Silicon Valley Bank Collapsed... Here's What Happened (#430)
Silicon Valley Bank, Allbirds, and Good Quests - March 14, 2023 (about 2 years ago) • 01:20:04
Transcript:
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Sam Parr | Sean do you wanna set us up what are we doing what are we doing here | |
Shaan Puri | Well, this is the first time the three of us have been on a podcast. So, please come on! I think it's been three or four times that somehow you've never been here during those, even though you all are friends and know each other. That's just strange to me.
But I think this will be fun with the three of us here. I wanted Sully to come on because there was a whole bunch of rich people, smart people stuff that was going on over the weekend. There was the Silicon Valley Bank disaster, the bank run, and all that good stuff.
There's also stuff going on in the stock market. So, Sully is the guy I go to whenever I have questions. I thought, "Alright, well, just bring him on the podcast instead. I'll ask you the questions here instead of just texting or calling." So, that was my idea.
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Sam Parr | did you guys did you guys get impacted by this at all | |
Shaan Puri | I had money in Silicon Valley Bank through my fund. Our venture fund had money through AngelList. AngelList kept all their money in Silicon Valley Bank.
So, we were lucky that I started hearing about it, and I was like, "Yeah, I think we should get out." We ended up having about $1.5 or $1,600,000 in that account—maybe a little more, actually, because they hold some for management fees.
Then we got it all transferred out to a bank I've never heard of. They were like, "You want it moved to Grasshopper Bank?" I was like, "You could put it in the field outside your office. You can put it anywhere, just don't leave it in the bank where there's a bank run going on."
Yeah, exactly.
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Sam Parr | couch dude it'll be fine | |
Shaan Puri | So, we got out like literally in the nick of time. We were almost impacted, but not in a major, major way. There were some people that were stuck, tens of millions, or even a hundred million dollars. Sully, I'm sure you heard some crazy stories. What did you hear? How did it play out from your perspective?
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Suleman Ali | Yeah, I was at this SV Angel founder event, the Founder Summit, in San Francisco on Thursday when the bank run was happening. People all around me were on their phones trying to take all their money out of SVB and transfer it.
People walked out of the sessions and were sitting on their laptops trying to do that. One guy told me that he wired **$70,000,000** out of his SVB accounts that morning into his personal Morgan Stanley account because he didn't want to wait for a bank account and the business name to open, as that would take 24 to 48 hours.
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Sam Parr | Which, literally, in normal circumstances, that would be maybe not illegal but hugely frowned upon.
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Suleman Ali | Definitely ill-advised. Yeah, it looks like you're about to steal $70,000,000 of other people's money and put it in your pocket. But I think this is...
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Shaan Puri | Right away, was it like, "Let's see what happens?" Because, you know, the series of steps was: I saw the stock price go down. That was the first text I woke up to. Sam, in our group chat, somebody showed the stock was down 30 or 40%.
It just seemed like a stock problem. It seemed like, "Oh, the company is getting hammered." But, like, dude, I feel like I've seen that five times in the last five months with some sort of stock down 40%.
Then somebody was like, "Oh yeah, could this mean that the bank goes under?" And then the wheels started turning in my head. Fortunately, I had seen and not acted on two crypto bank runs in the last year and had been burned by those.
So, I'm a criminal under-reactor. I don't really react, even in cases of emergency, which is good because in normal life, usually, things are not an emergency, and it serves me well. But when there is an emergency, I'm also pretty laid back.
So this time, I was smart enough to be like, "Hey, we should do something right now. Don't wait. Don't wait to see how this plays out. There's no upside in waiting to see how this plays out."
Did people recognize it right away where you were, Sully? Like, "Hey, this could trigger a bank run?" | |
Suleman Ali | Yeah, I think in the beginning of the day, everyone was kind of chill about it. But a ton of VCs, I think starting with Peter Thiel, said to their portfolio companies, "If you have money in SVB, take it out. Take it out immediately, like right now. Do whatever you need to get it out of SVB."
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Sam Parr | And let me explain. I'm the least educated on finance stuff here, so let me explain from a 5-year-old's perspective what happened.
So basically, Silicon Valley Bank is like the 19th largest bank in America, something like that. Top 20.
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Suleman Ali | 16th | |
Sam Parr | The 16th, and it's usually used by Silicon Valley-based startups and others who relate it to startups.
So, what happened was during 2021 and 2022, when VCs were going crazy and startups were raising huge amounts of money, they used Silicon Valley Bank. They took on tens of billions of dollars in new bank accounts. They had all this new money, and what they did was buy long-term bonds that yielded a rate of about 1.5%. In a way, it was them thinking, "We're just going to be conservative and not do anything crazy here with all this extra money."
Then, the Fed increased the rate to 3-4%. Their customers, which are startups with new cash, are burning tons of money and lowering their deposits in their savings and checking accounts.
It became public on Wednesday at the quarterly earnings report that they said, "We bought these 1.5% bonds," which is not good because the Fed recently raised the rates to 3-4%. This means our 1.5% long-term bonds are now devalued, and we have to sell a bunch of them at a huge loss.
People heard about that, social media went crazy, and VCs tweeted, "Get your money out immediately!" Everyone started pulling their money out. Then, by Friday, the Fed or the government stepped in and said, "We gotta stop this. They're going to run out of money. This is not good; everyone's going to get hurt."
Is that a good summary from a dummy's perspective of what happened?
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Suleman Ali | Yeah, I think that's pretty good. I think that all of those things could have happened, except, you know, Silicon Valley is just such an insular place but also such a viral place where everyone talks to each other.
So I think if it wasn't for the fact that it was Silicon Valley and everyone talks to each other, there wouldn't have been a bank run this fast. Like on Thursday, when the bank run happened, **$42,000,000,000**—people tried to wire out **$42,000,000,000** in one day out of Silicon Valley Bank.
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Sam Parr | how how much money did they have a 100,000,000,000 | |
Suleman Ali | They have something like $180,000,000,000 in deposits. So, about 25%—25 cents on every dollar—was tried to be wired out in one day. | |
Sam Parr | And what happened when people tried to do that? It just said no. I mean, what was it that they saw on their screen?
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Suleman Ali | In the beginning of the day, it was working. This guy wired out $70,000,000. A bunch of other people at that SV Angel event were wiring money out, no problem.
Come the afternoon, they couldn't log in to Silicon Valley Bank. It just wouldn't let you log in. In fact, I tried to log in yesterday. I have a Silicon Valley Bank personal account, and it also said, "You can't log in until Monday."
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Shaan Puri |
And were you affected by this, Sully? Because I know in the past, your companies have used Silicon Valley Bank. I think you've raised money from them. So first, were you affected? And second, why does everybody use Silicon Valley Bank?
I think they said 50% - this is on their website, I don't know if it's true - but 50% of venture-backed startups use Silicon Valley Bank. That's crazy! Is it just the brand, or did they do something that was advantageous to startups?
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Suleman Ali | Yeah, they do a couple of things.
One, they have strong relationships with all the VCs—or so they thought. They've had strong relationships with everybody. So, all the VCs are doing their own banking. All the LPs and venture funds are doing banking at Silicon Valley Bank already.
Then, they host tons of events around Silicon Valley and sponsor tons of events. You just see their brand name everywhere as the bank that you should use. | |
Sam Parr | and it kinda has like an elite vibe a little bit which is | |
Suleman Ali | yeah | |
Sam Parr | Stupid because... or that sounds stupid, but a lot of media headlines were like, "Bank used by the rich and famous or tech elite is going under."
So the sentiment was like, "Oh, screw them," which maybe is part of the reality. A lot of rich people do use them, but payroll companies use them too.
There were a lot of companies, like Rippling, that The Hustle used for payroll years ago. You pay your payroll to pay your employees, and Rippling is the middleman. They hold on to your money for 3 or 4 days and then they pay your employees.
Rippling used them, and so 300,000 to 500,000 employees of companies, both blue collar and white collar, weren't going to be able to pay their bills or weren't going to be able to receive their paychecks.
So it's not just like, you know, the elite. Yeah, it's kind of a misnomer for who it represents.
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Suleman Ali | Yeah, the other reason we use them at TinyCo—and this might be my greatest personal achievement—was I got free tickets to the NBA Finals from Silicon Valley Bank, where they invited me to hang out in their box and watch the game.
So, you know, there are a bunch of perks like that for using Silicon Valley Bank. Also, if you raise any debt, they're a huge venture debt provider in Silicon Valley. Oftentimes, when companies raise an equity round, they'll also raise a little bit of debt.
For example, they might raise $10,000,000 of equity and $3,000,000 to $5,000,000 of debt, depending on what their capital needs are. When you raise debt from Silicon Valley Bank, they require that Silicon Valley Bank is your exclusive banking provider. This means all of your deposits have to be at Silicon Valley Bank as well.
That way, they've got visibility into it and that kind of thing. So, a ton of startups will get debt, and then they have to use Silicon Valley Bank as their bank, so they have no other choice. | |
Sam Parr | And over the weekend, basically, there were a bunch of people—our mutual friends—who were just sitting there from Friday to Saturday, Sunday morning, thinking, "I think all my money's gone. I don't know what's going to happen."
I was with maybe a dozen people, and they were saying, "You know, I've had $100,000 or tens of millions of dollars, and I just don't have that now. I have no idea how I'm going to pay my employees. I don't know what's going to happen."
Then, Sunday night, we find out that everything's going to be fine. The corporation, Silicon Valley Bank, is going under. If you're a stockholder in that, I think you're going to lose everything. If you're a bondholder in that company, I think you're going to lose everything as well.
But if you're a depositor, if you're a customer, you're going to be made whole. So it's no big deal. I think you can access your money now. Is that right? Is that how this is currently being resolved?
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Suleman Ali | Yeah, that's exactly right. So, the Federal Reserve and the U.S. Treasury Department were like, "If Silicon Valley Bank depositors lose their money, this is going to create a systemic risk."
That systemic risk is that everyone who has money in these 2,000 local community and regional banks is going to take their money out Monday morning because they're afraid that their personal bank will also have a bank run.
So, which would... this is literally...
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Shaan Puri | What bank run? Also, right, like anybody being proactive would be triggering an actual bank run across many, many other banks. So they had to basically get people to chill before Monday morning. | |
Suleman Ali |
Yeah, exactly. Like First Republic Bank is a bank that I use, and a ton of other startups use. In fact, First Republic Bank is the bank that Mark Zuckerberg uses to get loans for buying a house or just getting a loan against his stock.
There were rumors over the weekend... a bunch of my finance friends in New York texted me and said, "Hey, do you have any money at First Republic Bank? If so, get it out Monday morning." Well, even...
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Shaan Puri | Today, it's down 65%. So even though this happened, why is it still down so bad?
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Suleman Ali | I think people are just still afraid that depositors are going to take money out of First Republic Bank.
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Sam Parr | There was a funny headline that said, "When you think of this, you think of literal pitchforks, guys wearing straw hats, and torches standing outside of the bank."
The headline mentioned that people were rallying outside the bank, just banging on doors to get in. You might imagine a pitchfork mob, but it was actually 8 or 9 Asian guys wearing Facebook backpacks and North Face sweaters. They were smiling at the camera.
This article caught my attention because they looked really happy, waving at the camera. I thought it was a pretty funny thing.
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Shaan Puri | Well, I think that was part of the problem here. Like you said, in Silicon Valley, everybody's so tightly networked that word spread like wildfire.
Back in 2008, when the global financial crisis happened and the other bank failures occurred, there wasn't really a fast way to communicate. Twitter was very new at that time, and smartphones had only come out that same year. So, it wasn't as quick.
This was basically a bunch of people who were all interconnected and talked to each other a lot. On top of that, you could now do online banking and quickly log into your phone or laptop to wire out $70,000,000. You didn't even need to go to the bank. Normally, during a bank run, there would be a huge line, and that line itself is a barrier to this happening.
But in this case, everybody talked about it, everybody moved their money out digitally, and word started spreading. Fear began to spread across Twitter, TikTok, and other places. It just felt like it was the end of the world. You had to move now, and that sped this whole thing up into a one-day financial tsunami.
What do you think about that? | |
Suleman Ali | Crazy, because I bet the CEO of Silicon Valley Bank woke up Thursday morning and was like, "What's the big deal, guys? This is gonna be fine." But what...? | |
Sam Parr | Was it a big deal, Sully? Like, besides the fear, was the business itself actually at risk?
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Suleman Ali | There is a real problem with the Silicon Valley balance sheet because of the depositors taking money out in general. Even before Wednesday, all of the startups that banked at Silicon Valley Bank were withdrawing money every week to pay payroll due to their burn rates.
So, there was already a problem. However, I think that regulators are monitoring bank balance sheets on a monthly basis very closely. They were like, "This is all fine" up until that point.
Nobody thought this was a problem. The Silicon Valley Bank CEO was like, "This isn't a problem," and regulators thought, "This isn't a problem" as well.
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Sam Parr | Yeah, but in one line that was bad. He goes, "We don't panic." I think he said, "Don't panic."
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Suleman Ali | Exactly. He did such a terrible job of PR. The way that they came out on Wednesday and said, "Hey, we're gonna raise $1,800,000,000. We are gonna raise $2,000,000,000 because we lost $1,800,000,000," was just mismanaged from a PR perspective. I think if they had done a better job of that, they wouldn't be dead today.
To Sean's point about the speed of this happening, the biggest bank failure in American history is Washington Mutual in 2008. In 2008, $17,000,000,000 was withdrawn from Washington Mutual in 10 days. In contrast, at Silicon Valley Bank, it was $42,000,000,000 in one day on Thursday. The speed with which business happens is so much faster now.
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Shaan Puri | And I want to get your reaction to two people.
First, Peter Thiel. Some people are like, "Oh, Peter Thiel strikes again." He's seen as a menace. They say he brought down Gawker, got Trump elected, and now he triggered the bank run of Silicon Valley Bank. So, do you think there's any truth to that?
On the other side, we have Mark Suster, who's another VC down in LA. He basically came out during the process and said, "Companies, you should keep your money there. Support Silicon Valley Bank. It supported us. We don't have to have this hysteria. If we don't do the bank run, there won't be a bank run. Keep your money there."
For people who listened to him, he could have caused them to lose access to the majority of their money.
So, what do you think about those two people? How much blame or credit do you give to them?
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Suleman Ali |
I do think Peter Thiel has a ton of power. He's like this godfather of Silicon Valley, you know? We had at TinyCo, we had Marc Andreessen on our board, and he would never mention what anyone else says except he would constantly mention what Peter Thiel says. So I think he's...
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Sam Parr | a what's an example and why | |
Suleman Ali | I think Mark Andreessen just looks up to Peter Thiel and believes that Peter Thiel has a bunch of good ideas.
For example, one thing I remember him saying was that Peter Thiel says the best startups have one source of revenue, not eight sources of revenue. I'm sure you've seen this in startup pitch decks where they're like, "We're going to generate revenue from ads, we're going to generate revenue from businesses, and we're going to generate revenue from these customers."
Having eight different revenue streams is much worse than saying, "We're Facebook, we're going to generate revenue from ads." One single, clear revenue source in the beginning is key.
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Sam Parr | And do you think that... I mean, I don't think he's the bad guy in this situation. Because basically what happened with him was, it would be like if just a normal person went to the bank or the ATM, and they tried to withdraw money, but the ATM was glitching. They might think, "This doesn't feel right. Hey family, I think you should bounce and go get your money out of this. This is glitching; this does not look good."
Because I believe Peter Thiel, he did a... I think Silicon Valley invested in Founders Fund or something like that. Is that the story? Or he did some type of capital call, and Silicon Valley couldn't pay up right away? Is that right?
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Suleman Ali | I didn't see anything about that, and yeah, I don't know what that is. What I know is that Peter Thiel was one of the people in Silicon Valley who said, "This is not good. Everybody take your money out."
Then, you know, all the other venture firms heard that and sent emails to their portfolio companies saying the same thing. Like on Thursday, I'm an investor in a bunch of venture funds. A bunch of them emailed their LPs and said, "Hey, this is our exposure to Silicon Valley Bank as a fund. We're talking to all the portfolio companies and trying..."
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Shaan Puri | to get them | |
Sam Parr | to remove all of their | |
Shaan Puri | money out of silicon valley bank | |
Suleman Ali | so really they caused the bank run you're an you're an lp in like you're an | |
Shaan Puri | Investor in a bunch of funds, like maybe what, 15 or so big venture funds? Yep. Did they have their money tied up?
I'll ask, and I'll tell you why I think this is something a little fishy here. So, on that Thursday or Friday when it was all going down, VCs were simultaneously telling their portfolio companies, "Hey, get safe." But at the same time, they were basically saying, "Hey, the Fed needs to come in and ensure that all the depositors are going to be made whole."
They were saying it anytime somebody uses the, like, what I call the "single mother story." It makes me very suspicious. What I mean by that is they were like, "You have to do this because jobs are at stake. These companies have to make payroll, and if they can't make payroll next week, you know this is going to cause jobs to be lost. And you know who works those jobs? Single mothers."
They were basically saying all the political buzzwords to get Washington to do something because, you know, nobody wants to go be like, "Hey, I'm a venture fund. We had $90,000,000 in Silicon Valley Bank because they gave us lines of credit, and we had to keep our money in there. We're stuck, you know? We're way above that FDIC limit, and if we're not made whole, we're screwed."
Was that the case, or is that just my conspiracy? Should I take off the conspiracy hat, or do you think that was a part of it?
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Suleman Ali | Yeah, I mean, I saw a bunch of videos of David Sacks and Jason Calacanis saying that kind of thing. I might be skeptical that any of that matters. I think the way that Jay Powell and Janet Yellen look at this is that there is a systemic risk to the banking system.
So, you know, taking a step back from Silicon Valley Bank, the American financial system is this amazing black magic that exists. It is a source of tremendous amounts of prosperity in America and in the world.
If you go to places like Pakistan, where I was born, you don't have access to credit cards. You don't have a FICO score. You don't have the ability to buy a piece of property and get a 30-year mortgage on it that the government backstops. You are constantly worried about your currency being inflated because you're not sure that the government isn't going to just print so much money that your rupee, which is worth 100 rupees, basically disappears because of inflation.
And you're not worried when a publicly traded company reports earnings that those are lies. In the United States, there is so much that is amazing from a financial infrastructure perspective that the rest of the world does not have.
The Federal Reserve coming in and bailing out Silicon Valley Bank and doing it without using any taxpayer money, making all the depositors whole, wiping out all the equity holders, and wiping out all the unsecured debt holders—that's the right thing. And, well, where did the money come from?
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Shaan Puri | yeah if it didn't come from taxpayers where does that 25,000,000,000 | |
Sam Parr | Backside, where does it come from? Also, "bailout" I don't think is the right term because they didn't bail out the bank. The bank is out of business or it's dead. But they bailed out the depositors, right? The customers.
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Suleman Ali | yeah and and you know what people were saying on the internet bailed | |
Shaan Puri | out single mothers yeah | |
Sam Parr | yeah because they need that 3rd home in truckee | |
Suleman Ali | Yeah, what people were saying on Twitter, which I agree with, is that when you put money into a bank, you're not thinking of this as buying a risk asset. You're just thinking of it as, "I literally have cash." I could store it under the mattress, but that would be silly. I'm going to store it with the bank, and the bank is going to do a better job of taking care of my money than I would by storing it under my mattress. That's an important American value. | |
Shaan Puri | yeah like that is | |
Suleman Ali | a super important american value | |
Shaan Puri | that is the product that the banks sell | |
Suleman Ali | yeah is safety and security and trust | |
Shaan Puri | Faith that your money is safe is crucial. If people start to question that product, the banking system doesn't work, and you're one step away from people... | |
Sam Parr | saying screwed | |
Shaan Puri |
Dude, who cares about this little green piece of paper? I don't know if anyone's gonna care about this or if this is gonna have any buying power tomorrow. Right? Money... money also has the same thing where the only attribute that matters is belief in its value. And banks have the same thing - it's belief in their safety there.
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Sam Parr | and where'd the money come where'd the money come from though you you didn't answer that | |
Suleman Ali | The FDIC is basically funded by other banks. Think of it as an insurance fund. Banks pay a premium to that fund, and the FDIC insurance fund has $100,000,000,000 in fees that it's collected from banks. In fact, in the Federal Reserve letter that they printed and released yesterday, they said any other fees or money that we need is going to come from a special assessment of other banks. | |
Sam Parr | oh wow | |
Shaan Puri | So, they had this money and they said, "We're going to make up to this much available, not just to Silicon Valley Bank, but any bank that needs a loan against their long-term assets."
If they have the same kind of duration mismatch where they own, like, they're good for the money, they just can't get it out today. It's in 30 years; they'll have enough money for sure.
It's just that today, the value of that mortgage that they owned had gone down 30% or whatever.
Yeah, that's right. They said, "We'll give you a loan against that asset in the meantime."
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Sam Parr | who are the who are the winners here | |
Suleman Ali | To me, the winners are other community banks and other banks that have this problem. So, yesterday, the government announced this brand new program on like one sheet of paper. | |
Sam Parr | it was like a Google doc I saw it | |
Suleman Ali | Yeah, it's so funny that they release stuff in the way that they do. They created a new program called the **Bank Term Funding Program**, and that's basically going to prevent the Silicon Valley Bank problem that they had with the long-duration bonds.
So, basically, Silicon Valley Bank had an **$1.8 billion** loss because they sold a bunch of 10-year duration bonds. They had to sell them for **70 cents** on the dollar. What the Fed announced is that if you're a bank and you've got a bunch of 10-year paper that's worth **70 cents** on the dollar, you could get a loan from us for all of it. You can get a **dollar-for-dollar loan**.
So, if you've got **$98 billion** of 10-year paper that's now worth **$60 billion**, we will give you a loan for **$90 billion** so that you can avoid this problem. You can basically not have a liquidity problem. | |
Sam Parr | And then the other winners were like... there's a lot of startup banks, like Mercury. It seems like they were just crushing it. I think Brex was another one; they're just killing it, right?
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Shaan Puri | Well, I think the best thing for them... So, I think the real winners are First Republic because they would have been wiped out today, probably.
And yeah, many others like First Republic. So, they got... you know, the bullet just whizzed past their ear. Luckily, that was the last bullet, and now there's no more bullets coming today.
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Suleman Ali | There are 2,000 community banks in America. A bunch of those would have had a bank run today or this week if the Fed didn't do what they did. | |
Shaan Puri | Mercury and a bunch of these other startup banks basically became the go-to options when everyone needed to move out of Silicon Valley Bank. It was like, "Who's the fastest? What's the next bank name I know that I can open up an account with?" Mercury and others were beneficiaries of that.
Now, they got **$1,000,000,000** in inflows yesterday, or sorry, Friday. I think a lot of that would have skipped town this week. They would have been a middleman because who the hell is going to keep their money in a startup bank when this is your fear?
You're not going to keep **$10,000,000** or **$20,000,000** there. You might have moved it there just because you needed a quick safe haven, but you weren't going to keep it there. You were still going to go to Chase or Wells Fargo or whatever and put the bulk of the money there next week.
So now, I think they're in much better shape. Instead of being just a middleman, they might keep a lot more of those depositor relationships now. | |
Sam Parr | And is it possible that, other than the equity holders and the people directly impacted by this, the average American might be positively impacted in the next 6 to 12 months?
Maybe the Fed won't be doing more rate increases. So then, you know, maybe you can get a mortgage at 4.5% or 4% in 6 to 12 months because the government is like, "Oh hey, we kind of achieved our mission because these guys screwed up."
Like, inflation might not be as bad now because of this big loss. Is that accurate, or is that too much of a reach?
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Suleman Ali | I personally think that's too much of a reach. I definitely see people saying that on Twitter and CNBC, but I think inflation is rampant and has nothing to do with the Silicon Valley Bank problem.
Basically, in two weeks, people will have forgotten about the Silicon Valley Bank problem and they'll have all their money as of today. So, it's back to business as usual. Business as usual still has massive inflation, and the Fed is going to continue to raise rates, in my opinion.
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Shaan Puri | I realized how naive I am because I was under the impression that if I kept a bunch of cash in the bank, that was me doing the safe thing. I wasn't investing this money or trying to get yield on it. I was saying, "Look, I just want to keep this in the bank just in case."
The $250,000 FDIC insurance was this idea that existed, but I had never heard it come into play. In 2008, I was a sophomore in college; I didn't care or know. I didn't have a bank account, you know? I didn't do anything at that time.
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Sam Parr | yeah you thought lehman brothers was where you like buy khaki pants like you thought it was like a clothing company | |
Shaan Puri | I thought they were like oh | |
Sam Parr | you got that new pair of lehman | |
Shaan Puri |
Exactly. It was like, "Are they hosting Thursday this week? What's going on?" So it's like, you know, this is kind of my first time for this coming into play.
Did you... because I was like, "Who the hell is gonna take..." If you have $5,000,000, are you really gonna go open up 20 bank accounts, each with a $250K limit? Like, that sounds so inconvenient and outrageous, I think.
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Sam Parr | that's what a lot of people do | |
Shaan Puri | but they they had a lot of learn | |
Suleman Ali | Giannis, the Greek Freak, announced that he has 50 bank accounts at different banks, each with up to $250,000. That's how he kind of secures against this.
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Sam Parr | Well, I saw Jared Kushner when he became whatever his role was in the government. I forget what he was, but he had to release his income or his net worth. I remember looking through it all, and he had dozens of bank accounts. It just said $250,000 in each account, and I was like, "Why?" And this is one of...
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Shaan Puri | Is this normal? I mean, am I the only guy who didn't do this?
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Sam Parr | I try not to go above $250,000, but for my business, I did. Personally, no, I try not to go above $250,000.
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Shaan Puri | so you spread it across you know how many accounts exactly then sam what would that be | |
Suleman Ali | yeah give us account | |
Shaan Puri | This is our new way to trick people into telling us their liquid net worth. We say, "You're an FDIC, right?" Right? Yeah.
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Suleman Ali | I was surprised that giannis only has 50 banks I was like that means | |
Shaan Puri | Story is from his rookie year. He came over from Greece, where Greece was experiencing a banking crisis. So, that was his rookie year, and he and his agent did that. Now he's worth like $200,000,000. There's no way he could be doing that at this point.
He's got some other... you know, but rich people have this, right? If you're at JPMorgan and you have $20,000,000 or more, they'll do an auto sweep into a bunch of accounts for you. I think... I'm not sure exactly how it works, but I'm pretty sure there are products that exist that will do this. They just seem niche to me and seem like... I don't know, a tool for the paranoid. It didn't seem like a thing that I needed to worry about personally.
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Suleman Ali |
Yeah, it's so funny because my father, you know, [an] immigrant to the US, always worried about the banking system and the US dollar. He's always like, "Let's go buy gold bars and bury them under the house just so that we know that our money is secured." And then he's also like, "Let's go open bank accounts in Swiss banks because those are the safe banks and they're not gonna have this problem."
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Shaan Puri | Because those also don't do fractional reserve, right? Like a Swiss bank is, I think, 1 for 1. They don't keep, you know, just a fraction of your cash in the bank. | |
Sam Parr | What's an example of a Swiss bank, and how do you... I mean, I've only seen "Wolf of Wall Street," where they go to Switzerland with cash in hand. Is that... that's not actually how you do that? I mean, how do you open a Swiss... I don't even know how you would open a Swiss account.
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Suleman Ali |
You know, I think Credit Suisse is actually a Swiss bank, but it also has a bunch... [It] was seen as dangerous for a while. I don't even know the name of a Swiss bank, but I bet you can just open a bank account online and wire the money without having to attach cash to Margot Robbie and... because that hurts... to Switzerland.
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Sam Parr | but that would be cool if you could | |
Shaan Puri | I can't find this client info | |
Hubspot |
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Sam Parr |
Alright, we... I think we did a good job covering the Silicon Valley Bank. But Sully, you actually had a few other things that I thought were interesting. One of them being Allbirds, right? What a shit company, man. They are really... it's not working out for them, is it?
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Suleman Ali | Yeah, Allbirds is, in my opinion, the ugliest shoe I've ever seen in my life. I remember seeing these like 5 to 7 years ago in Silicon Valley. All the venture investors that I knew were wearing them around town, and I was like, "You, you are ugly. Your shoe is ugly. You're ugly. This sucks. This is not a good-looking shoe."
I've heard... I saw this tweet that I think is the best way to describe it: Allbirds are "socially acceptable sweatpants for your feet."
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Sam Parr | Yeah, I'm not a big fan of them either. But basically, they've raised $200 to $300 million in funding. They've done $300 million in revenue. The market cap is down from $4 billion to $200 million. Is that right? It's $200 million right now.
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Suleman Ali | Yep, down 95% from their IPO in November of 2021, from $4,000,000,000 to $200,000,000. | |
Sam Parr | how much of the founders do you think how much do they own | |
Suleman Ali |
I didn't look at how much the founders own. I bet they owned a lot of it before when it went public, and I didn't look at, you know, kind of how much they've sold off. But I bet [it's] a decent amount.
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Sam Parr | so what's gonna happen with that | |
Suleman Ali | So, I think that the problem they’ve been having is that their revenue is shrinking and their costs are really high. They've opened up a ton of stores—like 58 stores in the U.S. and abroad. I think that store strategy isn't working because not enough people know what Allbirds are and walk into the stores wanting to buy some.
So, they've decided they're going to stop opening stores. They're only going to open three more stores this year, and those are places where they've already signed leases. They're going to stop any international growth; they're not going to open any more international stores. Instead, they're just going to find distributors internationally to try to grow.
They're trying to contain costs by moving their manufacturing. Currently, they manufacture in New Zealand, but they're going to stop that and move it to one place in Vietnam. So, you know, my sense of what's going to happen to Allbirds is... someone.
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Shaan Puri | We're going to bring our own laces from now on. They're cutting every corner here. We don't have running water in the office today, and we're doing that every other day until this thing is profitable.
Now, silly, what do you think of this in terms of D2C? I think people have basically... I think D2C got hot. People started a bunch of brands, and a bunch of investors came in and funded these companies like they were tech companies, but they weren't tech companies.
Casper, Allbirds, and then some like Warby Parker and others that broke out. So, on one hand, if that's all I knew, if I was just sitting from afar, I would have been like, "This space doesn't make sense."
Now it's playing out where it's like, "Yeah, these companies are not profitable. They're not doing that well." I think they're burning $100 million a year or something like that. They're very mature companies that are still losing a ton of money.
My opinion would have just been that. But you and your brother... your brother built Native Deodorant. It was profitable, you know? He basically raised almost no money. What did he raise? Like $500 for that business? Is that all?
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Suleman Ali | he ever does 500,000 yep | |
Shaan Puri | Raised $500,000 and built it up basically by himself with a very, very small lean team. You know, packing deodorant at your kitchen table in your apartment. He sold that thing for $100,000,000 when it was highly profitable that whole way.
You have that model, and you've had a very different style of D2C that is highly profitable, lean, and mean. You raised zero capital or very minimal capital. I feel like nobody even knows about those businesses. Those are more under the radar.
Everybody only hears about the big VC ones, you know, like Away luggage and stuff like that. What is your take? Are you sort of like, "That other way is dumb," or are they actually just two different games? Both are valid.
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Suleman Ali | Yeah, I think they're two different games. The native playbook is to raise little capital, focus on profitability, and acquire customers so that you're breakeven on the first purchase or profitable on the first purchase. You scale through repeat purchases that are generating a ton of profit, using that to either reinvest in the business to launch new products or just take distributions.
So, I think that's a super valid playbook. I also think there is a valid approach to raise a bunch of venture capital and try to build a business at a much larger scale. Who...? | |
Sam Parr | who's doing that that you think that they have a good shot yeah | |
Shaan Puri | figs maybe | |
Suleman Ali | Yeah, Figs, in my opinion, is a great example. One of the problems with Allbirds is that they're a fashion brand. At some point, the world turns against you, and like I believe that Allbirds are ugly. I think other people are going to arrive at a similar conclusion eventually.
Then Allbirds is going to have to find the next style to continue to succeed. Figs, on the other hand, is basically a uniform, so it doesn't need to be better looking over time. | |
Sam Parr | Yeah, but that's a bull. I think you're wrong there. I think that strategy is not bad. Look at Louis Vuitton, you know? They've been around for 300 years, and it's always been cool. I think that their execution, they just picked a lame thing. | |
Suleman Ali | so I don't think I | |
Sam Parr | I don't think it's a bad strategy. I think they just... it's a stupid shoe. At least, that's what a lot of people think. | |
Suleman Ali | Yeah, I mean, Nike is a great example of a business that has scaled to, you know, more than a $100 billion market cap, I want to say. They're a fashion brand that serves both the super high-end as well as the low-end. So, they figured out how to do it.
I think there is a playbook to go raise venture money or private equity money and get to scale. I just think a lot of the companies that have raised money have been undisciplined. They've hired too many people, like Grove Collaborative.
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Sam Parr | what do they do | |
Suleman Ali | Grove Collaborative is a San Francisco-based startup that's 10 years old. It's also publicly traded. They started out as a marketplace for natural products.
I would see ads for them saying, "Get a free Mrs. Meyers kit," and I would click on those ads because I was like, "Free stuff? Sign me up!"
They're basically trying to get you involved in a subscription for buying a bunch of home products.
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Sam Parr | got it okay cool idea cool idea | |
Suleman Ali |
Yeah, great idea. It went public through a SPAC and has the same problem as Allbirds and Away Luggage (although Away is private). Grove Collaborative's stock is down 96% and has a market cap of $70,000,000. It's worth, you know, way less than the cash that they've raised.
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Sam Parr | that's crazy | |
Suleman Ali | Yeah, and the stock is sub $1. So, if they have to do a reverse stock split to avoid being delisted, they basically have to fire a bunch of people and stop spending as much money on marketing so that they can be profitable.
They have to accept declining revenue to get to profitability. That's what Growth Collaborative just did in Q3 of last year; it was their first profitable quarter ever. | |
Sam Parr | So, what companies do you like? They're saying all the companies you hate on here. You have Wish, you have Grove, you've talked about Allbirds, and you don't like Boxed.
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Suleman Ali | yeah | |
Sam Parr | which is like costco online yeah what do you like | |
Suleman Ali |
I think there's a bunch of companies that are awesome businesses that are worth less than they were in March of 2020. So they're trading at less than pre-COVID valuations, and I love those companies. Some of them are the ones you hear about all the time, which is Facebook, Amazon... I think those are two great businesses and their stocks are great.
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Sam Parr |
You and I were walking in SoHo in New York after some meetup, and I... I won't say the amount, you can say the amount if you want, but you said, "I just bought [blank] amount of stock in Squarespace." My jaw kind of dropped. I was like, "What? Did you really? Why?" And you told me how much you love that company, and it was a very large amount.
So, are you still into Squarespace?
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Suleman Ali |
Yeah, I bought $1,000,000 of Squarespace stock. I still own it. I don't know if I made any money on it at some point. It turned into like $250,000 because Squarespace stock went down, so I'd lost $750,000. But I think it has since turned around. You know, it's up 15% year-to-date.
I think Squarespace is **super undervalued** as a business, but I'm not sure it's a great stock to buy.
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Shaan Puri | Yeah, you have like a long history with Squarespace. Let me ask you a different question.
At one point, you tweeted out something like, "Hey, if a guy happened to have $50,000,000 liquid and wanted to double it, what's your best idea?" You got like a hundred replies. I remember going through them and being pretty unimpressed with most of the ideas. It didn't seem like... I thought some great stuff would come out of there, but maybe in something like this, a hundred people reply and it's really three interesting ideas.
Did you get anything interesting? What did people say when you tweeted that out? Did you get any interesting ideas on what to do with your money from that?
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Suleman Ali | I got one interesting idea, which was to try to go buy all of Wish, or you know, 51% of Wish. Wish has $700,000,000 in cash, and its market cap is $286,000,000. So, it's trading at less than cash.
You know, buy enough stock that you can convince management to distribute the cash and shut the company down.
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Shaan Puri |
Right, and can you... I remember seeing that. Why doesn't that happen in practice? A company's got $700 million in cash, it's trading at $300 million. Why doesn't... you know, it seems like the video game move is:
1. You buy the $300 million company
2. You shut it down tomorrow so it stops burning cash
3. You distribute $700 million out
4. You've profited $400 million
Why doesn't that happen in practice? Or *does* it happen in practice?
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Suleman Ali | So, there are people like Bill Ackman and Carl Icahn who are activist investors that do this kind of thing. You know, they do it with Apple and even Netflix.
For example, Carl Icahn will basically go buy 5% of a company and then call up management and say, "Hey, we want you to do X, Y, and Z. If you don't, we're going to keep being a thorn in your side." They threaten to remove board directors and put their own board directors in. They might even threaten to fire the CEO.
Generally, what will happen is the CEOs will just listen to Carl Icahn and do what he says, or they will do something else that makes their stock price go up by 10, 15, or 20%. Then, Carl Icahn will sell his position and make a billion dollars, saying, "Great, that was fun."
With something like Wish, if you tried to go buy up Wish stock, it's so thinly traded that you would basically drive the price up. You would never be able to buy 51%. You would have to pay, you know, $700 million to $800 million in market cap to basically own 51% of it. | |
Sam Parr | Dude, it seems like most of the companies that you've mentioned, or a lot of the companies you mentioned, went public via SPAC. Has there been one SPAC that has worked out?
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Suleman Ali | that is a great question I have no idea | |
Sam Parr |
I remember Chamath was all about SPACs. I don't pay attention to the public market, so I'm a little... I'm definitely out of my depth here, but I know enough to know that he was big on SPACs.
What are these guys' reputation right now? Which is, they got in and... did they make money? They made money going up, making it happen, and so now are they just like, "F*** y'all"? You know what I mean? Like, are they just... they don't care?
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Suleman Ali |
Yeah, the way SPACs work is if you're the sponsor, which is what Chamath was in a bunch of these, like he took OpenDoor public through SPAC, SoFi public through SPAC, you end up getting a percentage of the company without taking any real risk.
So Chamath has made out like a bandit. I think he's done 5 to 10 SPACs, he's made money in each one of those SPACs, and I think every other...
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Sam Parr | how much | |
Suleman Ali | more than $1,000,000,000 across all of those for sure wow | |
Shaan Puri | And so, how does the math work? I remember I think I had heard at one point that you have to put up 3% of the capital to own, but you own 20% of the company when it goes public. Is that right, or did I misunderstand?
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Suleman Ali | Yeah, I don't remember the math, but it's something along those lines. For taking the company public, you get... it's probably not 17%, but you get something like 5% or 10% of the company's stock for basically taking it public.
You don't take any risk; you basically raise money from a bunch of institutions. You hold that money for up to 18 months. You have 18 months to find a target that you want to take public. You find a target and make a deal with them to take them public.
All those investors that gave you money 18 months ago can either keep their money in the deal or sell it and get their $10 back. A bunch of people will sell because they're like, "Oh, this isn't gonna work. Sell! I want to sell my stock."
So oftentimes, the SPAC, which is publicly traded, will be trading at $10. Then, when the target gets announced—like, "We're gonna take Grove Collaborative public"—the stock will drop immediately when the target gets announced because everyone is selling and saying, "This isn't gonna... this isn't a good target."
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Sam Parr | So, what's his reputation then? I mean, is he just like... so, I mean, he's so rich he doesn't give a f*** about his reputation?
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Shaan Puri | Well, did you guys say the thing that's on the stock, which was the "reverse Robin Hood"? Steal from the poor and give to make himself rich?
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Sam Parr | No, not yet. I was waiting for you because I know... I don't know enough to know about him and his whole shtick. But Sean, you have a strong opinion about it.
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Shaan Puri | I I mean I I wanna hear sully's opinion but I don't think I have that strong of opinion | |
Sam Parr | yeah you you give him a hard time dude you you give him a really hard time | |
Suleman Ali |
You know, I think Chamath is super smart and super successful. I love those cashmere sweaters that he wears on the All-In Podcast - they look dope. I gotta buy me some.
But what he's done with the SPACs is literally the opposite of Robin Hood. He's stolen from the poor and given to himself. I'm surprised that his reputation is not tarnished in the public markets or in [the investment community].
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Sam Parr | well is it on cnbc | |
Shaan Puri | Let me ask you a question. Is it that he ended up, you know, dumping on retail because it was always designed that way? It was going to be that way? Or, oh well, the market's just turned and everything's down?
You know, I don't fault Jeff Bezos because my Amazon stock is down. That's out of their control. It's a good business, blah blah blah.
Versus, no, the way these were set up, it was a bit of a house of cards. He was going to make money and at some point, this was going to happen because these fundamentally didn't make sense.
Which one is it more?
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Sam Parr | yeah you're asking is the what what's the intention | |
Shaan Puri | Yeah, do you think he knew? And that the intention was, "This is probably how it's gonna play out, but let's just see."
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Suleman Ali | To me, these are **pump and dump schemes**, like in *Wolf of Wall Street*. If the company is sound and going to go public, generally, the companies will go public on their own using the traditional IPO path or a direct listing.
You know, that's what Squarespace, Spotify, and Slack— all these companies that went public during the same era that he was doing these SPACs. The companies that go public through SPACs are trying to rush to get public. It's not the Airbnbs of the world; it's the Grove Collaboratives of the world and Sophis of the world that are doing it.
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Shaan Puri | Yep, businesses that are not as sound... Now, what they would say was like the very first one I think he did was Virgin. It was, "Look, this is a company that you'd have to be a real tech investor to understand. It's got a really long-term, huge vision."
They needed somebody who believed, and they didn't want to take their chances with the short-term-minded stock market, you know, IPO stock market. So, some version of that was like you had to be a true believer in technology innovation, and you had to be smart enough to understand how big this business could be. That's why I'm taking it public.
So, it kind of made sense on the first one. Then, pretty soon, it was like just putting lipstick on a pig and selling it. That's how it felt to me, at least. I'm kind of on the same opinion, which is I think, obviously, he's smart and obviously, he's successful. I don't think those are arguable.
I think that he's also very pompous. You know, I don't love his personality. I also think that what he did with the SPACs seems to be more like the pump and dump or putting lipstick on a pig. You know, these weren't great businesses. It was, "What can I do to just get something to cash here?" Because, again, he had a free roll in a lot of these.
Exactly. And I find him to be somewhat disingenuous when he talks. Like, I remember before he took Metromile public, it was, "Buffett had Geico, I have Metromile, and here's why it's better." Blah, blah, blah. Fast forward, like less than a year, and Metromile is sold for 30 cents on the dollar to Lemonade because it was whatever, not in good shape at that time.
Then, you know, no mention of it ever again. Yeah, it's like, "Oh, on to the next."
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Suleman Ali |
Yeah, the thing is... you know, there's a bunch of people that were pumping Bitcoin or other crypto products, and when they tweet, there's a ton of people that reply to their tweets saying, "F*** you! I lost my life savings because I took your financial advice."
When Chamath tweets, I look to see what the responses are. There aren't many people that are like, "Hey, you screwed all the public moms and single moms."
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Shaan Puri | and | |
Suleman Ali | families on on these specs | |
Sam Parr | Dude, I was with your brother, Sully, one time. We were hanging out, and someone was talking about a get-rich-quick scheme. They were saying, "No, no one likes a great get-rich-quick scheme." Your brother goes, "Whoa, whoa, whoa, whoa, whoa! Getting rich quick is the best way to get rich!"
Your brother is pretty funny because sometimes he'll say funny stuff, and it's like, "Oh yeah, you're right! That is way better."
Sean was talking about Chamath and Virgin. He said, "You know, we don't care about the short term; it's for the long term." A lot of times, when I read about these public markets and they talk about long term, I'm like, "Yeah, I think you're... I kind of care about the short term. I definitely care about the short term a bit too."
They use that word "long term" to disguise bad stuff. Like, "You know, it's about the long term; it's not about the short term. Just hold; it's the long term." I'm like, "I don't know. Getting rich quick in a short amount of time? That sounds nice too! I would like it not to fail in the short term. That would be nice."
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Suleman Ali |
There's this Warren Buffett quote where somebody, like some reporter, asks, "Hey, what you talk about is pretty simple and sounds like anyone can do it. Why aren't more people applying the Warren Buffett strategy and becoming billionaires?"
And his response was:
> "Everyone wants to get rich quickly. I'm about getting rich slowly, and nobody has the patience to do it."
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Sam Parr |
Yeah, but here's my issue with that: when he talks about that, he keeps talking about the long term, and he's 95. It's like, "Bro, there ain't a long term. Have some fun!" Like... there.
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Suleman Ali | is no long you | |
Sam Parr | Don't have long-term goals anymore. Stop talking about long-term. Maybe long-term stops when you're 60. It's like, enjoy it.
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Suleman Ali |
Yeah, I was talking to these 25-year-olds and I was like, "$2 million when you're 25 is more valuable than $20 million when you're 45." Because you can basically do awesome stuff at 25 that you're not gonna be able to do at 45.
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Sam Parr | yeah dude I agree I agree sean what were you gonna say | |
Shaan Puri |
I was going to say, you had shared this blog post about "A Good Quest," which I think was written by a guy from Founders Fund a while back. I remember reading it and thinking, "This is actually pretty interesting." It seemed like something that maybe resonated with you. Can you explain the idea of a good quest, and then I want to hear you guys talk about it?
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Suleman Ali | yeah it's kinda like this guy basically was like | |
Sam Parr | a ton | |
Suleman Ali | some guy found respond I don't know | |
Shaan Puri | stevens I think | |
Suleman Ali | He was basically saying that a bunch of the brightest minds in Silicon Valley, in America, and in the world are focused on bad quests.
In the game of life, you're either focused on something that is noble and honorable, something that makes the world a better place, or, in his language, you're focused on short-term things that are going to make you rich quickly, even if they're just incremental improvements, like a slightly better mousetrap.
He basically argues that we are wasting society's energy. Brilliant people are wasting their brilliance on dumb problems. We should be trying to solve the greatest problems that we have in our lifetimes. That is the noble work, and everything else is just bullshit.
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Shaan Puri | and he points out he's like most | |
Sam Parr | Admirable man, but this guy... I look at his former job. He used to work at Mike's Hard Lemonade. I don't know if I could trust this guy.
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Suleman Ali | did he really | |
Shaan Puri | that's how he knows dude that's the that's the experience | |
Sam Parr | He did the total opposite. He works at Andral, a defense company. But, like, I don't know, man. This guy worked for Nerf.
Sorry, go ahead. I'm an idiot. | |
Shaan Puri | Yeah, he's a co-founder of Andrew. He points out this thing which is like, you know, the average person is not capable of going on one of these good quests.
So if you're brilliant, if you really are in that kind of top 1% of talent, motivation, and ability, it's kind of like your moral imperative. You kind of gotta be the one doing this because who else, if not you, then who? That's sort of the mindset that he has.
And I would say that, like, you know, I think you're awesome, but you yourself are like, "I want to go on a good quest." You've been telling me this for like 5 years.
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Suleman Ali | yes | |
Shaan Puri |
And you're like, "I spent my whole life building these mouse traps that make a bunch of money because I just see them. They're obvious. This widget... I could sell this widget and make a bunch of money." And you've done that.
Did this blog post tip you over the edge to do a good quest? Or did it have the opposite effect and turn you off and say, "Actually, you know, f*** this guy and f*** this whole 'noble quest' bullshit"?
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Sam Parr | maybe next week | |
Suleman Ali | You know, I went to this SV Angel event in San Francisco last week. I hadn't been to San Francisco in a really long time because I was having this existential question about myself: Should I be going on good and hard quests versus easy quests?
You know, easy quests are great because you have a great quality of life. You don't work that hard; you can go play tennis in the middle of the day or work out at noon. Like my brother, every day at noon, will go work out for 2 hours in the middle of the day.
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Sam Parr | We could have a sick pad in New York and maybe a place in LA. We could travel all over the place. I mean, you guys have a pretty nice life.
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Suleman Ali | Yeah, yeah. Like, he's going to Japan next week just for fun to look at the cherry blossom festival. So, you know, it's very easy to be seduced by quality of life and easy quests, in my opinion.
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Shaan Puri | I like how you're using your brother here instead of yourself. You do all the same things; you're just like, "Yeah, using him is way easier."
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Suleman Ali |
To use him, then kind of look in the mirror... look in the mirror more closely. And so, you know, I went to that event and Sam Altman spoke. He was basically like:
> "Everyone thinks that OpenAI is an overnight success. I've been working on this for 7 years, goddamn it! And so have all of these other AI scientists and AI engineers. It took us 7 years to make ChatGPT what it is today."
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Sam Parr | that's not that long | |
Suleman Ali |
It's not that long, but it's... it's a really long time. Like, basically they didn't launch a product for maybe 5 years or something along those lines. And, you know, now...
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Shaan Puri |
He had every quest at his disposal. He could've simply sat back and angel invested and become as proficient at pickleball as one can be, right? He was running YC [Y Combinator] at the time, and he left probably the best job in Silicon Valley, which is running YC. Probably the highest-paid, lowest-effort job you could have... it's up to you how hard you want to work there.
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Suleman Ali | but and exposure to new people new entrepreneurs you | |
Shaan Puri | You get to pursue it. You get to do all the fun stuff. You get to see all the smartest people. You get to be the kingmaker. You know, you have the infinite money glitch if you're doing...
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Suleman Ali | and everyone in silicon valley is coming to kiss your ring | |
Shaan Puri | He quit to go do this nonprofit AI thing. I remember at the time, this was like when did he do this? Like 2016 or 2019 or something like that. He had been funding it as his own personal passion project basically up until then. Then he left Y Combinator (YC) to do that.
I remember thinking at the time, "I should probably just go follow Sam Altman." If he is going to do this with his time, there's really no better signal in the world that this is the right place to be. Unfortunately, I didn't act on that, but I remember having that thought back in 2018 or 2019.
Yeah, it's funny to...
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Suleman Ali | Me, that you say that like 7 years is not a long time. Because, yeah, I guess in a sense it's not. But 7 years, at the same time, seems like infinity when you're working on a startup and there's no immediate gratification. I can't think of the last time I was able to work on something for 7 years without some form of immediate gratification. I mean, there was...
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Shaan Puri | there was there was milestones | |
Sam Parr |
Look at this guy. Did Trey Stevenson start and... like funding rounds, winning certain contracts, some type of press? I mean, that's pretty cool, you know. There you go, you can get your dopamine hit. But what are you gonna do? Are you gonna quit doing this small boy shit that makes a lot of money, or are you gonna start doing something legitimate that actually matches your IQ?
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Suleman Ali | yeah I wanna try and do a hard quest | |
Sam Parr | But what are the handful of ideas or industries that tickle your fancy?
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Suleman Ali | I think doing something in healthcare would be really amazing and transformative. I believe healthcare in America is so bad; it's shocking to me.
You know, my mom had a bunch of medical problems last year, and just getting access to doctors is insane. If you want to see a specialist, you have to wait 60 or 90 days to go see a specialized doctor.
A friend of mine, who's a doctor, was like, "Here's how you solve this: here's the concierge medicine practice. You pay them $30,000 a year."
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Sam Parr | I had one it was $25 a year | |
Suleman Ali |
Yeah, you pay them $25-$30 a year, whatever it is, and all they do is they are able to get you appointments faster. They're able to text the doctors because they know them personally, having worked with them before. They might say, "Hey, can you do me a favor and see my guy next week instead of 3 months from now?"
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Sam Parr |
It's kinda like gangster a little bit. It's like... it's like the doctors are... it's run by the streets, you know what I mean? It is pretty weird. It's not cool.
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Suleman Ali | Yeah, it's not cool. It's broken.
And then the other really messed up thing is if you have a medical problem, a neurologist will be like, "This is a cardiologist problem," and the cardiologist will be like, "This is a neurologist problem."
The two of them are like Superman and Clark Kent—they're never in the same room at the same time. So you can't actually get real information about what the problem is. They never talk to each other; they talk to each other through like handwritten notes in the dark of night. So it doesn't work.
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Shaan Puri | And do you have a tangible idea on this, or are you just saying "health care"? Because "health care" is just too big of a word. It doesn't...
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Suleman Ali | Mean anything? Yeah, it is too big of a word. One idea that I've been thinking about is remote monitoring of patients.
So, you know, my mom lives in Dallas. Sometimes she's there, sometimes she's traveling, and I want to have some device that she has that monitors her blood pressure, her blood sugar, and her heart rate, reporting that to me and to all these other doctors in real time.
That way, if there's a problem, you know it faster, and you can track this stuff. Right now, when you go to the doctor and if you have blood sugar problems or high blood pressure problems, they're like, "What was your blood pressure last week versus what is it right now? What was your blood sugar last week versus what it is right now?"
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Sam Parr | but it's always reported self reporting is always wrong yeah it's always wrong yeah | |
Suleman Ali | It's self-reported, and it's just so broken. I think being able to track this stuff in a more automated, seamless way would be beneficial.
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Shaan Puri | very interesting device | |
Suleman Ali | Yeah, like I got a Whoop, and you know that's doing some extra tracking. But I think there should be some kind of embedded device that's like a continuous glucose monitor, plus some way to measure your blood pressure and keep it all in one place.
The other thing that I think is a really interesting idea is that I went to Georgia Tech in 2003. At the time, they were working on building a smart home, and one of the ideas they had for a smart home was a smart toilet.
So imagine, when you're using the toilet, every time you use it, it texts you and says, "Dude, you're eating too many French fries!" Right? It would analyze your stool and urine samples and measure in real time what's up.
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Sam Parr | Wasn't there a company that was doing that in San Francisco that was totally a fraud? Was it uBiome? Is that what they were doing?
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Shaan Puri | it wasn't a smart toilet though I think you had to send it to them | |
Sam Parr | Okay, well, *fuck that*. That's kind of weird, right? I can't even... How do you get a... well, I don't know. But those are interesting. I've seen people tinkering around with this idea. I do think it's very fascinating. I have no idea how you do it. What are you... shit in a net and it like takes a little strain?
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Suleman Ali | I don't know I don't know what the mechanics are but I think it's an interesting idea that like | |
Shaan Puri | Let's put it this way: let me ask you a different question. I think you have a very good way of thinking about problems. What I mean by that is, every time I've come to you with an idea, two things happen that are different with you than with most people.
First, you don't sit there and ask, "Is this feasible? How would we do it?" You know, that question comes later. It's like, "First, let me decide on the big idea. Would this be amazing if it happened?" Okay, then I'll go find a way to make it happen.
Like your brother, when he started the deodorant company, I remember someone asked him, "Moise, do you know anything about deodorant?" He said, "No, I know nothing about deodorant, but in six months, I will know everything there is to know about deodorant." And sure enough, he built a very big deodorant company.
So, the kind of mindset of not being limited by what I know today is one factor. The other is, at least from what I can tell, you don't really consider plan B's or think about, "If this fails, why would this fail?" I remember when we started a project together, you were like, "Yeah, I was trying to do that," and you said, "I don't know, man. I don't really think that way. I just decide to win, and then I do it. I just plan to win, and I don't really focus on the rest."
Am I correctly understanding that, or no?
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Suleman Ali | Yeah, I think starting with "Can this work?" is important. So many people, when they're evaluating an idea, immediately say, "No, this is not going to work for reasons X, Y, and Z." Actually, my brother is like this, and I hate talking to him about new ideas because he's always just shitting on them. He's just kind of a skeptic by nature.
So, I definitely start with, "If this works, what does the world look like?" and "Can this be a big deal if it actually works?" | |
Shaan Puri | so | |
Suleman Ali | When I think about the smart toilet, I'm like, "Cool." Right now, I have to figure out if I have cancer. They do a test where you have to poop in an envelope and send it to a lab.
What happens if this is automated? Right now, there are all these medical things that I should probably be doing differently. I just have no idea what they are. Even if I knew them, I don't have a good way to have somebody enforce it in an automated way.
If that happened across America, we could solve diabetes because oftentimes, diabetes is a disease that you choose instead of a disease that you're forced with.
So, yeah, definitely start with, "If this works, is it going to be a big deal?" Then I'm kind of like, "Cool, could I get customers for this?" If I could, then I'm kind of like, "That's all you really need to start." You don't really need any more information about how to build a toilet or any of the science. I think you can figure that out later.
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Shaan Puri | Can this be big? Would this be big if it worked? And can I get customers?
Yeah, yeah, those are the two. Often, what happens is I look at a lot of startup investment deals with Sui, and it'll be like, "Here's these great people, there's this great technology, great product, blah blah blah." And he'll just be like, "Cool, so how are you gonna get customers?"
You think this appears to be a baffling question to so many founders. Or they'll say something, and he'll be like, "Okay, so what do you mean? Where are you gonna go? Have you done that? Tell me about three times in your life that you've done that."
And then he's sort of like, "You know, I'm in or out based on their ability to get customers." I think it's like... I told you that my meme of the year is that midwit meme. It's like the genius and the idiot; the way they think is aligned, and the analyzer, who's taking into account 75 variables, actually ends up with the wrong answer more often than not.
This idea of, "Can it be... you know, if it worked, would it be big? And can I get customers?" is sort of the midwit meme, like, you know, in real life.
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Suleman Ali |
Yeah, I don't think you need to know more of that. In fact, Sam and I were on this call where this guy was pitching... I think it's the company that's called Firefly. It was pitching ads on top of Ubers and taxi cabs, like this physical device that was on top of the [vehicle].
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Sam Parr | They're around now, but I think at the time he wanted a $100,000,000 or maybe $60,000,000 valuation. It was crazy. I remember being off that call and I was like...
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Suleman Ali |
Yeah, Sam messaged me and was like, "This is bananas! Can you believe this guy's valuation and the audacity?" And he was, I think at the time, losing money on each individual device for years.
So yeah, there are oftentimes where people... I'm shocked by how many people are like, "Cool, I figured out what the product is," but they have no idea how to get customers. They have no idea what the economics of that look like. And that's where companies go to die.
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Sam Parr | like how'd that company end up by the way did it did it your | |
Suleman Ali | it still exists but I have no idea | |
Sam Parr | got it | |
Suleman Ali |
I'm drinking... this water here. This is a $25 bottle of water because it's like pure water that's been filtered. I'm in LA right now. It turns out that if you drink tap water in LA, supposedly, according to this guy, it has pharmaceuticals in the water. What's that?
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Sam Parr | from erwan or something | |
Suleman Ali | Yeah, I think this is from Erwan. This water is basically pure in a way that you can't get water anywhere else these days. So, it costs $25 a bottle. This is insane, and it tastes just like water.
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Shaan Puri | and your? Is | |
Suleman Ali | and so it's a | |
Shaan Puri | it's a | |
Suleman Ali |
Yeah, so... it's a super interesting idea. I didn't talk to this guy or anything, but I wonder what their distribution strategy is. Because I think putting $25 water at Erewhon or Whole Foods is like an inadequate distribution strategy to get to a meaningful scale for this.
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Shaan Puri |
Well, I'll give you the counter example. I was doing some research on the **Nelk Boys** who... and I won't do the full thing about the Nelk Boys and their kind of business empire, but one thing that stood out was I was watching this clip. It was **John Shahidi** who you guys might know because he's... kind of came... he was like in Silicon Valley, then he transitioned into like Hollywood influencer stuff when he had his mobile app "Shots" get popular from a bunch of Vine stars and...
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Sam Parr | is john their manager | |
Shaan Puri | Floyd Mayweather is now their manager. So, like, shots didn't work out. He didn't build the next Snapchat, even though he had every influencer, Justin Bieber, and Floyd Mayweather, and all these people using it and investing in him.
But he was like, "Cool, I can help these influencers out." So he started managing influencers, and now he is the manager of the Milk Boys. They have a hard seltzer brand called Happy Dad, which basically looks like a Bud Light. It looks like the right product, it's targeted towards the right market, and they value the company at $250,000,000 right now.
They're doing like... I forgot how much exactly. I'll pull it up.
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Sam Parr | it's it's getting close to a 100,000,000 in revenue | |
Shaan Puri | Yeah, it's close to $100 million in revenue, so somewhere between $50 million and $100 million. The brand is doing really well, and it's very young. It's like a very new brand.
But they were like, "Oh, so for Happy Dad, you know, what's the next product? Are you coming out with a new flavor or like a hard alcohol? What are you going to do?" He goes, "No, we have basically done all the hard work to get foot soldiers into gas stations, 7-Elevens, and whatever."
So rather than compete with ourselves in the fiercest competition in the drink market, we just looked around the store. We sent people into the stores that were doing these gas station sales for us. They looked around and said, "What's the easiest category we can win?"
And they're like, "So we're doing beef jerky." They're like, "Beef jerky is like a really stale category. We already have this distribution channel into these gas stations and some convenience stores—like 100, if not thousands, of these stores across the country. That is the edge. All we have to do is work backwards from that. We have the front-end sales; now we just need to figure out the back-end product that should go into that sales channel."
When I hear that, I'm like, the Nelk Boys run a more sophisticated business operation than like 95% of Silicon Valley in just that one way of thinking.
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Suleman Ali | Yeah, it's amazing. There's this Justin Khan quote: "First-time founders are obsessed with product; second-time founders are obsessed with distribution."
Now, I think there's this concept of focusing on distribution first. The product comes after I have distribution.
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Shaan Puri |
Yeah, that's like what we did with the audience, right? It's like, "Cool, I'm gonna build up a big podcast." We didn't sort of intentionally go about it this way; we just wanted to do a podcast. But once you realize, "Oh cool, I could just build up a huge audience," I can come up with great products after. I don't even need to know what product it would be going in.
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Sam Parr |
Yeah, I didn't understand that with the hustle. I was like, "Why are you guys investing?" and they're like, "Because building an audience is really hard." I was like, "That's not that hard. I just do this, this, this... bebop, boop, and you got it."
And then I kinda later on realized that to build an audience that's engaged, it's... it is a little formulaic, but it's also a lot of luck and kinda catching lightning in a bottle. And then once you have it, it's very, very, very, very valuable.
Now that I don't have it anymore, I'm like, "I get it. That *was* hard."
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Suleman Ali | Yeah, it's amazing to see people all around the world doing this now in all these verticals. Like, you know, Doug DeMuro did this, then got an audience, and then started Cars and Bids.
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Sam Parr | Dude, I was early on that, man. Sean, I was telling you about Doug DeMuro and that Cars and Bids. It's gonna be big! Now, his competitor was just in the New York Times last week for selling $1,000,000,000 worth of cars.
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Shaan Puri | congrats on investing on that when you called it | |
Sam Parr | yeah yeah about that | |
Suleman Ali | yeah did you try to invest in doug demiras' thing | |
Sam Parr |
Maybe like a DM on Twitter was about the extent of it, but... no, it was mostly that I just talked the talk. I didn't walk the walk. Also, I didn't have a lot of money at the time. I think it's about 4 years old, but no, I... I talked the talk. That's about all I did.
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Suleman Ali | It's also amazing because these guys are often bootstrapped, right? They basically start with no audience. They just start making an audience, and then once they have an audience, they're generating so much profit from that audience through YouTube videos or whatever.
So they don't even need outside capital. I think even if he chased him down, he might have been like, "I'm already making money; I don't need to raise money."
So it just turns a lot of Silicon Valley stuff upside down, like, you know, distribution first that generates profit, then use that profit to make a product.
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Sam Parr | Sully, did you look at the feedback from your last episode? People loved you! They liked your voice; they said that you're calming, and I agree.
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Suleman Ali | Right, alright. I only listened to feedback that, like, Sean or Ben Levy texted me.
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Sam Parr | You had very positive feedback. People liked you. They said that you're calming and that they would do anything you’d say. Things like that, very...
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Shaan Puri | it got a little weird negative wow | |
Sam Parr | yeah thanks for doing | |
Suleman Ali | this people | |
Sam Parr |
Thanks for doing this. Hopefully, people enjoyed the Silicon Valley Bank breakdown and a few other things. If you made it this far, we're doing a meetup. Actually, Sean, tomorrow you're not gonna make it. We had it... it like sold out right away - 500 people. But we'll be doing another one around April 28th-ish, and we'll announce more info on that soon.
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Suleman Ali |
Yeah, I got one quick thing I want to plug, which is... You know, Sean has this guy who's his right-hand man, who helps him on all these different projects. I want to find a right-hand guy to help me with a bunch of projects. So, like:
- Source and diligence investments
- Research random business ideas I have
Come work for me full-time for the next 5 or 10 years, and let's go do something amazing!
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Sam Parr | and where do they find you | |
Suleman Ali | you can find me on twitter dm me | |
Sam Parr | alright and is your hand what's your handle it's s u l I | |
Suleman Ali | it's just no it's my full name s u l e m a n a l I | |
Sam Parr | Alright, that's good. You're one of the very few people that has taken advantage of this to actually promote something. But you did it at the end. You could have done it in the beginning, but that's alright. | |
Suleman Ali | fuck it | |
Shaan Puri | only the strong made it here that's he filtered out | |
Suleman Ali | that's right | |
Shaan Puri | he filtered out the weak the weak people alright we're out of here that's the pod cool |