doing everything they can to increase the rollout of autonomous vehicles in Australia because people are dying literally as a result of people driving. Every time I get into an Uber, I actually wonder, will this be my last ever ride? Because these people can barely drive. It's just a disgrace, the low levels, and taxes are even worse.

29:08What I find amazing about that comment is that you wonder whether every Uber is going to be the last moment of your life, and yet you continue to use Ubers. If that was my attitude to the world, I probably wouldn't take an Uber anymore. But you seem to want to live on the wild side. I do. Let's move on. Street Talk reported last week that Elliston Capital Investment House started as manager of the Packer family's billions. is taking a big bet on one of the country's largest white good merchants. I'm not sure you saw this story, Adia. I did. I did. I'm not sure what's going on. I don't know what's in the water at Allston, but this comes just weeks after the fund manager took a massive bet on one of our favourite businesses, Firmus.

29:47The winning family, of course, has owned the company for more than 100 years, and its growth has underpinned a fortune estimated by the Financial Review at$770 million, although God knows how they came up with that estimate because it just seems. They got 700 and then they add 10 % to it, I suspect, is how they came up with that number. Well, I can talk about the financials in a second, but people briefed, usually this means the bankers, on the discussions told Streeq Talk that Ellison was poised to buy the entirety of winning appliances off the founding family in a deal that should be signed as early as next week.

30:18So just a bit of the financials idea. So their underlying EBITDA in 24 was 30 million, in 25 was 25 million. But these guys have a lot of stores and there's a lot of depreciation. So the EBITDA number is irrelevant. relevant uh i'm not sure why i've been printed here then the statutory profit before tax which is a much more relevant number was 5 million 24 and 6 million in 25 and take a little bit off for tax so this is a business that i think john winning is actually a really good operator i haven't actually met him but i've had the same staff he's actually a very smart hungry lovely guy yeah great great operator i think he's done an amazing job with this business but it's not a business that makes a huge amount of money uh it's a really competitive space that we talk about and we'll talk about another business in which it operates in a difficult space but i always look at degree of difficulty of businesses and if you're running a kind of ai business and get this huge valuation whatever but if you're running it this is a really hard business in a really hard sector super commoditized super competitive to build what john's built on on the back of a kind of old stayed tired old business i think is remarkable what's the revenue line uh I don't actually have – Street Talk didn't give a revenue line.

31:27My guess would have to be sort of$500 million plus. Well, I'll tell you what my thoughts are. My first question is why are bankers leaking this one week out from signing? That's a weird kind of – don't you want to leak this six months ago to try and get some other parties in the process? Anyway, I don't really understand that, what's happened exactly there. The second thing is what if – remember when we were looking at Mecca and it looked like it wasn't making that money? And that's because there was a massive hollow log sitting somewhere else that was full of cash. And then all of a sudden, like everyone's a billionaire.

32:02Because all of that money was kind of, I don't want to say hidden by Mecca, but not clear. Well, Mecca, we always thought something didn't make sense there. But in this case, A, this is a much smaller business than Mecca. And B, they announced underlying EBITDA of$25 million for last year. So like presumably, and that number's a decent-ish number. There's just a lot of stuff that's in DA in this business, unfortunately. I mean, the 25 EBITDA number is a decent number. Yeah. I mean, I suspect the family's wealth might have come from all the stuff they've done with the money over the last 100 years, right?

32:34Yeah, they probably just bought properties. There are people that I know whose parents and grandparents, let's say, started businesses in the 1950s. This is 100 years ago. I'm only talking 1950s. And they ended up buying their warehouse or factory. and ultimately that warehouse or factory has been worth tens or more millions of dollars and that's where all of the family wealth has come from. I'm just not sure that's this though. I think there's definitely some – if you look at a business that makes$5 million, that's maybe$100 million business, like being generous. It would have to grow pretty fast to be worth$100 million.

33:11Yeah, let's be generous. Let's give it$100 million because there's obviously a lot of EBITDA there but there's not much impact but whatever. Call it$100 million. If AFR is saying it's$7, it would be really interesting and see what this business actually sells for if it sells. Interesting, John Stensholtz, Australian, the list doesn't have it in there at all. So this is where they differ. So friend of the pod, Stensholtz has given a much, obviously a lower valuation than the AFR here who have been really generous. Don't forget EBITDA, like when you've got a business with stores, because of the gap accounting treatment of rent.

33:43It doesn't even capture all the rent in the EBITDA. That's why I think you've got to look at profit before tax here, which is the far more relevant number, which is like$6 million, great business, and hats off to John for doing such a great job and really dominating this sector in that sense. But JB Hi-Fi makes a lot more money than this. So, like, I'd be really – obviously, Ellison's splashing around cash like there's no tomorrow. I'm interested to see what valuation they come up with. Hopefully, in the next week, we'll find out. The thing that appliances online, which is the winnings online business, by the way, that's a surname.

34:19I would actually pay a lot of money to buy that surname. That is a great surname. I mean, that's the surname you want. You remember when, what was Homer Simpson's name? Max Power. And that was good news for Homer Simpson, right? They gave him a good life being called Max Power, which he got off the hairdryer or something. So basically, I think that if you're called John Winning, like probably you've got a bit of a better chance of succeeding in life would be my guess. That business, what it is best at is customer service and especially delivery service. It probably has the best delivery experience of any business in Australia would be my accolade that I would give to that business.

34:58We actually hired somebody out of winnings a few years ago, Jo, who ran our fashion business for a while. She was outstanding. I think John poached her back at some point. And it was around the time we sold her business to Gavin Hezzy anyway, so it wasn't a huge issue for us at the time, but we were obviously never like losing great people, but she was outstanding. And I think he's built a really good team as well, which makes sense based on what you're saying. So if he does get away, congratulations to John and the family. That's an amazing result, especially given the profitability isn't that big.

35:26And if they can get away for a multi-hundred million dollar sale, that'd be an absolute coup. So congrats. And you had a big story you wanted to talk about. Well, it's a one question quiz to start with. One question. And this is the question. Mike, you have to answer this question because I think, Adam, you're a pretty high chance of knowing the answer, but Mike has a pretty decent chance on this as well. It's a non-business question, okay? A non-business question. It is, who said the following quote? I'm going to give you a quote. You tell me who said this. It concerns me greatly that people can't go into certain suburbs in this country.

36:00Who said that comment recently? I heard it, but I can't remember who said it. I mean, my mind just goes like, was it Albo? No, but it is a Pauline Hanson. Yes, it was Pauline Hanson that said that. And then they asked her for clarification. Which suburbs are you talking about that people can't go to? And she said, Lakemba. She actually said it twice. Now, Lakemba is in Sydney's west. And it's the traditional home of the Lebanese Muslim community. And so I heard her say that. And we all hate racism on this show. Like that is one of the things that we can all agree on. There's not much, but that is one of them.

36:39and so I hate racism so much I thought let's see about that let's see if we really can't go to Lakemba and if it's unsafe so I went out to Lakemba and I went to a place called Punchbowl and Auburn and Bankstown you may have heard of it's a little airport out there and a university out there and I went to Lakemba mosque as well and I went down the streets of these places and I had food, which was tricky because it's Ramadan at the moment. So it was not, you know, I mean, actually it was pretty easy to get food. Actually, there's pretty good food out that way. Oh, the food is sensational. I was just a bit, I tried to be a bit respectful.

37:19Like, I don't know what people think that place is all about, but I can tell you this. Number one, Lakemba, it certainly feels very much still like the heartland of Lebanese Muslim Australia, but it is also full of Asians. I think people told me it was South Koreans that are there. The place is completely clean. I can tell you it feels as safe as anywhere else. And these suburbs, surprisingly, the main streets are cleaner than most of the suburbs I've ever been to. Like they're basically spotless. You know, there were definitely some women that had their heads covered and some that just had their eyes showing.

37:57That was definitely the case. But also there were a couple of young women walking down the street who they may well have been Lebanese Muslims, they were like in cut off like slaves and like no one was doing anything to them. Certainly no one was anything but nice to me everywhere that I went. And so like I make these points, not because I think that there's no problem going on in Australia, like and that the significant number of Muslims in Australia is not a factor in some of the anti-Semitism. It definitely is. But I can tell you that this mainstream Muslim world is not at all, unsurprisingly, what Pauline Hanson has projected it to be because I was there.

38:38And also, what do you think I didn't see in any of those streets when I was walking around there? What did I not see? Praying? Well, I went into a mosque. Actually, there was no praying at the time. No, on the street, I mean. No, there's definitely no praying on the streets. Absolutely not. But like, what else? Only when there's Israeli presidents around. Suddenly the prayers come out, apparently. Well, that was in the city. That was not in Lakemba or any of those places. There was another thing that I expected to see that I saw none of there. There might be one or two or three or somewhere, but I saw none.

39:15Do you know what that was? No. Palestinian flags or any Palestinian paraphernalia. There was zero. Yeah. And if you compare that with Brunswick in Melbourne, where outside the savers op shop like I will get accosted by free Palestine demonstrators trying to argue with me and give me their newspaper that they're selling it is totally different and so the view and I'm not trying to oversimplify things and I don't want to just bring an old lovey-dovey story but I will say this like the fundamental problems that we're having with multiculturalism or maybe I'll say it in a different way all of the greatest parts of multiculturalism which are other people's food and the nice parts of other people's culture that is what I felt when I was going through Lakemba and the other places right punch bowl has got an even worse reputation than Lakemba it was actually even cleaner than Lakemba and so um and so yes all of that like all of that nice multiculturalism is there now obviously I was not wearing any identifying Jewish paraphernalia let alone an Israeli flag although I would have thought to be honest taking an Israeli flag into there like that is that is trying to cause trouble like it would be like someone coming with a Palestinian flag through Jewish areas and waving it but I think my my feeling from talking to people from that community is if they knew that I was Jewish nobody would have any issue about that and if they knew that I was a Zionist some of them would misunderstand what that means and that would be a trickier interaction but I feel like this whole world of they call themselves pro-Palestinian I'll call them pro-Hamas they're not pro-Palestinian I'm pro-Palestinian I don't think there should be safety in a state for Palestinians but like so this pro-Hamas anti-Israel movement it felt like it was much more domiciled in the inner west ultra-progressive whiter parts of the of Australia than it was in the western Muslim parts of Sydney at least.

41:12And so I can say, finish up by saying personally, these comments by Pauline Hanson, she's had this big rise. I know some people that support Pauline Hanson because they're scared basically, and they are right to be scared. When I hear, when I was speaking to people or hearing their stories when I was there, you know, it is also true that there was armed police outside the Lakemba mosque. I was shocked to see that. A whole police presence set up to protect Lakemba Mosque. I was shocked to see that. I was shocked when women said, and these people that I spoke to, and like I know, they'll say women are nervous to go outside their houses wearing a hijab because they're worried about being like verbally abused.

41:56Now, maybe that's legitimate and maybe it's illegitimate, but that is the nature of fear. And so what I would say is like, I actually feel like there is a much better chance to return to social cohesion in Australia than it seems because nobody really interacts with anyone else. And I think the Muslim population of Australia needs to come and hear what Zionism actually means and how it's a peaceful movement. But I would really refute the whole movement to Pauline Hanson. Ultimately, she's a racist and I was there and that is a lie about what is going on in Western Sydney. I think if you're taking the most generous view on sort of her comments and it harks back to your story, I think you could walk through Caulfield or Double Bay with a Palestinian flag and you'd be perfectly safe and I don't think you'd be worried.

42:44I think if you walk through Punchbowl with an Israeli flag, you'd be worried. So I think that in that sense, there is, let's not create a false equivalence. There's definitely a difference. That could be true. Like that could be true. And like also, you know, it was Ramadan, which means it was a different vibe to usual. And also there were definitely parts of Western in Sydney that I drove through where like the Jews, you know, they have like, I mean, there's like eight times more Muslims than Jews in Australia. But like the Jews, they've got like little prayer places and little houses. And I saw some people coming out of one of them and I thought, I definitely would not want to be walking around with an Israeli flag here.

43:21Like that might not be great news. And so that might be true. But my measure of whether or not there's a chance to live together with people is not about whether I can go with an Israeli flag. Like, I think maybe my more, the more, the blunter assessment of that would be, I think a lot of these problems, this deliberate mis, I don't want to say misunderstanding, like misrepresentation of Zionism as being, you know, Jews want to kill Palestinians. This, a lot of the friction in society, that has been whipped up by politicians for their own benefit in this country. And there was an opportunity to, at the very start after October 7, to set some ground rules about what Australia stood for.

44:06And not only was that opportunity missed, but the problems were exacerbated. And when I went, I saw Tony Burke's office when I was out there. And, you know, Paul Keating was the member for Bankstack, by the way. I'm sure you know that, right? The thing at the front of the Western Sydney University is like Paul Keating Plaza or Park or something. But like, you know, I went past Tony Burke's office and I did think to myself, this is a guy, at least as much as anyone else, that has stoked the flames of the problems that we have in society in Australia today. So I agree with you. I'm not trying to sugarcoat this.

44:40Like, I would not be comfortable walking through those areas with an Israeli flag. And I think that sucks. And I think I should be able to. But I'm saying that whilst that's true, a lot of the stuff short of that is not true about what's going on there. and the fact that there were no Palestinian flags and that Palestinian movement does not seem to be pervasive through the streets of Western Sydney, that was a shock and an eye-opener to me. And I would encourage them to come, you know, in a peaceful, friendly way to engage with Jews and understand what Zionists are and that this total misrepresentation that the extreme, you know, far woke left is making, this regressive movement about Jews and Zionists is completely detached from the reality of the situation.

45:22Yeah, I think there's obviously a small, a tiny proportion of Muslim people who maybe hold views that are reprehensible. I think it absolutely is the minority. And I think if you look at who's worse, it's the far left. It's the Louise Adlers, the Craig Fosters, the Mary Costacitas. It's these people who are far, far worse than the mainstream Muslim population who I think generally get on well with Jews and Christians and Hindus and who are else in Australia. I think it's a tiny proportion. And I think Paul and Hanson makes it far worse. I don't think the rise of One Nation is in any way good for Australia.

45:55They're taking votes from the Liberal Party, which whatever you think of the Liberal Party, they're certainly more moderate than Pauline Hanson is. So I think all it could potentially do is keep people like Jacinta Allen in government and other terms. So I'm not sure how in any way this is a good thing for Australian society, the rise of Hanson. I think it's the absolute opposite of that. This hateful left, this hateful far left, has driven the rise of the hateful far right. and the problem is that like Pauline Hanson for a period of time people thought maybe the racism was over and she looked very respectable and then Barnaby Joyce went there I can't really work out Barnaby Joyce full stop like I he can't I don't think he's as ridiculous as he seems on TV but he's a bit of a crazy kind of character right always looking for relevance somewhere and he lost relevance in the national party but um it is worrying to me that reasonable people that i know are starting to think pauline hansen sounds more and more appealing as a leader of australia the flip side is and like i said this bluntly the muslim leadership in australia i take like the turkish leadership out of this statement but the muslim leadership in australia they've really let down their communities like the the rhetoric coming out of their mouths is exceptionally inflammatory.

47:13They should have tried to find a path to peace and conciliation with other communities, especially the Jewish community. And I think that level of hostility and that terrible rhetoric has also really exacerbated the situation. And we haven't heard the same rhetoric from mainstream Jewish organizations in the community. And we'll do a quick pivot to one of our favorite segments, the M &A Deep Dive, of course, brought to you by our good friends at Terram Capital. They acquire technology companies to grow sustainably over decades. Thinking of selling out of here, who do you go to? I'll go to Terram Capital.

47:47Our good friend Scott, the Warren Buffett of Australia. And we had a really high-profile exit or potential exit last week. Of course, your good friend, Tim Doyle's business, Eucalyptus, which has, well, ostensibly been sold to the New York-listed hims and hers for a price that was certainly reported as being$1.6 billion. Yeah,$1.6 billion AUD. AUD,$1.1 billion USD. So the business media formed over the sale with Capital Brief, and we'll have Chris on really soon, who's of course the founder, claiming that it's not overstating things to describe Eucalyptus'$1.6 billion sale as a watershed moment for the Australian startup ecosystem and more broadly Australian business.

48:31It's one of the biggest exits to date for Australian VCs at a time when the sector is most exposed to SaaS and is under serious pressure with the AI panic. Capital Reef also claimed there were several clear winners from transaction. Top of the list is Blackbird Ventures, Eucalyptus' largest shareholder who owned a third of the company. And of course, Tim stands to pocket up to$160 million if everything is hit over the next three years. But Capital Reef are hardly the only ones to talk up the$1.6 billion gusher of riches. The ASR claimed that the business was sold for more than$1.6 billion, a major payday for its 35-year-old co-founder and venture funds.

49:06The Australian claimed that Eucalyptus had been acquired by a San Francisco-based entity for$1.6 billion. Street Talk had previously reported that Eucalyptus was working on closing a round that would value it at$1.37 billion, and it would make it one of the most valuable private companies, having secured a$560 million value in 2023. Alongside the announcement, Eucalyptus said it was delivering annual revenue run rate of$450 million US and within line of sight of profitability. Of course, one small thing that none of these Australian media companies seem to actually look at was the actual business of HIMSS itself.

49:42HIMSS was founded in 2017 as a direct-to-consumer telehealth business for men's health for covering issues like hair loss and erectile dysfunction, but has seen 75 % of its value destroyed since October. but that's 75 % of its share price down in about just over four months. Market value has dropped to US$3.6 billion. Adi, obviously, you know Tim really well. We both know the Blackbird guys really well. Is this one of the greatest days for the Australian venture capital industry or is there more to it? So first, that's a good intro that you gave there. I think my first thing I want to do is kind of a disclaimer, which is like my level of respect for Tim as an operator and as a human being is sky high.

50:21and I'll go so far as to say if I was starting a new business today, he would be pretty close to the top of my list of the person that I'd want to start it with. I think he's like really a terrific operator. And before we talk about this, I mean, there's so much to talk about with this. This is like the greatest topic to talk about, like full stop. But before we get into it, I will say I think when I spoke to Tim, I've spoken to him since this transaction. And I think I might I might actually be catching up with him as this goes live. I said to him, don't tell me about the ins and outs of the deal, because I want to be able to just talk about this based on what I've seen in the media and what I've read from the filings.

51:02And so don't give me any inside kind of information. So I'm talking about this, but I deliberately have avoided, you know, knowing what's going on on the inside because I don't want to share it. I actually feel like it's good to start off by talking about him's and hers first, and then going on to Eucalyptus before I answer all of your questions about eucalyptus. The spoiler is I do think the transaction is the reporting is both true and not true. But I think a big chunk of it is true and we'll come back to that. Hims and hers. So this is a business that started off doing all of those things that you just described, telehealth with hair loss and other types of things and discovered that these weight loss drugs are unbelievable to drive revenue.

51:48Their share price was sky high. They were flying. And then they did a deal. And I want to tell you the deal they did. They went and they said, who wants to make a bet on our share price going to the moon if we make that bet virtually risk-free? Now, note the word virtually. And it turns out lots of rich financiers in the US, they like the sound of that and they said how about we do this this is the deal they did so just say when did when did this transaction happen can you tell our listeners timing this happened i think in 2024 so post listing post listing there's post listing i'll tell you what the share price was in a second at the time of this and you can tell me what it is now and so this is the convertible the convertible note means we're going to give you money and that money is protected as if it's debt that's where it ranks if you go broke it's like debt but we can also convert that into shares so it's a hybrid it's both debt and equity depending that's what a convertible note is and usually it pays interest slash dividend to the owner interest right yes that's right but this is a very special convertible note because this convertible note expires in 2030 and the interest rate it pays is zero percent so basically and then they said we want to raise 450 million dollars to do this which sounds crazy, will give you a 0 % interest rate for the next whatever, six or seven years.

53:14And not only did people want it, there was so much demand. They sold a billion US dollars worth of these things, a billion US dollars. So this is 2024. Why would invest - I think approximately - This is not 2021. 2021, it would have been unusual and bizarre, but like we had zero interest rates then and negative interest rates in some parts. 2024, we didn't have negative of interest rates anywhere. That was sort of 4 % or 5%. So why would investors take a significant haircut on interest rates for a debt instrument? So I'm sure you've looked into this. So I think this actually might've been 2025.

53:47So why would they have - That's even more bemusing. Yeah, I know, I know. I was either late 24 or early 25. So why would they have done it? So this is the beauty of financial engineering, which by the way, is the only engineering that like you know doesn't actually involve engineering but like um so but um so this is what's amazing about this so they think that hims and hers is going to the moon maybe probably because it's flying okay and this and we'll get to this business is a money-making business okay real money and so but it's got big problems it's got a terrible name by the way but you know it's got big the share price it listed at sort of 10 bucks in 2019 and it obviously jumped in 2021 like everything else to hit 24 briefly fell back down to about six bucks or even lower into 2022 was sort of around the sort of six seven eight nine ten in 2024 and then went to the moon so it went from sort of six bucks in into 23 to 65 in may 2018 18 months it went 10x basically so when it was going to the moon is when these notes were in demand and issued and this is what investors felt financiers they said we can make a basically a bet on this company really going to the moon like getting to three or four hundred dollars share price but that we have complete downside protection because it acts like debt we get paid back a hundred percent of it and um so we can't really lose and then what they do is they do other smart stuff which is the price at the time of the issue of these notes was$50 approximately.

55:22That's near the peak. Near the peak. These notes, I think, have a strike price of$70-something. That means they can buy shares for$70-something, convert the debt to shares. And so what that means is if the share price is below$70, they're not going to get anything. They just get their money back notionally. They redeem it. So what they do, yeah, but what they do is they short the shares. So what that means is they sell the shares. And if the shares are going down, even though they're not going to get any return from the convertible note by way of interest, they just get their money back, they make a profit by the shares going down because they've shorted it and that effectively gives them their return.

55:57This is a very smart idea. We're going to find out it's a little bit too smart because at the moment, what are the shares trading at? What price are the shares trading at? They are currently trading at$15 a share. Okay. So that's bad when you've got a convertible note. And just add, in the last month, down 46%. Right. In the last six months, down 65%. So this is a catastrophic drop. So we're going to talk about why they dropped, because the reason I'm telling this backstory is this explains the Eucalyptus transaction, this backstory, okay? Because you know what? There's two sides to a deal. There's like the seller and the buyer, obviously.

56:35And so we have to understand what the buyer is going through if we want to understand why the transaction happened. And so if you've got convertible notes where you can buy shares at$70 and the share's$15, that's pretty bad. But that's okay because they're secured and you're going to get your money back, so that's no problem. And hims and hers, that's making a lot of money. I mean, this is a business making$1 ,200 million of profit a year. It's rocketing. It's doing really, really well and free cash. Looking at their most recent earnings update, which actually was three months, I haven't released their newest one, which should come out really any day.

57:14But if you look at the last three months, net income of$15 million was down from$75 million the previous year because there was some real tax thing. If you look before income before taxes, it's dropped from 24 million to 12 million. So this is not, it's a business that makes on track for sort of what, 50 million earnings annually and dropping? Probably. I think and growing rapidly and their cash flow is - Actually, well, growing revenue, but not growing earnings. That's right. Growing revenue. So if you look at GP, GP went from 84 million to what, this is year on year, 84 million to 156. So they had another, what's that?

57:4973 million in GP. The problem is marketing was up$50 million. And then you had operational costs up. So this is a business that's growing. It grew its OPEX from$300 million to$430 million. So it grew its OPEX by$130 million. It only grew its sales by$120 million. So this is a business that's not performing particularly well. And they're doing a particular thing. And by the way, their cash flow on this business is extremely strong. I think like they had an abnormally strong quarter last quarter. I think they might have generated 100 mil of free cash or something. But generally, I think they're producing 150 per year or 200 per year.

58:26No, it's actually – well, the actual cash, well, it's hard because there's always investing stuff in there which really – I know, but the operating cash is pretty good. But then there's that stuff that isn't in the operating cash. If you look at pure operating cash, it's about 300 a year. Then you've obviously got share-based payments, all that kind of stuff. So that's part of the issue. Exactly. But just remember that they generate cash. And you know what they did, by the way, when they got the convertible notes? They were worried their share price would go too high and they would get diluted too much.

58:55So they also bought this insurance stuff. Remember that insurance stuff that gave firmness their big gain? So they did a similar thing and they bought the insurance. Not so great when the share price is going down. But hang on. What I'm saying is if you're an investor and you own a convertible note, and it's way out of the money, but it's a convertible note secured, most of the billion dollars they were given it's still there in various long and short-term investments in the bank so they've got they don't have a bill but it's mostly there and they've actually a bit more than a bill i think at the moment and also like they're not burning cash you might not be happy about how much they're making but you would feel pretty safe as a holder of those convertible notes with the balance sheet profit and loss and cash flow statement of this business you want to touch on the balance sheet so let's go through the balance sheet here so this is 30 September 2025.

59:41So, you've got cash and cash-like stuff. So, this is prepayments, inventory. We'll give them full credit for inventory, although there's question marks on that. But let's assume full value of inventory. That's 845 million, plus there's another 438 million in long-term investments. So, that's obviously the money they've had from the con note. So, I'll give them as real, call that real cash. They got about just under 1.3 billion in cash-like. So, real assets. And everything else, I don't give it credit. for deferred tax, goodwill. So they call it$1.3 billion. And then look at the bad side of the balance sheet, the liability side.

1:00:20So they've got current liabilities of$450 ,000. Then, of course, you've got your famous notes and then you've got some lease stuff and some earn-out stuff. The earn-out and lease stuff I'm less bothered about, but liability is liability. They've got total liabilities of$1.6 billion, but let's call it$1.5 if you're getting rid of some of the stuff that's a bit less onerous. But it's still negative, caught negative current, negative real assets, if I'm sort of calling it real stuff. So they got negative. And so if, well, caught a couple of hundred million bucks there and not making much money. And so, but if I'm the note holder at that stage, I still feel okay because my note's not due until 2030.

1:00:57And so, like, I think they're going to find the money. Now, what if I told you that the notes are currently trading, because they trade these notes, at 70 cents in the dollar? We can call that distressed debt. That is distressed debt. So why – this picture doesn't look too bad. Why would they be trading at severe distressed debt levels? And there is one reason for this. This is below junk, by the way. So you've got sort of investment grade, junk grade, and distressed, which is like – This is distressed. Yeah. Yeah. And so because when you're trading at$0.70, what that basically means is people – there is a pretty decent risk that the whole of your money ain't coming back.

1:01:35And maybe none of it's coming back, but probably not none, okay? and so what's gone wrong and this is what's gone wrong and this forms the basis for the eucalyptus transaction so this is why i'm looking at the long run-up of this story okay it's like devin malcolm coming off the background and rvmcg god that's a good memory that three people that listen to the panels will know um so so um so i told you what the recent rocketing growth has been driven by at him's and hers these glp1 weight loss drugs and they're not necessarily nova nordisk and they're not wagovi and monjaro these are compounded drugs right that's right that's what is compounded just to remind people haven't compounded means make your make your own at home we can call it it's not quite that bad but yeah but but it means we don't we're not going to buy and so they do distribute some from the major players but predominantly this is a business that is having compounding pharmacies manufacture their own versions of these glp1 drugs now that is great the by the way the margins on that are actually worse than the margins on all the hair stuff and the other stuff they're selling because those are all off pattern altogether okay so like they're making like 80 plus percent margin gross margin on the other stuff and i think they'd be struggling to make 70 even on compounded glp ones but that's not the problem the bigger problem is nofo nor disc they're not wrapped about this particular arrangement they feel like you know we spent a lot of time and money like decades yeah it was early 2000s GLP once got discovered.

1:03:20And we spent a long time and a lot of money and we did this thing called a patent in order, that's how the system works. And we don't think that you should be running around making versions of stuff that we have on patents. And so what they've decided to do is to sue hims and hers for patent infringement and some other, and for, I don't remember the exact term, but for willfully breaching the patent. It's making a commercial decision to do it. And so there are some problems for hims and hers with this issue. Number one is until not that long ago, Novo Nordisk was actually the most valuable company in the world.

1:03:55So like - No, it wasn't in the world. It was the most valuable company in Europe. In Europe. In Europe. That's right. And so - Now, not so much. But they're not trifling. Like you don't want these guys suing you. This is a problem. Like let's just say their ability to go to trial, like the financial side of it, it's like a tiny - 200 million US market cap. I think they hit about$700 ,000. $200 billion. $200 billion US market cap, and Eli Lilly is like over a billion now, I think. And if they have to spend$100 million taking this to trial, that's no problem. And I don't think they're going to want to settle this because this is the biggest player that's doing this, and I think they want to set an example.

1:04:36And the problem that Hims and Hers has got is that they're not seeking an injunction to stop them doing it. They're seeking compensation for loss. And so their argument would be, him's and hers, they've sold, I don't know,$400 million worth of this stuff, let's say. And so you could say the compensation is if people wouldn't have bought it from them, they would have bought it from us. And that's$400 million of lost income. That's a big damages claim. Or you could say we're actually three or four times the price. And so it's not$400. It's like$1.2 billion of lost income. And the arguments on the other side will be many.

1:05:10and one of them might be, but we're cheap and people just wouldn't have paid the higher prices from you if they wouldn't have bought from us. My gut feel is, given the US is a big fan of protecting IP, even though this is not a US company, it's a European company, I think the US courts have headed in the direction making it pretty clear that they want to protect this kind of intellectual property. Is there a reason why Eli Lilly hasn't also sued them? I don't know, but this is probably a Novo Nordisk suit. And so if you want to know why this share price has tanked, this is the answer. It's the Novo Nordisk suit, which is probably, I reckon this is two, two and a half years away from judgment if it goes through trial.

1:05:54Remember that timeline. Are you still with me on this? And so this is why - And also the thing is the legal costs are probably getting - Hundreds of millions of dollars. It's more than the income they're earning annually now, significantly more. Yeah, yeah. it'll be hundreds of millions of dollars in legal costs. And so to defend it, I suspect. And so America is like, I've had litigation in the US. I cannot believe how expensive it is. I've had it in Australia and in the US, it's 10 times more expensive in the US. And so this is why those convertible notes are worth 70 cents in the dollar, because people are like, how the hell are we going to get back our billion dollars if Novo Nordisk gets a hundreds of millions or billion dollar payout, like we're never going to see our money.

1:06:35And so they're not trading at five cents. It's strange they're not, to be honest. But they're trading at seven. Seventy actually sounds pretty high. Because there is definitely uncertainty about, you know, what is going to happen with this Nova situation. So now you're running hims and hers, and you've got some problems, to say the least. And so you say, what should I do? And one thing you might want to do is find a great overseas operator outside the US jurisdiction that is in Australia and Germany, like Eucalyptus is big in Germany and some other places that are predominantly UK. So I just want to say Eucalyptus is a global top operator in this space and growing crazy fast.

1:07:22I think their revenue is most likely more than the 450. And the reason I say that it's a technically, I don't know, but like, like hims and hers had a big quarter because there was a whole lot of backlog of purchases and then they recognized all the revenue. And I suspect eucalyptus hasn't yet had a chance to recognize the backlog. So it might be higher than the 450. Well, that's 450 is ARR, not revenue, but yeah. I know, but I suspect their revenue might even be higher than that. So like their real revenue run rate. I don't know if the revenue would be higher, but the revenue could be close to the ARR.

1:07:49Yeah, I think their revenue, their real revenue run rate could, anyway, whatever. Like my point is, these are real numbers and probably at least that. And so HIMSS and HERS also, what they're really good at is selling everything that is not GLP-1s and making tons of money out of it, which Eucalyptus is doing some of, but HIMSS and HERS are the best at doing this. And so they look at Eucalyptus and they say, this would be a great acquisition for us for all of these reasons, especially at this moment. And Eucalyptus is there. Now, why would Eucalyptus want to sell? And my guess is that it hasn't been the easiest time to raise money for eucalyptus either, given this Novo stuff that's going on in the US.

1:08:28I don't reckon that would be – they could probably raise money because they're growing so fast and Tim is generally considered to be a great operator. But maybe they'd be struggling on valuation or something. Who knows? Who knows? And they definitely need more cash. I'll tell you how we know they need more cash. They definitely need more cash. so you have these confluence of um circumstances that makes the transaction probably attractive for both parties and then you see a headline number how are you going to feel if i talk in us dollars am i allowed to talk in us dollars because it's going to be much easier okay thank you tick that box all right so it's 1.15 billion us dollars is the headline number and so what has surprised me more than n and that number is pretty close to the truth i want to give you that as a spoiler okay so i know that like there's lots of conjecture about what it is it just is not exactly in the way that it's been reported and the most surprising part of this whole story to me is that everything that i have just said to you now has been completely absent from all of the reporting by way of background and also there's an 8k that gets released to the stock market We talked about the 8K.

1:09:36We read the 8K. The 8K summarizes the nature of the deal terms. It seems to me - The full contract as well in there, if you're that way inclined to read a 200-page - Oh, there's a full contract? A full contract in there. It's a bit redacted a little bit, but - And so what has surprised me, and we might want to talk to Chris about this when he comes on, is it seems like no journalist has even read the 8K based on their reporting, because I can work a lot of stuff out from the 8K, and I'm going to tell you a lot of stuff that I've worked out from the 8K. I feel like I'm giving a long soliloquy though, so I should pause to take a breath at this point in time.

1:10:06I think the biggest question mark is called the 1 billion or the Australian 1.6 billion number is predicated on hims and hers, not just surviving, but so got to get through the Nova Nordisk lawsuit, but also has to make a chunk of cash because it can't currently afford to pay that amount of money. I think if you look at the upfront amount, which is 240 US, call it 375 Australian, which is still a big chunk of cash, they can afford to. So you should break this down and begin saying, this stuff gets paid in three pieces. Piece one is 240 mil. You can talk about it. You'll talk about how it's paid.

1:10:43Piece one is 240 mil. Piece two is what, 720 or something? Yep, roughly that. And there's 200 million at the end. And there's 200 at the end. So that's how this number is broken down. And the 700 is paid over three years, I think. 18 months. Yeah. So 18 months, and I think it's every three months. So that's before the earn-out. So the middle$700 million is not dependent on how well Eucalyptus starts. It's not an earn-out base. It's guaranteed. Well, guaranteed in a sense. No, no. The amount is definitely legally guaranteed. I'm not saying it's not guaranteed. I'm saying guaranteed in a sense that assuming they can afford to pay.

1:11:21Well, that's every business, right? That's everything. If you go broke. Yeah. But if I walked up to you and I said, I created an acquisition company, I said, I'm going to buy Catapult for you for$10 billion. But my company I'm buying, Catapult, has$1 in the bank. Like that's, yeah, I've offered you$10 million, but it's not really$10 billion. I can't afford to pay you$10 billion. This isn't that extreme. I get it. But it's on the scale of, well, it's not a business. These guys aren't being bought by Nova Nordisk. I agree. They're being bought by Chemist Warehouse even. They've been bought by a company that potentially could be insolvent in the years.

1:11:56Well, so I think this is the beauty of this. So what you're basically saying is if the company goes broke, this guaranteed payment turns into an unsecured creditor and it's very unlikely to see a cent. And so what I would say is the 18-month payment terms, I believe, are well within the, I would say, almost guaranteed solvency period of hims and hers irrespective of Novo Nordisk because I think it will be two to two and a half years until that case plays out. So I think they're safe in that 18-month window. What they're not safe though is, and what has been really badly reported, is the way it's been reported is effectively being 1.6 billion in cash when the upfront payment is cash.

1:12:38So I think you can bank, well, nothing's ever certain in this world, but you can have relative confidence that the 240 million US, 400 or 375 million Aussie upfront payment is good. So let's say that, and if that happens, and even when that happens, this is an incredible result from Tim and the team and one of the best transactions ever in Australian sort of VC-backed history. So hats off to the guys. If they get the$1.6 billion number in Australian dollars, to me, I hate this reporting because it actually sort of makes it, A, I think it's unlikely to happen, and B, it diminishes the incredible achievement they've done in getting$400 million for this, almost$400 million for this business, which is an amazing performance.

1:13:18So I think the media has done these guys a disservice here. I think the problem is they probably end up getting paid in shares because there just isn't cash there. So you get these potentially useless hims and hers shares. So the VCs are getting these useless shares. So I'll correct you on two things. One is I don't think receiving this money is unlikely. I'll tell you which bits I think are likely or not. And number two, I just want to correct you and say, So that middle portion of$720 million or whatever it is,$710, I think it is, US, yeah, I'm talking US dollars, that can be paid at the discretion of him and her, sole discretion, as cash or stock.

1:13:58But if it's paid as stock, there is a clause in the deal that is very unusual that basically says we will issue the shares immediately and you can sell them as fast as the SEC approves them, which might be two days. so they can sell those shares back to back with receiving those shares in the market. Now, they may flood the market with shares if they do that, which is its own problem, right? But it's not like they're going to be stuck with the shares and no liquidity. They can sell them immediately. True, but as the share price is dropping more and more, they're going to have to issue an incredible amount.

1:14:33Let's say that the share price keeps dropping. They do. Then they're dumping shares. The share price potentially goes to zero in that situation. We haven't got a crystal ball. We don't know what will happen. But what we know is - Because they're issuing the shares. Each time they issue shares, they're taking a new 10-day value weighted average price for the shares and pricing them at that. So the vendors, that is the Eucalyptus shareholders, they are not prejudiced by a falling share price in terms of the value of the notional value of the shares. I think we can focus on the good part of this transaction from a Eucalyptus perspective is to get 375 million Australian for the business is an unbelievable achievement.

1:15:13Up front in cash. Up front in cash. And this is, I'm talking about the degree of difficulty. This is one of the hardest businesses. This is a commoditized, super competitive, and it shows how good Tim and the team are. Obviously, it came out of Koala, which has been an incredible success story as well. I agree. I think your point about, I don't think there's a better marketer in Australia and possibly a better digital marketer in the world than this team. And they've been able to monetize that incredible marketing ability to get this$375 million upfront cash, whatever we think of the rest of it, and it may or may not happen, I think I'd be pretty dubious on getting much of the rest of it.

1:15:42But forget the rest of it. This is why I think the reporting should have been incredible Australian success story makes almost$400 million in one of the world's toughest industries, not$1.6 billion game-changing VC result, which I think is what I have an issue with some of this reporting. So you and I have got different views on that. Look, I definitely think they're going to get... So I'll tell you my percentage confidence. Up front, I think the likelihood of that is 90%. Yeah, I agree with that. It just has to go through. One of the people that can possibly block this deal is the note holders because there's some provisions in those notes that they can stop cash pouring out somewhere else.

1:16:17If they try to block it, then what they can do is just issue it all in stock because they can't block that. But I don't think the note holders are going to block this deal. I'm sure they would have asked the note holders before this. Hopefully. But I wouldn't block this if I was the note holders because this is your chance of actually getting some money back, right, if this thing performs. I think the deferred amount, that's 710 mil, because it's 18 months, I think there's an exceptionally high chance of getting it, but I think the chances of it coming predominantly in cash feel not so high to me.

1:16:49I think a lot of stock might end up being issued. I think it's zero. It's zero percent cash. Oh, I don't think it would be zero cash. How quickly can they sell the shares before the share price tanks further That would be the question in my head. I think I really believe the investors think they're going to get 100 % of that in cash and that's their expectation. I don't think the investors are reconciled to getting stock and how it plays out we'll have to see. I don't think it's going to be 0 % cash, but that would be my worry. And the earn out, I think it's 200 mil earn out USD. If the business is still trading at that point in time, and I think this eucalyptus transaction gives it a much better chance of staying alive, then I think Tim is almost a dead certainty to be able to get the earn out because it's Tim.

1:17:31Like, look what he's done with this business. Like, he'll hit the numbers. Like, he'll get to the numbers. So that's why I disagree with you about the value. I don't mind saying it's a headline number of 1.6 billion AUD. I don't think they should say all cash. I think that's misunderstanding the deal structure. But I'm much more supportive of that number being reported and 200 mil USD is an earn out of that. So I would say it's like, I don't know what it is, Australian dollars,$1.3 billion transaction with another$300 million earn out. And it's going to be paid in cash and possibly some shares as well.

1:18:07I can tell you though what the splits are with that who gets what of those three tiers. So just in terms of percentages, in terms of reporting, I would have loved to have seen the reporting. Australian business gets$400 million sale locked in with upside to$1.3 billion or$1.6 billion. I think the way it's been reported is just misleading. No, but you think it's misleading because it's not Novo Nordisk buying them. But if Novo Nordisk was doing this, you would have no issue. Absolutely, 100%. So that's your issue. I think that nuance is too much to ask for. I think taking five minutes to look at the buyer.

1:18:46When a buyer's dropped 75 % share price in four months, surely alarm bells ring. When you drop 75 % in four months and you're going off buying businesses that are worth more than your, well, eight times your available cash or whatever it is, then you've got some real issues. Well, actually you've got negative cash if you look at all that liability. So I'm highly, and that's not even factoring in the legal costs. They'll probably start losing money because of the legal costs as well. The only hope is Novo dropped this lawsuit somehow and Eli don't sue them. And if that happens, then I'd have a lot more confidence.

1:19:19But unfortunately that hasn't happened yet. Well, if that happens, I'd have 100 % confidence. So, you know, what we can find in this documentation is some other very cool stuff about who gets what and when. Because not every shareholder is equal in those three different tiers of getting paid out. And the 8K and the contract are very specific about who gets what. and basically, I can't remember the exact terms, but essentially the two groups of shareholders are divided into key employee sellers, I think it was called, and other sellers. So there's two groups. Now, we don't know who's in those two groups.

1:20:01I couldn't find that revealed anywhere. As in VCs and the other sellers and the key employees, presumably. Well, the VCs will definitely be in the, what's it called? They'll definitely be in the other sellers. But I don't know who's in the key employee sellers. Like the question is, is that just Tim? Is it Tim and his other three founders? Is it the employee? Four founders, two still around. Is it the employee share options plan as well? So we don't know. It could be two or it could be a lot more, right? But I can tell you this. It specifies who gets which portions of those three tiers and what percentage that makes up of their total payout, not what percentage of the pool they get, what percentage it makes up.

1:20:47Now, you might say they've hit on what percentage of the tier they get. So it's going to be hard to work out who gets what. But if you have enough data, and you can kind of work out some equations, you can kind of work out the split between the different groups. And so the upfront portion, again, I'll talk USD, 240 million us dollars that goes um as follows that money makes up 40 percent of the total payout that is going to these special shareholders i'm going to call them so who's special special employees or special other special employees special employees yeah that's special and so whatever amount they're getting a hundred dollars i'll tell you what the amount i think they're getting$100, that 40 % of that amount is going to come from this upfront cash.

1:21:38That means these founders, they get a chunk of that upfront cash. Which is great. And the remainder of the cash goes to the other shareholders and that makes up 18 % of their payout. And the 18 % is derived in a very interesting way. It's called 20 % of 90%. And the reason it's called 20 % of 90 % is because the other shareholders get 90 % of their total value guaranteed in tranches one and two. So we can call it 20 % of 90 % obviously is 18%. So we know that's what they get in one. I'm going to tell you I think how much I think where the numbers lead at the end. This deferred payment of$710 million in cash or stock paid over 18 months, the special employees get zero of that.

1:22:29that all goes to smart the investors yeah smart for the employers so that's their problem whether this is cash or stock or whatever now i will say i think it's totally legitimate for vcs to factor that money into what they say they achieved as a return from this investment whether or not they get it and how they get it they can worry about later i have much that all goes to the VCs, okay? And so what we can know is that this is the beauty of this. What we know is that $710 million represents 72 % of the total amount going to non-employees. So that tells us everything we kind of need to know at that point in time.

1:23:12And then in the last bit, the earn out, the earn out comprises that$200 million. And I'm going to assume that Tim can achieve that if the business is still firing. That represents only 10 % of the money that the non-employees get, but it represents 60 % of the total available payout for the employees. And in addition to that, there's another$50 million of shares that is going to be issued to employees who stick around. I think it's the founder base. It's probably too many. So I can tell you this, based on my maths in working this out, the total pool that goes to, so this is of the 1.15 billion US dollars, the total amount of that, that goes to these non-special employees is 980 million dollars USD.

1:24:05And the total amount that goes to the special employees is$170 million USD, but only$68 million USD is paid to those special employees in cash and upfront, and they don't get any more of their, what I think is $170 million USD until the earn out. So they get 100 mil Aussie, which is still a great result for the founders. So I think you'd be - And we don't know if that's, and if that's between two of them, then that's incredible and if it's in four of them it's very good right yeah and so i think that is what the splits look like on this based on the maths i could be wrong like i tried to figure out other ways to to do this but i just don't see any other way to do the maths when you know that 72 percent of the other non-employee shareholders it makes is 710 million dollars like i don't see how the maths could work any other way well i'm sure someone from they can correct me company will correct if your numbers are wrong.

1:25:05And if that's the case, again, great result for the founders. Can I say one more addition to that number? So the reason it doesn't work out perfectly, it works out only to 17.5%, not 18 % of the upfront. I think it's because there's also this thing that happened that nobody reported and I think was a stroke of genius by Tim, which is as part of this deal, Hims and Hers gives an immediate 30 million US dollar facility to eucalyptus to start continuing to grow their business enough to worry about cash until this transaction closes, which makes me think they probably were running a bit skinny on cash when they did this deal.

1:25:43So I think that's what the equalizer is on these percentages. But that was the other bit of this transaction that I think was important for eucalyptus to do. That's an extra 30 mil USD they can keep using to grow faster. So I think this is my quick views. Great result for the founders. I think average result for the VCs could be a good result, could be a bad result. I think call it average result. I think the only caveat is if the VCs are able to somehow short HIMSS shares, then maybe they get a good result there. I don't know whether they can or not, but that's what I'll be. I'll be trying to hedge my exposure in HIMSS shares by shorting them.

1:26:16And I think not investing advice, HIMSS shares into the best short ever, given they're about to the hell out of themselves in the next 18 months. But if you're a VC and you somehow can get exposure to the downside of HIMSS could be a great transaction. If you can't, I'd be pretty concerned that most of my return is dependent on being able to flog off these rapidly dropping shares in the next 18 months. But I think great result for founders here. The ideal thing you'd want to short is like you'd want to short the convertible notes. That would be the greatest thing to short, right? They are the most linked thing to whether the business is going to survive or not.

1:26:49Well, both equity as well, like the share price goes to zero as well. I know, but like investors, I think equity investors are less brutal in their analysis of things than debt investors in my experience. Yeah. I'm not sure you want to hold either, but I think they're both highly shortable. That's some amazing analysis from you there. And what really hasn't been done by any sort of – everybody's just trumpeted this 1.6 billion number, which pretty clearly, even on the most optimistic reading, probably isn't right because you're going to lose in the sort of share sale process. But I think the lack of work being done on the acquirer here is highly problematic in what is a really fascinating takeover offer for what has been a great story.

1:27:34And congratulations to Tim and the team for extracting all this value in what is, again, a really difficult sector. We'll go to a super quick break, back with our very special guest in just a moment.

1:27:53And we are back and we're super excited to have arguably Australia's most accomplished financial publisher on the pod. So Chris Jan started his career as a journalist working at News Corp before running Allure Media, which of course published Business Insider, Gizmodo, and of course PopSugar, which was effectively an affiliate business. Chris then moved to Fairfax to run the Australian arm of Huffington Post before a very successful tenure running Fairfax's publishing business, which of course includes the AFR, SMH and The Age. Many, including myself, credit Chris with saving Fairfax before its merger with Nine in 2018.

1:28:28And many spec, without Chris's leadership, The Age and SMH would have become digital only. In a decision that angered many, especially myself, Chris was overlooked to run Nine in favour of Mike Sneesby, whose short tenure ended after three years. That is said, in the meantime, Chris went out to found Capital Brief, which operates a subscription-led revenue model, avoiding heavy reliance on advertising. Mate, I would not have scripted that as politely. Thank you so much. Congratulations on obviously your career at Fairfax. We knew each other well then, and we were obviously very grateful for you, for your leadership there.

1:29:02But you've created, we went back to being a founder in 2023. Talk us through, I guess, the thought process there. You could have had probably any publishing job in the world at the time, but chose to start your own thing. A degree of insanity, I think, to found a media business in Australia in this day and age. But when I left Nine, I spent some time exploring a bunch of different pathways and came to the really firm conclusion that media was in my blood. And I had a deep concern about where media in this country was heading. We're one of the most concentrated media markets in the world. There's effectively two publishing houses now responsible for most of the journalistic output here.

1:29:40And with that concentration comes power. And that I think is problematic. On the other side, the business model primarily in this country is driven by reach. So it's about getting as many eyeballs as possible in front of journalism. And that leads to clickbait. It leads to emotionally charged journalism. The easiest way basically to gain reach is to game algorithms, whether you're talking about Meta's products or search. And I think that's problematic. You know, you end up in a world where you are encouraging the creation of journalism that doesn't necessarily reflect what's going on in the world.

1:30:22So I came to the conclusion kind of like it's now or never. You go and try and build something that's different, that's additive to the landscape, that takes things down a different path in a hope that you rise all boats. So when you started Capital Brief, you had obviously some cash of your own, but did you raise money for it? How did the process of founding the business transpire? I did a bit of a tour of the primary funders of new businesses in the country and plenty of people said, yes, we agree. There's an opportunity in media. There's a gap in media. We're totally behind you. And generally the second half of the sentence was because people need to understand that whether it was fossil fuels are great or fossil fuels are bad or whatever their personal bug there was, was the primary motivation.

1:31:10I found a group in Shearwater Capital that weren't driven by going down a particular partisan path, but instead liked the business model and were like, we'll back you, and ended up raising two rounds with them off the back of that commitment. And They've been perfect shareholders. They understand that their journalism operates independently from the business, which was really important to me, and have just backed us all the way. Talk us through the revenue model and particularly the business model, Chris. So you don't sell – I don't think you sell much, if any, advertising. So it's largely subscription-based, to your point, on clickbait.

1:31:48So in terms of how much do you charge and what's the break-even point? Have you hit break-even? How is it tracked first? We had Joe from Rampart last week, and he talked through us through his model. How does your model compare and how have you gone since you started? We intentionally started with a subscription-only model. We now do take advertising purely because there was so much pent-up demand around it. But if you take a step back in the very beginning, 100 % subscription led. And that was important to me because the second you introduce advertising into the equation, you almost introduce a reason to gamify for reach.

1:32:24And I wanted the journalism to be much more focused on who our audience is. And our audience is really those people in business and politics that are shaping the future of the country. So, yes, subscription-led model, the bit that's probably misunderstood about our business is that it isn't all about individual subscriptions hand-to-hand, going one-to-one. The primary subscriptions come from businesses who share the same concerns, I think, about what their staff are consuming, particularly younger staff. If you are reading journalism that is driven by an algorithm, you're reading misinformation, you're not properly educated about what's going on in the world.

1:33:05And that introduces lost opportunity, but also introduces risk for businesses and what's being written about their own sectors. So our primary model is B2B subscriptions. And it's a seat-based licensing piece where they sign up either whole of enterprise or particular teams to receive the journalism. and the kind of secret source there is a lot of our a lot of our output is geared around newsletters we have a morning newsletter that is what's happened overnight we have an afternoon newsletter that is kind of we call the edition quite intentionally as it's built around what you would be producing for the newspaper the next day but they're intentionally brief they're intentionally really compact so that people can be up to speed in just a few minutes at a time it's we're not providing the smorgasbord of content that other outlets do quite intentionally and that solves a need in the use case for those orgs.

1:33:58Well, I'm very happy to hear that it's corporate subscriptions because I'm obviously a subscriber, as you might have heard. And we are very, very grateful. Well, you shouldn't be grateful to me because, like, I'm getting the better deal. Like, the content is good quality content. And, like, you know, I basically bought it. It was on a half price that I happened to see it and I bought it and the content is worth much more than I'm paying for it, frankly, like much more. And I was kind of thinking, God, this feels like a hard way to make money when you're producing such high quality content and so it's nice to hear that actually the predominant business model is a b2b seats based model and i think that's excellent the advertising is an interesting question because so obviously we take advertising i don't know what we are exactly so we're in our own bucket and the reason that um we don't try and get clicks it's kind of maybe a bit of a unique reason but like this podcast is just two people talking and like trying to get Adam to say anything that he doesn't want to say is essentially impossible so we can forget about that as a concept this is a very good thing yeah that's and so he'll just say exactly what he thinks and believes and like sometimes I can modify him slightly because maybe I want to keep a couple of friends or something but like basically basically I think it is an interesting argument about advertising and how much the addiction to advertising ends up shaping the content you produce because people tend to hear that and think you're producing advertorial content to placate the advertiser but really what you're talking about is you're producing content for clicks it's a different kind of thing and I mean I don't know if there's any way to I don't know how you could answer this question but I like it was a such as you said that I thought gosh that is an interesting way to think about the world how do you think about that in terms of the degree to which that influences mainstream media in Australia, the need for those clicks for advertisers.

1:35:46It absolutely shapes most of the journalistic output that you see from commercial organisations here because they are selling eyeballs and they're having to compete against Google and Meta that have effectively 100 % penetration in the market. But their businesses have been geared around selling advertising for such a long period of time that they can't walk away from it and they can't walk back from it without introducing risk. If you're a public company, it's really hard to say, hey, we know what the right answer is, but over the next three years in shifting to that answer, we're going to lose revenue, lose margin.

1:36:23And so it's a really tricky situation to manage. And I think the beauty of being a clean sheet of paper, getting out, hey, how would we build this business in today's environment from scratch is that you can be quite purposely subscription driven without knowing what you're losing on the other side and you know you obviously ran a big part of that Fairfax business you know what the volume of resources are over there I'm sure you complained about not having enough resources when you were there and now you're sitting here like oh my god if I had 10 % of those resources but like what is it like trying to how do you find your space I guess especially with regards to business stories in in terms of what you report are you trying to break stories how do you find yourself positioned relative to say a fin review who has a lot more resources yeah look and i i know you made a comment on last week's pod that fired me up a bit about um going head did i tell me what that was i'm happy with that i'm happy to hear that well and i i think you did it brilliantly that's why we're going to say that you're head to head with something are you not head to head with a fin You don't feel like that's where you are.

1:37:33We've never sought to be head-to-head with the financial review. You know, I look at the Fin and I think it's a great newspaper. I was really proud to lead it for a period of time and, you know, lead it from a period where it too was facing print extinction through to being part of one of the most profitable newspaper groups in the world. They, you know, provide the smorgasbord. It's kind of like whatever you want, if you're in a certain audience segment, they've got it there. But that also introduces risk. You know, they're kind of an effective monopoly and the only people really investing in business journalism at scale in Australia now.

1:38:10And monopolies, you know, when you're on the right side of them, they can be a pretty good deal. If you're on the wrong side of them, it can be a pretty risky equation. So we're seeking to be additive to that. And yes, at times being a bit of a counterbalance and providing a broader perspective. But other times, if you are a decision maker, we would like to be providing additive intelligence and not giving you just what you get over there so that you're very comfortable having both products. And so that would presumably mean that you feel that the wallet size amongst the market that you're targeting, which who presumably many of them would have fin review subscriptions in their businesses, for example, and maybe the Oz, maybe other Fairfax papers, whatever that might be, you feel like that wallet has the capacity to expand if there's high quality content that gets added to the pool.

1:39:01Oh, it's no secret that we started in business journalism for a reason. And that's because you're putting your hand into your boss's wallet most of the time, not putting your hand into your own. General news is a much, much tougher game. And, you know, general news too, if you're at, you know, whether it's the Herald, the Telegraph, the Oz, you're competing against all sorts of outlets that are free, whether it's taxpayer funded content or other free advertiser funded content, it becomes a pretty tricky equation. So, you know, I think I would have been a mug to walk straight into a general news proposition that in business, the propensity to pay hasn't been a challenge.

1:39:41Or sport. People love doing sport and then you go and try and do sports media and you realise there's just no way to extract money from anyone. Like from subscribers, from advertisers, there's just no way to pull money out of that space. Well, I think the difference, the one big difference in business, the one, Chris, you mentioned is businesses pay. The other one is the ATO pays or the taxpayer pays half because you get a tax deduction for it as well. So you get that really nice sort of free carry to an extent. Can you talk us through to the extent that you're able to, obviously, given you're a private business and you've got VC backing, but in terms of sort of, can you give any sort of indication of subscribers revenue?

1:40:15Like what kind of scale have you reached? Obviously, we know that the FIN, we suspect the FIN makes, you know, this more than us, upwards of sort of 40 million EBITDA a year. So there's some really profitable businesses out there in sort of business media land. What were your targets going in in terms of revenue numbers and subscriber numbers? And are you getting close to what you hoped for? The Fin Age and The Herald combined make north of$130 million in earnings at 30 % margin. So they're not bad businesses. And there may be challenges around the corner, but you'd take it any day of the week, right?

1:40:46It's three times more profitable than The New York Times. um we we intentionally don't talk about subscription numbers even broadly within our business we don't and the primary reason is that again it's a number that can be gamified uh there are plenty of examples that have happened in the past um not talking about any publishers in particular but as a broad example you sign up a university all of their students all their staff the alumni, anyone that happens to walk past, gain 80 ,000 subscribers overnight and you might be charging four cents for it. And that has been a pattern when people are chasing those big headline numbers to get out there.

1:41:29It's never the way I've operated. And in fact, at Fairfax, one of the first things that I did was stop reporting our subscriber number publicly for that reason, that so much attention and focus was on what's the next trick that we can pull out rather than how do we actually point everything in the same direction towards a North Star. Instead, we talk about who is reading. So the most senior politicians in the country, they're starves. We're in 47 of the top 50 ASX firms. We're in every government department. We're in every substantive source of private capital. And we do look down the list of targets of who we want to be reading and who should be reading and then how deep we are within each of them.

1:42:14and quite intentionally start at the very top because if the chief executive's reading, then their direct reports are reading, then their direct reports are reading, and you end up cascading through the organisation. So that's the approach that we take, and that has been a really successful path, and we're getting deeper and deeper that way. At the same time, we have another product, Letter of Intent, which is a morning deals newsletter that's very, yeah, and it's bottom up, right? It's read by the grunt workers doing 20-hour days for not a lot in return for the hope that one day they'll make it.

1:42:49But we know of many deal rooms where there's the morning quiz based on what's an LOI. And that has cascaded up through organizations over time. So it's going both ways. But yeah, that's why we don't talk sub numbers. It just drives the wrong behavior. So do you have a, if you're an enterprise sales team going out, speaking to businesses, how have you been able to get 47 of the top 58 as X businesses to sign up, which is a pretty impressive achievement? In the beginning, a lot of it was relationships. I was, you know, blessed with having roles in the past where you have a pretty great network of people that I think you treat well over time and they'll enter the phone when they don't necessarily need to anymore.

1:43:33So a lot of relationship driven at the start, but as time has gone on and we're now well into our third year, it's the value you're delivering and understanding that, hey, this is not a nice to have for us as an organization. It's actually filling a need and getting our people to be sharper and smarter. Do you have a target on how big can the business get in terms of sort of revenue? So obviously, without saying where you're at now, but what do you think you can get to revenue-wise, EBITDA-wise? Do you have a sort of goal in mind? This is where we want to get to in the next five years. Yes. Whether or not I'm willing to chuck that up on the wall for all to see is another thing.

1:44:14But, you know, you do look at what is being invested in the traditional information landscape in this country. and it's many, many, many hundreds of millions of bucks. And where are you? On a different question, unless Adam's going to keep probing you on the finances and I don't think he's going to get very far, frankly. We've played this game before. Yeah, he'll get you eventually. He always comes out on top in the end, beware. So where, I mean, the other big issue that's going on at the moment is the way that content is being consumed by AI for LLM-based information. how much has that factored into your life and like where do you sit on all of those issues so two branches i think to this answer one is we've intentionally built our product to be incredibly hard tight paywall for that reason you need to have control over where your journalism's ending up and the minute that you lose control and it's ingested into into any kind of model you say goodbye to the future of your business.

1:45:20And we've seen that actually in the past with businesses that I've run and where they've handed over content licenses to Factivas or LexisNexis or any other third party and seen it as incremental revenue rather than you handing over the keys to the business and saying goodbye to having control. Thinking more broadly, it's a massive concern for me that if you are, if I was running OpenAI, I would do one deal globally with Reuters to cover 90 % of the commoditized news that's out there and walk away from the rest of the industry. You end up in a world where you're not funding the future of journalism as far as more broadly, broad-based interest journalism goes.

1:46:06And less and less is invested into content creation. And I think that ends in a very ugly place. So we've tried to retain the control. Some decisions that are being made at some global media companies where they're handing over the keys for not a lot of money, I question. Thanks, Chris. You've done an incredible job. I think the scale of the business, we certainly weren't cognizant of just how big it's grown. Obviously, I love LOI and Capital Brief as a subscriber, but it doesn't surprise me given, obviously, the success at Fairfax. And carrying that on to your own business is incredibly impressive and we're super happy to be supportive of what is a fantastic endeavour and really critical to the Australian business media landscape.

1:46:46And diversifying media ownership into independent publishing hands, like we're totally, I know Adam's got the same view, like totally supportive of that. Very, very important in the algorithm-driven news age. Totally agree. Appreciate the support, guys. Thank you, my dear. Thank you, Mike. Thank you, Chris, of course. We've, as always, gone a bit longer than we anticipated, but thanks for listening in. We'll see everybody on Saturday for our Ask Us Anything episode.