Uber profitable again, SBF guilty, Biden's AI EO + Motive's John Habeck | E1842

0:00all right everybody welcome to this week in startups get a couple stories new stories that i just wanted to give you my opinion and my hot takes on next two stories include companies that both signal a peak and the end of Zerp, but for different reasons. Uber was, of course, a poster child for stay private longer, grow at all costs. And, you know, it's just one of the great investments of the last decade. And now the company that was considered a money loser forever would never be able to make money. It was a broken business subsidized by VCs. well now that company has hit profitability in three of its last four quarters and according to reports is going to be joining the s &p 500 soon this is incredibly important because if you join the s &p 500 a bunch of people have to programmatically buy your stock on the other hand ftx and sam bankman freed they were the poster child for the covet era crypto craziness that we saw all the stimmy checks and then this entire crypto madness well spf you know was this millennial a prodigy that was going to become the first trillionaire, right?

1:06And he was going to save the world. However, he got caught stealing$8 billion worth of customer funds and his entire empire collapsed, as we've seen in the past week. And now he's facing 100 plus years in jail, not just similar to Bernie Nadoff. So let's talk about these two stories and how they signify the nail in the coffin for Zerk. It's the end of an era, as we say. And then we'll touch on Biden's executive order on AI and the discussion that the boys had an all in when I wasn't in town. 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.

1:44When you're ready to launch, use offer code twist to save 10 % off your first purchase of a website or domain. House of Macadamias is the next big health trend. Get a free month supply of macadamia milk with any order at houseofmacadamias.com slash twist by using code twist20. And CLA. Innovation takes balance. CLA's CPAs, consultants, and wealth advisors can help you get from startup to where you want to end up. Get started now at claconnect.com slash tech. uber reported its q3 earnings today the shares are up four percent uh after uber reported yet another net profitable quarter full disclosure i still have a big stake in uber it's uh worth noting uber shares have almost doubled this year in 2023 that's why i'm in such a good mood it's up 97 year to date two things that drive my mood how my nicks are doing and how my uber sock is doing among other things uber's market cap is right around that hundred billion dollar mark for the first time since 2021.

2:54And as I said in the intro, three of the last four quarters, they've been profitable on a net basis. But Uber actually slightly missed on analyst expectations for its top line revenue because of some accounting changes and earnings per share results. But they did beat massively on its gross bookings. I mean, this is just extraordinary. Gross bookings,$35 billion, up 21 % year over year. And then revenue, which is what they take, right? bookings, a bunch of that money goes to the drivers, they take, you know, 9.3 billion of that, that's their actual revenue, that includes their advertising business.

3:32So they have a blended take rate of 26%. App Store, Apple gets 30%. Patreon, some of those services, Substack, they take 10%. Uber gets 26%. Now, Uber did not disclose its ad revenue for this quarter, but it mentioned, there are now 445 ,000 ad merchants in the system. That's up more than 70 % year over year. Now it's worth noting, those are in two buckets, I believe. There are some where it's Monday Night Football or, you know, Netflix promoting to you when you're waiting for a ride for your Uber. They only accept really high-end ads for the Uber transportation app. then there's premium placement so when you open up uber eats and you're going to go shopping it shows you the restaurants you always order from and the stores you always order from they can a restaurant can insert themselves into that for a fee and try to intercept you and let you know about their offerings so there's two ways for them to make money from advertising in case you didn't know 2.4 billion trips that's a b in q3 that's 25 year over year and the monthly active users uber has a name for this monthly active platform customers.

4:43In other words, they have to do a transaction is 142 million. Let that sink in 15 % year over year 142 million people transacted on the service drivers earned a total of 15.9 billion including their tips in q3, also up 24 % year over year and they have, I think 6 billion drivers in the network. Now it's extraordinary. You compare that to mcdonald's you compare it to walmart apple starbucks uber has more employees than they do now of course 80 of them 90 of them are doing part-time but it's still extraordinary q3 net income 221 million includes a 96 million dollar loss uh from uh unrealized loss from uber's equity holding so it's even better than that 221 million that means their net income is more like 315 q3 free cash flow 905 million unrestricted cash and equivalents over 5 billion it's got a ton of cash uber is going to be a money printing machine this is my prediction they are going to start doing share buybacks if the if the stock is still underpriced you you really think this should be a 70 share most of the price targets out there are 67 68 69 70 i think you know and i'm sure that'll change but you know everything's undervalued and the stock market wants you to prove to them that you can be profitable.

6:03They held Amazon to that standard, they hold other people to that standard. But once you get through the J curve, and you have a profitable company after making all those investments, well, then you can just turn the dial like Google does for ads or Tesla does with the price of their cars. And you know, these really strong companies can almost pick what they want their earnings to be. I think in my mind, they can just say, hey, let's have this many ads on Google, let's make the price of the cars this price, or let's make the price of the rides this amount. And that is extraordinary. So we closed the book on the Zerp era, out of control, investing and spending and blitz scaling.

6:44And now we are back to profitability, dividends, stock buybacks. Congratulations to Uber, Dara and the team over there and all of the alumni of Uber. congratulations. I believe the best is yet to come. They have some really cool products coming too. I love the idea of like an Uber assistant, like a task rabbit, take out your phone and get somebody for 40, 50, 60 bucks an hour to come help you with either business or personal tasks, like a personal assistant type thing, or a family assistant type thing could be huge. And I know they're testing that it's that's public knowledge. And just, you know, for some fun with numbers and charts, having been there from the beginning of this company before they even launched, looking at annualized revenue from 2014 to 2022 here in this table started out with 400 million dollars in 2014 and then this year i think they'll hit 40 billion or something like that they're doing over 9 billion as we said if you just take that let's just round up to 40 billion for 2023 and you compare that that's a hundred times what they were making in 2014 100 times not 10 times 100 times.

7:49And this is one of the things about networked businesses, marketplaces, they can really sneak up on you how big they can get. And, you know, the other piece of it that's really interesting is the growth of Uber from last year to this year, if it winds up being, you know, they go up six, seven, eight,$9 billion, let's just say it's 7 billion in added revenue. You know, if you look that they increased what they did in those three years, 2014, 2015, 2016. And And if you took$40 billion, that would be the first six years of these company reports here from 2014 to 2019. I think that's about$40 billion.

8:27So the last couple of quarterly updates here, when you start looking at the quarterly updates, you know, which you really, it's big numbers are kind of confusing to the human brain. But when you look at how much these big companies, whether it's Google, Facebook, Apple, Microsoft, off how much revenue they add, you know, in their later years, when you get to years 11, 12, 13, 20, 21, 22, they might be adding more revenue than they did in their first decade as a company, the percentage growth goes down massively in these companies. But the actual real number, billions of dollars in growth is just mind boggling.

9:04And this chart is super indicative of how it's been for them. 2018 into 2019, they're growing, they're figuring it out. The blue part of this bar chart is rides, mobility, they call that, I call it rides. And then the red is delivery. Obviously, you have the pandemic and then boom, you see delivery just explodes, it doubles. And then of course, it sticks around and DoorDash is also doing great. You can check out their earnings on your own. But these numbers have gotten very large and it's very attractive. What's next for Uber? I think it's getting too big to be bought. I always felt like Amazon, Apple, Google, you know, one of these companies would buy it when it was worth 30 40 50 billion, they would put it in offer for 60 or 100 billion.

9:47But now at 100 billion, it's going to be very hard for somebody to buy it, especially in the Lena Khan era of no acquisitions. It would be amazing if Amazon owned Uber, I'm not advocating for this. But if you just think about your Amazon Prime, and then having some preferential treatment on Uber, and then that being able to use the Uber network to deliver from their, you know, warehouses and everything. And, you know, your Uber rides, you know, Amazon Uber would be just an incredible, incredible product. And if, you know, Travis and Tim Cook hadn't gotten into it, I always thought Apple would have been an amazing acquirer, an extension for them.

10:23Although I don't know if they want to operate in the real world, they've never released the Apple car. So and then for Google, it's obvious, you know, they have Waymo. And so Waymo is going to be part of the Uber network. With what's happened with Cruise, which we won't talk about today, but you can read the New York Times story and you can read the rebuttal from the CEO of Cruise. There seems to be a lot of human intervention in rides as much as every couple of minutes. Some human is intervening. So I think that combined with them getting their license pulled, there's some lack of disclosure here that is making people feel, I don't know, less trustworthy over self-driving.

11:06And then maybe people are starting to think it's 10 years out, not two years out. And Waymo, those cars are super expensive. And in order to deploy a fleet of Waymos is still going to take a decade. So human drivers, I think, have a decade behind the wheel for being the majority of rides. But over time, who knows? We might see Uber when you open up the app, just like you can pick all different types of cars and services from Lincoln Town Cars and Black to Pool and Hex and Green. You could take a Waymo. Consumers may not want to. Some consumers may only want to have nobody in the car. Maybe they'll be allowed in some jurisdictions and not others.

11:48I suppose it's going to be jurisdiction by jurisdiction. So it's going to be a slow rollout either way. Could be 10 or 20 % of rides in the next decade. And I think if Uber captures some number of them, it would be really much easier for Waymo, Cruise and other folks to just be part of the Uber network and, you know, let people pick from there and just split a little bit of economics with Uber. And for Uber, which wants to be the everything app, it would be great for them to just have all those options in there, just like in some cities that Uber allows you to get a cab. If your landing page is terrible, I'm out, right?

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12:53It goes beyond page views and site visits and time and all that. And with Squarespace, you can create an online store or you can start a blog. Click of a button, right? Easy peasy, lemon squeezy. You can create a subscription business for members-only content. You're seeing a lot of that out there. It's simple. It's cost-effective. It's gorgeous. And they keep adding feature after feature after feature. That's when technology is at its best, isn't it? When you pay one price, but the product gets better and better and better. You get that with your Tesla. You get that with your iPhone. You get that with Squarespace.

13:23These are the legendary brands of the internet of this era. Go to squarespace.com for a free trial. And when you're ready to launch, I want you to go to squarespace.com slash twist. And they're going to give you 10 % off your first purchase of a website or domain, go to squarespace.com slash twist because they know we sent you. Looking at the next part of this puzzle here as we end Zerp, SPF, Sam Bankman fraud, I'm sorry, freed, was found guilty on all charges. This happened last Thursday in New York City. We no longer have to say allegedly when talking about the$8 billion he stole from customers.

13:56Here are the official charges for which SBF was found guilty. Two counts of wire fraud, two counts of wire fraud conspiracy, one count of securities fraud, one count of commodities fraud, and one count of money laundering conspiracy. There are also other charges that he faces, but because of his extradition from the Bahamas, those are going to have to be settled in another court case. Sentencing March 28, 2024. That's got to be hard for him and his family. Between now and then, it's got to be a tough time to be wondering how long you're going to be in prison. Possible sentence 115 years in prison.

14:33This will be at the discretion of Judge Lewis Kaplan. Reporters noted that he consistently seemed annoyed at SBF and his antics in the courtroom. whom SPF, of course, tried to defend himself and he testified. Maybe that was a mistake. Maybe it makes no difference. Maybe that was in order to help him on appeal. He was officially charged 11 months ago. So trial lasted five weeks. And that's your nail on the Zerp coffin for crypto, I believe there'll be plenty of other people who will get, you know, charged, etc. But this was the well, This was the big one. Moby Dick, he's been taken out. And I think it's the end of the era.

15:12Of course, if you really want to dance on the grave of the Zurp era, WeWork is now bankrupt. Isn't it amazing that this all happened within like five days of each other? I mean, it is extraordinary. Producer Nick coming in. Almost joining S &P 500, SBF going to jail for possibly 100 years. And WeWork going bankrupt within five days of each other. It's just like, it's like poetry. It happens in threes. They always say that, you know, like you'll have some, you know, famous baseball player pass away, an actor, and then, you know, some singer, right? It always happens in groups of threes. So there you have it.

15:45Uber is profitable. Nobody ever said that would happen. WeWork goes bankrupt. And, you know, they're working out all their leases crazy. and then finally i wasn't able to make all in last week i was busy with lp meetings still raising launch fund for it's going extraordinary more than halfway done but it takes time to raise these funds and i've been on the road like crazy doing meetings but the besties had a really good take i think the strongest part of the episode was this discussion of the ai executive order that biden put out there it's a convoluted 100 page document i've reviewed it uh and the summaries of it to just summarize it for you the document focused on what it calls dual use foundational models the executive order defines these as an ai model that's trained on broad data okay duh it generally uses self uh supervision contains at least 10 billion parameters okay it's got a certain scale is applicable across a wide range of contexts whatever that means and it's general and that exhibits or could be easily modified to exhibit high levels of performance at tasks that pose serious risk to security national economic security national public health or safety i mean give me a break like a volvo that you drive down the street could put everybody at risk uh super vague probably on purpose uh it's just extraordinary that we can't close the southern border but we can do this and companies uh building these dual use foundational models are now going to have to report to the government activities related to training developing or producing these models ownership and possession of the model weights and results of any developed models performance in relevant AI red team testing.

17:18That's like doing bad things, creating bombs, et cetera. And the EO calls out large scale GPU clusters. Companies or individuals that own large scale GPU clusters have to report any acquisitions or developments, including the locations of these clusters and the amount of total computing available. Freeberg gave a big rant. That was really great. You know, and his point was awesome. You know, like we've only, we're only five years into this and it's way too early to regulate. And if they do regulate, why are we regulating these like little tiny techniques because they're all going to change obviously why don't we just look at the outcomes like did somebody commit a crime with this did they do fraud did they steal somebody's copyright or content a great quote from freeberg come out and say here are the standards by which we want to regulate you this is the size that the model can be these are the types of models you can use it's going to look like a medieval literature in three years none of this stuff is even going to apply anymore and he's absolutely right the pace of change is nuts you try to regulate something like this you know based on the techniques for building it or the cluster size it's not going to work chamath actually wrote a substack blog the case to regulate ai if you remember back in may but he mentioned on the pod that the eo didn't really address his concerns he said this was a kitchen sink eo because it wasn't specific it's really convoluted but he thinks people are trying to do the right thing sacks said he thinks the technique here is the administration is unconsciously trying to make it so arduous for companies to self-report that they eventually just give up and say give us one agency instead of 20 agencies to do this i think this is a lot of um manipulation by people who are paying off politicians i mean i'm a simple guy here i just say follow the money you got a bunch of people who have leads in the ai space they're going to make a ton of donations they're going to give money to politicians to create regulations to pull up the ladder behind them.

19:10So some startup that I invest in that's got three people isn't going to have a team of 10 people to do all these regulatory requirements. And so this is classic regulatory capture as Bill Gurley gave in his awesome talk. I think that this thing needs to get ripped up by the next administration and throw in the garbage and start over with a better framework. Next up, an awesome founder who is building an awesome product in an old, slow, boring industry, car dealerships. And I've invested in this company. And I'm just going to start sharing in these news programs, some of the companies I'm investing in, because I want you to know, you know, how I think about investing.

19:45If you want us to invest in your company, us being the 21 person launch fund, you can go to launch.co slash apply, launch.co slash apply. You apply for funding. We have three different ways to invest, founding university, the accelerator, or direct. You fill out your form. we read it within 24 48 hours get in touch with you schedule a meeting and hopefully we're off to the races so stick with us okay i got a funny story to tell you house of macadamias graciously sponsored the all-in summit and to wow the crowds they created a special edition salt and vinegar pack of macadamia nuts and guess what people went crazy for them dozens have been messaging the founder brandon asking him to make the salt and vinegar nuts available on the website listen you've heard me rave about the health benefits of macadamias but don't take it from me the most health conscious people in the world are eating them dr andrew huberman i like his pockets i started listening to it he mentioned he snacks on macadamias in his gq profile and that guy brian johnson he was on the podcast when he wasn't a health lunatic he's trying to verse his aging and he eats macadamia.

20:54So all you really need to know, House of Macadamias products are delicious and they support good health. My favorite, dry roasted chocolate dipped macadamias. You know, I get my chocolate dipped in there and they also have a dipped snack bar. So I put a couple of those in my backpack. I put a couple of them in my little roller so I have a healthy and delicious snack. I make a better decision. Listen, if I had a candy bar, which, you know, sometimes I break down and I buy one of those, not a good choice for me. Now I make a better choice. house of macadamias they got a new product macadamia milk get a free month supply of macadamia milk with any order at house of macadamias.com slash twist that's a free month supply of macadamia milk with the code twist 20 at house of macadamias.com slash twist all right everybody welcome to this week in startups our next founder is building in the car dealership space sounds pretty boring right well uh this is where a lot of the major businesses come from.

21:52So car dealerships are one of those big sleeping giant industries. Motive is a website builder for car dealerships, makes it so much easier for shoppers to find and finance cars. Of course, this might sound like a tough industry to adopt software, but you'd be surprised at the size of this market and how much these dealerships can gain from a beautiful and intuitive website john haybeck is the ceo and co-founder we're investors in the company uh how we doing john how's our investment doing doing pretty good i'm trying to make you proud and then people can go see the website ride motive.com how'd you come up with the idea how did you get your first customers how's the business going so i got my start um in the auto industry.

22:39I was in high school. I was the inventory photographer at a couple of dealerships in the hometown where I grew up. And through that experience, I got a bird's eye or fly on the wall view of every facet of the business from a participatory perspective. That was really helpful because it exposed me to the problems that dealerships face, which, first of all, it eliminated this preconceived notion that dealerships are these small businesses. Even the smallest franchise dealership is actually quite large. We're talking seven figures in gross revenue annually and in larger cities. These are multi-million dollar net profit businesses per year.

23:22They're huge and their problems span far and wide across every department. It was really energizing for me to see that basically anywhere you throw a stick, Heck, there's this massive problem to solve and a ton of budget to really devote to solving those problems. And so through my experience as the inventory photographer, I realized that dealership websites are not consumer friendly at all. They are incredibly hard to navigate. They're loaded with these third party tools and plugins and iframes, you know, these chatbots that like bombard you from the second you get there. and you know in an age where almost every auto brand is like trying to reimagine their consumer experience the most important part of it the actual retail experience is pretty poor still um so that was the initial idea is like let's just make a consumer experience that's actually quite nice something you would want to do shopify for car dealerships like shopify for car dealerships a simple platform dealerships can make and manage their website um and for consumers, it's like really easy to actually find a car.

24:32Like, ultimately, that's what you're there to do is like find a car. I know when I go to the Corvette configurator, you know, at that website, a Chevy, it's going to be beautiful and amazing. But when you wind up at your local dealer, and you know, I was buying a Suburban, we needed to have a car for Tahoe. I think it's gonna be the last gas powered one we ever have to buy. But it's kind of our escape vehicle. You know, we were going to three or four different dealerships trying to find it all of them had a different experience then there was like the chevy suburban website it's just it's confusing and ugly and then i compare that to my experience buying teslas and it's elegant and simple and app like and really tight so that's right when you go to these dealerships the thing i was confused about is they run very independently of the brands they sell huh and so they're and i don't understand exactly how that works.

25:28But I guess the larger brands are not saying you have to use our software. They're saying the opposite. You have to have your own website. Yeah, it's very complicated. Franchise law is very complicated in the automotive space. And it sort of forces brands to operate at an arm's length when it comes to business decisions that the franchisee makes. And so that is why there is this massive software industry for auto dealers first of all the brands don't have necessarily the resources to create custom software that is perfectly tailored for what they need and second of all um you know it's that sort of hairy uh franchise problem that that allows this industry to exist but more importantly i think it's actually like by design an important way um that cars are sold um i think at net net It's actually pretty positive for both communities and for the auto industry that you have these sort of independent entities that are trying to sell cars because ultimately they exist as like a consultant.

26:30You know, when you go in to buy a new car to your local Chevy dealership, they're there to help you through that transaction. They can buy your existing car. They can help you understand your financing situation. situation and comparing that to buying a car online like with Tesla which is clearly sort of a very seamless experience if you know what you're doing but if you have a lot of questions there's really not a whole lot of resources for you there's no one for you to call and and so dealerships play an important role in that regard and I think that's part of why there is room for sort of both of the models to exist yeah and so you build this better mousetrap how do you get your first dealership?

27:11Because, you know, here on This Week in Startups, we're always talking about zero to one, not zero to one, like, you know, not having a product, having a product, but from zero to$1. How do you get the first dealership to say, okay, I'm going to use this startup software, I'm going to be the first person up the hill and to use it, tell us that story and, and how you lock down that first dealership. I think more philosophically, like the problem has to be really painful for a startup to get their first customer with an MVP. The problem has to be very, very painful. Otherwise, the customer will just use some more developed piece of software.

27:47And that was our situation. We had this hardly usable platform when we launched. And we literally knocked on doors and approached a few local dealerships and saying, what do you think of your website? Would you be willing to give this a shot? And I mean, their loyalty to their existing solution was so minimal that they moved to us when we had zero features and really zero capability. The only thing that we had was a promise and a vision. And thankfully, working with those early dealers allowed us to build a product that had maybe a greater mass appeal. What's interesting about our business, you ask how you go from zero to one.

28:28And what was interesting is how we went from like one to 10 and 10 to 50 and now 50 to 150. Unique to our business, we have this flywheel where it's really quite elegant. Like we launch a website with a dealership. And at the bottom of the website, we have our logo and it says made by motive. Other dealers go to that website and they see, hey, that website looks better than mine. Who did it? They scroll to the bottom. They see that logo. They click it. They submit a demo request. They sign up. um and then we launched their website other dealers see their website and just sort of the flywheel starts to build its own momentum and and so really once we got like just a tiny bit of escape velocity where we're just sort of bouncing off the ground it started to pick up really on its own oh so the phone starts ringing the email starts demos are coming in because other dealers see our website in the wild and they reach out it's a wonderful flywheel yeah Yeah.

29:24And it's kind of in some ways like the perfect market. One, nobody discovered it. It feels like some ancient, you know, uh, vestige or something dealerships, but they're not going away. They're going to be here forever. Correct. And these old school dealerships have tons of profits. So they, and now they're probably getting handed down from generation to generation. Now you've got young people taking over for their parents who owned it. Uh, and they are like, why is this software so terrible? We need to upgrade it. And they grew up on phones, and they know about Tesla's website and how easy it is to order from Tesla or even Rivian.

30:01And they're like, hey, we need to catch up. And of course, they're going to go look and study. And like you said, you go from having to do the hard sell to order taking. Now, it's not exactly that easy. But what is the process of demoing for them and closing? How do you what What have you learned about that process now that you get it out in the wild? You got that virality because it's got the logo on the bottom powered by how do you close them? And what's what's the process from doing a demo to closing some best practices there you can share? Yeah, I mean, it's pretty simple. On our end, the industry has consolidated pretty dramatically, the dealership industry that is so, you know, there's sort of this idea that like every car dealership is independently owned small business.

30:46a lot of them now are part of larger auto groups. So 5, 10, 15, 30, 40, 200 stores in a single entity. And so a lot of times we'll have one of those auto groups reach out and say, hey, we're unhappy with our current provider. We'd like to do a demo for the whole group. And so we sort of get many rooftops in one deal. So our deal sizes can be quite large, But still, in that regard, they're fairly simple. So once we do the demo, usually there are many, I guess, stakeholders in that decision. I mean, to set some context, over 95 % of a car dealership sales, on average, come from website leads, right?

31:29So this is like, pretty core to their multi million dollar business. And so it's a big decision to change websites. It's like changing the building that you're in, you know, like moving addresses. It's a huge decision. So usually the owner is involved, general managers, marketing people, and then even salespeople, business development representatives. I mean, the whole company kind of gets involved in the decision, which does create some complexity in the sales process. But really, it's for the better because when everybody is bought into the solution, then the rollout becomes like confetti in the air, as opposed to this sort of situation where you're ripping out some technology that somebody liked and wasn't aware of the change.

32:08So despite the inclusion of a ton of stakeholders, it's pretty simple. Once they see the demo, we do maybe one or two demos and it's on implementation. All right, everybody. Stephen Estes is a principal at CLA. Clifton Larson Allen is a professional service provider that specializes in CPA, tax consulting and wealth advisory. Welcome to the program, Stephen. Thank you for having me. Tell us a little bit about what a startup should expect to pay in terms of managing their taxes, managing their accounting, outsourcing the whole thing in those first couple of years. You know, for the early stage startups, it really just depends on oftentimes the number of states in which they're filing in, which can be dependent upon where they have employees located.