EyeRate CEO Ray Weisberg on scaling from $0 to $10M + Steve Jurvetson on disruptive tech | E1765

0:00one of the great ironies is you and I don't talk that often because you're crushing it. and this is one of the things i train investors your great investments you're going to just open up an update one day and it's going to be like oh yeah we're going to go close to 10 million in revenue and when you invested they were at two or three thousand a month which i think is where you were in the accelerator and you're going to be like okay it all worked out and that student in your class if you will you know that padawan they just learned how to use a lightsaber and they crushed it and then the person you have to deal with constantly is the person who completely screws everything up.

0:33And it's the problem child that take all your time as an investor. You're the opposite. You're that straight A student who just crushes everything. This Week in Startups is brought to you by LinkedIn Marketing. To redeem a free$100 LinkedIn ad credit and launch your first campaign, go to linkedin.com slash thisweekinstartups. Veed makes it super easy for anyone, yes you, to create great video filled with amazing features like templates, auto subtitles, text formatting, auto resizing, a full suite of AI tools, and much more, Veed gives you the tools to engage your audience on any platform. Head to veed.io to start creating incredible video content in minutes.

1:19And Finn can't burn its mouth on hot pizza or wave at someone who wasn't waving at them. Finn can resolve half of your customer support tickets instantly before they reach your team. Meet Finn, a breakthrough AI bot by Intercom. Ready to join your support team today. Visit intercom.com slash Finn. All right, everybody. Welcome back to This Week in Startups. One of the things we like to do here on the podcast is talk to founders. That's why we called it This Week in startups the show grew over the last 12 13 years um to five six days a week it's crazy right so much advertising so many topics so many great conversations we started talking about the news a whole bunch and then one of the things i realized is a lot of the companies we've invested in haven't been on the show in a long time and if we invest in a company that means we've got pretty great conviction right because skin in the game we've put money into the company we've placed the bet and so i'm going back to the portfolio i asked the people at our various programs at launch launch is the name of my investment firm go to launch.co to see a very modest website launch four is our fourth fund what do we do uh and what is our fund thesis we want to be the first fund to invest in a company and we want to be the first fund to hit 10 ownership in a company in a winning company i should say so let that sink in for a minute first fund into a company and it could be one of the first investors obviously you might have some angels friends and family the founders themselves might put in money but as a general driving force first fund into a startup and then the first fund to hit 10 in the winning companies how do we do that well we have founder university a 12-week course uh you can go to founder.university where we meet teams of two or three typically builders who are building an mvp they might not even be incorporated yet and we came up with a new idea we'll give them 25 000 be their friends and family their rich uncle their rich auntie who puts that first 25k in just to pay the legal bills and you know get started pay for some server farms whatever and that's worked out delightfully we've made about 30 of those investments that allows us to start the relationship with the founder and then we have launched accelerator which is a contemporary to Y Combinator and Techstars.

3:41That program puts in 100K for 6%. We work with founders for 12 weeks to try to help them refine their pitch. And in fact, refining your pitch generally means refining your product, your customers, and really refining your business at its core. Because when there's a broken pitch, there's typically a broken business model or a broken product. And so we work with founders for 12 weeks and then we introduce them to over 1 ,000 investors and hopefully they get 100 to 200 meetings if they get 100 to 200 meetings i in my experience over the last decade of being a fund manager they got a good shot between 100 and 200 meetings and the fact that we've invested they got a good shot at raising a seed round doesn't always happen sometimes businesses are too avant-garde too cutting edge and people don't get it yet and sometimes maybe investors do get it and they don't see a big enough opportunity so with all that here we go back to our knitting at this week in startups talking to the founders that we've invested in now ray's company uh is called irate i remember this company coming to our accelerator uh ray weisberg welcome to the program have you ever been on this week in startups no first time there we go so we're doing our job we're going back through the portfolio and catching up with our founders uh you came to the 17th cohort of launch accelerator probably in 2018 2019 no 2020 yeah yeah started in 2019 going into 2020 got it um so when we met describe what the business was uh and what your original idea for irate was and do you remember us meeting for the first time i always like to ask that question because i can't remember anything anymore because i've met so many startups it blurs into one giant podcast slash meeting yeah um i can start with the original idea for iRate.

5:29It was right before we met. The original idea was point of sale reviews on an iPad. It kind of was formed out of a pivot from a Sequoia back startup. My co-founder Michael and I were working at. Terrible business model. We're putting iPads in a business where customers would rate the business and leave. It didn't work. Customers wouldn't go to the iPad. We had a background as service employees. So we sat in these businesses and thought through what it would take to get customers to go to the ipad and we came up with attaching employee incentives to customer engagement rates um ipad example of a business that would do this um companies like massage envy european wax center um fitness industries something where there's a service provider who is representing the business if you're getting waxed that person represents the business that's a pretty intimate painful i haven't done it but from what i understand or if you're getting your hair cut or you're getting a massage your experience with that or getting your hair cut your experience with that brand is the person is it not correct correct and they're the face and the voice of the organization so the ipad didn't work we put it in the cloud integrated with the point of sale and what we do is pay service employees to get mentioned in online reviews of customers have great experiences so so that was the insight was these service businesses are driven by the yelp google whatever reviews i think yelp and google are the top two i guess is that one and two or two and one yeah yeah we stay away from yelp um but google is anytime you're searching for a new business you're going into the google search and you want to show up first got it and so you realized hey they need to get more reviews and they want authentic reviews and the business is occurring between this service provider giving you a haircut giving you a massage uh and the uh customer but they don't want to type the review on an ipad at the front desk that is super awkward yeah but they might one in 10 or one in 50 might want to write a review because they really love their haircut correct correct and they have a solid relationship with the employee and um that was our unique insight we came from a background of service employees these people are under recognized uh underpaid but they're the real driving force for the business they're getting customers to come back they're increasing sales they're representing the business's brand online if they give a customer a terrible experience that customer go shout out the business in a bad way online on the flip side if it's a good experience they'll mention the business they'll mention the staff member and write some great content got it and so this manifests itself how the haircut the person giving the haircut or giving the massage says hey would you consider writing review or they hand them a card that explains what to do yeah that's one way but we integrate with 50 of the leading point of sale companies companies like mind body and the way it works is imagine you go into a massage MV, you walk out, you get an automated message in real time, say, hey, thank you for your visit.

8:39Please rate your experience with your massage therapist, Jennifer, today. If it's a bad experience, then we'll filter you back to the business owner where the business owner can chat with that customer, resolve the issue, and then we'll track retention numbers on it. If it's a good experience, we'll say, hey, glad you had a good experience. Click here to mention Jennifer by name in an online review. And each time Jennifer gets mentioned by name, a scraper picks up on it and it pings Jennifer through a mobile app where she can go in, see your review, see your customer feedback and cash out instantly directly through the app, almost like Venmo.

9:12That's fantastic. And, you know, when I heard this idea, I immediately said, I don't know how big this can get, but I know that this makes sense to me. And, of course, everybody says when they hear, you know, some very specific idea like this, oh, maybe it's too niche. Uh, so I think you did get that feedback from a lot of the investors we introduced you through, through the accelerator. Is this too niche? And so explain to us how the business has grown over the years since we invested. And I guess we made our investment, you know, back in 2020 and it's been now three or four years. So, so how's it gone?

9:48I mean, it's gone really well. We're in 4 ,500 businesses. There's 90 ,000 employees on the platform, um, approaching 10 million in revenue. and um last year employees on the platform hit a million dollars earned and this year we are on pace to help employees earn a million dollars per month by the end of the year so you know what i loved about your business and i think i talked to you about it at the time was i remember getting pitched on businesses um or having people back channeled to me who had businesses my god there are these pr firms um these social marketing firms that have baked accounts on various platforms i'm not going to say which and they've baked you know user review accounts and they will go to a business and they'll write three negative reviews literally had this explained to me they'll go in they'll literally go sit outside the business so they can get their ip address close to the business they can do the check-in feature or whatever um they can sort of do some um proximity-based review they write three negative reviews they do it in a really deft way because they know what reviews will be voted helpful or will resonate and then they will come back to those businesses a couple of months later when they've been impacted by negative reviews and say hey i noticed you have a couple of negative reviews we have a solution for this we have a group of really elite people who we can pitch on writing reviews and we can turn this around and if you give us a thousand bucks and a thousand dollar success fee whatever or give us two thousand dollars a month sign a 12-month contract we can do this this was the state of the business before you got involved and when you got involved i said this seems like a much more aligned with the truth and honesty if you didn't like your haircut from susan or john there's no way you're going to write a glowing review there's there's nothing in it for the reviewer yeah but if you do like it you are gonna write it because hey you you probably appreciate the fact that susan did such a great job cutting your hair yep and so it worked and tens of thousands of people are now using it congratulations along the way we've uh invested a couple times in the company uh so thank you for allowing us to do that when you're selling to uh b2b decision makers they're hard to find, aren't they?

12:15When you try to do it on a social network where people are doing dance moves or arguing over Ukraine, that's not where you want to be trying to find B2B decision makers who are in the mindset of making a purchase. No, you want to find those business leaders on LinkedIn. Now, LinkedIn has 930 million members ready to do business with you. But what's really important is they have the 180, I'm going to lower my voice here, They have 180 senior level execs, plus they've got the 10 million C level execs. That's people like me, the C's, the C suite. It's so sweet when you can reach the C suite and LinkedIn's got 10 million of them.

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13:32Talk about how this has grown as a business and what you've learned you worked at a startup before this yeah but this was your first essentially venture-backed startup so what did you learn from the time you were at our accelerator not to make this an ad for the accelerator but just your story of hey what did you learn not just from our accelerator but just being out there in the field for the last three or four years about developing a product and delighting customers those two things specifically as granularly as possible yeah like start with developing a product like for us we never wanted to build a slightly better reputation management company a slightly better review company for us it was about category design how do we create a brand new category we called it employee driven growth and then become king of that category and take market share so we took our unique product insight on employees earning incentives for getting mentioned in online reviews by customers.

14:33And then the whole product roadmap was set up to help employees earn more for growing the businesses they work for. So we developed something called Scoreboard because we have the point of sale data where it's an automated sales competition on the highest revenue generated specific products. The retailer or brand can set it up and it helps the employees earn more for selling specific products or hitting revenue targets. And it increases revenue for the business increases earnings for the employee. And if you look at the product roadmap now and over time, like, you know, we'll do similar stuff to competitors in the market, but we're always attaching employee earnings to whatever product that is.

15:12And it takes a lot of iteration, a lot of prototyping. Like we believe in very fast prototyping and tests and killing products that don't work. And we do our best not to - So that's product velocity. You got to run experiments, a little bit of lean startup in there uh and just moving fast but creating a category is the thing that i think is the most interesting you're not copying anything that existed in the world and so you branded this you said hey this is employee driven growth and so let's talk about how you came to that name slash framing because that framing yep is so brilliant it's such a brilliant frame framing how you look at the world right you can look at the world in many different ways for people who don't understand the concept of framing framing is a psychological term and so there's something called attribution theory you can look at behaviorism and some other schools of psychology and this is i was a psych major really has helped me in business but framing and attribution theory is how you attribute things that happen in the world so if you get caught uh for speeding on the highway you could say i'm an idiot for speeding be self-loathing you could say this cop is corrupt uh these goddamn cops you can attribute it to them or you could attribute it like i do hey ah i like to go a little bit faster and that means i'm gonna get a speeding ticket every year or two therefore it's a donation because that money goes to my local town or that local town and They'll probably put it towards education or this cop's not making a ton of money anyway, and they're just doing their job.

16:47So I'm free of any pain or suffering. Your framing here is so brilliant because you're saying the employees are driving the growth. And if you're a business owner, you know this to be true. And so if you come in and say, hey, we're an employee driven growth platform. oh my lord that just snaps into place for the employer and the employee because the employee could say uh you know oh yeah you're right i i am the one who drives the growth here and then the employer can say i know that you're driving the growth here and i want to see you get an extra 10 bucks every time you get a great review and that is that what it averages out to 10 20 bucks that seems to be what i remember yeah if we set it up it's five dollars if the business that they can do flexible rewards and they can pay employees as much as they want the most business has paid um we have a business that has 51 locations um that is paying out fifty thousand dollars per month to their employees and per review um fifty thousand in total yeah and then what per review yeah that'd be a bit that would be a big bounty for one review 20 25 per review 25 per review that seems like a really smart business i'll be totally honest because these reviews are you know amazing so let's talk about that framing when did this land in your consciousness was it um from day one because i don't remember hearing this in the accelerator all that much uh when did when did you click in with this framing of employee driven growth um it's it's been recent it started um early on when we're going through the accelerator with our unique insight the you know service background how we differentiated in the market We got introduced to a book called Play Bigger, which really framed this, I think, late last year and then worked through it with our head of product, Tom Shaw.

18:40And we created an internal POV, just an internal document that talks about the stakeholders, the employer, the employee, the state that they're in today, how they're wasting all this money on marketing, how to solve this really tough problem. And then the employee-driven growth philosophy and what happens after that was the future state. We delivered that internally. We put it into marketing messages. We put it on LinkedIn into a product we're testing called Paypost, where our team posts about employee-driven growth and tags I rate and earns cash for it. Oh, sweet. Yeah. And it just started taking off.

19:15We're doing a name brand and a name change and a rebrand that aligns directly with employee-driven growth. So, that's coming soon. And it will help us get out of this hyper-competitive review space. We don't want to compete. We want to create a brand new market, take that industry from zero to one and become category king of that. So you see this not just being for massage therapists and salons and hairdressers. It could also become something that a venture capital firm could use or a SaaS company could use. For sure. For sure. For us, we stay hyper focused on a couple industries at a time, get to critical mass and move on.

19:54right now the product's set up for um retailers and small businesses i think in the future there there's possibilities to build for the enterprise well listen congratulations on all this the the results speak for themselves uh customers love your product the uh employees inside of the company love your product and i love your team and and you guys for allowing us to invest in your company and really come along for the ride. So thank you for letting the Launch Fund and Launch Accelerator participate. Really do appreciate it. You know, and I hope we've been of great service to you when you need our help.

20:34One of the great ironies is you and I don't talk that often because you're crushing it. And this is one of the things I train investors. You're great investments. You're going to just open up an update one day and it's going to be like, oh yeah, we're going to go close to 10 million in revenue. And when you invested, they were at two or 3 ,000 a month, which I think is where you were in the accelerator. And you're going to be like, okay, it all worked out. And that student in your class, if you will, you know, that Padawan, they just learned how to use a lightsaber and they crushed it. And then the person you have to deal with constantly is the person who completely screws everything up.

21:08And it's the problem child that take all your time as an investor. You're the opposite. You're that straight A student who just crushes everything. So I just really glad that we got to be part of this and the best is yet to come. Listen, I'm doing six podcasts a week. It's not easy. I love doing it. You love listening and we all learn so much, but dealing with video, it is so expensive. It's so time consuming, right? But you want video because videos go viral all day long. How many times does audio go viral? Very rare. I couldn't even tell you. If you ask me now, tell me the three times audio went viral in the last year.

21:46I wouldn't have one example for you, but I can tell you a hundred different videos that have gone viral in the past year. So if you want to start leveling up your clips game and make really tight viral clips that will bring you customers that will build your brand, that'll help you hire people that will get you venture capital investment, well, you want to use VED. It's a web-based video editor, and it's going to make life easy for you. And the best part, you don't need to have video editing skills. Now, VED has editing features built into it, like auto subtitles, or you can remove background noise or you can resize it so you're not sitting there looking up how do I do this?

22:22How do I use these crazy expensive video editors? Nope, they have all these AI tools that make editing faster and easier. Hundreds of plug and play templates and more. V let you do it all without having to spend hours learning complex editing software or paying third parties. So start engaging your audience on any of the major platforms by heading to V.io and start creating professional quality videos in minutes that's veed.io to sign up today can't wait to see a 10 exit from here uh which i guess is going to require a little more capital and continuing to upgrade that management team and add talent yep now that you and i think this is a hard discussion to have so what what do you need going forward in terms of your team and experience that getting from zero to 10 million is one thing.

23:15But we, you and I both know 10 million to a hundred million, you're going to need a group of people who've done that jump in all likelihood. I mean, I have seen teams not do that, but they tend to struggle. So what do you need to do as a founder here? Because you've never run a hundred million dollar company. In fact, this is your first time running a company that's just about to hit 10 million in revenue. So what do you have to do to level this company up and the management team in your mind? yeah really really good question um i think you know one we don't have a marketing function in the company right now that will help the sales team is that we're a marketing platform we don't have anybody doing marketing i think it gives us a bit of a unique perspective you know why you don't have marketing because you have marketing pull you have you have you know you know what product market fit is obviously that's when you know a market and a product you know click in but when you have market pull which is what you have you have people who want to use this product and selling it and they just use it more and more you get into 10 locations you're going to go to all 100 if you have 100 locations you're going to go to all 1 ,000 you have market pull so you don't need marketing you know who else had market pull you along with tesla that car was so fantastic sorry you bleeped that out that car was so fantastic that when i had one i used to tell people want to go for a ride i'll show you all the features and i had a talk with elon at one point i was like you should do something like a tesla rangers or like a tesla affiliate program and i take no credit for elon's work over there but he did obviously create a uh he created an affiliate program where people could share um that they uh you know their unique url uh after we had that conversation and that worked out really well some people wound up getting a lot of credit for selling model threes but my idea was if you had these rangers uh tesla rangers they would go drive the car range right it was my idea he never did this one but i said hey you could drive the cars somewhere and they uh would give rides to people and if that person wound up buying the car you could give them you know whatever a hundred dollars or five hundred dollars towards their next car so i think that's what you have is you may not need a marketing department as much as you need content being created on a regular basis by you and your team to showcase how effective this is and just take a victory lap and give high fives and um but yeah so marketing is definitely one you need uh but you should be thoughtful about what it is i think just explaining what you do is enough i don't think you have to do hard a hard sell here it's just pretty obvious i think have you done case studies that's always a great way to the case letting customers speak for you as you know is the greatest reference which is literally what you do so when we do events we ask people to review the launch accelerator or founder university or whatever it is and we say can you write us like a three sentence yelp or google review like review about our business and then we take those and we'll put it in our marketing but yeah that's yeah marketing and growth marketing growth hacking that's definitely something to build at scale and that means taking a two-year approach not just a week a month to month week to week marketing plan but i would encourage you to build a two-year marketing plan what is this marketing team doing in two years you know what does it look like in two years if we do eight quarters and we take a quarter by quarter approach quarter one we get this you know we get the blogs going quarter two we get the case studies going quarter three we get our regional report on local business health whatever it is and i love what zillow did i we had um i had at some point i'll have the producers look it up god this is where i need an ai search engine for the three startups we had the cmo of zillow she was phenomenal and she was on the she spoke at a couple of our events and you remember they did zestimates and remember zillow did reports on local markets and redfin also did this and they got local news to use the local data it was such a brilliant move so the health of the local markets could be like hey here is the reno here is the phoenix uh you know or even the tempe you know here is the austin local business report and here's how local businesses are doing anyway there's something there around that um so you think marketing anything else you think you need to level up finance sometimes that's hard at a company is it time for a cfo yeah well our coo is running both functions he's a co-founder um eventually i think that's a function we'll need to hire for.

27:50I really think just finding like some executives can scale through the different phases of growth. It's rare, but finding executives that have gone from 10 to 20, and maybe that's not the same executive that's going to go from 20 to a hundred. And it's painful conversation sometimes. And sometimes people, you know, you're asking them to do almost a brand new function at that level of scale. So I think that's important. And then just keeping it candid with the founding team. I'm just so, I feel so fortunate to have met Michael Arredondo, Mitchell Arredondo, Mike Pieri. I don't know if you remember, but as we're going through the accelerator, we were selling to Franchise Health and Beauty and our revenue went to zero for like three or four months.

28:34And we didn't have, we had barely any cash in the bank. We had a team of 10 or so, and it would have been really easy to give up then, but we kept it candid in a harmonious way forced each other to level up and i think as we're going through this like our the founding team our number one skill set is just not giving up and not quitting um and making sure that stays top of mind for the founding team and then building executives around us that have done it before is really important i think that radical candor super important if you're into uh radical candor highly recommend kim scott uh episode of this week in startups and even better than my interview with her she did a master class kim scott uh from google and i knew her at a company before google um you can uh go check out her master cat class on radical candor was the name of her book but she just has a master class on tackling the hard conversations with radical candor i have a promo code for master class they've advertised here but i don't remember off the top of my head kim scott was on episode 965 thanks to my producers and somebody on my team please put all these episodes in ai so we can just ask the twist ai i do think getting a cfo in when you get to shorts 10 million is a good idea because uh respectfully to the coo um how good can you be at operations and uh you know finance with so many hours in the week and also if you think of the bar raising technique do you know about amazon's bar raiser concept okay so um these interviews are going to become like mini uh you know jcal and founder uh jam sessions here yeah go to masterclass.com startups to get 15 off i'll put a promo um so bar raising there is an amazon book uh and at amazon uh working backwards is the name of the book and we did a book club on it i don't know what episode that was but a bar raiser is somebody you hire this is one of bezos's great innovations shout out to jeff bezos uh who just started following me on twitter thanks jeff bezos um a bar raiser is somebody you hire who raises the bar inside your company because they know more than the existing team so if you were to hire somebody who you know worked at zillow in the marketing department obviously they know more than you and i because they did it if you were to hire the cfo from slack or salesforce or you know in the early days well they've done it so therefore they're a bar raiser and so if you go to um just do a google search book club with jason working backwards this book is so good in terms of it changed my thinking and i don't think we ever i'll put it in the show notes for everybody if you do a google search book club with jason working backwards this changed my thinking on a lot of things also they have a right first culture have you heard of that before right first culture right so you know when they go into meetings they write this is the new product or service we're going to do and they do what's called the six page or it doesn't have to be six pages but they do the internal faq the external faq and they basically have people write down in plain words not powerpoints what the plan is and then they will write like a press release that they would give to the press uh or the announcement to users before they build the product why do you do this well if you can anticipate all the great questions that consumers are going to ask or people internally at the company are going to ask and everybody reads it at the start of a meeting so they have this bizarre weird moment like it's a cult where everybody closes their eyes or turns off their camera and they read ray the document so everybody's sitting there on there with their cameras on reading it it's a thousand words okay took you six minutes to read it everybody takes notes and then everybody asks questions based on what they just read and you don't go spend 45 minutes in a powerpoint deck where everybody's secretly doing their email it is so transformative and then i did this when we were launching we're raising our fourth fund now you'll be an lp in fun five when you take this company public my master plan people we fund become billionaires and then they invest in our next fund it's great no conflict no interest but anyway um if you go to launch.co slash memo i wrote a deal memo about our fourth fund and our strategy and this deal memo when people read it they understand our strategy when i walk people through a powerpoint they ask me questions that are answered in the first two paragraphs of this and the retention and knowledge of our strategy goes way up when people read it turns out reading versus watching powerpoint decks just complete difference so i really encourage you to do i would just do this right now how many team members you got um close to 60 holy cow just buy working backwards for i don't know all 60 uh it'll cost you whatever 20 bucks per book you just do the math it's like 1200 bucks or something and then have a book club one saturday or one thursday night send everybody you know an uber gift card to get pizza or something and then do a book club and watch the organization level up because amazon figured out how to have like a very operationally excellent company right listen i talked a whole bunch here but i i'm going to use these segments and i appreciate you being open minded to doing this you're the first i'm using these segments to catch up with my founders but do like a public jam session with them is there anything else we can be helpful with uh you know as we wrap up here as investors things that you need uh seems like you're in great shape but if there is uh you know please ask any questions no i think just so many not just recommendations um like you had there i think as we're um going to the next fundraise you've been great with intros um intros through jackie um are always my intro machine yeah when people when you when you get intro'd um just since i have old information here because I don't do all the intros anymore because it's doesn't scale but when you get introed as a launch company or people know that we're on the cap table and we're involved does it does it help a little bit with the friction or getting meetings for sure for sure like we raised the pre-seed through an investor that we met during the launch accelerator we got an intro to them they didn't invest in our space so we probably shouldn't have taken the meeting but they introed to another investor, a world-class investor that wrote a check really quickly.

35:01So it helps a lot. How many, when you were doing that seed, I always tell people between 100 and 200 emails to get to 50 to 100 meetings, to get to 10 investors, close seven of them. What was the numbers in that funnel when you raised your round? Yes, probably 100 emails, maybe 20 meetings and a couple of investors participated. Great. Amazing. All right. Listen, I'm so proud of the work you've done. Thanks for letting us come along for the ride. We were one of your first investors and we'll be with you till the end and beyond. So keep grinding. If you need any help, you let us know and then hopefully come back in a year or two.

35:44We'll get an update on the business and we'll have a conversation about going from 10 to 25. Cool. Appreciate you having us. All right. Thanks, Ray. Finn can't spill coffee on a white shirt or wave at someone who isn't waving at them or burn its mouth on hot pizza. But Finn can resolve half of your customer support tickets instantly before they reach your team. What's Finn? Finn is a breakthrough AI bot from Intercom designed for customer support teams and ready to put other chatbots out of work. It learns your entire knowledge database and has the ability to carry conversations and remember context and nuance while slashing your resolution times and support volume.

36:25Meet Finn, a breakthrough AI bot by Intercom. Ready to join your support team today. Visit intercom.com slash Finn. All right, next up on the program, everybody, is, you're not going to believe this, we got them back. The one, the only, the transcendent. There can be only one deep tech investor with this track record. Mr. Steve Jervison came to Angel Summit he held court he shot the long ball three pointers he dunked he mesmerized this audience of 120 or so capital allocators he's the og invested in spacex tesla hotmail this guy's been around for a long time i'm not saying he's old but he's got that wisdom he's young at heart with the wisdom of yoda vc yoda steve jervison uninterrupted for the next 30 minutes for you the loyal this weekend startups audience enjoy.

37:24Our next speaker is absolutely extraordinary. We're lucky to have him. It's a legend in the venture industry, original investor in Tesla, SpaceX. So next up, Steve Gerbertsen. Well, I'm going to just try in a brief moment to give you an introduction to the way that we invest in disruptive technologies, explain what we mean by that, the origin of where disruption comes from. I'll use space as one example, simply because SpaceX companies like that are very visible. Everyone thinks they know a bit about the business because it's very visceral when they blow up, its sort of failure to launch becomes visible.

37:52And it's maybe an iconic example of something that very few of us probably thought was a venture investable category in the 90s, when it was all internet, semiconductors, and biotech, and that was pretty much it. And now it's cars, it's agriculture, it's energy, the entire economy is opening up to venture investment. That's because it's opening up to entrepreneurial disruption. That's what I want to focus on in the beginning. Just one slide for background and context. These are the kinds of things we invest in, they're all over the map by design because our filter really is that we try to invest in companies that are unlike anything we've seen before yet adjacent to where we've been.

38:26So it's this ever set of expanding frontiers now on more domains and sectors than ever before. But when we first invested in these companies, they didn't have a product or a prototype and they were generally regarded as impossible ideas. When they succeed, like Tesla or SpaceX, you can see how they've reinvented entire industries, right? They're catalytic to change beyond just their direct sales or impact. And we're hoping that'll be the case with others to come, like Commonwealth Fusion and Energy Space or D-Wave and Quantum Computing, or even a tie in psychedelic medicine for mental health and try to reinvent an industry that when you look back 20 years, companies that sort of led the tip of the spear of a major sea change.

39:03So that's what we look for. We don't always succeed, of course. In fact, we fail about half the time. But the filters that we use, I'll explain later in the talk, are ones where we try to look for that ability to find companies for which history books would be written about if they succeed. Companies that have an incredible trajectory looking at 50 or 100 years, not 5 or 10. And so we set up our fund to be a 15-year fund. I personally have never sold a share of anything I've invested in. There's some domains of long-term thinking that filter through to the filters we use in the front end that come from the way we structure our work.

39:32Okay, meaningful change. So I mentioned that we try to invest in things that are profoundly going to change the world for the better, or provocatively are so audacious that history books will be written about them. And I think Tesla and SpaceX will fit into that moniker. I don't know about which others, but we're hoping they'll have that potential. But how can you even do this? What does it take to have meaningful change? And in every single case, it takes what we would call some form of disruption. It has to be a disruptive innovation or disruption in a market that's exogenous to the startup itself.

40:04Without that, the big keep getting bigger. New entrants don't have a chance. and it's just business as usual, right? So in autocracies like China, in the long run, I think you're gonna see less innovation because you have less new entrants, you have less disruption. When a culture or modality, be it the culture of a region or the culture of a people doesn't welcome disruptive change, you have less change and you have less innovation. That's what progress is. Now, where does this come from? It's always led by new entrants. This is the only rule of business I believe is inviolate, meaning there is no counterexample in the history of the world.

40:35So let me be precise what I'm saying. Take any company that's large or let's say top three in their industry. They will never lead the charge to disrupt that industry. In recent years, that may have seemed strange. You'd be like, well, what about Apple? What about Heal Packard? What about Google? And I would always say, no, Google's never going to reinvent search or advertising in the search context until someone else like ChatGP does it to them and they play catch-up. The same with Apple. They're innovative outside their core, but never in their core business. They haven't done anything laptops or servers for decades.

41:04right? Nothing you can point to as an innovation from Apple in what used to be their core business. So big companies can be innovative when they don't innovate in their core, but it is always a new entrant that will change an industry like the automotive industry or the aerospace industry that go decades without a new entrant, decades without any change that anyone can point to that's meaningful or disruptive. And then the Teslas and SpaceX lead the change. Now, where does this come from? There are several on this list. I won't belabor them. A lot of these are one-offs. Every once in a while, an industry gets privatized.

41:34Every once in a while, it gets deregulated. That creates new opportunities, right? Sometimes there's a financial shock. Ironically, big financial swings, black swan events in the economy are great for startups, right? There was no better time for Tesla to launch its competitive assault in the automotive industry than when all the automotive companies were struggling with debt defaults and the possibility of bankruptcy, right? So Tesla picked up a factory for$42 million that cost a billion dollars of plant property and equipment that was used. Those kinds of opportunities are a form of disruption, but you can't necessarily bet on it as a venture investor or an angel investor.

42:06Then there's these weird ones, these new channels of distribution. And I would lump the internet and mobility as examples of this. Basically, an entirely new way to mediate interactions with customers, right? Just like Dell was a beneficiary of an entirely new way to ship computers to customers. The same is true for the internet and almost every consumer and business business you can think of. And same, of course, for all the mobile apps that came. Now, the last one is the one I'm going to focus on. This is the one where I think is the reason we're in the room today. The reason that there are angel investors and venture investors year after year, decade after decade, despite the sporadic, I mean, no one I don't think is focusing on privatization as your investment thesis or deregulation, right?

42:44Like, good luck. Where are you going to look around the world for the next one, right? But every single year you can count in Moore's law, right? This exponential change in capabilities that for whatever reason, humans have an impossible time projecting with their linear projection and intuition, right? So just like Sony lost the Walkman franchise to MP3 players and just didn't see it coming, how could they not have seen it coming? We just, every single time, people don't see it coming, whether it's ChatGPT or other forms of innovation and disruption today. Quick question. How many people have seen or know of Ray Kurzweil's version of Moore's Law?

43:17This is the abstraction of Moore's Law that says the amount of computation that you can buy for a dollar. I only saw one hand. Is that really the case? Wait, hold, keep them up so I can count. Okay, like Steve Martin, we'll do that at 10. Okay, 10 of you. Wow, okay. So I will explain this slide because I've been updating it from when Kurzweil first published it in 2008. So what you're looking is years on the bottom, how much computation you can buy for a constant dollar, inflation adjusted, which is what people buy, right? No one says, hey, Intel, give me a billion transistors. I'd like to buy some transistors, please, right?

43:45They say, I want a certain amount of computation on some storage. You could plot either across many different technology stacks. So now this abstraction isn't specific to Intel. It isn't specific to anything Gordon Moore talked about. It isn't specific to the integrated circuit. It's like the analytical engine, the relay-based computer that cracked the Nazi Enigma code, vacuum tube-based computer that predicted Eisenhower's win, et cetera, discrete transistors. Those are different epochs in those gray bands. Well, what Kurzweil realizes, astoundingly, if you look at the best price performance computer of the day, it's as if they were on a curve without knowing it, right?