The $5B Venture Growth Buyout Playbook | Alex Israel, Metropolis

22:43At the same time, we see those experiences evolving where that human capital, those employees, those team members can drive even more value. Think about our valets, think about shuttle drivers. But I'll also tell you that while Metropolis is the 800-pound gorilla in U.S. parking, we represent 6 % of the market. We're nothing. We're tiny. So the question is, how quickly can we get that 6 to 12 to 24? And that's about scaling. That's continuing to prove out this value proposition to real estate owners. And that's continuing to scale it to new verticals. There's nothing more powerful than a real estate owner that realizes they can pay for parking with the same application, pay for their fast food with the same technology, the same recognition, artificial intelligence, and then at the same time, get into the same office building, leveraging that exact same technology.

23:36So as we expanded new verticals, that becomes self-reinforcing. In the context of autonomous vehicles, it's a great question. So one, I am, you know, for someone who, you know, people often draw this distinction that, you know, if you're an advocate of parking, you're probably a real advocate of car culture and you're probably, you know, antagonistic towards autonomous vehicles. So let me just dissuade you of that assumption right away. Like I'm hugely bullish on artificial intelligence and the application of artificial intelligence in vehicles and how we can bring AVs to the forefront of our day-to-day lives.

24:19So I'm an early adopter. I'm a huge proponent. I, you know, I have an eight-year-old daughter. I still am a advocate and proponent that she'll never have her driver's license. And I hope for that day. I mean, you know, I think it's right around 50 ,000 Americans lose their lives every year as a result of automobile accidents. I want to take that number to zero, right? You want to reduce the percentile of fatalities as a result of the deployment of autonomous vehicles. So I'm very bullish about the application of the technology and how it's advancing. What I'll tell you is there's always the temporal questions, right?

24:59I think that you will talk to some people and they will tell you the technology will never get you there. We'll never get there. We will never have level five autonomy. I think it's bullshit. I think we're going to be there. And I think we're going to be there sooner than people think. What I'll also tell you is it's not going to be tomorrow. And it's not going to be tomorrow for a number of reasons. One, we all have our personal vehicles and personal vehicles at this point in the United States have kind of a life expectancy of north of 11 years, right? That's the useful life. So if you buy a car today, you're probably going to have switch over to an autonomous vehicle.

25:39Now, may you supplement your personal travel with an autonomous vehicle? Absolutely. So the question becomes temple. Now, why is Metropolis so bullish? I would say the Metropolis is so exciting because we're the only player in the market that at scale can convert parking into mobility hubs. Where do all these vehicles need to go to be cleaned, service, charge, deployed, data offload, all fundamental services necessary to facilitate the future of autonomy. Without those services, we don't have autonomy. We don't have level five AVs. What you're not going to see is this kind of dystopian future where cars are just circling the block, endlessly waiting for their next ride.

26:22That's never going to happen. It's kind of this kind of pundit speaking point. That's not a thing. Cars are going to need to go somewhere. They're going to go somewhere to be stored. They're going to go somewhere to be deployed, clean, service, data offload. We have 4 ,600 locations across the United States that were traditionally archaic old world infrastructure that's now connected. So the question is, how can you bridge next generation autonomous vehicles, next generation mobility, whether that's an AV, whether that's a drone, whether that's a robot, with old world infrastructure and we're that API layer.

27:00And it's that kind of, I would say, pragmatism that puts us at the forefront of autonomy and really allows us to leverage our ecosystem, our platform, our footprint to bring autonomous vehicles to reality at a much faster pace.

27:17Turner Novak:So I guess if I was like hyper dissecting the metropolis kind of like business model and the opportunity, making it almost like it's simplified, but also like as sexy as possible, it would almost be like you've got this profitable cash flowing parking self-checkout real world business that also is sort of the like autonomous robotics hub of cities in the future or something like that. Like, is this a fair way to describe it? Yeah, look, I think that, you know, we have significant depth in our business and that we have breadth. And I think you're right. On one side, we have this recognition platform.

27:56And on the other side, what we do is we have verticals and one vertical is mobility. And then the other is verticals are outside of mobility. Actually, how does this technology travel with you everywhere you go? And you're absolutely right. As we think about depth, we think about this convergence from personal car ownership to fleet ownership to individual AV ownership and how those kind of modalities coalesce into the future of mobility. And I think that Metropolis is perfectly positioned to take parking and convert it into this mobility offering, this mobility hub offering. And I think you're absolutely right.

28:35We have that depth, which provides that defensibility. And then to your point, we did something that most companies, I would say almost no companies in the applied AI or AI space have this defensible service layer, this traditional business layer. It's almost as if we planned it. This idea that you can blend next generation artificial intelligence with traditional managed services.

29:04Turner Novak:So was it all planned? To what extent was all this planned? because I mean, I think it might it might be interesting to talk about. This is your second parking company. Like you actually had another parking company even before this. So maybe that might be an interesting thing to get into is like. Like, how did that initially start? Because I think you had gone to film school, you were working at MTV or something, and then you're all of a sudden this like parking, you know, business magnet, I guess, or something like you're just like. So how did this all kind of start and evolve over time? I was very excited to go into a career of film.

29:42You know, it's interesting. Starting startups and creating film or television is actually very similar in the sense that you're taking something from abstraction and you're bringing it to fruition, right? You're taking in an idea on paper and you're building it. The difference with film and television is it's normally a year and then you're done and you start a new one. With technology, with startups, you know, you build for a decade and you continue to build. You know, we set out the ambition when we founded this company that this would be our last company for co-founders, last company and not that we were going to generate generational wealth.

30:14That, of course, was an objective, but that wasn't the core. And when I say this, our last company, we would build a culture. We build a company that would stand the test of time and we would all want to remain at that business. And that was an objective, an objective early on.

30:27Turner Novak:Well, so the MTV thing, what did you produce? I think you were there for like a year or two. Was there like a certain show or concept that you worked on while you were there? I was a contract producer and we were producing international segments for international MTV, like red carpet segments, behind the scenes segments. I was excited. I loved it. Listen, I loved producing. I loved producing shorts. I was really excited for that career. You know, maybe one day I'll get back there. So then how do you start a parking company? It was happenstance. We actually started what I'd qualify as a data company.

31:03We were, myself and my co-founder at the time, were late for a movie. We couldn't find parking. And we couldn't believe it, right? We couldn't believe that there's this real world friction. And we realized that we could build a reservation platform, build a data platform that allowed and told people where parking was available in real time, both on and off the street, all of the world. We pooled our bar mitzvah money. We raised some family and friends money. I think we raised about$150 ,000 and we just flushed it down the toilet. Oh no. I mean, we had no idea what we were doing. We were non-technical.

31:46We had no reasons to, you know, no basis, no business starting a startup. up. And then we started to get traction. We did it again, we raised a little more money, pulled a little more capital together, we started to get traction, we started to get licensing deals, where these large scale automotive companies, as well as large scale. If you remember these like dashboard navigation systems, would want to actually license our data. So we started licensing data to most largest navigation companies globally from Waze to Google to these, you know, dashboard systems like TomTom and Tele Atlas and then most largest automotive companies from Ford to Porsche to everyone in between.

32:33Turner Novak:So I could click a button and say, like, you know, show me the closest open parking spots or something like that. You get into your minivan today and you go into your navigation system and let's just say you navigate to downtown, you will see all these little blue peas pop up on the map. Most likely that data is still coming from the company I founded and sold. Fascinating. Okay. And this shows up on like Google Maps, Apple Maps, or it shows up in a different product. Exactly. So if you go into Google Maps right now and you look about all those little parking peas that will come up, where parking is located all over the world, that comes from a company that that I sold to a Microsoft spin out called Inrexed.

33:16Interesting.

33:17Turner Novak:And then at this point, like do they keep this data cleaned, updated, et cetera, and just kind of sell it to Google, sell it to any of these like map providers? Yeah, that business is still up and running and thriving and a division of a larger company. Yeah, there are, it's wild but think Turner, there are executives that I hired that are still with that business, you know almost almost uh 20 years later wow and i know you had a pretty big culture of doing of pranking and pulling pranks on on people internally what's what's the story with that you know it's interesting how like pulling pranks on people fades as you get older you know my my co-founder at the time when we founded this company called park me you know we always pull out pranks on one another it was like it was just a culture of you know So keeping keeping the, you know, as you know, turn these these startups are so stressful, right?

34:15You have the highest highs and the lowest lows in the context of a singular day. And I think we wanted to or we strive strove for a way, strive for a way to keep. Our day to day lives a little more humor filled. So we definitely had a culture of pulling pranks to one another. Normally me pulling pranks on my co-founder, Sam. You know, I think that I pull a prank on him like a pretty robust prank every birthday. And like, I'll give you an example. We we had these glass offices, right? It's like door and glass panel. And in one year, we all went home around kind of eight o 'clock and everyone went their respective ways.

35:02My co-founder went home. I went home and then five of us, probably four engineers and myself teamed up. we went to Home Depot and we bought drywall and molding and we drywalled over the door and over the window. So when he came in, when he came in the morning, there was just no office.

35:21Turner Novak:There's just a wall. Your linguistic program, like your programming, like you actually just he was just confused. And it was so well done that he couldn't tell, you know, where his office was. And he eventually kind of Kool-Aid manned through the wall. Oh, really? to actually smash it yeah there's no other way to get into his office are you guys still pulling a lot of pranks at metropolis today similar scale bigger scale smaller scale no i don't think we pull pranks as much i would say we all still at least at the elt level troll each other a lot you know where it's more like via slack oh yeah fair much more tame you know i asked my one of my co-founders for a deliverable on an ELT Slack channel yesterday.

36:11And, you know, he responded by saying it's in that little box under your screen. You know, it's just like we all I think we just we push each other. And we, you know, use humor to to bring levity. Yeah.

36:26Turner Novak:Well, and so you mentioned you sold Park Me to kind of this Microsoft Spino that's still around. And you I think I remember you were like ready to not actually keep doing parking. Like you were going to do something, I don't know, completely different. I'm not sure what it was, but I think you had a conversation where you're like doubling down on parking again. I'm going to start another parking company. Like, how did that go? You know, there's twofold, two kind of components turn to that story. When we founded Metropolis, we were really not looking at parking. We were really looking at this intersection of artificial intelligence, computer vision and autonomous vehicles.

37:04and we were thinking about the future. And what we settled on was, could we build what we now call a recognition platform? Could we create seamless experiences? And we were focused, we were thinking about, as you alluded to, Amazon's technology, like Just Walk Out. We were thinking we could start grocery stores. We could think we could leverage these kind of secular trends or this evolving landscape of artificial intelligence to create these seamless experiences. And then we quickly started narrowing down on mobility, That mobility should be our first instance, our first use case. And we spent a lot of time thinking about car washes initially.

37:41And we spent a lot of time really thinking about tolling as well. And we ended up settling on parking because it's everywhere, because I had some experience. And we realized that if we could tackle parking, we could build this flywheel to your point earlier where it could affect tens of millions of people's lives on a daily basis. And that was really where we settled as the first vertical with the real intention to use that as a jumping off point. To be and build this platform to the point of exactly where we are today, where we could use it as a jumping off point to scale into so many other verticals, where we had these license plates, where we had these members on platform, and then we could expose that same member value to so many additional verticals, both in and outside of the vehicle.

38:30but you know the other side of the narrative is when we did settle on parking I was still pushing back I'd kind of had enough right and I sat down with a friend of mine who has since passed the former CEO of Mattel and I told him that I had no interest in going after the parking vertical this new company. And he basically called me an idiot and really talked about how I had built this kind of idiosyncratic knowledge set that I knew something so much about kind of this old world industry, such a defensible, unique data set, and that I should exploit it, that I should go after, that I should take advantage of it, that I could do something truly kind of remarkable in space.

39:20So that's why we kind of settled on parking as our first vertical. And it still is the most important vertical for Metropolis. But what you will see, Turner, over the next five years is you will see parking becoming a minority of our total platform.

39:33Turner Novak:Yeah, because it kind of follows that of just, you know, what do you have a competitive advantage in? Like, do that. Like, what are you really good at? Just lean into that because starting this company is hard enough in itself. Like if you have an advantage, take that advantage. I completely agree. And that was listen, this Brian gave me great advice. And that was exactly that, which is just take advantage of the knowledge of the history, the background there. I think all great startups, if you go back to like, you know, Silicon Valley lore of like Google, Apple, et cetera, they all started in a garage.

40:08Turner Novak:I think you guys also started in a garage. Is that right? We did. We started in a garage in Santa Monica. Yeah, yeah. For us, garage, whiteboards. There's some early pictures of, you know, post-ups on the wall. Both of my startups are starting in a garage. Yeah, it's a great place for collaboration, right? It's easy. It's central. And I don't know, I think there's something also... A garage unto itself is inhospitable, but it's also homey, right? You can make it your own. And yeah, both companies started in garages. That one with one co-founder and this company with three other co-founders. And so you mentioned, so you had this advantage in parking.

40:55Turner Novak:I'm assuming you hit the ground running. Everything was working well. Customer signing up left and right. You know, company grew super fast. Is that, did that happen or is that not the case? Yeah, no, it was just, you know, it's all, it's kind of like a fairy tale, right? We wrote it down and it just played out day by day exactly as you planned. No. So what happened? You get in the garage. You're like, all right. So you had this realization. I was like, all right, we have this idea of this recognition product, the recognition economy. And you had this fight internally in your head of parking, yes or no.

41:30Turner Novak:You decided to do parking. What did you do next? Did you go out and try to convince some people to start working with you, like get some customers signed up yeah you know we we we ended up raising a two-tronch seed round we raised seven and a half million dollars as our first seed tranche which for me you know compared to my first seed round which was 350 000 in my previous company felt like an exorbitant amount of money now for the small today we ended up raising about 20 million in our initial two tronches over a seed round. I raised initial capital and started to build a team. Started to hire technologists, hire engineers.

42:11I started to build that RAI platform. And this was, you know, end of 2017, beginning of 2018. And, you know, started to build the technology team, started to build the technology stack, and started to test technology. We started to put cameras on the side of the road and actually started seeing if we could capture vehicles. And then we started getting our first location. And we started our first location, which is actually called M1, which Metropolis 1, which was our first location in Venice. And then, you know, eight years later, we're just under 4 ,600 locations. But yeah, it was definitely nonlinear.

42:53You know, we scaled to, and I'm guessing, Turner, this is where you're getting to, but we scaled about 50 locations in Southern California. And we quickly realized that real estate is just as old world as parking. You know, people that go into real estate like picks and they like shovels, they like cash flow. They like low risk value propositions. Yeah.

43:16Turner Novak:They want to go and like touch the building and like feel the brick and like, you know, pick up the dirt and like feel it in their fingers. Yeah. And they don't like to take risk, right? So they don't want to adopt new services, new technologies, new, you know, and I'll tell you, no one in real estate wants to be the first hamster we will, right? No one wants to be a first adopter. So what we found is kind of, we hit a wall, we're in the adoption wall where you'd sit down with a class A office developer and you'd say, hey, we'd like to take the keys to your$250 million building. We'd like to be the first touch point for your visitors.

43:54And we'd like to build in parking, but then we'd like to scale past parking. And it was something along the lines of cute startup come back in 50 years. And if you look at the legacy providers, these real estate companies work with, the construction companies, the property management companies, the parking companies, many of them have been around it for north of 50 years. True legacy experience. They don't want to take that risk. So what we realized is we were going to shift strategies. We were going to do something that startups, technology companies do not do. And this is what you were kind of alluding to the beginning of our conversation.

44:33We pioneered what we call a growth buyout. This idea that we could take a traditional venture-backed business, a traditional technology company, a company developing artificial intelligence, and we could actually acquire an old-world business. We could do something that people don't do, which is buy EBITDA. And they definitely don't do it in technology. You know, EBITDA is almost a dirty word in technology. You know, you think, turn it back to that, I don't know if you were a Silicon Valley fan, but like there's that scene where he's like, oh no, no, no, no. You need to be pre-revenue. Don't have revenue.

45:07I think tech investors are similar in that context with EBITDA. It's like, no, no, no, no, no, no, no. Don't have EBITDA. Don't have profitability. But we went out and acquired EBITDA. We went out and we acquired these old world staffing businesses. We bought our first parking operator. So we bought a company based in Nashville called Premier Parking, probably the 10th or 11th largest parking operator in the United States. And we tested our mob. We used it to scale our technology to 400 locations overnight. So we went from this kind of mom and pop technology company to running one of the largest parking operators in the United States.

45:43Turner Novak:You said you went from 50, I think 400 or. Yeah, about 450. Exactly. And so that was basically they were based in Nashville. they owned a bunch of lots kind of around Nashville or around the country. They managed a bunch of lots across the country. So what you were acquiring, you were acquiring, they had, it was almost like a staffing and property management company for parking. Yeah, that's exactly how you think about it. And then how did you acquire them? Because I think you mentioned earlier, you raised about 20 million bucks. I'm assuming this business is probably less than$20 million. Maybe it wasn't, but what was the process like of acquiring an existing pretty big company.

46:21Turner Novak:It was about 10 times bigger than you at the time. Yeah, no, the company was doing around between 10 and$12 million of idea. And we acquired it for, if I recall, a little north of$120 million. So we had to go and raise money. We raised money from Silver Lake and Dragoneer and a lot of the usual suspects you described, the O1A and others, these kind of, I would say, tier one Silicon Valley firms. And we did something that people don't do, which is go buy a traditional business. So we raised the capital, raised some venture debt as well. And then we went and acquired Premier. And we went from just under 200 employees to just north of 2 ,200 employees overnight, just around 50 locations to just about 450 locations overnight.

47:15And we took a company that was doing, you know, a few hundred transactions a day to a few thousand transactions a day. I mean, at this point, we're probably doing, I don't know the exact number.

47:28Turner Novak:I saw like once a second. Well, it's actually, it's more than that. It's more than that. So we're doing almost a new member signs up for the first time, every one to two seconds, 24 hours a day, seven days a week. So someone signs up for the first time, but transactions are multiple of that. You couldn't just say, you know, go to Google and go to Facebook and say, like, I want to spend $10 million just like acquire me customers that are profitable. Like, here's all my, you know, parameters and just like run the ads and like make it just make sure it all goes the way I want it to. Like you can when you're running these ads, because you had to literally put up stuff around hundreds or thousands of locations.

48:11Turner Novak:Like it's so it actually made more sense and almost like probably sped up the implementation time to just go and acquire the existing footprint. The business at the core, Turner, the economics. So, you know, what happened is we had unit economic fit. We had product market fit. What we didn't have was go to market. And the go to market was flawed because and this is, you know, something you may have touch base with on will and slow, but you just hit a wall when you talk to these traditional real estate investors, traditional real estate owners, because they wanted an institutional operator. They didn't want to take that risk.

48:46And we needed the proof points. So we used Premier to help build that base, that proof point. What we didn't know at the time is the acquisition of Premier was going to be a remarkable success. We didn't realize that we were going to take this traditional business that was doing a certain level of gross profit, and we were going to to X that gross profit relatively overnight. So we then went back to the venture capital community and we're like, hey, I think we should do that again. And they were absolutely on board. They were actually pushing for it that we should acquire more companies, that we should leverage this go to market to really accelerate this inevitability.

49:26So instead of kind of this ground war of organic sales, we could scale inorganically. So we went out and we raised$1.6 billion as our Series C to go acquire the largest operator in the space, which was a company called SP Plus, which was a publicly traded company that had just north of 20 ,000 employees, just north of 3 ,600 locations. And we acquired them almost two years ago now.

49:54Turner Novak:Were they the biggest parking company in the U.S.? Did I see that? They were the biggest parking company in the U.S. Okay. So Metropolis is now the biggest parting company in the US. Metropolis is the largest parting company globally. From garage to largest in the world in a decade or less. Yeah, that's crazy. It's been exciting. What the team has done over a short period of time is remarkable. And so like, if I was thinking about doing this, because I feel like one that's, it's been pretty common in sort of like services businesses. Like you see people doing this with, you know, accounting firms.

50:29Turner Novak:I feel like there's like, a dozen of these kind of like AI growth accounting roll ups or other categories? Like, what do you think has to work or makes it so this type of strategy doesn't work? If I was going to try this in a different category, or does it only work in parking? You're seeing, you know, we de novo this strategy and you're seeing a lot of people now implement the strategy. I don't want to say copy the strategy, but realize the value in the strategy, especially through the application of AI. So you're seeing General Catalyst deploy this strategy now for hospitals. You're seeing Thrive, as well as others, deploy this strategy in the context of accounting, as you described.

51:09So you're seeing this as a significant component of the future of venture capital. I think that what makes this strategy successful is singular. And I couldn't be more aggressive about this statement. People focus on M &A on cost synergy. It's the traditional mantra of private equity, LBO. Everything is about cost synergy. And cost synergy doesn't create durable growth. So any growth buyer, any application of artificial intelligence to an old world business that focuses on cost takeout, on cost energy, on the reduction of human capital will succeed, but will not succeed in the context of a growth multiple, a technical multiple, a technology company multiple.

52:14What they'll succeed at is building private equity companies. And that's not to say private equity companies aren't interesting. They are interesting. It is a compelling industry, but it's not as compelling as technology. And in order to succeed and build a technology company, in order to have the successful growth file, in order for companies like General Catalyst et al. to succeed in these models, they need to focus on revenue synergies. They need to focus on a model that drives incrementally more revenue through the deployment of technology, not simply the elimination of cost. And what's going to happen is given the history, given the focus, given the proprietary, unique, compelling nature of private equity, everyone is going to gravitate towards cost synergy.

52:58It's easy. It's ingrained. But in order for this to be successful, in order for people to replicate the strategy that we're deploying, they have to focus on revenue synergy. They have to deploy more revenue through the deployment of technology. They have to see and yield more revenue, more gross margin, not simply the elimination of cost in the spirit of driving EBITDA. The simple test there, Turner, becomes through the deployment of technology, are you seeing more gross profit? Not simply, are you seeing the elimination of cost and just a creative EBITDA?

53:29Turner Novak:Well, even cutting costs in your gross margin, it's almost like you need to generate more revenue. You need to generate more revenue. yeah it's almost like cost cutting using ai is like kind of like table stakes like if you do it like you must like you really should be doing it but it really only works then also if you are using it to grow the business probably much faster than like non-technology native companies that are in your industry yeah i mean what you're what you're finding right now is there are partners all over the world and there are analysts all over the world sitting in rooms, sitting at board tables, sitting in investment committees with memos in front of them.

54:11They're talking about how they can buy an old world business and deploy AI. And it's the same model that they've levied for years. In this model, they'll be taking technical risk, which a lot of the time private equity firms don't want to take, but they'll take that technical risk because they'll have confidence in their underwriting surrender to take out of costs. It's just not that interesting. It's not interesting enough to facilitate durable growth. It's not going to be the next trillion or$100 billion company. It's going to be compelling enough for medium mid-T returns.

54:47Turner Novak:So then how should I think about what is sort of like the durable revenue opportunity? Because if I'm just thinking about this, I'm just kind of like making this up. I haven't thought about this a whole lot before just saying it live right now. But like, if I'm trying to like roll up accounting firms or roll up a law firm or roll up like a creative advertising agency or something like that, and these like services businesses, if I'm a client or a customer, one of my customers can just say like, I'm just going to go to this other firm. I guess they can't really do that with parking. Maybe it's just a lot harder or maybe it's easier.

55:22Turner Novak:I'm not sure. Like, are there certain things that need to be true on this? like revenue generation opportunity in order for that to kind of play out? Yeah, exactly. So you're right. We have built what I would say is a truly phenomenal moat in parking. That being said, to your comment, you need to deploy technology that drive. The revenue needs to be driven by the technology into itself. So if you take your accounting analogy, you need to not just like and it's really it's really interesting in the context of a roll-up, right? If you think about an accounting roll-up, the natural inclination is like, okay, every HBS study, I can take A business combined with B business, and I don't get two CEOs at reduced cost, right?

56:09Turner Novak:Just cut all overhead. You just save, you know, 10 % of costs. Yeah. Get rid of all these accountants. That's cute. It's nice. It's interesting. It's not that interesting. But it's not going to create durable growth. It's going to create what I would qualify an uptick in EBITDA, but not multiple expansion. In order to get multiple expansion, you need to increase the breadth of the product and you need to actually drive more revenue to your point Turner from your customers. You need to create a solution that, all right, I bought these two accounting companies together. There is fundamental cost synergy.

56:52There will be cost takeout, but I'm going to invest in a technology platform that is going to allow me to generate more revenue from my customers. And what you have is often the inverse. You have the consultancy or the accounting firm being like, hey, listen, we've just reduced costs by 40%. And the clients are like, can you extend some of that cost saving over here? So you need to create that durable growth through revenue synergy, through driving revenue, through the relationships and the unique nature of your technology with your partners, with your customers.

57:31Turner Novak:Maybe it reminds me a little bit, do you remember these Amazon aggregators that really popped up during like a little bit before and throughout COVID? You remember this kind of phenomenon? There's a lot of them. I mean, I feel like the model maybe could work. I think some of them might still be alive, but most of them, that was kind of the play. It was like, we're cutting costs, we're aggregating all these things you know we are reducing over because it will acquire 50 brands that are all separate and there's only one marketing personnel instead of 50 there's only one logistics team instead of 50 and we cut the costs and like the company's worth more because we've consolidated like a you know a floor mat brand in the car like a a ladle for soup ladles or whatever like the best soup ladle on amazon or whatever and you just kind of rolled all these things up and it was kind of like this random collection of products that you know in a spreadsheet it probably looks pretty good but then it's like to your point I think what maybe could have worked in that model is what I thought the idea was was like oh you expand them into Shopify like you get them into Walmart and Target maybe the issue is they were just like shitty products like it was just like a drop ship soup label or car format from Amazon like they don't need that and target.

58:46Turner Novak:So maybe that was so it's almost like maybe it's like you need premium product to like you need to make sure you're buying like a good a good asset and a good product that actually enables you to to really lean into the higher revenue generation, even if there's technology or not, just like you're buying like a top of the line, high quality. What is it like Madison Avenue type asset? Yeah, look, it could be luxury. It could be premium, but it needs to drive value. You know, you and I were talking about the fair exchange of value. Like the purpose of technology is to, or a technology company, is to create products that generate value for your customers, for your partners.

59:21If they're not generating value, like you're really engaged in financial engineering. And a lot of these roll-ups are inherently, this cost synergy is inherently a financial engineering technique. It's not really the idea or the component of durable growth. If you look at so many companies that perform well in public markets, like you can distill their value to durable growth. If you look at DCF, if you look at the future value of these organizations, it's all tied to how the market perceives the viability of their durable growth over the next five or 10 years. And you look at companies that traded a significant discount, the market's basically saying, look, we don't think that company's really gonna grow.

1:00:03And they're not gonna facilitate that durable growth. And that's why these private equity companies are compelling, but it's not how you build a business that stems the test of time. It's not how you build a business where founders sit around the table and say, this is the last business I'm ever going to be a part of. It's not how you build a business that you say, this is going to be the next trillion dollar company. It's how you build a cool little rollout and you generate a lot of wealth for yourselves or other investors, but it's not how you build a really compelling business.

1:00:32Turner Novak:So do you think more people should be using this like growth of venture rollup strategy or do you think it's going to end in disaster if we have like the whole industry kind of adopt it in like the wrong ways? Look, I'm a huge advocate, a huge proponent. I think it's the future term. I think this idea of, look, I don't want to go as far as to say the idea of like four co-founders de novoing a business in a garage is dead because it's definitively not. And especially with the advent of AI, like do I think we'll have the first, you know,$1 billion one person company? Yeah, I do. I think that's inevitable.

1:01:11It's a matter of time. I don't know if it's gonna be one person, maybe it's three people, but I think it's only a matter of time. But I think that there are really, really compelling solutions and products to be deployed, leveraging the GBO. And I think it's the future. I think you're gonna see every major venture capital firm deploying these strategies. And I think you'll see private equity firms moving down further into a higher risk profile associated with venture capital to deploy growth strategies. Yeah, I think people are catching on, especially through the advent of AI. I think they're a little too narrow.

1:01:49They're too simplistic. They're really thinking about cost synergies, even though they have the lens or the guise of revenue synergies. And I think that's not going to be a remarkable success. I think they'll yield return. But I think that the venture capital firms and the private equity firms that can capture both cost synergy to facilitate this downside risk mitigation and also have revenue synergy will be remarkably successful. And look, I think that's what Metropolis got right. They have this, Metropolis has this kind of idiosyncratic or asymmetric return profile, right? You don't see, I mean, if you look at our table.

1:02:30You have this blend of traditional private equity investors, traditional credit investors, and traditional venture investors in every round. You don't see that. You don't see those players playing together in one company. And that's because we have all the downside risk mitigation of a traditional private equity play and all the upside potential of a traditional venture capital play. And it's that kind of idiosyncratic bell curve, if you will, that allows us to attract kind of unique capital where we can work with players like Eldridge. And we can also work with players like BDTMSD. We can work with players like Dragoneer and Silverlink, but we can also work with players like Tomasek and Vista.

1:03:15You don't see those names on the same cap table. And that's because of this idiosyncratic return profile where we can have that downside and upside potential.

1:03:26Turner Novak:And is that maybe where you kind of try to figure out that balance of, you know, you may have the pure private equity guy that comes in, like, show me the spreadsheet, let's delete some lines. But then also the people like, like Adam at 01, more of a technology investor, like, okay, let's grow, let's grow the revenue, right? Like, does that help with sort of that balance and making sure you kind of, kind of nailed, you know, triangulating those two aspects? Yeah, 100%. I mean, look, it's been interesting, Turner. When we found the company, I was probably disillusioned in how I thought about the capital markets, right?

1:04:00I thought like an investment was an investment, right? You know, if you can give an investor an opportunity to make money, they should seize on it. And you quickly learn that the capital markets operates in this pretty narrow box. I'm a private equity fund. I invest here. I'm a venture debt fund. I invest here. I'm a private credit fund. I invest here. I'm an infra fund. I'm a real estate fund. They all have these very narrow niches. And what we found is Metropolis didn't sit in any of them.

1:04:32Turner Novak:That could be bad. Like, how do you raise money then? No, I actually think it's wild, right? It can be very bad. And it takes brilliant investors to see vision, to move past those hurdles. And it takes really creative, smart minds to understand how they can play across that capital structure. You talk about people like Adam, Matt Bain. You talk about people like Todd Bowley and Tony Manila Eldridge. Those are players that can invest or have fund structures, have capital bases that allow them to invest across the board, that allow them to invest in venture and also in private credit. So they can look at these unique businesses and they can operate outside the box.

1:05:25They can think creatively. But I think that that's unique. What I'll tell you, Turner, is we've had limited to no success at the VP or analyst level raising money. If I get on the phone with a VP or a principal and I pitch them, historically, almost no luck. It took a partner on IC with a significant level of investment experience to understand the vision of Metropolis, to understand where we're going. So we shifted. We stopped talking to junior team members, not because we undercut them, not because we didn't think they were smart or they were brilliant, but that they weren't going to see this and they weren't going to be able to sell their IC on the model, on the vision.

1:06:12Now, it's changed over time. It's changed over time because we built the track record and we have, you know, a business that generates at this point, you know, over$2.1 billion of revenue. So it changes when you have that foundation, when you have the models. But yeah, it was very complicated at first.

1:06:33Turner Novak:Have you heard of this concept of being legible to capital? No, but tell me. I mean, it's basically what you just described. Like how familiar would an IC be with like this pitch, right? Like this memo shows up in the meeting. There's like basically just like 10 people sitting there and it's mostly finance people that are reading all the same things, doing all the same things, all investing in the same businesses, all the same theses. really at the end of the day, they know what works, they know what doesn't work, and how legible is your idea. And so, I mean, a pretty legible pitch right now is like, hey, we worked at OpenAI for four years, we trained the things, we trained some of these models, and we're leaving to start this new thing.

1:07:21Turner Novak:And that's the most legible pitch you could possibly have to an investment committee versus, you know, it's like kind of real estate. There's like some cameras. It's like payments in the real world, right? Like, it's almost not as legible. Like, if somebody is like, they have like a couple different ideas, like, what could I pitch the investment committee today is like part of my job. It's the thing that's the most legible. So they almost, even if they kind of got your idea, it's like, what can I actually get through? I see like they just wouldn't even pitch it like they just they would they would just do the thing that's like way easier and like way more trendy the thing that they can talk about in a happy hour that makes them look good it those like VC catch-up events or like the investor networking events I don't know and it's it's kind of like I feel like it's it's gotten worse just like as as funds have gotten bigger and like capital flows have gotten more pronounced like another way I think about it is like you like for a lot of investors, they think about positioning themselves at the beginning of capital flows.

1:08:28Turner Novak:Right. So like where's capital going to flow? Is it going to start flowing towards robotics and humanoids and like space? Like I, I need to like deploy capital into this theme and like ride the narrative of this sector, whether or not the company actually works or makes any sense at all. It's more so about like exposure to like narratives almost or exposure to like a story or a theme or a sector. I don't know. I have mixed feelings about it personally. Like I think you kind of have to do it, but you also, there's like so much alpha, I think as an investor and just like understanding like a core new stream of cash flow, really that's opening up at the end of the day, whether it's like an individual business or whatnot.

1:09:15Look, for me, if you think about, you know, human behavior, you think about game theory, you think about decision matrix. Like what I find often is people are inherently risk adverse. And they're really risk adverse in the context of their careers. Right. If you think about government bureaucracy or a venture capital shop or a private equity firm, people not only kind of stay in their lane, they don't want to be creative. Creativity exposes them to risk, career risk, personal risk.

1:09:48Turner Novak:No one's going to get fired for investing in open AI. You're going to get promoted because you got allocation in this hot deal. Yeah. Yeah. Look, I think that what you find is twofold. One, people are risk averse. So they're inherently not going to do something that's creative. And on the other side, 90 plus percent of investment is pharma. There are market forces at work and people are just investing out of fear of missing out. There's no creativity. There's no unique thought. This firm is investing, so we should invest. And people like to justify their existence and say that's not the case. They're unique.

1:10:32They're different. It's the same way people like to think about AI. Like, I'm not going to be affected. My job's safe. You're not safe. Everyone's job is going to be affected. And most people in venture and private equity globally are lemmings. Most people at startups are lemmings, right? Most people don't focus on creativity. They don't want to take the risk. And that's not a judgment. That's fine. That's okay. It's fine to not take that risk. It's okay to be risk-inverse. But I think it's not okay to be a hypocrite. It's not okay not to say that, right? It's not okay to claim that you're going to be creative, that you're going to do things that are unique or idiosyncratic and not.

1:11:14And I think that you have a small handful of investors, and we're very lucky to have worked with a number of them, but you have a small handful of investors that are actually doing unique, creative things with the deployment of capital, things that haven't been done before. And it's rare. It's rare. And it takes, it takes a level of risk and a level of creativity that, that most people don't want to deploy, even if they're capable of it. Yeah.

1:11:48Turner Novak:It's almost like thinking about it from my perspective is, is an investor. Like, so if you're the founder, you're like acting on it, you're doing it, you raise the money for me. And you're like, I know I'm going to execute on this, but then I'm almost like a middleman, almost as an investor of like, I need to raise the capital and I need to give it to someone else. So it's almost riskier to take risks, if that makes sense. And so I mean, but that's the point of venture in like this asset class is you do need to take risks. So it's almost gotten too institutionalized. Most investors are in the business of raising capital, not deploying capital, right?

1:12:27Most investors generate more return for themselves personally off their management fees than their carry. So, yeah, they're focused on fundraising constantly. And then you get the rare investor that is truly focused on doing innovative things, truly focused on building not only a unique firm, but investing in unique institutions, unique companies, or building those companies from the ground up. And there are those founders. There are those firms. You look at what Todd Bowley and Tony Manilla have done it Eldridge. You look at what Robert Smith has done in Vista. You know, you build on really interesting track records.

1:13:11You look at what Byron Trott has done at BDT MSD and Michael Dell. Really interesting entrepreneurs that are not just investors. They are entrepreneurs unto themselves. They are building entrepreneurial firms and they are injecting that spirit and that culture into their organizations. That's really interesting. It's really compelling, but it's rare.

1:13:29Turner Novak:one thing you mentioned a couple minutes ago that was kind of interesting is you mentioned like ai is going to change a lot of skilled labor white collar labor it's kind of i mean it's really one of the first times that you know quote unquote skilled labor or white collar labor is getting disrupted in terms of these like different like industrial or technology technological revolutions how how do you think someone should position for that in their career like one one angle is just get really good at ai like learn it be the ai expert at your organization like is that is that the key yeah i mean i think there's a few folders there's one as i think about it on the personal level right which is what should individuals do you you need to move as quickly to an evangelist as possible.

1:14:21Otherwise, the disruption to your personal career is going to be profound. I think on the other side, as we think about the macro sense, I think people are getting this wrong, Turner, and I think they're not talking about it. And you mentioned kind of this idea of an industrial revolution, which I think this is at its core. But we talked about industrial revolutions historically as the repurposing or retraining of the low skilled workforce, right we talk about this idea that you're going to take a uber driver and with autonomy we'll retrain them we're going to take the factory worker and we're going to retrain them on an automated factory it's going to be an adjustment it's going to be a upskill of that labor i think what people are not talking about right now is what happens with the conflation of artificial intelligence and the advancements with robotics.

1:15:17In that context, we're affecting both sides of the bell curve. And what I think you're going to find is, to your comment, we're affecting the blue collar worker and we're affecting the white collar worker. And what gets really interesting is what happens when you take a designer, a lawyer, an accountant, a doctor that has trained for 15 years and worked for 15 years, and you say you're no longer needed. And at the same time, you look at the plumber, you look at the janitor, you look at the chef, and you say you're no longer needed. Look at the line hook, the Uber driver, and you say you're no longer needed.

1:15:57And I think we really have this conflation or this combination of circumstances that we've never seen from an industrial revolution before affecting both sides of the power and i think it's something that we're not talking about as a society and i think we're not talking about it because it's not in vogue it's scary and i think that people find that it could be antagonistic or promote a paradigm that just leads to fear mongering but i think we need to embrace it We need to understand it. And now as a society, we need to address it. And we need to address it through a series of means. But I think that it's why you have people like Elon Musk talking about universal basic income.

1:16:42He's not talking about this conflation or he's not talking about the compounding results of the deployment of robotics and artificial intelligence and the effect on our society. He's jumping to the conclusion. He's talking about things like UBI. I think we need to talk about both. I think we need to understand what the effect of this technology is going to be on our society. And we need to think about how we're going to support our communities, our families, our friends, those that are going to be impacted by this technology. I like to think about turning on this idea of a Mars law, which is this idea that we have a natural inclination to overestimate the impact of technology in the short run and underestimate it in the long run.

1:17:25And I think that's exactly what we're doing with our official intelligence, especially in the combination with robotics.

1:17:32Turner Novak:You said this is Moore's law or which law is it? Amara's law. A-M-A-R-A. Okay. I've definitely heard that. It's like we overestimate what's going to happen in the next two years. And then we underestimate what's going to happen in the next 10. So it's kind of like, I don't know if you remember like 2021, we were like peak web three blockchain, where it's like every single purchase is going to be like, you're going to get an NFT with your Delta flight ticket or like each food you go to Wendy's and you get like an NFT with your meal and you're going to have this collection of NFTs. And you think like everything's going to be on the blockchain and in a couple years.

1:18:11Turner Novak:And I guess it's an extreme example because I don't know if anything will ever always be on the blockchain, but maybe it's just like the adapt adoption of it and same with autonomous vehicles like i think it was probably 10 years ago people are like oh they're almost here it'll be here in two years and then we kind of forgot about it and then now like waymos are they kind of work really well and they're kind of ubiquitous in some areas and most people don't talk about it it's interesting turner we go from it is really interesting as a society we also go you know my friend told me this that we go from science fiction to entitlement to overnight, right?

1:18:50It's like, you know, 10 years ago, we didn't have internet on the plane. And now, you know, if you don't have satellite internet, you're panicked, right? You're entitled instantly. And, you know, yeah, we see Waymo's driving around all the time. But yeah, I think we are grossly underestimating the impact in the long run.

1:19:10Turner Novak:And speaking about impact, one thing I wanted to ask you, So you've gone from, I mean, I think if I'm remembering all your numbers correctly, like 50 employees or a couple hundred to 2000, like 20 ,000 employees, like the scale of your business has probably been one of the largest magnitude of changes for a CEO of a company ever. Like how, how did you do that successfully? Or maybe it's not successful. Maybe you're like in the process of like landing it. Just like what is your day to day kind of look like? is the founder of a company that's kind of scaled that quickly? And how have you kind of digested it?

1:19:50Academically, it's compelling or it's unique to think about how the role of the CEO changes over time, right? And it really does. It goes from, you know, heads down, working every single day, you know, sweeping the floors. And then it ranges to doing podcasts, press interviews, in government affairs, you know, the role shifts. Well, tell you remains the same is. You're always focused on the biggest problems facing the company at any given moment. It's really interesting to think about, you know, how what comes to the mind or to the desk of a CEO? You don't get the great news. You don't get the best news.

1:20:37You don't get the good news. You don't get the news you want. You get the biggest problems. you get where you can be best serving, where you can best serve the organization. And it's often because someone else can't solve the problem. You've hired, you've retained, you've empowered the best people you can. And something rises to your desk because it's a problem. It's a nightmare. It's something that can't be solved by these remarkable team members. So you're constantly battling the biggest problems facing your organization at any given moment. You're a zeitgeist. Your focus becomes the dumpster fire that's right in front of you.

1:21:14So what I think as a CEO, you have to do is step back. You have to remain focused. You have to understand what actually are the greatest imperatives, most important objectives facing the organization at any given moment and make sure your attention is focused there, not just on the single fire that's in front of you at any given moment. You need to balance those two things. And I think that maintains itself from four people in a garage to 23 ,000 employees across the world. And yeah, I think to your point, am I succeeding at it? Am I failing at it? I'm learning every single day. And, you know, I'm humbled in the team willing to put me into this position.

1:21:55Our investors, our board, my co-founders. It's an adventure. And yeah, I like to say we're failing up, right? You're learning, you're running to walls, you're failing, you're falling down and you're getting right back up and running through that wall day in and day out. So I'm very excited for I'm very excited about what we've built. I think it's nothing short of remarkable, even more excited for the future, which is interesting, right? I think that the true sign of, you know, this idea of this being our last job is the idea Like, do you wake up not every day, but almost every day more excited about the business than you did the day before?

1:22:36And that's absolutely the case with the travel suit.

1:22:38Turner Novak:And there's this concept from Reid Hoffman. I think it's called Begin Again. I've never heard of this before. I couldn't find anything about it, but I think it's like a framework they use. What is it exactly? Is this related to this or completely unrelated? Yeah, no, it's actually interesting. It's not Reid Hoffman. It's Sam Harris. Oh, from Sam Harris. Okay. Sam Harris says begin again, and he talks about meditation, and he talks about this idea of just taking a moment, taking a breath, and beginning again. You know, I think being a founder can be so emotional. We talked about this roller coaster day in and day out.

1:23:13And, you know, just taking a moment, closing your eyes, breathing, and just beginning again. I like that idea. I find it very calming and reassuring, you know, and this idea of so many things happening to you as a founder, so many things that are outside of your control, but your breath is inside your control. And just this idea of beginning again. So yeah, I use that all the time. I love the expression of begin again, which, you know, allows us not to also ruminate and focus so much on the past, which can be so unhealthy. It allows us to begin again. And you hear a lot of entrepreneurs talking about how much time or lack of time they spend ruminating on the past and how much time they spend learning from the past, but focusing on the future.

1:24:02And for me, that's illustrative or indicative of this concept of beginning again. I may be butchering it. I may be bastardizing what Sam Harris is actually trying to do. But I, you know, I really appreciate, you know, his guidance on meditation. And I love the idea of beginning again. Interesting.

1:24:23Turner Novak:It looks like a lot of like reflection, gratitude. I just Googled really quick to see what all comes up. And do you have like a personal AI stack almost? Like, how do you use AI like day to day? Are you pretty vanilla, just chat GPT, get a lot of stuff done there? Like, are there any like cool new tools that you use? I'm trying to get better at it just as much as I can find little tips. And I know listeners, people listening, like learning stuff too. On the spectrum of, you know, CEOs across the United States, I would like to say, I'm in the top tier. I think in the total capability of the technology, I would say I'm in the bottom tier.

1:25:05In the context of not as juxtaposed to other CEOs, but this technology is capable of so much. And I think all things considered, I'm just scratching the surface. I think as a technology company, we're doing profound things. I don't want to say we're on the frontier, but I'd say we're definitely on the cutting edge. And I think it's really exciting how our team is leveraging artificial intelligence internally, but also how we're building tools that leverage artificial intelligence, namely computer vision. I think for me personally, I'm probably leveraging Claude and Anthropic more than anything else.

1:25:42But I'm also using Gemini and OpenAI every single day.

1:25:48Turner Novak:And so when you talk about things that you guys have done internally, anything interesting that another founder might be able to listen to? Like, oh, that's a cool idea. I'll try that. Any interesting processes that you guys have or tools you built internally? You know, one of the things that we've focused a lot on is where does AI innovation come from? Right. Is it top down? Is it bottoms up? Is it disparate through the organization or dispersed through the organization? We're actually spinning up right now a chief AI officer. And one of the reasons we're doing that is we actually want to drive even more innovation and more adoption of Turing.

1:26:31So we're creating a new office. We've hired that team member, placing them in that role. And their job is going to streamline and build tools for our organization internally, directly tied to artificial intelligence. And that allows us to balance top-down and bottom-up adoption of artificial intelligence and how we can, as an organization, really leverage our resources to deploy AI at scale internally and deploy AI to be leveraged by our 23 ,000 employees, not a limited set.

1:27:10Turner Novak:So what is the background of that person look like? Like, who'd you slide into that role? Like, what's their skill set, prior roles kind of look like? Because that could be, you could tell me almost anything, and I would think that that would be an interesting kind of fit for that role. This individual has both a lot of experience in organizational transformation and is a technologist. So they have the ability to manage engineers. and they have the ability and have been involved with on a consultancy side of large scale transformation. The other thing is this individual actually works at our organization today and they're highly trusted by many of the, if not all of the department leaders across our organization.

1:27:54So not only do they have that inherent trust, they have an inherent foundation and they have the background of driving large scale transformation across organizations and the technical background to adopt that technology at scale and with speed.

1:28:09Turner Novak:So kind of the idea of this sort of team that you're setting up is build tools and processes that the rest of the company will use to get work done faster or more efficiently, more profitably, et cetera. 100%, 100%. Once again, it's about revenue synergy. It's how do we focus our team members on their highest and best use? We have 23 ,000 employees. What is the best way that they can be driving value to our partners at any given moment? Well, cool, Alex. This was a lot of fun. Thanks for coming on the show. Oh, of course. I thought this was great. Thank you for hosting. Thank you for taking the time.

1:28:49Turner Novak:And thank you for taking the time to listen. Thanks again to this episode's sponsors, Flex. Upgrade to Flex Elite with the link in the description and get$1 ,000 off your first$10 ,000 to spend. Numeral, put your sales tax on autopilot at numeral.com and Amplitude. For AI analytics, just ask Amplitude. If you enjoyed this conversation, please like, comment, subscribe, and share this episode with a friend who's thinking about doing an AI growth bio. Make sure to check out the back catalog of over 100 episodes with the founders of companies like Robinhood, Sweetgreen, and Mercury. Tune in over the next few weeks for guests like Jim Belosick at Send, Cut, Send, making custom metal parts, and one of the pioneers helping reshore manufacturing back to the US.

1:29:29Turner Novak:and Ali Partovi and NIO, where we'll talk about NIO's unique take on early stage investing and lessons from investing in the first rounds of Cursor and Kalshi. If you don't want to miss any of these, subscribe to my newsletter, The Split, linked in the description to get each episode plus a transcript emailed directly to your inbox every week. Thanks again for listening. See you next time.