10 Startups w/ Stock Grants That’ll Make You A Millionaire | Sara’s List 2024
Sarah's List: Path to wealth, no insane risk. - September 13, 2024 (7 months ago) • 01:19:05
Transcript:
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Shaan Puri | Alright, today is everybody's favorite episode. It is the **Sarah's List** episode!
So, we're talking about **10 companies** that you can become wealthy with without having started it, invested in it, or joined early. It's called **Sarah's List**, and I have a little presentation for you.
If you're on audio, get over to YouTube right now because I have slides that are going to be fun. So, it's called **Sarah's List**. This is Sam's wife, Sarah.
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Sam Parr | She is hilarious.
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Shaan Puri | She is on the cover of *My First Million*, and the reason why is because she has an unlikely story—a story that I hadn't really heard before. When I heard it for the first time, it kind of shocked me.
At the time, she was about 30 years old and a self-made millionaire. But she didn't start a company. She wasn't, you know, killing herself working 100 hours a week like we were. She wasn't paying herself scraps; she was getting paid a nice salary with nice benefits. She worked at a great company that had a good culture.
She didn't have to make risky angel investments and get lucky. She was not a high-profile executive that just got, you know, some huge pay package. She wasn't lucky like the Facebook graffiti guy who just got a bunch of stock from Facebook and made $70,000,000.
So, her story was almost incredibly boring. It was incredibly simple, and I just couldn't believe it. I was like, "I'm trying so hard to make a million dollars here. That was such a better path."
To recap: she is a self-made billionaire who didn't have to start a business, didn't have to do risky angel investing, wasn't a high-profile executive, and wasn't the graffiti guy. What she did was join Airbnb.
If you look at this chart, this is Airbnb's valuation over time...
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Shaan Puri | When Airbnb started, that was the high risk. That's the flat part of this curve. To join Airbnb, you had to see something that was not obvious. You had to believe in something that took a huge leap of faith. You had to work like crazy in a tiny apartment.
There's a fun video, by the way, of them taking midday dance breaks where everyone stands up from their desks and dances. You had to do weird startup stuff. There's a guy with stinky feet—probably not even what we're talking about, right? She joined after it had crossed, you know, a $10 billion valuation, even $20 billion.
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Sam Parr | Yeah, and if I remember correctly, they already had that huge office. Do you remember that huge office at 888 Brannen?
I imagine there were like a thousand people or more working there. It wasn't small.
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Shaan Puri | And you and I were living in San Francisco at the time. It was stupidly obvious; you could've slapped me in the face and then asked, "What's a company that's a winner?" I would've said, "Airbnb is a winning company." It was obvious at the time. I had friends at Uber, and the same thing applied. Uber was obviously a winner at that time, as they were already multibillion-dollar companies.
Because of the space they were in and how dominant they were, it was clear that they still had room to run. What we call "Sarah's List" is basically a function of using your time as your investment. Most people don't think of their job as an investment decision, but your time and talent—where you're going to spend four years working—is an investment decision. You should be thinking about it like a venture capitalist, especially if you're working in the tech scene.
These are all venture-backed tech companies that we're talking about. The criteria for Sarah's List is that it's a company that has product-market fit. It's just a clear, obviously successful company. It doesn't mean it can't fail, but it just means it has product-market fit. It's not in the scrappy, figure-it-out phase or the wandering phase of startups. It's funded, it's growing, and you get a nice salary and benefits. They have oat milk in the fridge.
If you joined, you might get a $200,000 stock package. So that's like getting $50,000 a year in stock. Maybe you have a $150,000 salary and $50,000 of stock that could become worth over $1,000,000 in five years. So can it 5x in five years? We're not looking for maximum upside; we're looking for low-ish downside and enough upside where you can turn a $200,000 stock package into $1,000,000, $2,000,000, or $3,000,000. Those would be the outcomes we're looking for.
We did this once in 2021, three years ago. Before we tell you what we picked and how we did, we need to time travel back real quick, so let's do this fast. Back in 2021, this NFT sold for $69,000,000. Those were the good old days. Tom Brady was a football player, SBF was a hero, and people cared about whoever these people were. It was a simpler time, and the stock market was running up; it was on a 10+ year bull run, peaking in 2021. | |
Sam Parr | For the listener, people cared about... quote, "these people." These people were Prince Harry and his wife, who... yeah.
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Shaan Puri | See, I... | |
Sam Parr | Don't even know who it is.
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Shaan Puri | Prove it. Thank you, I rest my case. By the way, did you know that Sesame Street and 7-Eleven launched VC funds during this time? They had their own venture funds. Everybody was getting in on the game, but nothing lasts forever.
Since then, just to give you some data, about **36%** of startups that have raised money since then have raised at a lower valuation. This does not count the companies that died or the companies that are avoiding raising because they don't want to raise down rounds. This means that transactions that cleared show that one-third of them are clearing at a lower price across all startups.
It's even worse if you look at late-stage startups. Late-stage startups, which are the ones we're talking about—Series C and Series D—are down between **30%** and **60%** on average. That's what you're seeing across the board.
**Sad news:** Two-thirds of employees right now who are working at these companies are working for options that are actually worth **$0**, and they probably don't even realize it yet. This means they got a pay package of stock options at a **$24** strike price, but that stock is currently trading in secondary for **$8**. So, all of their shares are underwater currently. Only **33%** of the shares are "in the money," as they say.
Alright, so what do we pick? We picked about **11** companies. I think we shared **1** company, but we had each picked around here. Here's what we did:
So, it's not great. All the stuff I just told you is basically our big fat excuses as to why it wasn't great. We both had **2** hits—two things that did go up in a sort of step-change way, you know, sort of a **3x** or **4x** so far in the **3** years. I had **2** that were down, with valuations lower than they were previously. You had **3** that were down, and then there were some pushes. A push basically has the same valuation as it had before, but that's actually sort of a win because you beat the market. So, you didn't achieve the salesless dream, but you didn't take the huge write-down that a bunch of others did.
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Sam Parr | You're wrong about Next Health. Next Health is wrong. Next Health is wrong. | |
Shaan Puri | Is it wrong on here? Oh, what is it actually up?
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Sam Parr | Well, the word "neck"—there are two companies: one is "Next" and one is "Nex." I think there was a little confusion about that.
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Shaan Puri | Someone in the research department is getting fired here.
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Sam Parr | No, they're just missing a T. Open Store is down.
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Shaan Puri | It's unclear, but I mark it down. It's a little intellectual honesty. I don't believe that it has achieved its status to be called up. We have it as TBD. I gave it a less generous interpretation of down just to make my own grading harsher. This is not about them; it's about me grading my own picks more so.
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Sam Parr | And you think Figma's down too?
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Shaan Puri | Well, Figma tried to... it's not a down, it's a push here. It tried to sell for $20 billion, but that transaction didn't go through. So that would have been a 2x.
But then, the last, I believe, round of funding... and this, by the way, is not all very obvious. Companies don't always announce their valuations. There are leaked valuations to the media which are not always true.
There are valuations that come with a bunch of strings attached. So, maybe you got a good number, but there are all these caveats and liquidation preferences.
A lot of this was we asked people who own secondary stock marketplaces. We said, "Hey, what is this company trading at right now?" So, it's incomplete information. We're doing the best we can here with private stock information that you don't always have. | |
Sam Parr | By the way, Sarah, my wife, who this is about, had a job offer at Figma like 3 months before their acquisition offer. If that had gone through, I believe it would have been a 2x return based on the valuation. So we almost had a mini hit again, but not quite. | |
Shaan Puri | Yes, exactly. Alright, let's get to the 2024 picks. We're going to try to do better now.
The good news is that any picks you made from the vintage of 2021, like I said earlier, all the companies basically got shellacked. Everything got reunderwritten; everything got corrected. But now, where we're at, I think we are in a less hype-y time.
So this cohort of picks, I think, should be better. But again, this is not financial advice. Really, neither Sam nor I are trying to go get jobs. This is kind of like what we would do if we were going to get a job. Sam did this with Sarah when she was looking for jobs.
So this is for fun. Let's just put that out there. We're not giving financial advice here. | |
Sam Parr | So, I have like 5 or 6, but then I got a bunch of other ones that were like... it's like scrap. I didn't quite get to.
What do you think is the... let's say we each bring 5 to the table. I bet you there's going to be at least 3 that we are overlapping on. What do you think?
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Shaan Puri | I'm guessing there are two overlaps. By the way, I'll say I think a good hit rate on this would be 6 out of 10.
6 out of 10 should have a step up where, five years later—though we're not even five years after the 2021 ones yet, we're only three years in—there is sort of like a 4 or 5x increase in valuation. If 6 out of 10 did that, I think that would be a great thing. I think 3 out of 10 would be sort of the lowest bar that I would accept.
Hey, real quick, I want to talk to you guys. If you are new to this podcast or new to business, I have a cool resource for you. The folks at HubSpot, who sponsor this podcast, have put together a kit—a guide for people who are getting started on their entrepreneurship journey.
It has a couple of cool tools I want to call out. It's a free tool, by the way. This whole thing is free; you can just go download it. It's a solopreneurship guide for people who are going to be, you know, an army of one. How do you get started? What's the mindset you need? What are some tools that you need? What are some communities you could join? They have some cool resources there.
So if you're just getting started and you're a beginner in this journey of entrepreneurship, check out this kit. The link is in the description below. Thanks again to HubSpot for making this podcast possible. | |
Sam Parr | Alright, I'm gonna go first.
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Shaan Puri | I'll start with an obvious one; it's probably one that you have too: OpenAI. And by the way, there are no bonus points for difficulty in business. The fact that everybody knows OpenAI... I'm not trying to give you a secret company or a secret stock tip you've never heard of.
The truth is that the companies that are going to be big juggernauts are often hidden in plain sight. So, OpenAI is currently valued at **$103 billion** and is doing about **$3.5 billion** a year in revenue already.
**The bull case:** What do you need to believe if you're going to join this company? You need to think it's a serious contender. It's the first credible Google competitor in about 20 years. It is something that could actually displace or replace search, which is where people go when they need an answer to something or help with something.
It's the fastest-growing company ever. It took them, you know, **2 or 3 months** to reach **100 million** users. It's **5 times** faster growing than the next fastest product ever. It reached **$3 billion** in revenue in the last, you know, **3 years**. It's pretty crazy.
And it's unique because it's an enterprise company, a consumer company, and a dev tools company at the same time. I think that's pretty unique and gives it a lot of upside.
What you would be worried about if you're looking at OpenAI is that it's probably the most competitive market on Earth right now. You are getting competition from the most well-funded startups with the most brilliant people, as well as the biggest tech companies in the world: Facebook, Google, Amazon... everybody is coming after this market.
So that's the downside: will OpenAI retain their lead or not?
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Sam Parr | Yeah, the problem with OpenAI is, can you get a job there? Not only is it the most competitive space, but I imagine they have one of the more competitive job applicant pools.
Dude, I read some crazy stat that Tesla has something like 50,000 people a day applying to work there. I have to imagine that OpenAI is somewhat similar, where they are just inundated with applications. | |
Shaan Puri | Well, yeah, I mean, but we're talking about our listeners—the cream of the crop here. This is the **crème de la crème**. So, yeah, of course, they can get a job wherever they want.
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Sam Parr | So, would OpenAI 5x the current valuation?
Yeah, I mean, yeah, yeah, that... yep, I agree with you.
Alright, you want me to do one?
*Mhm.*
Alright, I've got one called Retool. Do you know what Retool is?
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Shaan Puri | I know Retool. I use Retool, and I wish that I had invested in Retool. I tried to invest in Retool early on, and I missed it.
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Sam Parr | I'm not a user of it, so it would actually be best if a user explained what it is.
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Shaan Puri | So, every technology company has the same situation that they would all homebrew a solution for. The situation is that you need a back-end admin panel.
You have this, I'm sure, with Hampton where, "Oh, we need to add or remove a member," or "Hey, this person changed companies. They're asking if we can update their information," or "Hey, can we change their membership status from active to suspended?"
Whatever the admin function is that you need to do, it doesn't come out of the box with whatever you're using. You're using ten tools to run your business, but what's the tool for your business?
Retool is a simple way to create the admin panel for your company. It allows anyone in the company who's not a developer to go in and add, remove, or make changes to essentially the database. That's like the simplistic way of saying it.
It's basically a back-end tool for any business that you can customize, and your developers can build it once so that anyone on the team can use it. So, it's an internal tool.
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Sam Parr | And here's this crazy stat. So the founder, his name's David. David's a baby genius.
David started this when he was at the University of Cambridge, around 21 years old. He's got one of those stories where, before this business, he had a payments app that I think did okay, but whatever, he quit working on it.
But when you see a 19-year-old kid do that, you're like, "Okay, you..."
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Shaan Puri | You have a payments app at 19; you already won.
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Sam Parr | Yeah, and you're going to one of the best universities on Earth. Like, alright, something is interesting here. He gets into Y Combinator (YC), comes up with this idea, and here's this crazy stat: **50 to 60%** of all software in the world is internal-facing tools. This means employees who use internal-facing tools.
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Shaan Puri | That's a one-chart business right now.
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Sam Parr | A one-chart business is not something a lot of people focus on because you tend to concentrate on things that you see and use, versus things on the back end that you may not really touch that often. However, this business has crushed it.
They launched in 2017, and their latest valuation is $3.7 billion. They've raised $150 million from Sequoia and a bunch of other great companies.
Listen to this growth: in the first nine months, they generated $500,000 in revenue. In 2018, they hit $2 million in Annual Recurring Revenue (ARR). By 2024, they expect to reach around $100 million in recurring revenue. So, it's got to be one of the faster-growing businesses out there.
I've been watching interviews with this guy, David, the founder. Dude, he's amazing! He runs an incredible company. At a valuation of $3.7 billion, I think there's room to run. I see a 5 to 10x potential here. I mean, they're going to be a huge business, and the market is just massive. Plus, I really like the guy.
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Shaan Puri | I think that's something we're going to see in a bunch of these, which is that the CEOs seem to be remarkable in all these businesses. If you're going to make a bet on a private company, you want to be at one with like one of these all-star CEOs.
My retail story has two lessons learned here.
**1. Invest in your P&L.** I had this problem where we were always trying to build these things internally. The developers never wanted to work on it enough because it was an internal tool. So, who cares? When we got Retool, it was like, "Oh, this is great! This is a no-brainer." The first lesson I always remind myself is that the best place to invest is in your P&L. This means looking at your expenses and figuring out which of those companies you think other people wouldn't want to cancel and that others are going to have as their expense too. Go invest in that company. Retool was one of those.
**2. The second thing was once we got acquired by Twitch years later.** The first acquisition was probably in 2017 or 2018, and the second one was in 2020 or 2019. I was at Twitch, and Emmett, who was a Y Combinator partner, was coming to a meeting with me. He was running a little late and said, "Oh yeah, sorry, I was doing office hours with this YC company that just hit this..." | |
Shaan Puri | It's like there's this thing that happens where you go through Y Combinator (YC). It's all good, then you have after YC, where you know you're just back to being like a normal struggling company.
And then sometimes you hit this inflection, and things just really start to work. He goes, "Yeah, this company, Retool, is really starting to work." When a really smart friend tells you that something is hitting an inflection, like drop everything and go hunt that down.
I remember the time thinking I shouldn't invest in this. I saw the guy, David, in the cafeteria because he had just met with Emmett, wearing his Retool shirt. I went up to him and I was like, "Nice shirt! Love Retool." And then that was it. All I needed was that. Was he like...? | |
Sam Parr | A little guy, like, he's... how do...
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Shaan Puri | I invest.
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Sam Parr | He's young. I think he was like a college kid, almost.
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Shaan Puri | Yeah, he looked like he just could have been any employee at the company since he was wearing his own shirt.
Anyway, retool... I like the pick. Valuation is high, so I think 4 to 5 times is tough from there. To become a $15 billion company is tough, but I think it's a really good company.
Alright, let me give you my next one: the next one is Mercury. You're nodding; do you have this one?
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Sam Parr | It was on my list, and then I removed it because...
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Shaan Puri | I thought you were going to pick them. I did pick Mercury.
So, Mercury is a company that I use. Again, look at the tools you use that you don't want to change. I use Mercury for, I think, not one, not two, but like six of my companies now. It's just an amazing product.
The valuation is still in that sweet spot range where I think it's $1,600,000,000 right now. So, the valuation is there.
Here's the bull case: here's what you need to believe. It has a rare combination of...
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Sam Parr | Hold on, what? So, Mercury is just a bank that is built for small businesses. It's easier and simpler to use. It's basically just a normal bank, just easier and better. | |
Shaan Puri | If you're a startup, you need to have a bank account, which every startup does. You can use a bank like Bank of America or some traditional bank where you're going to use their product. It might feel like a bunch of 50-year-olds hired a web shop to outsource this tool that they needed, making it feel like a second-class citizen.
Whereas Mercury is different. It's like, "Oh, a founder made this. I get it. It solves all of the problems that a founder would have." And it's true; Imad was a founder of multiple startups before he created this. Now, it's the best product for startups. The product is amazing. It has a rare combination: it's growing fast and it's profitable, which is great because a lot of the companies that get written down or face risk are not profitable. They're burning so much cash that if the growth ever slows, all of a sudden, you get this huge discount in the valuation.
The fact that this is profitable means there's a margin of safety here. Silicon Valley Bank used to be the bank of choice for Silicon Valley startups. It imploded; it was a $34 billion company with $7 billion in revenue two years ago. It imploded because they mismanaged risk. Nobody has really replaced them, and I think Mercury is in the best position to do so.
If you think about the shoes they could fill, they could fill the SVB shoes as a $30 billion company. They're the category leader. I saw this great quote from a Sequoia partner: he said the category leader in any category tends to get something like 75% of the revenue and 50% of all profits in a market. I don't know if those numbers are exactly right, but it's directionally correct. The winners of every category take the lion's share of the rewards.
I think they have a good moat and a great brand, which is allowing them to get customers for free. They also have a regulatory moat, which is not something that any person could easily start. There's a lot of financial compliance and regulation involved.
Now, one thing to caveat: we call them a bank because to the customer, it feels like a bank. Technically, they're not a bank. | |
Sam Parr | Who do they use?
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Shaan Puri | So, they use like Choice Bank, I think, and Evolve Bank underneath. So, they're what we call a **neobank**. You know, just like a finance platform, basically.
The bear case... the other thing that, you know, the worry would be: can they grow with their startups? Some products are great because you get them while they're young and you grow with them. Other products, you get them while they're young and then they graduate off you. As soon as they become really valuable customers, they take their business elsewhere.
I think they're going to be able to grow with startups, but that would be the risk here. I didn't find, honestly, much of a bear case. Do you? I don't know if you have a...
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Sam Parr | Yeah, I've got a bear case. I think I almost always bank with Chase because I've just always been afraid of can I access my money. It happened recently where a lot of people were using Mercury. I mean, not to criticize Mercury, but they were using lots of different things and they couldn't get their payments out or their payroll out because the banks weren't working.
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Shaan Puri | Bank, yeah. | |
Sam Parr | And SFB was one of them. They're no longer a business because they're this huge company that mismanaged a bunch of stuff, and it didn't work out.
So yeah, I think that's a massive bear case. I think that the reason I bank with Chase is because if Chase were to go out of business and have the issue that Silicon Valley Bank had, America would basically go under.
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Shaan Puri | Too big to fail.
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Sam Parr | Yeah, and I always knock on wood when I say that. But a little bit like that, where it's like, you know, I think Chase is like... I would have to look at the stats, but it's something like 5% of Americans use it. So it's like a pretty big deal. And so, yeah, I think that's a bearish case as to why it's... | |
Shaan Puri | I don't think that's necessarily a bear case. First of all, they have, I think, $5,000,000 in FDIC insurance now. They offer like 20 times more FDIC protection than they need to or than the average bank does. So, I think they've got some features that help with that.
But the other thing is, I think the proof is in the pudding. While it's understandable to say, "Oh, you know, I choose to go with a too big to fail bank," if you just look at where the startups are voting with their feet, this thing is growing so fast that obviously people are making that choice already.
So, it's not like a future scenario; it's like today that choice exists, and people are making the choice to go to Mercury. I don't see a reason why that would change later necessarily.
But usually, when I think about a bear case, I consider what could go wrong in the future. What you're talking about is maybe people just prefer to use a traditional, kind of 100-year-old bank because of the track record they have. That choice exists today, and people are choosing to do the other one. So, I think that's less of a bear case.
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Sam Parr | Last weekend, because I'm a client at Chase, they gave me box seats to the US Open. It totally worked! I'm going to bake with Jake's for as long as they'll have me, so long as I get tickets to the US Open.
As soon as Mercury starts doing these wide-eyed perks, they ain't shit. I want a **fucking** fruit basket. I want a gift basket. If I don't get a gift basket, you don't get my business. I've changed, man. You know what I mean?
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Shaan Puri | I'll take a 20-piece nuggets from Chick-fil-A. I'm a simple man; I don't need the U.S. Open. This is easy.
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Sam Parr | Oh my god, they took me! I got these amazing seats to the US Open, and it worked! It worked! Look, I fell for the trap.
But yeah, no, I think Mercury is a great business. I think the founder is pretty badass, so that one's good.
Alright, so you said that you were going to look at the founders, or no, sorry, you said you're going to use your P&L to see where you spend some of your money. I like that. I also think about where I spend some of my time and where people spend some of their time.
A tool that I'm playing with is called Cursor, and I think Cursor is pretty amazing. I'm going to tell you not my story, but the reason I've been using it. There was this little girl, she's 8 years old. Her father's on Twitter, and her father is a developer, I guess. He tweeted something out saying, "I'm trying to teach my little girl how to code, and we're using Cursor."
Here's a FaceTime of her, like a Loom, a screen recording of her learning how to code. Within 12 minutes or something like that, she built a website using Cursor.
So, Cursor is this really cool tool. It's got a lot of hype right now. The easiest way to describe it is it's sort of like Squarespace, Wix, or any of these other website builders, but it uses AI. You talk to it a little bit like a person, and it makes it really easy to edit code.
Now, there are a bunch of pros and cons to this business. The pro is I think it's amazing. I've been playing with it; it's super good. Their latest valuation is $400 million. I don't think that that's insane, so there's opportunity there.
I think that the con—and this is a big con—is that these website building tools, dude, their PE multiples are not great. If you look at Squarespace, Wix, Weebly, do you remember all these? They don't trade that well, so they can do billions of... I think you're... | |
Shaan Puri | Pigeonholing as a website builder... it's not a website builder. It's an IDE; you could code.
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Sam Parr | Anything in terms of anything in it, but it's still, I think, in that category. In terms of, you don't think it's...
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Shaan Puri | In that category, in terms of... no, I think it could be the GitHub Copilot and Replit category.
It's a coding environment where a programmer can become an AI-assisted programmer. So, however good you were, however efficient you were, however productive you were as an engineer or programmer, you can now be, you know, multiple times more productive. Maybe it's one and a half times more productive, or maybe it's ten times more productive as the AI improves.
And so, I don't think... because, you know, Wix and Weebly, these are like... you know, my sister needs a website for her preschool, so she goes to Squarespace and makes a website. She's not going to... she's not going to go to Cursor for that.
And also, those tools could never do what Cursor could do, where it could build full applications, you know.
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Sam Parr | Yeah, I feel you. I still think that, like, alright, so we use Bubble. You know, Bubble? Mhm. Bubble's like an app builder. This is a little bit of a competitor to Bubble.
In my head, as an investor and potentially as a user, I think it comes into play like it uses the same churn as a small business or a website builder. You spend $10 a month, and there's not always a massive reason to stay on the platform versus all the other competitors.
It's pretty easy to just, like, up and try different ones. Do you know what I mean? So for that reason, I think it's a little bit similar in terms of valuation. | |
Shaan Puri | Right, okay. I have a... I was looking at Cursor very closely. In fact, they were on my first draft of companies to be on here. But then, as I did more research, I went with another company that you'll see at the end of this. So, okay.
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Sam Parr | What do you think about Cursor for a $450,000,000 valuation? What do you think?
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Shaan Puri | I think you're getting high upside and high downside there because that valuation is not based on revenue. It's based on, you know, this vision of what the future might look like.
And that's great! I think Cursor's awesome. Right now, if I could invest in Cursor, I would totally invest in Cursor. However, I think it is more risky than some of the other ones we've talked about so far.
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Sam Parr | I think that's true. They're at a $10,000,000 run rate, I believe. Or, I don't know if it was a run rate or if that's actually what they did in revenue. But yeah, it's tiny compared to the valuation. What do you have then instead? What's your competitor to it?
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Shaan Puri | Oh, I'll show you. It's my last one, but I can't rearrange the slides here, so you're going to have to wait on that.
When you told that story about that little girl, I thought you were pulling a Kamala Harris and you were going to say that little girl was me at the end. I was pretty ready for that emotional landing. Instead, you were like, "That was just somebody's daughter."
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Sam Parr | I just follow grown men's daughters on Twitter. I don't know, it was like, "Where are..."
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Shaan Puri | You getting your take advice?
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Sam Parr | Dude, did you see that video?
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Shaan Puri | I did not see that one. I've seen some kind of amazing things, like cursor demos. Right now, they're all the rage.
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Sam Parr | Dude, let's see rage. Alright, keep going.
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Shaan Puri | Alright, my next one. I don't even know if you've heard of this company, **Epirus**. Do you know this company?
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Sam Parr | no
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Shaan Puri | Okay, so.
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Sam Parr | I don't like that name, Epirus.
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Shaan Puri | Yeah, Epirus. So, this is a Joe Lonsdale company. It is a weapons company, a defense company, and I don't know enough about Epirus because it's a very secretive and private company.
What I actually did was put this here as a placeholder, as a general strategy. One thing I would do if I was interested in this kind of sales list concept is to find a company I can join where the stock package is going to appreciate rapidly. You know, I'll get a 5x in 5 years.
I think that the way Anduril hit for us last time, there are now like 10 more Anduril-type companies that exist, inspired by Anduril, that are worth checking out. Anduril itself might still be a contender, by the way, but there are more companies. So, Epirus is basically like a long-range defense weapon or whatever.
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Sam Parr | Dude, if you go to their website, it's Epirus Inc. It basically looks like some type of electromagnetic device that shoots radio waves into the sky and brings down drones and planes.
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Shaan Puri | Exactly what it does is it's an EMP pulse that will take down, you know, a drone or a missile or something like that without being a bomb. You don't have to bomb something; you could just disable it.
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Sam Parr | It's just magic.
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Shaan Puri | There's a great story, by the way.
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Sam Parr | Is David Blaine the CEO? Because this looks magical. But when I see invisible rays...
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Shaan Puri | That's such a good pickup line! I'm going to use that next time I'm trying to talk to a founder. I'll be like, "But are you related to David Blaine? Because this is magical! Is he your cousin?"
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Sam Parr | It does look like magic.
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Shaan Puri | So, he told the story where he's like, "I was like, dude, how do you sell to these three-letter agencies?" He's like, "It's very hard. You know, there's decades-long relationships with the traditional companies."
So, I'm like, "How do you do it?" He goes, "Well, the big thing we always try to do is get to a bake-off. We have to get to a point where they're willing to do a contest of our product versus their product because we can win on product. We have a better product than engineering, but we don't have better, you know, good old boy relationships here. So, we have to get to a bake-off."
He's like, "So, we did a bake-off for Epirus, and basically everybody went to this field. They're like, 'Cool, I'll line up, and then you're gonna go first, and we're gonna see how far away you can disable this and how effectively you can disable this drone.' That was the test."
They lined up, and he's like handing out binoculars. They're like, "What is this?" He's like, "You're gonna need these to see how far away we're gonna be able to disable this thing."
Then they won the bake-off, won the contract, and all this stuff.
So, I don't know about this company specifically; I don't know enough. But I would go interview at the top 10 defense/weapons companies, go talk to all of them, and then use your judgment on which of them is the winner. I know in that basket, there's definitely one or multiple winners that are in this. But I, from the outside, you know, how do you even get that person?
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Sam Parr | So let's say you're Joe Lonsdale, which I guess kind of answers the question because he's a big shot. But if you're not a big shot and you want to get some CIA buyer into a field in Texas to, like, show him something to wow him, who do you even call? You know what I mean? Like, who?
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Shaan Puri | Well, I think there are multiple answers to this, but I'll just give you a couple of data points.
The very first thing is that there are bids, like RFPs (Requests for Proposals) that you can participate in. The government has a process of procurement where they need to solicit proposals, so you can go look at those and talk to those.
The second thing is, when we were at his house after we recorded the podcast with Joe, we were walking out and there were like 10 senators there for lunch. It's like, "Oh, this is how you build your network." He's hosting a lunch for like 10 people.
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Sam Parr | Did he, like, bring you out the back door? Like a business?
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Shaan Puri | Well, because Elon was coming over, he was like, "Hey, it might be easier for you if you just want to go this way." We were like, "Easier for you or easier for me? Maybe for both of us."
Alright, good, fair enough. Because I'm literally in my basketball shorts. Did he hand you a charge of a box truck?
Yeah, like he handed you $200 and bought you an Uber. He was like, "Don't forget your lunch box." Then I wandered off to a bus.
Was there apple juice waiting for you at the doorway out? It truly felt that way. By the way, I couldn't have been happier with the arrangement. I did not want to be a fish out of water either.
So, I think that's one way. There's also a great story told on the pod about how Peter Thiel was telling them, like, "Dude, when they started Palantir, he was a couple of years out of college. He wasn't that old yet, and he had a lot of the pride and hubris of a tech genius type of person."
He is, you know, a genius-level person, but going in and saying, "You guys are dumb; we're smart," is not the answer either to sell these things.
So, they hired this guy, Alex Karp, who's still the CEO of Palantir. One of the reasons why I was like, this guy was just very, very good with relationship building, networking, and being accepted by these buyers.
Then he recruited ex-government people to be like door openers, warm handshakes to help them get in the room. I think that's how they got there. | |
Sam Parr | I want to do an entire podcast next time just on the New York Times article on Alex Karp. Very funny.
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Shaan Puri | Very good. Very interesting. Yeah.
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Sam Parr | Very good. Alright, I buy into that. To me, working at Epirus or any of these national or defense businesses is sort of like working at a porn company, where like, you know, probably most of the work might be like...
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Shaan Puri | Tell your mom you work in video entertainment.
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Sam Parr | Well, yeah, like most of the work is normal. Just a normal job is boring. But then, like, you see the output and it's like, "Fuck!" Like, death or destruction or pretty raunchy stuff if you're working on it.
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Shaan Puri | Fair. Their tool, the separys tool, just in this case is like a non-death tool. It's disabling the electronics without bombing anything. But yeah, I'll definitely... some of the other ones are a lot more like, "Yeah, this is war."
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Sam Parr | Yeah, where like the output of this, whether it's right or wrong, it's still like a... you go to bed every once in a while, I imagine, with a heavy heart, even if you're doing everything right.
Alright, I have another one. You know that meme called "midwit"? Where there are people who are on like this... the dumb guys are at the far end where they just don't think things... or how does it go?
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Shaan Puri | You're on one of them. Let's just put it that way. You're showing that you got one of those sides nailed.
There's the beginner, the caveman, who's just like, you know, "Build product, talk to customers," right? And then the Jedi is also like, "I should just build a good product, talk to customers."
Then the guy in the middle is doing over-analysis, overthinking, over everything. But I feel like you did a good job. You know, like a mime, you acted out the meme. It was great! I am...
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Sam Parr | What I am... I took that approach with a couple of these. Dude, have you heard of this company called Wizz?
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Shaan Puri | I've heard of Wizz. I don't know what Wizz does. I looked at it and I was like, "I don't understand this enough."
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Sam Parr | Dude, alright, so check this out. Wizz is a cybersecurity company for enterprise customers. Basically, if you're using large cloud tools, Wizz's tool scans them and identifies potential threats for cybersecurity issues.
It's the fastest company ever to reach $100 million in annual revenue; it took about 18 months. The guy who started it—now this is where the meme comes into play—he's kind of amazing. I read this article about him a couple of years ago, and the opening line was, "Don't mistake a soft gentleness for someone who's willing to play by the rules." That was the opening line, and I was like... | |
Shaan Puri | Okay, what does that even mean? Yeah, it's like a Tinder bio. Jesus.
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Sam Parr | Alright, I'm interested. So basically, this guy previously had another company that he scaled and sold to Microsoft. It was also a cybersecurity cloud company, sold to Microsoft for $1,000,000,000. He gets through his...
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Shaan Puri | His warm-up company, yeah.
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Sam Parr | His warm-up company, he's only 38 years old. He gets through his non-compete, spends time at Microsoft, things go well, and then he starts his next company called Wiz. So far, they've already raised **$2 billion**, of which **$1 billion** of that came in one round. The company is only 18 months old, which is absolutely ridiculous.
They've done something incredible; I think they're already at **$350 million** in revenue in just 3 years. That's **$350 million** in annual recurring revenue in 3 years. Something like **80%** of the Fortune 100 companies are already using the tool, so they've really killed it already.
Now, here's where things get interesting. Their last valuation was **$12 billion**, but there was a rumor that Google was going to buy them for **$23 billion**. So, there are all these rumors that this was happening. He sent an email to the entire company, and let me read you a quote. He goes, "Let me cut to the chase. Our next milestones are **$1 billion** in ARR and an IPO."
He explains how they aren't accepting this offer from Google because they want to make it big and be this huge thing. I love this guy; I think he is just one of the coolest and most interesting CEOs out there right now. What are you looking at? What do you think when you look at him?
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Shaan Puri | Well, he looks not like what I thought. Actually, your first line about, "Don't let my gentle whatever fool you; I'm here to whatever handcuff you to the bed," I don't know what he said, but something like that. That's what I heard. He just looks like a good, nice guy from the Midwest. When I look at these photos, I was really expecting a lot more hardcore-looking guy, which is just from my Google image search.
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Sam Parr | Dude, when you see a guy wearing a T-shirt who sells to like suits or the NSA or whatever, like these big, big shots, I think that you're secretly very dangerous. Like the...
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Shaan Puri | The you. | |
Sam Parr | You know what I mean?
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Shaan Puri | Let me tell you something here. So, okay, check this out. There's a part of the Wiz story that I think is pretty interesting. First of all, interesting pick. I think they have such a high valuation that you're really betting this is like one of the mega-cap tech companies to do this.
Okay, fair enough. The thing that scares me is anything that grows this fast. You know, what goes up must come down. In a way, this is not as *lindy*. It's not as... you know, when something is a slow compounder, you actually trust it more than an explosive one that doesn't have a long track record.
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Sam Parr | Dude, but that's the goal of this thing. It's things that could **5x** in 3 years. That's fast growth.
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Shaan Puri | 5 years... 5 years, yes. Whatever, yeah, true, true. But I guess what I'm saying is, like, it might be priced in. I don't know.
So let me tell you something that's interesting about this. When I saw this company is growing so fast, it's a natural question of, "Well, have you heard about the story about this guy named Gilley that's associated with Wiz?"
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Sam Parr | No, but I'm... | |
Shaan Puri | Alright, so who is Gili? I don't even know how you say his last name... Ranan? Rananan? Something like that. Let's call him Gili Rananan.
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Sam Parr | Dude, are all these guys, by the way, Israeli special forces? Yeah, so they all... | |
Shaan Puri | This guy's ex-Israeli military intelligence. Yes, he also invented CAPTCHA. He invented WAF, which is web application firewalls. He did a bunch of other stuff in cybersecurity. He was a partner at Sequoia, very well respected in the cybersecurity world. He started a VC firm called Cyberstarts, and they're the first investor in Wiz.
Now, check this out. Let me just read you this excerpt. The numbers for the VC fund Cyberstarts are phenomenal. The fund specializes in cybersecurity and was funded by Gil only 6 years ago. Here's how it goes: 22 companies combined value is $35 billion. Five of the 22 are unicorns, so a higher hit rate than Y Combinator. First and foremost is Wiz, who's breaking all the records. Four of them were sold in the last 12 months, resulting in successful exits for a total amount of $1.5 billion in the last 3 months. Their companies have raised $1.8 billion.
His portfolio shows an IRR of more than 100%, which is unusual for even the best-performing funds. Not a single company has failed so far in its portfolio, and it is currently ranked in the top 5 of all VC funds in the world due to these achievements.
Okay, so then you say, "Well, hold on. What's working? What's actually happening here?" Then you say there's something called the Gil Ronanon model. Basically, what he does is he has this mafia of the Chief Information Security Officers (CISOs) at all these enterprise companies, and they're all in his pocket. They all respect him; they think he's got the Midas touch. He's done so much in the space. He builds a relationship with them, but then he makes them essentially partners—like carry partners—in his fund.
So what he does is he basically has this, like, bribery network, is what my understanding of this is. It's not what they called it, but like this... | |
Sam Parr | Is what they called it? Corruption's awesome.
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Shaan Puri | It's causing... so it is referred to as the Gil Rahnanon model. It is causing more discomfort among Israeli competitors and portfolio companies, which are all jealous for obvious reasons.
It has reached the U.S., where company executives who are purchasing cybersecurity systems are as committed to **Gili** as they are to their own company. Basically, what he does is he goes to them and he wines and dines them with dinners and conferences.
According to several sources, he promises teams of fresh graduates from tech units not only investment support in the startup but also initial revenues of $2,000,000 a year. This is usually their first year of revenue, which is intended to boost them above their competitors and help them get the next round of funding.
The way he does that is by using his network of loyal Chief Security Officers (CSOs). The first sales come from the loyal CSOs who work with the fund. It might be considered small money, but the jumps in fundraising for cybersecurity are difficult. If you can get to that $2,000,000 to $10,000,000 range, you've achieved escape velocity to get to the next round of funding.
All that he creates makes it difficult to compete with because the companies immediately jump to a valuation of $100,000,000 to $200,000,000, raising more money and having more resources to compete later. The seemingly small purchase of $100,000 to $200,000 by the CSO will increase the startup's value dozens of times.
This is known as the **Gili model**. I think what he says... there's something here about the kickback that they get.
Here's what he emailed them: "It is difficult to predict the form of the fund, but according to our forecast, the points you have accumulated in the fund so far are valued at X dollars. You can expect additional allocations in the coming years and in the new funds we will raise later."
So it's kind of a "you scratch my back, I'll scratch yours" model. I pick winners.
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Sam Parr | I just thought this guy was awesome because he wrote cool emails and he’s got a dope smile. Turns out, you know, there’s...
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Shaan Puri | Good reason. Wolf backing him. Yeah, well, a...
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Sam Parr | A lot of them are from, I think it's called Unit 8200, something like that. It's like the NSA of Israel. So if you look at some of the largest security companies... I don't want to talk totally out of turn.
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Shaan Puri | Of turn here, but I... | |
Sam Parr | I think it's like Palo Alto Networks and all these multibillion-dollar companies; they all came from that unit. It turns out with this guy, it's more of a... they're definitely working together. But I thought they were just working together because they were all from the same crew, you know? It's like they all went to high school together. It turns out there's like one oath. | |
Shaan Puri | Neither you nor I know jack shit about this, but it sounds like a movie, and we're pretty fascinated. That's, I think, what's happening here. So it sounds like some motions of a... shit. And can I...
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Sam Parr | A big dummy like me came to the great conclusion as this smart dude.
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Shaan Puri | Yeah, alright. What do you want?
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Sam Parr | You got. | |
Shaan Puri | Alright, my next one is a quick one: **Neuralink**.
So, Neuralink is currently valued at **$5 billion**. It's got pretty much no revenue. Here's the case: Elon [Musk] put a chip in a guy's head, and he's playing video games on a Twitch stream now. It's pretty crazy! The first patient represents a huge technical milestone.
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Sam Parr | Was he paralyzed, or did he have MS?
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Shaan Puri | He's a quadriplegic, you know, so he can't move his arms or his legs, I believe. Now, with his brain, he's just playing chess. He can basically use a computer with his brain now, just by thinking.
Okay, and he's like, "Wow, my life just got so much better. This is amazing!" They successfully implanted the chip in the guy's brain, and he can now use computers. It is incredible! I cannot believe more people are not talking about this.
I'm going to do a whole deep dive on Neuralink just because I think that I'm blown away by the videos I've seen and the nerdy rabbit holes I've been down. For me, this is a question of when, not if. Meaning, the next platform shift is probably glasses, but the one after that, or the big one, is just putting the computer in the brain. That will happen. It’s just a matter of whether it's in 10 years or 100 years; I have no idea.
The other bull case is, look, even if this doesn't 5x in 5 years, you're going to be helping a lot of people out. All their initial customers are people who are severely disabled. They can't see, and they're going to make them see. They can't hear, and they're going to make them hear. They can't move their arms, and they're going to make them be able to use computers. It's really incredible!
So, I think they're doing incredible work, and they're probably working with really smart people on a mission that matters. You're probably going to make a lot of money doing it. The bear case, of course, is revenue?
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Shaan Puri | You know, they have like one customer right now. So, it's going to take time—a long path to success. They're kind of at the point where they made the first Tesla Roadster. That's where they're at in the Tesla journey right now. | |
Sam Parr | Dude, but you're missing the whole point of this list, which is: how do you not stress out all the time and have a good job?
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Shaan Puri | Companies need personality hires. They need the guy who's bringing smoothies to the office. They need the guy who's a good time to be around. They need the guys who are willing to do the dirty work, like cleaning up the files and reorganizing.
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Sam Parr | I think that Elon has a personality hire. | |
Shaan Puri | Yeah, I think he does, dude. I think he's got, like, literally meme lords that work for him. So, I think he definitely has personality.
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Sam Parr | I don't know, man. I agree with you on so many things.
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Shaan Puri | I know some dummies that work at Tesla. Let me put it that way. I have some, like, "Who's this?" My cousin works at Tesla. Then you meet the cousin, and it's like, "Does he work in the tire shop? Like, who's this guy?"
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Sam Parr | Yeah, I feel that. But Neuralink's not that... How many employees do you think they have?
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Shaan Puri | I have no idea. I would guess probably around 100, or somewhere in the range of plus or minus 50. I have no clue.
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Sam Parr | Too small, Todd.
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Shaan Puri | You're assuming I didn't say, "Sarah's list is the chill life." It's not. It's not the "vested rest and vest" life. I think maybe we have a misunderstanding there. Maybe Sarah wasn't doing as much work as I thought.
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Sam Parr | No, it was like a 40-hour work week. I don't know if Neuralink is a 40-hour work week. If it is, then I'm on board.
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Shaan Puri | Okay, fair enough.
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Sam Parr | Alright, I'll do... I've got two more, maybe.
Alright, you had OpenAI. Now, I want to vote with my attention a little bit. I use OpenAI every day, but you know what else I use a ton? It's Perplexity. Do you use that?
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Shaan Puri | Me too! Yeah, I use Perplexity as well.
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Sam Parr | Now, how do I explain the difference between the two? I think perplexity is...
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Shaan Puri | Perplexity is when you need the answer to be right. ChatGPT is when you have a variety of random things and when...
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Sam Parr | You want to write things down.
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Shaan Puri | As important, yeah. If I'm doing research for this pod and I need to say a number that's not going to be wrong, Perplexity is a better bet than ChatGPT.
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Sam Parr | So, **Perplexity**. I think their latest valuation was **$3,000,000,000**. They raised **$415,000,000**, so it's already very big. But I think the market's huge.
I also find interesting stories about the founders, and I love it. So, what's the CEO of Perplexity? I know how you spell it.
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Shaan Puri | Arvind, I think, is his name.
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Sam Parr | Arvind, alright, so there's a funny story about him. He grew up in the same area as the Google CEO, Sundar Pichai. He grew up vegetarian, and his mom wouldn't let him eat eggs.
The perplexity CEO, Arvind, was like, "I need more protein," but his mom insisted, "You can't have eggs."
Then, he sees a YouTube video of Sundar from Google saying, "Yeah, I just introduced eggs to my diet in order to get more protein." After that, his mother said, "Okay, you may have eggs."
So, the fact that... and he goes on.
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Shaan Puri | It's not where I thought you were going with the story. He goes on, "That's why."
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Sam Parr | Dude, listen. He goes on to have this story where they're like, "Dude, Sundar in my household was like a god." It was like, "Well, if he does this, then you must do this."
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Shaan Puri | Right.
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Sam Parr | And so, imagine being raised in such a toxic environment where you are either him or you are a failure. So far, he's doing pretty good. So, like, that's again, that's like Sam being a dummy and voting on a company just because of the...
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Shaan Puri | **Kind of magic.**
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Sam Parr | The founder is trying to prove his mother proud. That's a strong motivation. So, no, but I do think the company is going to get significantly larger. | |
Shaan Puri | Like the episode of *It's Always Sunny in Philadelphia* where Charlie's trying to date. They're like, "Charlie, what about her? She's great! She's got a good job, she's nice." And he's like, "She doesn't like milk." It's like, "What?" Charlie is like, "No, she's like just a daughter." It's like, you know, they basically ask, "What are your criteria, Charlie? What are you doing here?"
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Sam Parr | Is this a ridiculous pick or what?
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Shaan Puri | No, I don't. I think a lot of people would say "perplexity." So, I don't think your logic is ridiculous. I think you're...
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Sam Parr | Yeah. | |
Shaan Puri | You somehow are landing at the same conclusions as the geniuses, but the way you get there is unique, I would say.
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Sam Parr | No, I picked it because I use it. I've... I'll like, in terms of getting in.
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Shaan Puri | In terms of valuation right now. | |
Sam Parr | $3,000,000,000. So, a lot. But I mean, I don't know, it's like a fast... | |
Shaan Puri | Growing Fit also seems like a company that could get bought. You know, OpenAI's ChatGPT is aligned with Microsoft, and Google is trying to do Gemini and all this stuff. But if Perplexity keeps executing, it's similar to how Facebook bought WhatsApp for $20 billion, right?
At a certain point, if you are a better version of their core product—one of these large companies, with Google being the main one—you become a very good acquisition target. Even if your standalone business may or may not reach that level, it gives you multiple outs.
The downside is that it seems like no tech company can do big M&A anymore, so maybe that path is not as realistic. But I don't think it's a bad pick. I think Perplexity is an interesting choice. Do you want to share your other one? I have one last one as well.
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Sam Parr | Let my last one be Trava. Have you heard about Trava? | |
Shaan Puri | I've heard a lot about Trava because there's like a Trava PR mafia that's out there. It's... I'm not sure what else to say.
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Sam Parr | Not alright, so let me start with this: I don't... I'm not part of that mafia because I do not want to work there. I think it sounds miserable.
But there are a bunch of freaks who do want to work there. If you are one of these freaks, this is a place to let your freak flag fly. I'm not a fan of it.
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Shaan Puri | And wait, could you explain that? I think it's kind of like this:
Here's a simple explanation of the culture. Most tech companies are like, "We value diversity and balance, and we want well-rounded people."
Then there's Travel, which is like, "Yo, we're doing China and America. We're working like the Chinese over here. We're doing the 996 model. We're here to create a $1,000,000,000,000 company. We are going to compete ruthlessly to get there."
And that's pretty awesome.
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Sam Parr | Let me explain what it is, and then I'll share a little bit from their deck on when they onboard employees.
Basically, Traaba is software. I guess you wouldn't categorize it as just software; it's a little bit of everything. It's software and a way to get part-time or fast workers when you are a manufacturer or a big company like that.
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Shaan Puri | Staffing. Industrial staffing. | |
Sam Parr | Staffing... yeah, so it's software plus actually getting the people to show up. If you're a big factory or something where you need, you know, 100 new employees or something like that in a week to do X, Y, and Z, they make it really easy to find and get those people to actually show up on time.
I think their website is trava.com. I think that's their tagline, which is "Get workers to show up on time tomorrow" or something like that.
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Shaan Puri | Trava.work, yeah. | |
Sam Parr | **Trava.work.** Sorry, now here's the part where they're kind of interesting.
So, Founders Fund, who I do respect, they say, "This is probably our highest potential startup." They've shared these crazy stories, like how they've shown up at the office at 10 PM, and what we've noticed is that the office is still buzzing with people. It feels like the golden days of PayPal.
They have these values: **dream big**, have an **Olympian's work ethic** (which is inspired by China's 996 mentality, which I'll talk about), have a **growth mindset**, and be **customer obsessed**.
So basically, they say, "Dream big. We want you to be in the top 1% in terms of ambition and the top 1% of attitude, which is going to allow us to achieve the top 1% outcome." They want you to have an Olympian's work ethic.
I think they explicitly stated this on their website: "We have a 996 culture," which means working from 9 AM to 9 PM, 6 days a week. There are interviews with employees who say, "I really wanted that type of work culture. I Googled, 'Where can I find that?' and you guys had it on your website. That's why I decided to apply and work here."
So, they're pretty insane.
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Shaan Puri | Born every day. It's like I Googled where I could work the most hours, and I found you guys. | |
Sam Parr | Yeah, they're pretty insane. I think they only have about 150 employees. I believe the valuation is something like $150,000,000. I think... no.
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Shaan Puri | It's gotta be higher than that.
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Sam Parr | I only saw a handful of numbers on their valuation. Is it higher than that?
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Shaan Puri | Maybe I'm wrong. Maybe... maybe it is.
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Sam Parr | The valuation isn't public. I think I was trying to triangulate a bunch of old articles, and I don't know if there's a current one out there. So, I can't say exactly what it is. Just...
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Shaan Puri | The only thing I'm seeing is the Founders Fund $22,000,000 round, which, yep, that would probably be more like what you're talking about.
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Sam Parr | So, it could be worth more. I don't have the information; I just am doing a bunch of guesswork based on articles that were live. But people say that it's growing like **5x** per year, which is huge. A lot of smart people, who even though I think they're **douchebags** like Keith or Boi, are behind the company, and they're definitely smart.
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Shaan Puri | Yeah, okay, alright. I like the pick here. I didn't realize their valuation was what it is; it looks like it's around $200,000,000.
I think this is a bet on people, right? The people behind this company are pretty remarkable. They do seem like the Olympians of founders.
Now, the market opportunity is difficult here because there are a lot of companies that get valued as tech companies but are actually something else. For example, WeWork was valued as a tech company, but it's actually a real estate company. There are e-commerce companies, like D2C companies, that were valued as if they were tech startups, but they were actually selling suitcases and shoes and things like that. Eventually, those corrections do come.
So, I think the question here is: is this a tech company, or is it a staffing company that uses tech and was started by tech people? I'm not in the weeds enough to know, but I do know what you said, which is that they seem to have a very unique culture. It seems like very smart people are very bullish on them, and it seems like the founders are at that elite, elite level of both ambition and drive. Those are good things to bet on in general.
But you did definitely just hypocritically tell me that two of my picks were too hard to work at, and then you picked literally the one that's like, "Yo, our thing is that we're the hardest to work at."
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Sam Parr | Yeah, yeah. Alright.
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Shaan Puri | Yeah, alright, moving on. Alright, what do you have?
Alright, my top pick, my finale... drumroll! I don't want a drumroll because it's going to seem anticlimactic. It's the same company I picked last time that was not a winner in the last one, meaning it didn't 5x for the last one. It's Replit.
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Sam Parr | Oh man.
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Shaan Puri | I think I am more bullish on Replit than any tech company right now.
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Sam Parr | Are you so bullish on it that if you could bet all of the money that you have on that company, you would do it?
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Shaan Puri | No, I'm not foolish. But I did invest in the company, and then on top of my fund investment, I wrote a personal check. It's probably the only one I've done that with.
So, you know, my actions do line up with this, but I wouldn't bet all of my money on this because I don't need to do that.
So here's my case: three years ago, when we did this episode, Replit was at about a $1,000,000,000 valuation. It had 5,000,000 developers at the time. It really had no AI story or tailwind, and revenue was small to nonexistent.
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Sam Parr | What was it then?
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Shaan Puri | They don't announce; they don't say. But it's because it wasn't a priority and it wasn't meaningful.
So now, everything has changed except for the price. The 5 million developers have become 20 million developers. The no AI tailwind has become a huge AI tailwind, and small revenue has become scaling revenue.
Amjad came out and said, "2024 is basically our commercial year; revenue is scaling rapidly."
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Sam Parr | Dude, what's it do? Okay.
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Shaan Puri | So, what does... by the way, do you know the Replit story? It's kind of amazing, to be honest.
The Replit story is about Amjad, who grew up in Jordan, a place I've never been. It's sort of this realization that the world is very large, and there's talent everywhere, but the opportunity is not as evenly distributed.
He used to love programming, but he didn't have his own computer at first. So, he would go to internet cafes, basically borrowing a computer to code and learn. The problem with that was that every time you went to an internet cafe, you were using a different computer, and none of your stuff was saved from the last time.
If you've ever learned to code, one of the first things you do is set up your environment. You need your IDE (Integrated Development Environment) and to install all the packages for the programming language you're going to use. For example, if it's Python, you need to install those files on your computer for it to work, and you need to save those somewhere. You also need to host it somewhere. There are all these things that go into coding.
Amjad had this unique problem: he wanted to code but felt disenfranchised because he didn't have his own computer. He was using internet cafes for a while. After that, he worked at Yahoo briefly, but he was still always annoyed with the friction it took to get set up.
As a side project, he created something called Repl (it was called something else at the time). Repl is a programming term, but basically, what he wanted to do was create a cloud-based programming environment. Instead of having it local to his computer, he wanted it to be in the cloud.
He was inspired by Google Docs. He thought, "Oh my god, Google Docs is amazing! Instead of having to have Microsoft Office and the software on my computer, I can just go to any computer anywhere, go to a doc, and the whole editor is built into the website." This was a revelation for him. I didn't even realize...
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Sam Parr | Got it.
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Shaan Puri | Websites could do this, and wow, multiple people can edit the same Google Doc at the same time. This is incredible! Can I do that for coding?
So, that's where he started. He built it as a side project for many years. He worked at Yahoo, and then he worked at Facebook. It was a side project. He worked with a guy at Facebook on the infrastructure team, the guy who created React, which is now a huge programming framework.
Somewhere along the way, Replit basically started to get a little bit of momentum. It had around 100,000 users as his side project. He worked at Codecademy, which was teaching people to code online. They discovered his project and said, "Dude, some random guy from Jordan created a programming thing that all of our customers, who are coming to learn at Codecademy, could just code in the browser. They don't need to have their own setup."
So, it was a side project for many years, and he wanted to make it a main project. However, he wasn't taken very seriously and couldn't raise any money for it. He applied to Y Combinator three times and got rejected all three times. After the third rejection, he was pretty discouraged. He thought, "Alright, whatever. F Y Combinator, who cares?"
But the thing was that developers really thought this was cool because it was a technical achievement. To do this, he had to write his own compilers and create a system that would work in the browser with any language. For example, Atlassian created a competitor called Glitch. Atlassian had a good track record with tools like Trello and Jira, which were developer-friendly. Glitch came out with a huge PR move, raised a bunch of money, and claimed it was coding in the browser.
He thought, "Oh no, they're doing it!" But they were saying it was all JavaScript because JavaScript is everything. He had made a technical choice to support any language, while these guys were saying it was all JavaScript. Initially, they got a huge boost, but he started to notice that Python was becoming really popular on Replit. He thought they were missing the boat; Python was the thing.
Python became the language of choice for machine learning and back-end development. He was the only one that could support Python, so Glitch ended up failing. Atlassian's company failed, and he just kept chugging along. Along the way, he had indie support; it was used by a lot of students, teachers, and coding boot camps. However, it was kind of looked at like a toy—"Oh, that's cute, but those are just beginners who have no money." | |
Sam Parr | Yeah, I'm reading about him on Hacker News. He was controversial there, but a lot of people loved him, while some people disliked him.
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Shaan Puri | Is he aggressive? He was really loved on Hacker News. Not him, but like Replit was really loved because it was kind of cool that you could do this, and it actually worked really well. He's, you know, a great programmer.
One person who was reading Hacker News really liked it, and that person was Paul Graham. Now, Paul Graham had retired from Y Combinator (YC). He was living in the UK in this mansion, and he's not a part of YC anymore.
Amjad got rejected from YC three times, but Paul Graham was like, "Dude, I think this is awesome." He tells Sam Altman, who was running YC at the time, "You gotta talk to this company, Replit."
So he goes to meet Sam, who at the time was in a hybrid office of OpenAI and Neuralink, before OpenAI was a big deal—back when OpenAI was just a research nonprofit. He meets Sam, and Sam's like, "Hey, you know, I don't know anything about you, but Paul really likes your thing and he wants me to check this out. You know what? You should just talk to Paul. He told me, but I'm not the guy for this. You should talk to Paul. Here's his email."
So Amjad ends up trading emails—long emails. He said, "I should turn this into a book someday of my emails back and forth with Paul," like the philosophical foundation of Replit. This was about the idea of enabling ten times more programmers in the world because this whole thing was about opportunity.
So how do you make a programmer who doesn't even have their own computer, who doesn't know how to start, who doesn't know how to get everything installed in their environment? How do you decrease all the friction?
Eventually, even in his initial plan, he said, "We'll have AI that will help you code. It'll be your programming assistant." This was back before AI was a thing—it was like 2014, right? People weren't even talking about AI back then.
It's in his original slide deck. I have a slide here for you. Let me show you. This was his master plan for a seed deck:
> "We're gonna grow by building tools, signing up teachers and students. We're gonna build a simple network and an AI-assisted interface that blurs the distinction between learning and building. Eventually, we will become a platform where people come to learn how to code, explore, and host their code."
This is exactly what they've done. It's like the Tesla master plan. Ten years later, this is his master plan. Ten years later, they've done exactly this.
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Sam Parr | The company is 10 years old now.
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Shaan Puri | More than 10 years old, basically. I think he started this stuff like before 2014. It was a real, again, a side project for a long time. It only became a full-time project later on.
He shared the email: "Hey, got rejected again from YC." He's emailing Christina, who was his first investor. Christina is the founder of Vanta, another company I was going to put on this list. She wrote the first check into Replit as a scout. Vanta is a company that, you know, in 5 years has reached $100,000,000. She went through YC, but the way she did it was she just YOLO'd it. She just moved to a city.
He writes this email to Christina, saying, "Got rejected again. Hard to raise money right now. I might just YOLO, just move somewhere low cost, and just start building this thing. That's maybe what I'll do."
So, look at this chart now. This is Replit developers year over year. It's literally like a perfect hockey stick. Paul Graham posted this, and he's like, "The crazy thing about this is that this is an impressive chart for any company, let alone a company where the users are developers. Meaning all of these developers are going to build things that have their own user base. That is crazy."
So this is the growth. Back when we did this in 2021, we were here, and now we're here. How many...
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Sam Parr | Developers are there. | |
Shaan Puri | So, GitHub has about **100 million users**. Wow, wow, wow!
By the way, I found some crazy stats in my research on GitHub. GitHub is used by **90% of the Fortune 500**. It probably has the most enterprise penetration of anything besides Microsoft Office. For comparison, Salesforce is at **80%**, while GitHub is at **90%**, which is pretty insane.
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Sam Parr | They get sold for. | |
Shaan Puri | GitHub sold back in 2018 for $7.5 billion. At the time, they were doing about $250 to $300 million in revenue.
GitHub now has a run rate of about $2 billion. By the way, the fastest growing feature, which makes up 40% of GitHub's revenue growth, is Copilot. It's the AI-assisted coder that now generates a few hundred million dollars a year in revenue, already profitable after just a couple of years.
So, that is the most successful AI implementation in any company so far: GitHub's Copilot. Why do people... $400 million a year product?
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Sam Parr | Why do people dislike this guy? Is he aggressive?
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Shaan Puri | Well, he said something which is just like, you know, Hacker News is... you know, when you're the underdog, they love you. Then, as soon as they hear about your big funding round, they go and just say how terrible you are. There's always... there's, you know, whatever. There are people I've ever... I actually included this as part of my bold case. It's a... | |
Sam Parr | Case of death. | |
Shaan Puri | That's not what it's saying.
Yeah, so it says they raised this money, and then here comes this guy, B. Feynman, who says, "This is another company I felt skin implode. They don't do anything that's interesting, let alone proprietary. The CEO is an ass, and everybody knows it. He acts as if a browser rep is gonna change the world. I have no idea how their valuation is so lofty, but the core technology is so easily duplicated."
Yeah, go ahead, go try it. Since the heavy lifting they used to do has become obsolete, it's a classic hack. You know, go read the launch of Dropbox, Airbnb, and other companies like this. There's always one of these comments at the top of their post that you want to frame.
So check this out: this is the AI growth. The criticism of Replit would have been great. You're getting a bunch of developers, but they're all young. How are you gonna make money off of students and teachers?
I think the misunderstood part of this, right, is that if you want to find something at a low valuation, it's not that low valuation. It's just another way of saying misunderstood and mispriced.
So what would be misunderstood here? What would you need to believe? The thing you need to believe is that this is a leapfrog technology.
I don't know if you've ever seen those graphs of landline adoption in Africa. Landline adoption of mobile phones in homes was really low, or bank accounts were really low. It was like, you know, some 10% of the population had bank accounts and landline phones.
But then, you would think, "Oh, if this is linear, you start with a landline phone, then you get a cell phone," or "You start with a bank account, then you start getting mobile pay like Venmo or whatever." Actually, those are easier to adopt. Because they're on your phone, they're quicker, they're lighter weight.
So cell phones and mobile payments became this huge adoption. Africa actually has a higher rate of mobile payments than America. It has a higher rate of cell phone adoption than America did at the time because it was a leapfrog technology. It was easier to adopt the smaller thing, the newer thing, than it was to adopt the old thing.
One of the things that Amjad said, which I really liked, was, "You know, all the criticism of Replit is that great beginner people use Replit because they learn how to code, and it's just really easy to get started."
The criticism is that you're not gonna get big developers to switch, you know, 20-year vets to switch to Replit. He goes, "The better question is, if I have 20 million sort of earlier on in their coding career coders right now, and this is a place where they can get started with no friction, build in any language that they want, they have AI Copilot built in, they can host it, they don't need to know how to set up their servers, and there's a community of other people that they can borrow code from, share from, and answer questions with, why would they ever switch?"
Like you're saying, people will never switch from that.
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Sam Parr | to this like like | |
Shaan Puri | These people will never switch back to, "Oh, actually go make your life harder."
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Sam Parr | What did you...? | |
Shaan Puri | A great? | |
Sam Parr | What evaluation did you invest in?
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Shaan Puri | I think like $900,000,000. How'd you meet him? I've never met him in person. This is a company I kind of admired. I've used it, and I went, you know, just looked at him and read about it. It just immediately ticked my boxes.
So, by the way, this is kind of interesting. JetBrains, which is another one of these—probably the most popular coding environment for Java developers—it's a bootstrapped company that does $270,000,000 in revenue, $100,000,000 in profit, and $134,000,000 a year in free cash flow with 6,000,000 users. They raised $0 since it started in the year 2000.
So, like, I think, you know, when you look at what is Replit's revenue potential, I think it's a lot bigger than this because this has multiple things. So what do...? | |
Sam Parr | You think they're worth right now?
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Shaan Puri | What is Replit worth?
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Sam Parr | What do you think they're worth today?
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Shaan Puri | Well, their last valuation was $1,100,000,000. I know, but what?
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Sam Parr | Do you think if they were to raise again, it would be at what valuation?
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Shaan Puri | You couldn't buy my stock. You'd have to pay like a $50 billion valuation to take my stock right now. I would rather just hold the stock and see where it goes.
Why? Because you're ultimately looking in tech investing for giant winners. I think of a VC who once told me, "If I ever talk about unicorns, I want Godzilla." Basically, a Godzilla company is one that becomes worth $50 to $100 billion or more. Those are the ones that make your career.
So I was like, "Cool, cool branding." But what do those companies have? Network effects. This is a network effect business where it's a network of developers. It's growing like a staph infection at spring break. It's growing really fast. Since the last time we did the Sarah's List, it's grown 4x in terms of the number of developers who have signed up for it.
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Sam Parr | Called the phone and be like, "Looks like you got a real ringworm on your hands. Congrats, dude!"
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Shaan Puri | Exactly. I think it's mispriced and misunderstood. I believe it gets discounted for being just something for beginner coders, when I think actually it's like Snapchat or whatever. It's a product where that's the generation you want—people who are going to be using this thing for the next 20 to 30 years.
It's riding a huge tech wave, and it is perfectly positioned to ride the AI wave because AI programming is a thing. Yesterday, Sergey Brin was at the All In conference, and he said, "Yeah, I code with AI." He mentioned that he got back into coding and uses AI. Basically, he just tells the AI what to do.
It's like, dude, the founder of Google is saying, "Yeah, I wanted to build this thing, but it's actually easier for me to just tell AI to do it," and it kind of wrote all the code for him. He thought it was awesome. He then showed it to his team at the Google AI thing and told them, "More of you need to be using this."
He's talking to the top programmers at Google, which is kind of amazing. Dude, this is awesome! I think you gotta ask this guy out for prom. I think I just did. | |
Sam Parr | I think you just did. Is this like you asking Taylor Swift, you know, like someone? This is... you've convinced me. What's the downside?
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Shaan Puri | I mean, what is the downside? Let's see.
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Sam Parr | Had that for every company.
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Shaan Puri | They're not going to be able to make as much revenue as you think. People will graduate off of Replit and decide that.
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Sam Parr | Are they a remote company?
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Shaan Puri | No, actually, another Sam Bull signal: they're not remote. Not only that, they moved from San Francisco to Foster City to build their own cult there.
He's like, "Why wouldn't we move 40 minutes out and just be like the kings of this little area? Have the best environment without the problems of San Francisco, but still being close enough to the talent density?"
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Sam Parr | I think that you used all this great logic, all these silly arguments, and all these numbers, facts, and data. You should've just told me that he wants to build a commune in Foster City, and I would've been on board. I do.
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Shaan Puri | Any deadlifts you like? I know you like that.
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Sam Parr | Does he really deadlift?
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Shaan Puri | He's a power lifter.
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Sam Parr | Yeah, I mean, power lifter, power gains... like, it makes sense. I think my simpleton strategy can almost be as effective as yours. If you look at our last... our last... | |
Shaan Puri | I think our lives would say yes, it does. Right? Like, there's no knock on that. I strive to be more like you. I think you have it right. | |
Sam Parr | No, I'm only teasing. Part of me is being a simpleton just because I literally don't understand that. When you're explaining that to me, I'm like, "I have to learn what all this means as we go." Yeah, it's **fucking complicated**.
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Shaan Puri | Let me tell you the story about...
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Sam Parr | Dude, these guys are geniuses. By the way, these guys are geniuses to be able to invent things like this. I just think... I'm like, we're not the same.
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Shaan Puri | Well, I wrote two words that I would almost never write in a slide deck: **mission-driven** and **visionary** for Replit. Those are so cringe; you can't... you're not even really allowed to say those unless there's an exception.
This exception is this dude from Jordan who was like, "God, I really want to increase access for kids like me." He built this as a side project when there was no money on the line. There was nothing for years. He just kept tinkering away, building it, building it, building it.
In his master plan from 10 years ago, in the seed deck, he was talking about how he was going to have an AI assistant in your coding terminal that's going to help you write the code. And he did exactly what he wrote, you know, 10+ years ago. That is **mission-driven** and that is **visionary** to me. | |
Sam Parr | Well, being mission-driven and into visionary stuff is only cringe when it's not true. When it's true, it's awesome.
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Shaan Puri | Well, it's because it gets abused, right? It gets used and abused by everybody. There's no earning that badge; you just get to use it if you want, which bastardizes it.
But, you know, you look at something like Neuralink or whatever, and you have to give credit to these people. There are videos of Elon talking, like, you know, decades ago about the four or five most important things to do. He's like, "You know, the advent of the internet, creating a clean and sustainable energy future, creating artificial general intelligence safely." He literally was saying these things for so long.
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Sam Parr | You don't need to be mission-driven and a visionary on world-changing things to be intoxicating. That makes it awesome, but you can... if I meet someone who's into something relatively trivial and they're passionate about it, I still get turned on, you know what I mean?
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Shaan Puri | Dude, the Mick Gray episode... it's like this guy, his "Rockets to Mars" is like the 2-hour cocktail party. It is helping people toot their harmonica and have a good time for 2 hours, and much stranger to make some friends. He is more into that than anybody I know, probably more than anybody that there is. He wrote a book about the thing, for God's sake!
And then on top of it, even though I literally don't want to do that—like I would hate if I had to host one of those things—I love being around Nick because that energy is so, like you said, **intoxicating**. It's the perfect word for it.
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Sam Parr | Yeah, when I see a guy like this Shrepa thing, I'm like, I don't really care about any of that stuff. But I care that you called your shot, and I'm into it.
During COVID, when we all had to work from home, I got to hear Brian Chesky give these monthly or weekly meetings. He was in his bedroom, and he looked horrible. He looked like shit because his business was on top of the world, and then it was like, "I don't know if we're gonna be in business." I have like 3,000 employees, and travel is literally the worst thing on earth. Airbnb is paused.
I remember seeing his talks and thought, "Dude, I want to fight for this guy." If I was on his team, he has got me bought in. That mission-driven and visionary attitude is actually really important when it comes to how valuable a startup can get.
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Shaan Puri | I think it is, if you're making your bet—which is what we talked about—basically taking your time and your talents and betting on one company. A super concentrated portfolio where you're going to make a $100,000 to $200,000 bet on a company.
When you take a job at one of these tech companies, you might as well bet on the most talented, most driven, mission-oriented founder who sees the future more than anybody else. It's their decisions that are going to trickle down.
I remember I made a bet on Ethereum, and well, Ethereum is probably one of the best investments I ever made. I made it based on the same criteria. I was like, "This gangly ultra nerd who sang words that I barely understand—this founder's got the fittest neck I've ever seen. I'm in!" Everything I read about him was impressive. At like 16 or whatever, 18, he was writing articles for Bitcoin Magazine because he was so enthusiastic about it. He was getting paid 4 Bitcoin, which at the time was like $12 per article.
That's kind of how he got started. He was truly in it for the long haul; he didn't come when it was time to get rich. He was there before.
Then I remember when Ethereum hit an all-time high, and everybody on Twitter was basically talking about Lambos and yachts, pumping their bags. He posted a Twitter thread that was like, "Hey, this is great, but how many of the unbanked have we banked? How many people have we actually helped? How much of the mission are we actually doing? Yeah, the price went up, but who gives a shit?"
The best founders do that. When morale is low, like in the Brian Chesky example, they never let you get that low; they bring you up. And when hype is high, they bring you back down to reality, reminding you of what you're here to do.
When I saw that, I realized this guy is in crypto, which is full of potential but also full of pumpers—people who are going to take advantage of this. At least I trusted that the person who was stewarding that project was not, to use bachelor terms, here for the wrong reasons. Vitalik is here for the right reasons. He was there to actually help humanity and build a free economic system.
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Sam Parr | To use what terms?
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Shaan Puri | The Bachelor... you don't know that every contestant.
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Sam Parr | I've liked sports. Everybody wants a bachelor.
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Shaan Puri | You're like, "I have triceps and biceps, but my T levels are over 300, so I don't understand." I can tell.
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Sam Parr | You asked about the difference between a barbell and a dumbbell bench press, and why each is good. You could also tell me all about "The Golden Bachelor."
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Shaan Puri | Yes, I can. You're absolutely right.
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Sam Parr | Priorities. Alright, that's the pod. That was good. Thank you, Sean. Thank you, Ari. Thank you to everyone listening.
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