#105 with Avlok Kohli and Xavier Helgesen - Leading AngelList Ventures and Buying Businesses Like Berkshire Hathaway

Today’s episode is a double header. Sam Parr (@theSamParr) is out today, so Shaan Puri (@ShaanVP) hosts the pod today with two guests Xavier Helgesen (@XavierHelgesen) Co-CEO of Enduring Ventures and Avlok Kohli (@Avlok) CEO of AngelList. In today’s episode you’ll hear: Avlok gives his background on how he became CEO of AngelList (1:55), Shaan asks Avlok how he Fast Buy got acquired so fast (6:15), Avlok shares some ideas he has for the future of business (11:15), Shaan and Avlok talk about how to improve meetings (13:20), Shaan asks Avlok some of the cool companies he’s seen at AngelList (18:45), Shaan asks “What’s it like working with Naval?” (23:20), Shaan and Avlok talk about the problems with traditional funds and the potential with rolling funds (25:30). Shaan interviews Xavier Helgesen (54:52), Xavier gives his background (55:40), Shaan asks Xavier about his solar company in Africa (56:40), Xavier talks about his CFO-brain and how it’s helped his career (59:30), Shaan asks Xavier what he’s interested in lately (61:00), Xavier tells about his acquisition of UpCouncil (66:55), Shaan asks Xavier how to implement a profit-sharing company (78:20), Shaan explains how local and neighborhood networks are simple and profitable (85:10), Xavier explains what he looks at in financial statements when looking at a companies to acquire (68:28), Shaan asks Xavier if he has an opinion on SPACs (95:15), Xavier gives a list of a few books that every entrepreneur should read (102:45). This episode is presented by Tempo! Check them out at tempo.fit and use code "TempoHustle" for $100 off. Joined our private FB group yet? It's a page where people share each others million dollar ideas or what they're already working on: https://www.facebook.com/groups/ourfirstmillion. See acast.com/privacy for privacy and opt-out information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Shaan Puri?

  What's up guys, Sean here and no Sam today. He is out sick with one of the more painful sounding things that you can get. I'll let him explain all the details, but we're wishing him well. And so I got the message and I started texting people. I said, "Hey, I need a guest for today." And I actually got two. And so two guests on this episode. The first is Avlok, who is the CEO of AngelList Venture. AngelList is a badass company. They're doing a lot of interesting things. They just launched this rolling fun thing that I've been talking about that I think is very, very cool. And he tells a couple, he tells a couple of stories. First, he tells the story of how he sold his company to Square really early on and why, you know, how acquisitions

• 0:43Shaan Puri?

  like that go down. I find that fascinating. And then the second thing was he had, we brainstormed some ideas. I put him on the hot seat and he had some ideas around meeting tech because I think, you know, a CEO spends a lot of their day in meetings and, you know, eventually you sort of look around and you say, "I think this could be better." And one of the ideas in particular, I think is quite good, a very simple idea that, you know, I think has legs. The second guest is Xavier. Xavier's a good friend who was one of the first guests on the podcast back, you know, in the first 10 episodes. He told his whole, you know, he told about his past. Well, today he's talking about his present, which is what he's doing now with Enduring Ventures, a company both me and Sam invested in. And it's a company

• 1:25Shaan Puri?

  that buys companies. So if you like the episodes with Andrew Wilkinson or Brent Bishore, then you probably will like this one. Xavier goes into a little bit of detail on a couple of the acquisitions that he's made and how they went down and what areas he thinks, you know, there's still a lot of opportunity. And you'll be seeing Xavier around on the podcast, I think, a little more, but this is a good chance to say hello. So two guests, one episode. I hope you guys enjoy it and I hope you like the new intro music. Let's cue it up.

• 2:10Shaan Puri?

  All right, well Roland, I have a guest here with me. I'm excited. We've never met, so this will be our first, you know, conversation besides emails. And so I have Avlok Coley here. He's the CEO of Angel List Venture. I don't know if you know this, you probably don't care either, but I've said for years, I remember five, six years ago, I was, somebody said, you know, if you had to be, I think they were saying if you had to be acquired by any company, but really what they were saying was like, if you had to go work somewhere, not run your own company, where would you want to go work? And I was like, you know, I love what I'm doing, but if I really, if I was going to go get a job somewhere, and this was six years ago, I was like, I would go to Angel List. I was like, I think Angel List has probably the biggest opportunity

• 2:54Shaan Puri?

  of any company that I know of in a space that I care about, which is like, let's say, the entrepreneurial space. Cause I just thought, man, they have the, at that time, it was pre-buying product hunt. I think you would maybe, I don't think syndicates even existed at that time. It could have, maybe it existed, but it basically was like, Angel List was this platform connecting startups and angel investors, roughly. That was kind of roughly it. But I was like, it's kind of like LinkedIn, but it's for, it's like a LinkedIn that doesn't suck and the community who uses it actually really loves it. And it's a vertical community that's like, you know, creating a ton of value, which is like the tech sector.

• 3:33Shaan Puri?

  And so I've always really admired Angel List. So now you work at Angel List, you know, how did you, how did you end up there? It looks like you had kind of like an entrepreneurial background. So give us like two minutes of your story of kind of the bullet points. How'd you get here? How'd you get to this, being the CEO of Angel's Venture?

• 3:48Speaker 01

  Yeah, for sure. Yeah, so I'll do a really quick, quick background. I graduated from University of Waterloo, University in Canada in software engineering. So that's my background. I moved to San Francisco eight years ago. Oh, actually, no, two thousand eight, not eight years ago. It's been much longer. And I actually moved here right when the Sequoia RIP good times memo dropped. I didn't quite fully understand at the time because I hadn't really participated in the internet economy yet. But I distinctly remember the feeling around the valley. First few years, I'd worked for a bunch of different companies as an engineer. One of them is now the world's largest doctors network. Another one was a company that was acquired by StubHub. And then I just caught the founder bug, started tinkering with a bunch of different companies.

• 4:32Speaker 01

  And I launched a company in 2014. This was in the food delivery craze. I launched a company called Fast Bite, which was, interestingly enough, very quickly acquired by Square. And we closed the acquisition.

• 4:46Shaan Puri?

  Fast Bite was cool because you would, you'd basically be like, there's like four items available. It's like you can get a burrito, you can get butter chicken, you can get like a salad and you'll get it in 15 minutes for $10. And I was like, hey, that's great. I love burritos and 15 minutes. I'm hungry now and 15 minutes is the closest thing to now that anyone will offer. And like the guy's just driving around with these three items in his trunk, basically, or whatever. And he would just like, oh, got the thing. So he didn't have to stop at the restaurant, was my understanding of it. And I was like, this is kind of great.

• 5:19Speaker 01

  Yeah, and it was, it was, it was magical because back then, the average delivery time was 80 minutes. You know, and our average delivery time for Fast Bite was seven minutes. So we were literally in order of magnitude better.

• 5:31Shaan Puri?

  You would beat the 15 minute estimate. I remember I was like, this is consistently faster than the estimate. And the food is like passable, you know, like, all right, cool, I'm, I'm full.

• 5:40Speaker 01

  Yeah, exactly. So.

• 5:41Shaan Puri?

  Did that really work? And did the company work? Because I know it kind of went away with inside of Caviar or Square or whatever.

• 5:47Speaker 01

  Yeah, so what happened was post-acquisition, uh, Caviar delivery times were still eighty minutes. Fastspite was still seven minutes. And the thinking was over time, as your network density builds up, you have a bunch of drivers on the road, you can actually bring your delivery times down. And so the value of Fastspite would go away over time. And so the, uh, integration itself was you have your Caviar experience, you have a Fastspite experience within the Caviar piece. And then over time, you just transition into Caviar as the main way to get delivery. So we, we really had a, an advantage, a speed advantage when, uh, when compared against competitors, uh, uh, against other competitors. Exactly. Uh, so I was, I was driving that, uh, so Fastspite itself as a name, we retained it.

• 6:28Speaker 01

  And then I was also product fee for Caviar at one point, uh, was with Square for two and a half years, pre-IPO. You know, went through the IPO with them. It's a special company. I, I love, you know, I love all the people there. Um, and when I left, I started another company, ran that for about a year and a half. And we wrapped up an acquisition of that one in January twenty nineteen. Uh, I basically decided to step back. Uh, I wasn't going to join the acquiring company. I was, uh, I'd operated for ten years straight. So I'm like, all right, I'm going to just, you know, retire. And around that time, Naval, who'd been a previous investor of mine, he's one of the founders of AngelList, uh, approached and decided to ruin that for me. And he was just like, hey, do you want to, do you want to consider stepping in at AngelList? Uh, and, uh, you know, we actually spent the next, uh, five to six months like really digging in.

• 7:13Speaker 01

  Um, I didn't really know much about the venture business and I definitely didn't know anything about the AngelList venture business. Uh, but about five to six, five and a half months in, I distinctly remember it all just clicked for me. And I, I saw a lot of the makings of what the Square had built with its financial platform. And a lot of those attributes existed with the AngelList Venture Financial Platform. And, uh, it got pretty excited that I made the decision to, to join. And, uh, yeah, I've been in the role now, uh, almost a year, year and a month now. July twenty, July fifteen, twenty nineteen is when I officially joined.

• 7:46Shaan Puri?

  So I want to ask you actually a little bit about the acquisitions that, uh, you went through as CEO. I similarly went through an acquisition that wasn't a mega, mega acquisition or anything like that. Uh, but it was good, you know, personally, uh, and financially, and the team landed well and all that good stuff.

• 8:01Speaker 01

  Um, yeah.

• 8:02Shaan Puri?

  So tell me how that happens. Why, why did Fastspite get acquired so fast? How did that happen? And was that a good deal or a bad deal or what, what happened?

• 8:10Speaker 01

  Yeah, it, you know, ultimately acquisitions, uh, my, my view of it, it'll happen if it is tied to a company's strategic priorities, right? So it has to always be tied to some executives priorities or the company's overall strategic priorities. Fast Fight happened because, uh, to be competitive in the food delivery space, um, we, the, the Caviar needed to have a very fast delivery option, right? Something to stand out and we built something, uh, really small team. I actually built all of Fast Fight by myself and by, and we were scaling just, I only built it by myself. And then some folks joined the team. Um, and so we were just starting to scale and it was clearly taking off because it was just so much faster than, uh, any of the traditional food, food delivery services.

• 8:55Speaker 01

  And so the acquisition really happened because it's tied to a core metric that Square was optimizing with Caviar and this was the way to get there.

• 9:02Shaan Puri?

  If we break it down, Square wants to be in food delivery. Square knows that to be in food delivery, you gotta do something different because there's so many food delivery apps and now there's more. But at the, even at that time, they knew it was competitive. Speed, hey, that's one way to, to go. Um, okay, there's, we can either build this ourselves or we can buy it.

• 9:19Speaker 01

  Yep.

• 9:19Shaan Puri?

  Uh, at the time, how, give us a sense of the traction. Do you have a bunch of users, just a, you know, few users, one city, many cities, revenue, you know, where was the business at? Cause I think people will be surprised. I think people will be surprised by, you know, if you really fit into the strategic plan, you could throw a whole lot of traditional business metrics out the window.

• 9:37Speaker 01

  Yeah. And that's definitely it. I think, I think it was definitely a combination of, of the fact that it fit the street priorities as well as the team that built it and how quickly we'd built it. You know, talent ultimately is the hardest thing to find, especially talent that can truly launch new, unique ideas into the market. And, uh, we ended up just checking off all of those boxes. And so that's how it fit. In terms of where we were, we'd just come out of, uh, a beta. And we had, we did have users, we had, you know, we had folks repeat, uh, repeating, we were only in one city. Um, but the, the experience was just so magical. That it was, it really took the sort of like, it really came from a product lens of like, yes, we need this and we need this team because this team executed on this super quickly.

• 10:20Speaker 01

  And it always comes down to, you know, a company can consider a build approach, right? Build internally, but as you walk through the build approach, you have to really consider, okay, who is this leader going to be internally that can truly go and do that? And then from there, who's the working team going to be that can go and do that? And then on top of that, you have to also, you have to also bake in the cost that it takes for learning. Right? So that's what ends up coming up. And I've seen this now enough times, of course, at Square, when I was on the other side of looking at different acquisitions. And of course, now that I'm running AngelList Venture, there's, you're always capped by the team size and like really the leaders in the company that can truly drive new products. And so that's, I don't think, I think it's interesting.

• 11:05Speaker 01

  This is a certain perspective that hasn't been shared broadly, but is actually very, very important to consider when companies start looking at acquisitions. Right? Most of the times it ends up being, we just need the leader in the team so that we can speed up time to market.

• 11:19Shaan Puri?

  That's exactly how we got acquired. Literally, what you just said is a, is a perfect articulation of it. You know, no revenue, handful of users, but nothing that, you know, it's not Instagram. And fundamentally, it's, hey, we have the strategic priority. We look around at our own company. We don't have the right leader for it. We don't have enough leaders or existing leaders that are capable of something like this are all occupied by today's problems and not able to build this. Okay. Do you, does this company have the talent to lead this? Have they already spent, burned the one year learning curve to try to figure this thing out? And then like, cool, they already have something in motion. So, you know, we save 12 to 18 months and we, we have a higher shot of success.

• 12:03Shaan Puri?

  Cool. Like that, that's worth it, which I think is, I think unless you've sat in that side of the table, it's hard to understand. Why would you pay so much millions and millions of dollars for, for nothing, you know, for this? And it makes a lot of sense, especially when the company's large, right? If you're a multi-billion dollar company, you're looking for things that can move the needle. You know, if you can move the needle 5% of your company value, that's a pretty big payoff. So. All right. So that's your, that's your entrepreneurial, that's one of your entrepreneurial stories. I like that one a lot. Tell me a little bit about, before we go and talk about rolling funds and all that stuff, because we're going to talk about that. Let's play the brainstorm game. Let's see how you do. So typically, I give people advanced notice. I didn't give you the advanced notice,

• 12:48Shaan Puri?

  but typically I say, hey, come with one, two, or three ideas that are just things that you wrote on your napkin, or if you, you know, in another life, if you were 23 years old, you might go do this. Tell me what either ideas, problems, or business models have caught your eye. You know, or if you have it refined to a pitch of like, hey, somebody should build X. I'd love to hear some ideas you have.

• 13:12Speaker 01

  Yeah. So most of my ideas these days are actually related to how do we scale the organization? How do we improve communication in the organization? And there, you know, there's just, there are just a ton. What, you know, I'll kind of just rhyme off a few. One of them is, you know, why, why can't we get feedback on meetings? Right? You have all of these super expensive meetings, all hands to team meetings. And what's missing today is that feedback loop. And one of the ideas was, and maybe it's for Zoom, or it's actually for someone to build is when you end the meeting, it should just ask for feedback. Right? So you can create this feedback loop, and then you can actually build a information center around that. The other idea is around asynchronous meetings, right? So you think about synchronous meetings, that's what we're doing today, right?

• 13:56Speaker 01

  It's, it's a live meeting. It's really good for when you have to go through a bunch of contacts all at once. It's amazing for that. But most meetings, you don't need that. For example, you're going to do a design review or a product review. You can actually do it asynchronously. So I think, I think there's space for someone to build a really great asynchronous meeting tool. And really fascinating thing about that, as I was digging there, was when you build an asynchronous meeting tool, by definition, everything is logged. Right? Because this is recorded, because of course, we're going to do, it's a podcast, right? But most team meetings, we're never going to record. It's weird. It's just odd. But an asynchronous meeting where you have some form of like recording, and it maybe is Loom,

• 14:37Speaker 01

  but it's all in one center, you then have this repository that anyone can look at in the company. That is just so, so valuable.

• 14:45Shaan Puri?

  You don't have to take this extra work later to like capture, right? It's like the capture was part of the way we communicated. So we don't have to do any extra work. It's built into the style of the meeting.

• 14:54Speaker 01

  Yeah, and you're documenting decisions and then all new employees coming in can get context. So a lot of my ideas, as you can see, it's a very general theme of how does the organization work better as we scale that ultimately the company can ship faster, employees are happier. So I have that because I'm thinking about this stuff all day long. I'm like, I wish this existed. Actually, interestingly enough, I'm constantly talking to different founders of like, please build this. And yeah, like we will be customer number one for this.

• 15:23Shaan Puri?

  Right. Yeah, like the meeting feedback tool is a great one. I actually, one of the brainstorms, you know, a couple of months ago, I was like, meeting tech. Now that I'm in a big company, I see this exact thing, which is I'm in my role in the company is to set up meetings pretty much the whole day. Yeah, like as a founder, you have like a meeting and then you like go work and it feels like that's the real work. But in a big company, the higher up you go, the real work is meetings.

• 15:48Speaker 01

  Yeah.

• 15:49Shaan Puri?

  And, and so I was like, man, there's all these meetings and I was like, meeting tech. Let's just create an umbrella called meeting tech. What can we do to make our meetings better? Because this is something that's happening in this office right now. There's 60 meetings rooms, you know, on this side of the building and there's 60 on that side of the building. And that happens eight hours a day, like just multiply the number of meeting hours and then the sort of dollar value of that time. And if you can, you know, create even 10, 20% gains in how effective those meetings are. And again, effectiveness, not efficiency, then that would be like worth a lot. And so let's take the feedback one. I love that idea. Actually, I think that's a, that catches my eye for sure because it's very simple and I think it could provide a lot of value.

• 16:33Shaan Puri?

  Like I have this product right here. Have you ever heard of this product, Levels?

• 16:38Speaker 01

  Oh, I'm trying. So I actually talked to the founder. I'm like waiting for my, my box to get here.

• 16:42Shaan Puri?

  Okay. So my box is here. I gotta, I gotta open it.

• 16:45Speaker 01

  I'm jealous.

• 16:45Shaan Puri?

  I've used it before. I've used it before and I was kind of, actually I give the guy credit. On the podcast, I was like, love this idea, believe in this, this is the future. Super fast feedback loop of I eat something and I get measurement of how it affected my body. And then I used it and I was kind of underwhelmed and I was talking about it and then he reached out was like, we've made it better. Um, try it again. I'm gonna send you a box. What's your address? And, uh, and I was like, okay, that's, you know, that's what a founder should do is, is exactly that. So I'm a big fan of feedback loops. So, um, what's the, what are the plot holes with this, right? I think of any pitch as a story. Uh, the story is, hey, we spent a ton of times in meetings. Hey, the way things get better is feedback loops. Isn't it weird that meetings have no feedback loop? Everybody walks away with a rating in their head of how that went.

• 17:29Shaan Puri?

  And if, whether that was a good use of time or, and they have a bunch of energy or if they feel drained and they feel like that was a waste of time. And the people running the meetings don't get that information. Um, so that story makes sense to me. What are the plot holes? What would be the obstacles as you map that out in your head of how, how you would go do it or where might that fall over?

• 17:47Speaker 01

  Yeah, I would say the obstacles on this one would be, um, not all meetings will require a feedback loop, right? If you have a one-on-one, it's kind of weird. It's like, hey, rate the one-on-one. It's awkward, right? So the question will then be, what meetings, uh, is a feedback loop useful for? And then I would say, how do you define the questions, right? Um, and all hands, uh, for like, whenever we conduct Angel's venture all hands, uh, I always send out a, uh, a very simple, uh, feedback tool. Cause I want to get the feedback loop going, but all other meetings will have different questions to ask. So that's the other piece. And I'd say the third one actually is, how do you get honest feedback, right?

• 18:28Speaker 01

  Like really candid, honest feedback. Cause people generally are nice. They want to keep, you know, they want to keep a, a really solid relationship between people, uh, and their colleagues. And so the question then comes down to, do you have an anonymous or not anonymous? And so they're all, but then if you do anonymous and there's only three people in the meeting, now you're you can kind of figure it out, right? Exactly. So these are all the, I would say, this is the, this is true of any feedback tool between, uh, colleagues or people that know each other. Um, you have to sometimes just go past the, kind of the niceness and just get to the raw feedback. So I would say these are the plot holes. It's more, uh, it's more behavioral related than it is like, you know, product related, but that then is being incorporated in, into this.

• 19:08Sam Parr?

  All right. Today's episode is brought to you by Tempo. Tempo.fit is the website. I actually use this. I've used this for a few months now. And it's this machine that has a touchscreen and this 3D sensor. And what it does is they give you weights, like 115 pounds in weights. And it's for strength training. So what it is, is it measures your body and it sees how much weight you're lifting. It sees how many reps you're doing and how much effort you're putting in, what your heart rate is. It's pretty amazing. And then you have a coach on screen walking you through what to lift, how many to lift, what workout to do, whether you want to do a 20 minute, 10 minute, 50 minute workout. It's pretty amazing, but the best part is the leaderboard. The other stuff, all the features that they have, that's cool. But I'm obsessed with the leaderboard because it measures how many reps you're doing and how much volume you're doing.

• 19:53Sam Parr?

  And you can compete with other people who have taken the same class. So it's made me want to work harder, lift more weight, or have more endurance. It's just pretty freaking fun. And the whole point of working hard is to have money. So you can spend it on stuff that will make you live longer. And this product Tempo, it checks that box for me. So they're our sponsor today. If you use the code TEMPOHUSTLE, you'll get a hundred dollars off. So Tempo.fit is the URL and TEMPOHUSTLE, one word, you'll get a hundred dollars off. So check it out. I use it. If you look me up on Twitter, you'll see I'm always filming videos where I'm talking to that company, saying I'm trying to crush their employees on the leaderboard because I actually love this thing and I use it all the time. So check it out.

• 20:32Shaan Puri?

  If you're a CEO of Angelus Venture, you're probably seeing a bunch of cool startups all the time. Give me a shout out or two. Maybe it's an app on your phone. Maybe it's a meeting you had last week. Tell me about a cool business that you that you've seen that you're excited about, that you think could be, could be interesting, could be big.

• 20:50Speaker 01

  It's a good question. So

• 20:54Speaker 01

  so most of the companies that come through Angelus Venture, a lot of it is just through the, a lot of it's just actually through other funds and other syndicates that make the investments. So I guess I'll pull one that I personally use that I think is just going to be huge. I use Rome Research. I think it's an amazing, amazing product. And you know, it's interesting actually, to get started, I had to take a step back really. I think I went through a, I spent a weekend and I actually watched a course on how to use it. Yeah. And I can't remember who did it. This is like many months ago and I went through the whole course. I'm like, okay, there's clearly there's a cultish following or something here.

• 21:35Speaker 01

  Um, and I went through the whole course and as soon as I did and it just clicked for me, I haven't looked back. I use it every single day. It's actually my daily to do list now.

• 21:44Shaan Puri?

  Right.

• 21:44Speaker 01

  Cause it's just so flexible. Um, it actually replaced the Apple Notes app, which I I didn't think would ever happen. Um, so just extremely excited about that company and we're we're big fans of Notion at Angeles Venture. We of course have it across the company. And the reason why I find Rome super interesting is because, uh, you know, while Notion does a really great job of being able to uh, really create any sort of page with database or tables and all of that. Rome, I think, has a very good shot at nailing the backlinking. So like being the single point of like anything you want to find about something, you just backlink and you just keep following that. And and I really, I'm fascinated by that because I spend a lot of my time thinking about context. How do you give people context? How do you give the organization context?

• 22:30Speaker 01

  And today, the way people find context is go to a search bar and then they're typing. But if you don't have context, you don't know what to search.

• 22:37Shaan Puri?

  Guess, yeah.

• 22:38Speaker 01

  Exactly. But really, the way people learn is they learn through exploration, right? It's like, oh, what's this? You click on it and you go explore it. And Rome Research is built around all of that. So the reason I'm super excited about that is one, of course, personally, I think the one, the the uh, personal use case is great, but um, uh, and I, by the way, I have, I have no idea how their, you know, what their product plans look like, but I'm assuming they're going to be doing something with companies and I'm really excited about them bringing a a company level tool, which I think will actually change how employees uh, find information in the company. Uh, so just like super, super excited about that.

• 23:16Shaan Puri?

  Yeah, I I I've signed up, I pay for it. I need to take that course, uh, but I fundamentally believe in the premise too, which is like, you know, ideas are linked together, um, and your thoughts can link together and.

• 23:29Shaan Puri?

  Your notes, which sort of represents, you know, the place you dump your brain, should also have the ability to link, you know, create a little web of ideas.

• 23:39Speaker 01

  Exactly.

• 23:40Shaan Puri?

  Let you crawl those. So, so I think that's, that's pretty great.

• 23:43Speaker 01

  And in default, I think the beauty of it is that like, as you're typing, it'll just like default, it can default link to it, right? Which is just fascinating to me. And, and, and I think, I think that's actually going to change how companies are run. It's, it seems very subtle, but the biggest impediment in any company, in any large company is context, right? Everyone doesn't have the same level of context because it's just, it's too, the transaction costs that get context are way too high.

• 24:08Shaan Puri?

  Right.

• 24:09Speaker 01

  And Rome, I think, will like demolish that completely.

• 24:12Shaan Puri?

  Right. You know, companies would be worth more if everyone was making great decisions. And you, you either assume that you've hired poor decision makers, or the decision maker doesn't have context. And so, most people, I would say, we hired smart people. Why is, why are these smart people, people making bad decisions? Well, maybe they didn't have the context for their own decision, or how this affects other parts of the company, or whatever. And that comes down to context and communication. So I think that's a great way, you know, any, I forgot which company it is, maybe Stripe, or someone like that. They have this phrase, which is like, every, every problem in their company is a context problem. And if they could, if they could solve that, that would solve their, that would solve their problems.

• 24:51Speaker 01

  Yeah.

• 24:52Shaan Puri?

  Of course, you'll never actually solve it, but it's sort of, at least, it puts the blame on context rather than the, you know,

• 24:58Speaker 01

  Yep.

• 24:58Shaan Puri?

  the human for being blah, blah, blah, you know, pointing fingers at each other, which happens in big companies all the time.

• 25:04Speaker 01

  Yeah, exactly. It's, it's like, you know, how do you in a, how do you in a, in a, in a low transaction cost way, give everyone context? And of course, as your company scales, you have a human coordination cost problem, right? And so that's the, yeah, I, I, that's why I'm so excited about Rome. I, I think they can solve for this.

• 25:23Shaan Puri?

  What's it like working with Naval? Is he just like a Buddhist monk now? And he just meditates all day? Or what's your interactions like with him?

• 25:30Shaan Puri?

  Because I'm a big fan of his, I'm a huge fan of his, like many, many people, right? I think he's helping a ton of people. But of course, like, you know, I like the idea of Naval. I don't know him personally. And so I'm just curious, what are your interactions like and what's he like?

• 25:44Speaker 01

  Yeah, so I mean, the background there is I've known him for a while as he's been an investor in my previous company. So we, you know, we've built up a relationship over time. You know, once, once I started as AngelList Venture CEO, the areas where we really dig in are product strategy, company strategy. He, of course, has been in venture for a long time, right? He's has very deep, go back to context, very, very deep context in venture. And so, you know, we do spend a lot of time talking about what the future of venture will look like, what the trends are, what products, you know, we should be looking at. And so he's, he's one of the best product, you know, company strategy minds I've ever worked with. So a lot of our interactions are there. And he's also a force multiplier for the company.

• 26:29Speaker 01

  He's probably one of the best sales, salespeople out there, too. You know, with rolling funds, you know, a lot of the kind of initial folks that came in, came in because of Naval. And he's really able to be our customer number one, so he's customer number one for rolling funds. And, and from there help amplify it and now it sort of created this massive movement. And so it's been, yeah, it's been great. So if I was to summarize, like, I think the areas where we work together, product strategy, and then really him being a force multiplier in the company.

• 26:58Shaan Puri?

  What's something people who only consume his content wouldn't know about him?

• 27:06Speaker 01

  It's a good question.

• 27:08Shaan Puri?

  I try to only ask good questions.

• 27:10Speaker 01

  Yeah. I would say he's, he, he's very,

• 27:19Speaker 01

  very, very good at seeing like around corners and very good at just really thinking about what the future needs to look like, right? From a, from a product perspective, what needs to exist in the world? And he's, he's really, really good at that. And I don't think, he doesn't talk about that, of course, in, you know, on his Twitter account. But I would say that is something that most people probably don't know about him.

• 27:41Shaan Puri?

  Gotcha. All right, so let's talk about rolling funds. I got excited about this. I was like, when I saw it, I was like, oh shit, this solves my problem. Which is really what you want, you know, as a founder of a company, you're building, and you're building products is for somebody to just hear about what it is and connect it to their problem and say, this solves my problem. And so, uh, let's tell people what it is, uh, but I'll, let's tell them through my problem, uh, right? And by the way, these are for sure first world problems. So like, let's get that disclaimer out of the way.

• 28:14Shaan Puri?

  It's not like, you know, this is not a, I don't have food problem. This is a, a first class problem. So,

• 28:21Shaan Puri?

  let's, let's rewind the clock. So seven years ago, I moved to Silicon Valley, eight years ago, maybe I moved to Silicon Valley and I start meeting people. I was really lucky that the first guy I worked with was already hyperconnected. Uh, this guy named Michael Birch, he was running this idea lab. I joined him. He'd been in the valley for, you know, 10 years prior to that or so, maybe more.

• 28:42Shaan Puri?

  And he, he owns the battery, which is like the Soho club for, you know, for, for San Francisco, which is like, of course, you know, the Google guys and Elon Musk and everybody else is a member. So he's ultra connected. So I start meeting people. And I meet a bunch of founders who are building cool companies. Now these companies at the time don't look that cool, right? Like example, uh, Calm was one of the, the early companies. Um, the founder Alex used to work at the idea lab. He left to go start Calm. I took his job, basically, uh, following his footsteps. And we used to hang out, you know, once a month or so in a mastermind group and he used to, we used to all talk about our problems and he was talking about, about Calm's problems, which were like, it's hard to raise, it's hard to grow, blah, blah, blah. I thought it was a cool product. I thought he was really smart.

• 29:25Shaan Puri?

  But at the time I didn't think of myself as an investor. And if I go back and I, I actually looked at this, I looked at if I just filtered for just my friends and if I had only bet on my friends with no judgment process. If I, if I wasn't trying to pick good ideas from bad ideas, if I just wrote blank checks of, you know, $50,000 checks to all these friends. Uh, I believe there's like three or four unicorns that came out of that. So three or four billion dollar companies that I would have been invested in at the like, you know, sub $5 million valuation range, um, which is, you know, a nice multiple if you could do the math. So. Back. So first problem, I wasn't thinking about myself like an investor. I was like, somebody should invest in this. I didn't even think I should invest in this. I didn't think of myself as that. I didn't have a huge amount of savings at the time.

• 30:06Shaan Puri?

  Um, and so it would have been pretty reckless for me to go do a bunch of risky startup investing. All right. So that was with number one. Uh, I get to go watch my friends build awesome companies. I helped them raise money and I didn't put in money myself. Then phase two of this is I start writing checks.

• 30:25Shaan Puri?

  Or sorry, the very next thing I did, I got a little smarter. I was like, oh shit. Even if I don't have the money, I should find a way to get some skin in the game. So I started either advising or scouting deals for guys who did have money. So found, found people who had money. I said, hey, I, I meet a bunch of interesting founders. I'll introduce the best ones to you. If you invest, give me, give me a piece. And they're like, yeah, great. This is awesome. And so I got into a company called Lambda School that way, which is like, you know, a, a really good, a really great company doing a lot of good things.

• 30:54Shaan Puri?

  They, I think they just this week, they raised another 70 something million dollars. So they're, they're doing well. So I got a little smarter. Then I started, then I made a little money. We, you know, we sell the company and I, I have money in my bank now and I start writing angel checks. But I'm, you know, I'm writing 25 K checks. And even if I believe in the company, like I want to take a bigger position, it would be again, pretty reckless to write quarter million dollar checks into each one of these startups. So I thought about raising a fund, thought about doing a syndicate and they all had cer- certain issues, right? If you want to go raise a fund, uh, you know, you're going to have to go and you're going to have to convince a large number of people to give you a large amount of money all upfront. And that's going to take time. It's going to take effort and it might not work. And, um, you know, you can't partially raise the fund.

• 31:38Shaan Puri?

  You know, if you get 20% of the way there, you're 0% of the way there. So that doesn't help you. Syndicate seemed cool. I started a syndicate, got a bunch of people to say they would back it. But on a deal by deal basis, I'd have to go ring doorbells again and say, hey, you committed money. You said, you said you want to back my syndicate. Now's the time. I gotta write this check. So are you in or you out? And, um, I didn't want to have to go re-raise money every single deal. Although some people did it. So then this magical product from the heavens comes down called rolling funds and the rolling fund lets me do three things differently. Number one, I don't have to go raise all the money upfront. So I can start a fund today. It can, just like any venture, it can start small and it can get bigger over time. And while it can be viable, even when it's

• 32:22Shaan Puri?

  sort of small. And so I thought, oh, that's great. I love that. I don't have to take four months, six months off my life to go raise a fund. I can just start today and then I can raise it as I go. And the second thing was, I don't have to go re-beg for money every time like a syndicate. The money that they give me is in the bank account. I can write the check to the founder as soon as I have it, as soon as the money's committed. And the last thing, the best part about all of it is I can publicly talk about my fund and solicit to get people to come invest in it. You know, I have this podcast right here that, you know, hundreds of thousands of people listen to. Great. Can we, I'm sure some of these people would love to be investing in tech. They'd love to piggyback on my deal flow and do none of the work and get some of the upside. They can write checks as

• 33:05Shaan Puri?

  small as I think a thousand dollars even if you wanted to, but my minimum would be a little bit higher. But like, let's say you can write checks as small as $5,000 per quarter, you know, so you're committing 20, 25K a year and you're in the game. You got a seat at the table, baby. And so this is why I love the rolling funds. How did I do? Is that, is that a good story?

• 33:24Speaker 01

  Yeah, I love it. You know what? I'm just gonna take this part of the recording and put it as part of our sales collateral. Done.

• 33:30Shaan Puri?

  Yeah, I don't even know why, but I'm so excited about it because I've wanted to do this, but I, it was never going to work the way that things were structured before. And that's fundamentally kind of like what innovation does, right? It makes the inaccessible accessible to more people. And I think that's what you guys have done. I think you've made investing accessible for, for a GP like me, but also for, for LPs who, who can, you know, invest small amounts of money into these funds. So I think that's a pretty noble, noble cause to be working on.

• 33:59Speaker 01

  Yeah.

• 34:00Shaan Puri?

  How did this come about?

• 34:03Speaker 01

  Yeah, so, you know, taking a step back, what we think deeply about is, we think very deeply about what is the biggest area of friction for our customers, right? And everything you just described as a GP doing syndicates or even a traditional fund is exactly it. It's the fundraising process, right? The fundraising process just has too many steps and it takes too long today. And really, a traditional fund fundraising process is, one, you probably need to know someone who's going to write a large check, right? They're the anchor that have to, they have to come in. Then you're going to spend six to 18 months, depending on how much you're raising, and then you lock the fund down and then you have to deploy and then go through the whole thing again.

• 34:46Speaker 01

  And, you know, we were essentially looking at this and going, all right, if we're going to pick one thing to really focus on solving, it should be reducing friction for fundraising. And when we think about reducing friction, what we're really saying is, hey, rather than going through all of these steps to raise capital, can we remove these steps, right? What can we do to remove? And by the way, that is innovation, right? Innovation is, let's take away some of the steps and boom, you've got something magical. You know, just using an example from Square, when Square launched payments with the little dongle, the real innovation there was that they removed all of the steps that a merchant would have to go through to start accepting payments. In the previous world, you actually had to get on a phone, you had to do a credit check, fill out these paper forms. It was insane.

• 35:30Shaan Puri?

  I remember this, I owned a restaurant and my very first company was trying to build the Chipotle of sushi. And we were like, hey, how do we take payments? And there was like these archaic POS systems. And then my co-founder was like, hey, you know, we should just use this Square thing. And he filled out a little form on the internet and then like, I don't know, five days later, this dongle appeared and we could take payments. And I was like, that's how this should be, you know?

• 35:53Speaker 01

  Exactly. And, and the, the, the interesting part is those steps that were removed didn't just magically go away forever, right? Those steps just went to Square. So Square took on that complexity and, and used software to be able to innovate. And there's actually this really good book called The Innovation Stack. It's by one of the founders of Square, Jim McKelvey, where he talks about this exact thing where when you remove steps and you're innovating, you then, the company takes on the complexity, but then when you're a software company, you build software to improve it. And so, you know, similarly, as we looked at the friction here for GPs, it was really around fundraising. It's just like constant issues around that GPs go through fundraising. And we took a step back and went, all right, how do we solve this?

• 36:34Speaker 01

  And Naval, kind of going back to, you know, he really, really brilliant at product and product strategy. Was like, well, I've had this idea, I had this idea a long time ago of like, why, like, why do you have to go lock the fund down? Right? Why do you have to go through this process, lock the fund out and then do it again? Why can't you just keep accepting capital into a fund structure? And so then we started looking at, well, that's actually a good point. Why is a venture fund a structure this way? Why is a traditional fund structure this way? And it turns out that the venture fund structure actually started in the world before software. It was built in the world before software. And rolling funds are what a venture fund structure would have looked like if it was built in the age of software. And so that's what we did.

• 37:15Speaker 01

  We actually just took a look at it and we went, wow, we can actually make this infinitely flexible fund structure that you can now accept capital anytime and you can keep raising into it. And so what that did was those characteristics caused us to be able to compress the number of steps that someone has to actually go through to raise capital. And the rolling fund structure was born. And, and, and so what's fascinating is if you want to do a traditional fund, you could actually add constraints on the rolling fund structure and voila, you actually have a traditional fund. But you don't need to anymore. That's the beauty of it. And so that, that's what we, you know, as soon as all of those pieces click, because we built such deep banking infrastructure, accounting infrastructure at AngelList Venture, we were able to go from idea to ship within months.

• 38:00Speaker 01

  It was like very, very fast. Again, it's, it's very complex because you have to build all the software automated. Most traditional funds are actually done through people, right? You hire lawyers, accountants, and then they have to sit there and do all this complex math through spreadsheets. That's actually what happens today. We are able to do all of that through software.

• 38:18Shaan Puri?

  Right, yeah, like, you know, when you take money from someone, there's the sort of KYC, AML compliance. Know your customer, right? You guys handle that, right? That when you invest in a company, if you're, if you're creating SPV of just these investors investing in just this company. Again, you would need lawyers, you need to create the documents, you need to figure out if this is right or wrong. And you guys sort of made that, not even a button you push, essentially, it just happens. Alright, so I've given the love letter and the, the commercial for it. What are the downsides? What are the, what are the fair criticisms of rolling funds today? What do you, what would you say are some of the downsides and or fair critiques?

• 38:56Speaker 01

  Yeah, it's a good question. So we've spent a very, we spent a lot of time really thinking deeply about the rolling fund and comparing it to traditional fund structure and making sure that the way we built it was, was Pareto superior to traditional funds. So with that in mind,

• 39:15Shaan Puri?

  Explain what that means. What is Pareto superior?

• 39:17Speaker 01

  Yeah, Pareto superior is basically-

• 39:18Shaan Puri?

  How do I use that in my day to day lingo that will make everybody think I'm super smart?

• 39:23Speaker 01

  Yeah, it's basically, it goes back to what I was saying earlier where a rolling fund structure is actually a structure with infinite parameters. And so you could create a traditional fund out of it, and that's a subset of a rolling fund.

• 39:35Shaan Puri?

  Right.

• 39:35Speaker 01

  But then you can actually get all the flexibility. And so because of that, a rolling fund structure is a superior structure. And that's the thing, it's actually ultimately a venture fund structure. So when, when there are, when there are criticisms of it, you know, people are comparing it to traditional funds directly as like, there are these trade offs. But in reality, actually, you can do a traditional fund, right? And I think, and I think we can do a better job of explaining it and we're going to be announcing something pretty soon at a confidential or annual conference. And, but we can definitely do a better job of explaining this to, to the industry. Now, I will say that the drawback, and this one is actually a very temporary drawback, is just, it's a new structure, right?

• 40:19Speaker 01

  So as you're talking to LPs, there is some additional explanation of exactly what a rolling fund is. But that was true, I would say, four weeks ago, but then this whole thing just blew wide open, right? It actually was on, on the back of Sahil announcing his rolling fund. And then from there, it just sort of struck a chord and what happened after was just fascinating. I mean, we have so many community posts that have come out of it. So many people like, you know, looking at it, creating analyses from every angle. And, uh, and now I would say that a lot of people know what it is. So this particular drawback is actually decreasing day by day right now. But that is, it is a new structure, right? It's something that people have

• 41:01Shaan Puri?

  When I looked at it, when I looked at it, I was like, okay, do I want to do this? Uh huh. I told you all the things I loved about it. The one thing I thought was a drawback was the fee structure. So,

• 41:11Speaker 01

  Hmm.

• 41:12Shaan Puri?

  Um.

• 41:14Shaan Puri?

  Let's say I go and I, uh, it, it seems to me like every quarter, there's a fee and there's a sort of a minimum fee. Um, which is either X percent, I think it's 1.5% or something like that, 2% and, and or, or 20K. And so let's say you, let's say you create a rolling fund and you only have a hundred K per quarter of capital committed or, or, you know, if you have a hundred K per quarter, you know, you're paying 20% as a fee, uh, just to, to operate your, your rolling fund because there's operational overhead to actually do this every quarter. And so that seemed like the thing to me where to get to the, to get to the low fee model.

• 41:54Shaan Puri?

  Um, this is, you know, it's, it's, it's going to be, you need like, I don't know, a million, 1.3 million, a, a, a quarter, uh, in order to be in that low fee tier. So that was the only, and I don't think of it as a gotcha. Uh, but I, but I did feel like, oh, that's the one area where this, you know, might be suboptimal. What, what do you think about that? Am I thinking about this the right way?

• 42:13Speaker 01

  Yeah, you are. And actually I'm glad you brought that up because

• 42:15Shaan Puri?

  Because you're gonna, you're gonna waive my fees? Thank you so much for waiving my fees. I really appreciate that.

• 42:21Speaker 01

  So it is, it's something we've been actively monitoring, like how is the, uh, like, how are people understanding the fee structure? And what do we do here? And so, uh, with respect to the minimums, uh, you know, we definitely don't want, we want anyone and everyone who wants to start a rolling fund, be able to access it, right? And, uh, you know, we are going to be, uh, depending on where, you know, where you're at as a fund manager. We're going to be waiving these minimums for multiple quarters, right? So you're not going to have to worry about that moment where. You know, that moment where you have 10% of your capital that's going, you know, going to fees. And so we are making that change and we're about to launch that change. And we're going to blow that out at AO Confidential or AO Conference.

• 43:01Speaker 01

  Uh, so very fair criticism and something we are actively, uh, actually already actively addressing right now. And the fee structure is going to be a lot simpler. Uh, again, we definitely don't want anyone to ever feel like you can't access a rolling fund. And so that's going to be very clear. No one's going to see this minimum as like, oh, you're going to be charged a minimum on day one. We're going to get rid of that.

• 43:20Shaan Puri?

  Okay, uh, great. Love that.

• 43:22Speaker 01

  Yeah.

• 43:23Shaan Puri?

  Um, all right. So, so what are some of the like, kind of, if I'm an LP out there, right?

• 43:28Speaker 01

  Mm hmm.

• 43:29Shaan Puri?

  Uh, because I, I'm talking about this from the, from the view of a GP. In reality, most of the people who listen, most of the people listening are not going to launch their own rolling fund. Some will.

• 43:37Speaker 01

  Yep.

• 43:37Shaan Puri?

  Um, but the idea is not that everybody has their own rolling fund and there's nobody left to invest in the funds. Uh, it's that, you know, a handful of people who have access, knowledge, uh, desire to, to invest in startup companies. And, and they can actually, you know, return money. Um, they, they have, they can now go raise and then other people can, uh, cut checks and they could say, great. You go do the work for me. I want my money to multiply. You know, I'll give you a dollar, bring me back four. And, uh, so how do you think about like, if I'm an LP, I've never invested in a startup before. I listened to this podcast and I, um, I obviously believe in the future of tech. I believe that cool companies are getting built and that people are getting rich off them. What is the right way to think about this as an LP?

• 44:21Shaan Puri?

  How would you talk to an LP, a potential LP who's going to write their first check into a rolling fund?

• 44:25Speaker 01

  Yeah, that's a great, uh, it's a great question. So the way to think about early stage venture, and this is how I'd explain it to an LP. The way to think about early stage venture, which is really investing in technology companies when they're first starting, is you actually want to invest it in as many technology companies as possible and as many viable technology companies as possible. And so you don't want to be sitting there doing deal by deal picking, unless you're prepared to do many of them and you have the judgment to do many of them and you have the access to do many of them. Because interestingly enough, early stage venture, you should think about it as a different asset class, right? Just like public technology companies are a different asset class, so are early stage venture.

• 45:09Speaker 01

  And by the way, we've actually published data on this now. Uh, we are quite possibly the number one source for data because we are seeing such a large percentage of all the deal flow now. And what we see very clearly is that what you want in an early-stage venture portfolio are as many investments as possible in viable companies. And so as an LP, as you're looking to grow your capital, you want to first and foremost believe that the GP that you're investing in has access and has good judgment. And if that, if those two are true, then you want to invest behind them because you're going to get the diversification that you're looking for. Meaning the many companies that you need to invest in, your capital has to go into from them. And that's it, right? That's the beauty of, of this.

• 45:53Speaker 01

  And, and the nice thing about the rolling fund is as an LP, you get to up, re-up or kind of decrease if you want. And as a GP, you can set minimum terms, right? So let's just say I'm an LP and you have your rolling fund and I say, Sean, you know what? I, I'm willing to commit for a minimum of one year, but I'm going to commit $50,000 for the one year. Because I don't quite know what your deal flow is going to look like. So I'll commit 50,000, you have locked in capital for the next year. And then you make a bunch of investments and you send an update for whatever you can share, of course. And I see it and I'm like, whoa, wow, Sean's amazing.

• 46:33Speaker 01

  All right, I'm going to re-up, I'm actually going to increase my commitment from 50,000 now to 500,000, right? And that's the beauty of a rolling fund. You can actually increase your commitment when you start seeing exactly, you know, how good the GP is. So you're essentially opening up the pool to many, many more LPs that they may not be ready to make a large decision yet, or any decision yet. But it's fine. They can just come in the next quarter. That's the beauty of this. And by the way, we're seeing this and, and it's, it's, it's great when you see that you just see someone go from investing, you know, 250,000 to like 750,000. It's like, whoa, all right. And that's what's happening is they're building conviction in that GP. In a traditional fund, you'd have to wait the two years, right? And, and then maybe you can get access to the next one.

• 47:18Speaker 01

  I'll give you an example. I'm actually an LP in a traditional fund where they've, they've made some fantastic investments. But I was, I, I wasn't, I just didn't feel comfortable making a large bet because I, I don't know who they are. I don't know if I have any contacts. But they've just made fantastic investments. I'm sitting here going, please get on a rolling fund. I would love to give you more money.

• 47:38Shaan Puri?

  Right.

• 47:39Speaker 01

  So that's the beauty of this for LPs.

• 47:41Shaan Puri?

  And what are like the? You know, you you said a couple of things in there that I think would be helpful to give rules of thumb, not even rules, just like, you know, one man's opinion of what what these should look like. So you said two things in there that that I think are interesting. One is many companies. So a GP should be investing in about how many companies. And again, let me should also define when we say LP, that just means person giving the money to the fund manager, the GP is the fund manager who's decided going out and meeting startups and investing and the the good ones are as many as they want. So what do you think is the right, like, let's say, what what is the right number or or minimum bar around how big the portfolio should be?

• 48:25Speaker 01

  Yeah, so I would say you definitely want at least fifteen to twenty, right? I would say that's a good number. I would say one to five is way too, especially when dealing with early stage, right? Like pre-seed seed companies. You definitely want fifteen to twenty. And ultimately, as you get, as you as you invest in more, meaning if I'm investing for a minimum one year, I'm actually hoping that the GP is actually to make a lot more of those investments, right? Rather than fifteen, twenty, maybe it's going to be twenty-five or thirty, right? That's a good amount of exposure as an LP.

• 48:59Shaan Puri?

  Right. And then the second one is return. So, okay, I kind of know the stock market, they say, you know, seven percent historical, you know, average return. If I give, you know, let's say, my my rolling fund, right? My rolling fund is called the All Access, Sean's All Access Fund. I give a hundred dollars or whatever, whatever the number is, let's use a hundred for simple math. I give a hundred dollars across the, you know, four quarters. Obviously, I can't get that money back right away. It's going to be put into illiquid startups. So I can't go and just say, hey, tomorrow, I want to go buy a car, give me the money back. The second thing is, you know, what should I be thinking about is good? What is winning? And and, you know, what type of return am I looking to get? Give us kind of like the, you know,

• 49:42Shaan Puri?

  the the bear case, you know, here's like the minimum of what worked. Here's base case. And what's the like outstanding returns look like for for these types of funds?

• 49:52Speaker 01

  Yeah, it's a good question. I would say that the the bear case, and again, this is all dependent on the GP, of course. The bear case is your money is locked up and you get, you know, you actually get below what you put in

• 50:10Speaker 01

  seven to 10 years from now, right?

• 50:11Shaan Puri?

  One X or below.

• 50:12Speaker 01

  That's one X or below. That's the complete bear case. I would say the average case, and again, average is

• 50:22Shaan Puri?

  We're not talking about the math term. We're talking about your

• 50:24Speaker 01

  Yeah.

• 50:24Shaan Puri?

  You're just kind of trying to give somebody a ballpark to understand.

• 50:27Speaker 01

  Yeah, just a ballpark. Yeah, I would say the average case in terms of, you know, just in terms of what we think will be good is you get it a little, you will definitely want to beat the public market, right? Otherwise, you're comparing it against a highly liquid stock market versus an illiquid, you know, private market. And so I would say, looking at what the public market returns are and being above that. And then the bull case, the bull case is, and again, I'm sort of, you know, looking at some of the really outstanding firms. But you start getting into, you know, seven X, 10 X, 15 X on your money. It can even be higher, right? Really depends on, it really, really depends on how many of the, how many winners you have in the portfolio. By winners, I mean unicorns, Decacorn.

• 51:13Speaker 01

  And by the unicorn, just for everyone is a company that's worth a billion or more. Decacorn's worth 10 billion or more. And I would say the interesting thing is, right now, at this moment in time, tech is having its moment, right? Because we're all just stuck at home and we're all, we're all stuck at home. We're essentially being pulled forward in the future by so many years that all of these needs have essentially been accelerated all the way from food delivery, grocery delivery to, you know, working from home asynchronous technology. There's so many things have just been completely accelerated. And what we're seeing in early stage venture is just an explosion in startups, just an amazing, like all these founders, they're just starting companies right now and they're amazing companies that they're starting.

• 51:56Speaker 01

  And so what you as an LP want and like what you should be thinking about is how do I get my dollar in a company that is going to become big, right? It's going to be become become a future unicorn or Decacorn. And if the GP in the rolling fund that they're investing behind can get access to these companies, you know, I think you mentioned, you know, a below five million valuation or 10, this is like pre-seed, seed stage. Then your, your, your money will actually multiply very, very quickly. And so that's ultimately what matters, right? Returns, if you take all the winners out of a venture portfolio, it's negative, right? So if you take any unicorn or Decacorn out of like any venture funds portfolio,

• 52:37Speaker 01

  the returns are completely negative. And what that really means is you're dealing with a power law here where you're making, let's say 20 investments and you're really looking for two or three to become really, really big. And all of your returns are dictated by that. The rest of them will likely either go to zero or they'll just be a zombie company. And that's just, that is just how venture works. And that's just the, the type of industry and the type of asset class it is. And which is why, again, as an LP, you actually shouldn't do deal by deal picking, right? It, it seems like it's great, but unless you have access to the best companies and you have judgment on which companies to invest in, it is actually just better to put your money behind someone like you, for example, who has access.

• 53:22Shaan Puri?

  Right. And it's like, you know, Warren Buffett has this thing, oh, hey, Warren Buffett, you know, what's the, what are the, the rules of investing? What are the basic principles? He's like, rule number one, you know, don't lose money. Uh, rule number two, don't, don't forget rule number one. And venture, it's like the exact opposite. It's like, be prepared to lose money, you know, 80 to 90% of the time. And then when you win, win so big that it's 100x more or more return. Um, and it's such a foreign thing to a lot of people. A lot of, I know a lot of people who have reached out being like, hey, I want to invest in your thing. And they maybe do real estate. And they're not used to losing money on eight out of 10 deals. That sounds crazy. That sounds like doing a bad job. But like, you know, they're also not used to a project returning

• 54:05Shaan Puri?

  a thousand X. And so that's when you when you blend it all together, you end up with this thing where you're getting maybe a 20% IRR or a 30% IRR or even a 40 50% IRR, depending on how the fund did. And so you're outperforming the public market by three, four X. And you know, the average person is going to go buy kind of, you'll put their funny, their money, their money in a mutual fund. And that's one of the probably personal opinion, one of the worst things you could go do. And, you know, you don't want to be that. And so find a find a blend that works for you with an amount of money that is sort of your, your fun money is kind of the advice I give. I don't want anybody to put any money into my fund. That's not their fun money. This should be a small percentage of your net worth. This should be the money that you're going to be learning about technology from.

• 54:49Shaan Puri?

  You're going to have the potential for very high returns, but also you're comfortable with it being locked up for seven, 10 years because, again, these are private illiquid companies that are meant to grow really fast or die. And you want to know the game you're playing. And I think that's the game that we're talking about here.

• 55:06Speaker 01

  Yeah, exactly. And, and, you know, for just for your audience, the, the way to think about it is when, when a GP is making an investment into a company at the pre-seed or seed, and that company becomes a unicorn or a decacorn, you're talking about, in some cases, a thousand X, 10,000 X return on that capital. And that's how to think about it. It's complete power law dynamics here where you have one investment or a couple of investments that scale up so quickly that it actually doesn't matter. Like, all of your other investments literally do not matter. And that's really what you have to believe. Is this GP going to have the access and judgment to find these companies? If the answer is yes, write the check. If the answer is no, don't write the check. Right. That's it.

• 55:47Shaan Puri?

  Love it. When is my fund going to be live? The most important question.

• 55:52Speaker 01

  Yeah.

• 55:53Shaan Puri?

  Is it ready?

• 55:54Speaker 01

  Sounds like you. Yeah, it sounds like you. You've pretty much called out everything that's needed. So we're excited to go live with it. And yeah, I'm super excited to see you see, see the fun page and see how you promote it.

• 56:05Shaan Puri?

  Yeah, me too. All right, cool, man. I appreciate you coming on. And where can people find you, find more information, you know, plug whatever you want to plug to send people your way?

• 56:13Speaker 01

  Sure, I mean, you can find me on Twitter. I'm usually talking and responding to people about Rolling Fund, twitter.com/Avlok. To find out more about Angel's Venture, where we're up to, you can go to angel.co, A-N-G-E-L dot C-O slash venture.

• 56:27Shaan Puri?

  Awesome. Alright, man. Thank you so much.

• 56:29Speaker 01

  Great. Thank you.

• 56:30Shaan Puri?

  Cool.

• 56:48Shaan Puri?

  Okay, what's up, guys? Sam is out today with a painful kidney stone. So, you know, pour one out for Sam. I think that's probably one of the most painful things. But got a guest who's gonna pinch hit for us, and he's amazing. He was actually on the podcast, I don't know how many months ago now, but I think you were in the first 10 episodes, maybe. Is that right?

• 57:10Speaker 03

  Yeah, I'm in the deep cuts. I'm in the back of the record chop.

• 57:13Shaan Puri?

  Right. Only the OGs know. So Xavier, Xavier Helgesen's here. I think you shared your full story a long time ago. So if you ever want to kind of go back to that, you can find it in one of the first few episodes. I'll find the episode number. But great buddy of mine, done a whole bunch of interesting things. So let's, let's brag a little so people know kind of who you are. So this is the, you're a super humble guy. So we got to go non-humble for 30 seconds so that people know that they should pay attention to you. Give us your story.

• 57:42Speaker 03

  Okay, so not, so non-humble version, I really hate this. I grew up in small town Minnesota.

• 57:46Shaan Puri?

  I know. He's like holding a stress ball just to do this.

• 57:49Speaker 03

  This is really, so bootstrap Better World Books from $0 in the back of a community center to $70 million in revenue. Our initial capital was $35, which you can hear about on the old podcast. Got a school scholarship to Oxford to get my MBA. So I spent a year there, and then spent the past, well, about eight years before I started and earned ventures, trying to bring solar to the mass market in Africa. So started a company that serves about a million people.

• 58:22Speaker 03

  Investors included Tesla, General Electric, DPL Partners, Helas Partners, 100 million in equity raised, 50 million in debt raised. Really revolutionary products, probably the most revolutionary actually is just rolling out now. So that was a lot of what I did before I.

• 58:38Shaan Puri?

  And is it, is it accurate when I say, because I say this all the time and I have no idea if it's accurate, that you are the largest solar player in Africa, is that correct?

• 58:48Speaker 03

  Yeah, to my knowledge.

• 58:49Shaan Puri?

  Great.

• 58:49Speaker 03

  My knowledge.

• 58:50Shaan Puri?

  Like the analogy is sort of like, you know, you guys have this power wall sort of thing. Like if you've seen the Tesla power wall, I saw the one you guys have in your office and it's like a slicker, better technology, better looking, you know, unit that, that goes into, you know, people's homes and is kind of revolutionary.

• 59:09Speaker 03

  Yeah, no, it's really, it's really democratizing the ability to generate and store your own energy and especially, I'm sure a lot of your listeners are in the developing world. I actually got a message, one of your listeners is in Nigeria, she messaged me on LinkedIn.

• 59:22Shaan Puri?

  Amazing.

• 59:23Speaker 03

  And it was, it was, it was awesome. And she had some marketing ideas for our affinity product. So.

• 59:28Shaan Puri?

  So all the three things I think you're super unique at. One, the two, two big ventures that you started, one was Better World Books. And the other one, Zola Electric is, they're both social impact, but they were, they're not, so they both had an amazing sort of benefit to humanity while still being really good businesses. And you're like a total business minded person. I often find that, you know, folks that come really from the social impact world, I sometimes find it hard to connect because I just have, you know, more like a ruthless capitalist mindset, but I feel like your brain has both, both chambers in its head.

• 1:00:06Speaker 03

  Well, I think the ruthless capitalist is really the fundamental part of it. I hate to say it. It's like, I'm like a Catholic ruthless capitalist, you know, so I, I've just got this kind of like Catholic social justice bone in my body. And it's always been, always been a thing for me.

• 1:00:21Shaan Puri?

  Right. And so we'll, we'll talk more about some of the other interesting bits. I think one other interesting one is, you're the first CEO I ever met who's, who was like, I feel like in another life I should have been a CFO. You like love finance, you love structuring deals, you love. All of the bits that I know most CEOs, even really great CEOs, building great companies, we are totally oblivious to this stuff. And you know, you, like you said it with your previous company, a hundred million in equity raised, 50 million in debt raised. And now with what you're doing with Enduring Ventures, where you're buying, you know, profitable companies, you're buying beautiful businesses and you're planning to hold them for, for a long, long, long time. You are tapping into that in a bigger way. And so without even talking about that, I'm just going to plant that seed.

• 1:01:04Shaan Puri?

  And I think as you tell certain stories, people will realize, oh, that's cool. That's a superpower when you have this sort of CFO brain living in a CEO body. I think that that's a, that's kind of a hallmark for you. And if there's anybody else out there who relates to that or wants to get good at that, I think you're a pretty good model. I know for myself, I've dug in and learned more because when I hear you talk, I'm like, oh shit, I don't know any of this. This is like a foreign language to me, but I can see kind of the amazing results he's getting with this. I need to get stronger at this thing I used to kind of brush off and try to delegate as much as possible.

• 1:01:38Speaker 03

  Yeah, you know, it was, it was the fundamental thing. I went, so I struck a few deals with Better World Books that were just not, you know, they're just not great financing deals because I was kind of naive and it really, it kind of put a chip on my shoulder in a way. It was like, okay, well, I can be as good at technology or as good at like starting e-comm or whatever, but like it's, if some finance guy's going to make all the money.

• 1:02:02Shaan Puri?

  Right.

• 1:02:03Speaker 03

  If he gets, you know, if he gets a better, you know, if I don't understand the deal, he's going to be, you know, gets better than me on that. And, and, and also I just realized that a lot of stuff I want to do in the world needed money in it and, and I needed to just be able to understand how that worked. So part of it was the MBA, but then a bunch of it was just honestly, just, just learning from some really good CFOs that, that worked for me or worked with me over the years too.

• 1:02:30Shaan Puri?

  And so let's talk about, um, let's talk about ideas or businesses. So, um, I'll let you pick which direction you want to go. So we, either we can talk about some interesting opportunities, ideas or spaces that you've been noodling on, or you've think, hey, somebody should go do that. Or you can talk about maybe some of the companies that you either looked at or bought recently. Um, you know, pick a path, let's choose your own adventure.

• 1:02:52Speaker 03

  Oh man, so many places to go, Sean. Okay, so we'll, we'll talk, you and I, before we got on, we're talking a little bit about Up Council, so I just wanna

• 1:02:59Shaan Puri?

  Tell this story.

• 1:02:59Speaker 03

  I just want, I just want to tell the story because it's, it's really cool. It's really cool. And it, I think it tells what we do at Endurance Ventures a bit. And so, you know, I'm a big Warren Buffett geek. I'm sure as many of your listeners are. And, and so, you know, I had this, I had a little bit of a walk in the wilderness in the past, kind of, you know, really before, I would say 12 months ago, where I knew I was going to transition out of an operating role at Zola. I'm still a board member. And I was going to say, well, what do I want to work on next? Do I want to go try to, you know, be the CFO to help some, somebody take their brilliant product public? Do I want to start something new myself? And I, I got very, very into

• 1:03:39Speaker 03

  the world of acquiring profitable businesses. Actually, had a, had a great lunch with Andrew from TinyCo.

• 1:03:48Speaker 03

  We were talking about Better World Books, of all things.

• 1:03:50Shaan Puri?

  In Canada?

• 1:03:51Speaker 03

  They took a look at it.

• 1:03:51Shaan Puri?

  Where did you have this?

• 1:03:52Speaker 03

  Yeah. Yeah, I went up and saw him in Victoria. You know, you go see the oracle where he sits, right?

• 1:03:57Shaan Puri?

  Right. The oracle of Victoria.

• 1:04:00Speaker 03

  He is. And he and Chris is so cool. And they're just hanging out in Victoria, having their coffees, you know, doing, making acquisitions. It's really, I actually have some friends up there. They're, slight detour, but there was a company called ABE Books, or ABE Books, that Amazon bought a long time ago, that's the leading antiquarian marketplace for books on the internet. And it's still run out of Victoria. And so I used to go up there all the time and see those guys. And Victoria's like, one of the nicest places in the world. Like, I can see why he doesn't move.

• 1:04:31Shaan Puri?

  Right.

• 1:04:32Speaker 03

  So, so anyway, I got, I got, I get into this world. I got, I got an understanding. And I think it's, it's totally, you know, you, you take that pill and you can't see the world the, the same way, I think, once you, once you take it.

• 1:04:46Speaker 03

  So about, okay, what do I want to do? I wanna, I wanna have a long-term holding company because that's the fundamental arbitrage. Buffett, Buffett says, nobody wants to get rich slow. That's why nobody's done what, you know, and so I kind of feel bad like I've already, you know, I'm in my early 40s, so I gotta start my compounding career now. So I gotta eat, eat well, I gotta, I gotta exercise to make sure.

• 1:05:07Shaan Puri?

  No, just eat like Buffett, dude. Just eat M and M's and drink cokes all day.

• 1:05:10Speaker 03

  Yeah, well, that, somehow that guy, he's still going strong, just eating McDonald's. So maybe there's, there's something there, probably about loving your job, to be honest.

• 1:05:19Shaan Puri?

  Yeah, I think, I think it's literally, I think he doesn't stress, and I think that stress kills you much, much faster than nutrition, poor nutrition will.

• 1:05:27Speaker 03

  It's, it's so true. It's a fundamental thing I manage my life is, is to never stress about, about anything.

• 1:05:33Shaan Puri?

  Right.

• 1:05:33Speaker 03

  Um, and, uh, yeah, so I, so I had this vision and my partner, Siava and I, we, um, I think once I realized that he might be open to work together, that was like, oh, wow, I don't get, you just don't get to work, hitch your wagon to a world-class person like this very often. So I better, like, we better really see if there's something we can do. And, um, and, and so we came up with this concept of Endurance Ventures, saying, okay, we want to be, want to be the buyer of choice for, um, uh, you know, for business owners who want to sell and want to be sure that they're, um, especially if they have something they care about other than just the bottom line. So that they want to see their employees are taken care of, maybe employee ownership is important to them. Um, we're talking to

• 1:06:17Speaker 03

  one company that's 100% employee-owned and they, they want to sell, employees want to sell part of their share, but they want to, they want to keep doing what they're doing. So that, so innovating in those sort of areas, but then also just bringing, I would say, a, a kind of modern digital growth toolset. You know, Siava and I have this, you know, we have the toolset that many of the entrepreneurs on this call have, uh, but then we also, I think, have the more traditional, uh, business acquisition, finance, you know, building a more proper corporate machine, if, if that's what's needed. And I think the real nuance is, is, you know, a lot of businesses, when they're, when they're small, as we call them, they either kind of get overbuilt. Right, so they get bought by, you know, a private equity firm and there's a VP of Marketing

• 1:07:00Speaker 03

  and a VP of Sales and a VP of Finance and it doesn't make any money because the business hasn't grown into it. You know, and a lot of these businesses have just been kind of run by their owner as a small business. The money just goes to their bank account at the end of the month and that's sort of how they run it. And so I think we know what that's like because we've done it ourselves and we've started stuff from zero, but then we also know what it can turn into. So, so anyway, that's what we do. We bought, what did we bought? We bought four businesses, started one and we made a minority investment

• 1:07:36Speaker 03

  in one in, I think, six months since opening the doors. So, so it's been, we've been active. And the first acquisition we made was UpCounsel, so.

• 1:07:50Shaan Puri?

  Yeah, so talk about this. So for those who don't know, UpCounsel, I remember it because UpCounsel at one point was like, it was a hot company. It was a smart idea. They were bringing sort of, in some ways like a marketplace where they had lawyers from all around and if you needed legal services, you would go to UpCounsel, you would get a price, you know, why pay a San Francisco lawyer, you know, three times as much when you can go to UpCounsel for this kind of, you know, there's just these pretty stock situations that are like, I need to incorporate or I need this or I need that. And you want something better than just a LegalZoom template where you're like, okay, I don't know if this is legit or not. I don't want to bet my company on this. But you don't need a Manhattan lawyer either. And so I remember UpCounsel raised money. They were exciting. They were a good

• 1:08:35Shaan Puri?

  company. I used the service. And then I didn't hear about it for a bit until you were like, hey, we're gonna, I think we're gonna acquire UpCounsel. And tell me why you like that business and how that went down.

• 1:08:48Speaker 03

  Absolutely. So, you know, so I love it as a customer. I mean, if I'm a customer of something that and I actually really love it, then that that for me says a lot because I do think, you know, I'm I like to think of myself as a discerning discerning customer for these sort of things. And I I ran into this again and again, where I didn't want to just rack up $800 an hour legal work, where there's an associate on the call and a, you know, there's three people on the call and they're all billing, right?

• 1:09:15Shaan Puri?

  Right. It's like, is that my nephew who's actually doing the work over there? He's, he's, you know, he's 23. So what's going on here?

• 1:09:21Speaker 03

  Oh, yeah. And then and then they want to talk about sports for the first five minutes. And I'm like, that's like $400 of legal time you spent just talking about the Rangers. Let's get to work. So, anyway, so UpCounsel, I mean, I got patents done on there, really affordable, really high quality patent work. I got trademarks done. I incorporated companies on it. I was I was total UpCounsel power user for years. And I also knew the company. So it's CTO and co-founder. I hired him out of South Dakota in 2003 to come to San Francisco. He had dreadlocks down to his waist. And he was the only decent developer who would come

• 1:10:03Speaker 03

  work for $36,000 a year in San Francisco. Because he wanted to get out of South Dakota so bad.

• 1:10:09Shaan Puri?

  Right.

• 1:10:10Speaker 03

  And and he was great. He was one of our, he was one of our key developers in the early days of Better World Books. And then I knew he was going to go do his own thing eventually. And so, so he started it with another with a guy named Matt, a really talented lawyer, legal entrepreneur. So he was a he was a lawyer. And the two of them started it. I kind of had my eye on the business from the early days and saw it grow. They raised, you know, they raised a big VC round from Menlo. And, you know, Menlo is in Uber and other other sort of marketplaces. And

• 1:10:46Speaker 03

  So you know, they, they did, you know, in some ways, they did exactly what the VCs told them to do. They ramped up the burn rate, they had forty employees. You know, and the business grew, but it just didn't grow at the pace that, that VC would, would want it to. And so, so then they got in a situation where the VCs wouldn't fund it anymore. There was some, there was this, this sort of weird lawsuit situation that didn't end up being anything, but it was, it kind of scared people. And so, so there was, it was just a hairy situation. And as a result, they had to start laying people off. And then it kind of, you know, created this, I, I think when you have a venture funded company, you're not venture funded anymore.

• 1:11:29Speaker 03

  Like, everybody's lost the reflex for how to make a profit, you know, and.

• 1:11:34Shaan Puri?

  I, I haven't fed myself in years.

• 1:11:36Speaker 03

  Yeah, no, it's true. You don't know how to hunt anymore. It's like you, you order Uber Eats for three years, you're not gonna be able to go hunt, hunt a squirrel.

• 1:11:43Shaan Puri?

  Right.

• 1:11:45Speaker 03

  And so now it's making a profit, it's a little more like hunting squirrels. So, anyway, they, they had, you know, the, the team, by the time we got there, the team had largely transitioned over to work at LinkedIn. So that's where the founders were working and the engineers. They, they were down to kind of a skeleton crew, just keeping the lights on. And then they announced their shutdown out of the blue. And it was really weird because I had used the service like two months before. And so I knew that people were still doing business on it. And so, so I, I, I texted Mason, the, the founder, who was the CTO, then he became the CEO. When they were kind of in wind down phase and, and just said, hey, like, you know, can, can, can we do something here? Like, let's, let's not have this thing die.

• 1:12:29Speaker 03

  And so I gotta, I gotta look at the financials and it was total, it was not fancy financial engineering. It was literally like, hey Mason, what's that number, what's that number, what's that number? Okay, I think, I know this business can pay like four people to work on it and still make a profit. And so, you know, we, we worked out.

• 1:12:47Shaan Puri?

  What, what did you look for in the financials? So what are the, what are the KPIs that you, that you, you were like, okay, I need to know this, this, this?

• 1:12:54Speaker 03

  Yeah, so a lot of people look at revenue. You gotta just look at the gross margin line. Like, that's, that's where all the action is. And then you gotta understand, like, are there any, like, embedded costs? Like, Amazon Web Services hosting or other expensive SaaS contracts or products like?

• 1:13:10Speaker 03

  So to me, it's like, okay, what is the gross margin dollars that you have to play with? To either make a profit, pay employees, or lose money, right? And so, you know, looking at the business, like, it did about the same in 2019 as it did in 2018. And in 2018, it had 40 employees and was running full speed against, you know, you know, for a billion dollar exit. And in 2019, you know, the staff was being laid off and, you know, it was on a skeleton crew and did about the same amount of revenue. Because it was useful.

• 1:13:43Shaan Puri?

  Right. So you're like, okay, I could do that. So you look at the gross margins. What else did you really care about when you were analyzing the deal?

• 1:13:53Speaker 03

  So I cared about, does it have any, like, is it just arbitraging traffic? Or does it have any real, like, long-term assets? And so, in this case, we had an amazing organic SEO. So Mason's one of the best SEO guys in the valley. And so, we had a million high-intent legal page views coming to us every month. That, like, if you Google SafeNote, UpCounsel's number one. And it's like in the snippet box, like for, and you can like go, you can do that for, you know, a bunch of different things. I mean, there's over 10,000, you know, ranked high-quality content pages. So, so we had that. And then, we had a really good codebase. There wasn't a bunch of repair that needed to be done. Because I, and that was a little unfair advantage, right?

• 1:14:38Speaker 03

  Because I knew Mason was good technically. I knew he wasn't, he wasn't going to mess around with that. So, so the codebase is really solid. The, the, the traffic was coming organically. And then, of course, there was a huge email list. So there's, everybody's used UpCounsel, including you and me, our cousins and everyone else is on it. And so, I knew if we probably just could start communicating with them again and tell them, hey, UpCounsel's back, and that are never, then, then we might get somewhere.

• 1:15:05Shaan Puri?

  Love it. And so, so you, you strike a deal and you structured it in a very, I thought, kind of like high upside, low downside way. I don't know if you could talk about the structure of the deal or any of the numbers, but share what you can share.

• 1:15:18Speaker 03

  Yeah, so I can't, I can't really, I can't really share any details. I can just say that one thing we did is we abide by the founder's code, which is that we don't wipe out founders. And so, so that's, we made a contingency in our offer that our offer would be void if the venture capitalists just took the money. Because we were, you know, if you just read the legal docs literally.

• 1:15:43Shaan Puri?

  They could take the money.

• 1:15:44Speaker 03

  They could. They have a liquidation preference, right? So there were $26 million liquidation preferences on the company. And I can tell you that we paid less than that. So, so, so we, we put it in there where we said, look, we're going to give you something better than zero, but the number, you know, but it's absolutely.

• 1:16:05Shaan Puri?

  They had already announced the shutdown, right? So at this point,

• 1:16:08Speaker 03

  Yeah.

• 1:16:08Shaan Puri?

  zero is the default outcome.

• 1:16:10Speaker 03

  Yeah. So negotiating upward from zero is way, actually Ty Lopez is kind of doing the same thing, right? He's like, I'm giving you more than, I'm giving you more than zero for Pier 1.

• 1:16:20Shaan Puri?

  Right, exactly.

• 1:16:22Speaker 03

  So, yeah, so, so we were negotiating up from zero, which is a nice place to be. But it's, it's not an uncommon situation at all that there's, there has, needs to be a recapitalization. And you can either do it in a way that completely screws the founders, you can do it in a way that, you know, recognizes the work they've done, you know, is not going to like, make them, you know, sent to millionaires, but, but we'll, we'll give them some real money for their work.

• 1:16:48Shaan Puri?

  Yeah.

• 1:16:49Speaker 03

  And, and so, so we did that in a way that basically, part of that was if we can actually make this, you know, successful, like we can't, you know, we can't make a giant down payment on this business because it needs some work. But we can, you know, we can, we can work some out where you get some now, some later. And, and, and it's, it's a lot better outcome than, than the other thing you were looking at.

• 1:17:13Shaan Puri?

  Right. And.

• 1:17:16Shaan Puri?

  Okay, that's good. So I like, I like the Up Council story. It's a little bit different. So I invested in Enduring Ventures. It's, I think, my biggest, uh, my, it's the biggest check I've ever written, I think, because I believe in you and I believe in Ceva and I believe in the model as well. But even if I didn't really fully believe in the model, I would have invested you guys anyways. You know, I was just looking for an excuse. But you guys have done a bunch of stuff in a very short amount of time. I'm already feeling very good about my investment because I think, like, I don't know, would you, would you, would it be fair to say that you didn't start with a whole bunch of companies already identified that you were going to go after? You had some, you know, some things you were looking for. Up Council actually wasn't in the profile of what you were

• 1:18:01Shaan Puri?

  looking at, which was like, let's say, a venture-backed company that wasn't going to, you know, achieve its venture outcomes, but still had assets and revenues and, you know, just needed to be downscaled and become a profitable company. That was one model. But you've also been doing other models. So, so talk to me about some of the other acquisitions or other models that you're looking at.

• 1:18:20Speaker 03

  Yeah, absolutely. So, um, and, you know, I, before we leave Up Council, I think there's one, there's one more important thing to say to this, to that story.

• 1:18:29Shaan Puri?

  Yeah.

• 1:18:29Speaker 03

  Which is that you do have to bet a little bit on luck. So, um, I am just gobsmacked by the amount of good luck we had after we made that acquisition. We literally got, so Atrium's Chief Revenue Officer, Atrium, Justin Kahn, startup with $40 million. They also went out of business around the same time. And so he called us up and was like, guys, like, I have the playbook here. I really want to work on something, you know? I saw you guys bought Up Council, like, let's talk. I mean, and Paul is one of, I mean, one of the best revenue leaders in Silicon Valley, like, you know, top, top percentile. And

• 1:19:13Speaker 03

  And so we we struck another unique arrangement where our management team are actually partners with us on this business. So it's not like they get stock options that are worth something that's a big exit. Like, no, they actually are partners and they share in the profits every year in the form of like a distribution, just like you own an investment partnership. So it's just cutting out all the middlemen. There's no LPs investing in venture capital funds investing in the company. It's just the people doing the work, you know, sharing, sharing in the upside. And then

• 1:19:47Shaan Puri?

  By the way, how do you, I brought this up on a podcast before and other people said, hey, I've had the same issue. So I'm curious, how did you structure your profit sharing plan?

• 1:20:01Shaan Puri?

  Not structure, but like, how do you actually implement it? So is there like a go to legal doc? Is there go to software? Is there best practices of knowing how much of your profits to dividend versus reinvest? Like if somebody wants to implement a profit sharing program like I do, for example, what do you recommend?

• 1:20:20Speaker 03

  We got to start that company, Sean, because there's it's it's it's all it's all over the place and it's not really standard. I would say there's, I would say there's two fundamental models I believe in. So one is like a small group of super high leverage people being true partners in the business. And that means to me, either they have, they own stock and you find a way to get them there. So they have restricted stock if it's a corporation. And there's some plan for how that corporation pays out its dividends if it's profitable. Or you structure it as a partnership taxation model where people have a partnership interest, which isn't that hard to do.

• 1:20:58Speaker 03

  And then, you know, they get a K one at the end of the year and then they can literally get distributed a share of the profits.

• 1:21:05Speaker 03

  And, and so in that model, you have to be sure that you can pay their taxes because you don't want to say you have a $400,000 profit. And here's, here's no money because we're reinvesting it all. So you have a $100,000 tax bill or a $200,000 tax bill, right? So you have to, you have to be confident in the profitability.

• 1:21:22Speaker 03

  But I think that the key to all of it, and this is going to be my CFO hat, is a real financial plan that everybody believes in. And then you look at that and you say, okay, well, what would be fair if we did better than this? Because the baseline, it shouldn't be like, you get a bonus for just going from point A to point B, right?

• 1:21:43Shaan Puri?

  For the expected outcome, yeah.

• 1:21:45Speaker 03

  For the expected outcome, right? So, the problem that a lot of entrepreneurs do is they build a business plan that's like, oh, my financial model says I'll 5X this year.

• 1:21:52Shaan Puri?

  Right, super optimistic.

• 1:21:54Speaker 03

  Right, but like, what is an actual financial plan, like with known metrics, known conservative assumptions, contingencies for things to go wrong, and then that's your baseline, okay, company's going to make a million bucks this year, okay, well, what if it makes a million five? Is it fair that the management team gets half of that extra? Is it, you know, do they get some base bonus that they hit if we hit plan? Like, that's the stuff like bigger companies do all day long, and I think, you know, there's other creative things, like you can fund people's 401K with profit share. So, a little bit depends on the culture, too.

• 1:22:27Shaan Puri?

  Right, okay, fair enough. You were, I don't know if you had anything else on Up Council, or you were talking about luck a little bit, I don't know if there was anything else?

• 1:22:33Speaker 03

  Yeah, so then our CEO, so she ran a Y Combinator-backed startup for years, and is kind of a product genius. And so, just happened that like, both she and Paul, our Chief Revenue Officer, and Danny, our Chief Operating Officer, all wanted a flexible lifestyle, and they wanted autonomy. And so, Danny lives in Barcelona right now, most of the operations team is in the Philippines for Up Council, and sometimes it's completely virtual, it's been profitable, cash flow positive from day one, and they've really reinvented the revenue model in a way that actually reduced the price for our customers.

• 1:23:16Speaker 03

  So, if you go back on Up Council now, you'll be amazed, both number of new, like, high-quality attorneys charging super low prices, and we'd switched the model where before was the customers like you and me paying essentially a large platform fee. And we, we cut that down dramatically and said, you know what, the real benefit here is the attorneys building their long-term client base. So we're going to ask them to pay for that. And that's, and that's, um, that's gone really well. And it's actually made them more committed to the platform. Uh, the ones, the ones, because they're paying for it rather than getting it for free.

• 1:23:48Shaan Puri?

  Yeah, right. They pay a subscription for it. Yeah. For customers, which, uh, any, any attorney would take, you know, it's like, if you're going to give me customers, I'm happy to pay you because customers are going to pay me.

• 1:23:57Speaker 03

  Yeah. Oh, oh, and I had one last random thing about UpCounsel, which I think is so cool. So, uh, the, we actually had new investors who we never would have met before come to us over the internet. Because they saw we bought UpCounsel and they thought that was so cool. And, and the amount they've invested in their ventures is actually greater than the amount that we invested to buy the company.

• 1:24:21Shaan Puri?

  Right. So you, you net raised more money than you paid for UpCounsel?

• 1:24:24Speaker 03

  Yeah. Which, which is, which again, I could not have anticipated in a million years.

• 1:24:29Shaan Puri?

  Yeah. Do cool shit and cool things happen to you is a general life philosophy. All right. Talk about a different, a different style of business that you guys are either interested in, or you're acquiring companies, or you're looking at that you think the listeners would be interested in, um, in hearing about or understanding.

• 1:24:45Speaker 03

  Yeah. So does this one, um, I'll talk about a general category of businesses that I love. And it's been a big thought experiment for me, which is local monopolies or local oligopolies. And so, you know, you think about, um, think about the globe, the national monopolies or national oligopolies of Google and search and Facebook and social media, right? And like, those are giant, super profitable businesses. Well, how do you get something that actually produces outsized returns? That's small, that, that you or I can actually afford to acquire. Well, turns out that being the best, um, best barbecue joint in Topeka, Kansas is you, and that can be a local monopoly, believe it or not.

• 1:25:28Speaker 03

  Because it has the same, you know, it has the same characteristics of a real monopoly. Maybe not quite as much protection, but you know, everybody knows you, so it's expensive. It is expensive and unattractive for a competitor to set up shop. Because you're already well established. You have the best product or the best service in a constrained area. And for one reason or another, it's not easy to arbitrage outside that. So I'm not going to go get my barbecue from Lawrence, Kansas, if I live in Topeka, right? I'm going to, I'm going to get my barbecue from the best barbecue place in Topeka. And so, so then kind of thinking about, you know, what are, what are local monopolies that can actually command premium prices?

• 1:26:11Speaker 03

  And you can think about, um, you know, you can think about basic services. There's, uh, you can, you can look at the online reputation of these services. And so if I'm, you know, if I'm the best air conditioner servicing company in Ogden, Utah, and I have a sterling reputation online, then, you know, I may, I may be approaching a local monopoly and you may start to see that in the numbers. You may be like, wow, this thing's super profitable. Wow, how did that happen?

• 1:26:37Shaan Puri?

  Yeah, it's like everybody goes to the local. In fact, uh, when Andrew was on the last podcast, he was talking about this little side project he did that I actually found pretty fascinating, which was, he was saying the local newspaper, a newspaper is a great example of a

• 1:26:51Speaker 03

  Oh, I love that one. Right. And, and the best one is

• 1:26:54Shaan Puri?

  Newsletter he started.

• 1:26:56Speaker 03

  Yeah, no, and you can see how he could quickly become like the best digital source for news and, you know, in a whole bunch of locations.

• 1:27:03Shaan Puri?

  Every town. Yeah.

• 1:27:05Speaker 03

  And that would be useful and valuable. So.

• 1:27:07Shaan Puri?

  And like, it reminded me of sort of like what Nextdoor is trying to do, right? Nextdoor is trying to go the Facebook path, but what they did was they were like, look, your neighborhood, what's going on in your neighborhood is really relevant to you. And there's no great source for that information. They're trying to build kind of a social network that will produce that information. But I liked his model, which was very simple and I think could be very profitable. And if I was somebody out there listening to this, I would hit them up to go work, work for them and be like, hey, let's spread this thing in my area. I, I can handle all the East Coast or whatever. Um, or I just go build this myself, which is. He was saying, you know, I can, let's say, let's take, you know, Ogden, Utah. I can build the best sort of local newsletter of what's going on in Ogden, the news you gotta hear about in Ogden.

• 1:27:51Shaan Puri?

  It could probably be run by two writers, maybe, three, maybe, and you could probably make a lot of money off local classifieds, local business to business sort of advertising. And you could, you can acquire a bunch of, bunch of users through paid either search or, or Facebook traffic, using local targeting and being a really relevant thing, like find out what's going on in, you know, I live in Lafayette now, Lafayette, California, right? So, you know, should I subscribe to the Lafayette Daily? And like, can you build like, you know, a little version of Rupert Murdoch's empire by owning the daily newsletter for every single town? That to me sounded like, that wasn't just one of Andrew's kind of pet ideas, it has to me sounded like potentially a very big idea. What do you think about that?

• 1:28:37Speaker 03

  Yeah, I, I think so too. And you know, you and Sam were talking about affiliate and lead gen businesses. And that's kind of, you can quickly see how that can become a lead gen business too, right? So you can, you can go to people who are advertising local businesses and rather than say, hey, pay me $500 per newsletter, Sam. And they're like, well, what do I get for that? Like, hey, local auto dealer, local mortgage broker, would you like, would you like leads of people needing a mortgage in Lafayette? Like, what is that worth to you?

• 1:29:08Shaan Puri?

  Right.

• 1:29:09Speaker 03

  Oh, it's worth $500 a lead? Cool.

• 1:29:10Shaan Puri?

  Good to know. Yeah.

• 1:29:13Speaker 03

  Good to know, right? And, and I think that, I think you can also have really interesting compensation models. I think a lot of people are looking for a side hustle and don't need it to be the full-time job with benefits in a 401k. And they already have that somewhere else, or their spouse has it, or, you know, and they, or they're, they're young and flexible. And, and really what they want is like an opportunity where they can just plug in and kind of do this thing that's prescribed, but do it well and have the infrastructure around them to, to make that a profitable endeavor.

• 1:29:46Shaan Puri?

  Right. And. And you guys have a different local monopoly or oligopoly type of business. I know we're not going to talk about it too much. We don't want to give away the goose, but I love that one. I've been super, super excited. In fact, I probably over three different phone calls with you guys. I was like, hey, ditch everything else. Just do this. This thing is, this thing is gold. So that's cool. But what about, you know, what are some other things you've looked at that you haven't acted on yet, but you're like, oh, that's cool. And maybe, you know, who knows, maybe somebody listening to this knows of a business like that, or has a business like that, and will, will reach out to you saying, hey, I fit that profile. Like, what's the profile that you're looking for? What types of businesses are you interested in besides this?

• 1:30:24Speaker 03

  Oh, you know, there's so some, one things I always look for is like just high margin, just pure, pure, you know, I, I think the gross, the gross margin number is always the, it's where my eyes go first. It doesn't go to the revenue number. It goes to the gross margin line. And then I want to work up from that and say, well, because if I'm selling, you know, if I'm selling, you know, a dollar worth of services that cost me 90 cents, then I'm not actually adding a lot of value. But if I'm selling a dollar worth of services that cost me 10 cents.

• 1:30:55Shaan Puri?

  Right.

• 1:30:55Speaker 03

  Well, I got a lot of options for how to spend that other 90. And even if it's not super profitable today, it, it may, you know, maybe in the future.

• 1:31:05Speaker 03

  So, you know, this, this business I mentioned, we've, we've made a number of acquisitions in it. It's gross margin line is usually 90% and it's EBITDA line is usually 40 or 50, if, if, if even run at small scale. And so, you know, it's, it's, it's not perfect, but it's, it's, it's a good, it's a good business to be in. And so, you know, one thing I, I say is like, go to the small and mid-sized towns of America, or wherever you are, Belgium, wherever you are, like, go there. Because all the smart, ambitious people go to the city and a lot of them try to solve city problems. How do I get my $1,000 mattress delivered in a box? Right?

• 1:31:46Speaker 03

  And, um, you know, go into these small and mid-sized towns, it's like, there's, there's, all the basic needs are there, there's an economy there, uh, there's, there's real, real money being spent. And so like, um, for example, we haven't acquired a managed service provider. I'm very, that's something I'd be very interested in.

• 1:32:04Shaan Puri?

  So e- explain what that means. What's a managed service provider?

• 1:32:07Speaker 03

  Uh, so an MSP, there's, there's a bunch of different versions, but basically they're your outsourced IT. So I run a dentist office and I don't have an IT person on staff. I don't even know how to turn on a computer. But I need, you know, I need, I need my networking to work. I, I need to make sure my files are backed up. Maybe I have some fancy equipment that needs to be networked in a certain way. And so, you know, I need somebody to call when the wifi doesn't work and, and when my printer doesn't work. And, um, and so, and it goes all the way up to like pretty, you know, I'm a 200-person company and I still, maybe I have one IT guy who's really overworked and I need, you know, all these different services. I need someone to manage our phone tree and I need someone to, you know, to manage, you

• 1:32:49Speaker 03

  setting up email accounts and, you know, run the email server, whatever. And so, um, so I think that that's, that's already a huge industry. Um, there's a lot of opportunity for recurring revenue because you can, you know, you, somebody can charge the dentist office 500 bucks a month or 300 bucks a month or whatever they'll pay. Layer on a bunch of services. Hey, we can, you know, provide your phone line, et cetera. Um, so I think, I think those are really interesting. I've been looking to either acquire one of those or partner with one of those. Um, so that's, that's, that's one area. And I think there's a lot of efficiencies because a lot of these are small shops with one or two really talented

• 1:33:30Speaker 03

  IT guys in some local area, um, usually guys, sometimes girls. Um, and, you know, truth be told, some of that work could be, could be sent to much lower cost locales and probably also provide better, better responsiveness and better service to people.

• 1:33:45Shaan Puri?

  Right. And what about, um, What are the type of businesses you would steer clear of that you see other people getting excited about that to you just doesn't make sense? Why, why, what's all the fuss about?

• 1:33:56Speaker 03

  Oh, yeah. So there's a few of those. I mean, so one is there's whole industries that trade on revenue multiples, right? And so like, uh, natural foods industry is a good one. So I, I love, you know, I love natural foods companies. People have made a lot of money in natural foods. So I started poking around there, like, are there companies to buy? And everybody's like, what revenue multiple do you buy on? Like, I don't buy on revenue multiples, brother. Like, I buy on profit multiples. We don't, we don't make profits.

• 1:34:24Shaan Puri?

  Well, that's a negative number. That's multiplying a negative number.

• 1:34:30Speaker 03

  And, and so I think what happened in natural foods is that the buyers are all big conglomerates who have their own departments who do all the things that the companies, they literally just buy the brand and then everything else they will do. And so I think that, you know, that, that obviously is a problem for a business seller who doesn't, um, you know, doesn't want to give that up. But I found, I found the multiple expectations in that business, in that industry to be really, really out of whack. And same thing in like, um, you know, SaaS, right? So like, there is, SaaS is a lovely business, but not if you're buying at eight times revenue. Unless you, unless you're buying with someone else's money. I mean, if you're

• 1:35:11Speaker 03

  speculating with someone else's money, then cool, but you better already have like the next 10 customers lined up to be buying, to be paying big revenue multiples on, on SaaS. And so I definitely, I also think that like, people have, um, a really smart friend of mine, Devin, who I, I'm also going to get on your podcast. Um, he has done a lot of digital business acquisition and he says there's almost always one single point of failure in a digital business, which is rarely true in a physical one, right? So you might get 90% of your customers from Instagram ads. And so when those get more crowded, then the Instagram ads don't work anymore.

• 1:35:49Shaan Puri?

  Right.

• 1:35:49Speaker 03

  Right, or you might get 90% of your monetization from one affiliate and then they change their rates. Um, and so there's, there's, it's harder to have a stable, durable business in internet land. Because internet land is so dynamic, it changes so much, it's so competitive. Um, you know, unless you have a moat like organic SEO, a big email list, um, a recurring revenue customer base. I think, I think that, uh, some of the businesses I've seen being sold in that space are sold on these growth expectations that require a lot of things to go right, uh, for them, for them to be achieved.

• 1:36:25Shaan Puri?

  Gotcha. Yeah, that, that makes sense. The durability is obviously, um, where a lot of value comes from, uh, versus, you know, there's, there's growth, but then there's durability. And you need to find businesses that have, um, both, if you're on, if your plan is to buy and hold, right? Like you, you, you need both and you'd rather take durability than growth because you could sort of solve growth. It's very hard to solve durability problems.

• 1:36:48Speaker 03

  No, it, it's really, really hard. It's almost impossible, right? And, you know, a lot of these more traditional businesses, we are looking at HVAC businesses. They've, they've been around since 1981. They've been through inflation. They've been through nine 11. They've been through the great, you know, financial crisis and people still wanted their buildings to be heated and cooled. And so, you know, they're, they're, they're still in business.

• 1:37:10Shaan Puri?

  Since you're a CFO guy, I'm curious, have you looked at what's going on with SPACs? And do you, do you have an opinion on that?

• 1:37:17Speaker 03

  Oh yeah. I mean, I think it's, I think a bunch of people are going to make a bunch of money. Because I think it's a, um, I think it's a, you know, we have a bubble in the public equity markets.

• 1:37:28Shaan Puri?

  But first, we should, we should explain. Can you, can you give the TLDR, what is the SPACs? Sorry, we went inside baseball.

• 1:37:33Speaker 03

  Sorry. I, so it's a SPAC is essentially, it's a blank check company. So traditional model going public is, uh, I build this great company for 10 years and then I take it to, you know, and I IPO it and I ring the bell. A SPAC says, "I'm a credible person or team of people that know how to acquire businesses." That's the main skill required. "I'm gonna raise money and I'm gonna give some incentives to the people who give me my first money on the public markets." So I'm gonna raise, there's smallest forty million dollars up to billions, right? And they go to the public markets and they say, "Hey, pitch money in my coffers. I'm gonna go look for a company to buy.

• 1:38:15Speaker 03

  When I find that company to buy, I'm gonna merge into it, which means that that company will become the the public company." Right? So Virgin Galactic went public on a SPAC. So they didn't have a traditional IPO. The SPAC struck a deal with them. And then that SPAC transformed from something nobody ever heard of into Virgin Galactic, which you can now buy on the stock market.

• 1:38:35Shaan Puri?

  Right. And why, why is this a good thing? Why is, where's the value created here? And why do you need this SPAC versus, let's say, the traditional model of going public?

• 1:38:47Speaker 03

  Well, so the, um, the main value is actually created by, um, because the public markets are so overpriced right now, in my view. So they're priced at about twenty times earnings, right? So that means essentially, if I'm buying the stock of a company and I'm expecting it to be just the same, I'm yielding five percent on that, right? Whereas a small business can typically be acquired for maybe four times earnings and maybe a middle market business for like eight times earnings.

• 1:39:13Shaan Puri?

  Right.

• 1:39:13Speaker 03

  And right, and so, you know, at four times earnings, I'm earning twenty-five percent on every dollar of equity, even if I don't have any debt. On eight times earnings, I'm earning twelve percent. And so, you know, it, it's, um, it's an arbitrage where you're taking very cheap public equity dollars and you're using that, using those as the equity to acquire a business that, for one reason or another, doesn't fully have, usually doesn't fully have the strength to go public on their own. And so, you know, if Virgin Galactic had just gone public on its own, there would have been lots of scrutiny on, "Oh, how good are their financials? How good's their technology?" And maybe it would have flopped, maybe it would have done great. But this actually derisks Virgin a bit because it's already gone public, right?

• 1:39:58Speaker 03

  So they're... So as long as they and the SPAC owners work out a deal, I think it actually allows some discretion that the markets' kind of emotional erratic swings don't always allow. And of course, the stock can go up and down once it goes public. That's kind of on the SPAC investors, but you know, that ship's already sailed. The money's in the coffers and now Virgin is a public entity with access to the public stock markets and it did get some combination of liquidity for its investors and maybe some growth capital, depending on how the deal is structured. So, yeah, I mean, if people would trust me with the money, I'd raise a SPAC.

• 1:40:34Shaan Puri?

  Well, in a way you did, right? Like, we gave you money as a, you know, we're going to become a holding company that's going to acquire great profitable businesses. If you trust my judgment, if you trust me to spend your money at your discretion, you know, just give me the money now and I'll go find companies later. But a little bit different in that you're not taken public right away and you're creating a portfolio versus kind of a SPAC, I think. Can SPACs do multiple or they can only, SPAC can only do one company?

• 1:41:01Speaker 03

  You know, I've been probing into this question. It looks like it can basically do, it can do multiple.

• 1:41:07Shaan Puri?

  Right.

• 1:41:08Speaker 03

  So it can be pretty, or it can acquire one company whose job it is to acquire other companies, right? Or hold other companies.

• 1:41:14Shaan Puri?

  Right.

• 1:41:15Speaker 03

  So they have a lot of flexibility in their perspectives. Typically, they'll just say, we're going to acquire a control position, but that's it, you know, from, and not even all of them do that. Some of them acquire minority positions. So the SPAC might acquire 20% of the company, but then issue a bunch of new shares and then the company's not public.

• 1:41:31Shaan Puri?

  Right. Like, Bill Ackman, I think, is, he's raised a $5 billion SPAC. So a $5 billion blank check to go find a company. And he does a good job explaining it, you know, when he goes on CNBC or whatever, he's like, you know, we're just looking for that unicorn company, you know, we're looking for, you know, the best company, we're looking for the best private company that has this, this isn't this characteristic, and we are the best SPAC, you know, we have the biggest, this is the biggest SPAC ever raised. And he's like, it's a unicorn mating dance where we're trying to, you know, we're both courting each other. And, you know, the idea would be, they go find Airbnb or they go find some awesome company that's private today and they go take a 30, 40%. I believe he's willing to take minority, I'm not sure, but I think he's willing to

• 1:42:15Shaan Puri?

  take minority share of Airbnb, for example, and boom, Airbnb goes public and, you know, Bill Ackman's a genius and everybody makes money and nobody understands how. And that's, I think, what's going to happen here.

• 1:42:28Speaker 03

  Yeah, Bill Bill Ackman is like the smartest occasionally dumb guy on Wall Street. I mean, he is.

• 1:42:34Shaan Puri?

  Right.

• 1:42:34Speaker 03

  These guys, guys so smart and like at one point he like bet the whole house on Target for one reason. Like he literally bet like his entire fund on on Target and he like, I think I could have done that.

• 1:42:44Shaan Puri?

  Right, right. Yeah, I went back and watched a whole bunch of his talks at the Sohn conference. And then just sort of tracked the price of those stocks. Like, you know, he's talking about Howard Hughes. Uh, you know, company and then you go see what they did and they're they're flat for three years later. And it's like, well, he's had a lot of whiffs, but when he's hit, he's hit. Uh, quite large. Like I think he recently had a huge, huge hit right before the COVID uh, drop happened.

• 1:43:05Speaker 03

  Yeah, yeah, no, that hundred X deal he did where he bet bet on COVID was uh, that was that was a good Ackman move right there. So.

• 1:43:13Shaan Puri?

  Yeah.

• 1:43:13Speaker 03

  I I mean, you know, when you think people don't even realize how much of an elephant gun that gives them. Right? So if he has whatever a $5 billion SPAC. Yeah, five that's five billion in equity. So that means, you know, he could vary conservatively if it's a profitable business. You know, get, you know, five or six times leverage on that. So he could have, he could buy a 20 or 30 billion dollar private company if he could find one.

• 1:43:35Shaan Puri?

  Right.

• 1:43:36Speaker 03

  Uh, now I think that someone like Airbnb, I'd be like, I don't need Bill Ackman to go public.

• 1:43:41Shaan Puri?

  Right, exactly.

• 1:43:43Speaker 03

  And and so I think I think there's a, there's a natural like large size constraint where Ackman's gonna have to take. He's gonna have to be a bit speculative and even with that huge amount of money. And um, you know, who knows, maybe they'll buy WeWork or something. Who knows?

• 1:44:00Shaan Puri?

  Right. Uh, all right. So we we only have a couple of minutes left. I wanna uh, I want you to help. Uh, people who want to get smarter about this type of stuff. Um, and we'll have you back on again and we'll, we'll talk more about different companies because I think. Uh, you're always seeing, you're seeing on a weekly basis, you know. Dozens of companies, maybe. Um, and then you're sort of looking into to a fewer amount of those, but. Um, so I think you're always gonna have interesting stories to share. But I want to know what, give people either books, podcasts, what is your information or education diet? That gets you smart about this type of stuff.

• 1:44:35Speaker 03

  Yeah, it's a good, good question. Um, so I mean, the Bible of this stuff is buying a small business by, it's by Harvard Business Review, right? If you haven't read that book and you don't actually understand everything that's in it, you're not ready to buy a business in my, in my view. And so, you know, it's not to say that everything they say is right, but it's all the fundamentals.

• 1:44:55Shaan Puri?

  Buying, buying a small business, buying a small business or buying a, a business?

• 1:44:59Speaker 03

  I think it's actually called buying a small business.

• 1:45:01Shaan Puri?

  Buying a small business, it's HB, I have the book, it's a HB, uh, Harvard Business Review book. And that's your do not pass go, do not collect a hundred, a $200 unless you've read this book.

• 1:45:10Speaker 03

  Yeah, it's just, it's just fundamentals. Like I, I don't, I really don't agree. Like those guys are very, very into buying a s- a cash cow business. And so they're very, they don't even think about growth. Like they don't even contemplate growth in the whole book.

• 1:45:22Shaan Puri?

  Right.

• 1:45:22Speaker 03

  They're just like, they're just like, I want to buy something that no matter what will not make less money than, than, uh, you know, than it made when I bought it. And fair enough. Um, there's, there's another, uh, there's another one, build than buy. Um, we can look up, I forget the author's name, but, um, it's, it's a little more growth entrepreneur focused also about acquisition entrepreneurship.

• 1:45:44Speaker 03

  I would say that the things that I've had to learn the most, I mean, fundamentally acquisition entrepreneurship is a financing exercise. And, you know, so there's several key tools available, uh, one being SBA loans, one being seller financing, one being raising equity. And I've seen everything from a hundred percent equity deal to, uh, to a five percent equity deal. So, you know, there's, there's really a very, very wide range. A lot of people really don't understand that they could buy, they could buy a business, I mean, just, you know, I see this stuff all the time. So you could buy a business for about $2 million that would produce roughly $500,000 in profits a year and you could probably buy that for a hundred thousand dollars down.

• 1:46:28Speaker 03

  So, you know, half of those profits will go to paying back the SBA loan that you used to buy it. But it's almost like, w- once you learn about that, every single person should own some sort of business, even if it's a super boring business, just for the financial freedom and flexibility that it, that it affords. And, and the, you know, the real key is to not screw that up.

• 1:46:49Shaan Puri?

  Right.

• 1:46:49Speaker 03

  Because if you, that's, that's the big risk with these things is if you buy $500,000 profits and through some combination of your mismanagement, your lack of diligence, your, um, external factors that goes to zero, then that's not great.

• 1:47:02Shaan Puri?

  Right. You still owe the money, you still owe the money.

• 1:47:05Speaker 03

  You still owe the money. So, so I think that it's, you know, the hard, probably the biggest risk is actually people who like to seek risk, um, in, you know, learning how to mitigate risk. And, and, and I think that's why you need these sort of books and these tools and you actually need to, you need to follow them.

• 1:47:23Shaan Puri?

  Very cool. Uh, all right, Xavier, this is dope. Uh, also, I, I'm right after this, I'm going to record with the CEO of Angel List Venture. Uh, they just launched this rolling funds product and stuff like that. I'm curious, do you have anything, what would you ask the CEO of Angel List Venture? Uh, do you have any, any, anything that you would, uh, want to know from him?

• 1:47:42Speaker 03

  Oh, boy, that's a, that's a good question. Um,

• 1:47:45Shaan Puri?

  Put you on the spot.

• 1:47:46Speaker 03

  I, oh, man, put me on the spot. Uh, I think that I would be, I would be curious if Angel List is ever going to start publishing their returns in a more systematic manner.

• 1:47:58Shaan Puri?

  Right.

• 1:47:58Speaker 03

  Um, to the extent they have visibility to them. And if that, like, micro VC is ever going to get more institutionalized rather than more, more artisan. Um, you know, I've, I've made a few Angel List bets over the years. I don't really do it anymore. I, I, I figure my money's better put to work. I'm better advising companies than putting my money to work and things that are profitable.

• 1:48:17Shaan Puri?

  Right.

• 1:48:18Speaker 03

  But like, you know, just, just my two cents on that one.

• 1:48:21Shaan Puri?

  Very cool. All right, man. Uh, I will catch up with you later. Thanks for coming on.

• 1:48:25Speaker 03

  Good to see you, Sean. Thank you.

• 1:48:27Shaan Puri?

  See ya.