Ilya Sutskever's new AI venture, and time to BeReal about bankruptcy

This week, co-hosts Mary-Ann Azavedo and Haje Kamps were joined by the ever-insightful Kirsten Korosec to dive into the latest and greatest happenings in the startup world. Kicking things off, our trio of hosts break down three major deals of the week. First, there's Waabi, an autonomous trucking startup that just closed a whopping $200 million Series B round. Kirsten Korosec provides an inside look into how Waabi's AI-first approach is setting it apart in the crowded autonomous vehicle space and why investors are still willing to back big bets in this field despite the market's ups and downs. Next, they explore the intriguing case of Gynger, a fintech company that has raised $20 million led by PayPal Ventures. Mary-Ann explains how Gynger is shaking up the way startups handle tech purchases with its buy-now-pay-later model, working both with buyers and sellers to offer flexible payment terms. Kirsten and your trusty correspondent weigh in on the potential risks and rewards of this unique business model, especially in today's volatile economic environment. The third deal takes us into the realm of artificial intelligence with Safe Superintelligence. I'm delving into the story of OpenAI co-founder Ilya Sutskever’s new venture, which aims to develop general AI with a focus on safety. We discuss the ambitious goals of this startup and the challenges of balancing rapid advancement with the ethical considerations of creating superintelligent AI. After dissecting these deals, the conversation shifts to a sobering topic: the wave of bankruptcies that have hit the startup world in 2024. Kirsten provides a detailed analysis of the factors leading to these failures, with a spotlight on high-profile cases like EV startup Fisker and fintech service Synapse. The team discusses the common pitfalls that led to these companies' downfalls and what other startups can learn from their mistakes. But it's not all doom and gloom—our hosts wrap up with an exciting discussion about the future. They dive into Voodoo's acquisition of social media startup BeReal for $537 million. Mary-Ann explores the reasons behind this bold move, how Voodoo plans to integrate ads into BeReal's platform, and what this could mean for the landscape of social media. Kirsten and myself debate the potential success of this strategy and the broader implications for user engagement and authenticity in the age of digital advertising. Equity is TechCrunch’s flagship podcast, produced by Theresa Loconsolo, and posts every Monday, Wednesday and Friday. Subscribe to us on Apple Podcasts, Overcast, Spotify and all the casts. You also can follow Equity on X and Threads, at @EquityPod. For the full episode transcript, for those who prefer reading over listening, check out our full archive of episodes over at Simplecast. Credits: Equity is produced by Theresa Loconsolo with editing by Kell. Bryce Durbin is our Illustrator. We'd also like to thank the audience development team and Henry Pickavet, who manages TechCrunch audio products. Learn more about your ad choices. Visit megaphone.fm/adchoices

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

• 0:11Speaker 00

  Hello and welcome back to Equity TechCrunch's flagship podcast about the business of startups. Today is June 21st, 2024. I'm Maryann Acevedo and joining me is Senior TC Reporter, Haya Camps. Hiya, how's it going?

• 0:24Speaker 01

  You know what? I'm doing great. It's a summer solstice and I feel an incantation or two coming on. And you know, maybe I have to go dance naked on a beach somewhere. It seems like that kind of day.

• 0:35Speaker 00

  Well, let us know if that happens. Hey, we're also joined by TechCrunch Senior Reporter and Editor Kirsten Corset. Kirsten, how's it going in your world? And welcome back, by the way, we missed you.

• 0:45Kirsten Korosec?

  Yeah, I've been all over the place and I just want to make a note, Haya, today is, I think it's an unofficial. I don't think it's actually a true national holiday, but it is hike naked day. So instead of going to the beach, maybe hit the trail instead.

• 0:59Speaker 01

  One way or the other, I'm not going to be wearing any clothes is what I'm hearing.

• 1:04Kirsten Korosec?

  Have fun with that.

• 1:05Speaker 00

  Hopefully my kids aren't listening to this episode.

• 1:09Speaker 01

  Fair.

• 1:10Kirsten Korosec?

  Fair. I have been gone for a bit, but I've been vacationing and also going to some cool press events, including Rivian. So I've been a bit all over, but of course I've been listening to the Equity Podcast during my travels.

• 1:23Speaker 00

  Oh, we're happy to have you back. And as always, we live vicariously through you and your travels. So anyway, we've got a packed episode this week, a lot of different things going on. Our deals of the week are looking at Wabi, Ginger and Safe Superintelligence. Then we're going to take a look at 2024 bankruptcies so far. We've got a number of those to dissect. And then we'll also look at Vudu's plans for social media startup BeReal. That, to me, was super interesting. So anyway, first Kirsten, Wabi. Wabi raised a $200 million Series B round. Crazy. This is an autonomous trucking startup. Tell us more.

• 2:02Kirsten Korosec?

  Yeah, Wabi is really interesting. So it was founded by a woman named Raquel Erdison. She's actually been on our stage in the past at previous robotics events, really kind of considered one of the leading AI scientists and had previously been the chief AI scientist out of Uber's Toronto office prior to launching this company in about 2021. And the timing of that launch is the most probably interesting piece because at that point, AVs had sort of peaked and a lot of them were actually starting to fail and in this consolidation was starting to happen, acquisitions were happening. And she went out and ended up getting backing by actually Uber at the time and has since been making

• 2:47Kirsten Korosec?

  progress all around this idea of an AI-first approach. So before Gen AI had become this a very hypey buzzy thing, she was actually kind of thinking about this and working on this. And so really what this round Series B is, is a culmination of the success she's had over the last three years or so, raising that 200 million Series B. She did not share the valuation, so it's hard to gauge how the pre-post valuation is, but it seems like she's still getting a lot of backing from returning investors and some new folks as well.

• 3:22Speaker 00

  So yeah, a lot of money. And clearly, even though there's been some ups and downs in this space, Wabi is not the only company that's raised a rather large round this year, right, in this space?

• 3:32Kirsten Korosec?

  Yeah. And that's, to me, one of the more interesting things that we could probably spend a whole show on. There was this hype cycle. We went through this peak and then this fall and a lot of failures and consolidation. And then late, let's say, fall of last year, we started to see some deals. And really, the last month or so, we've seen a number of companies raising money in what has been a difficult funding environment. So emotional comes to mind, getting support from their existing backer Hyundai, GN injecting another $850 million into Cruise, which is much needed cash, WAVE getting $1 billion. This all happened in the past quarter or so. And so Wabi is also, I guess, taking advantage

• 4:17Kirsten Korosec?

  of this better funding environment. But I think the other thing that's important to note here is that Wabi has some tech that investors are particularly interested in with this AI-first approach to autonomous vehicles.

• 4:30Speaker 01

  So I have a curiosity. You mentioned that this is like driverless trucks using generative AI. How's that different from the other kind of self-driving approaches we've been seeing? What is the generative piece of this? How's it different?

• 4:44Kirsten Korosec?

  So when autonomous vehicles, sort of the basic general premise is that it uses hardware and software combined to create the self-driving system. In the early days, it was a lot of rules-based programming combined with machine learning.

• 5:01Speaker 01

  So kind of if pedestrian, then break hard kind of thing?

• 5:04Kirsten Korosec?

  Right. So there were some rules around. Then there was this push and Tesla certainly has used this terminology a lot, which was the end-to-end neural networks. And that has been sort of the course and shift that a lot of other companies have been using now with, I would say, more success than Tesla, which is still only has an ADAS system, to be clear. So companies like Waymo, Cruise, using a combination of end-to-end neural networks and machine learning with some rules in place there. So it's not like the quote-unquote black box. Wabi, what they're trying to do is using generative AI and neural networks to go more towards that approach, so less rules-based.

• 5:47Kirsten Korosec?

  And her premise is that when you can do that, it uses less computation and requires actually less data if you can be successful in this approach, as opposed to having, you know, hundreds, if not thousands of vehicles on the streets collecting data in order to support these models. So it is something that people have been talking about for a long time. She's trying to prove it out.

• 6:10Speaker 00

  I think one of the things that had me, I don't want to say I'm skeptical, but just a little bit dubious where she says that the Wabi driver, as they call it, has this remarkable ability to generalize. So rather than trying to train the system on every single possible data point that has ever or could ever exist, the system can learn from a few examples and handle the unknown in a safe manner. Well, that kind of put up some red flags for me. I mean, From a few examples?

• 6:37Kirsten Korosec?

  Yeah, I guess we have to qualify, we have to qualify, what does a few examples mean to Raquel? Is that a thousand or in her world, it could be more than a few. But I do think this is the conversation that's been happening actually in the AV world, which is the whole edge case situation. A lot of companies have been building out these simulations in order to run through all the various edge cases. And that's why there's been this movement towards more, I'm going to use this term, the industry doesn't necessarily, but sort of learning through behavior and more generalized. Because what I think a lot of companies have found is it's impossible to think of every single possible edge case that could happen. So what is the better approach?

• 7:20Kirsten Korosec?

  Is it to have a system that can handle edge cases, even if they've never encountered that in simulation, for instance, or a system that has gone through every single edge case and therefore can handle it? And a lot of folks will argue, well, you can never possibly think of every single possible scenario, so you should have a system that's more general.

• 7:42Speaker 00

  That's super interesting. And actually, this is a good segue into our next deal of the week. OpenAI's co-founder, Ilya Sutskever, announced his new company this week, Safe Superintelligence. Not shocking, I mean, he actually only left OpenAI about a month ago. And I'm not surprised he started a new company. I am surprised it happened so quickly. Hyah, tell us more about it.

• 8:04Speaker 01

  Well, I think this is super fascinating, right? Sutskever was the co-founder of OpenAI, right? And he was also the chief scientist. He left briefly a while ago and then came back and there was a few back and forth and that kind of thing. But, you know, clearly he left a month ago and already had this in the works. And he's building up this new company called Safe Superintelligence with some really high-profile co-founder. I'll get back to that in just a moment. But what they're trying to do is to kind of build a superintelligence, is what they're calling it, and reading between their lines. It seems like they're actively trying to build a general AI, which is kind of the gold standard for AIs that can be used for anything. But they're saying they're prioritizing safety.

• 8:44Speaker 01

  And some of the critics in this space are like, look, per definition, a general AI cannot be safe because you get very, very close to self-awareness. And at that point, self-aware beings have a tendency to try and protect themselves, right? A lot of science fiction covers this in great detail. But it's fascinating because he brought in some super interesting co-founders and he's definitely one of the sharpest minds in AI. So if he says this is possible, you know, the world's going to pay attention.

• 9:10Kirsten Korosec?

  I have a couple of questions about safety, but I will say this, I was not surprised at all, by the way, Mary Ann, that it happened within a month. My guess is that folks like him are constantly thinking of various ideas and maybe saw things happening in a direction that he wasn't really excited about over at OpenAI and had something pretty ready to go. And with his pedigree and experience, I'm sure he had zero trouble raising funds. But my question for Hyatt is, what does he mean by safe? Has he talked about that? Because what I found in covering AV companies is, and

• 9:51Kirsten Korosec?

  covering Tesla, is that everyone has a little bit of a different definition of what is safe. And there's been some questions with OpenAI about how will they protect and make things safe? So what is he actually doing that is different?

• 10:06Speaker 01

  That is the undisclosed value question. They haven't said anything about the valuation or how much money they've raised. And they've been really vague about what this safety thing actually means. A quote in the article says that, "We approach safety and capabilities in tandem as technical problems to be solved through revolutionary engineering and scientific breakthroughs. We plan to advance capabilities as fast as possible while making sure our safety always remains ahead," which is a whole lot of nothing burger, to be honest, right? There's no specifics, doesn't say anything about what safe actually means. And I think honestly, from what I'm hearing through the grapevine is that there was just a bunch of people who got very unhappy with OpenAI in general. You know, there was the lawsuit from Musk, there was the, are

• 10:48Speaker 01

  we or aren't we open source? Are we owned by Microsoft? Like, there's a whole bunch of messiness that came up. And I think OpenAI in many ways became the victim of just growing so extraordinarily fast. And so I think they were just hanging on for dear life and did a medium good job with that. And it seems like Cisco at some point was just like, look, this has gotten too political. I want to start something else where we can actually go back to basics. This is all secondary information, but that seems to kind of track with the type of company he's trying to start here.

• 11:19Speaker 00

  Yeah, I guess we'll have to see how this all plays out. I mean, it's pretty fascinating to watch. It's always really interesting to me when you see a company as large as OpenAI have senior people leave and then branch out like one of the other former execs is now at Anthropic. So, you know, it's kind of interesting because it seems like if they could keep harmony within, where would OpenAI be now? Like if these people didn't leave to go do other things, it kind of makes me wonder. But, but anyway, we're going to switch gears a little bit. My deal of the week does involve AI a little bit. My goodness, what doesn't involve AI anymore? But it's a fintech company called Ginger and they just raised $20 million led by PayPal Ventures. And so I thought this company was interesting because

• 12:02Speaker 00

  what they do is essentially offer companies, mostly startups at this point, the ability to pay for technology purchases such as software, infrastructure, cloud with a buy now, pay later method. So, you know, it's not a new concept. There are other companies doing similar things. But what is interesting about what Ginger is doing is that they work both with buyers and sellers. So they actually work with vendors to embed technology into their platform. So when we're trying to sell to companies, they can say, hey, here's some flexible payment terms for you. You can pick and pay in this amount of time or over, you know, this period. Meanwhile, the companies get a way to kind of preserve their cash,

• 12:46Speaker 00

  right? And not, not burn as much and extend their runway is what, you know, what the advantage is what Ginger is saying. So I hadn't really heard of anyone doing that specifically, working with both with buyers and sellers. It caught my attention. Kirsten, what do you think?

• 12:59Kirsten Korosec?

  Well, the integration piece to me was the one, not saving grace here, but you know, we've, we've heard of this sort of idea a lot, but that piece is interesting to me. And I think it's worth mentioning that these aren't small vendors either, right? This is AWS, Okta, Cisco, Salesforce.

• 13:19Kirsten Korosec?

  Are some examples, I believe.

• 13:20Speaker 00

  Snowflake, right? Yeah, exactly. Really, really large companies.

• 13:25Kirsten Korosec?

  Yeah, so that to me is where it has a stickiness factor, where if you are a startup and you know, you have all these potential platforms that you may be dealing with, and which is oftentimes a huge suck of a beyond payroll, a huge amount of where your cash might be going or capital might be going, and it's integrated right there. You're likely going to then use use that option. And so that sticking this factor of Ginger already being in the loop and not having to do a lot of external sales in order to get people on board, to me, is the clutch part here.

• 14:02Speaker 00

  Right, right. And they only launched about a year ago or in the second quarter of last year. So they're saying growth is 700% year over year. Of course, it was a small base because they only launched last year. But it's still, I do see that potential. PayPal Ventures did too. New backer, existing investors also participated, including Google's AI Focus Fund, Gradient Ventures. So they also had raised, I think it was in December of 2022, which, you know, a year and a half between rounds now is, dare I say, a little bit close together in this funding environment. Because that used to, you know, that used to happen sometimes within months of each other. And now it feels like companies are going longer in between rounds. But yeah, they they've raised more money. They want to grow.

• 14:47Speaker 00

  And yeah, it just stood out to me. It's definitely a little bit more of a unique model. Another statistic that surprised me too, that a recent Forrester research report estimated that global tech spend is expected to reach $4.7 trillion in 2024. So, okay, think about the massive market, right? That this is a massive market. So I think Ginger's ability to grow is huge if they can do this right. Hi, I'm curious, do you have any thoughts on this?

• 15:16Speaker 01

  Yeah, I've just been sitting here thinking about it. In a way, they're kind of picking a fight with both the VC industry and kind of venture debt. And so it becomes another way for people to acquire these types of technologies. It's a really fascinating play. And honestly, I can't really make heads or tails of it. I was just frantically Googling and reading up on the, on their customers.

• 15:38Speaker 00

  Yeah, I mean, they make their money, you know, like a lot of the buy now, pay later business model type companies by charging interest on their loans. They also make money from the buyers on the loan origination fees as well as through interchange fees that they have through a card program. So they've got a diverse revenue stream. So it looks like they're not just putting all their eggs in one basket. Sorry, I hate to use cliches like that, slapping my wrist here, listeners. You're allowed one cliche a show. It's okay. Yeah, but so, I mean, I think what they're doing is similar, like when they first came out, they kind of likened themselves to startups like Pipe and Capchase, you know, which offered like upfront cash for like predictable recurring revenue that was to come later.

• 16:20Speaker 00

  They said that their model sort of evolved since then and that they said that there are other companies that kind of do what they're doing, like Tropic, Zip and Vendor. And then there's Brex and Ramp that offer the corporate expense cards. But interestingly, when they talked about their main competitor, they mentioned bill.com.

• 16:38Speaker 01

  Yeah, that's, that's fascinating to me, too. My curiosity here is credit cards exist, other credit lines exist, invoice financing, which is, I guess, where they're kind of getting close to bill.com exists. I wonder which customers they end up with and whether they actually end up with the high risk, kind of lowest end of the business customers, which is a strange space to be in, right? Yes, I can totally see why those business customers need this service. But I'm also imagining that's actually a pretty high risk debt category to service. So I'm really curious how that plays out for them.

• 17:14Speaker 00

  Yeah, me too. I thought about that, too.

• 17:17Kirsten Korosec?

  Also, I guess I hadn't thought about this until just now when I mentioned it. But then how do they claw back if they are lending and mostly, most of their customer base are riskier businesses, which have greater probability of failing, what happens when those companies fail? And how do they claw back that money? So you wouldn't want your business model to just go towards that customer group. You would hope that it would be a diverse group.

• 17:47Speaker 00

  Yeah, I mean, those are all great points. They claim that as the company is maturing, it's seeing its customer base grow from early-stage startups to more mature companies, spanning from Series A to pre-IPO. But yeah, I think especially with, you know, the way things are going for companies these days and more and more shutdowns, that that is an interesting point. And it will be interesting to follow back up with them later, see how things are going. But anyway, now we are going to take a break. After this break, we're going to look at, speaking of shutdowns, a number of recent bankruptcies. It feels like there's been more than usual, but anyway, we'll be back.

• 18:25Speaker 00

  Okay, yeah, so we're going to take a closer look at recent bankruptcies. EV startup Fisker filed for bankruptcy this week in an unsurprising move. Kirsten, again, this is definitely your wheelhouse, no pun intended. We aren't shocked. What do you think about this bankruptcy filing?

• 18:42Kirsten Korosec?

  Yeah, I mean, this filing should surprise no one. And, you know, our senior reporter here, Shannell Kane, has done a ton of deep reporting about Fisker for the last several months. And actually, prior to even coming to TechRanch, he's been following this company for years now. And I thought his piece, which I'll get to in a moment, really encapsulated what happened here. But the nuts and bolts are this, the company filed for bankruptcy and their estimated assets of around 500 to 1 billion, liabilities of between 100 million and 500 million. And they have hundreds of creditors, including, by the way, back to bills to technology companies

• 19:26Kirsten Korosec?

  and services that you might have to buy. SAP, Adobe, Salesforce are among the largest. So these are companies that they owe, you know, hundreds of thousands of dollars to because they were using their their software. We've seen this coming for a while and beyond the filing, and there's going to be a lot more reporting to come on this. The vehicles themselves on the outset looked compelling and interesting. But as Sean wrote this week, it really was that they never got past that piece, meaning they were using a contract manufacturer, Magna. So they were like, great, we're going to be an asset-like company. We're handing off the hard stuff, the manufacturing, those expensive

• 20:09Kirsten Korosec?

  factories to an established company, but they sort of forgot all the other stuff that is necessary in order to run a car company.

• 20:16Speaker 00

  Yeah, like important stuff.

• 20:18Kirsten Korosec?

  Yeah, having proper customer service, being able to handle servicing the vehicles when they inevitably will have problems, even collecting and keeping track of their own customer payments. We had a story earlier this year about how they had actually misplaced and later found about $16 million worth of customer payments. Oops. So this is, yeah, oops. So this is a company that it wasn't that the idea was bad. It was that they did not operate it as a company. And the sort of pitiful part is that the co-founder Henrik Fisker has gone through this before with another company many years ago. And so the expectation was you'll learn your lesson. I mean, failure is a part of learning.

• 21:04Kirsten Korosec?

  You'll learn from these past failure and it seems like you got caught up in sort of the same thing again.

• 21:11Speaker 00

  Oh, yeah. And then some, really.

• 21:13Kirsten Korosec?

  And then some, yeah, and then some. It's a tough environment for EV startups as well. Even if they had executed everything perfectly, I think they still were facing a lot of headwinds. We've seen a number of EV startups fail over a couple dozen, actually, over the last couple of years. Many of these companies went public via SPAC mergers and were part of that summer of meme stock saturation and fun. And, and really, they were pre-revenue, most of them, and they've since collapsed. And really, in the last couple of months, we've seen some other bankruptcies happen, Arrival being one of them, a battery startup called Embry, another one. So.

• 21:54Kirsten Korosec?

  It's not that Fisker didn't do everything right in this terrible environment and here they are. It was a combination of bad environment, bad choices.

• 22:07Speaker 00

  Yeah, I think that sounds a lot like Synapse, although as this story continues to unfold, it starts to get a little more disturbing in terms of what was going on behind the scenes. Synapse was a banking as a service startup, basically that operated the service that allowed others, mainly fintechs, to embed banking services into their offerings. We started seeing signs of trouble last year when they had some layoffs. And then finally in April, they filed for Chapter 11 bankruptcy. They were going to sell their assets in this fire sale, $9.7 million only fire sale to another fintech that fell through. And then the company had to file for Chapter 7 bankruptcy. Since then, it's been kind of a disaster, really.

• 22:48Speaker 00

  A number of the fintechs they worked with have found themselves stuck, unable to access funds that customers are wanting or needing. Copper, I wrote about, basically had to discontinue its bank operations. And overall, apparently, there's about $85 million in customer funds that are not accounted for, which is a lot of money. And I tell you, this is worrisome because there is this question of why work with an intermediary like Synapse if you can work directly with a bank? And now, after all this has happened, I think a lot more companies are going to be less likely to want to work with an intermediary like Synapse

• 23:29Speaker 00

  because this has just all been kind of horrific. And in the past week, the CEO of Synapse reportedly raised $10 million for a new robotics startup while all this was still unfolding at Synapse. So yeah, anyway, this is just a mess.

• 23:46Speaker 01

  It's an epic mess. And at the same time, I think if we zoom out and look at the problem that Synapse is solving, right? It is the, look, setting up a banking... Anything is excruciatingly difficult. And if you want to do anything in this space, you have to kind of rely on other suppliers. The thing Synapse got so incredibly right was it was all API forward. It was easy to use as a kind of banking service, right? This is the same reason why Twilio became successful, because actually sticking racks in service to send text messages is such a massive pain in the butt. And so I think, yes, people are going to be more curious about using services like Synapse. And maybe there will be better diligence happening and maybe these types of problems will go away. But at the same time, there's definitely a space

• 24:30Speaker 01

  in the ecosystem for companies like Synapse. And as we talked about a few weeks ago, I am so curious who's going to be filling this void because it is a void that needs filling for sure.

• 24:40Kirsten Korosec?

  Well, I have a question about that. So was this a case of, it sounds like, good product and poor choices? Or what is the cause of this? Like in the Fisker case, yeah, economic conditions are bad. But as I noted, they made a lot of bad choices. And it seems like this is also a little bit of a dumpster fire. But what exactly did they do wrong that led them to this terrible end? Because as Haya mentioned, they had like an easy to use product.

• 25:13Speaker 00

  Yeah, I think all of that's still trying to be determined. There are allegations that the CEO really just didn't understand well enough, you know, the banking world. And actually, just last week, the Federal Reserve ordered Evolve Bancorp, which was a partner to Synapse and had partnered with other fintechs to, quote, "bolster its risk management programs around fintech partnerships." So now there's a lot of eyes looking at Evolve too. Like, was there enough compliance going here? You know, there's just a lot of questions as to exactly what went wrong. There's been a lot of finger pointing since day one between, you know, Synapse and Evolve and then the startups it worked with. So I think all of that is still coming out, Kirsten. We don't really know for sure what happened.

• 25:57Speaker 00

  But I do think it's kind of crazy that this guy is already raising money for another company. It just speaks of hubris. And yeah, he was responding to our request for comments pretty early on. But once the acquisition fell through and things really started to come out, he got quiet, which, you know, sometimes silence speaks louder than words.

• 26:18Speaker 01

  Yeah, for sure. I mean, the biggest question for me is like, how do you lose $85 million? It's kind of the same question as with Fisker. How do you like, did you check between the sofa cushions? What the hell happened? And that just reeks of fiduciary irresponsibility. And so it's a little surprising. I mean, you don't go and raise $10 million randomly, right? That would have been in the works for a while. And what that says to me is that it sounds like the CEO kind of checked out already. And, you know, if it's circling the drain, of course, you're going to look at what you're going to do next. Is it a little hubrisy and is it a little bit rude? Absolutely.

• 26:54Speaker 00

  Yeah, for sure.

• 26:55Speaker 01

  It's curious.

• 26:56Speaker 00

  It is curious. Well, I know we could probably spend a whole another episode talking about this, but we're going to move on to a little bit more, I think, fun conversation here. So BeReal, a social media startup, was acquired by Vudu for about $537 million. So this was super interesting to me. I'll be honest, never used BeReal. But basically, for those who don't know, this is a startup that gives users like two minutes to quote be real by taking both a front-facing photo and a selfie. It was struggling, right? I think they were, they were going to be running out of cash in a few months. This is not a typical acquisition where, you know, a company's doing pretty well and they get acquired, I mean, for half a billion dollars.

• 27:38Speaker 00

  But obviously, Vudu, this French mobile game and app unicorn, saw a lot of value in what BeReal can still do and scoop them up. So I don't know, this was intriguing. I think BeReal supposedly has currently about 40 million active users. People are apparently drawn to it, like, I guess, encouraging more authenticity, unlike some of the other social media apps. But still, $537 million for this just seemed like a lot. What do you think, Kirsten?

• 28:06Kirsten Korosec?

  Yeah, I guess it was slightly lower than their last valuation of 587. I've always been interested in this company because it was super buzzy for a while. But, and luckily I'm not, you know, in the predicting business too much and more in the reporting business. But I just, it seemed like one of those things that was just gonna... Fizzle out, like people are going to get really excited about it. And then it was just going to fade away. And maybe it would have had it not been scooped up. For me, the value of a company like this is then how far you can take it. How far can you take the platform beyond just being real for two minutes? How does it evolve? And it wasn't really clear to me how it was evolving.

• 28:50Kirsten Korosec?

  I don't know if you have any insight into that, but to me, the big question is what technology do they have, aside from the users, that Vudu found so interesting that they were compelled to spend half a billion dollars on it?

• 29:02Speaker 00

  Yeah, I don't know, but from what I gather, the Vudu CEO plans to incorporate ads into BeReal's user feed. So I think that he sees this potential to monetize through advertising, which a number of other, obviously, social media platforms have done successfully for some, not so much for others, because it feels like a little counter to what the company is touting, right? Authenticity, BeReal, but hey, here's an ad so you can, you know, maybe look a lot prettier if you do this, right? So it feels a little contradictory in a way, but it's a big bet, right? A half a billion dollar bet. And that ad strategy, I think, is what we're curious to see, you know, will actually work out for them.

• 29:44Speaker 01

  Yeah, I think there's two little things to, that I want to kind of pick at. One is, you know, we don't write about these kind of acquisitions a lot, but they happen a lot, like a soft landing or an aqua hire or that kind of thing. This is like the last ditch, like it's this or failure, right? So these kind of exits happen a lot of the time. It's hard to get numbers on it because it usually doesn't get reported, but if you're in the VC space often enough, you see them a lot. The other thing worth keeping in mind is like, they spent 500 million euros, so about 540 million dollars on 40 million active users. So that's a customer acquisition cost of $13. Now, in a lot of these kind of dynamics, $13 per user, even if they don't convert all of them, that is a reasonable acquisition cost, right?

• 30:28Speaker 01

  So even if they hate all the tech and discard everything else, if they can somehow convert a subset of those users into Vudu users, that is extraordinary customer growth for a dollar figure that is roughly in range with what the going rate is for acquiring customers. Of course, going to be a bunch of overlap and that kind of stuff, but. I imagine that's a huge part of it, right? This is this is an acquisition strategy as far as I can see.

• 30:52Speaker 00

  That's a really good point. I can see that, but also I'm still curious because you know, the the whole ad stuff, it's still an issue. I mean, earlier this week, ad blocker, sponsor block posted that it's it's Google and video services testing out these server side ad injection with a limited number of users. Google's reiterated its position that ad blockers violate YouTube's terms of service and that viewers who want an ad free experience should sign up for YouTube Premium. So I think, I mean, I see your point. That's actually a great one. That's kind of cheap to acquire, you know, 40 million potential users. But you know, how how will that play out over time remains the bigger question? Would they will they be able still to because I was intrigued. I mean, B rel's not making money.

• 31:36Speaker 00

  So this is a huge bet and that that this can be turned into a way to monetize for Vudu.

• 31:42Speaker 01

  Totally. And this is not at all uncommon either, right? A bunch of the startups I'm working with when I'm not wearing my TC hat are doing acquisitions for users, right? They've built a product, they're struggling to get to get to a certain user base and they're like, wait a minute, our struggling competitor that has 10,000 users is like on the chopping block. We can acquire the customer rolled in the user base and the cost of acquisition is actually cheap for user acquisition. And we can go through and cherry pick the best employees and take them to. So it's a it's a pretty well trodden ground. It's pretty high risk, right? Because who knows if those users are going to be angry about your acquisition or to change or whatever. But it makes business sense. If you're just doing dollars for eyeballs, it makes sense.

• 32:25Speaker 00

  Yeah, well, we'll see how it plays out.

• 32:27Speaker 01

  Yeah, it's it's it's one of the bigger bets I've seen in this space for sure.

• 32:30Speaker 00

  A big bet for sure. But anyway, we're gonna have to leave it there. But Equity will be back on Monday. Until then, you can find me on X at Bay Area Writer. And Kirsten, where can you be found on the internet?

• 32:43Kirsten Korosec?

  So many places, Mary Ann. But in the social media world, at Kirsten Korosec on Threads, Instagram and X.

• 32:50Speaker 00

  And Haya, what about you?

• 32:52Speaker 01

  I am mostly on X under at Haya.

• 32:54Speaker 00

  Which is spelled H A J E, by the way.

• 32:58Speaker 01

  That's the one.

• 32:58Speaker 00

  You can also find Equity under the handle Equity Pod on X and Threads. Don't forget to check out our sister show Found, which dives deep into the stories behind startups with the founders who built them. Have a great weekend and thanks for listening. Bye bye.

• 33:14Speaker 00

  Equity is produced by Teresa Loconsolo with editing by Kel. Bryce Durbin is our illustrator and we'd like to give a big thanks to our audience development team and Henry Pickavet, who manages TechCrunch Audio Products. Thanks so much for listening and we'll talk to you next time.