Encarta | Silicon Valley Bank Collapsed... Here's What Happened (#430)

00:10

Sean, you wanna set us up. What are we doing? What are we doing here?

00:14

Well, this is the first time for three of us. Have been on a pod. So so please come on. I think three or four times. Somehow, you've never been here during during those. Even though y'all are friends, you know each other and

00:25

that's just strange to be. But I think this we'll see how this goes. I mean, I think this will be fun. The three of us here, I wanted Zui to come on because

00:33

There was a whole bunch of,

00:36

like, rich people, smart people shit that was going on over the weekend. There was the Silicon Valley Bank disaster, bank run, all that good stuff. There's stuff going on in the stock market. And so so is the guy I go to whenever I have questions. I said, alright. Well, just bring them on the pod. Instead, I'll ask you the questions here. Instead of just, texting or calling. And so that was my that was my idea. Did you guys did you guys get impacted by this at all? I had money in Silicon Valley Bank through my, my fund

01:01

so our our our venture fund had money through Angelist. Angelist keeps all their money

01:06

or kept all their money in Silicon Valley Bank. And so we were lucky that I started hearing about it. And I was like, yeah. I think we should get out. And,

01:16

And so we ended up we had, like, one point five or one point six million dollars in that account,

01:22

maybe a little more, actually, because they hold some for management fees. And then we got it all transferred out to a bank I've never heard of. They were like, you wanna move to Grasshopper bank? I was like, you could put it in the fucking field outside your office. You know, you can put anywhere. Just don't leave it in the bank where the where it's like a bank run that's going on. Yeah. Exactly couch, dude, but we fine.

01:41

So we got we got out like, literally in the nick of time.

01:44

So, yeah, we were almost impacted, but not not in a, like, major, major, major way. Like, there are some people that were stuck tens of billions or even a hundred billion dollars. Truly, I'm sure you heard some crazy stories. Like, what did you hear? I I how did it play out from your perspective?

01:58

Yeah. I was at this SV Angel,

02:00

founder event, founder summit in San Francisco on Thursday when the bank run was happening.

02:06

And,

02:07

people all around me were on their phones trying to take all their money out of SVP and transfer it.

02:13

And people walked out of the session and were were sitting on their laptop trying to do that.

02:18

One guy told me that he wired

02:20

seventy million dollars out of his SVP accounts that morning

02:24

into his personal Morgan Stanley account because he didn't wanna wait for,

02:29

a bank account in the business name to open that would take twenty four, forty eight hours. Which in in in normal circumstances, that would be maybe not illegal, but hugely different upon. Definitely ill advised. Yeah. It looks like you're about to steal seventy million dollars of other people's money and put in your pocket, but I think this case, there's right away. Was it like let's see what happens because that, you know, the the the series of steps was I saw the stock price go down. That was the first text I woke up to Sam in our group chat, somebody showed the stock was down thirty or forty percent.

03:02

And it just seemed like a stock problem. It seemed like, oh, the company is, you know, getting hammered But, like, dude, I feel like I've seen that five times in the last, yeah, you know, five months with some Not a bit. Is down forty percent. But then somebody was like, oh, yeah.

03:16

Could this mean that the bank goes under?

03:18

And then the wheels started turning in my head. And fortunately, I had seen

03:23

I had seen and not acted on two crypto, like, bank runs in the last year and been burned by those. So my I'm I'm a criminal under under reactor. I don't really react even in cases of emergency,

03:35

which is good because in normal life, usually things are not an emergency, and it serves me well. When there is an emergency, I'm also pretty laid back. And so this time, I I I was I was smart enough to be like, hey, we should do something right now. Don't wait. Don't wait to see how this plays out. There's no upside

03:50

in waiting to see how this plays out. Did people recognize it right away where you were truly, like, hey, the this could trigger a bankrupt? Yeah. And I think in the beginning of the day, no. Everyone was kinda chill about it, but,

04:02

a ton of VCs, I think starting with Peter Teels said

04:06

to their portfolio companies, if you have money in SVB, take it out and take it out immediately, like, right now, do whatever you need, get it out of SVB. And let me explain. I'm the least educated on finance stuff here. So let me explain from a five year old's perspective what happened here. So basically, Silicon bank. It's like the nineteenth largest bank in America, something like that, top twenty, sixteenth,

04:27

sixteenth.

04:28

And,

04:29

it's usually used by Silicon Valley based startups and other people who related to startups. And so what happened was during two thousand twenty one, twenty two when DCs were going crazy and startups to raise a huge amount of money. They used Silicon Valley Bank, so they took on tens of billions of dollars of new bank accounts.

04:48

But the and so they had all this new money. And so what they did was they bought long term bonds that yielded a rate of one point five percent, which in a way it was them thinking, like, we're just gonna be conservative and, like, and not do anything crazy here with all this extra money, then Fed increases the rate to three and four percent, and the their customers, which is startups with new cash, are burning tons of money and lowering

05:11

their, deposits or their their savings and checkings accounts. And then it became,

05:15

public on Wednesday at the, quarterly earnings at the earnings,

05:19

report that they said,

05:22

we bought these one point five percent bonds, which is not good because the Fed recently raised the rates three and four percent, which means our one point five percent long term bonds are now devalued. We have to sell a bunch of them at a huge loss. People heard about that. Social media went crazy. VCs tweeted.

05:37

Your money out immediately. Everyone starts pulling their money out. And then by Friday,

05:41

the fed step or the government steps in and says,

05:45

we gotta stop this. They're gonna run out of money. This is not good. Everyone's gonna get hurt. Is that a good summary of from a from a from a dummy's perspective of what happened?

05:53

Yeah. I think that's pretty good.

05:56

I think that all of those things could have happened except if, you know, Silicon Valley is just such a,

06:02

insular place, but also such a viral place where everyone talks to each other. So I think if it wasn't for the fact that it was

06:11

silicon Valley and everyone talks to each other, there wouldn't have been a bank run this fast. Like,

06:18

On Thursday, when the bank run happened, forty two billion dollars.

06:23

People tried to wire out forty two billion dollars in one day out of Silicon Valley Bank. Much money did they have? A hundred billion? They have something. Two hundred? Yeah. Something like a hundred and eighty billion dollar in deposits. So about twenty five percent twenty five cents on every dollar was tried to be wired out in one day. And what happened when people tried to do that? It just said,

06:44

no. I mean, what what was the what what's what did they see on their screen? In the beginning of the day, it was working. So, this guy wired out seventy a million dollars, a bunch of other people at that SV Angel event were wiring money out. No problem.

06:59

Come the afternoon. They couldn't log in to Silicon Valley Bank. So it just wouldn't let you log in. In fact, I tried to log in yesterday. I have a Silicon Valley Bank personal account, And it also said, you can't log in until Monday.

07:14

And were you affected by this, Julie? Cause you've I know in the past, you're companies use Silicon Valley Bank. I think you you raised money from them. So first, were you affected? And second, why does everybody use Silicon Valley Bank? Why I think they said fifty percent this on their website. I don't know if it's true, but fifty percent of venture backed startups,

07:33

use Silicon Valley Bank. That's crazy. Is it just the brand, or did they do something that that was, like, advantageous

07:39

to startups?

07:40

Yeah. They do a couple of things. So one, they have strong relationships with all the VCs.

07:47

And Or so they thought. Yeah. So they thought. So they they have they've had strong relationships with everybody. So all the VCs are, like, doing their own banking,

07:57

all the LP, all the venture funds are doing banking at Silicon Valley Bank already.

08:01

And then

08:03

they host tons of events around Silicon Valley and sponsor tons of events. So you just see their brand name everywhere.

08:10

As the bank that you should use.

08:13

And it kinda has like an elite vibe a little bit, which is -- Yeah. -- stupid because or that's not stupid, but the the a lot of media headlines were, like, bank used by the Richard Famous,

08:23

or tech elite,

08:24

is going under. And so the sentiment was, like, oh, screw them. Which maybe that is part part the reality, a lot of rich people do use them, but, like, payroll companies use them. And when you there was a lot of companies like rippling that the hustle used for payroll years ago, where you pay your payroll to pay your employees, rippling is the inner is the middle man. They hold on to your money for three or four days, and then they pay your employees, rippling used them. And so

08:49

three or four hundred, five hundred thousand employees of companies, both Blue collar and White collar, weren't gonna be able to pay their bill or weren't gonna be able to receive their paycheck. So it's not just like, you know, the elite. Yeah. It's kind of a the name's a little bit of a misnomer for who it represents.

09:05

Yeah. The other reason, we use them at Tyneco,

09:08

and this might be my greatest personal achievement was,

09:11

I got

09:12

free tickets to the NBA finals

09:16

from Silicon Valley Bank where they invited me to hang out in their box and watch the game. So, you know, there's a bunch of perks like that for using Silicon Valley Bank. And then also if you raise any

09:27

debt, they're a huge venture debt provider in Silicon Valley.

09:31

So oftentimes when companies will raise an equity round,

09:35

they'll also raise a little bit of debt. So they'll raise, you know, ten million dollars of equity.

09:40

And three to five million dollars of debt sometimes depending on kind of what their capital needs are. And so when you raise debt from Silicon Valley Bank, they require that Silcon Valley Bank is your exclusive banking provider. So all of your deposits have to be at Silicon Valley Bank as well. That way, they've got visibility into it and that kind of thing. So a ton of startups will get debt, and then they have to use Silicon Valley Bank as their bank. So they have no other choice. And over the weekend, basically, there was a bunch of people. We have a bunch of our mutual friends where they were just like sitting there Friday to Saturday and Sunday morning thinking,

10:15

I think I just all my money's gone. I don't know what's gonna happen. I was with, like, maybe a dozen people and they're like, you know, I've had hundreds of thousands or tens of millions of dollars I just don't have that and I have no idea how I'm gonna pay my employees. I don't know what's gonna happen. Sunday night, we find out that everything's gonna be fine. The the corporation Silicon Valley Bank is going under. If you're a stockholder in that, I think you're gonna lose everything. If you're a bondholder in that company, I think you're gonna lose everything. But if you're a depositor, if you're a customer, you're gonna be made whole. And so it's no big deal. I think you could access your money now.

10:47

Is that right? Is that how this is currently being resolved? Yeah. That's exactly right. So the,

10:52

federal reserve and,

10:55

US Treasury Department were, like,

10:57

If Silicon Valley bank depositors lose their money,

11:00

this is gonna create a systemic risk. That systemic risk is

11:05

everyone who who has money in these two thousand local community regional

11:11

banks

11:12

is gonna take their money out Monday morning because they're afraid that their personal bank will have a bank run also.

11:19

11:20

Which would this is literally a bank run also. Right? Like, anybody being proactive

11:24

would be triggering

11:27

an actual bank run across many many other banks. And so

11:31

they had to they had to basically get people to chill before Monday morning.

11:36

Yeah. Exactly. Like First Republic Bank is a bank that I use and a ton of other startups use. And in fact, First Republic Bank, provides is the bank that Mark Zuckerberg uses to get loans for from for buying a house or just getting a loan against his stock.

11:53

And

11:54

There were rumors over the weekend. A bunch of my finance friends in New York texted me and said, hey, do you have any money at First Republic Bank? If so, get it out Monday morning. Well, so today, it's down

12:05

sixty five percent.

12:07

So even though this happened,

12:10

why is it still down so bad?

12:12

I think people are just still afraid that there's gonna be,

12:16

some

12:17

that depositor is still gonna take money out of First Republic Bank. There was a funny there was a funny,

12:23

headline and it said that,

12:25

you know, when you think of this, you think of, like, literal pitchforks

12:28

and, like, guys wearing straw hats and, like, torches standing outside of the bank because there was, like, a headline that says people are rallying outside the bank. Just banging on doors to get in and you think, like, you know, like, a pitchfork mob, and it was really it was, like,

12:42

eight or nine, like, Asian guys wearing Facebook book bags and, like, North Face sweaters at me and and they were smiling at the camera. Like, this this article, I'm like, they look really happy, and they are like waving at the camera.

12:54

And I saw that because it was a pretty funny thing.

12:57

Well, I think that was part of the problem here was, like, like you said, in Silicon Valley, everybody's so tightly network that, like, word spread, like, wildfire. And then back in two thousand eight, when the global financial crisis happened in the in the the sort of the the other bank failures happened,

13:13

There wasn't really, like, like, Twitter was very new at that point in time. Smartphones had only come out that same year. So it wasn't, like, as fast. So this was basically like a bunch of people who are all incestuous and all talk to each other a ton. On top of that, you can now do online banking and just quickly log into your phone or your laptop and wire out seventy million dollars. You don't even need to go to the bank. Like, normally, it's like bank run, there's gonna be a huge line. And that huge line itself is a, like, barrier

13:41

to this happening. But in this case, everybody talks about it. Everybody moved it out digitally

13:45

and words started spreading, you know, basically

13:48

fear started spreading across Twitter, TikTok, and other places. And it just felt like the end of the world, you know, move now and that that sped this whole thing up into a one day.

14:00

Like tsunami, financial tsunami that that hit. What do you think about?

14:04

It's crazy because the I bet the CEO of Silicon Valley Bank woke up Thursday morning and was, like, What's the big deal, guys? This is gonna be fine.

14:13

And, but What was it a big deal, Julie? Like, besides the the the fear, was it actually that bit? Like, was the was the business itself at risk?

14:23

There is some there's a real problem with the Silicon Valley balance sheet

14:28

because of the the sort of depositors taking money out in general. So even before Wednesday,

14:35

because of

14:36

all of the startups that because the startups are the ones that bank at Silicon Valley Bank, they were withdrawing money every week.

14:44

To pay payroll and, because of their burn rates.

14:48

So there was already a problem,

14:50

but I think that You know, regulators are monitoring bank balance sheet on a monthly basis very closely.

14:58

So they were like, this is all fine.

15:01

Up until that point.

15:02

And

15:03

so nobody thought this was a problem. Like, the Silicon Valley Bank CEO was, like, this isn't a problem. Regulators thought isn't a problem. Yeah. But he had one line that was bad. He goes, I we don't panic. I think he said don't panic. Exactly. He did such a terrible job of PR And, the way that they came out on Wednesday and said, hey, we're gonna raise one point eight billion. We are gonna raise two billion dollars because we lost one point eight billion dollars. Like, they just mismanaged this from a PR perspective.

15:32

And I think if they've done a better job of that, they wouldn't have gone

15:36

wouldn't be dead today.

15:38

And to to, Sean's point around just the speed of this happening. So the biggest bank failure in American history is Washington Mutual in two thousand eight.

15:47

In in two thousand eight,

15:50

ten seventeen billion dollars was removed from Washington

15:54

withdrawn from Washington Mutual in ten days.

15:58

And in Silicon Valley Bank, it was forty two billion dollars in one day on Thursday.

16:02

So just the speed with which business happens is like, you know, so much faster now.

16:07

And I want you I wanna get your reaction to two people. So Peter Teel. Some people are like, oh, Peter Teel strikes again. He's the, you know, this guy's the menace, and then they're like, he brought down Gawker.

16:18

He got trump elected. And now he he triggered the bank run of of Silicon Valley Bank. So Peter too, you know, do you think that that's a is is there is there any truth to that? And then the other side is Mark Suster, who's another VC down in LA, who basically came out during the process. It was like, this is, like, like, you should companies, you should keep your money there. Support Silicon Valley Bank. It supported us.

16:42

There's, you know, we don't have to have this hysteria. If we don't do the bank run, there's there won't be a bank run. I'm, you know, keep your money there. And if, you know, for people who had listened, he could have

16:52

caused them to basically, you know,

16:54

lose or lose access to the majority of their money. So what do you think about those two people and where do you play place the sort of how much blame or credit do you do you give to those people?

17:04

I do think Peter Teal has a ton of power. He's like this godfather of Silicon Valley. You know, we had a tiny highway at Mark and Dresen on our board. And he would never mention what anyone else says, except he would constantly mention

17:18

what Peter Teal says.

17:20

So I think he has a What's an example?

17:24

And why?

17:26

I think he just Mark Andreson. I think just looks up to, Peter Teel and thinks that Peter T law has a bunch of good ideas.

17:33

So for example, one idea of what one thing he I remember him saying was,

17:39

Peter Teal says the best startups have one source of revenue.

17:43

Not eight sources of revenue. I'm sure you've seen this in startup pitch decks where they're, like, we're gonna generate revenue from ads, plus we're gonna generate revenue from businesses, plus we're gonna generate revenue from these customers.

17:55

Having like eight different revenue streams is much worse than

17:59

we're Facebook. We're gonna rent generate revenue from ads. One single, clear revenue source in the beginning.

18:05

And and

18:07

do you think that I mean, I don't think he's the bad guy in this situation because basically what happened with him was,

18:13

it'd be like if a just a normal person went to the bank account and they tried to or the ATM, they tried to withdraw money and the ATM's glitching, and they're like,

18:20

This unfilled right. Hey, family. I think you should bounce and go get your money out of this. This is like glitching. This does not look good because I believe

18:27

Peter Till. He did a cap. I think Silicon Valley invested in founder's phone or something like that. Is that the story? Or he did a some type of capital call

18:35

And Silicon Valley couldn't didn't pay up right away. Is is that right?

18:40

I didn't say anything about that.

18:43

And, yeah, I I don't know what that is. What I know is that he basically Peter Teel was the was one of the people in Silicon Valley that was like

18:52

this is not good. Everybody take your money out. And then, you know, all the other venture firms heard that and sent emails to their portfolio companies saying the same thing. Right. Like on Thursday, you know, I'm a investor in a bunch of venture funds. A bunch of them

19:07

emailed their LPs and said, hey, this is our exposure to Silicon Valley Bank as a fund.

19:14

We're talking to all the portfolio companies and trying to get them to remove all their money out of Silicon Valley Bank. So really they cause the bank run. You're an you're an LP in, like,

19:23

You're an investor in a bunch of funds.

19:26

Like, maybe what, like, fifteen or so big venture funds.

19:30

Yep. Did they have their money tied up? And I'll ask I don't tell you why I think this is

19:35

something was a little fishy here. So

19:39

on that Thursday or Friday when he was all going down.

19:43

VCs were simultaneously telling their portfolio companies, hey, get safe. But at the same time, we're basically saying,

19:50

hey, the Fed needs to come in and ensure that all the deposit depositors are gonna be made made whole.

19:56

And they were saying it anytime somebody uses the, like, what I call, like, the single mother

20:01

story, it, like, makes me very suspicious. And what I mean by that is they were like,

20:07

you have to do this because jobs are at stake. These companies have to make payroll And if they can't make payroll next week, you know, this is gonna cause jobs to be lost. And, you know, who works those jobs,

20:19

single mothers. And, like, they're basically it was all about payroll, small businesses,

20:24

jobs,

20:25

saying all the political, like, buzzwords

20:27

to get, like, Washington to do something because, you know, nobody wants to go be, like, Hey, I'm a venture fund. We had ninety million dollars in Silicon Valley Bank because they gave us lines of credit and we were we had to keep our money in there. And we're stuck. You know, we're way above that FDIC limit. And if we're not made whole, we're we're screwed.

20:46

Was that the case or is that just my a conspiracy? Should I take off the conspiracy hat or or is that you think was that a part of it? Yeah. I mean, I I saw a bunch of videos of David Sachs and Jason Calcanis and stuff saying that kind of thing. I might I'm skeptical that what any of that matters.

21:03

I think the way that,

21:05

Jay Powell and Janet yellen look at this is,

21:09

there is a systemic

21:11

systemic risk to the banking system. So, you know, taking a step back from Silicon Valley Bank, like, the

21:17

the American

21:19

Financial System is this amazing

21:22

black magic

21:24

that exists, and it is a source of tremendous amounts of prosperity

21:28

in America and in the world. Like, if you go in places like Pakistan where I was born,

21:35

you don't have a,

21:37

you don't have access to a credit card. You don't have a FICO score.

21:41

You don't have,

21:43

the ability to go get by a piece of property and get a thirty year mortgage on it that the government

21:49

backstops.

21:52

You are constantly worried about the,

21:56

your currency being inflated

21:58

because you're not sure that,

22:01

the the government is gonna isn't gonna just print so much money that your rupee that's worth, a hundred rupees worth. Yeah. Your life savings basically disappears because of inflation.

22:14

And you're not worried when a company that's a publicly traded company reports earnings that

22:20

those are lies

22:22

in the United States. Like, there is so much stuff that is amazing in America from a financial infrastructure perspective that the rest of the world does not have.

22:31

And the Federal Reserve coming in and bailing out Silicon Valley Bank

22:37

and doing it without using any

22:39

taxpayer money

22:41

making all the depositors

22:42

whole

22:43

wiping out all the equity holders, wiping out all the unsecured debt holders,

22:49

Like, that's the right thing. And

22:51

One, where'd the money come from? Yeah. If it didn't come from tax years, which is that twenty five billion back time to come from. And and also bailout, I don't think it's the right term because they didn't bail out the bank. The bank is out of business or or it's debt, but they bailed out the depositors. Right? The customers. Yes.

23:05

Yeah. And and, you know, what people were saying on the internet Build out single mothers.

23:09

Yeah.

23:11

Because they need that third home in Truckee.

23:17

Yeah. What people were saying on Twitter, which I agree with is that, hey, when you put money into a bank you're not thinking of this as buying,

23:25

a risk asset. You're just thinking of it as I literally have cash. I could store it under the mattress, but that would be silly.

23:32

I'm gonna store it with the bank.

23:35

And the bank is gonna do a better job of taking care of my money than me by storing it under my mattress.

23:40

And that's an important

23:42

v American value. Yeah.

23:45

Like, that is a super important American value. That is my product that the banks sell.

23:50

Yeah. Safety and security trust. Safe that you are your money is safe. And if that product

23:56

if they if people start to question that product,

23:59

the banking system doesn't work in your one step -- Everything from everything screwed. -- who cares about this little green piece of paper. I don't know if anyone's gonna care about this or if this is gonna be if they have any buying power tomorrow. Right? Money money also has the same thing where the the only attribute that matters is belief in its value. And and banks have the same thing. It's belief in the safety there. And where the money com where the money come from, though? You you didn't answer that. Yeah. The FDIC is basically is funded by other banks. So, think of it as an insurance fund and banks pay a premium to that fund. And the FDIC insurance fund has a hundred billion dollars.

24:32

In,

24:32

fees that it's collected from banks.

24:34

And in fact, in the Federal Reserve letter that they printed,

24:38

they released yesterday, they said Any other fees, any other money that we need is gonna come from a special assessment of other banks.

24:45

Oh, wow. So they had this money and they said, we're gonna make up to this much available

24:50

not just a silicon valley bank, but any bank that,

24:54

that needs a loan against their their other, like, their long term assets if they have the same kind of duration mismatch where they have -- Yeah. -- they own, like, they're good for the money. They just can't get it out today. It's in thirty years, they'll have enough money.

25:07

For sure. It's just that today, the the value of that mortgage that they owned, you know, had gone down thirty percent or whatever. Yeah. That's right. They said, we'll give you a loan against that asset.

25:17

In the meantime.

25:18

Who are the, who are the winners here?

25:22

To me, the winners are other community banks and other banks that have this problem. So

25:27

yesterday, that, the government announced this new brand new program on, like, a one sheet of paper like a Google doc. I saw it.

25:36

Yeah. Yeah. It's so funny that they,

25:38

release stuff in the way that they do.

25:41

They created a new program called the bank term funding pro prem.

25:44

And that's basically gonna prevent

25:47

the Silicon Valley bank problem that they had with the long duration bonds.

25:53

So, basically,

25:55

Silicon Valley Bank

25:57

had a one point eight billion dollar loss because they sold a bunch of ten year duration bonds

26:02

And, they have to sell them on for seventy cents on the dollar.

26:06

And what the fed announced is that If you're a bank and you've got a bunch of ten year paper that's worth seventy cents on the dollar,

26:16

you could get a loan from us. For all of it. You can get a hundred.

26:20

You can get dollar for dollar loan. So if you've got ninety billion dollars of ten year paper

26:27

that's now worth sixty billion dollars,

26:30

we will give you a loan for ninety billion dollars

26:33

so that you can

26:35

not have this problem. Yeah. You can basically not have liquidity problem. And then the other winners were, like, there's a lot of, like, startup banks, like, mercury. It seems like they were, like, crushing it

26:45

I think Brex was another one. Like, they're just killing it. Right? Well, I think that the best thing for them. So I think that the real winners is first republic because they would have been wiped out today probably. And many others like First Republic. So they got, you know, the bullet just whizzed past their ear.

27:00

And, you know, luckily, that was the last bullet. And now there's no more bullets coming today. And there's two thousand community bank in America. And so, like, all a bunch of those would have had a bank run

27:12

today or this week if the fed can do what they did. Mercury and a bunch of these other startup banks. Basically, when everybody needed to move out of Silicon Valley Bank, it's, like, who's the fastest? What's the next bank name I know that I can open up an account now?

27:25

And Mercury and others were were were beneficiaries of that. Now they got billions of dollars, billions and billions of dollars of inflows yesterday. Or, sorry, Friday.

27:35

Now

27:36

I think that a lot of that would have skipped town this week. So I think they would have been a middle man because who the hell is gonna keep their money in a startup bank,

27:46

when this is your fear. You're not gonna keep ten million dollars or twenty million dollars. You had to move it there just because you needed a quick safe haven, but you weren't gonna move in there. You were gonna still next week go to Chase or Wells Fargo or whatever and go put the bulk of the money there. So now I think they're, in much better shape because

28:05

instead of being a just a middle man, they might keep a lot more of that that depositor,

28:10

you know, those those deposit relationships now. And is it possible that other than the equity holders and the people directly impacted by this? That just like the average American might be impacted positively by this in the next six to twelve months because maybe the Fed won't be doing more rate

28:26

increases. So then, you know, maybe you can get a mortgage in for four and a half percent or four percent in six or twelve months because

28:33

the, you know, the government is like, oh, hey, we kind of, like, achieve our mission because these guys screwed up. Like inflation might not be as bad now because of of this big loss. Is that accurate or is that too much of a reach?

28:46

I personally think that's too much of a reach. I definitely see people saying that on Twitter and CNBC, but I think inflation

28:52

28:53

rampant and is has nothing to do with the Silicon Valley Bank problem. And

28:58

basically,

28:59

in two weeks, people will have forgotten

29:02

Silicon Valley Bank problem, and they'll have all the they have all their money as of today.

29:07

So, like, it's back to business as as usual, and business as usual still has massive inflation.

29:14

And the Fed is gonna continue to raise rates in my opinion.

29:17

I this showed me how naive I am because

29:21

I was under the impression that if I kept a bunch of cash in the bank, that was me doing the safe thing. I wasn't investing this money or trying to get yield on it. I was saying, look,

29:31

you know,

29:32

I just wanna keep this in the bank so that, you know, just in case. And the the two hundred fifty k FDIC thing was this, like, idea that existed. I had never heard it ever coming to play. Like, in two thousand eight, I was a sophomore in college. Like, I didn't care or know. I didn't have a bank count. You know, like, I didn't do anything at that time. Yeah. He thought Leeman Brothers was where you, like, buy khaki pants. Like, he thought it was a quality company.

29:55

Like, oh, you got that new pair of leibid?

29:57

Exactly. It was like, are they hosting Thursday this week? What's going on? So it's like, You know, this is kind of my first time for this coming into play. Did you, like because I was like, who the hell is gonna take? If you have five million dollars, are you really gonna go open up twenty bank accounts each with a two hundred fifty k limit. Like, that sounds so inconvenient in our wages. I think that's what a lot of people do. But they they have a lot of said, Giannis does this. Giannis, the Greek freak announced

30:22

that he has fifty bank accounts at different banks, each with up to two hundred and fifty thousand dollars. That's how he kinda secures against this. Well, I saw Jared Kushner when he, when Jared Kushner became whatever his role was in the government was. I forget what it was. But he, had a release, like, his his income. And I remember, or his his net worth. And I remember looking through it all, and he had dozens of bank accounts, and it just said two hundred fifty thousand dollars in each account. And I was like, Why?

30:48

And

30:49

Did you guys do this? I mean, this seems is is this normal? And I, you know, I'm just the only guy who didn't do this? I try not to go above too much above two hundred fifty thousand. But for my business, I did. But personally, no, I try not to go above two fifty. So you spread it across you know, how many accounts exactly then, Sam? What would that be?

31:08

Yeah. Give us a cap. This is our new way to trick people into telling us they're they're, like, liquid they're worth

31:14

you're an FDIC. Right. Right?

31:18

Yeah. I was surprised that Giannis only has fifty banks. I was like No. Because that story is from his rookie year. So he came over from Greece

31:26

where Greece was like having the banking crisis and -- Yeah. -- and so that was his rookie year that that his he he and his agent did that. Now he's worth like two hundred million dollars. There's no way he could be doing that at this point. He's got some other know, but rich people have this. Right? Like, if you're at JP Morgan

31:40

and you got twenty million plus, they'll do an auto, like,

31:44

sweep into a bunch of accounts for you, I think.

31:47

I'm not sure exactly how it works, but I'm pretty sure there are there are products that exist that will do this. They just seem meached to me and seemed like, I don't know, a tool for the paranoid. It didn't seem like a a thing that,

32:00

I needed to worry about personally.

32:02

Yeah. It's so funny because

32:04

my father, you know, immigrant to the US, always worried about the banking system and the US dollar is always like Let's go buy gold bars and bury them under the house,

32:16

just so that we know that the our money is secured.

32:19

And then he's also like, let's go open bank accounts in Swiss banks because those are the safe banks, and they're not gonna have this problem.

32:28

Because those also don't do fractional reserve. Right? Like a Swiss bank is, I think, one for one.

32:33

They don't they don't keep, you know, just a fraction of your cash in the What's an example of a Swiss bank? And how do you I mean, I've only seen, like, woeful Wall Street where they, like, go to Switzerland with, like, cash in hand. Is that not actually how you do that. I mean, how do you open a Swiss? I don't even know how you would open a Swiss account. You know, I think Credit Suisse is, actually a Swiss bank, but it also has a bunch of

32:55

was seen as as dangerous for a while.

32:57

I don't even know the name of a Swiss bank, but I bet you can just open a bank account online and wire the money without having to attach,

33:05

cash to Margot Robbie, and because that hurts us whatsoever. But that would be cool if you could.

33:11

I can't find this client info. Have you heard of HubSpot?

33:15

HubSpot is a CRM platform, so it shares its data across every application. Every team can stay aligned. No to sync spreadsheets or bluing databases.

33:24

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33:27

Alright. We I think we we did a good job covering the Silicon Valley Bank. But, Shirley, you actually had a few other things that I thought were interesting. One of them being the,

33:35

allbirds. Right? What a shit company, man? They are really it's not working out for them. Is it? Yeah. Allbirds

33:42

is,

33:43

in my opinion, the ugliest fucking shoe I've ever seen in my life. And I remember seeing these, like, five to seven years ago in Silicon Valley, all the venture westerners that I knew were wearing them around town. And I was like, you you are ugly. Your shoe is ugly. You're ugly. This sucks. This is not a good looking shoe.

34:04

And I've heard, I saw this tweet that I think is the best way to describe it.

34:10

Allbirds

34:11

socially acceptable sweat pants for your feet.

34:15

Yeah. I'm not a big fan of them either, but basically,

34:18

they've raised

34:19

two or three hundred million dollars in in funding. They've done three hundred million dollars in revenue. Market cap is,

34:26

down from four billion to two hundred million. Is that two hundred million right now? Yep. Yeah. Down ninety five percent from their IPO in November of twenty twenty one from four million to two hundred million. How much of the founders do you think How much do they own?

34:40

I didn't look at how much the founders own. I bet they owned a lot of it before,

34:45

when it went public. And I didn't look at, you know, kinda how much have they sold off, but I bet a decent amount. So what's gonna happen with that?

34:55

So I think that,

34:57

you know, the the problem that they've been having is that their revenue is shrinking,

35:02

and

35:03

their costs are really high. They've opened up a ton of stores, like fifty eight stores in the US and abroad.

35:09

And I think that store strategy isn't working because not enough people know what allbirds are and walk into the stores and want some.

35:19

So they've they decide they're gonna stop opening stores. They're only gonna open three more stores this year, and those are places where they've already signed leases. They're gonna stop any international growth by they're not gonna open any more international stores. They're gonna,

35:32

just do find distributors internationally to try to grow.

35:36

They're trying to contain costs by stop they're manufactured today in New Zealand. They're gonna stop manufacturing them in New Zealand and move it to one place in Vietnam.

35:46

So, you know, my sense of what's gonna happen to all birds is,

35:50

somebody were you gonna bring your own laces from now on, we're gonna,

35:55

like,

35:56

cut every corner here. There's like, you know, we don't have running water in the office today.

36:01

We're doing that every every other day. And I tell this thing is profitable.

36:05

Now you silly, what do you what do you think of this in terms of, like, DDC. So, like, I think people have basically I think DDC got hot. People started a bunch of brands. A bunch of investors came in and funded these companies like they were tech companies, but they tech companies, Casper,

36:20

Allbirds, and then some like Worby Parker and and others that they got that broke out.

36:25

And then

36:26

you know, so on one hand, if I if that's all I knew if I was just sitting from afar, I would have been like, this space doesn't make sense,

36:32

then, and now it's playing out where it's like, yeah, these companies are not profitable. They're not doing that well.

36:38

You know,

36:39

I think they're burning a hundred million dollars a year or something like that. Like, they're just they're very mature companies that are still losing a ton of money. And

36:47

I would have just my opinion would have just been that. But you and your brother,

36:51

like, your brother built native deodorant,

36:54

It was a profit, you know, basically raised almost no money.

36:57

What did he raise? Like, five hundred grand for that business? Is that is that all he ever raised? Five hundred thousand. Yep. Race five hundred thousand dollars.

37:03

Built it up basically by himself with, like, you know, a very, very small lean team, you know, packing deodorant, like, you know, at the kitchen at your kitchen table in your apartment,

37:12

and sold that thing for a hundred million dollars when it was highly profitable,

37:17

that whole way.

37:19

You know, then you have that model. And you've had a, you know, you you we don't talk too much about about your business, but you you've been involved in a very different style of D to C that is highly profitable, lean and mean raise zero capital or very minimal capital. And I feel like nobody even knows about those businesses. Those are, like, you know, under the radar. Everybody only hears about the big VC ones,

37:38

you know, like away luggage and stuff like that. What is what is your take? Are you sort of like

37:44

that other way is dumb, or are they actually just two different games and, you know, both

37:48

both are valid?

37:49

Yeah. I think they're two different games. The native playbook of Ray's little capital,

37:54

focus on profitability,

37:55

acquire customers,

37:57

so that your breakeven on the first purchase or if profitable on the first purchase,

38:02

and,

38:03

scale through

38:05

repeat purchases that are generating a ton of profit using that

38:09

to either reinvest in the business to launch new products or just take distributions.

38:15

So I think that's a a super valid playbook. And I think there is a valid

38:19

approach to the raise a bunch of venture capital and try to build,

38:25

a business at a much larger scale

38:27

Who who's doing that that you think that they have a good chat. Figs, maybe?

38:32

Yeah. Figs in my opinion is a great example because,

38:37

they're

38:38

like, one of the problems with All Birds is they're a fashion brand.

38:41

And at some point, the world turns against you and

38:45

like, I believe that allbirds are ugly. I think other people are gonna arrive at a similar conclusion at some point. And then allbirds is gonna have to find the next style

38:55

to get to that place,

38:57

to to kinda continue to succeed.

39:01

Figs is basically a uniform

39:03

So,

39:04

it doesn't need to

39:06

be better looking over time. Yeah. But that's a bull. I think you're wrong there. I think that I think that that strategy is not bad. Like, look at Louis Vuitton. You know, they've been around for three hundred years, and the and it's always been cool. I think that their execution, they just picked a lame thing. I don't think I don't think it's a bad strategy. I think they just it's a stupid shoe, or at least that's what that's what a lot of people think.

39:27

Yeah. I mean, Nike is a great example of a business that

39:30

has scaled to, you know, more than a a hundred billion market cap, I wanna say. And,

39:37

they're a fashion brand

39:39

that serves,

39:41

you know, the super high end as well as the low end.

39:45

So they they figured out how to do it. So I think there is a playbook to go raise venture money,

39:50

or private equity money and get to scale.

39:54

I just think a lot of the

39:56

the companies that have raised money have been undisciplined

40:00

They've hired too many people like Grove Calabrio.

40:04

What do they do?

40:06

Grove Calabrio is a San Francisco based startup that's ten years old. It's also publicly traded.

40:12

They started out being this marketplace of kinda natural products. So I

40:17

saw them as,

40:19

I so I would see ads for them saying get free missus Myers, kit.

40:24

And I'd click on those ads because I was, like, free stuff. Sign me up. And

40:30

they're basically trying to give you,

40:33

get you involved in a get you enrolled in a subscription

40:36

of buying a bunch of home products.

40:39

Got it. Okay.

40:40

Cool idea.

40:42

Cool idea.

40:43

Yeah. Great idea. And it went public through a stack, and it has the same problem as allbirds

40:49

and away luggage.

40:51

Although Way is private.

40:53

Grove Collaborative stock is down ninety six percent

40:56

and has a market cap of seventy million dollars. It's worth

41:00

you know, way less than the cash that they've raised.

41:02

That's crazy. Yeah. And the stock is sub one dollars. If the they have to do a reverse stock split to avoid being delisted.

41:10

And,

41:12

yeah, they basically have to fire a bunch of people

41:15

and,

41:17

stop spending as much money on marketing

41:21

so that they can be profitable

41:24

and have They basically have to accept declining revenue to get to profitability.

41:28

And, that's what Grove Calabrio just did in the third quarter of last year. It was their first profitable quarter ever.

41:34

So what companies do you like? You're saying all the companies you hate. On here, you have Wish. You have Grove. You've talked about Allbirds.

41:41

You don't like Box.

41:44

Which is like Costco online. Yeah. What do you like?

41:48

I think there's a bunch of companies that are

41:51

awesome businesses

41:52

that are worth less than they were in March of twenty twenty.

41:56

So they're trading it less than pre COVID valuations, and I love those companies. But, some of them are the ones you hear about all the time, which is, Facebook, Amazon. I think those are two great businesses.

42:07

And they're,

42:09

You and I were walking in in soho in New York and after some meetup. And I,

42:14

I I won't say the amount. You can say the amount if you want, but you said I just bought blank amount of stock in Squarespace.

42:21

And my jaw, like, kinda dropped. I was like, what?

42:24

Did you really? Why? And you're, like, told me how much you love that company, and it was a very large amount.

42:31

And so are you still at the Squarespace?

42:33

Yeah. I bought a million dollars of Squarespace stock. I still own it. I don't know if I made any money on it. At some point, it turned into, like, two hundred and fifty thousand dollars because, Squarespace stock went down.

42:45

So I'd lost seven hundred fifty thousand dollars, but I think it has since turned around.

42:50

You know, it's up fifteen percent year to date.

42:54

I think Squarespace is super undervalued

42:57

as a business.

42:58

But I'm not sure it's a great stock to buy.

43:03

Yeah. You have, like, a long history with squarespace. Let me ask you a different different question.

43:08

At one point, you tweeted out something like,

43:10

hey, if we, you know, if a guy happened to have fifty million liquid and wanted to double it,

43:16

yeah, what's your best idea? And you got, like, a hundred replies. I remember going through them and being pretty unimpressed with most of the ideas. It did seem like I I I thought, you know, you some some great stuff would come out of there. But I but maybe in something like this, a hundred people reply, and it's really three interesting ideas. Did you get anything interesting? Or what did people say when you tweeted that out? And did you get any interesting ideas on what to do with your money from that?

43:40

I got one interesting idea, which was,

43:43

try to go buy

43:44

all of Wish or, you know, fifty one percent of Wish.

43:49

Wish has seven hundred million dollars in cash and its market cap is two hundred and eighty six million. So it's trading at less than cash.

43:57

So, you know, buy enough stock that you can,

44:01

convince management

44:02

to distribute the stock distribute the cash and shut the company down.

44:08

Right. And can you and and I remember seeing that,

44:11

why doesn't that happen in practice Right? Companies got seven hundred million in cash. It's trading at three hundred million.

44:17

Why doesn't, you know, it seems like the the the the, like, the video game move is You buy the three hundred million dollar company. You shut it down tomorrow, so it stops burning cash. And you distribute seven hundred million out, you profited four hundred million. Why doesn't that happen in practice, or does it happen in practice? So there are people like Bill Ackman, Carl icons, that are activist investors that do this kind of thing. You know, they do it with Apple, even,

44:40

Netflix, like Carl icon,

44:43

will basically go by five percent of a company and then

44:47

call up management and say, hey, we want you to do x, y, and z. And if you don't, we're gonna just keep being a thorn in your side.

44:56

And so and we're gonna try to remove your board directors in put our board directors in.

45:02

We're gonna threaten to fire US CEO. They do a bunch of this kind of stuff.

45:06

And

45:07

Generally, what will happen is

45:09

the CEOs will just listen to Carl icon and do what he says or do something else that makes their stock price go up ten, fifteen, twenty percent,

45:19

that,

45:20

and then Carl icon will sell us position, make billions of dollars, and be like, great. That was fun.

45:28

With something like Wish,

45:31

it's

45:32

if you tried to go buy up Wish Stock,

45:35

It's so thinly traded that you would basically drive the price up and you would never be able to buy fifty one percent

45:42

You'd have to you'd have to pay, you know, hunt

45:45

seven hundred million eight hundred million dollar market cap to basically own fifty one percent of it. Dude, it seems like most of the companies that you've mentioned or a lot many of the companies you mentioned went public via Slack. Has there been one spec that has worked out?

46:01

That is a great question. I have no idea.

46:03

And for the, like, I remember Shamoff was all about Spat. I don't pay into the public market. So I'm a little I'm definitely out of my depth here, but I I know enough to know that he was big on specs.

46:14

What are these guys? What's their reputation right now? Which is

46:17

they got and did they make money? They made money at going up and making it happen. And so now are they just like,

46:24

oh, fuck y'all.

46:25

Like, you know what I mean? Like, are they just like,

46:28

they don't care?

46:29

Yeah. The way the specs work is if you're the sponsor, which is what Jamath was in a bunch of these, like he took Opendoor public,

46:37

thruceback,

46:38

so if I publish their spec, you end up getting a percentage of the company without taking any real risk.

46:46

So Chamov has made out like a Bandit and I think he's done five to ten spacks. He's made money in each one of those spacks. And I think every How much? How much?

46:57

More than a billion dollars across all of those for sure.

47:00

Wow.

47:01

And so how how does the math work? So I remember

47:04

I think I had heard one point. You have to put up three percent of the capital to own, but you own twenty percent of the company. When it goes public. Is that right, or did I did misunderstand?

47:15

Yeah. I don't remember the math, but it's something along those lines, which is for taking the company public, you get,

47:22

it's probably not seventeen percent, but you get something like five percent or ten percent.

47:27

47:28

the company's stock for basically taking it public. And you don't take any risk. You basically raise money from a bunch of

47:36

institutions

47:38

You hold that money for up to eighteen months. You have eighteen months to find a target that you wanna take public.

47:45

You find a target, you make a deal with them to take them public,

47:49

all those investors that have gave you money eighteen months ago,

47:54

they can either keep their money in the deal or,

47:58

sell it and get their ten dollars back.

48:03

And so a bunch of people will sell because they're like, oh, this isn't gonna work. So I wanna sell my stock. So oftentimes,

48:11

the spec, which is publicly traded

48:13

we'll be trading at ten dollars, and then it'll get and the target will get announced. We're gonna,

48:19

take,

48:20

Grove Collaborative public. And then the stock will drop immediately when,

48:25

the target gets announced

48:26

because everyone is selling and is like, this isn't gonna

48:30

this isn't a good target. What's his reputation then? I mean, is or is he just like so, I mean, he so rich didn't give a fuck about his reputation? Well, did you did you guys save the thing that's on this dock, which was, the reverse Robinhood seal from the poor and give to make himself rich.

48:44

No. Not yet. I was waiting for you because I know I don't I mean, I don't know enough to know about him and, like, his whole stick, but Sean, you have strong opinion about it?

48:54

I I mean, I wanna hear Zoe's opinion, but I I don't think I have a that strong opinion.

48:58

Yeah. I'm so You give him a hard time, dude. You you give him a really hard time.

49:04

You know, I think Chamath is super smart, super successful. I love his

49:08

you know, those cashmere sweaters that he wears on the Olin podcast. They looked dope. I gotta buy me some.

49:16

But what he's done with the specs is literally the opposite Robinhood he's stolen from the poor and given to himself.

49:24

And,

49:25

I'm surprised that his reputation is not tarnished in the public markets or in Well, is n c n p c. Let me ask you a question.

49:33

Is it that he ended up,

49:35

you know,

49:36

dumping on retail because

49:38

it was always design it was kind of designed that way. It was gonna be that way, or Oh, well, the market's just turned and everything's down. You know? Like, I I don't fault

49:48

Jeff Bezos because my Amazon stock down, you know, like, that's out of their control. It's a good business

49:53

blah blah blah versus

49:55

no. The way these were set up, it was a bit of a house of cards, you know,

49:59

He was gonna make money. And at some point, this was gonna happen because these fundamentally didn't make sense. Which one which one is it more? Yeah. You're asking is the what what's the intention? If you think do you think he knew and that the the intention was, yeah, this is probably how it's gonna play out, but let's just see.

50:15

To me, these are pump and dump schemes,

50:18

like in Wolf of Wall Street.

50:20

If the company is sound and gonna go public. Generally, the companies will go public on their own.

50:28

Using the traditional IPO path or a direct listing.

50:32

You know, that's what Squarespace,

50:34

Spotify, Slack,

50:35

all these companies that went public during the same era that

50:39

he was doing these spacs.

50:40

The companies that go public through spacs

50:43

are trying to rush to get public,

50:45

and it's not the Airbnb's of the world. It's the growth collaboratives

50:50

of the world and so fives of the world that are doing it. Yeah. Businesses that that are not as sound. Now what they would say was, like, the very first one I think he did was Virgin, and it was, look, this is a company that you'd have to be a real, like, you know, tech investor to understand. It's got a really long term,

51:07

huge vision.

51:09

And know, they needed somebody who believed and they didn't wanna, you know, take their chances with the with the short term minded stock, you know,

51:17

you know, IPM stock market. So some version of that was, like, you had to be a true believer in technology innovation, and you had to be smart enough to understand

51:26

how big this business could be. That's why I'm taking it public. And so it kinda made sense on the first one. And then pretty soon, it was, like, just put lipstick on the pig and selling And, that's how it felt to me at least. And so I'm kind of of the same opinion, which is I think, obviously, he's smart and, obviously, he's he's successful. I don't think those are arguable

51:44

I think that,

51:46

he's also

51:48

very pompous. You know, I don't love his personality. I also think that what he did with the specs. I think, you know,

51:54

seems to be more, like, like, more like the puppend up or, putting lipstick on a pig. Like, you know, these weren't great businesses.

52:01

It was what can I do to just, you know,

52:05

to to get something to to cash here?

52:09

Because he, again, he had a free role in a lot of these. Exactly. And so, you know, and I and I and I find him to be, you know, somewhat disingenuous when he when he talks. Like, you know, I remember before he took metro mile public. It was,

52:21

Buffett had GEICO.

52:23

I have Metro mile. And here's why it's better. Blah blah blah. Pass forward, like, less than a year at Metro Mile is, you know, sold for thirty cents on the dollar

52:33

to lemonade,

52:34

because

52:35

it was

52:36

whatever, not in good shape at that time.

52:39

And then, you know, no mention of it ever again. Yeah. It's like, to the next.

52:44

Yeah. The the thing, you know, there's a bunch of people that were,

52:47

pumping Bitcoin or other crypto products. And when they tweet, there's a ton of people that reply their tweets saying,

52:55

fuck you. I lost my life savings because of your, because I took your financial advice.

53:00

When Chamath tweets, I looked to see what they're responses are. There aren't many people that are like, hey, you screwed,

53:07

all the, you know, the public, moms, and single moms, and, families,

53:13

on,

53:15

on these specs. Dude, I was with your brother one time, Shirley, and we were hanging out and someone was talking about a get rich quick scheme and how, like,

53:24

he I think I someone they were, like, saying, like, you know, no no one likes a great get rich quick scheme, and your brother goes, whoa, whoa, whoa, whoa, whoa, whoa, whoa, whoa, whoa, whoa, whoa. Getting rich quick is the best way to get rich.

53:34

And,

53:35

and your brother's pretty funny because sometimes they'll say funny stuff, but it's, like, Oh, yeah. You're right. It is, like, that's way better. And Sean was talking about Shamath in Virgin. He's like, you know, we don't care about the short term. It's it's for the long term. And a lot of times when I when I read about this, these, public markets and they talk about long term, I'm like,

53:53

yeah, I think you're I I I kinda care about the short term. I definitely care about the short term a bit too.

53:59

So and and they, like, use that word long term to,

54:03

disguise, like,

54:05

bad shit. Like, you know, it's about the long term. It's not about the short term. Just hold. It's the long term. I'm like, I don't know. Getting rich quick and in a short amount of time, that's that sounds nice too.

54:15

I would like it not to fail in the short term. That would be nice. There there's this Warren Buffett quote where, somebody is like some reporters like, hey, what you talk about is pretty,

54:26

simple

54:27

And sounds like anyone can do it. Why aren't more people applying the Warren Buffett strategy and and becoming billionaires?

54:34

And his response was everyone wants to get rich quickly.

54:38

I'm about getting rich slowly and nobody has the patience to do it. Yeah. But here's my issue with when he talks about that, he keeps talking about the long term and he's ninety five.

54:48

It's like, bro, there there there ain't a long term. Have some fun.

54:53

Yeah. Yeah. That's You don't have long term anymore. Stop talking about long term. Maybe

54:58

long term stops in your sixty. It's, like, enjoy it. Yeah. I was talking to these,

55:03

twenty five year olds, and I was, like,

55:06

two million dollars when you're twenty five is more valuable than twenty million dollars when you're forty five.

55:13

Because you can basically do awesome stuff at twenty five that you're not gonna be able to do at forty five. Yeah, dude. I agree. I agree.

55:21

Sean, what are you gonna say? I was gonna say, you had shared this blog post about a good the a good quest, which is, I think, a guy from founder's fund. I think wrote it a while a while back. I remember reading at me, like, this is actually pretty interesting.

55:38

It seemed like something,

55:40

that maybe maybe resonated with you. Can you explain the idea of a good quest? And then I wanna hear you guys, talk about it.

55:47

Yeah. It's kinda like the this guy basically was like,

55:51

who who was

55:53

some guy found responder. I don't know. Terry Stevens, I think.

55:56

He was basically like a bunch of the brightest minds in Silicon Valley and in America and in the world

56:04

are,

56:05

focused

56:06

56:07

bad quests.

56:08

So kind of in a game, you can,

56:11

in the game of life, you're either focused on something that is

56:14

noble and honorable and makes the world a better place,

56:18

or in his language, you're focused on,

56:22

short term things that are gonna make you rich quickly,

56:26

even if they're

56:28

incremental improvements,

56:29

so a slightly better mouse trap.

56:32

And he basically is like, there is no,

56:37

we're wasting society and,

56:40

people are wasting their energy. Brilliant people are wasting their brilliance on dumb problems.

56:47

And we should be trying to solve the greatest problems that we have in

56:52

our lifetimes,

56:53

and that is the noble work and everything else is bullshit.

56:57

And he points out he's like, most

57:00

ab I don't know, man, but this guy I I look, but to our pro, his former job, he he he used to work at Mike's hard lemonade. I don't know if press this guy.

57:10

Did he relate? That's how he knows, dude. That's the that's the experience.

57:15

He did the total opposite. He works at Adrill,

57:18

a defense company.

57:21

But, like, oh, no, man. This guy worked for nerf Like

57:29

sorry. Go ahead. I'm an idiot.

57:32

Yeah. He's a cofounder of Andrew.

57:35

So he he points out this thing, which is like, you know, the average person is not capable of

57:41

going on one of these good quests. So if you're brilliant, if you really are in, like, kinda like top one one percent of talent,

57:47

and motivation and ability,

57:49

it's kinda like your moral imperative. Like, you you kinda gotta be the ones doing this because who else if not you, then who.

57:56

It is sort of the the mindset that he has.

57:58

And so I would say that, like,

58:01

you know,

58:02

I think you're awesome, but you

58:04

you yourself are, like, I wanna go on a good quest. You've been telling me this for, like, five years. Yes. And you're like, I spent my whole life building these, like,

58:11

mouse traps that make a bunch of money because I just see them. I just see them. They're obvious as widget. And I could sell this widget and make a bunch of money.

58:19

And you've done that. Are you did this blog post tip you over the edge to do a good quest, or did it have the opposite effect and turn you off and say, actually,

58:27

you know, f this guy and f this whole, like, noble quest bullshit.

58:32

Maybe next week.

58:35

You know, I went to this, as the angel event in San Francisco last week,

58:40

and I'd been to San Francisco in a really long time because I was having this, like, existential question

58:46

myself

58:47

of, should I be going on good and hard quest versus

58:51

easy quests?

58:54

And, you know, easy quests are great because you have a great quality of life. Like, you don't work that hard.

59:00

You can go play tennis in the middle of the day or work out at noon, like my brother every day at noon will go work out for two hours in the middle of the day.

59:11

You could have a sick pad in in in New York and maybe a place in LA and and travel all over the place. I mean, you guys have a pretty nice life. Yeah. Yeah. Like, he's gonna go to Japan,

59:21

next week,

59:23

just for fun to look at, chair go to the Cherry Blossom Festival Festival.

59:28

So, you know, he's,

59:31

it's very easy to be seduced by, like, quality of life and easy quests in my I like how you're using your brother here instead of yourself. You do all the same things. You're just, like, yeah, using him as, like, this guy.

59:43

Way easier to use him, than kinda look at the mirror, look in the mirror more closely.

59:49

And so, you know, I went to that event, and, Sam Altman spoke, and he was basically like

59:56

everyone thinks open AI is an overnight success.

59:59

I've been working on this for seven years. God damn it. And so have all of these other AI

01:00:05

scientists and AI engineers,

01:00:08

and it took us seven years to make chat GPT what it is today. That's not that long.

01:00:13

It's not that long, but it's it's a really long time.

01:00:17

Like, basically, they didn't launch a product for maybe five years or something along those lines.

01:00:22

And, you know, now He he had every quest at his disposal. He could have just simply sat back and an angel invested and and done

01:00:29

you know,

01:00:30

become, you know, as proficient at pickleball as one can be. Right? Like, he had he was running YC at the time, and he left

01:00:38

Probably, you know, the the best job in Silicon Valley, which is running YC.

01:00:43

Probably the highest paid, lowest effort job you could have. Like, it's up to you, how hard you wanna work there. But And

01:00:50

exposure to new people,

01:00:52

new entrepreneur, the first two I

01:00:55

You get to do all the fun shit. You get to see all the smartest people. You get to be the king maker.

01:01:00

You know, you have the infinite money glitch. If you're her if you're doing And everyone in South Honeywell is coming to kiss your ring. Hey, quick to go do this nonprofit AI thing. And I remember at the time remember literally at the time, this was like, what did he do this? Like, twenty sixteen or twenty twenty nineteen or something like that? He he left he had been funding it as his own, like, you know,

01:01:17

personal passion project basically up up till then, then he left YC to do that. And I remember thinking at the time, I should probably just go fall to Sam Altman. Like, if he is gonna do this with his time, there's really no better signal in the world that that's this is like the right place to be. Unfortunately, I didn't act on that, but I remember having that thought back in, you know, twenty twenty nineteen.

01:01:36

Yeah. It's it's funny to me that you say that, like, seven years is not a long time.

01:01:41

Because, yeah, I guess in a sense, it's not, but,

01:01:45

seven years at the same time seems like infinity,

01:01:50

when you're working on,

01:01:52

a startup and you're there's no immediate gratification. Like

01:01:57

I can't think of the last time I was able to work on something for seven years without some form of immediate education. I mean, there was. There was there was milestones.

01:02:06

Look at this guy, the did did Tracy Stevens who started Andrew, like, funding rounds, winning certain contracts,

01:02:12

type of press. I mean, that's like pretty cool. You know, there you got you can get your dopamine you can get your dopamine hit. But what are you gonna do? Are you gonna quit doing this small boy shit that makes a lot you're gonna start doing something, like, legitimate that, like, actually matches your IQ.

01:02:24

Yeah. I wanna try and do a hard quest.

01:02:27

But what what's what's the what are the handful of ideas or industries that tickle your fancy?

01:02:34

Think doing something in health care would be really amazing and transformative.

01:02:40

I I think health care in America is so bad.

01:02:44

It's shocking to me. Like,

01:02:46

you know, my mom had a bunch of medical problems last year and just getting dot access to doctors.

01:02:52

Is insane.

01:02:54

Like, if you wanna get see a specialist, you have to wait sixty or ninety days to go see a a specialist

01:03:00

specialized doctor

01:03:02

And,

01:03:03

a friend of mine who's a doctor was like, here's how you solve this. Here's the concierge,

01:03:08

medicine practice.

01:03:10

You pay them thirty thousand dollars a year. Yeah. I had one. It was twenty five grand a year. Yeah. You pay them twenty five grand thirty grand a year, whatever it is. And all they do is they are able to get you appointments faster

01:03:22

because they're able to text the doctors because they know the doctors personally because they used to work with them. And say, hey, can you do me a favor and see my guy next week instead of three months from now?

01:03:33

It's kinda like gangster a little bit. Like, it's like,

01:03:36

it's like the doctors are it's run by the streets. You know what I mean?

01:03:41

It's

01:03:42

it is pretty weird. It's not cool. Yeah. It's not cool. It's broken. And then the other really fucked up thing is,

01:03:49

if you have medical problem and

01:03:51

a neurologist will be like, this is a cardi,

01:03:54

cardiologist problem, and the cardiologist will be like, this is a neurologist problem. And the two of them are like Superman and Clark Kent. Is they're never in the same room at the same fucking time.

01:04:04

So you can actually get real information about what

01:04:08

problem is, and they never talk to each other. They talk to each other through, like, handwritten notes,

01:04:13

in the dark of night.

01:04:15

And so you have It doesn't work. Do you have a tan idea on this or you're just like health care. It's like health care is just too big of a word. Doesn't mean anything.

01:04:23

Yeah. It is too big of a word. Idea that I've been thinking around with is,

01:04:27

like, remote monitoring

01:04:29

of patients.

01:04:30

So, you know, my mom lives in Dallas,

01:04:34

sometimes they are sometimes traveling.

01:04:36

And,

01:04:38

I wanna have some device that she has that is like monitoring

01:04:43

her blood pressure,

01:04:45

her blood sugar,

01:04:47

her heart rate,

01:04:49

and, reporting that to me and to all these other doctors in,

01:04:53

you know, real time so that if there's a problem, you know it faster.

01:04:59

And so that you can go track this stuff.

01:05:01

Right now when you go to the doctor

01:05:04

and if you have blood sugar problems or

01:05:08

high blood pressure problems. They're like, what was your blood pressure last week versus what is it right now?

01:05:13

What was your blood sugar last week versus what it is right now that we It's always reported

01:05:17

self reporting is always wrong. Yeah. It's always wrong. Yeah. It's self reported and,

01:05:22

it's just so broken.

01:05:24

And I think being able to track this stuff in a more automated seamless way with seamless way. Like, the magic device?

01:05:32

Yeah. Like, I got a whoop and

01:05:34

you know, that's doing some extra tracking. But, yeah, some kind of embedded device that's like

01:05:40

continuous low glucose monitor

01:05:42

plus,

01:05:43

some way to measure your blood pressure and, kinda keep in one one place.

01:05:49

The other thing that I think is a really interesting idea is that I went to Georgia attack in two thousand three.

01:05:55

And at the time, they were working on building a smart home. And one of the ideas they had for a smart home was a smart toilet.

01:06:02

So imagine when you're using the toilet,

01:06:05

every time you use the toilet, it texts you and says,

01:06:08

dude,

01:06:09

you're eating too many French fries.

01:06:12

Right. Stop. Stool sample, basically.

01:06:14

Yeah. Stool and urine sample, and, are measuring real time. What's up?

01:06:19

Wasn't there a company that was doing that in San Francisco that was totally a fraud? Was it you, biome? Is that what they're doing? Wasn't a smart toilet though. I think you had to send it to them.

01:06:29

Okay. Wow. Fuck that. That's that's kinda weird. Right? I can't even how do you get a well, I don't know. But, no. Those are interesting. I've seen people tinkering around with this idea. I do think it's very fascinating. I have no idea how you do it. What are you shitting a net and it, like, takes a little strain?

01:06:44

I don't know. I don't know what the mechanics are, but I think it's an interesting idea that, like Let's put in let me ask you a different way. I think you have a very good way of thinking about

01:06:54

problems. And I what I mean by that is,

01:07:00

every time I've come to you with a idea, like two things happen that that are different with you than with most people. One is you're like,

01:07:08

I'm not you don't sit there and ask, like,

01:07:11

Is this feasible? How would we do it? You know, like, that question comes late later. It's, like, first let me decide on

01:07:18

like, the big idea.

01:07:19

And, you know, how how could, you know, would this be amazing if it happened? Okay. Then I'll go find a way to make it happen. Like, you know, your brother, when he started the deodorant company, I remember somebody was like, Luis, do do you know anything about deodorant? He's like, no, I know nothing about deodorant, but in six months, I don't know everything there is to know about deodorant, and sure enough, you know, a a very big difference. So, like, the kinda, like, not being limited by what I know

01:07:41

today is, like, you know, I I would say one factor. And the other is, like,

01:07:47

You're not one. I at least from what I could tell, like, you don't really

01:07:52

consider, like, plan bs or, like,

01:07:54

if this fails or why would this fail?

01:07:58

You I remember when we started a thing together, you were like, yeah. I just I was trying to do that and you were like, I don't know, man. I don't really think that way. I just sort of,

01:08:06

I decide to win, and then I do it, and I just plan to win, and I don't really focus on the rest. Am I Am I correctly understanding that or no?

01:08:16

Yeah. I think I think starting with,

01:08:20

starting with is if

01:08:22

can this work and,

01:08:25

or, like, you know, what are so many people when they're evaluating an idea,

01:08:29

immediately are, like, This is not gonna work for reason x, y, and z. Actually, my brother is like this.

01:08:35

And so I hate talking to him about new ideas because he's always just, like, shitting on them. I was just kind of a skeptic by nature.

01:08:44

So I definitely start with the, if this works,

01:08:47

what does the world look like and,

01:08:51

can this be a big deal if it actually works?

01:08:54

So when I think about the smart toilet, I'm like, cool.

01:08:58

Right now, to figure out if you have colon cancer, they do a you have to poop in an envelope and send it to a lab.

01:09:05

What happens if this is automated?

01:09:10

Right now,

01:09:13

like, there's all these medical things that I should probably be doing differently. I just have no idea what they are. And even if I knew them, I didn't I don't have a good way to, like, have somebody enforce it in a automated way.

01:09:27

If that happened across America, we could solve diabetes

01:09:32

because oftentimes diabetes is a disease that you choose instead of a disease that

01:09:38

you're forced with.

01:09:41

So, yeah, definitely start with the

01:09:43

if this works, is it gonna be a big deal?

01:09:46

And then,

01:09:49

then I'm kinda like, cool. Could I get customers for this? And if I could, then I'm kinda like, that's all you really need to start. You don't really need an any more information about, like,

01:10:00

how to build a toilet or

01:10:04

any of the science. Like, I think you can figure that out later.

01:10:07

But can this be big? Would this be big if it worked? And can I get customers?

01:10:12

Yeah. Yeah.

01:10:14

Those are the two. And often what, you know, one thing that happens, I look at a lot of startup, like, investment deals with Suli, and,

01:10:21

it'll be, like, Here's these great people. There's this great technology, great product, blah blah blah. And he'll just be like, cool. So how are you gonna get customers? And, like, you you think, like,

01:10:30

This, like, appears to be like a baffling question to so many founders or they'll say something, and he'll be like,

01:10:36

okay. So what do you mean? What do you mean? Like, what what do you where are you gonna go or, like, you know, have you done that?

01:10:43

Tell me about three times in your life that you've done that. And, and then he's sort of like, you know, I'm in or out based on their ability to get customers.

01:10:52

And I think It's like the I told you that my meme of the year is that Midwitt meme. It's like the genius and the idiot, the way they think is aligned, and the analyzer who's taking into account seventy five variables

01:11:05

actually ends up with the wrong answer more often than not. And, like, this idea of, like,

01:11:10

Can it be big, you know, if it worked, would it be big, and can I get customers? Is the sort of the midwitt meme, like, you know, in real life?

01:11:17

Yeah. I don't think he needs to know more than that. In fact,

01:11:20

Sam and I were on this call where this guy was pitching. I think it's the company that's called Firefly. It was pitching.

01:11:28

Ads on top of Uber's and taxi cabs in,

01:11:32

like, this physical device that was on top of the And they're they're around now, but I think at the time, he wanted a hundred million dollar or maybe sixty million dollar valuation.

01:11:41

And, it was crazy. I remember being off that call, and I was like,

01:11:45

Yeah. Sam messaged me and was like, this is bananas. Can you believe this guy,

01:11:49

this guy's valuation and the audacity?

01:11:52

And he was, I think at the time losing money,

01:11:56

on each individual device

01:11:58

for years.

01:12:02

So, yeah, there are there are often times where people

01:12:05

I I'm shocked by how many people are, like, cool. I've figured out what the product is, but I have no idea how to get customers.

01:12:10

I have no idea what the economics of that look like, and that's where companies go to die.

01:12:15

Like, how that company end up, by the way, did it your It still exists, but I have no idea.

01:12:21

Got it.

01:12:22

I'm drinking the of water this water here.

01:12:25

This is a twenty five dollar bottle of water because it's like pure water that's been filtered.

01:12:32

It I'm in LA right now. It turns out that If you drink tap water in LA supposedly, according to this guy, it has pharmaceuticals

01:12:40

in the water. What's that? Her irwan or something? Yeah. I think this is from Erwan.

01:12:45

And,

01:12:48

this water is basically,

01:12:50

pure

01:12:51

in a way that, like, you can't get water anywhere else these days.

01:12:55

And so it costs twenty five dollars a bottle. This is insane. And it tastes just like water.

01:13:01

And your point is And so so? It's a yeah. So, you know, super interesting idea,

01:13:07

I I didn't talk to this guy or anything, but,

01:13:10

I wonder what their distribution strategy is,

01:13:13

because I think putting twenty five dollar water Orwan or Whole Foods is like an inadequate distribution strategy to get to a meaningful scale for this. Well, I'll give you the counter example. I was doing some research on the milk boys.

01:13:26

Who and I won't do the full thing about the Nobel Boys and their kind of business empire, but one thing that stood out was I was watching this clip and it was John Shahidi who you guys might know because he's like, kinda came he was, like, in Silicon Valley then he transitioned into, like, Hollywood influencers stuff when he had his, like, mobile app shots get popular from, like, a bunch of Einstein stars and Is John their manager? He's now their manager. So, like, shots didn't work out. He didn't build the next Snapchat.

01:13:51

Even though he had every influencer and Justin Bieber and Floyd Mayweather and, like, all these people using it and investing in him, but he was like, cool. I can help these influencers out. Started managing influencers. And now he just is the manager of the Nokia Boys, and they were like, so they're there's hard seltzer brand, happy dad, which is basically, like, it looks literally like a Bud Light. Like, just like the it looks like the right product.

01:14:14

It's towards the right market.

01:14:15

And,

01:14:17

they value the company, I think, at two hundred fifty million dollars right now. They're doing, like,

01:14:21

I forgot how much, exactly. I'll pull it up.

01:14:24

A hundred million in revenue. Yeah. It's close to a hundred million in revenue. So somewhere between fifteen, a hundred million in revenue. So the brand is doing really well, and it's very young. It's like it's like a very new

01:14:34

brand.

01:14:35

But,

01:14:37

they were like, oh, so for happy to add, like, you know, what's what's the next product? Out with a new flavor or like a hard alcohol. Like, what what do you get to do? Because,

01:14:45

no, we have basically foot sole. We've done all the hard work to get for soldiers to get into gas stations, seven elevens,

01:14:52

and whatever. And so rather than compete with ourselves and, like, the fiercest competition in the drink market in those. We just looked around the store. We just sent people into the stores, that were, like, doing these, like, gas station sales for us. And they looked around and were like, what's the easiest category we can win? And they're like, so we're doing,

01:15:11

beef jerky. They're like, beef jerky is, like, a really stale category. We already have this distribution

01:15:17

channel into these, gas stations and some in convenience stores, like hundreds, if not thousands of these stores across the country,

01:15:24

that is the edge. All we have to do is work backwards from that. Like, we have the we have the front end sales Now we just need to figure out the back end product that should go into that into that sales channel. And when I hear that, I'm like, the Mel Boys run a more sophisticated business operation than, like, ninety five percent of Silicon Valley in just that one way of thinking.

01:15:43

Yeah. It's amazing.

01:15:44

Yeah, there's this Justin con con quote,

01:15:47

first time founders are obsessed with products. Second time founders are obsessed with distribution.

01:15:52

Now I think there's this, concept of,

01:15:56

I just focus on distribution. The product comes after I have distribution.

01:16:01

Yeah. That's what, like, what we did with the audience. Right? It's like, cool. I'm gonna build up a a big podcast. We need to sort of intentionally go about it this way. We just wanted to do a podcast. But once you realize, oh, cool. I could just build up a huge audience.

01:16:12

I can come up with great products after.

01:16:15

I don't even need to, like, know what product it would be going in.

01:16:19

Yeah. I didn't understand that with the hustle. I was like, why are you guys investing? And they're like, because building an audience is really hard. And I was like, that's not that hard. I just Do this this this Peepot poop? And you got it. And then I kinda later on, I realized that when to build an audience that's engaged, it's kinda there's a little formulaic, but it's also a lot of luck. Kinda catching lightning in a bottle where and then once you have it, it's,

01:16:40

very, very, very, very valuable. Now that I don't have it anymore, I'm like, I get it. That was hard.

01:16:46

Yeah. It's amazing to see people all around,

01:16:48

the world doing this now in all these verticals. Like, you know, Doug demuro,

01:16:52

did this, then got an audience then started cars and bids. Dude, I was early on that, man. Sean, I was telling you, cut, Doug, tomorrow, that that cars and business is gonna be big. Now his competitor was just New York Times last week for selling a billion dollars with the cars. Congrats on, it's investing on that when you called it.

01:17:09

Yeah.

01:17:10

Yeah. About that. Yeah. Did you try to invest in Doug Ramirez thing?

01:17:15

Maybe, like, a DM on Twitter was about the extent of it. But all so no. It was most I just it was I talked to talk. I didn't walk the walk. And also, I didn't have a lot of money at the time. I think he it's it's about four years old, but no. I I I talked to talk. That's about all I did. It's also amazing because, these guys will,

01:17:32

are often bootstrap, right, because they basically start with no audience. They just start making an audience And then, once they have an audience, they're generating so much profit from the audience or YouTube videos or whatever.

01:17:44

So they don't even need outside capital. So I think even if he chased him down, he might have been like, I'm already making money. I don't need to raise money.

01:17:52

So it just turns a lot of Silicon Valley stuff upside down. Like, you know, distribution

01:17:57

first,

01:17:58

that generates profit, then use that profit to, make product. Suly, did you look at the feedback from your last episode? People loved you. They like your voice. They say that you're calming, and I agree. Right. Alright. I,

01:18:11

I only listen to feedback that, like, Sean or Ben Levy texted me. You had very positive feedback. People liked you. They said that you're calming, that they would do anything that you'd say, things like that. Very It got a little weird.

01:18:25

Yeah. Thanks for doing this. Thanks for doing this. Hopefully,

01:18:29

people enjoyed the,

01:18:30

Silicon Valley Bank breakdown on a few other things. And, if you made it this far, we're doing a meetup actually, Sean, tomorrow. You're not gonna make it. We had We have it it, like, sold out, like, right away, five hundred people, but, we'll be doing another one April

01:18:44

twenty eighth ish, and we'll announce that more info on that soon. Yeah. I got one quick thing I wanna plug, which is,

01:18:50

you know, Sean has this guy who's his right hand guy who helps him on all these different projects.

01:18:56

I wanna find a right hand guy to, help me with a bunch of projects. So, like, source and diligence investments,

01:19:05

research random business ideas. I have,

01:19:08

come work for me full time for the next five or ten years. And, let's go do something amazing. And what do they find you?

01:19:15

You can find me on Twitter. DME.

01:19:18

Alright. And is your hand what's your handle? So it's s u l I? No. It's my full name s u l e m a n a l I.

01:19:26

Alright.

01:19:27

That's good. You're one of the very few people that has taken advantage of this to actually promote something. You did it at the end. You could have done it in the beginning, but that's alright. Fuck it. Only the strong made it here. That's he filtered about. He filtered out the week The weak people. Alright. We're out of here. Best to pop. Cool.

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