Liquidity: Recession fears, AI market shifts, and the future of tech hubs | E1994

0:00I do think there's a really interesting alternative approach to buyouts and rollouts where you're getting enormous leverage on the teams or assets that you're buying through genitive AI. But then you have to do a very strong rip and replace technology cycle. You have to rework business process against AI. And again, traditional bio firms tend not to be very good at that kind of stuff. They tend to be more, we'll bring in an operator who will cut some costs or maybe optimize some things versus we're going to rethink the whole thing through the lens of technology. A lot of the stuff that happened in the last three or four years is really around capital formation and not necessarily organizing product market fit.

0:35I think we're getting back to that. It's clear that the YC stuff is evolving in a good way. And I think that's all positive. But we've run into them all over the world. And I worry that there's just too many folks starting companies and really spinning their wheels in a way that's not going to help us. This Week in Startups is brought to you by Squarespace. Turn your idea into a new website. Go to squarespace.com slash twist for a free trial. When you're ready to launch, use offer code TWIST to save 10 % off your first purchase of a website or domain. CLA. Innovation takes balance. CLAs, CPAs, consultants, and wealth advisors can help you get from startup to where you want to end up.

1:19Get started now at claconnect.com slash tech. And Open Phone. Create business phone numbers for you and your team that work through an app on your smartphone or desktop. Twist listeners can get an extra 20 % off any plan for your first six months at openphone.com slash twist. Welcome back to this week's liquidity podcast. Today we have an all-star lineup. With me today I have investor Elad Gill. Next we have David York, founder of VC Fund of Fund Top Tier, which has roughly$9 billion in assets. And of course we have Jason Calacanis from Launch Fund. I'm your moderator, David Weisberg, co-founder of 10x Capital.

1:57Today we have several interesting topics to discuss. We discuss how recession fears are affecting Silicon Valley, where we discuss the different incubator and accelerator market, as well as we break out cities and their dominance in certain startup sectors. Let's get right to it. Recession fears are taking over Silicon Valley with NASDAQ officially in correction territory after being down 2.43 % late last week. Stock market fears come as a result of recent data from the labor department, which saw unemployment rise and non-farm payrolls rise by only 114 ,000 versus the 200 ,000 economists predicted.

2:36David, you've been investing in the venture asset class for over 24 years. in your experience, what effect does the overall economy have on the startup ecosystem? And what impact should we expect here? The impact is basically in two areas. One is the flow of capital, and that's impacting on the investor side. Investors tend to worry about their balance sheets and slow down the pace of investing. The other area it impacts, which I don't think people think about completely, is actually the spend on the enterprise side. And we're going through a correction, if you will, in the enterprise space, especially after the cloud computing era kind of morphed enterprise spend.

3:15And so that part of the ecosystem has actually slowed down pretty materially. And I would say that will continue to correlate as the economy goes through its sorting out post-COVID. And is the startup ecosystem more greatly affected by that? Or is it kind of on par with the rest of the economy? How does that play out? What we've found, I guess, Through that, I mean, I've lived through several of these, unfortunately or fortunately, depending on how you think about it. But, you know, what happens when we have corrections is people reinvent themselves and innovation percolates and ultimately takes hold and creates a new economy.

3:52A good example is if you go back and when social media really got started and around the Internet correction in the early 2000s, 2001, 2003 timeframe, you know, that wasn't obvious to most of us. primarily because it was happening at the household level. If you think about people going on Facebook or Groupon or the like, they were really on their PCs. They weren't on mobile phones. The iPhone had not come out at that point. And so you're going to have the same thing happen here. I think one of the things that makes this correction, at least from our view, more palatable and easy to kind of sit through is that what's going on with machine learning and artificial intelligence is becoming compellingly obvious in a way that for the first time We're having essentially a pull, if you will, in innovation as we get through this correction.

4:38And the other thing, which I talk about a lot with investors, but COVID convinced us all that technology was actually a good thing as opposed to a bad thing. A good example is this podcast, for instance. We weren't doing these before COVID. Today we are pretty regularly. And I would say that most people in the world are pretty comfortable with new technologies, which coming out of the internet bubble again, that wasn't quite so obvious. And so I think those two things make this correction feels like something we can swallow and we'll get through it. You know, a good example of that is kind of where the chatter is around interest rates.

5:10I think that'll help for growth investing as well. So all those things would make me feel like it's a good time to be putting money to work as opposed to being pulling away. And, Elad, you're in the eye of a storm when it relates to AI. Is the latest economic news having an effect on AI or is it just too hot to care? yeah to some extent ai is um almost like four market segments instead of just one and maybe we can touch on two of them just uh you know to uh talk about them in more detail what is the sort of semiconductor chip layer everybody knows nvidia is one of the dominant or the dominant player in that market segment or at least the biggest player right now and if you look on a five-year horizon their stock is still up 20 25x if you look on a one-year horizon it's up to two and a half x right now relative to where it started just a year ago so despite the the drop and NVIDIA stock from, you know, recent highs, it's still doing quite well.

6:00And that's because people are still buying a lot of chips to power AI applications. If you go up a level and you talk about foundation models, which are companies like OpenAI or Google or people like that, people, I think, kind of misunderstand some of the incentives in the system for those companies, their funding, their utilization, etc. And so, for example, VCs have invested hundreds of millions of dollars in companies like OpenAI or Anthropic, but it's really the big cloud providers who've invested most of the money and they're investing billions and billions of dollars in the case of open ai 10 billion dollars plus to drive these companies forward and one of the reasons they're doing it is it really drives their own cloud businesses so for example azure had a 28 billion dollar quarter recently of which eight percent of the quarter was new left from ai so ai generated two billion dollars a quarter in incremental revenue from microsoft for azure and so these are really big meta trends and those are sort of the very big companies participating on it Obviously, there's all the startups doing applications and infrastructure and other things.

6:57And there's just this enormous lift happening right now across these various segments of AI. So I think it hasn't impacted the segment very much, if at all. And my anticipation, actually, is that the segment will continue to accelerate because enterprise adoption of AI, despite being$2 billion a quarter just on Microsoft, despite that, we're in the very early days of enterprise spend and enterprise has basically done nothing there so far. So it's a very exciting time, I think, from an AI market perspective. The place enterprises are really slowed down the spend is in the SaaS ecosystem. There's not as many seats today as there were before.

7:26And so we've seen SaaS revenue growth really collapse over the last year or so. And I think these are all great thoughts. And if you pull back a bit, great companies are built through all kinds of markets typically. So whether it's Google or Uber, or pick the company, Airbnb, up and down markets don't really matter. for the truly great companies that get product market fit because consumers in the united states love amazing exceptional products now average products mid products they will have a harder time because consumers or businesses might do less sampling they might tighten their belts a little bit so that's just a way to think about the two groups of consumers we're talking about enterprise consumers and regular consumers if they feel rich they'll be loosey-goosey you know getting a purchase order through in 2018, 19, 20, 2020, through your CFO or your head, if you're printing money, your valuations going up of your company, your stocks going up, you know, just, yeah, sure, whatever, go to a conference, buy some software, who cares?

8:28We're printing money. Then when people feel bad, they tighten even beyond they need to, right? And so they just said, we have 50 SaaS products here. It's got to be 20. Why 20? Like, is that going to cut into the bone or doesn't matter somebody said 20 we've got to cut this much and then zooming back a little bit and looking at what's actually happening in the market you have companies like airbnb or amazon saying hey we got softness with the consumer specifically consumer consumers not enterprise uh and you know if you if you look at why uh those are discounting brands those are people looking for discounts then you look at uber which is actually despite what people might think a high-end brand because you know that's versus taking public transportation or versus making your own food generally speaking and they're saying hey consumer's great things could change but the consumer's great because they have high-end consumers so there's there's a lot of granularity here and when you start getting into macroeconomics which i don't suggest founders do or even venture capitalists i really think you have to focus on product market fit and team building above all else and product those are the three things that actually determine your success so um but just on a macro basis you know inflation going up is good for companies in some ways because they can charge more for their products it's bad because their inputs go up so it's a mixed bag and then with interest rates going down well obviously that could be great for the market because it could increase the amount of investment and have people say well if i'm only getting two or three percent in the savings account i should go for venture i should go for stocks and i should move money out of these you know five six percent accounts people are getting and and so all of it is a long way of saying you know there are aspects to fundraising that are impacted i think so timing your fundraising it is good to be thoughtful about macro but what we do day to day as capital allocators and as company builders and founders and hopefully there's a little bit of overlap between those two things you know at its best it really is about staying focused on your customer your product and the team that builds that product to delight those customers and i'm constantly trying to talk to founders about this and then they you know it's incredibly frustrating when a founder says i can't raise money because the market crashed and it's like no that's not why you can't raise money the reason you can't make raise money is because you do not have strong product market fit you have you know pretend product market fit where you're spending a hundred dollars to acquire a customer that makes you 50 so you know let's never blame the outside market always focus on your customers is what i've learned hard all right founders we all know you have too much to do so i'm going to save you time and money the two things that you value no matter what you're building you got to have a website we all know that and everybody judges you by your website people judge a book by its cover that's what they say don't judge a book by its cover well the reason they admonish people with that is because people do judge books by the cover.

11:18That's why when you go to the airport, some covers, they fly off the shelves. The good news is that Squarespace can help you because Squarespace not only will make you a beautiful website, man, they do domain names and they have all kinds of tools in AI now. They got Blueprint AI. It's a tool that's going to help you tweak your website by answering five quick questions. And once you have the design sorted out and it's beautiful, it's stunning, man, they got all these other AI tools that are going to help you with all the copy you need. You're going to save time, save money, and you're going to get that site online and wow your customers.

11:52Squarespace is the longest running partner here on This Week in Startups because they love startups. Squarespace.com slash twist for a free trial. When you're ready to launch, you go to squarespace.com slash twist, you get 10 % off your first website or domain purchase, and it's already affordable. And it kicks butt. They're awesome. They're constantly adding new features. That's all I have to tell you. I love it. We use it. squarespace.com slash twist. Thank you to the team over there for making great products for startups. Elad, you're oftentimes the best friend to the CEOs that you invest in.

12:23They must ask you, are we in growth mode? Are we in defensive mode? How do you look at macro factors and what advice do you give founders during different economic cycles? You know, it obviously differs a lot because if you're in the middle of the zero interest rate environment that we had during COVID and capital is incredibly cheap, that was a great time for people to raise money. And often during that period, it's actually counseling people to not raise too much and keep their valuations within some range so that they could always do an up round if things collapsed. And unfortunately, things have largely collapsed.

12:52In times like today, the startup ecosystem is really segmented into three pieces. There's the AI stuff, which we already talked about. And then there's all the companies that got started before the AI wave. And a small percentage of those companies, say 10%, 20 % have started to match to grow out of the valuations that they set two or three years ago. And so they're finally hitting their stride. That's companies like Rippling and Figma and others who've announced these sort of up rounds relative to what they've done before. There's probably 20, 30 % of companies that hit their terminal value two, three years ago.

13:22They'll still exit or they'll do well, but they're kind of going to flatline in terms of they've hit their peak, right? And then maybe half of the companies should still either sell or a subset of them will go under. And they just raise so much money that they have this enormous runway ahead of them. And so to some extent, the question there for some of those founders is if these are some of the best, most productive years of your life, do you want to keep working on something that isn't going to work because you have the money to do so? Because if you sell or you shut down the company and return capital or do whatever it is that makes sense to do in that context, you may be able to go and do your next startup or join a company that's working really well and really take advantage of these incredibly productive years that you have ahead of you.

14:04And so, you know, there's a lot of kind of conversations along those lines between those three different types of companies. What are some options there? So let's say somebody raised a hundred million and during the Zerp era, and, you know, they're not going to be able to clear that preference. What are some options that startup founders have? And how have you seen that play out in the real world? Yeah, there's four or five options. Option one is to sell if you can, right? And some people will buy you for the cash. Some people will buy you for what you've built, what they do, they can accelerate it um two is you shut down and return the money um often founders who've sold secondary themselves find that to be a more troublesome option in part just because they feel bad about taking the money and often i tell them it's okay like that you've you know the person on the other side was an adult they knew what they were buying in two you know they knew that they were giving you liquidity so it's okay to to shut down um the third is to use the cash to buy something that is working and help scale it or accelerate it with the money that you have and the fourth is change direction but that tends not to work once you've raised that much money and you're at that scale because the amount that you have to catch up to for an entirely new business is so large that it's extremely hard to do that but those tend to be the four options yeah those are really good options and you know it's very hard for people to reconcile i sold 10 million 20 million in secondary and this company's going to be worth zero but you know you in some cases you make a trade and you get the better of the other person they think they're getting the better of you obviously when they bought those shares because they thought they were going to get all that acceleration so um i think it's very good advice to understand that the precious unit here is not the money it's exceptional entrepreneurs time and if they just waste five years kind of letting the money run down it's it is more problematic than just returning it because everybody wants to get on to spend their time on something that could break the power law and be you know be something exceptional we have so many companies in our portfolio that are great founders who raised a ton of money who are now sitting there and the last three years have been i don't want to say depressing but you know really depressing for some of them because their revenue went down 30 40 percent they did three riffs in three years and now maybe they're still losing customers adding marginal customers and it just kind of nets out to a sideways business and you're like well why am i doing all this effort to have the business every year do the same amount of revenue and the only way i make a profit is if i hire people who i love and so you know weird things happen and it's very hard to tell a founder even you know as a capital allocator who's been through this so many times like a lot it's like you're going to tell a founder who's being offered some huge secondary some huge rounds some huge valuation not to take it i know when i was in their shoes i probably would have almost definitely would have taken advantage of that moment and you know then the ramification becomes if you don't figure it out it gets weird uh so you took the option to have a pile of cash you took some chips off the table both were great decisions but now you have to make another hard decision and that's that is the challenge you know i think for a lot of people it's just hard to to put things to bed the thing that's clear just based on our experience because we did fund a couple funds after the internet bubble burst and a couple funds after the global financial crisis are really focused on this turnaround notion that ilad was talking about and at the end of the day it doesn't doesn't have the right outcome it turns and you can turn around and sell it but it's still uh it's kind of a mediocre outcome no matter how much you try and there's a lot of folks in the financial sponsor realm that kind of think those are opportunities too but i don't know i found with technology if you if this is the chases if you don't have product market fit it's really hard to find it and ultimately you've kind of tarnished what your efforts are but i'm curious both you guys how you think about financial sponsors in in this environment or is that also kind of a loss leader at this point because companies are too small what do you mean by financial sponsors in this one by out firms i'm sorry oh i see yeah sorry i was being politically correct i ask people all the time about what deals they've actually seen what deals they've completed and i haven't had many case studies i don't know you a lot if if any of your portfolio companies have actually gone to a successful buyout.

18:14Yeah, there's been a couple of circumstances, you know, Optimize got bought by Insight, which is effectively a private equity firm. And there's a few others. You know, the one that is kind of the shop du jour right now is actually Bending Spoons, which bought Evernote and a few other companies. And, you know, the rumor is that they've basically taken very large teams. It's kind of like Elon Musk on steroids, right? You take a 100 or 200 person company, and you collapse it down to a dozen people and you move the engineering to a cheaper geo. And you have this asset that you run and you print cash, right?

18:44And so I actually think that's very underdone. And one of the things that Elon really showed through the context of Twitter is that you can cut the team 80 % and still have a performing company. And traditional private equity just hasn't done that, that aggressively in tech. And so I actually think the experiment hasn't been fully run. We've seen roll-ups in the cyberspace, for instance, or various other sort of what we call commoditizing software sectors with the big tech shops like Vista or Home with Bravo. And I still think that's going to play, but they typically want to buy stuff that has an enterprise value of$300 million or$400 million, and they think they can turn it into$3 or$4 billion.

19:22And they'll bolt two or three together and try to get economies of scale. But it is another piece. It's about a third of the liquidity that's making its way into venture land over the last three years. Yeah. One thing I've actually been experimenting with, which I think is really kind of interesting, is the rise of AI has actually created a new potential form of buyout. And so I've now backed one or two sort of AI driven buyouts where the idea is you have a variety of companies, in some cases in traditional services industries, where they have a lot of what I call like white collar or email jobs, right?

19:55you're kind of moving data you're synthesizing it you're writing stuff and that's exactly the type of stuff that generative ai can really impact if you look at for example the clarna example of cutting their customer success team by 700 people and replacing it with an ai system that's suddenly available 24 7 higher mps score etc and so i do think there's a really interesting alternative approach to buyouts and rollouts where you're getting enormous leverage on the teams or assets that you're buying through genitive AI, but then you have to do a very strong rip and replace technology cycle. You have to rework business process against AI.

20:29And again, traditional buyout firms tend not to be very good at that kind of stuff. They tend to be more, we'll bring in an operator who will cut some costs or maybe optimize some things versus we're going to rethink the whole thing through the lens of technology. And so I think that's a very exciting area as well, while we're on the topic of buyouts. I was there for the first 30 days of Elon's Twitter takeover and zero based budgeting is what was being done and you know here's a blank sheet of paper how many people should be in the pr group uh but elon asked me that question and i went and talked to them at 54 people doing pr at uh twitter and they the you know what was the need we weren't going to do you know you almost going to do press interviews so why do we have 54 people here and these were not 54 you know these were 54 very expensive people and it went to zero like not like one or two like it went to zero we're not going to have a pr function if you have a question for elon go ask it on twitter was our rule and so you can any journalist can go ask him and if you want to answer it he'll answer it and it doesn't need to be 54 people around the world you know uh on the phone managing these relationships it's just a question from the press we'll answer if we want to and so yeah that kind of thinking is really powerful if you do it across 20 groups and like the spending spoon example with evernote like people love evernote people will keep paying for it but what do you do with a company that's making 10 to 50 million dollars it's too small for private equity i love this idea of somebody coming in and buying 10 of these having really good product teams and and you know just delighting users and having a huge margin it's really smart and that's how this next generation of companies is being built anyway i don't know if you see that on the game on the field led but i'm seeing so many companies that are like yeah we're just going to raise 500k for now we we don't really want to raise 2 million we want to just keep the equity so we're going to just dilute 7 we're raising 500 million at 5 6 7 8 million and you know we just want to build for 18 months it's four of us we don't need more money than that we're going to pay ourselves 125k each done and it's really admirable um this new set of companies that are just like yeah i don't want the distraction of raising a bunch of money and having a bunch of investors and being on this never-ending fundraising trail because i'll tell you by the end of 2020 it felt to me like many of the founders i was working with their primary skill set was raising money and not running the company and they were just getting really good at raising money like unbelievably good at it i mean coming back every i don't know what the cadence was for you alan but i mean i had people coming back to me every six to nine months telling me they were raising at up rounds and i'm like why i mean we have do we need this money i said no but somebody called us and they offered it so we're taking it all right everybody welcome back to the program steven estes is with us again he's a principal at cla they're a professional services provider they specialize in cpa tax consulting and wealth advisory his areas of expertise lie in vc-backed startups vc funds high growth startups with complex tax issues in multi-state and international filings.

23:30Welcome back to the program, Stephen. Hey, thanks, Jason. Appreciate it. Let's talk a little bit about the differences between venture capital and private equity. Are you seeing private equity people kind of dip down into the venture capital space as we're starting to see in Silicon Valley? I think so. Absolutely. I mean, we definitely see those lines been blurred, especially in the last 5-10 years. But VC, traditionally, a bit earlier stage. I mean, it can also be later stage, but private equity depends coming a little bit later. VC, a bit more high risk, high reward. PE prefers to engage with startups after they've become EBITDA positive.

24:00But that being said, I think that there's been some shifting there and the lines have definitely blurred. For a later stage company, private equity can be a great way to monetize the value that you guys have already created. And you can roll over the equity with the PE buyer. So that's a great way to potentially get a second bite at the apple, if you will. I love sports. So I would say PE firms like the Dink and Dunk down the field, it's a high percentage play, minimal risk. VC firms are really geared towards throwing the ball deep down the field, making the splash plays, right? They're both trying to put points on the board, but they're definitely taking different approaches to the game.

24:32All right, you need a trusted advisor. Tax is accounting. You don't want to play games with this stuff. Get it right. Get a great partner like CLA. Go to claconnect.com slash tech and let them know your boy Jake Al sent you. Once again, claconnect.com slash tech. Next up, TechCrunch is reporting that Bill Gates Breakthrough Energy, which has both a for-profit and non-profit arm, is going early, oftentimes reaching into universities to find their most promising investments. Universities, accelerators, incubators have all started to really heat up. And Elad, you've really been in the center of the storm there.

25:05And we've seen a significant amount of entrance in the form of accelerators and incubators going into pre-seed. Outside of YC, which one of the ecosystems are you most interested in? And what are ways that different groups are differentiating in the space? You know, it's a really interesting question. YC is obviously still incredibly central and important to silicon valley um there have definitely been a variety of other things that are either ai specific programs or others that have risen recently there's open ai runs a grant program south park commons there's ai grants there's uh convictions program jack altman has started one for sas related ai companies there's a variety of these i think at a meta level the really interesting thing is that silicon valley turns over in these five to seven year cycles where the companies that founders aspire to be like shifts the ceos that they look up to shifts the companies that they try to emulate shifts, and the key networks that spawn most of the founders shift.

25:56And so right now, I think a lot of key networks include OpenAI, DeepMind, Palantir, Stripe, Anduril, probably Fair out of Facebook, SpaceX for hardware. There's a small number of places that are spawning all the founders who are doing the really interesting companies. And so I think that has shifted really over the last two to three years. I think between the COVID era and the sort of AI era, we've seen a lot of turnover and who's relevant. And I think that's been a very exciting period of time because that's usually when you have these systemic changes in terms of what's happening in an ecosystem.

26:28Can you explain, and maybe you could unpack, why are ecosystems like the PayPal mafia, where you have 10 people produce such extraordinary returns, unpack that? Why do they have such a competitive advantage after being in these ecosystems? I think there's almost three aspects of it. PayPal is kind of weird because almost all the companies started by the PayPal folks, except for YouTube, were started by executives at PayPal. And that's really under-discussed. The founder of Yelp was VP Eng. Reid Hoffman was initially on the board, and then he ran BD. He was like an SVP there. Elon Musk was CEO.

27:00Peter Thiel was CEO. Max Lefshin was CTO. They were all executives. And the rank and file in people actually didn't start much, which is kind of odd. Nobody ever talks about that. But I think what you had is a dense network of highly competitive individuals who both helped each other, but also wanted to see who was going to do better or who could do equally good or surpass the outcome of PayPal. The second sort of aspect of it is also often just like talent density. The third is just like, are people entrepreneurial or not? And some companies like the first, I don't remember what it was, 20, 30 employees of Stripe, a really big subset of them were former founders that they hired in.

27:34So of course, those people may go and start things again. And then there's to some extent wealth generation and what's the balance between people becoming wealthy enough that they can take risk, but not so wealthy that they don't want to work again. And that's also an aspect of it in terms of how big are the cohorts that you see. And so at some of these companies, you often see almost cohorts of founders that come out over time where they're almost time-dependent. Where at Google, I think there was two or three cohorts, and the second one was the one that had founders that started Twitter and Pinterest and Instagram and all these things and the first cohort had so much money that often they didn't do very much yeah i think the the competition is one of the key things there and inspiring each other and these collisions and small groups of people if you look back on what happened in rock and roll as an analogy you know when you had bob dylan and the beatles you know they really influenced a whole generation of musicians and then you saw you know whether it was led zeppelin dire straights the evils jackson brown bruce springsteen mark knoffler dire straights they were all trying to look at each other's songs so their medium wasn't startups it was a song and they would look at each other's songs and be like i need to do something better than that i need to do something better than blowing in the wind like a rolling stone really hard to top bob dylan um but you know thunder road or you know pick pick your song iconic song that came after it you can follow it back to dylan almost universally including the beatles um and you know he obviously he got his stuff from woody guthrie and a bunch of other interesting people now you fast forward to the 80s in new york so like you know i grew up in new york and i remember rock and roll in the 70s and punk rock and all that stuff and merging in the lower east side and at the same time i watched basquiat and warhol and then this whole generation of artists do the same thing and then when i came up in the 90s magazines was the medium and i created the cyber surfer magazine and then silicon alley reporter but i was inspired by spy magazine and what they were doing over there or i had run into the esquire people and my first job was writing for this startup magazine paper and it is this sharing of knowledge that occurs so you know when i was writing a paper and i went to their offices i got to learn how it all worked oh that's distribution oh that's how the cover gets made oh these are this is the graphic design department oh this is where the photographers are here's ad sales and people share information it's one of the most beautiful things about silicon valley over our career is it went from being like very people held all this information very close to their vest and then two things really happen blogging podcasting where everybody just got in a competition of who could share and be the most helpful and i'm happy to have played a part in both of those blogging and podcasting and so i think that's what drives these networks a lot and then um i think right now you know if there's another factor that's occurring which is you know if you can get in early at a company you don't face competition and i've been saying this for over 10 years with our accelerator and we're doing 100 companies a year people don't really know it because they don't know about founder university or they may have heard of the launch accelerator but they're not really watching it too much but we're meeting now founders in year zero so about half the people coming to founder university which is 200 companies now haven't incorporated yet so we're just like if you have two or three developers or technical people product people we'll accept you into the program and at any point in the program you can raise your hand and say, can we have 25 or 125 K?

30:50And we'll just write that check if it's a reasonably good company. And man, that's just given us this tremendous advantage. We are literally the first investor. So now, you know, if I hit another Uber, instead of saying I'm the third or fourth, I can say we were the first, right? Like I was in Thumbtack and Athena. That's a really great fun feeling as an investor to be the first, second or third. And you're not competing. You know, we, we, people always ask us when we're raising from LP is like, how do you, how do you compete for deals and i'm always like very confused because there's no competition in years one and two it's only till you get to like this late seed or series a that it gets very sharp elbowed 99 of the companies are passing the hat trying to get the first check so i think a lot of people are looking at what a combinator did what i'm doing tech stars and some of these other programs saying you know that seems like a good life that seems like a really good way to get in there now what they don't realize is running these programs takes about 10 to 20 times the resources as running a venture firm so just pause for a second before you do it it's between 10 and 20 i have 21 people on my team right now so let's you think that this is easy and we're a 50 million dollar fund with 20 people which is a lot and david you have you have roughly nine billion dollars to to deploy, how do you play the accelerator incubator space?

32:08Are you guys too big for that? Or are you able to invest in? We've looked at some of those. We've tended to bring fats around the ones that are interesting with the precedency managers. What I keep hearing and seeing is that there is a sort of a tale of two cities. There's a founder who really doesn't want that help because they kind of bend down the road before and they kind of, they actually want somebody who can give and bring some leverage to the cap table, if you will, from their relationships or their knowledge or the like. And then there's the ones that actually want to be in the incubators because it's going to help them get organized.

32:41But as Jason was talking about earlier, I mean, a lot of the stuff that happened in the last three or four years was really around capital formation and not necessarily organizing product market fit. I think we're getting back to that. It's clear that the YC stuff is evolving in a good way. And I think that's all positive. But we've run into them all over the world. And I worry that there's just too many folks starting companies and really spinning their wheels in a way that's not going to help us. Do you see in this environment, in these difficult to fundraise environment, kind of more of a resorting of talent into top companies?

33:17Do you see that in your GPs and your portfolio? It hasn't taken hold, but that's typically what happens. or at least that's what's happened after the internet bubble burst is we had you know a whole bunch of companies get started and then within it took about two or three years but in that period of kind of between 02 and 05 there was reality and it was like we got to get started again which is what hillad was talking about earlier about you know selling uh and taking your chips off the table so you can put your put your effort into things that might work in the future and i think that's coming right yeah it's kind of been deferred because people raise so much money on the company side that well and then the i has created this yeah yeah it's created this sort of tailwind about enthusiasm i do think uh that you know the software stack gets rewritten and a lot of things that started with the old stack probably are going to have to be rewritten and that's a question of economics at the board level as well as the founder level and that's not quite there is a lot so it has been deferred but i think that's coming we frame founder university as a place to run experiments we frame our accelerator as a place to grow and accelerate the growth of a company and if you just have that proper framing you can really just not worry about the fact that there's too many people or are these people qualified or not are they going to quit it's really frustrating when you put a 500k seed check or a million dollar seed check into a company instead of them going through an accelerator and then they quit and they just burn through the money and they should never have been entrepreneurs and you realize oh my god we gave 500k or a million dollars to a team that you know really presented well or we maybe we got drunk on the idea or the market size and we kind of filled in the blanks without really knowing this is a gritty team that's not going to quit go on a two-year sabbatical and then go back to some cushy job at google or you know meta if those jobs even exist i don't think those jobs exist anymore so that's that's the kind of a question you didn't ask but you know i've really been watching these layoffs and it's been the greatest thing ever for my business i have to say you know so many of the teams we have are ones who are like yeah i think i'm gonna get laid off so i'm starting a company on the side and you're like have you been laid off it's like no i've made it through four rounds of layoffs that you know include big company but me and my two friends from that same company have been working on this thing on the weekend one of us quit we're doing a full-time the other two we're kind of saving up and we're about to quit when we hit this milestone in our you know vesting or something and um this disillusionment with working at meta or google or microsoft that you're only going to get laid off so what's the point and they're not loyal to you has created a little bit of a chip you know a little bit of like f these guys they're not loyal to us you know and everybody's gotten a little bit mercenary which i kind of like those companies were offering such huge packages for so long to anybody that it just was draining the startup market you know and now with people just not trusting going to work at meta that they're going to get you know we're not trusting going to work at a company because they're going to get why should i go work at this company if i'm going to get laid off six months from now or 12 months from now like all those tiktok videos it's really putting young people's head you're on your own you know and ai is going to kill your career so you better be resilient and you better figure it out for yourself i like it i like this natural tension that's in the market right now between ai ending careers and jobs and then big companies getting fit and not needing people well what else are you going to do give up some people are doing that you know there's a whole movement fire i don't know if you've heard about this like financial independence retire early like there's a whole group of people trying to get to a million in net worth it's like a whole sub genre on reddit they're trying to get to a million dollars in net worth and then take four percent out a year which then means you you know if you get to this number by 42 or 38 you never have to work again like People are saying capitalism is screwed.

37:06I'm just going to be a homesteader. I'm going to be a nomad and I'm going to quit. And then another group of people saying, you know what? I'm going to compete because that's the only way I'm going to survive. I'm starting a company. And the revenge startup thing is like very palatable right now. I think that'll be a big trend in the coming years. If you use multiple devices and apps to run your business, you need OpenPhone. OpenPhone simplifies your communications with one simple app. An open phone has rethought what a modern business phone can be. What's magical about open phone is that it works through a simple, elegant app right on your existing phone, or you can even use it on your desktop.

37:41I know because we use it here at launch and our sales team loves it. And you know what? Those phone numbers, those discussions, all those text messages, we need those to be on launch phone numbers. We don't want those on people's personal phones where if they leave the company, it's distracting, it's annoying to your sales team as but one example. and we love having a shared number for customer support as well. We do a little round robin where different people can pick up the one phone number. So customers have one number, but we can have that phone call go to multiple people on the team. So we, you know, can just have somebody pick up the phone quicker.

38:15It's that simple. Answering the phone quickly is a best practice and it makes people love your product or service. Open phone is already super affordable at just$13 a month. my lord that's affordable but twist listeners can get an extra 20 off for any plan the first six months that's incredibly generous just head over to openphone.com slash twist and what if you have an existing number with another service that you hate well open phone will port them over at no extra cost easy peasy lemon squeezy so head over to openphone.com slash twist and get a free trial and get 20 off jason have you seen any any changes to people starting companies with the ftc ruling on non-competes basically making non-competes non-enforceable have you seen that play out no and california has always been this way i think that's like a northeast thing like a boston new york you know where these things exist um and i think lena con is like taking yeah have you seen like the finance companies and stuff like that and also media companies you know like the reason why so many of these media people megan kelly tucker don lemon are not like getting other jobs in network television isn't because they're not talented it's because they've been bought off the market so i think it will affect exactly what you're saying the northeast publishing media hedge funds etc but even trying to stop somebody leaving and going to a direct competitor is hard in our industry like people leave the company and the next day they're working at the direct competitor and it's like they took secrets and documents it's like prove it and it's like yeah we can't they didn't david i want to come back to your question about the incubators though just accelerators.

39:52One of the things that we run into, and I think some of the LPs that look at this space run into as well, is that we do have a duration clock ticking. Our funds have a certain amount of life to them. We can't hold things forever. And so it's been hard to actually enter where Jason's entering at that formation stage today because of the fact that it's kind of a 15-year-old. We actually like to see the liquidity in years earlier than that so the series a funds have typically been where we've spent most of our capital although we do have a bench with seed managers and the like but that's usually usually one of the reasons why it's harder for lp's to do that yeah it's definitely a problem i definitely see that and i've been told that by people who want to be lps and they're like when did robin when did uber exit and it's like year 12 year 11 14 you know it's well you know i don't know if We're going to talk about unicorns, but there is a lot of very highly valued private companies today that don't feel like they're going to exit the next three or four years.