Jason Unplugged: IPO market, WaPo tactics against Dave Portnoy + Live Q&A | E1815

0:00The point of raising interest rates is that they want a certain number of people to lose their jobs. It's crazy to say that out loud but that's the truth they want unemployment unemployment to go up. they want unemployment to go up so that the economy cools down and there's not so much money. Why would they want to do that? Because inflation is a worse in their mind. Out of control, inflation will do more damage. And that's really where we're at as an economy. So nobody can predict this perfectly, but I did predict it would be six quarters plus or minus two. And here we are in seven and we're turning it around.

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1:20It's your boy, J. Cal. Long time. Yes, I know. We stopped doing live because we had made a decision here at This Week in Startups when we stopped doing news with Molly every day. I wanted to get back to... Hey, notice. I wanted to get back to doing more interviews with all-stars, two types of all-stars, people in the industry, like Dharmesh from HubSpot or Ruloff from Sequoia, because y 'all missed that, right? You missed those kind of old school. And then I tried to do all the new founders coming out. So we've been doing that. We had All-Star Summer. I don't know if you guys have seen Scott from Atlassian or Dharmesh from HubSpot, CEO of MongoDB, Nikesh from Palo Alto Networks.

2:08Man, do we get a lot of great folks. And so what I've been thinking about, you guys tell me what you think. Whenever a breaking news story happens in tech, what I've been thinking about doing, now that I know I have the passwords and everything to the YouTube channel, and Zoom is so easy, I don't even need to have my producers do this. I can just turn on live and then just talk about some breaking news story or take questions from you. Nikesh was dope. Yes. And so let me just say hi to my noties. Adam, you're first. Of course, Mohammed. Hi from London. Adam, yes, you're winning. Jeremy, you're definitely notie.

2:45Brandon, notie for sure. Nick, notie. And who else is here? Tim. Hey, what's up from Virginia? Let me say hi to some other people. Shan Tanu. uh nikesh was dope i agree i don't know if there's a top news story y 'all want me to give you a quick reaction to uh nick is there a top news story happening right now in the world yeah the splunk acquisition was pretty big today and i think your thoughts on the float for the three major ipos that we saw maybe you could go back into those notes that i think was a pretty interesting take that did not get too expanded on it all and we definitely touched it but not We didn't go too crazy.

3:23Or the big insider trade, quote, alleged insider trade. Alleged insider trade that made the best deal of all time. Or, yeah. Yeah. Congrats to Nancy Pelosi was my joke. But isn't that the silliest? Like, it can't really, that can't be real. Because that would just be so, it's so obvious. Yeah, no, of course it couldn't be. And, you know, anybody who is doing this kind of insider trading stuff is truly an idiot. Because you will get caught. I never understood how any person could ever do those trades because I think it's all tracked and you'll get reversed immediately. But the big news, of course, today was Cisco planning to acquire cybersecurity company Splunk in cash for$157 per share.

4:05That's a 31 % premium on Splunk's closing price, puts the deal at$28 billion. I think this is a really interesting thing that's happening. If you have large companies, Cisco is a very large company, obviously. And smaller companies are going to be not priced at a premium. People are looking for growth. They have a lot of cash on the sidelines. And you're going to see a lot more M &A. My email box is filled with founders, with companies that have$500 ,000 to$20 million in revenue. And they're all considering, because of the headwinds against raising money, they're all considering hey maybe it's a good time for me to cash in my chips now of course in a town market you want to build not sell your company and great companies are bought not sold in other words once you tell people you're looking to sell your company they assume there's something wrong with it and so uh i think m &a activity is going to be really really um el fuego in the next year but we also had three companies go public and that is a very interesting moment in time these companies are in a lot of ways being forced to go public because they've been around for over 10 years we saw three of them in the last week you had arm and masayoshi-san had no choice but to get that company public because he needed to get distributions to people like um you know the the lps who are in the vision fund so arm went out i think they priced their shares at 51 They raised close to$5 billion,$50 plus million,$1 billion valuation.

5:47It jumped 30%, came back down to earth. So I guess in some ways, they priced it well. Klaviyo, they priced it$30 a share. They raised a half billion dollars. They've got a$9 billion valuation. That's a great company. They're doing something like$600 million plus a year, 51 % year over year growth. They've got a bunch of free cash flow and just profitable, great company. And Klaviyo has a large percentage of Shopify stores using them. If you don't know what Klaviyo does, they study all the data of your customers and they send them customized communication. So if you love a particular brand of clothes and you're getting customized marketing from them where they know, Oh, hey, this is your gender.

6:31You like to buy jeans and t-shirts from us, but you don't care about jackets and shirts. They're going to just update you intelligently. And so it's a really, really great business with a lot of lock-in. So once you install Klaviyo, it's not super expensive. And it's going to increase how much conversion you have. Those kind of tools, even in a down market, they become more valuable because each person is saying, hey, if customers are going to spend less, let's try to get the fat cats in our system to just spend a little more. People are just really focused on revenue because they don't have the ability to raise money.

7:07We all have self-doubt. I can promise you if there's 100 people in a room, 100 people have some level of insecurity. You can't have any self-doubt about your commitment and conviction to do this. You might have self-doubt about your ability to succeed, to raise the money, to attract the right people. Those are two different issues. That voice you just heard is one of my personal heroes. Oh, my Lord, Starbucks CEO Howard Schultz. I'd love to get him on this podcast, but you know, we can get him right now on masterclass. And he breaks down everything about leadership masterclass does these incredible courses, and they get the greatest people in the world.

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8:36Now, Instacart, that's a really interesting one. We're an Instacart family, we use Instacart. We use Uber Eats and we use DoorDash, we use all three of them. We use them kind of in different modalities. I like Uber Eats when I need something quickly, you need a gallon of milk, you need some eggs, you need some cheese, hot dogs, whatever you're cooking that night, ice cream it comes so much faster than instacart but when you want a big order instacart works pretty well uh and so we've just been in the habit of using instacart problem is they're not growing that much revenues up 15 year over year their ad revenues up 20 year over year but it seems like they don't make any money off groceries groceries are the worst business you could ever be in and so i think you know the the the the real red flag on that business is that the gross transaction volume is flat, the ad revenue is growing.

9:29Does that sound familiar? Basically, what that means is over time, ad revenue is going to account for a larger percentage of their total revenue. They're doing 800 million in ad revenue a year. That's not insignificant. I think Uber passed a billion. Obviously, Amazon has tens of billions. So what we're seeing is consumer packaged goods are a major advertising category. That money is spent on TV. Would you rather, if you were trying to sell, you know, Coke Zero, if you're trying to sell your Coke Zero, where would you like to spend money? On the Super Bowl, on an NBA game, during some TV show on YouTube?

10:12Or would you rather spend it when I am checking out with my cart and say, hey, would you like a case of Coke Zero? Oh, we have Coke Zero, you know, Cherry Coke Zero. We have Vanilla Coke Zero. Oh. Doing that kind of advertising that's connected to your shopping cart is so much more powerful. And so I think Instacart is going to be very similar to Amazon. There's multiple ways you can advertise on Amazon. You know this because when you do a search and the top row is sponsored, and then you're trying to find the first organic row, it's incredibly frustrating as a user. But sometimes the advertisers are actually the best products.

10:51And so you'll see the Amazon choice and the sponsor, just like when you do a Google search, sometimes people will buy the ad for their own name, like Volvo will buy the ad for Volvo, and then you'll have the Volvo organic search result. if you can get closer to the transaction that's a much more powerful and trackable uh ad so i think instacart's business should be to try to make no money make zero dollars on sales and then really just go after amazon try to get as much share of cart as possible so then instead of people doing the end cap at a store or doing the Super Bowl ads or TV ads. Just that little ad that pops up at the end when you're checking out, that's when it says, hey, do you want to add these three items?

11:41That's an ad. People don't know it's an ad. They think it's just part of Instagram. That's an ad. And when you first open the app, you'll see offers. And so I have been with ice cream on Uber Eats. it seems like the cpg brands are offering buy one get one free ice cream and so you know my girls like to eat ice cream when watching tv we have a little ice cream uh it's a little tradition in our household when i saw two for one i just was like okay i'm gonna buy eight pints of ice cream i'll buy i was gonna buy four anyway but i'll buy the ones that are you know buy one get one free those ads are not the stores to the best of my knowledge and that's not uber eats or instacart trying to get you to spend more money.

12:21Those are the CPG brands trying to move more product. But then how do you value Instacart? Here's how I'd value it. 25 times, let's say they make a third of the ad revenue is profit. So if they make a billion dollars, that's 350 million in profits. 20 times that, 30 times that is how you would value an ad business. In other words, 20 or 30 times earnings if you look at google stock price it's 25 30 times uh their earnings i think facebook is 30 35 times their earnings that's called the price earnings ratio as you know my guess is that right now instacart has let's call it i'm going to round them up to a bill let's call it two three hundred million in profits let's make let's be generous make it 300 million, 300 million times 25 % or times 25, right?

13:20You're starting to get to that six, seven, eight, or 30 times earnings, 25 times earning, 20 times earning, 20 times, that would be 6 billion, 30 times 300 million, be 9 billion. You know what they're trading? I think they're trading at like exactly 8 billion. I think that's how the market is valuing them. If you want to compare their 800 million to Amazon, Amazon's got 40 billion. So there it is. I think that's a really great way for you to look at that business. So big week for IPOs. What does that mean for the startup market? It means that the people who are the LPs in Kostla, Y Combinator, Sequoia, Andreessen Horowitz, those are the big beneficiaries.

14:06areas, they did the early rounds, the seed series A and B of Instacart. Those folks are sending money to LPs. Who are the LPs? It could be someone like Ford Foundation. It could be somebody like Harvard. It could be someone like Calpers. It could be high net worth individuals. It could be a sovereign wealth fund like Ubatala. Anyway, those people are getting money back. When LPs get money back, then they feel confident enough to put more money to work in venture. And And thus the cycle begins again. But right now, limited partners haven't gotten a lot of money back because it's been a two-year drought of IPOs.

14:42All of a sudden, three IPOs in a week. If you were in the Vision Fund and you were kind of bummed out, getting billions of dollars from Masayoshi-san for ARM feels good. If you're a Kostla or Y Combinator or Sequoia or Andreessen Horowitz LP, hey, getting some Instacart shares feels pretty darn good. Getting Klaviyo shares feels pretty good. And that builds the confidence that Silicon Valley and the tech industry and venture capital and accelerators and angel investors can actually identify companies that scale and change the world. Now, I would add to Jason, Vision Fund LP's got an extra, extra nice gift because SoftBank, the entity, the main company acquired 25 % of ARM from its own Vision Fund at a$64 billion valuation.

15:28So higher than what it went out at last month. yeah so they got to doubt they got to double dip it's a really good point so yeah basically paying vision fund lps with shareholder dollars which is great listen here's what's happening it's such a really good point is everybody who's in the capital allocation game wants to get more of their lps money so that people uh you know um trust the ecosystem more and when things crash you know trust and concern you know people don't feel good about certain stocks they don't feel good about the stock market they don't feel good about venture and that's what happens when a market bottoms out and that trickles down all the way to startups so that's what's happening jason do you have any thoughts on the uh the dave portnoy calling the washington post journalists yesterday yeah you know that's interesting you sent me that nick and um it really felt scummy that that the washington post were targeting the advertisers first and saying you know um that dave portnoy is problematic it felt like they were doing that to damage dave portnoy and damage barstool sports and to get those sponsors to cancel their sponsor agreements for his pizza festival and then they want to go to him and get a comment at the last minute that's kind of dirty uh if and i think that there's probably a very strong internal discussion going on at the washington post about hey our job is to you know uh when we have a story like this um maybe start with the person who is in question and you say hey dave um these things uh people felt were misogynistic or you know you use these terms uh you know 12 years ago and uh you know maybe those things are not politically correct right now you have to ask yourself like why is this story important to the washington post right now that's what i felt like really weird and the way they're doing it seems like they were using a tactic to damage barstool sports now i don't think they're direct competitors but it felt like vindictive virtue signaling woke whatever and you have to ask yourself like okay if there was a star you know dave portnoy is an actor basically right he's a persona if you had an actor from 10 years ago or 20 years ago and in a show they used a term that was not politically correct or acceptable today and the you know society's changed over 10 or 20 years so i'm just sort of taking dave portnoy out of it and then that person is uh you know in a commercial for t-mobile or that person you know did a skit or a comedy bit on a talk show whatever and hey that's not politically correct now and then they go do a movie and you try to get them canceled on Disney.

18:17It just felt, I think, to people like the woman was gleefully trying to set up a situation where they were trying to damage the business. And you heard Dave Portnoy use the term tortious interference. And what that is, is a fancy word for you're trying to damage my business. You're trying to interfere with my ability to do business. So I think the lawyers at Washington Post, when they hear that discussion going on, they're like oh this does feel like maybe we're not playing it straight and this is why media has lost credibility is because it feels like they're trying to take people out as opposed to inform the public now i don't know if that's the case with this writer i don't know if it's just sloppy reporting you want to play the clip where she specifically says the tactic that she uses she kind of says the quiet part out loud yeah so this is where it kind of breaks down it was like all the way at the end she was talking about the tactics of journalists and that is to your point, Nick, saying the quiet part out loud, which is journalists do have tactics.

19:19And one of the tactics is to try to bait people, to taunt people, to get them to talk. And then at the last minute, try to get a no comment from somebody. And so we'll just play this like a minute. I think it's like nine minutes or something. Go ahead. It's nine minutes and 20 something seconds. But everybody listen closely because he's obviously using a cell phone up to a microphone. So she's much lower than he is. Okay. say I have not made my mind up about you. Then why would you include that in the email to sponsors? Because I was hoping for a dialogue with them. You know, sometimes you have to say something like, this is like, you know, it's sort of a reporting tactic.

19:59When you want someone to respond, you kind of have to indicate that there might be something negative and then you get them to engage. That's all I was trying to do. I really wanted them to engage with me. That is a sad state of journalism. If that's a tactic that you have to. But what I would say is make up something about somebody. There might be something negative. And so you want to give people a chance to respond. Yeah, you can see by Dave's reaction. It's like she doesn't know if it's true, the negative stuff. And she's trying to bait some sponsor into responding. Really dirty tactics. Washington Post needs to talk to that journalist.

20:34I don't know which journalist is. They might be Pulitzer Prize winning. But the fact that she said that out loud, you know, kind of confirms what a lot of people suspect, which is the thumb is on the scale and it just doesn't feel good i don't think these journalists understand that we don't want to feel manipulated and that's like one of the themes of the past i don't know decade is whether whatever organization is we don't want to feel manipulated by the government by a health organization by the fed you know or by media just tell us the truth that's what we want just tell us the truth and if we want opinion we'll watch an opinion show but you know the washington post is supposed to be really really you know great journalism and i think this is a tactic that you might expect that like you know the news of the world or some rupert murdoch uh you know gossip publication not the washington post and And it's the same thing with the New York Times, very similar tactics where you feel like they're really trying to destroy somebody as opposed to just inform the public.

21:42And so it's sad for me as a journalist. There's two factors that are contributing to this. One, there's a generation of journalists who think it's their mission to do advocacy. Right? They have to be advocates and they have to try to get an outcome as opposed to just informing people. And the second piece is they've had their business destroyed by competitors. online competitors, whether it's Google, Facebook, we're just talking about Instacart and their advertising business, all of that advertising, also Craigslist, Facebook Marketplace, that took the classifies in the advertising business away from the publications.

22:20And so the fact that they've had their advertising crushed is a big part of the story here too, I believe. Listen, public markets can be volatile. Don't I know that? Uber shares 15. Oh, 60. Woo! That is why many people like to diversify their assets to be safe. And if you're looking for a unique asset class to diversify with, hey, what should you do? Take a look at blue chip art. I have some investments in art, and I do those investments through Masterworks. Blue chip art has historically been uncorrelated with the stock market, okay? And Bloomberg reported that as equities dipped last year, our prices and expenditures actually increase.

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24:42And so with AI, I think AI is an opportunity to look at every existing business. And I had this discussion with the CEO of Kayak recently. You'll get that episode soon. And when I had the CEO of Kayak on, I was asking him like, hey, what do you think about AI? And he wasn't particularly enamored by it right now. And I thought, hmm, I don't know if I agree with that i think really the you know ai is going to change how we book flights restaurants etc i think you're just going to talk to and say hey what are i'm going to new york uh what are five restaurants i'd really like based on you know um the things i favorited in yelp and places i've been to before oh we know you like sushi we know you like burgers we know you like ethnic food here's a great Ethiopian place to get your ethnic food.

25:28Here's a great burger joint. And here's the best sushi place. And then it tells you the times that they're available. And you say, yeah, looks good. Book one for Monday, one for Tuesday, one for Wednesday at seven o 'clock. It looks at my Google calendar. It knows, oh, I have a late meeting. So that night I want dinner at eight. And it just does it for you. And so that's how you should think about it is what existing businesses can you disrupt with this new technology? Whether it's mobile, whether it's cloud, whether it's AI, great question, or Google, the Apple goggles that are coming, what do they call it, Vision Pro or whatever, that's going to change things too.

26:04So we'll see. How do startups outside Silicon Valley access VC funding, or do you just have to make the journey there? There are VCs in New York, there are VCs in Miami, but I do think if you're a first-time founder, you will get a lot more attention. I would say probably 50 times the number of meetings if you just move here and place your company in the peninsula, whether you're in San Carlos, San Francisco, San Jose, you place your company there, and then you can just go have coffee with these VCs or come to their office, and people are starting to be in offices again. So I would say you get 50 times the number of meetings, and it's a numbers game.

26:43Now, if you are a breakout company in Salt Lake City or Austin, VCs will fly to you. So that's the nature of it. If you have a great company that's growing 3x year over year, you're going to get funded if you're in Boise, Idaho, like Shopify. They were in Ottawa, I think, originally. So it doesn't matter where you are if you're in the top 1 % of startups. If you're not in the top 1 % of startups, you have a massive competitive advantage being here. I heard you say, this is beer script, I heard you say you believe we still have six months of this down market. what makes you arrive at that prediction how do you think the transition will go hockey slow i i've said from the beginning because i looked at the three um i looked at the two previous down markets i lived through dot com and great recession these things tend to last six quarters plus or minus two so the shortest they'll be is three or four quarters the longest they'll be is like maybe nine, six, seven, eight, nine quarters, two years.

27:43So somewhere between half a year and two years is the historical norm. And what we've seen, we've got six quarters behind us and almost finished the seventh quarter of down market chaos. And it feels like green shoots, right? We've had three IPOs in the past week. We've got M &A happening. we have companies that cut off and laid off a bunch of people now saying oh maybe i'm going to bring somebody back and that's what you had happen with uh salesforce just said they're hiring people back and they may have some boomerang employees i as long as consumers are strong and we have the lowest unemployment of our lifetime then they'll have money if they have money they have confidence if they have confidence then they spend money and we're a consumer driven economy and businesses if they see consumers continue to spend money and there's competition for employees they're going to compete but the reason i think things are soft and might be changing is because i have a number of job descriptions out because my two businesses launch and inside are doing so well and then i also uh you know have some domestic positions you know like nannies and stuff like that i have seen a dramatic uh change in the number of qualified people applying for jobs.

28:57And then some people will apply for a job on LinkedIn. Then they'll write me a personal email if they can back into its launch, and then they go find the CEO. And then I also have people email me and say, hey, I'll work for you for free for three months, prove myself, etc. I'm starting to get those. I won't call them desperate emails, but I'll call them, I really need a job emails. And I've been there myself in the other part of my career, you know, needed a job once or twice. And I'm seeing a lot of that. So I think the labor economy is softening. And then that means, you know, if there aren't as many consumers going crazy after three YOLO summers, they probably won't spend as much money, will they?

29:40If they don't spend as much money, then inflation should go down because people are going to lower the prices of cars like Tesla is doing. They're going to lower the price of hotel rooms and flights. And this idea that it's hard to get a flight, hard to get a hotel room, hard to find a car, which it has been for the last couple of years, while that's going away, that's kind of healthy. That's the slowdown. That's the point of raising interest rates. The point of raising interest rates is that they want a certain number of people to lose their jobs. It's crazy to say that out loud, but that's the truth.

30:12They want unemployment to go up. They want unemployment to go up so that the economy cools down and there's not so much money. Why would they want to do that? Because inflation is a worse, in their mind, out of control inflation will do more damage. And that's really where we're at as an economy. So nobody can predict this perfectly, but I did predict it would be six quarters plus or minus two. And here we are in seven and we're turning it around. What that means for startups, you got to get to break even, have a path to break even. you got to have a lot of options available to you. If your startup is losing, you know, a hundred thousand, a million dollars a month, you're not going to get funded unless the growth is amazing.

30:52And, you know, it's, it's hard to grow right now because, you know, it's a tough market. Well, Zach asks, since you invest in so many companies each year, how do you find alpha and separate these startups from each other? Great question. We have a database. We have 20 ,000 applications a year. We meet with 3000 companies a year. we have 19 full-time people at the company i'm hiring three more researchers analysts i hire researchers and analysts kind of out of school i think we the starting salaries are like 60 and 70k so it's not a super job but it's not a terrible job and then we ask them to do 500 meetings per year that's 10 meetings a week minimum some people do 15 that's three meetings a day writing coverage of every startup then we write a lot of small checks so we have 25k checks we give to founder university companies we have 100k checks we give to launch accelerator companies 100 million people listen to my podcasts uh between all in and the speaking startups then you have 20 000 applications and 3 000 meetings the when the meetings have certain characteristics and i have 12 characteristics i like uh in startups like builder founders product velocity a growth rate above 2x.

32:05I love world-class design. I like certain markets that are high gross margin. If a startup has three of the 12 characteristics I'm looking for, the team will take a second meeting. Other people will look at it. And then we have two investment team meetings a year. And then people will tell me, hey, we should make this investment. And then we as a group decide. If it's a follow on investment, we invest in the top 10 % of our portfolio. So it's a competition. If the top 10 % of our portfolio is growing 3x and above, and yours is growing 2x, you just might not make the cut. Why? We'll have a certain amount of dry powder.

32:44As an investor, I need to put it into the highest performers I have access to. And so that's an important thing for people to realize. And our ownership percentage in winning companies, we'd like to own 10 to 15 % of the best companies in our portfolio. When I was an angel, we owned under 1 % of Robinhood and Uber. But then we started to own 2%, 5%, 10 % of companies like Calm or Superhuman or Grin or Fitbod. And so when we saw companies start to get to tens of millions in revenue, we really started to build that position. And so you want to make a lot of bets and then study them through their monthly updates and just looking at the statistics, being board members, board observers.

33:27And then you plow basically a third to half of your fund. If you had$100 million fund, which is what we're raising now, you want to put maybe$50 million of that fund into the highest performers,$50 million into the first bets. So it is a competition. And that's how you do what's called portfolio management. Great questions. our friends at Coriant provide wealth management services centered around you Coriant's goals are to exceed your expectations simplify your life and help you establish a legacy that lasts for generations Coriant has been helping high achievers just like you enjoy their lives more fully preserve their wealth and provide for the people causes and communities they care about they're one of the largest integrated fee-only u.s registered investment advisors and Coriant has deeply experienced teams in 23 strategic locations.