PrayingForExits on the state of VC, ZIRP fraudsters, revolutionary product launches & more | E1717

38:49So the fact that it's a platform, in addition to the fact of just how impressive it is, is part of this. And I think the when a great product is launched, the ripple on effects, right, you throw the rock in the pond, and you start to see a lot of ripples and chat gpt4 has those ripples okay plugins okay 3.5 to 4 okay uh the api all of these ripples that are occurring all of these new startup founders building on top of it that's when you can tell something is a big product launch because the ripples this is my theory here and i'm developing it with you mr exits and it's a privilege to have you on the program to develop these theories um the the ripples of the app store and the iphone the iphone being launched you know in um 2008 and that was launched i'm sorry july 2008 is when the app store came out but the it was only six months before that that the first iphone came out right and so there's something about when these things launch that there's just other shoes to drop uber had that too because you had uber black and uber x and then you had logistics and uber eats right like it just kept going netflix it was just something about like whoa i can watch anything i want on demand it just kind of blew people's uh mind and just watching uber come to each city or airbnb come to each city had that same ripple like effect right it's like it's changing every city it goes to la became a different city because uber arrived the boroughs of brooklyn and bronx stan island shout out like it just changed everything um i think it's a very interesting concept were coming out here.

40:30I also feel like the Roadster, then the Model S were also just colossal launches where people were like, I don't have to go to a gas station. Yeah. And I think to your point, things like the digital service providers like Netflix, Spotify, et cetera, were also these kind of meaningful shifts towards the streaming culture. YouTube, I think what I would also place into this category, the effect that YouTube has had on just educating the next generation of people. Most people figure out how to do things these days via some small video on YouTube. And then unfortunately, given its ownership structure, it seems like TikTok is now becoming this for the new generation where I read some statistic that X number of restaurant searches are now done through TikTok as opposed to something like Yelp or figuring out how to build a model airplane or whatever.

41:22These people in these next generations typically go to find this via short form content. And so, yeah, I think that those are also meaningful sort of, I guess, ripple contributors if we're going to put that label on them. My number one use case for TikTok is to save food recommendations by city. So I have a New York, I have an LA, I have a San Francisco, I've got a Tokyo, and I just done it yet but my plan is to check some of those and just use it as a starting point for things i might want to try when i'm in a city uh because people are just doing a really great job of and i don't know which ones are paid and bought and sold or whatever so i'm sure there's some of that going on just like yelp reviews but it's sort of like when yelp photos and i can see people talking about specific dishes you know which is kind of how i make my decisions on restaurants i'm not going to a restaurant as much as i'm pursuing a specific dish and i'm trying to find the best one of that.

42:20That's just my foodie sort of culture there. If you're listening to this podcast, you clearly have an interest in startups and technology. But do you have the skills and knowledge you need for a career in tech? And if you do have those skills, are you still learning and growing? Because everyone in tech knows if you're not building new skills geared towards the latest platforms, well, you're falling behind. And right now that platform is AI, artificial intelligence. AI isn't just the future, it's the present. We see that happening. We're talking about it every day on this podcast. And to be part of the tech revolution, you need to understand the core concepts behind AI, you know, things like neural networks, machine learning, these are complex terms, you can guess what they are, but why not go learn about these concepts at brilliant.org.

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43:46Everybody should get smarter. Let's all get brilliant together. Brilliant.org slash twist for 20 % off today. Let's move on to jobs. Lowest unemployment of my lifetime and yours, since you are a bit younger than me. And then this constant narrative, all the jobs are going away because of ai we need to pause ai yada yada i think the pausing of ai was a ceremonial you know signature i don't think anybody expect that to actually happen um but there is going to be some thought here as to what happens to writers copywriters illustrators etc i'm wondering if you think this is going to uh move at at the same pace it's going which is to say a blistering pace and when chat gpt5 comes out and dolly 4.0 comes out and you know all of these other tools keep and tools that are not yet launched happen are we going to see a swath of jobs and let's say millions of jobs because if it's hundreds of thousands it's not going to be meaningful to anybody other than the people losing their jobs not going to be meaningful on a society level because we do retire jobs at some pace but are How are we going to see millions of jobs go away because of the advancements in AI in the coming years, short to midterm, two to five years?

45:12I think two to five years, we'll see sort of like the indicating factors of how deep this really goes. And my assessment of it is that this will probably go pretty deep. And I think that it's because of the sort of go back to what you were just saying, the ripple effects that we don't necessarily understand at the forefront of what's going on. And so, for instance, I think that a significant number of the employed people in the country right now are literally truck drivers. And so, how do these artificial intelligence models improve self-driving capabilities such that that doesn't become as much of a necessary function anymore?

45:47I think that what is scary to me is how quickly AI is developing itself. And I think in that self-development, it's going to start to find all of these pockets of inefficiencies that we sort of take for granted as jobs in this current market and find ways to basically, you know, I think that back to the point of capitalism, the sort of performance of capitalism is making sure that you're getting the most money back for money invested, right? And so I think that artificial intelligence in sort of promoting capitalism will find all of these pockets of inefficiencies that we just took for granted as regular jobs that we couldn't imagine our lives without.

46:28And that will take a meaningful toll on the labor force, especially when it comes to unskilled or semi-skilled labor. When we look at the concept of surplus elites, we can dovetail it with this conversation. the rich tech companies were so rich that they hired let's call it indiscriminately they hired in order to have an option on talent to keep talent from working at other places uh facebook and google being i guess the the top examples of that but amazon right behind them twitter right behind them and as we've seen with elon cutting some very significant over 50 of the jobs at twitter and listen the existing twitter regime was talking about cutting a third so it's not like he did something that they weren't planning on doing already he just did it to a bigger degree facebook getting rid of managers uh people getting rid of entire departments that were involved in you know things that were not core to the business coinbase saying listen if you're going to work here we have one mission don't talk about social issues here all of this is dovetailed together and it i think dovetails with this ai discussion there are a lot of people who were in performative or non-critical roles at even tech companies which are supposed to be the dogged uh you know focused folks so and then we have the work from home phenomenon occurring at the same time now my theory is you have elites demanding they can work from home right they're signing petitions at apple what they've done by doing this by refusing to go back to offices this is my theory is they have sealed their own fate because once a manager like myself who was an in-person person and i judged people for a long part of my career could you be at the office as long as i could when i was an editor of my magazine silicon report in the 90s and i was there on saturday and sundays when i came in on a saturday and sunday people knew i was coming in and the rank and file would ask my assistant david is jason going to be in this weekend so yeah he's going to be in he's got two meetings they make sure their asses were in those seats when they knew i was meeting with people on the weekend that was the culture how much time could you put in facetime in the in the office could you get lunch with the boss after work that was the the determinant well if you take somebody like me some old school gen xer and you say hey i'm only gonna work from home okay and now i start hiring people in canada and they cost two thirds of what the people in the u.s cost and then i start hiring people in manila or europe and they cost half you just sealed your fate because i can manage a canadian or european eastern european i manage somebody in manila somebody in san paulo uruguay in slack and with my end of week end of day reporting well then why am i paying you three times as much or twice as much your thoughts on how tech is going to go forward and what happens between this work culture ai efficiency and then people with performative jobs yeah so i'm somebody who's uh generally like an in-person person as well.

49:28And I think that to your point, like a lot of, at least in my experience, some of the, not a lot, I would say some of the aspect of being in person was really just performative. It's like, Hey, I'm willing to be, um, consistent in my ability to show up at the place that I'm supposed to show up for the time that I'm supposed to show up. And that says a lot about your dedication to the business in a lot of instances. But I do think that there is like a secret sauce that comes along with building like really strong teams in person. And I think a lot of the best companies that we've seen in history have come from like a work culture where people were really felt like they were building an important team together alongside each other in the trenches, not really disassociated.

50:11And I think that what you're experiencing, sort of this disassociation from needing to have people who are necessarily American based and moving them towards just what's more efficient for you and what makes more financial sense for you. I think that you're right to the point that it's like a very slippery slope. And once you get used to managing someone in Canada, eventually managing some artificial intelligence companion that performs some level of the same amount of work for the fraction of the cost becomes not something that is even scary or slightly weird to you because we're almost indoctrinating ourselves to become more disassociated from the teams that we're building moving forward.

50:53I think this is kind of the key. I set up corporations for inside.com and launch in Canada. I have Canadian corporations. I set them up. Once you set them up and you start experiencing how great Canadians are and you get the Canadian currency exchange. in other words a 75 000 analyst you know senior person in canada in canada in u.s dollars is going to be 75 of that in u.s dollars and then they stay twice as long because they appreciate the job working for an american company and in uruguay the developer you know instead of being 150k is 75k and it's half price you get two for one and you've got you know uh some of these sponsors like we have on our program like lemon.io and you know some of these sponsors that we have they abstracted for you they will hire the people and do all the you know payments and management and stuff like that i think the world's changed and people just don't realize it yet and you know you put the 10x ai layer on top of this mr exits and then all of a sudden i think we're going to see the same trend i started at the beginning of my angel investing career where startups went from being two or three million dollars to get a product to market to being five hundred thousand to a million dollars to get a product to market and then in the yc sense and and you know tech star sense it all of a sudden dropped down to 150 000 to get a product to market i think that continues where the 10x everybody's a 10x developer now with ai yeah and so the long tail of apps that we talked about are going to be so easy to build i agree and i think that that long tail only gets longer when you realize that ai is fully scalable and doesn't need to take a vacation doesn't need to work a certain minimum amount of hours like if you have 24-hour development and constant engagement with the products that you're building from the quote-unquote i guess virtual team that will come along with AI.

52:56I think that not only do things get meaningfully cheaper, but they become meaningfully quicker to market as well. Yes, this is going to be the amazing output. And this is why I think job destruction, which is what everybody is planning, is going to be the opposite here in the United States. I think it's going to allow more entrepreneurs to make better products faster. What that means is more experiments. I've been through this I don't think that we're going to run out of ideas for apps to build I think a lot of the Quote-unquote silly niche apps Which is you know what people thought like a meditation app might be or a working a workout app like a crossfit app We have an app called fitball.

53:40That's doing incredibly well steezy a dance app Calm a meditation app people thought like when I invested in those like yeah There's too niche and then all of a sudden they get to hundreds of thousands of paid members millions of paid members you're like, oh, wow, it's not that niche. Well, if you can hire 10x developers, and they're available everywhere around the world. Well, then all those niche apps are going to be possible. And they're going to be awesome. Like all trails. I have an app called slopes, which is a skiing app that tracks all your skiing and your runs and your speed. I just think we go right down the long tail of apps and SaaS services, and you have five person teams building$10 million companies.

54:22Now, is that meaningful for a venture capitalist then becomes the question? Well, I can tell you for a seed investor, and a pre seed investor like myself, and somebody who's got an accelerator, and who likes to put the first 25 to 250k into a company, it can be very meaningful, because I'm investing at two, three, four,$5 million valuations$10 million company being run by 10 people, man, it's got a high margin. It's got a super high margin, somebody's going going to want to buy that business for$100 million, for$200 million. So I'm very excited about this feature. Now, if you're a late-stage investor, maybe you're not as excited.

54:50Your thoughts? Well, I guess the way that I would push back, and I would love to understand your thinking here, is how do you think about it if the artificial intelligence is the one that starts to pontificate on all of these pockets of value and start creating it itself? This is very interesting. I had this discussion just yesterday. I had a little egg hunt at the house and a great entrepreneur and i were debating this what if ai just starts making apps and they're just commoditized and you know it reminds me of making movies in the late 90s a camera came out i think it was the sony uh vx 1000 uh yeah vx 1000 it was a digital camera and um guy named wayne wang did a movie called center of the world with peter sarsgaard i was in it for a brief time kind of playing a character like myself another guy named bennett miller made a film called the cruise uh and i hosted a screening for him when i was doing silicon alley reporter in new york city this two thousand dollar or less camera became the workhorse workhorse of digital filmmaking mr exits and in that time everybody said at sundance and i was hosting a panel with these type of people and they said um you know anybody can make a movie now these digital cameras can blow up to film and we could make film out of digital so that what they would do is they would take the digital print and then literally make film out of it but then they were like well we'll have digital projectors eventually now all theaters are digital projectors obviously um and we can take as many takes as we want so the actors are more freewheeling the script can be loosey-goosey we can film five endings because we don't have to worry about having a script we can just improv everything and um it's going to cost nothing to edit these because you can edit it on your MacBook Pro.

56:35All of this was true. But yet we didn't see a massive proliferation of film and actors in some ways, and we did in other ways. And the reason we didn't see all these extra films coming is because it's hard to want to make a film. It didn't take into account motivation. So could the AI just make thousands of films that are random and we could all just sort through them? Sure, I guess that's a possible future. But I think having somebody lead and want to be the figurehead the director if you will the or tour is still necessary and will be necessary for some time somebody still has to want to make an app for meditation for fasting for uh skiing for tennis players and they're going to want to sit there and study it build the brand and so i don't think we're even close to the ai wanting to go out there and just populate the app store i think you still want to have somebody being the curator the director it's just that you won't need a team of a thousand people to make a film you need a team of 10 that's what i think our lifetime will be about yeah i get that and i think that uh like one of the most defensible things in the face of ai is being the arbiter of taste you know like um ai can provide to you a lot of factual information but having a level of taste and culture is something that's uniquely inherent to human beings at this current point in time and so i do see that as being one of the most defensible things.

57:55I would say the sort of pushback that I would have on your sort of parallel lines drawn between the film industry is that one thing that the film industry was hampered by by and large is distribution, right? Even when these cameras came out, if you wanted your film to be seen, you still had to get it picked up by a certain distributor who would allow it to be played in movies, etc. I wonder, and the thing that I sort of pontificate on is what happens when distribution is completely open and everybody is on a level playing field with distribution, including the AI. And the AI can go and parse large swaths of data and say, hey, there's a bunch of skiers out there that don't really have an app that suits their purposes very well.

58:36We've looked at the data behind these apps and we've looked at the data behind how many people are skiing and how much money is being spent on the ski industry as a whole. And we realized that there's this large gap between what skiers have available to them as an application layer to be able to enjoy their experience more versus what's currently on the market. What are the things that we could do to fill that gap? And then the thing that becomes sort of, I guess, something to think about for me is that they have unlimited distribution to be able to put that in the hands of as many people as possible, given the tools that we have available to us.

59:09And so, yeah, I just wonder if open distribution makes this a little bit more of a challenging premise it does uh because there was this concept that the great stuff will rise and in some cases they do open platform like podcasting on open standards or youtube which is open to almost everybody you have to be a little bit of a slave to the algorithm but it's free uh and anybody can post any length video up there tiktok instagram you know you have gatekeepers they could kick you off of course but you do have a lot of options there of where to put your content the app stores it's a duopoly but you can still get it out there um with rare exception uh will you be stopped uh it's probably and you maybe a little bit of taxes on the margin if you want to make money uh but certainly it's a lot more open than the studio system or getting your software in a box on shelves at comp usa which was how software was distributed before the app store so it's going to be a brave new world i think we've hit on something here which is the or tour the person the director the conductor still has to be you know in some position of taste making and refinement in this did you see the movie tar i did not oh well this is your homework you have to see him it was mr exit is gonna love tar i believe this is gonna be right up your alley it is about a true true true uh and here is All You Need to Know About Our Future by the philosopher king, Mr.

1:00:42Rick Rubin. Do you play instruments? Barely. Do you know how to work a soundboard? No. I have no technical ability. And I know nothing about music. You must know something. Well, I know what I like and what I don't like. And I'm decisive about what I like and what I don't like. So what are you being paid for? The confidence that I have in my taste and my ability to express what I feel has proven helpful for artists. Your reaction, Mr. Exits. I think that's a great parallel. And Rick Rubin is somebody that I look up to quite a lot for the meaningful additions that he's made to the music industry through a variety of different genres.

1:01:32But yeah, I think that that goes back to the point that I was making that I think that the arbiters of taste, people who have really understood at an inherent level what society and culture needs, those are some of the most defensible people in the world. And I think that that is going to be the last thing that AI disintermediates is the ability to be an arbiter of taste in the truest form that reaches people at a human level. I think this is just so on point as to where we're going. And shout out to my guy, Rick Rubin. He sent me his book with a very kind note in it. And he's a big fan of All In.

1:02:12And I'm going to go hang with him. He said, hey, let's hang. You guys got to have him on too. I think that would be an interesting conversation. I would really love to have him on All In. I got to talk to my besties because we have a no guest rule right now. No guests. Right. but I think we should make an exception for Mr. Rick Rubin. Let's wrap here as we talk about VC funding right now. Could give you a ton of statistics just to tee this up. Global VC funding has dropped 50 % over the past 12 months. It was$776 billion in Q1, or it is 76 billion Q1 of this year. That's down 53 % from 2022.

1:02:56and two major fundraisings in that accounted for 20 % of the total. OpenAI raising$10 billion from Microsoft and Stripe raising$6.5 billion to cover those expiring RSUs. In other words, pretty dark out there. It's pretty thin. Without those transactions, Q1 would have been the worst quarter for VC funding since 2018. Took a five-year step back, basically, six-year step back. Tiger Global, major investor in both VC funds and startups, is reportedly exiting the market. they're trying to sell their positions in vc funds in the secondary market um so it's all coming apart and then it's created a bit of a vicious cycle all of these funds were all these venture funds or venture firms were creating multiple funds crypto fund this growth fund that early stage this seed stage this yada yada classic fund etc but all these funds are not doing distributions no distributions then they ask for more capital calls and then they have fewer distributions because the market's still on the floor and then all these tvpi markdowns have to happen lps are balancing uh the balance sheets are just totally out of whack but they're asking for more commitments to funds to do more capital calls and the lps have said no mas i can't take it anymore they're tapping out.

1:04:19So VCs are looking for international LPs and the kingdom, Saudis, their public investment fund listed all of their VC firms last week on their website. This is something that LPs never do. They don't feel any obligation to tell people we're invested in these firms unless maybe they're doing a PR campaign, which the Saudis obviously are doing. They want to get more involved. So let's talk about the state of being a fund manager. What is the state of fund managers today? And then how do we work out of this indigestion? Mr. Hexits. Yeah, I think that the state of being a fund manager today is pretty, pretty tough.

1:05:02I think, especially at the seed stage, which is where I play out. And I know where you play at as well. You have all of these entrants that we're typically doing sort of later stage stuff, but realize that that game isn't a winning game right now. And so we're moving earlier along in sort of the funding cycle to be able to participate in things that they feel like are a little bit more fairly priced and present larger upside. You see even some of the largest hedge funds and crossover funds in the world starting to participate in deals and doing stuff out of Y Combinator, which historically wasn't necessarily a thing.

1:05:33So I think that that's one thing. The second thing that I think is that the LP market is very, very fragile right now. To your point, especially domestically, on the endowment side, the foundation side, etc., a lot of those types of entities are experiencing the denominator effect right now where they're over-indexed to venture capital and haven't really seen the markdowns yet and so are kind of in a gray area as to what their total actual venture exposure is at the current point in time. And so, a lot of them are waiting to basically come on into funds, either on follow-ons or new funds, until they get that sort of accounting sorted out.

1:06:12And then even internationally, I think that Saudi had been – I think that a lot of people, especially the most discerning managers, saw the writing on the wall and made their trips to Saudi six months ago, almost a year ago in some instances. And so I think that Saudi is very, very conscious and not Saudi, but the region in general is very, very conscious that they're one of the last games in town. And so even there, uh, you know, whereas they would be willing to take flyers on maybe some less, um, you know, less well-known funds, uh, in the past. And, you know, I've been visiting that regions in sort of 2015, 2016.

1:06:49So it's been interesting to see the shift. But I think that, yeah, like now all of the best, you know, the PIF and Mubadla, etc. All of these, you know, governmental funds and quasi-governmental funds now have exposure to the best funds in the world. They're in Andreessen, Sequoia, Founders Fund, Thrive, etc., etc. And so even there, the bar has become extremely high to be able to get any of their money. And they're inundated with requests such that it's hard if you're a new manager to even get in a meeting over there because they're already dealing with the best exposure in the world. And so to really hop over that bar and become interesting to them has become a much, much higher hurdle.

1:07:32So that's how I've been seeing it. Yeah, and it does seem like we're going to see a lot of these first-time fund managers, maybe two funds in, they're not going to be able to raise funds. And so I think, or they're going to raise very modest funds. the folks who started investing in 2018 19 20 21 22 that five-year period those vintages i think are going to be super challenged especially if people didn't take speaking of exits uh any chips off the table if you were marking up your fund two three x every year for two years and you had a five six seven eight x fund which some people who i was even an lp and were telling me that we had an 8x fund and i'm like wow we have an 8x fund maybe we should return 2x now but they didn't now i think those 8x funds are going to be 2x funds now uh or 3x funds or maybe we'll just get our money back which is fine and you know if you're an lp i'm in 20 funds i'm okay with some of them being just i made a bet and i didn't even double my money i just got my money back or i got half my money or i tripled my money whatever it winds up being uh you know i'm gonna do a blended portfolio against the 20, but what do you think of some of these newer funds during that window of the last, the third act, let's say of the boom cycle?

1:08:52Are they just going to quit? It's too hard, game on the field too hard? Yeah. I mean, I'm interested to see where it happens, what happens. I think that the venture capital industry in that sense shrinks quite a bit. You had a lot of these funds basically doing all different types of strategies all over the place, some in crypto, somewhere. And I think that the net new funds to the ecosystem is probably going to shrink quite a lot. And I think that even if you're a great manager over the last couple of years on paper, you're going to find it quite hard to continue to be able to do so. But the karmic irony of all of this is that I do actually genuinely believe that 22, 23 vintages are going to be quite good, especially because you're experiencing this sort of...

1:09:36Anytime there's this paradigmatic shift, where App Store, for instance. When the App Store came out, there were all of these amazing funds in the years after that where they took advantage of this shift and were able to capitalize on some really meaningful additions into the world as far as interesting companies go. I think that you're going to see the same thing here off the base of AI. I think that you're going to see a lot of companies that are leveraging it in interesting and unique ways that will be able to provide value. And I think that the large enterprise companies of the world have yet to position themselves very well against AI or for AI, unless you're like Microsoft or Google, et cetera.

1:10:16A lot of these companies are kind of been caught wrong-footed in this instance. And so, I think that there's a lot of exit opportunities actually for good AI companies moving forward to be able to see some distributions if you're on the venture side. um so i think that 23 and 22 vintages are actually going to be meaningfully interesting but yeah if you're a new manager it's going to be really tough to get that ball over the line um for that paradigmatic ideal uh these will be ideal vintages i'm seeing it now in my own portfolio i am making a lot of 25 000 bets on two or three developer product managers who need a friend and family check just to incorporate and try to get into an accelerator i'm make those quick 25k bets in one meeting, try to make 100 of those this year, put 2.5 million on the streets, just letting people get in business, and then put 250 in the best 20 of those for another 5 million.

1:11:13It's a nice, nice little portfolio you can build very quickly right now, because people are afraid to write those first checks, and everybody's trying to fix their existing portfolios and work out some, you know, semblance of a return for those previous portfolios, which is noble to do. But man, I am meeting with so many great founders right now, at reasonable valuations, with the notable exception of YC companies, a lot of hand wringing there, 1520$25 million valuations for companies without customers yet, or maybe just MVPs. Your thoughts on the, the two time a year hand wringing? I know you're early in your venture career, but how do you look at even in a market like this outrageous valuations coming out of YC.

1:11:59Yeah, I mean, I think that that's not the onus there isn't necessarily on the companies, but more on the institution. I think that YC kind of pushes people that direction. And that's totally fine. They're willing to set whatever valuations they believe that the market can bear. But I think that that's indicative that the market is still willing to bear some level of inflation, especially at the seed stage, specifically because it's become, to my point earlier a much more competitive game right um you know you have a lot of funds that weren't necessarily doing seed before um that are now trying to get in and so they're willing to pay to play in that instance especially when they don't have like a history or track record of really spending a lot of time there so yeah that's i think that it'll be interesting to see how those valuations end up playing out but for the time being it seems like that's just kind of the new standard it's very interesting to me people complaining about it here's what i'll tell the people complaining.

1:12:52I did a whole episode on this, but I'm interested in your reaction. If you don't like the valuations that you see at demo day, whether it's Techstars or my accelerator, launch accelerator, or Y Combinator, at mine, I advise people to just clear a market quickly at a$5 to$12 million valuation. That's standard to not try to go for 15 or 20 and do some unnatural exercises because you could be getting a valuation trap where when you raise your next round, there's no way to go up and you have no lead investor so you're kind of trapped right um maybe even having to have a down round and now you're unintentionally putting yourself in a in a debt spiral where people have to get warrants or something and it just gets messy like when you're contact i literally have people contacting me right now saying we're raising at 15 20 25 we'll give you a side deal jcal we want you on the cap table we'll give you a better deal than everybody else and i'm like do people have mfn and their side letters It gets so messy and I'm like, I just don't want to be involved in messy on a cap table.

1:13:49Putting that aside for a second, I'll get your reaction to that in one minute. A very easy strategy for the dentist or the new fund manager who's at a YC demo day and objects to the$20 million valuation is to do three meetings a day over Zoom for 30 minutes each, 90 minutes of work. Let's say you put in another 90 minutes writing your notes or setting up those meetings or even an hour or two. Okay, it's a five-hour day. do a five-hour day meeting three companies a day hour and a half for each company two hours for each company whatever it is let's say two hours for each company six hour a day do that for i don't know uh let's say um 60 days and you will now have 180 companies you've met with and those 180 companies will be non-yc demo day companies at a five to twelve million dollar valuation pick the 10 best and uh you know over that six month period or four month period make your 10 investments but do the work if you're going to a sorting mechanism like yc and they charge you triple the valuation of non-yc companies well you get to screw around for the other five months of the year and go skiing or whatever you want to do and then just have them be your outsourced uh workers and you're just putting money to work without any thoughtfulness or any actual work.

1:15:09So you pay the price. Am I crazy or on target, Mr. Eggons? Yeah, I think that, I mean, YC has a history of presenting game-changing companies to the landscape. And I think that a lot of the best entrepreneurs are inherently attracted to YC simply because of the pedigree and the types of companies that it's shown to put out there into the market in the past. But I do think that, yeah, to a certain point, There are a lot of funds out there that just rely on Y Combinator's ability to pick and choose and attract great founders such that they don't have to go and do that themselves. However, this kind of goes back to a little bit to what we were touching on earlier, where it's like, you know, being the arbiter of good curation will consistently provide you more value than not being able to do that.

1:15:56And so because you've built a brand name around being a good curator there, it becomes meaningful and people are willing to pay for that good curation to a certain extent. Yeah. And listen, they have invested in 4 ,000 companies, right? And they've had maybe 70 unicorns or something in that range. And the unicorn would represent a 25x, 50x, something in that range return if you were investing at a$20 million valuation. situation so you know if uh one percent of the companies maybe two percent of the companies become unicorns well let's just say two percent of them i'll be generous become unicorns and one percent of them you actually can exit uh yeah you know the question is can you pick the one percent and the the one thing i'll tell you that's going to be challenging is that the top companies at yc this is a secret they'll deny it but i know it's the truth um the top companies don't present at demo day they elect to opt out of the demo day so what you are seeing at y combinator typically as a dentist or angel investor or seed fund going to demo day and i think it's well worth going and i think it's a if you could be an lp in y combinator's venture fund you would do it because i think it'll be a great fund uh or maybe above average fund let's say the truth is you may have seen all the aces and kings remove them the deck and taken by the yc partners and the people in their orbit so when the next airbnb coinbase or cruise or doordash or dropbox go through yc people know it they get a sense like hey this might be one of the winners those people raise before demo day they're oversubscribed why all the partners all of the internal lps of yc they cherry pick them and this cherry picking has been denied but i know it to be true because the founders email me and say, hey, we're not going to be at demo day, but I wanted to meet you because you're J-Cal and I would like to be on the pod or just have you on the cap table because I think you're cool.

1:17:58And that is, I think, the danger as an investor is. You think you're swimming in the pool with those 70 unicorns. I would think at least a third of them get taken out before they go to demo day. So you're not actually getting a chance to invest in those. Yeah, I feel like that's a fair assessment. Yeah. Does it mean YC is not awesome? Anybody who I invest in, who wants to go to YC, I do a waiver for. So if we invest in them at 6 million or 10 million, and they tell us they want to go to YC and give them 7 % of the company for 125k at a$2 million valuation, you know what I say? Go for it. YC can get a better deal than me.

1:18:33Because ultimately, when they graduate, it's going to pop up to 20 million, they're going to get$3 million, you know, and only dilute 15%. So I'll still be ahead of the game. That's my philosophy on it. I think it's a great program. If you get in, you should go. Anything I missed on today, mr exits that is on your docket things that you're thinking about no i mean i have to hop in a little second but i would like to hear about uh the mayor jason campaign a great question um i have thought uh noodled on public office because i think it would be fun entertaining and i might be good at it uh because i would be solely focused on the top two or three issues i need to learn a lot more about politics i need to finish up my venture career so i don't think it's a short-term thing but it's an ongoing joke because at a poker table the origin story is we were at poker and you know the suspects uh and somebody said uh if trump can be president jay cal could be mayor uh and everybody laughed and then somebody said i will put up 250 000 for your fund to be mayor.

1:19:43And then somebody else said, I'll put up 500. And then somebody incredibly high profile said, I'll put up a million and I will introduce you at every event. Da, da, da, da. So all of a sudden, two or$3 million in funding showed up at a poker game for me to become mayor. So I did what any normal person would do is I got the domain name Mayor Jason and thought about it and counsel with my spouse and my family. I thought, hmm, would I want to do this? I'm 52 at the time. I was probably 46 or seven. I said, I feel like I got a little more work to do as an investor, but I do think in five or 10 years, I might want to try that.

1:20:23So my current plan is to learn and be vocal. And you saw me be vocal trying to get Chesa Boudin out where you see me tweet about stuff. And I'm in learning mode. I don't understand this, but I'm going to have the Grow SF founder on this podcast. i'm going to talk about how the supervisors work and i could be mayor of austin new york la or san francisco before i'm gone if i live long enough and i think i do a heck of a job uh and yeah i might be a bit of an interloper because i've lived in a bunch of different cities but i think i could be a common sense joyful mayor i think of like mayor Koch when i was growing up it's very joyful mayor a bloomberg uh listen giuliani before he went crazy was pretty effective um and you know i i i think i might have a good time it might be fun for me and intellectually stimulating so that's my only thought on it uh i'm not like making some immediate plan for it but it's not a it was a joke so between an absolute joke at a poker table and absolute definitive reality it sits equidistant between those two Well, I'm wishing you all the best.

1:21:36I think that that would be definitely an interesting thing to see. And there's no way that anybody could do any worse than what we have going for us now. So I think there's a ringing endorsement for Mr. Exits. Yeah, yeah, yeah. I am backing J-Cow because it can't get any worse. And I think that's actually there's something true to that. Yeah, I think that, yeah, I think that, yeah, by all intents and purposes, you seem like you have a good grip on what San Francisco actually needs. And so, yeah, I hope that this joke turns into something a little bit more real. Here's my pitch. We are going to get one thing done at a time here, okay?

1:22:12The first thing we're going to do is anybody who's a violent criminal or who is selling fentanyl, and that's the only drug, we're going to have a zero fentanyl policy and a zero violence policy. You can't hurt anybody. You can't steal from anybody, and you can't sell fentanyl. you can't do fentanyl on the street that's it we're going to work for a year or two on that everything else we'll make progress on sure but those are going to be the non-negotiables we'll just start with the non-negotiables you want to sell fentanyl you're going to jail we catch you doing fentanyl you're either going to go to jail or rehab or we're going to give you a bus ticket home which is what we used to do is just give people a bus ticket home you can't have every single junkie down on their luck person go to one place and then create a dystopian neighborhood for them to uh you know enable their addiction it's much better if all of those people addiction issues stay in their own hometown and everybody in their hometown deals with their own homegrown addiction uh addicted individuals as opposed to sending them all to one place because it's got the cheapest fentanyl you know this is an economic issue from everything i've learned if you don't the number one reason to police something like fentanyl is so that the price goes up and if the price goes up consumption goes down and if the cost of selling fentanyl is you might go to jail for a year and you might have to spend five or ten thousand dollars on attorneys then people uh go find another place to sell fentanyl or they stop selling fentanyl they sell some other drug and i think that's actually a pretty good path because fentanyl is a super drug right it's just it's so obvious that this drug is different than every other drug if people are taking psychedelics or doing cannabis or even stuff that's a little stronger it doesn't seem to have the same dramatic effect as fentanyl and these crazy opioids i don't know is that too common sense to say out loud no i think that it's it's definitely needed and uh it seems ridiculous that it you you even have to question if that should be something that's said aloud so yeah why can't you say that shift on that yeah it is literally a super drug manufactured in china that comes in through the cartels in mexico and then hits the streets in like three or four major cities that allow it i just think you have to look at and say well if this drug is resulting in nine overdoses a day and all of these other drugs you know people are taking molly or lsd or mushrooms or peyote peyote or cannabis or even you know cocaine or meth and they're not overdosing at this level and they're not breaking into people's homes and they're not killing people this level okay let's just look at each individual drug and work backwards for the ones creating the most harm internal harm for the individual and external harm there are people who are like you know what heroin wasn't so bad there are literally people saying like you know people didn't overdose at heroin at this rate yeah yeah which is a wild thing to say to be honest it's a wild thing to say when i grew up they were like if you take heroin philip seymour hoffman you're going to die right like it's just it's a path to death and it's like is it a path to death at the same rate fentanyl it's like oh no those things are not even close this is a thousand times more powerful than heroin whatever it is 500 times i mean i guess it depends on the lot you get so anyway uh it's it's a it's interesting to me mr exits uh you are a great guest i would like to encourage everybody to follow at praying for exits on instagram and then on twitter mr exits one of the great uh parody accounts run by somebody who's on the inside and who does an amazing job on this program, just chopping it up.

1:25:51Well done, Mr. X. It's another great appearance. Thank you, brother. I appreciate it. And yeah, we're always happy to have these conversations anytime there's some new paradigmatic shifts happening. So hopefully we can do more of these in the future. We will. We will do it every six months. I have you on the six-month rotation officially here at This Week in Startups, and I will look forward to us having some ramen or sushi or something. Okay. We'll see you all next time, everybody. Bye-bye. Bye-bye.