Ranking The Best And Worst Businesses To Start w/ Billionaire Investor Andrew Wilkinson (#386)

Shaan Puri

What are some easy businesses that you've started? For me, Milk Road was a way easier business than any business I had ever started. What's been an easy business for you?

Sam Parr

and where does where does where does agencies rank on the easy to hard scale

Andrew Wilkinson

I'd say it's medium. I mean, the hardest... let's just say the hardest possible businesses are brick-and-mortar or where you have to move physical goods and you have a lot of employees.

Sam Parr

alright andrew wilkinson you're back what's going on

Andrew Wilkinson

not too much good to be here

Sam Parr

Sean, did you know that the Sahil one that we did? We had Sahil Bloom on the other day. Two things were interesting to me: 1. People thought when we were making fun of him that we disliked him. They thought I disliked him, which is not true. 2. It was shockingly popular. Did you see that?

Shaan Puri

Well, that part's not that surprising. The first part is surprising. I mean, we were all making fun of each other. I thought it was a fairly even give and take, but maybe not. Maybe we were... it.

Andrew Wilkinson

was a bit of a roast battle

Sam Parr

but you don't you only do that with people you like

Shaan Puri

Yeah, exactly. If you actually don't like somebody, you don't just come out and start busting their balls. That's not what...

Sam Parr

we like

Andrew Wilkinson

To be fair, the guy is like **stupidly handsome**. I met him when I was in New York. Very, very handsome guy. So, we got a **sh*t** on him.

Sam Parr

yeah he's perfect I mean he's very charming

Andrew Wilkinson

Down the handsome guys. The worst part is you want to hate those guys, but if they're nice, it's almost worse. He was very nice.

Shaan Puri

Yeah, the one thing that was really good is he's pretty prone to taking a pretty cookie-cutter response to things. He's got a good image; he wants people to generally like him. You know, he's on TV sometimes, he's got his book deals, so he's doing things where public perception kind of matters. Whereas if you're just an entrepreneur who owns some business, you don't need everybody to like you. But for his things, it's good when people like him; it's good for business. But he came on and he was super honest, super open about everything. He was not giving us politician answers. Even though I do think he's a future president, he wasn't doing that. So I thought, you know, mad props to him for just being normal. Like, if we were normally hanging out, that's how he was on the podcast. It was perfect.

Andrew Wilkinson

what do

Sam Parr

you wanna start you wanna start with some postmortem stuff you wanna where where do you wanna go with this

Shaan Puri

Andrew always sends us the best topics in advance, where we can just pick and choose. Like, "What's this word mean?" and we could riff off that. But Andrew, I bet you have a sense of what you think the most interesting topic is. So let's not bury the lead. What do you think is the most interesting topic that you have?

Andrew Wilkinson

When I started my business, I was like Mr. Business Builder. I'd say yes to absolutely everything. I'd be in the shower and have the idea of, "Oh, you know, why doesn't this exist?" Then that day, I would start it. I would just constantly be starting new businesses, like every single month. I think it was really good because it was like throwing spaghetti against the wall, right? It was like seeing what a good business model is via pain. So it was just constant pain. Also, running an agency allowed me to see all of these startups make mistakes and learn from them. I had this really painful experience of starting an agency and getting really, really lucky that my first business was actually profitable. I think one of the things that happens is people start their first business, fail, and then they just say, "I don't like this entrepreneurship thing. I'm out." I was able to keep going and started another 5 to 10 other businesses. Almost all of them failed. It was incredibly, incredibly painful. After that, I kind of swore off starting businesses, and I've only just come back to it over the last 3 years. So I can talk a little bit about my experience in some of those businesses. Sam was texting me before, and he's like, "Well, you start all these businesses. You've tweeted out all these businesses. What actually happens to them?" So I was going to go through a couple of those.

Sam Parr

And by the way, for the listener, this is Andrew Wilkinson. You're on... he's on the pod all the time. He owns this thing called Tiny. Although, do you guys want to go by Tiny Capital now or just Tiny?

Andrew Wilkinson

just tiny I hate tiny capital

Sam Parr

Yeah, I know you hated it, but everyone was using it. But it owns Tiny, which is... I think one person called you online "the Warren Buffett or Berkshire Hathaway of internet companies." So you basically buy and hold a bunch of internet companies that collectively are now doing north of $100 million in revenue, or whatever the number is that you say publicly.

Shaan Puri

how much did you pay your friend to say that about you

Andrew Wilkinson

I actually... it's really funny because there have been all these covers, like on the cover of Newsweek or whatever, that say "the next Warren Buffett." Sam Bankman-Fried was one of those people. So, everyone's sharing all these covers from all these things. Being called "the next Warren Buffett" is not good. I am different from Warren Buffett, but I've copied a lot of his ideas.

Shaan Puri

Well, the "next Steve Jobs" was Elizabeth Holmes from Theranos. That was another one he didn't want to get tagged with. I think Chamath was calling himself the "new Warren Buffett" or like the "brown Warren Buffett" or something like that for a while.

Sam Parr

himself that

Shaan Puri

He called himself... or I don't know if he called... I don't want to put the quote on it, but he definitely insinuated it. He definitely said, "We're trying to build, you know, the next Berkshire Hathaway," blah blah blah. And so, you know, he was given that [title] or he named himself that, by the way.

Andrew Wilkinson

My favorite thing about Chamath was that in his annual shareholder letters, he would compare himself to Berkshire Hathaway. He would track Social Capital's results versus Berkshire and then... one year he just stopped.

Shaan Puri

and I

Andrew Wilkinson

I think it was the one year that he didn't actually beat them. I don't recall; that might be an unfair characterization, but that's my recollection.

Sam Parr

so where are you going with this you wanna do the postmortem thing

Andrew Wilkinson

sure

Sam Parr

is that is that where you're going I don't know

Andrew Wilkinson

yeah let's do it we can go through a couple of those I think it's kind of interesting

Shaan Puri

can you

Sam Parr

start with pixel union I think that's incredibly interesting

Andrew Wilkinson

yeah so was running metalab and I was like an early tumblr user and I met david karp just via tumblr like he was he was the ceo of tumblr and he kind of knew all the early users and stuff and I ended up making a tumblr theme that I wanted to use myself and he was like hey this is really really cool I would love it if you could create some more of these and we're gonna make a premium marketplace where other people can pay to buy tumblr themes and so I'm kind of thinking like oh this is a favor for a friend and this is a really small platform I'm not thinking of it as a business but I end up going to a bunch of my designers and saying hey look you know over the weekend would you be able to whip up some themes and so I go to one of my interns like literally a guy who is my brother's friend who had just finished doing I think a philosophy degree and I was like hey turn this into whatever you you want and so we ended up calling it pixel union and it started doing like $10,000 a month of revenue and it was my first taste of automatic revenue like I would go to sleep and I'd wake up in the morning and we would have sold you know $500 worth worth of these tumblr themes and shopify noticed what we were doing for tumblr and they said and at the time they were a tiny company there were about 15 people and they said hey can you guys also do the same thing for us and so we got into the theme world for shopify and tumblr tumblr obviously died post yahoo acquisition and the business still exists today it's a really interesting story actually so we so I I started incubated the business didn't raise any outside capital spun it out of metalab became its own independent company we ended up selling it in 2014 and then I stayed on the board I kept 20% of it and then a couple years ago I bought it back and then we ended up taking it public and that became wecommerce

Sam Parr

what did you sell it for like 10 or $15,000,000 I think I I read about it publicly

Andrew Wilkinson

I sold it for $14,000,000

Sam Parr

why would you sell that

Andrew Wilkinson

Well, at the time, I was doing, I think, $500,000 of net profit. To be honest, it was one of those things where I didn't know how good the business was. I hadn't read anything about investing yet, so I didn't know how to value a business. It was a double-edged sword because I sold this incredible business for, you know, a good amount of money. It allowed me to have a sense of comfort and retirement and all that kind of stuff. But doing so, I suddenly had this pile of cash, and I had to learn how to invest it. So, I started reading about Warren Buffett and reading all the investing books, going, "Oh my God, I can't believe I just sold that incredible business!" You know, it was growing at 50% a year, and I thought it was great to get a 14x multiple, but not when it's growing that fast. So, I regretted it.

Sam Parr

and then what did you guys pay for it when you bought it back

Andrew Wilkinson

So, we bought it back for **$26,000,000**. Then, we did a bunch of acquisitions, and we took it public. Was it due?

Shaan Puri

when you bought it back how big was it when you bought it back I

Andrew Wilkinson

I think it was doing about **$4,000,000** of annual profit, so it had grown a lot. We paid **$26** and then we bought **$4.60** and a couple of other businesses. Then we took it public at a **$260,000,000** valuation.

Shaan Puri

And when you said, "I didn't know anything about investing," and blah blah blah, at that time, I think today people look at you as somebody who knows a lot about investing. They want to be like you when it comes to investing or buying businesses. What year was that when you said that statement? When you felt that way? Because I'm guessing it wasn't that long ago. Is that 10 years? Is that 12?

Andrew Wilkinson

it was 8 years ago 2014

Shaan Puri

So that's basically **8 years**—less than a decade. Going from "I feel like I know nothing about any of this" to, you know, "I don't know what you're like in the top percentile in our industry" and having had phenomenal success. I think that's a sort of a nice thing. It's like if you were willing to put in a decade, you can go from literally the bottom to the top, and that's pretty cool.

Andrew Wilkinson

Yeah, I think it was, you know, getting obsessed. Right? I think that when you... there's no better feeling than picking up a book about something and just desperately reading it. You can't stop going through it. I spent probably two full years just reading every single book I could get about value investing. So, yeah, I think with intensive time, you can do it. And the nice thing is there's that great Buffett quote where he says, "I'm a better businessman because I'm an investor, and I'm a better investor because I'm a businessman." Chris and I, we were natural investors within our own business. We knew how to allocate capital within the business to drive growth, profits, and margins, and all that kind of stuff. So when we became investors, we were much better at it, I think, because we had the operational lens. We could look at a business and say, "Oh, that's really hard," or "Hey, they're not doing these three easy things that we did at our company." I think one of the big problems with investors these days is they're often what I call "spreadsheet investors." They look at a business like a spreadsheet and they go, "Oh, it's easy. We'll just increase margin by 20%," not realizing that in order to do that, you have to convince a hundred people to change.

Sam Parr

what a

Shaan Puri

let me let

Sam Parr

me let

Shaan Puri

Me piggyback off that real quick. So, have you... did Sam... did we talk about this Warren Buffett See's Candy letter? I know I had it on our list. I don't know if we ever did it on the pod. Did we talk about this?

Sam Parr

you it's been on your list you've never you've never just brought it up

Shaan Puri

So, Andrew, you're like a, you know, Warren Buffett PhD. You probably know this, but maybe not. I had never seen this before. There was a letter in 1972 that Warren Buffett wrote to the CEO of See's Candy after they had bought See's Candies. Have you read this before? If not, I just put it in the chat because it's kind of amazing, and I want to talk about it. This was very surprising to me. So, I put it in the chat here in Riverside. But, okay, I think of Warren Buffett as this, like, kind of like what I see today. There's this guy who's super smart, really likable, a storyteller. He's an investor; he doesn't look like an operator. He's like a geezer, right? He's just sitting there at his table, and he reads all day. You know, he makes investment decisions; he's a capital allocator. But when you read this letter, you realize how detailed and in the weeds he was and how business savvy he was. So, I actually want to read out parts of this real quick so that, you know, people who aren't reading it can...

Sam Parr

talk about this is terribly I mean sorry this is incredibly well written

Andrew Wilkinson

he is

Sam Parr

he's he's got such a good voice

Shaan Puri

He goes, "Dear Chuck, I was at Brandy's a couple of days ago and I have a few strong impressions to pass along." So, he visited the store and here are his impressions: He says, "People are going to be affected not only by how our candy tastes, but obviously by what they hear about it from others, as well as the retailing environment in which it appears." This means factors like the class of the store, the method of packaging, the condition it appears in, and the surrounding merchandise. Just like *The New Yorker* creates a different editorial environment for Lord & Taylor ads than it does for *Village Voice*, the surroundings of our candy affect the way that our potential customers perceive our quality—both mentally and gastronomically. You know this better than I do, right? So, that was the first piece, which is basically talking about the store environment. You know, like the way that Apple sort of recreated the retail store. He's already thinking about this and sending this more like an operational and almost like a design note. He's not talking about margin or debt; he's talking about the merchandising of the store and how it feels, and how that's going to affect how people taste and perceive the product. Then he goes on to talk about... let's see what's the next good bit.

Sam Parr

number 3

Shaan Puri

Yeah, he goes at Brandy's. Our product suffers in a comparative way against Stover's. They have an extremely well-organized, well-displayed, attractive area featuring nothing but their candy. We've taken a number of our boxes and put them on the counter with 25 other offerings, offering cheap bulk candy and other run-of-the-mill products. So, he's talking about this, basically comparing it to store design. Then, he goes on to discuss merchandising for a while. He mentions, "We may well want to have descriptive material, maybe our own little booklet called 'The Most Famous Kitchen in the World' or something of that sort." Coors gets a lot of mileage out of the fact that all their beer comes from one brewery. I do think there's a certain mystique attached to products with geographical uniqueness. Maybe grapes from a little part of Italy or France are really the best in the world. But I've always had a suspicion that 99% of it is just in the telling about it and 1% is in the drinking. So, he's talking about this marketing psychology, giving him ideas for catchphrases and slogans. This is way more active and sort of like the brain switched on in terms of operating than I had thought. Was this a surprise for you too, Andrew, or is this something you knew about?

Andrew Wilkinson

That's one of the things I found really inspiring about Buffett. Everybody, to be honest, my impression was always that entrepreneurs are the people that do the work, while investors are people that shuffle paper around on Wall Street. What I realized with Buffett is that he actually was someone who, yes, he owned the businesses, but he influenced the businesses massively. He made them grow, brought them together, and did acquisitions. There are so many ways where he built value, right? You can't say that about a lot of people. For example, BlackRock doesn't build value; they just index. They own a bunch of pieces of paper. Warren Buffett actually grows stuff. What's fascinating, though, and I'd be curious to know whether he would still write a letter like this, is that Chris and I had dinner with Charlie Munger a couple of years ago. We asked him how involved he gets with the CEOs, and he really said, "I'll never forget this." He goes, "I've never been able to change someone's mind. If someone has an idea about something they want to do, I've never been able to talk them out of it." He said there are always opportunities within their businesses to tweak them and make changes and all that kind of stuff, but it's just very hard to actually get CEOs to do stuff. CEOs are not puppets; they have their own brains and they want to do their own things. You know, "Two men with a hammer, everything looks like a nail."

Sam Parr

do you ever get bored just being an investor

Andrew Wilkinson

yeah very that's

Shaan Puri

why he starts all those businesses yeah exactly I dude it's so boring

Sam Parr

I that's why I don't like doing it it's so boring

Andrew Wilkinson

I totally agree. It's like... imagine if someone came along and said, "Hey, look, you don't have to work, and you can have all this free time to just read all day." It sounds like a luxury when you're a stressed-out entrepreneur. But actually, doing it in practice means you have to find new things to fill your time with, and you don't get your hands on the tools, right? So, for example, we bought an Aeropress. When we first bought it, I helped drive the redesign of the website, which I was proud of. However, I very quickly had to let go of it. I knew I couldn't keep holding on to the business, so we hired a CEO, and I had to pass him the baton and let go. Yes, I get a sense of pride of ownership, but as the business progresses, I don't feel the lifts. I don't feel the gains.

Sam Parr

Can we talk about that acquisition? Sure. So the background here is Aeropress. It's almost like a coffee snob product. I owned it, I loved it. It was basically like a more convenient French press that you could travel with. I love it.

Andrew Wilkinson

so I owned

Sam Parr

I own... I still own... I own two of them. I have one that I travel with and I have one that just stays in the cabin. I use it every morning; I love it. But it was only sold... I'm almost positive I would only see them in mom-and-pop coffee shops and maybe on Amazon. I don't even know if they're on Amazon, but the retail wasn't that great. It was clearly a good product. It's one of those products that consumers can buy for $20, but even the coffee snobs are like, "This is the best way to do it." And you guys purchased it recently, which it's not exactly an internet business, but you're trying to make it a little bit more internet-related. Are you happy with this deal? I know you guys paid... it seemed like a lot of money; you paid a premium for it.

Andrew Wilkinson

Absolutely! I mean, when I look across all the businesses that we own and think about what business could exist in 50 years, there's a very, very small number. Most businesses die. I think that Aeropress is something that has potential lasting impact and could be around for decades. It is just an incredibly unique business. I mean, when do you get the opportunity to buy a way of making coffee? It's like, how do you value buying Kleenex, right? The word for the way of making coffee is written on grinders and is almost a verb.

Sam Parr

no I think it's sick man sean did you see he bought this

Shaan Puri

Yeah, I'm not a coffee guy. I literally don't drink coffee. So even though I had heard of the brand, I didn't know enough about it or didn't have too much of an opinion on it because it's not my thing. However, it does remind me of when I was looking at SodaStream. I really love this type of product. I think it's a fantastic category where it's a device that can get into every kitchen and has a consumable, refillable component to it. That's great! Then, if you become the de facto device—like you said, I think you just mentioned becoming a verb—I just read this recently. Someone said, "You know, I learned 25 years ago that if something becomes a verb, just invest." And you know, it's pretty true, right? "Google it," "We'll Uber there." You realize that these verbs tend to become the de facto winners of their category. So, I definitely think it's a good idea. I just don't drink coffee myself, so it's not for me.

Andrew Wilkinson

It's the only business that I own that people like when I tell them about it. You know, if I'm in tech and I say, "Oh yeah, we own Dribbble," and they're a designer, they know what that is. They think it's cool, they might give me a little nod or something like that. But if you tell... I'll talk to, you know, the carpenter working at my house and say, "Oh yeah, I own AeroPress," and if they know what it is, they are *passionate* about it. They're excited about it, and that is very rare. So it's a really amazing business.

Sam Parr

I remember reading about this in Priceonomics. The guy who created it, he was like this... I don't know, now he's quite old. I think he's in his eighties. He was like an inventor, a wacky scientist inventor, like a stereotype guy. He also created the Frisbee or... what was the Frisbee?

Shaan Puri

the aero frisbee

Sam Parr

Do you remember those commercials? There was one where they said, "We could throw this frisbee over a football field" or something like that. He created all this amazing stuff, and he just owned the Aeropress that he created. But he wasn't like a business guy. He just wasn't this kind of person; he was kind of just sitting there, on autopilot.

Andrew Wilkinson

I wouldn't say it was on autopilot. He had a really great president who was running the business side, but they were both older guys. They were really focused on the retail channel, which you can see there's a reason why if you walk into 95% of gourmet coffee shops anywhere in the world, they sell Aeropress. When we looked at it, just a very, very small percentage of sales were online. It just wasn't a focus for them. So we came in, and there's just a ton of best practices. Sean, it's funny you mentioned SodaStream. We actually hired the president of SodaStream US, who grew the business to $200 million in the United States. That's the new CEO of Aeropress. So, oh shit.

Shaan Puri

Yeah, I read about that person because I was researching SodaStream. I was like, "Oh damn, this person was like, you know, the driver or the trigger of a lot of growth that happened for SodaStream." Because, didn't SodaStream sell a couple of times? Like, it's owned by who? Pepsi now? Something like that.

Andrew Wilkinson

I think it's owned by... what is it? Oh my God, I think it's an Israeli company. I don't know if they've sold; they might have sold to Jab Holdings or someone like that. I forget.

Sam Parr

I think they have so

Shaan Puri

Yeah, no, no. **SodaStream** was acquired for **$3,000,000,000** in 2018 by **Pepsi**. Okay, but maybe now it's owned by somebody else. I don't know. There was some story like that where it had kind of flipped hands, I thought. I was thinking that there should be more competition for this. There are so many **D2C** brands, and I feel like the **D2C** SodaStream competitor should win. I know there are a few of them out there, but I'm surprised I don't hear about these more. I'm surprised there's not a **$100,000,000** **D2C** SodaStream competitor that's doing, you know, north of **$100,000,000** in sales. I feel like that should be a thing because SodaStream is very not **D2C**.

Andrew Wilkinson

totally should we talk about some of the terrible businesses

Sam Parr

yes

Andrew Wilkinson

Those are more fun. So, I want to talk about a new business I'm starting, actually, because I've got yet another one. Because I'm a...

Shaan Puri

glutton for

Andrew Wilkinson

Punishment. Okay, so some of the early stuff that I did... I had the idea that I had cats, and I was like, "Okay, all cat furniture is hideous. It just ruins your house; it looks horrible." So, I went out and found a couple of kind of mom-and-pop brands that were doing this. I said, "Hey, I'm going to start an online store for cat furniture called HJ Muse." I spent a whole bunch of money designing an e-commerce website. I poured probably $300 into it, which at the time was a lot of money for me. My whole business was maybe making $800 of profit a year. I just learned how brutal e-commerce was. I was basically eking out these razor-thin margins, whereas in my agency or in Pixel Union, I was making 30 to 50% EBITDA margins. In this venture, I was making like 2 or 3%. The amount of work required to move physical goods around and buy inventory was overwhelming. I realized that while on paper I was profitable, I was constantly taking my profits and putting them into buying more inventory. So, I ended up shutting that business down and losing, I think, all the money I put into it. But it was a great lesson in just how hard some businesses can be. I didn't realize that different businesses were harder than others. When you're inexperienced in business, you stumble into these things. I always think, "God, I'm so lucky I didn't start a restaurant as my primary first business," right? Because it's so brutal. It teaches you so much, but it would be so easy to tap out and just think you don't like entrepreneurship.

Shaan Puri

a restaurant was my first business so what and

Sam Parr

then he went into ecom

Shaan Puri

And then now I have e-commerce, you know, the road less traveled, baby. So, what are some easy businesses that you've started? Because for me, Milk Road was a way easier business than any business I had ever started. What's been an easy business for you?

Sam Parr

and where does does that where does the where does agencies rank on the easy to hard scale

Andrew Wilkinson

I'd say it's medium. I mean, the hardest... let's just say the hardest possible businesses are brick-and-mortar or where you have to move physical goods and you have a lot of employees. One of the hardest businesses I own is a bakery and deli in Victoria, BC, where I live. I bought it because my brother had grown up working there. It was a neighborhood place, and the owner wanted to sell. I've owned it for about 5 or 6 years. They have to have about 40 or 50 employees. Someone has to wake up at 2 in the morning and go into the basement of the bakery to bake croissants. The amount of coordination that has to go right—where if a couple of people are sick, how messed up the business can be—is just night and day compared to any internet business.

Sam Parr

dude if the if the if the manager of that bakery bails are you gonna who's gonna go out and find a new manager

Andrew Wilkinson

I have I have a restaurant group like a food and hospitality group so I have a guy who runs that now before I was me I mean they would text me and say andrew the deep fryer is broken I need an approval to buy a new one or whatever it is so I've put people in place between there in the medium camp of challenge I would say agencies so agencies are beautiful in that they are asset light so really you you don't even need an office these days but you really just need an office an internet connection and a keyboard and you can hire generally the people as you need them and so you don't really need any investment they're they're scalable but they're hard in that you're constantly balancing supply and demand so metalab for example if metalab was to do all the work that came to it at any given time it could probably be 5 times bigger but in order for us to get 5 times bigger we would have to grow the company too fast and we would ruin the culture and so I would say that agencies are a little bit like a law firm or an accounting firm or a consulting firm where you've got this kind of flat linear growth that happens over time so I think they're great businesses but there's feast or famine right and you really have to be prepared for a downturn and you need to be unfortunately ready to make radical changes in the business at the drop of a hat if your pipeline's not looking good and that kind of stuff so it's just very very difficult in that way of course every agency owner I know wants to own a saas software company and every saas software company owner I want or or that I know wants to own like a consulting business or something that grows really fast so grass is always greener the easiest business that I own is a company called wework remotely this is a job board that we bought from jason fried and david heinemeier hanssen at basecamp they had started it and it was like the remote job board they had written a book about remote and they had great seo they ended up ranking number 1 for remote jobs and as you know remote work has taken off over the last 5 years and so we bought that business from them and it really was just kind of sitting idle and so with some very simple best practices and a very very small team we were able to build it into a very large business

Shaan Puri

and what what about saas where would you put you know saas businesses that you've run

Andrew Wilkinson

Well, I've lost a lot of money doing SaaS. I mean, I think a lot of people know the story of Flow, the project management software that I built, where I basically poured $10,000,000 into it. I was competing with Asana and didn't understand the dynamic of when you're competing against, you know, you're fighting an army that has an unlimited budget. It's like Fiji fighting the United States, right? And I'm going, "I'm gonna win this." It's ridiculous. So, I lost $10,000,000 doing that, and that was a great lesson, but incredibly painful. I wish someone like me had tweeted, and I could have read it instead of losing all that money.

Sam Parr

how many agencies do you own right now or partially own

Shaan Puri

you

Andrew Wilkinson

probably own 10:10 or 12

Sam Parr

There was... what's the guy's name? Who's the richest black guy in America? Robert Smith, I think his name is. Yeah, is it Vista Equity?

Andrew Wilkinson

vista equity

Sam Parr

Vista Equity. So basically, Vista Equity is a private equity firm that mainly owns SaaS companies. If I remember correctly, the article said that they own $200 billion—sorry, was it $100 billion? Whatever it was, it was north of $100 billion in SaaS revenue. I think it was second only to Salesforce in terms of their reach. He had this thing where he was saying, "Look, on our companies, we're actually only seeing a 20% decrease from where we thought we would be this year." Meaning, like, only a 20%. He's like, "We're growing at 20% a year. We thought we were going to grow at 25%, so we're seeing a small decrease in the growth that we expected. Therefore, we actually are pretty bullish on the economy." With your agency, since you mostly sell to big companies like Slack and whoever else you sell to, are you seeing a slowdown from American companies buying services?

Andrew Wilkinson

Yeah, absolutely. I think we're seeing softness over the next six months. Things are definitely slowing down, or if they're not slowing down, people want to achieve the same things but for less money. There are these pressures, you know? Like I said, it's this supplier-demand problem. You've got the labor market where people are demanding more and more pay, and then you've got your clients crunching you down. Right now, I think that it's unclear. The other problem is that it's really hazy. You get into these situations, like when COVID hit. We had a brutal three months where the pipeline dried up, and then everything was fine. It really depends on what the market sentiment is. Whereas if you own a SaaS business, what are the odds that someone’s going to take, especially a sticky one? What are the odds they're going to rip it out of their company and retrain everyone on that? Plus, they're only being reminded they pay for it once a year. I always think it's better to have 10,000 people paying you a small amount of money than 100 people paying you a lot of money.

Sam Parr

and what what's famous original

Andrew Wilkinson

So, I would say the theme for me is that I will often do the wrong business before I find the right one. For example, I started a... I always, I'm a designer, and I always fetishize the idea of having brick-and-mortar businesses. I was so sick of doing all these internet things; I wanted to do something in my own city. So, I came up with this restaurant concept of a bar and pizzeria called "Famous Original." Me and some friends did it together, and we basically learned the hard way that restaurants are brutal. You know, we were super egotistical. We were like, "Oh, we're great entrepreneurs; we're going to be able to nail it in restaurants." And Sean, as I've definitely heard you talk about your experiences here and nodded along, we just learned it was the most brutal business in the entire world. We were shocked by how much money we could lose. So, we hired the wrong management, we got the incentives wrong, and we overspent on the build-out to the point where we could never get our money back. You know, labor shortages, we had slippage... there were tons of issues. But what I learned from that was, what does a badly run garbage restaurant look like? And then, when the deli and bakery came up, I was like, "Oh, this is a good one! This has been around for 25 years, stable earnings, great general manager."

Sam Parr

what type of food did you sell

Andrew Wilkinson

it run pizza

Sam Parr

You could screw up a pizza place. I would have thought that would have been one of the easier places to manage. It's like, pretty simple ingredients. I wouldn't have thought you were going to ruin that one.

Andrew Wilkinson

no we managed to do it

Hubspot

Our software is the worst. Have you heard of HubSpot? See, most CRMs are a cobbled together mess, but HubSpot is easy to adopt and actually looks gorgeous.

Shaan Puri

I think I

Sam Parr

love our new crm our software is the best hubspot grow better

Shaan Puri

You have a couple on this list. You got things you did in the past, and you have new businesses you're doing now. But I'm curious, do you have... I guess like we haven't talked to you in a while. Have you had any ideas for businesses that you're not starting currently, but you're like, "Someone could do that," or "Someone should do that," or "I wish someone is going to capitalize on this opportunity or trend"? Is there anything that comes to mind for ideas that you're not currently acting on?

Andrew Wilkinson

So, I might have talked about this idea in the past, but I've had this idea for a long time. I like the concept of a service that allows you to get on one person's radar. For example, let's say I want to sell my company in the next two years, and I think the right buyer is someone like HubSpot. I want to target Dharmesh. Everywhere Dharmesh goes on the internet, I want him to see stuff about my company, and I want him to think we're huge. I forget where the quote comes from, but there's this idea that if someone sees you five times, they think you're everywhere. So, if you're on five podcasts they listen to, they deem you a huge celebrity and a success, or whatever it is. I think I want that, but hyper-targeted. I believe it's worth a lot of money. I would pay $10,000 a month to be on Dharmesh's radar everywhere he goes. I don't know how it gets done; it's like an advertising sniper rifle, essentially. But I really like the idea of something like that.

Sam Parr

So, I have a story about this. My best friend, his name is Jack Smith. He sold his company called Vungle for **$800,000,000** right before the pandemic when he was like 29 years old. The way that he started it was he was living in England as a college student. He had this idea and he wanted to go to an accelerator. "Sean, do you remember what it was called? I don't remember."

Shaan Puri

yeah angel pad

Sam Parr

And the guy who ran it was named Thomas. Jack missed the deadline to join the incubator. So, what he noticed on LinkedIn was that he could advertise just to Thomas. He said on LinkedIn, the way it worked was you could advertise to like a hundred people a day. He thought, "Wow, you can go to a hundred people a day. What if I just move it to like 10 people a day?" They allowed him to do that. It said, "Alright, only show this to 10 people a day, but make it so they have to work in San Francisco and they have to work at AngelPad." The ad said, "Hi, we're trying to reach Thomas. Please tell us to contact us." He did that, and it worked. They let him into the incubator. Six or seven years later, the company sold for $800 million. We at The Hustle wrote an article about this, and it went viral. LinkedIn changed how they did it; you can't actually advertise, and they won't tell you how many people you're going to reach per day or something like that.

Andrew Wilkinson

Totally! Something like that would be amazing. Or even just figuring out, like, okay, let's just do this. So, I get Dharmesh's email and I run it through some sort of database. I go, "What email newsletters does he subscribe to? Or what podcasts?" I don't know if it's possible, but what is his information diet? And then, how do I appear in all those things?

Sam Parr

that's crazy yes I think that would work wonderfully

Andrew Wilkinson

Yeah, there's a... I would love it if someone wants to start that business. Please email me because I think it's a great idea. But yeah, there's... I mean, again, I come up with tons of ideas, but that one has stuck with me for 3 years. So I feel like it's something good.

Shaan Puri

Yeah, what could go wrong? Just targeting somebody wherever they go, everywhere they look. What can go wrong here?

Sam Parr

he's buying a billboard by his house

Shaan Puri

so that's one what about some other ones I know you got more

Andrew Wilkinson

Let me talk about the new thing that we're doing. This has been something that's been driving me crazy forever. So, do you guys know what investment bankers are? Yeah, I know a lot of people.

Sam Parr

call themselves that yeah

Andrew Wilkinson

right but a lot of people kinda go like oh that's like a stock broker or you know they work at a bank confusing clear investment bankers are realtors for businesses they go and they represent you and they sell your business for you or they raise capital for you and I didn't really understand that world at all so like I like I said earlier I have only understood finance for 8 years and I would say really only over the last 2 or 3 years have I actually tapped the world of finance like gotten proper banking credit learned how to sell businesses learned how to use investment bankers but I think those that stuff is not really accessible to founders and frankly they don't speak the language of investment bankers the investment bankers are the spreadsheet business people right they look at your business as a spreadsheet and they want something that's simple and easy to understand and frankly like I was kind of allergic to them because I didn't speak their language they would come and talk to me and they would use terms like ebitda and you know gross margin and all these things I didn't really think about as a founder and so I have been looking for a firm for years that I can use to either sell small businesses and when I say small I mean like kind of 1 to $5,000,000 of ebitda or help founders do secondaries or all these sorts of things or even just finance m and a and I'm yet to find someone everyone seems to specialize in larger businesses or they're too small and so last year chris and I met this young investment banker and he was just a normal person like we had him out for lunch and he was not wearing a suit and he was saying how miserable he was and how much he hated you know his his old job doing it and we we kept saying like look like you should quit your job and come work with us and we'll start a modern investment bank for founders really focused on bootstrap founders because they don't know how to access capital and so we we're starting this business called tenzing we started like a month ago

Sam Parr

what's tenzing again

Andrew Wilkinson

And the idea is Tenzing Norgay is the most famous Sherpa of all time. He helped Edmund Hillary climb Mount Everest. So basically, the idea is you can go to him and say, "Look, what are all my options?" I mean, can I get credit from the bank? Can I raise debt to do M&A? Can I do a secondary? Can I sell my business? They can basically walk you through all of that stuff in a way that's aligned, not fee-driven, and more long-term focused. So we're basically starting our own little investment bank.

Sam Parr

Is that gonna work, dude? Because if you're a startup and you use the word "bank" right now, I hate you.

Andrew Wilkinson

no it's not I mean it's not

Shaan Puri

they're not taking their money

Andrew Wilkinson

I mean, I could just call it a business. We're starting a business, a realtor firm, but the term is "investment bank." There's no banking; we're not holding anyone's money. There's no tokens. I'm not going to Argentina.

Shaan Puri

It seems to be pretty lucrative. Yeah, yeah, tens of billions, it turns out.

Sam Parr

do you like 1,000,000,000 of dollars or not

Andrew Wilkinson

I think, like, I don't know if you guys have experienced this, but even here in Canada, for about five years, I wasn't aware of this. The government will actually pay 30% of your R&D when you're a small company, and I just didn't know about that. So, I literally lit a $1,000,000 on fire. I could have gotten $1,000,000 in these tax credits, and I didn't. I could have used a credit line to buy ads for my SaaS business, but I didn't know how to do that. I could have sold businesses that were working, but I didn't really want that. I just kind of let them die, right? So, I think it's about how do you get the most out of what you have and giving people tools to do that. I just wish this had existed when I was starting out.

Shaan Puri

Yeah, I totally agree. You know, most investment bankers don't work with startups because they're too small or the deals are too small or whatever. So how are you going to get the numbers to work? I don't think they're doing it because they discriminate; I think they're doing it because the money is not there for them. So how do you make that work?

Andrew Wilkinson

Well, it's not small businesses, right? I mean, we're really focused on bootstrap businesses because that's where we come from. These are companies that are doing, you know, $2 million to $3 million, maybe $500,000 of profit. Some of them are actually bigger. So we've talked to founders that are like, "Hey, I've got a $10 million ARR business. I'm doing $3 million of profit. I was thinking I want to sell 30% of my business." And we kind of go, "Okay, well, we have the network. We've gone and raised all these funds and met all the people in finance. Let's connect the dots between these people and be the financial translators."

Sam Parr

what's been

Andrew Wilkinson

The link I shared with you guys is to the website: **10xing.co**. You can kind of see what we're doing there.

Sam Parr

What's been the biggest... Oh dude, I thought you said you hated these graphics. You have the graphics of like the people with the funny arms and funny fingers. If I remember correctly, you tweeted out, "If you see another page like this, you're gonna kill yourself," or something like that.

Andrew Wilkinson

No, no, no. It was the weird, Russian-looking ones that Dropbox was using for a while. They were like so weird and depressing. What?

Sam Parr

I know you! I know these folks. I've met Rob before. Rob is in our world. I don't... that's funny. It's such a circle-jerk world that we live in. Do you just collect people on Twitter? That's what you do?

Andrew Wilkinson

Rob actually lives in Victoria, so I've known him for a long time. He runs Outweigh, the sock business.

Shaan Puri

that's right

Andrew Wilkinson

They just launched a custom sock business. You guys should get some MFM socks made!

Sam Parr

We did... where I've gotten them for this other thing. But what's been the biggest business that you've sold so far? Was it the fitness thing or the meal plan thing?

Andrew Wilkinson

yeah yeah we bought a business called melime and we sold it to albertsons

Sam Parr

did you buy that or that was I thought you started it

Andrew Wilkinson

No, we bought it. There's a guy up in Nanaimo; he's a developer. He started this business with two co-founders. After the first year, his two co-founders didn't want to be in the business anymore. They owned 70%, so we came in and bought them out. Mitch, the founder, was basically like, "Look, guys, I'm already growing this business. I know exactly what I want to do. Just leave me alone." We tried to write the Warren Buffett letter and suggest, "Oh, you should focus on growth," or whatever, but he basically just said, "Leave me alone." So we said, "Okay, fine, we'll leave you completely alone." A couple of years later, Albertsons came and bought it for tens of millions of dollars. It was a great deal for everyone, and yeah, it worked out really well.

Sam Parr

Do you think that in the future you're going to sell anything? Or are you just going to keep on buying and holding? I mean, do you not want to sell?

Andrew Wilkinson

No, I don't like selling. I think that it's really hard to predict what's going to end up being large and how large it can be. If you think about it, if you have a business and it's dying, it's hard to predict how quickly it will die and how much profit will come out of it. Usually, when a business is dying, you can't sell it for much. Let's say a business is on a major downslope; you might get like one times profit. So, you're basically making a bet that it's going to die before a year, which very few businesses do that quickly. I've found it's usually better off just to hold forever. You will see, like Warren Buffett sold off his newspapers. I think that was partly because the writing was on the wall, but also because of unions and a lot of complexity. They wanted to get out of that. But no, I mean, I don't ever want to sell businesses. The only reason we sold Melime was because Mitch wanted to sell the business. He came to us and said, "I want this exit," and we weren't going to hold him back because he was the founder.

Sam Parr

We just did this thing on the FTX saga, and I know that you have historically been... I don't know if you call yourself anti-crypto, but you're definitely not pro-crypto. You're for sure not pro-NFTs and all that other bullshit, of which I agree with you. What's been your take so far in watching all this drama?

Andrew Wilkinson

I think it's really, really bad for crypto. I think that, you know, Sam Bankman-Fried is somebody who I certainly had thought, "Oh, maybe this is one of the good guys." I had seen him do the podcast circuit, and he seemed like a smart guy. When the number two [in the crypto industry] goes out of business, it's like that's the equivalent of JPMorgan suddenly going out of business and everyone losing their money. So, I think it probably has a lasting negative effect on crypto and trust. It's been fascinating watching the price of crypto not react the way you would think. For example, you would think inflation would drive the price of Bitcoin up, but it doesn't appear to have done that. To be honest, I was saying this to a friend of mine, and I think I've probably said it on the show before, but if you came to me and said, "Hey, I think the British pound sterling is super bullish because of XYZ macro event," I would just say, "Why are you currency trading? You're a tech entrepreneur." I think that Bitcoin is currency trading, right? Just buy great businesses and do the thing you know. I think everyone is just speculating on this stuff. There are a ton of fascinating arguments for it, and I follow it, but I have just fully steered clear. I'm sure that we'll invest in a crypto business at some point.

Andrew Wilkinson

But for now, I'm just waiting for it to play out more. One important reminder is, if you missed Amazon, you had until 2010 to invest in it. There's a lot of time to wait and sit and watch to find these great businesses.

Shaan Puri

Two things. First, that thing you just said reminds me of something Kevin Van Trump told us once. He said, "We go... what? You've been trading for 20+ years. What are the biggest lessons?" I asked him some stupid question like that, and he goes, "Well, you know, there's no lesson... blah blah blah." Then he said, "One thing, there's always a second chance on the train. It goes even when it's a winner. Even when it's a good thing, you'll always get a second chance on the train." So, that sort of takes away a lot of the FOMO when you realize that you do get these second opportunities. It happened with Amazon, it happened with Facebook, and it happened with many businesses. Even if you weren't early and correct, these things go up and down. Now, the hard part is when they go down, that's when you have the least conviction. It could be that right now is the right time. Now might be the second time to get on that train because prices are down. But now is when people are the most scared and the most hesitant to act. If you were hesitant before, you're probably triple hesitant now. So, I think that's the hard part: trying to get back on the train when there is a dip. The second thing is we talked about red flags and fraud. I think the last time you were on here, we discussed people who were lying or partners who had screwed you with the FTX thing. Did you hear of anything, or was there anything red flaggy that you had heard either along the way or once it started to come out that you thought, "Oh, that sounds pretty bad actually. That was a bit of a tell," now either in hindsight?

Andrew Wilkinson

No, I mean, I like you guys. I just haven't followed it super closely, and I hadn't really spent a lot of time on that particular business. I was quite shocked that he was known for risk management, and he had been very assertive about talking about the security of the balance sheet. It seems like there's a lot of loans going on between related party businesses where he's bailing out his own business and stuff. So, very sketchy. What I find fascinating is, is this a bad actor? Is he a psychopath who's building a Ponzi scheme, or is he just somebody who got in over his head, used too much leverage, and messed up? I don't really have an assessment of that yet. To be honest, I'm not following it super closely. I'm kind of waiting to read the book. I find that waiting for this stuff to all blow up and waiting four months for, you know, The Atlantic or The New Yorker or someone to write an amazing piece on it is always more interesting than following the day-to-day.

Sam Parr

My favorite Twitter feed, **Autism Capital**, who's been covering this whole story, has said that Michael Lewis (the guy who wrote *The Big Short*) has been embedded with him for the past 6 months writing a book. And that he's still involved. So I have a feeling we're gonna...

Shaan Puri

We're going to be feeling good. It was meant to be like *The Blind Side*. It was meant to be this, you know, this rag... you know, sort of like this is, you know, one.

Sam Parr

the blind side

Shaan Puri

style story

Sam Parr

what's that you said it's supposed to be like the blind side

Shaan Puri

Yeah, like a positive story, right? "The Big Short" was basically like, "Here's this thing that was destined to fail." I think he was following it, not thinking FTX is destined to fail, but thinking, "You know, these are the challengers. Look at the craziness that's going on." But, like, I don't think he was following it with the mindset that SPF [Sam Bankman-Fried] let him in because Michael Lewis was thinking, "It's just a matter of time until this blows up, and this will be the big fraud and the big scandal," like just like "The Big Short Part 2." So, I think that that's the interesting part. It's like, "Well, here's your surprise twist ending that you got here." I will say there's this one guy, Jason Choi, who wrote a Twitter thread that is the best. Andrew, if you want to read the equivalent of the book or the New Yorker piece, I wouldn't wait for them because, A, the New York Times put out a piece on SPF that was supposed to be the recap, and it was incredibly soft on him. It sort of made him out to seem like a good guy, and you know, some bad things just happened to happen. But this guy, Jason Choi, wrote out this Twitter thread that's very clear and has all of the evidence in a timeline that we know so far. It is pretty compelling. You should check that one out.

Sam Parr

have you guys pulled

Andrew Wilkinson

it up

Sam Parr

Have you guys ever... Have you guys ever had contact with someone who's now famous for fraud? I've never... I've like never met someone who was a blatant liar about things that kind of became well-known.

Shaan Puri

I've told the story about the guy who worked with the King of Coal in Indonesia, who ended up in jail and passed away in jail.

Andrew Wilkinson

and but

Sam Parr

He... he wasn't a fraud, was he? He was just a criminal. I mean, he did that. He... he... he like... like... like he's a lot.

Andrew Wilkinson

of what

Shaan Puri

right like

Sam Parr

Well, no, no, no, it's way different. It's like someone, you know, who's like, "What do you do for a living?" Well, I *fucking* rob people versus like Bernie Madoff, who's like, "I run a bank."

Andrew Wilkinson

you know

Shaan Puri

People who steal tend to lie. So, I think that, yeah, this guy was bribing people. But it wasn't just, let's say, bribery. There were obviously going to be other things in an organization like that where, if your primary agenda is to make as much money as possible as quickly as possible, and you have great success doing it, but you're not doing a ton of the value creation yourself, you know, there's often both going on. I was able to see a little bit of it. What I saw mostly was just the fact that, okay, I guess that's the way you do business in these countries. You kind of have to grease the guy in the middle, and that's how you get the thing. The sort of bribery and corruption is very common in India, Indonesia, and a bunch of different places. That part was known; it was an open secret. But, you know, it's not like if you had asked me at that...

Shaan Puri

In time, is there anything else going on? I wouldn't have been able to tell you anything specific, but I would have bet a lot of money that there was something else happening. It's part of the reason why I wanted to leave eventually.

Andrew Wilkinson

so so I most of the frauds that I've met have always been small time so it'll be like I meet someone and I ask around about them and someone's like hey like you know they've gone through the city and got like $10,000 from all these investors and like defrauded them but it's small time enough that they get away with it charlie munger calls them the rats in the granary you can't really do anything about them because they're too small they're always gonna be there and if you you know you hammer them once they're just gonna come back in some other form I met a guy this is a bigger one so in in the canadian stock market there's tons of fraud and there's very little enforcement and often what you'll see is something will get hot so like you know oh vertical farming is hot so they'll find some you know guy with like 5 employees who has a vertical farming business and some investment banker in the public market will say hey let's dress this up as the next great thing and then what they do is they dump it to retail investors so they go to mom and pop and the investment banker calls them and says hey I've got this amazing deal we're gonna ipo it it's gonna pop whatever and they hand the candy out and often what ends up happening is you know as the trend goes so you know as marijuana stocks or fake meat or cubic farming or whatever it is it pops and then it drops and what happens is the investment bankers often make a killing because they get paid in warrants and they get paid a percentage of the money they raise so if they raise a $100,000,000 they might get paid $5,000,000 + warrants and if it pops maybe those warrants end up being worth $10,000,000 and this is all legal this is totally legal and so it's basically legal stealing right so they go out they raise all the money from a bunch of you know grandmas and doctors and normal people stock pops they sell and then it goes to 0 and all the employees get laid off and the company goes bankrupt or it's kind of a shell of its former self and I met a guy at a party you know last last summer and he was bragging to me about this ipo that he had done and how much money he made and I started digging into it and it was literally a the equivalent of taking a corner store public this was like a 2 location business and he dressed it up to match a trend

Sam Parr

how much did they make from it

Andrew Wilkinson

Probably made... I don't know, I could probably do the math, but I would argue it's probably $5 to $20 million doing this. And you know, he's bragging about it while the stock is down, I think to like 10 cents or something, right? It just turned into nothing. And so it's crazy because it's literally legal... it's legal stealing, right? Like everything he did is technically legal. They do all the right documents when they take it public. They disclose all the details; they just write it in the right way.

Sam Parr

doesn't hurt his reputation because he's behind the scenes and like you know no one knows

Andrew Wilkinson

And lots of people flip the stock too, right? So many of his early investors probably just sold when it peaked out to, oh, you know, what are called "bag holders" in the industry. Then those people lost all their money. So, it hurt, let's say, 10,000 people in a very small way. It's just not the sort of thing that gets a lot of attention from regulators. I find that kind of gross and crazy, and there's a ton of that up here in Canada.

Shaan Puri

So, I tweeted this out. Let's see, when was this? This was basically last year, February 2021. I said, "Esport investments are a joke. There's so much dumb money in this space." Look at this $1,000,000,000 publicly traded company in Canada. Esports is another one of those hot industries that you're talking about, and the ticker is EGLX. I showed this graph and I was basically like, "Look at this thing. It's trading at $8.59." So I said, you know, it's basically a holding company of random assets. It's got a website for The Sims. They own a minority stake in the Overwatch team of Vancouver. It's not necessarily a bad company, but it's definitely not a $1,000,000,000 company. Here are some of the things that they bought: they bought Luminosity, the esports team, for $1,500,000 in cash and $7,000,000 in stock.

Sam Parr

what's the company called again I wanna look it up

Shaan Puri

I'll tell you in a second because the prediction came true. Here's the spoiler: **EGLX** is the ticker. So it was $8.59 when I wrote this. It is now trading at... what, 83 cents?

Sam Parr

0.84 oh my gosh

Shaan Puri

so yeah what's the market cap so it's down 90% since I wrote this thing

Sam Parr

a 126,000,000 how does it even have a 126,000,000 not worth

Shaan Puri

A 100% guess spoiler: it's going to go down another 90%. For me, it's my guess—not to pick on these guys, but there's a lot of this happening. I met other people who are doing the same thing, and it seems to happen on these small exchanges in Canada and stuff like that. They bought Luminosity for $1.5 million in cash and $7.5 million in stock. They bought some agencies for $13 million in cash and some more stock. Then they started trading on the TSX and were up 4 to 4x in a year. It's basically an ad agency, and they own a couple of niche websites. If you add in all of the things that they bought, they did $30 million in revenue with $50 million in expenses. They lost $20 million this year, and they call themselves a $1 billion company. Like I said, people want to invest in a rocket ship, and this is a sparkler. They have $8 million in cash left in the bank, and it looks like they're going to need to raise more money if they want to keep this going. I didn't even remember that until you just said this thing. I was like, "I think I saw some bullshit eSport thing in Canada," and sure enough, this was it.

Andrew Wilkinson

Yeah, there are endless numbers of these. I mean, it happens in the States too. You guys saw Nikola, right? Where, you know, even the name—you're like, "Okay, Tesla, Nikola Tesla." You're just trying to grab onto this trend. They basically faked it. They had this, what is it... I forget, hydrogen-powered electric semi-truck, and it turned out they were just rolling it down the hill and turning the camera so it looked like it was driving on a flat surface. Complete fraud. Complete fraud.

Sam Parr

is that really what it did in that commercial

Andrew Wilkinson

Yes, I'll link you guys to something. There's this amazing guy named Nate Anderson. He has a short-selling hedge fund called Hindenburg Research, and he writes these amazing research reports where he takes down these companies. It's just facts, right? It's like all he does is just basic diligence. He'll find, like, "Oh, it turns out Trevor Milton, the guy who is the CEO of Nikola, was accused of all these crimes." If you just do basic research on this guy, obviously, he is a fraud. He'll write these amazing research reports. Here, I'll send you guys one.

Sam Parr

No, this guy, his stuff was good. I mean, he's a short seller, so obviously he's going to be a hater. But his stuff is usually well-researched and fun to read.

Andrew Wilkinson

Yeah, I mean, I think there are crappy short sellers who are going to, you know, make stuff up or hint at things. Then there are short sellers that are basically journalists who just share what's going on.

Sam Parr

do you guys do you guys remember bird sean do you remember bird in san francisco

Shaan Puri

of course scooter company

Sam Parr

Okay, so a scooter company that I don't remember how much they raised, but I believe it was a **$2.5 billion** valuation.

Shaan Puri

and I

Sam Parr

bet they've raised north of 4 or 500

Andrew Wilkinson

I

Shaan Puri

I think they've raised over $1,000,000,000. Let me see... they've raised over $1,000,000,000. Yeah, they've raised more than it's currently worth, and I think it's currently worth...

Sam Parr

So, listen to this. Google, what it's worth right now. They took it public at a $3,000,000,000 valuation. I think it's currently trading at $70,000,000.

Shaan Puri

70 okay they raised 883,000,000

Sam Parr

Is that crazy? This company is... the market cap is $73,000,000.

Andrew Wilkinson

wait which company bird

Sam Parr

bird scooters do you guys think

Shaan Puri

oh they have to have at least 70,000,000 of

Andrew Wilkinson

Of scooters... Well, how much secondary... How much secondary did the founders seek out? To which I can't blame them, to be honest.

Sam Parr

don't blame them

Andrew Wilkinson

because it was so hot but still

Sam Parr

But I don't know how much he took. I always like to stick with the best way to figure out how wealthy someone is by looking at how expensive their home is. It's kind of hard to get a fake mortgage that way. Travis, the guy who founded it, if you Google his name and "house," you'll see tech entrepreneur selling a $10,000,000 home in Santa Monica or tech entrepreneur buying a $20,000,000 home in Miami. So he's bought, I think, two houses that are worth tens of millions of dollars. So he's definitely... there's.

Andrew Wilkinson

There's something I've got a really quick thing, if we have time. Yeah, so do you guys remember I did this thing called a "non-binary term sheet" a couple of years ago?

Sam Parr

yeah so you're you're on that non binary train before everyone else was dude

Andrew Wilkinson

Exactly, exactly. So, I've always found venture really tricky, right? Because someone will come to you and they'll say, "You know, I am going to revolutionize X, Y, Z industry and I'm gonna create a $1,000,000,000 business." I always say, "Okay, well, if you don't create the $1,000,000,000 business, then I lose all my money," right? And to me, that sucks for the founder because if they get a bunch of money at a valuation that's too high, they can never make their investors happy. It also sucks for the investor because it's binary: either they lose all their money or it goes. So, when I was raising money for Supercast a couple of years ago, I wanted to get what the market rate was for valuation, but I also wanted it to be fair. For me, I didn't want to feel bad if the business didn't pan out. I knew that if the business didn't turn out to be huge, it could actually be a good smaller business. So, we raised it at a $10,000,000 valuation, which at the time was kind of a good angel round valuation. But it was structured so that within two years, if the business doesn't do $1,000,000 in revenue, that turns into a $5,000,000 valuation. In the end, we did close to $1,000,000, but we didn't hit it. So, I crammed myself down by 50% to make it fair. Now, I know a lot of founders wouldn't want to do this because, why would you do this, you know, other than to be a boy scout and have a sense of fairness if no one else is doing it and if VCs expect this? But I think it's a really interesting structure, and we've been offering it to more and more founders as the environment changes. We say, "Look, we'll invest, but it has to be structured so that if you don't deliver on what you say you're gonna do, we can still get our money back." What do you guys think about that?

Shaan Puri

I don't love it for two reasons. One is what you just said: why would a founder do it? If I think about it from the founder's perspective, if I don't have to do that, I'm not going to do that. Traditional venture would just be a better deal for me as a founder in that case. The other thing is, I think it creates weird incentives. I like the concept behind it; I like the spirit of it. But then I'm like, okay, who's going to set these benchmarks? What happens when the 1,000 different things can happen in business? You said it yourself: we got close, but we didn't get there. Then there's this crazy urge to do something to nudge it over the top. Now you're doing something that may not be long-term right for the business, and you create some weird dynamics. I wouldn't say it's worse dynamics than currently exist; it's just more like, if I'm the founder, I'd rather do that. I also think I'd rather take the venture path where I'm getting a higher valuation and selling less of my business. I would also say there is a sort of "we're going for it or we're not." If you're running a program like my e-commerce business, we run to maximize EBITDA. Yes, we want to grow it, but this thing needs to make profits every year. Whereas with one of those venture things, it was like, we don't think about that. We think about how we're going to grow users, let alone revenue. Forget about profits altogether. So there is a benefit in knowing which path, which blueprint of business you're trying to build, and then being able to go all in on a strategy that's aligned with that versus a strategy where you're hedging, like maybe we should...

Sam Parr

yeah try net

Shaan Puri

profits but

Andrew Wilkinson

I'm trying to make sorry go ahead

Sam Parr

But Andrew, my whole perspective is that I see all these funds, like this thing called **Hustle Fund** and a few other funds, and they're saying, "We're trying to do things differently." In my opinion, why? The game isn't broken; the game works as it should. The thing that's broken is the people who are joining and playing the game when they maybe shouldn't be. But it works perfectly fine. We are getting our desired outcome.

Shaan Puri

Sam, that's not necessarily true. There are certain businesses that are good businesses, but they're not good venture businesses. Then they have a lack of access to capital. I forgot the guy's name; I feel bad now. He's kind of like... it's kind of like an indie VC thing they're doing. They created... Tyler, is it Tyler? What's it called? The seal agreement or something like that? They have like some new type of document that's like the 9 non-binary term sheet.

Sam Parr

But that's not... but that's not VC, right? I mean, you would consider that's almost like PE. That's a different category.

Andrew Wilkinson

in my but I

Shaan Puri

Guess what I'm saying is it's a funding option. It's an alternative funding option for a technology business, right? You could say...

Sam Parr

That's what I'm saying. It's an alternative to venture capital. What I'm saying is, venture capital as we know it, I think it works perfectly fine. The way it's supposed to work is some get it, most don't. And the some that do get it, most fail, and very few become huge, life-changing things.

Andrew Wilkinson

And, but don't you think, like, okay, Sean, let's say that you got really bullish about your e-commerce concept and you raised $10,000,000. Let's say, like, in the age of Casper when e-commerce is super hot, and D2C is crazy, and the valuations are high. You go out and raise $10,000,000, and now you're stuck thinking, "You know what I really want is to pivot this into a lifestyle business because that's what's logical for what I want." Imagine if there were a structure where you didn't have to feel like a piece of shit because you can never get your investors' money back, right? What I've seen is that the incentive creates this situation where the founder is sitting on a business that could make them happy and give them a great lifestyle, but they have a gun to their head. So, they continue down the venture path even when it's actually futile and won't work, driving the business into the ground. It's worse for the employees, worse for the founders, and worse for the investors as well because the investors just go to zero instead of at least making a reasonable return. It is kind of like private equity, but you have to remember that private equity doesn't take risks on what could be. Private equity invests in what is. They will say, "Your business does $10,000,000 EBITDA; I'm going to assume it's going to be 11, 12, 13, 14," not venture, which is, "Your business does $200,000 in revenue; you're assuming you're going to get to 2 and then 20 over the next three years." So, it's a different form of capital, in my opinion.

Shaan Puri

But isn't the problem, like, let's say I take that $10,000,000 and I sell, let's just say, 10% of the company in that round? What you're saying is that in the event that things don't grow as fast, two years from now, that 10% becomes 30% for the same $10,000,000. It becomes whatever... just, yeah, numbers like that.

Andrew Wilkinson

totally

Shaan Puri

So, isn't the problem that they probably have burned the $10,000,000 along the way trying to get the thing to grow? Hiring people, marketing, whatever else they're going to do. Now they still need money. They have all these people, so you're going to have basically a combination of things. It's like we're going to have to lay off a bunch of people, probably, as we shift strategies to more of a lifestyle type of business to be more profitable. We're going to ratchet up those investors who go from 10% to 30%. The $10,000,000 is gone, so I still need money to run the thing. Most likely, I need to maybe raise additional capital. So, I'm going to raise more money, but on those lower terms, dilute everybody. It just becomes kind of like... it's a sad, rainy day now. Or am I thinking about it only in a bad scenario?

Andrew Wilkinson

I think I just fundamentally have a problem with founders who raise money at a very, very high valuation, especially from people who are not VCs. You've seen a lot of this. There are lots of people in our world who have raised money on businesses that we would value at maybe $5 or $10 million, and they've gone on crowdfunding platforms or something.

Sam Parr

give an example of

Andrew Wilkinson

tons of money

Sam Parr

no I won't say

Andrew Wilkinson

Any names? No, but there are lots of people. I'm not singling anyone out; literally, there are like 10 or 20 examples I can think of. Frankly, it's opportunistic. I get it; you want to raise on great terms. But I have a fundamental problem with taking money from someone when I know I can't give them a return, or there's only like a 5% chance. Positioning it as, you know, "you're investing in this super solid, awesome thing that's going to be huge" or as cash flowing or whatever... You're basically just taking someone from... it's like going to someone in real estate and selling them on your tech startup that we would all know as a bag of garbage. But because they're in real estate, they go, "Oh, this looks great."

Shaan Puri

Yeah, I actually agree with you 100%. I really, really dislike that I tweeted something out that I want to get your guys' reaction to. So, I tweeted something that kind of, I don't know, ruffles some feathers, I guess. Let me pull it up exactly.

Sam Parr

I like this one

Shaan Puri

I don't say it wrong but

Sam Parr

I don't understand how this ruffled feathers but go ahead

Shaan Puri

I go this year, I learned there is no "smart money." Andreesen, Sequoia, Ajamah, Tiger, Tribe, Cotu, SoftBank, Paradigm, Alameda, FTX—they all made terrible financial decisions at huge sizes. Yet, most will get richer. They play a rigged game. Chamath made money off of a bunch of his **shitty SPACs** because he's the promoter. These funds manage **$1,000,000,000** of dollars and they'll make **$100** of **$1,000,000** in fees along the way as a reward, even if they lose their investors' money. They didn't invest. These aren't just companies that they invest in that start to underperform; these are huge bets on fundamentally flawed assets. It's crazy. But the lesson for me: remember to think for myself. Don't use the justification that a big name is investing as any sort of signal. Remember that the "smart money" is just as dumb as me. So, I tweeted this out and I did it really fast. I probably should have worded it differently, but a bunch of people from these firms didn't really like what I was saying, I think.

Sam Parr

did they dm you or comment

Shaan Puri

Come on, the courage to comment and get into a tiff about this? No way! There's no way they're going to take that chance. You know what? I think part of it is that I worded it poorly. I think they thought I was saying these people who are supposed to be smart are dumb and evil. It's because, like I said, they play a rigged game. I stole that from Chris Sacca, who is a venture capitalist. He said, "Venture capital is a rigged game. You make money on the fees regardless of whether you get returns or not, and then you get to carry on the returns too down the road, 7 to 10 years later, before anyone figures out if you're any good at this or not." But, you know, I think people thought I was calling them dumb and evil. Actually, no, I think they are very smart. My point was that even very smart people are doing some really dumb things because it's a really hard game. I gotta remember not to let their conviction in something override my own cluelessness or lack of conviction. I shouldn't think, "Yeah, this is a good idea. These guys are doing it, so I guess I should put money into it," like the FOMO investing style. You know, I got burned on it.

Andrew Wilkinson

I think this is one of the dirtiest things in our industry. So, you know, if you're in private equity or you run a hedge fund, you can tell if you're an idiot or a genius in months or years. However, when you're playing venture capital, it can take **10 to 15 years** to see what a fund really does. Yes, there are markups and all this other stuff, but at the end of the day, to see realized gains takes a very, very long time. What you'll see is someone raises **$100 million**, then **$500 million**, and then **$1 billion**. On that **$1 billion**, they're getting a **2% management fee**, which means they're making **$20 million** a year. Now, let's think about the costs to run a venture capital firm. You've got someone as a custodian managing your fund. If you wanted, you could probably have **3 or 4 employees**. I know Benchmark manages **$3 billion+** with just **12 or 15 people**. So, these are not expensive businesses to operate. I believe they make money guaranteed every year. By the time investors realize that they've underperformed over a **10-year** period, the firm has already made **hundreds of millions of dollars**. It's just absurd for taking very limited risk themselves, and they win no matter what. I think this is something that will go away in the long term. I'm frankly shocked that when you raise a venture fund, you don't have to say, "This is my budget. I'm going to hire **3 associates** and my salary is this. That's all I'm charging you in fees." Instead, they get this situation where it's like, "You get **$20 million** in fees, and if you spend **$2 million** a year on the office, you make **$18 million** a year." It's total hustle. This is why, with our rolling fund and our private fund, we don't do any management fees whatsoever because I am allergic to this. I find it really gross.

Sam Parr

yeah that is crazy

Shaan Puri

to me years of my fund I took zero management fees and then as I hired people then I added the fund but also my fund is so small that 2% management fee of my fund is 200,000 a year it's less than what I'm paying people to doing I am I am taking a loss on my on the salaries you know with that management fee but 2% of a $1,000,000,000 every single year is $200,000,000 over the life of that fund that you got as risk free reward which is insane and so and then you know the other. I was trying to make was that like there are times when you bet on something that's a business that's doing really well a really healthy business that hey you know it didn't achieve the maybe it didn't get as far as we thought it would so it was a 2 x instead of a 20 x or the something in the market dynamics changed a competitor or regulation or the economy slowed down and then they slowed down and they they didn't end up you know achieving the dream that they had versus like the the investors invest in ftx if you're putting like like paradigm paradigm is the number 1 like you know crypto vc crypto focused vc and they put $290,000,000 into ftx right $300,000,000 bet and they came out the other day they go we are writing our investment down to 0 we wanna assure you that this was small portion of our overall funds and we had no idea what was going on like we didn't know about this and you you think about it you're like first of all the fact that a $300,000,000 bet is a small portion of your overall thing like that's true I'm not saying that that's not true because you have a $3,000,000,000 or whatever fund but man when peep when when an outsider reads that f t that paradigm puts 300,000,000 into into ftx they assume a couple things ftx is probably a good business and and at paradigm the smartest guys in the room are probably doing diligence to say hey is this guy literally funneling customer money into his like his own trading hedge fund and like going and gambling with that money or not right like you would hope that somebody's doing the diligence and so you know I I think that that's that's the and not to pick on paradigm I still think these guys are really smart it just sort of shows in general that the amount of diligence you would assume happens on large bet sizes like that is actually you know nowhere near what it what it could or probably should be and secondly like you have people like like chamath when he was doing his spac for metromile right like you know we've named basically a couple businesses that all in pod I think these guys are super awesome I love the podcast they're super smart and successful that's there's no no doubt about that but you talked about bird you know david sachs was the lead investor I think at bird for like multiple rounds if I'm if I'm not mistaken and you know bird now is a $70,000,000,000 company but you know these guys cashed out at the ipo probably you know over $1,000,000,000 and you know you know there you go you're done these guys were months ago laughing about solana and how they you know just received all this solana at the super low price they can't wait to dump it and and you know now they're you know finger pointing at other people in crypto for doing the same that for doing the same thing but not acknowledging it or you know chamath took friedberg's company metromile public through his back and said buffett had geico I have metromile a better business in all these ways and like I don't know less than a year later metromile sells for a third of what it went public for you know to to lemonade and so you you know you see this stuff and you think are these people lying no I don't think that they're lying it's just that investing in a business is a really really hard game and even the smartest people in the room are making really dumb things really making really dumb decisions or dumb bets and in some cases they have unfair advantages that you don't have so it was a reminder to myself and to many other people out there who don't have those unfair advantages that you cannot take their backing or their involvement in a project as a signal that this is a a winner or a good thing that's my rant

Andrew Wilkinson

When you just think about how much more powerful it would be if Chamath had said, "Look, you know, we took Metro Mile public. I thought it was my Geico. I put $200,000,000, 20% of my net worth, into this business, and I lost it alongside of you," or "I invested my warrants into equity, and I locked it up and held it for 3 years" or something like that. But no, there's nothing like that. There's no alignment. I think so often this comes down to the alignment of incentives. You know, they're incentivized to do the bad thing.

Sam Parr

what was the general sentiment of the dms sean

Shaan Puri

like fuck you

Sam Parr

or like you're right

Shaan Puri

Like semantics will stuff first. We weren't in FTX. Dude, I'm not talking about FTX; I'm talking about these other three bad bets. If you need me to name the names, I'll do it. You know this thing you invested in that made zero sense, you know, blah blah blah. So, some of us didn't make this mistake. The other point is, look, this is just the nature of the game. It's venture. You should know this. If you have a venture fund, you know you're going to have a bunch of zeros. I said, "I totally agree." You know, I invest in seed startup ideas that are, you know, somewhere between a pitch deck, a prototype, or an early-stage product. I know a lot of these aren't going to work out. It's very different than if I put $50 million, $100 million, or $300 million into a business that was fundamentally fraudulent or was doing something that was, you know, sort of self-dealing. That's very, very different than, you know, we bet on this technology and it turned out the costs weren't right, and the costs didn't work out, or that traction didn't grow as fast as we had hoped, or whatever. There are different ways to lose. In the same way, I always say in our business, there are areas of action and areas of inaction. If you're trying really hard and you make mistakes, that's totally acceptable. If your error is that you didn't think about it or you didn't do anything, you forgot, or you just dropped the ball on it, that's where I have trouble. The same thing applies in investing.

Andrew Wilkinson

when here

Shaan Puri

You can misjudge a business and think it was going to grow faster, or it got sideswiped by something else. Conversely, you might put money into something without doing your due diligence, and then realize you didn't.

Andrew Wilkinson

To me, this is like... yeah, if a 16Z on average delivers value, right? So as a portfolio, they've created all this innovation. They've invested in all these great companies. Yes, there are going to be some colossal mess-ups where they're going to lose a ton of money. I think that's great. What makes me sad is when you take the holistic result of an entire firm and you go, "Wow, over a 10-year period, they made tons of money," and all their investors lost a bunch of money, or all these businesses were zeros. That, I think, is the hard part. And again, this is a decade's game, right? Chamath, we won't know if Chamath has actually built value for another 10 or 20 years. Frankly, it's all very secret because I think a lot of his stuff is private. So we really have no clue how much money he has, how much money he made, what's been successful, and what hasn't. There's a bit of a smokescreen there, right? I’ve talked to Chamath before. I think he's like a super nice, charming, smart guy. I like you; I listen to "All In," and I like those guys. At the same time, I go, "Wow, there are some games..."

Shaan Puri

Yeah, and again, I'm not saying that they do a bad job or that they did anything bad. I'm just saying the reminder to myself was: just because this really smart person, who you respect and is generally successful, has made money and probably will continue to make money, is in something, you can't outsource your conviction. Like, you can outsource a lot of things, but you can't outsource your conviction. So that was really what I was trying to say. I think I got a little too heated and made it sound like they were dumb or evil, but that really wasn't what I was trying to say. It was actually that they are smart, but even though they're smart, they're going to make some colossal mistakes along the way. They will probably end up fine, but you gotta make sure that you go in with your eyes wide open. That smart person can do dumb things. It sounds so simple, but it's a reality. We all do this. We all take mental shortcuts. "Oh, if these guys are in, we're in." "If they say it's good, it probably is good," right? And you have to do that to some extent or you can't function. I can't sit here and diligence every business on earth. But, you know, at the end of the day, the reminder was to myself: make sure if I bet on anything—and I wasn't an investor in FTX, for example—but let's say I was, or if I was an investor in crypto or promoted Sam as a smart guy, you have to try to not lean on other big names as your source of conviction.

Andrew Wilkinson

Totally! I remember I read Howard Marks' book. He's a famous billionaire investor, a value investor who specializes in distressed debt. I read his book and thought, "Wow, this guy is amazing! What a great investor." I realized there are ways to see what they were buying, so you can find out what all your favorite investors buy in the stock market. I thought, "Well, I totally trust this guy. I read his book; it's incredible. I'm going to buy into this weird Greek shipping company that he just bought, you know, $50,000,000 of equity in." So, I put like $100 into it, and it goes out of business. What I didn't understand were two things: 1. He has thousands of positions, or at least 100, and for him, it's just a tiny little roulette chip that he's put down. 2. He's a distressed debt investor, so he might buy the equity, but he's mostly focused on the debt and expecting it to go out of business. I actually screwed myself by not understanding it and just blindly going along with it. I've made that same mistake, you know, hundreds of times.