EP 18: Parker Conrad, Sequoia’s Leaked Deck, a Different Kind of Crisis and VCs vs. Hedge Funds

(00:08) Welcome Zach Weinberg (00:55) Andreessen Horowitz/Flow Carbon (10:41) Crypto Litigation Risk (16:27) Venture vs. Hedge Funds (22:25) Sequoia’s Leaked Deck (27:04) Different Kind of Crisis (28:20) Tech Companies Had It Easy (30:21) Uber vs. Lyft (34:16) Down Rounds (40:27) High Valuation Doesn’t Mean Good Employment (45:31) 2008 Work Force (49:50) Parker Conrad Intro (50:13) Working on Harvard’s Crimson (52:45) Left School for a Little Rock Newspaper (55:13) Cancer Diagnosis (57:16) Starting SigFig (58:52) Raising Money Pre-2013 (1:05:29) Challenges in Automating (1:08:36) The Public Narrative (1:10:36) Forced Out of Zenefits (1:19:50) VC’s Role in Narrative (1:22:59) What Do Founders Want From VCs? (1:25:46) Do VCs Increase Success? (1:30:09) Discussing Rippling (1:38:16) Building a Compound Company (1:46:56) Hiring People With a Chip On Their Shoulder (1:49:02) Most Important Job of a CEO (1:51:05) Raised the Next Round (1:54:47) Determining the Valuation (1:58:09) San Francisco Follow the show: https://twitter.com/cartoonavatars https://www.instagram.com/cartoonavatars/ https://www.tiktok.com/@cartoonavatars Follow the host: https://twitter.com/loganbartlett Mixed and edited: Justin Hrabovsky Produced: Andrew Nadeau and Rashad Assir Executive Producer: Josh Machiz Music: Griff Lawson Links: Sequoia’s Leaked Deck -https://fortune.com/2022/05/25/sequoia-capital-slide-dek-warning-to-founders-downturn/ Zack’s Twitter Battle - https://twitter.com/zachweinberg/status/1527107650911186944?s=20&t=DN_FdiP-WW6rDwmHNkJPTA Parker Conrad Discussing Chip on Their Shoulder -https://techcrunch.com/2021/11/18/parker-conrad-i-like-working-with-people-who-have-a-chip-on-their-shoulder/?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAAqlH6GlRJ8EA-ptL8cD-XPUGeoXNRqKe9l_Qegi--qyyHZQrMTJ8bwlg47vSJ9rkc2eaJlUKyMvb3wA-Rw2PjFYJl5gUwZfO0WPMLF-tRT_lVDYq_uoEnC29d6L45AlVFRTnPJqbCPEJM0_ICBeqES_kZ8t5gUQkVg7BwMKsGs7 https://techcrunch.com/2021/11/18/parker-conrad-i-like-working-with-people-who-have-a-chip-on-their-shoulder/?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAAqlH6GlRJ8EA-ptL8cD-XPUGeoXNRqKe9l_Qegi--qyyHZQrMTJ8bwlg47vSJ9rkc2eaJlUKyMvb3wA-Rw2PjFYJl5gUwZfO0WPMLF-tRT_lVDYq_uoEnC29d6L45AlVFRTnPJqbCPEJM0_ICBeqES_kZ8t5gUQkVg7BwMKsGs7 Chesa Boudin and San Francisco -https://www.theatlantic.com/ideas/archive/2022/05/chesa-boudin-recall-san-francisco-crime/629907/ Andreessen Horowitz/Flow Carbon -https://www.forbes.com/sites/alexkonrad/2022/05/25/a16z-crypto-record-4th-fund-doubles-down-on-web3-amid-market-crash/?sh=7f704b7f34ff VCs Driving Down Valuation Narrative -https://twitter.com/bgurley/status/1528535418076995584 Executive Producer: Rashad Assir Producer: Leah Clapper Mixing and editing: Justin Hrabovsky Check out Unsupervised Learning, Redpoint's AI Podcast: https://www.youtube.com/@UCUl-s_Vp-Kkk_XVyDylNwLA 🎥 Subscribe on YouTube: https://www.youtube.com/channel/UCugS0jD5IAdoqzjaNYzns7w?sub_confirmation=1 Follow on Socials 📸 Instagram - https://www.instagram.com/theloganbartlettshow 📱 X - https://twitter.com/loganbartshow 🎬 Clips on TikTok - https://www.tiktok.com/@theloganbartlettshow About the Show Logan Bartlett is a Software Investor at Redpoint Ventures - a Silicon Valley-based VC with $6B AUM and investments in Snowflake, DraftKings, Twilio, and Netflix. In each episode of The Logan Bartlett Show, we sit down with the people behind today’s most important startups and extract the tactics, lessons, and frameworks they’ve learned the hard way. Conversations span hiring to GTM, product, growth, fundraising and everything in between - collectively forming the ultimate playbook to make you a better CEO, investor or board member. Tap follow and enable notifications to stay ahead of the game.

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

• 0:04Logan Bartlett?

  Welcome to the 18th episode of Cartoon Avatars. I'm your host Logan Bartlett and I am joined by our recurring co-host Zach Weinberg as I try to continue to bring him on until he wants to build this into a podcast media empire. Zach, thanks for joining.

• 0:19Speaker 01

  Yeah, I was told our other guest dropped out for fear of having to defend crypto live with me. So that's a win, I guess.

• 0:26Logan Bartlett?

  Honestly, you already won the battle before it even started.

• 0:30Speaker 01

  Yeah, too scared to join. Are we going to share who it was or just?

• 0:33Logan Bartlett?

  I think not. I think he will prefer to remain anonymous for the time being, but yeah. The chick, you know, you know crypto is down bad when people don't want to face skeptics, you know, to argue about stuff. That's, yeah.

• 0:49Speaker 01

  I can't defend this thing I'm spending my life's work on.

• 0:53Logan Bartlett?

  Yeah, well, that's

• 0:54Speaker 01

  It's kind of tough.

• 0:55Logan Bartlett?

  It's a good segue to, I guess, I mean, Andreessen Horowitz, this, this week announced a $4.5 billion crypto fund and also announced that they had invested in Flow Carbon, which is Adam Newman's new company. And it looks like they put in $32 million into, into Flow Carbon, which seems to be trading carbon credits. I will say, the deck circulated online and it reads like something that Adam Newman would have written. They, he calls it goddess nature token. And it's the first multi-functional crypto primitive bringing institutional-grade

• 1:37Logan Bartlett?

  carbon assets on chain, whatever, whatever that means. Yeah. So interesting in the crypto world this week. I'm, I mean, I guess I'm not surprised by the scale of Andreessen's fund. They, I think they raised two and a half billion like a year ago. And so they've already put two and a half billion to work and now raised whatever this is. So, pretty wild.

• 1:56Speaker 01

  Yeah, I mean, it makes sense. Like capitalize on the momentum when you have it, especially with LPs. I think there's this. Kind of interesting phenomenon in a way that crypto has been kind of declared this new asset class almost in the sense that like it's separate from venture and it's separate from equities and it deserves its own allocation in the broader pool. And I don't know if I agree with it or not, but that is clearly what's going on here. And so everybody's up there like percentage allocation to crypto. Maybe it's 1%, 2%, whatever it may be. But when you gobble that up from, you know, a few hundred LPs, it adds up very quickly and makes sense.

• 2:36Logan Bartlett?

  Yeah, I mean, I will say Andreessen's product in the crypto world, we spent a little bit of time there, not me, I make too many jokes about it, but as a firm we do. And I will say their brand in crypto specifically is like very, I mean, they've clearly been out in front and they seem to be the, the cream of the crop that people like to look to for validation and all that. And so it seems like it's them and Paradigm are the two that you like hear the most about. And Andreessen, I think, has the most like pricing power in the market. It's, it's, yeah, it's interesting. I mean, when you're, when you have like a differentiated brand, you get disproportionate

• 3:17Logan Bartlett?

  access to LPs and companies and you get to back Adam Newman and stuff, which I, I mean, that's fun, right?

• 3:23Speaker 01

  Is that the peak? I feel like re-backing Adam Newman just screams like top of market.

• 3:28Logan Bartlett?

  We had a debate, well, backing Adam Newman's climate carbon trading crypto feels like, that feels like that's something that might be, and I think he's also living in Miami now. So like all of those buzzwords together, I think is probably the peak. But we had a debate the other day. I actually, I actually came out on the side that I would, I mean, not this idea because I have no idea what this even is. But I think I would actually back Adam Newman. Like after all was said and done, he, it gets lumped in, like the, because of all the narratives and stuff, it gets lumped in with Theranos. But like, what he did wasn't fraud, right? I mean, he was ridiculous in how, how he operated the company, but.

• 4:11Logan Bartlett?

  I don't know. I my partners did not agree, by the way, they I think they said that I was a fucking moron or something was what one of them said advocating that.

• 4:19Speaker 01

  At least they were being nice about it.

• 4:22Logan Bartlett?

  Yeah, exactly. Exactly. No, that's the type of supportive partnership you like to have. So I actually, I don't know, I wouldn't do this idea, but I would back out of Newman.

• 4:31Speaker 01

  I mean, he fits this model and market, right? Like generate unlimited hype with some obfuscation of the underlying like business and economics and what better place to do it than a large crypto play? You know, so like almost irrelevant whether it actually succeeds in the long run because I'm sure they'll have like sold out their tokens before anybody else figures out what's real. And that's the business, right? It's a great idea. Like it's going to make money for the early investors regardless of whether Adam Newman, you know, figures out how like what a business model looks like.

• 5:05Logan Bartlett?

  Yeah, I mean, Bill Gurley said on the All In Podcast that Adam Newman was the best salesperson as a founder that he's ever he's ever seen. So if ever there was a market that like being a good salesperson was kind of self fulfilling. It feels like crypto is is the market for it. And so, yeah, it wouldn't surprise me if this actually, I don't know about the idea, but if he's able to, you know, raise a bunch of money and and build this into something.

• 5:29Speaker 01

  I mean, I keep going back to like, what is the business model of investing in these companies? And is it in the equity that you're actually owning through the cash investment? Or is the business model really, you know, first look or early access to the underlying tradable tokens? Because that's really where the speculation comes into play in crypto, right? It's not like the equity is really trading ironically. It's more the coins. And so, yeah, look, if you're essentially front running the market, you give this equity check, you get access to the tokens early, you own them, and then you have, I would assume at some point a right to sell them. I'm sure there's a lockup associated.

• 6:11Speaker 01

  That's a great person to back because he'll bring like the unlimited hype cycle. And as we all know, what happens at the end of the day, retail is left holding the bag at some point. And it's just how it works. It's kind of like the history of the United States right there.

• 6:25Logan Bartlett?

  Yeah, exactly. A history of every market and then it'll get regulated. But I, I, uh, yeah, I think that's right. I mean, I have heard had a lot of crypto folks say to me that like they actually don't even really care about the equity in the company. The, the money ultimately is generated from all the tokens, right? The coins. And so

• 6:44Speaker 01

  I think that's also why you see some of these crazy valuations because the valuation

• 6:48Logan Bartlett?

  It doesn't matter.

• 6:48Speaker 01

  equity is irrelevant. Yeah.

• 6:51Logan Bartlett?

  Yeah. No, I think, I think that's right. And so if that's the case, then I, yeah, I don't know how all this, uh, I mean, I have an idea how all this ends, but, um, I guess you could make a lot of money on the way up. And if it actually, if these things turn into real ecosystems, I mean, this problem, it seems like it's creating, trading carbon credits, right? It seems to be what Adam Newman's doing, bringing this stuff on chain. I'm not sure why that needs to be brought on chain, but at least like, at least there's a problem here. It's not just like they're, they're trying to solve for some problem. It's not just, uh, hey, you know, uh, we're, we're building an MLM from the start.

• 7:30Speaker 01

  Yeah. I mean, I can't believe I was saying this out loud, but like of all the ideas I've heard, Adam Newman's crypto idea is actually not the worst that I've heard. Like, I'm sure

• 7:40Logan Bartlett?

  A glowing endorsement from Zach Weinberg, Adam Newman's of all the ideas I've heard, it's not the worst. I like that.

• 7:45Speaker 01

  Yeah. I mean, I want to be clear. Like, I don't think every crypto idea is horrible and a scam and ultimately actually securities fraud. I think there's a huge percentage of them that actually fit the bill there. And then there will be some that, you know, do make sense and, and do work. And, you know, we have even invested in some crypto companies because I look at them and say, well, this makes sense. It's like an enterprise software problem, leaving the crypto piece aside for a second. This one may be the worst, maybe not, you know what I mean? Like a good work, you never know.

• 8:16Logan Bartlett?

  Well, it's fundamentally an interesting like crypto itself and web three and all that. Like there's fundamentally interesting primitives around all of this stuff. Right. I think it's what bothers me the most about it is just the, uh, the attitude of like how much hubris exists in the ecosystem. Right. Uh, with a lot of, I mean, there's clearly a lot of smart people going after these problems, but that's what always bothers me is the, the sort of cultural ethos of it. Right. And the get rich quick. Uh, but there are fundamentally, I mean, I think there's going to be a lot of interesting crypto stuff that solves problems in an interesting way. Right. It's just like, it's, it's probably 5% of what's getting funded today, not, not 95%.

• 8:59Speaker 01

  Yeah. And one one thousandth of the market cap associated.

• 9:03Logan Bartlett?

  That's right.

• 9:03Speaker 01

  It's like the math, like it's not, people always tend to argue these things as if it's like good or bad. And it's not how the world works. There's like a spectrum of value here and it's more of, you know, is this actually worth tens of billions of dollars in market cap, or is it worth like a few hundred million dollars? Cause it solves this like unique, but small problem. I always wonder with the venture, I mean, I kudos to Andreessen for being able to raise that and like, I have no,

• 9:30Speaker 01

  good for them. That's a great deal. And there's a lot of management fees, uh, which is, you know,

• 9:34Logan Bartlett?

  What do you mean? They, they'll invest that back into the, into their platform. I'm sure. You think, you think that's some of that money might be going to the, the general partners?

• 9:42Speaker 01

  Oh, is it a, it's one of those 0% fee funds, right?

• 9:45Logan Bartlett?

  Yeah. I, I, I, I would guess it's 2% would be my, my guess at least, but, uh,

• 9:51Speaker 01

  I don't know math, but 2% of four and a half billion doesn't seem like that big of a number.

• 9:55Logan Bartlett?

  Yeah. I, I don't think that funds, uh, uh, you know, I, I think they'll probably be able to have a little bit of that for themselves. Yeah.

• 10:02Speaker 01

  At least it's not 2% every year.

• 10:06Logan Bartlett?

  Yeah, it's amazing. It's amazing business in that regard. When you get to these big numbers, you were saying, no, good for them for raising it.

• 10:15Speaker 01

  Yeah. By the way, to be clear, it is 2% every.

• 10:17Logan Bartlett?

  I know.

• 10:19Speaker 01

  I don't know. I don't know. A lot of people don't know how like man fees and funds work that it's not a one time fate. And actually for, you know, I even didn't fully appreciate this, but like a lot of times the management fee, when you add it up as a percentage of the total fund can get to about 20% or so. Uh, cause you're kind of taking it over the course of multiple years. But no, I think it's good for them for, for raising it. I, I, I wonder and like, this is just more of like my personal interest is do you see a bunch of venture firms and early investors ultimately like subjecting themselves to future litigation risk? Because if any of these coins that, you know, float ultimately blow up and many will,

• 11:01Speaker 01

  you kind of go and you say, all right, so wait a minute. You came in, you overpaid for the equity, which you didn't care about to get access to the coin early, and then you floated it to the market as an early holder and sold into that market, which by the way, you can look at exactly how much everybody made, because it's all on chain, one of the benefits.

• 11:18Logan Bartlett?

  Yeah.

• 11:19Speaker 01

  Like, to me, that's an interesting liability risk. I would be really curious to hear some, you know, strong legal opinions on, is that something that the holders who lost money eventually, assuming that happens, uh, could actually sue for like, I don't know.

• 11:36Logan Bartlett?

  It's interesting.

• 11:36Speaker 01

  Interesting.

• 11:37Logan Bartlett?

  I wonder, yeah, I hadn't thought about that. I thought you were going to go down a different path with, uh, with what's interesting about this. What's interesting, uh, for me is just the scale of, I mean, as the market pulls back, right? Valuations, uh, will go down and, uh, that is not something that I am trying to self perpetuate into existence because it's advantageous to me. It's just, it's going to happen. The public market goes down and it flows through to the private market and it starts at the late stage and it goes all the way through. And some people online have been talking about this, like this is a VC conspiracy to drive down prices and it's like, Not really. I mean, is it beneficial to VCs? For sure, but that's the way a market works, right? When the valuations compress, it ultimately flows through.

• 12:20Logan Bartlett?

  What I think is interesting is when all of this, back in the bubble, the internet bubble, a bunch of funds raised huge, you know, huge amounts of money, right? And ultimately had to give back or decided to give back that to their limited partners, right? Because they felt that they, one, couldn't prudently deploy it. And two, in some cases, felt like they were never going to get into the carry anyway, right? And so better to start a new fund than to keep investing in old one. And so I think, I mean, you saw that with Melvin last week with Gabe Plotkin. That was ultimately what kind of happened with him was it unwound because he tried to

• 13:03Logan Bartlett?

  reset the marks of like wipe out all the stuff he had lost. And his investors said, no, fuck you. Like, we're not letting that happen, right? But I think it's going to be interesting when you see all these huge funds that have been raised on the order of two, three, four, five billion and the valuations compress, you're not going to have as much, I mean, you know, 15% of the company is ultimately what the founder might be willing to give away. And so you might not be giving them, you know, whatever, 50 million to get that. You might be giving them 30, right? And then how does that actually play out? Are we going to have GPs give back the money that they've, that they've raised?

• 13:41Speaker 01

  I don't think so. I think the venture model kind of like lends itself to just deploy the fund because ultimately like you don't have marks to market. So you don't exactly know what the full marks are and you might as well just deploy. It's not like there are companies that are, you know, going away tomorrow. I think you're going to see prices reset. If anything, you could probably make the argument that like the portion of the fund that is not yet deployed has a pretty good opportunity in front of it because you have more rational prices.

• 14:10Logan Bartlett?

  Totally. I would actually very much, I would very much make that case.

• 14:14Speaker 01

  I think this is the major difference. You know, I like to make fun of venture models here and there, but ultimately like, I actually think the venture model is probably one of the best models for LPs. Because you don't have like a yearly carry. It's essentially total dollars in, total dollars out, and it's just a, it's a better model because in a market where the thing doesn't do particularly well, no one does well. But in the hedge fund model, you can see, because you take that fee on a yearly basis, you could have an up 40, take a giant fee, a down 80, and you're not giving that previous fee back.

• 14:49Logan Bartlett?

  Yeah, and that's the point of like-

• 14:51Speaker 01

  You have to shut the fund down, but you know, you got that fee already. You're good. Your Hampton's House is built.

• 14:55Logan Bartlett?

  That's right. And I think that's what happened with Gabe Plotkin is, you know, he had whatever 25, 30% returns from 2016 to 2020, and then in 2021, GameStop hit. And, you know, he went down from, I think he originally started with like a billion, and got up to like 15 billion, and then fell back down to eight, but, you know, the most you lose is you don't get your money back, right? Or you get a zero for the year as your mark to market, right? And what you pay yourself-

• 15:25Speaker 01

  Well, you get a zero for the year, but then you have a high watermark to hit before you can take fees again.

• 15:30Logan Bartlett?

  Which is what he tried to reset, and the LPs told them to F off. But, I mean, on that ride up, right? And you've seen the numbers that I think Tiger, whatever, from 2001 to 2020, they've now, in this, in the last whatever 18 months, they've given back all their gains in the history of the firm, right? Which is kind of crazy for how much money those guys have made. They've now like-

• 15:58Speaker 01

  Consider me skeptical of that statistic. Like, that doesn't, this just doesn't pass the sniff test to me that they've given all this back.

• 16:05Logan Bartlett?

  You don't think so? Well, I mean, they, they went up to, I think they went up to 35 billion was kind of the high water mark and they fell back down to 19 and, or 18 or 17 or whatever. And I think they've raised from outside capital roughly like 18 as well. So that, that was, I don't know, Financial Times or someone had that stat, but I think those guys made money on the way.

• 16:28Speaker 01

  Well, yeah, of course they made money on the way. I mean, that's the public market hedge fund model.

• 16:32Logan Bartlett?

  Yeah.

• 16:32Speaker 01

  Which as an investor, to me is a terrible model to invest in. I would never want to invest in like a public hedge fund that, you know, the minute they, they lose money and they can't re-hit the high watermark, they just kind of shut it down. So that high watermark almost never plays.

• 16:46Logan Bartlett?

  Yeah.

• 16:47Speaker 01

  Because the fund, you know, turns over.

• 16:49Logan Bartlett?

  Not to mention, performance is, you know, historically, it seems people aren't, I mean, the advantage venture has as a business is that brand matters, right? And, and at the end of the day, there is, in the public markets, everyone has equal access, plus or minus, right? And you theoretically should have equal information. Obviously that's not actually the case, but plus or minus, like it's more equal than the private venture market. And so that's one of the advantages while it's, it's as, as a, a very successful hedge fund person once told me, it, it's a shitty little business because it can't scale the way that a hedge fund can.

• 17:27Logan Bartlett?

  At least from a durability standpoint, there's more ability to generate alpha and there's more differentiation in the tiers from access because of access and brand, right?

• 17:38Speaker 01

  Usually when you talk to hedge fund folks and, and I do occasionally, a lot of times they are looking at the business not as an LP. They're looking at the business of like, what's the fastest?

• 17:48Logan Bartlett?

  Oh, a hundred percent. They're viewing it as their pockets. Yeah.

• 17:52Speaker 01

  Yeah. Like what's the fastest path for me to make money? And like, yeah, a hundred percent hedge fund manager is better than venture capitalist. That's for sure.

• 17:59Logan Bartlett?

  And in a very literal sense, like the, the headcount, you know, on the venture side, I mean, we joke about Andreessen, but they have a very big team that's working and help, you know, and supporting portfolio companies. And I think Tiger has 19 people or whatever, right? And, or like some of these big hedge funds have like, you know, dozens of people and Andreessen has like, You know, hundreds or thousands. And so the scalability, I mean, you're still taking the same two and whatever, 25, 30% these successful hedge funds and that's all falling to the bottom line of a few people, right?

• 18:32Speaker 01

  Yeah, it just kind of comes down to like, are you looking at it as an investor? Are you looking at it as a PC or hedge fund? Like which side of the coin are you, are you playing? And I think venture as an investor is a fantastic asset class. And it's just the alignment with the underlying GPs, I think is quite good, in particular for the smaller funds, you know, smaller funds, you're super well aligned because it's kind of hard for the GPs to make a ton of money on the fees alone. And that's what you want, right? Like you don't want anybody making a ton of money on the fees because then they lose their incentive to be great at their job.

• 19:08Logan Bartlett?

  And for simple math, like, I guess, just to lay this out for like, if you have a $50 million fund and you're taking 2% of that a year, you're taking a million, a million bucks. But, you know, you, you need at least a few people on your team, you need office space, you need, you know, to set up a website, you need back office functions, all that stuff. And so you're not lining your pockets with huge amounts of capital where you'll generate the money is if you turn that 50 million into 500 million or whatever, then you make a lot of money on that incremental gain versus when you start to get to the 1, 2, 3, 4 billion dollars, it doesn't scale quite as linearly as the fund size does, the amount you need to invest.

• 19:52Speaker 01

  Yeah. And also the fee gets to be more material and the expenses don't, you know, scale linearly with the fee. And so all of a sudden, you get these interesting situations where the GPs are more chasing the next fee than they are to carry. As an LP, I mean, I'm not a full student of venture returns, but I would bet that the seed fund returns is a category, so smaller funds, probably sub 400 million dollar funds are probably the best asset class in venture. And then eventually what happens, just from like a Moycan IRR basis, and eventually what happens is the funds get really big and the returns get diluted and the GPs get to be a little more complacent because the fee is really nice. As an LP, as like an investor in a fund.

• 20:37Speaker 01

  I would probably stop investing once the fund got to a certain size. Not because I think they're bad people, but just like the incentive starts to break down a bit.

• 20:46Logan Bartlett?

  I've heard that from some of our LPs as well. There's like a threshold by which they really start to look at funds differently. And it's, it's something of a stage thing, right? Like if you're doing seeds, those dollars aren't going to scale the same as if you're doing, you know, whatever, series Bs or Cs. And so the, the lines of demarcation that I've heard them talk about end up being, you know, different across what stages you're focusing on. But it is hard to generate. I mean, 2% of, of big numbers get to be big numbers, right? And the, the, the number of companies that are worth, you know, 10, 20 billion dollars that will return, uh, you know,

• 21:27Logan Bartlett?

  the ability of a two or three billion dollar fund, it's pretty, pretty small, especially in this market right now.

• 21:33Speaker 01

  Well, and also like, and this is, I think a lot of people don't understand how like the venture model works, but like that 2% fee applies not just to the fund you're deploying right now, but it actually is continuing to apply to the previous fund that you just deployed. Now that fee percentage will scale down over the course of, you know, five, six, seven years, and sometimes up to 10 years, but you double dip. And that's the, you know, that's the odd incentive in many cases for raising these like stacked multi-billion dollar funds is you get the fee from funds, two, three, four, five, you know, all at the same time. And that's the part which would make me like a little uncomfortable as an LP. But yes, small seed funds where the GPs, you know, the take home, the cash take home is good, but not great.

• 22:18Speaker 01

  Those to me seem to be like the best place to park your money if you were an LP. They, they perform particularly well.

• 22:24Logan Bartlett?

  Yep, yep. Well, I guess transitioning to the actual market size. So Sequoia, uh, this week, um, I guess their deck leaked out. They didn't publish this one, which is interesting. They, they, the RIP good times famously in 2008. And then the, uh, black swan or whatever they called the 2021. They published both of those. This one, it seems that they wanted to keep private, but somehow the information got their hands on it. So it's a, uh, 52-page slide presentation in which they go through and describe the combination of turbulent financial markets, inflation, geopolitical conflict. They call it a crucible moment, which seems to be a term Roloff, who runs Sequoia, is using a lot to like,

• 23:08Logan Bartlett?

  describe these strategic inflection points or periods of uncertainty. I would say that it was well done. Like, I don't know if anything is groundbreaking. They sort of go through and say that not to expect a speedy recovery from a bounce-back standpoint because the monetary and fiscal policy tools that have been used have been exhausted. And then the firm suggested founders don't move, or that they move quickly to extend the runway and fully examine the cost of their business. And so kind of espousing that, not viewing cuts as a negative, but as actually a way to conserve cash and go longer. So it was thoughtful.

• 23:50Logan Bartlett?

  I don't know if they've gotten a hard time for too many RIP good times decks out there. And so they wanted to keep it under the radar. But I joked online that we only, it's only the bottom when Sequoia releases their deck. Like, at that point, we know we can start, like, nature is healing now that they have a deck out there in the wild. And we know that we can actually get back to, you know, normalcy.

• 24:14Speaker 01

  This is the critical event. No, I thought it was really well done. I mean, there's probably could have been half the number of pages. And I'm sure there's like a synthesized version. One of the really interesting things for me as an operator, like, yes, it's not great to have to like shift your strategy halfway through. And nobody likes to do staff cuts and all of this. Like, none of that seems fun. In the grand scheme of things, you've got this like broader acceptance almost of the entire industry that like the operating model needs to adjust. And so... The classic assumption is like it's really hard to change course midway through because you lose employees and you lose morale because it's a little bit of like, what did I do wrong? Here, it's a little bit of everybody's suffering from the same problem.

• 25:00Speaker 01

  And so I actually think as a founder or a CEO, this is a little easier to navigate internally. Because you can kind of point to the rest of the market and say, look, like this is happening all over the place. And I do think most employees are pretty attuned to what's going on in the broader ecosystem. And so, you know, a focus on headcount, a focus on expenses and all this is not going to come as a shock to multiple.

• 25:25Logan Bartlett?

  Yeah, what's, what's the old Winston Churchill quote, like never let a good crisis go to waste, right? And I, I think that is, I mean, at, at the end of the day, some of these companies probably aren't running as efficiently as they could. And this gives a path to, you know, whatever the, the bottom 10%, you don't need a backfill, right? And you can find ways of making the company more, you know, more efficient.

• 25:52Speaker 01

  Yeah.

• 25:53Logan Bartlett?

  One of the interesting things that I've yet to see really flow through is the impact on businesses yet. And right now, like it feels this has been mostly a valuation thing. And that like people are, are preparing that they might not be able to raise at a, a, a up round to what they did. And so they're trying to extend their runway to get bigger so that, you know, they're in a better place to raise whenever the market returns to some sense of like normalcy or active investing. Um, I do think there's going to, certainly if you sell to other startups, right? If that's your business, like it's going to impact you for sure, right? Uh, and then there are these other geopolitical, you know, inflation, recession type stuff that's going to ultimately

• 26:37Logan Bartlett?

  impact in some way. And so I think that's where it's going to be, um, interesting. And I don't think it's going to be across the board, right? I think some, you know, certainly if you have business in Russia, like that's impacted you in a much more material way. But I do think a lot of these counterbalancing trends are going to be, there's going to be beneficiaries from all this stuff. And there's going to be people that get hurt in a really meaningful way. And I don't think it's going to be super simple to say like, oh yeah, everyone's risk off, right?

• 27:04Speaker 01

  Yeah, I mean, this is a different kind of.

• 27:08Speaker 01

  I don't know what to call it recession because it's not really a recession that's driving this, right? Like this is a different kind of crisis, if you will, for startups, which is this is a multiple reset, right? This isn't necessarily that like demand got cut and your customers went away and like people aren't spending anymore and you have to rethink, you know, the underlying customer base and is this a business? I think this is a lot more, you know, 100x revenue multiples become 20x revenue, whatever the reset is. And so it's different in the sense that like good businesses should still thrive in this, just maybe at lower prices. And as a result, some down rounds or some recaps here and there. But as a founder, this wouldn't scare me as much. Yeah.

• 27:50Speaker 01

  Because I do think, yeah, yeah, look, if we have a giant recession that's coming, you know, there's a whole different story here. But for now, that's not the case. And if you look at like the GDP projections from a bunch of banks, everyone's still reasonably positive over the next few years. So TBD on if it turns into an actual recession and obviously how big is that? But this is more of a, your expectations were wrong. And now your expectations just have to be right sized to the market. And it makes sense. I also think just like anecdotally, and this is going to be a little odd, but you know, tech companies kind of had it really easy for a while, like everything was fine, you know, as long as you were growing a bit, no one cared.

• 28:35Speaker 01

  You could kind of like have four day work weeks and spend all your time on Slack and all that. There was no efficiency pressure whatsoever, because it wasn't required from the investor base, because no one cared. I think this is a good thing in the grand scheme of things, like it's going to force companies to be way more efficient in their operations. It's going to force them to kind of trim the underperformers, which in the grand scheme of things is actually good for everyone, including the shareholders. We need some sort of correction from what I think we were operating in for the last few years now. This drastic, I don't know, but the good companies will survive and thrive over the long run.

• 29:14Logan Bartlett?

  Yeah, I mean, you, you look at like, uh, when, when stuff like this happens, the, the weak in these markets ultimately, uh, don't get funded, right? And the, the strong make it through and come out even more successful, right? Uh, than before. And so I would guess that's going to be the case here as well. And, you know, if you look at venture mortality rates, uh, of just like the number of companies that went out of business over the course of the last like decade, it's super low, right? And the reason is there's so many venture funds that will prop up, you know, the, the shitty companies in the portfolio. And now the problem when that happens is like, you know, in a very literal sense, if you, even if a competitor has a shitty product,

• 29:57Logan Bartlett?

  if they're, if they're doing Google Ads against your name, right? Uh, on the top of Google search, like, you have to spend to buy your own name to push back on that, right? And so this whole cycle of, of competition leads to wasted dollars in the ecosystem. And you could say, hey, it makes the overall market more efficient. I was having the debate the other day with someone about like, you know, Lyft and Uber, right? Would we have been better off if at one point Lyft was really on the ropes and it looked like they were not going to make it? They tried to sell themselves, right? It was like a real mess. And now, you know, are we better off as consumers having both of those companies in the market competing for drivers,

• 30:40Logan Bartlett?

  competing with, uh, all the different, you know, whatever. You have to open both apps to figure out how long it takes to even get one. I don't know the answer to that, but certainly the, the amount of value that's destroyed, I think today Lyft's like a $6 billion company and Uber's like, I don't know, probably 30 billion or something. Like, if you wipe out Lyft, I would guess that Uber, it's not an incremental 6 billion that Uber would be worth, right? It's an incremental, you know, 30 or something. It would probably be worth twice as much and. And from a user experience standpoint, this is what's weird about tech in general is from a user experience standpoint, it would actually be better as well, right? Because you don't need to bounce back and forth between the two apps. Now, from a driver's standpoint, maybe not.

• 31:21Logan Bartlett?

  And it could bring better, you know, efficiency to the market in mass that like they keep each other honest with price gouging and all that stuff. But I don't know, it's interesting how much value was destroyed by Uber not, not actually bankrupting Lyft, like it seemed was the case.

• 31:39Speaker 01

  Yeah, I mean, look, competition is good for consumers most of the time. And I think this is an interesting case of like, is Lyft the competition? Or is it actually more like substitute travel? You know, buses and trains and cars and, you know, driving yourself and all that. So I, in this case, I think kind of the, what would be better for consumers is a little unclear.

• 31:58Logan Bartlett?

  Yeah.

• 32:00Speaker 01

  But generally speaking, I do think competition will ultimately drive prices down and better experience.

• 32:05Logan Bartlett?

  Tech, tech in general though, they're like, you know, not Ben Thompson aggregation theory and all that, but tech in general is weird of, you know, having Google be the dominant search is actually in the best interest of the consumer from a pure product standpoint. Now, all the orthogonal things that they've done to bundle, you know, whatever against Yelp and all the, all the stuff they do with OTAs and all the other things they do. But from a pure search standpoint, like having Google dominate is actually a great thing, right? Cause now the results are all aggregated.

• 32:42Speaker 01

  I mean, it's hard to, like, maybe, I mean, it's hard to know, like, how much better would Google search be if there were real competition? You know, would the number of ads that we see versus like real search results be different? Would you see better content? Like, I don't know. I do think obviously it's net positive for society that this thing is, you know, as incredible as it is in search, but I'm not convinced necessarily like lack of competition is better or worse. I mean, look, they have a great incentive to get people to continue to use it. But in, in general, I think, I think in like any of these markets where you have like a big risk off cycle. Flight to quality continues to happen and that flight to quality happens with customers.

• 33:27Speaker 01

  It happens with employees and you will see, maybe not in the short run numbers, but in like competitive markets, a few of the ones that are kind of like nipping at the heels of the big guys drop out. And then the employee base will consolidate. That's usually the biggest, right? You get like more consolidated talent and that allows you to build some really big, interesting companies. You know, that scale. And if I were running one of these good businesses, you know, this is a unique opportunity actually to kind of supplant, just put your feet down and say, we're going to win. We have the best product. We have the best margin structure. It might not look like that in your valuation in the short run, but in the long run, you know, it'll get there. And that's actually in that Sequoia deck. I think they did a good job of explaining it.

• 34:12Logan Bartlett?

  Zach, I would say, I think you do run one of those good, good businesses. So I, I don't want you to sell yourself short on this, but one of the things I'm actually curious about as an actual founder and operator, there's this preciousness about down rounds that exist in the private, you know, company world. And that like, hey, you don't want to do that because I, there's a ton of incentive issues that end up happening where, you know, employees that joined earlier are actually issued options at lower prices than employees that joined later. And so you need to true up and it ends up being this whole complicated kind of accounting issue. And then there's like just morale and psychological issues around it.

• 34:57Logan Bartlett?

  But I'm curious, like, obviously in the public markets, you get mark to market every single day. You have down days, right? And you can, a lot of them can be totally outside of your control, right? And you just get beaten up. Would you, do you think that this preciousness around not doing down rounds?

• 35:17Logan Bartlett?

  Do you think that stays over the course of the next little bit? Or do you think it becomes normalized that like, hey, yeah, we're going to do down rounds just because that's, that's the way of the market and it might not reflect anything about our business. It's just valuations have compressed.

• 35:32Speaker 01

  I mean, my take on this whole thing is that I think humans tend to evaluate their own situation relative to their peers. And that's true in multiple settings, whether it's startups or not, like, you know, your situation is only as good as, you know, how do you think you're doing relative to your friends or people you know, or the people you see on Instagram or whatever. Which is why I think people don't appreciate like the significantly better lifestyle that just like the average human being has in 2022 versus like 1950 where we had a giant percentage of the homes didn't have air conditioning. So I don't know what great we're planning to return to, but I kind of like enjoy my air conditioning.

• 36:17Speaker 01

  So in this case, I think the psyche of down rounds is mostly if you were the outlier, it's bad because the perception of your employee base is like, well, why is this shitty company worse than everybody else? And like, I'll leave and go to the next one that isn't having the same trouble. In this situation, that's not the case, right? Like, everybody is doing kind of poorly because of the valuation reset. So I don't think it's as bad as an operator because you're not going to have employees comparing, you know, your problems to a bunch of great companies. It's kind of your problems to other people's problems. And I think if you know what you're doing and you know how to communicate and you can be rational about explaining like

• 37:01Speaker 01

  this is a market shift rather than a company issue. You can kind of like communicate your way through this, so. It's just hard. It's hard for founders to understand this. Most of the people who started these companies were like, you know, they've never been through a crash, they've never been through a crisis. They don't know how to communicate. It's going to be tough for them. But I think that anyway, the point is more of like the down round without context is. Is irrelevant. It's like contextually down round versus what else?

• 37:29Logan Bartlett?

  Yeah, exactly. What are the other options? And so I think it's going to have to get normalized. Your point on like air conditioning is funny. I remember the Daily Show in 2016 went and did like, when was America great? And they would go up to people like at Make America Great Again rallies or whatever and be like, the 1800s? You mean when slavery was around or the 50s when like segregation was rampant, right? It's interesting. I do think these times are pretty good. I also like air conditioning. But yeah, it's going to take, I mean, to some extent, we can debate, for example, like Brian Armstrong saying that no social issues in the workplace and we're not going to talk politics and we can say whether or not we agree with that. But it's, you know,

• 38:11Logan Bartlett?

  to some extent, he picked a path and I think there should be optionality that exists for companies in what path and how the CEO wants to run a business. And I think we're going to see someone say, hey, we got in front of our skis and be public and willing to say, we're going to reset the 409A and we're going to reset the price of the preferred and take a down round and do it in a way that I think makes it more socially acceptable for other people to follow. And I think that'll be a good, healthy thing. I wouldn't want any of my companies to lead in that regard, like and proactively take a down round. But you can,

• 38:51Logan Bartlett?

  I was talking to a entrepreneur recently and he said they didn't raise in 2021. And he said in 2021, it was hard to recruit people because they were like, well, this means you're clearly not a hot startup. You didn't raise. And now he said, it's actually been amazing recruiting people because they're like, oh, wow, you're, I mean, this is a pretty good value. Like you're 409A and preferred price is low. And so I could see a lot of upside from here, right? And so I think that type of psychological shift starts to happen in the private markets. And so I think someone will lead here and proactively do a down round. But yeah, it's only going to happen when they need it, right? It's like to your point, to what end?

• 39:34Speaker 01

  Yeah, someone asked me the other day, I don't, I don't think it was a weird question, but it's just like, well, what happens if these companies, you know, are running out of cash and the valuation is like, what goes on? And you say, well, they're going to raise money because they have to. There's no other choice. Like, it's just a logical conclusion and they're going to raise it at a price that the market will allow. And in many cases, that will be a down round and we'll see it happening over the next 12 to 24 months as that like cash pile dwindles. And you do need to actually just go to market. I think, again, like all these companies that are reasonably good will get funded. It's just not going to necessarily be pretty from a valuation standpoint, and they will probably have to reissue equity would be my guess.

• 40:17Speaker 01

  In particular, they'll have to reissue options that have a high strike.

• 40:20Logan Bartlett?

  Yeah.

• 40:20Speaker 01

  Because, you know, as an employee, you don't want your strike sitting above the latest preferred. It doesn't work well for you. That this like nuance of like people, employees wanting to join companies that have really high valuations, never made any sense to me. I think it's just like feeling like you're part of the cool kids club, but not actually like a rational economic decision. Like what you really want to do is join the company that the public markets, or at least the late stage private markets haven't yet realized is awesome. Because you show up at an earlier price and then you get to participate in the appreciation. I don't think people really understand how this works. Generally speaking, I think they think of it as like a stock price that is, I'm not sure, to be honest.

• 41:03Logan Bartlett?

  It's actually, I mean, we've debated, you and I have debated, not here, but offline about like the price per share and whether or not people, employees like actually understand that the price per share is entirely arbitrary and doesn't reflect anything like about the business value. And I was talking to a buddy the other day and we were talking about two companies. And he, I was like, oh, what are they worth? And he's like, well, you know, I mean, it's a lot bigger. It's, it's 15 bucks a share and the other one's only four bucks a share. And I was like, wait. What? Like, that doesn't mean anything, right? And so I will say, the level of sophistication, it's obviously gotten better than what it was, you know, 15 years ago.

• 41:48Logan Bartlett?

  But I'm still amazed at, uh, some companies will like, give you the number of options, but not like disclose what the last round price per share was, right? And it's like, how can you, how can you internalize any of this stuff, right? And like, what this actually means for you? And so I would be surprised, I would guess that like, you know, half of rank and file employees at these orgs don't know what the price per share like that. That is just an arbitrary number that doesn't really reflect anything. And then the number of people that are actually getting into the weeds of like, the upside and the valuation, that was why, it was so dangerous when Ryan Breslow,

• 42:30Logan Bartlett?

  who's been on the podcast and has been very nice to me, but when they were doing loans to people that were, uh, you know, at their $11 billion valuation with personal recourse, right? It's like, how much, how much sophistication can ultimately people have in understanding the risk return of the macro environment? And who is investing at what price? And what that means for you? And I don't know, I mean, we've now seen that, that Bolt announced they are laying off 250 people and hopefully there aren't a ton of people with these personal recourse loans. Cause I have to imagine like, there, there is a buffer there, uh, but not a huge one. And if Bolt's now worth a billion dollars and not 11 billion, people are going to come calling for those loans, right?

• 43:15Speaker 01

  Well, I think they're just gonna eat it. Like, that's my guess in the Bolt situation, they're just gonna, they're gonna eat the cash and so be it, because the rest of their employee base will revolt if they start calling, you know, debts from like former employees. I mean, that's just not a good situation for anybody.

• 43:32Logan Bartlett?

  I think you, I, I think the way it's structured, I, I think you have to, the employee has to be on the hook for some percentage of it because of tax related reasons, right? And I don't think, I think it was like 51% that the employee had to be on the hook for, uh, versus the company, but it wasn't, I'm pretty sure it couldn't be 100% to the company and forgivable, because if it's them forgiven, that's a taxable event as well, right?

• 43:57Speaker 01

  Give like a few Wilson Sensini lawyers a few months and someone will figure out how to do this. And I just kind of believe ultimately like the lawyers and the accountants will figure out something here. Do I have the exact solution? No, but I know somebody who bills $2,000 an hour does. And they'll like figure it out over time. I will say, I have found that more startups have like better habits about price disclosures on preferred, on 49A, they're giving calculators. Like even at Flotar, and when we started, this is in 2012, you know, we would give a calculator. Now, it's up to you as the employee to plug in what you think the like long-term expected

• 44:40Speaker 01

  value is. We're not guaranteeing an outcome, but we would tell you, here's the latest preferred. Here was the preferred before that. Here's the 49A. Here's the strike price. Here's the number of fully diluted shares. Here's how you do like a little bit of math. Here's future dilution expectations. Up to you to plug a number in. And you can give like a calculator to somebody and let them go through it. Now, it's complicated. And I think sometimes people look at it and go, I don't even know where to begin. But I think the habits have improved. I just think people have never been through a crisis. And so it never crossed their mind that like you would see an actual reset and like, what do you do in a situation when your preferred is now below

• 45:22Speaker 01

  your last 49A? And like, how do you reset this stuff? And it's just that. It's, you know, eventually like this will work itself. It will work itself out.

• 45:31Logan Bartlett?

  You have to imagine that like, just statistically, if the average venture-backed startup today, what percentage of, what percentage of people like were in the workforce in 2008, right? And I would guess, I would guess that the average venture-backed, like my portfolio, most companies average age of like 27 to 29 probably. And so none of those people were in the workforce in 2008, let alone, and 2008 wasn't even that bad from a tech sector standpoint, right? It was bad from like a macro standpoint, but the tech sector really weathered it. And so then you go back to 2001, and that number has to be single-digit percentages at these companies

• 46:13Logan Bartlett?

  that have gone through like a real, real downturn and what that looks like. And so, yeah, I imagine, I mean, there's a lot of lessons to be learned from that time. And there aren't a lot of people that have actually learned them.

• 46:26Speaker 01

  Yeah, I mean, you can just look at the age of the CEO and you can tell. I mean, I feel very fortunate. You know, we started our first company in 2007. We raised our first round prior to the crash. I watched multiple companies go bankrupt, some of our customers go bankrupt, dollars get pulled. I mean, I was probably 20 years old when it happened, but you know, definitely remember it and have used that fear, if you will, in some of the operating work I've done. And then definitely like staying rational on price from an investing standpoint, at least attempting to.

• 46:57Logan Bartlett?

  Yeah.

• 46:58Speaker 01

  Yeah. I mean, if your founder CEO is less than 35 or so, and that's quite a few, especially in kind of like a modern software context. They've probably never been through it. And by the way, even if they were going through it, they were probably doing it as like a fairly junior employee at the time. And so like, did you really experience this? Like, yeah, it's gonna be, it's gonna be interesting to watch the the younger founders kind of manage through this, both the communication and also just like, what do you do? How do you reset prices? How do you communicate the stuff to founders and investors? It's just, it's, anyway, I always view this ultimately as like a little shakeup is a good thing. You need some like rational actions in the market and good stuff will come out of it eventually.

• 47:43Logan Bartlett?

  Yeah. All right. Well, go be a dad. Uh, thanks. Uh, thanks for, for coming on and, uh, I, um, yeah. As often as you want, Zach, I will keep pulling you in. I'll move heaven and earth to get times to work. I'll even get people that aren't intimidated of you to go head to head on.

• 48:00Speaker 01

  Can we at least get that? I want someone to be like, I've got five use cases. I want to talk about those.

• 48:05Logan Bartlett?

  Yes, we should. We, I, I, I will, that will be my next thing. I will.

• 48:09Speaker 01

  My favorite one, and I don't like, I don't, I don't want to be that guy that like calls people out who I had a stupid Twitter battle with, but my favorite was like somebody on Twitter who was arguing with me about like crypto payments. And their whole thing was like, yeah, but have you ever tried to use a credit card in Argentina? And I'm going, well, no, but like, have you ever tried to sign up a small business merchant in Argentina? Like, do you understand the economics of why Visa and Mastercard don't have like market penetration in Argentina? I don't think it's because like, the tech doesn't work. I have a feeling it has to do with the cost structure of signing up the actual businesses and then educating the entire population on how to use a credit

• 48:54Speaker 01

  card, which by the way, probably doesn't have the disposable income to actually like, get to credit. And so like, I don't know how you think this is what the problem you're solving. And it's just that, like, I always love, you get into the, you leave the theory out, right? Can you make payments with crypto? Fine, whatever. Where? When? In what country? At what price? How do you like, what is the cost? And those are the more interesting conversations to me.

• 49:19Logan Bartlett?

  All right. Well, go, go be a dad.

• 49:21Speaker 01

  All right. See you, man.

• 49:22Logan Bartlett?

  Thanks Zach for coming on and everyone, please feel free to at him in replies and, and make sure tell him that he should, he should come on all the time as, as I text him to do so. So what you're going to hear next is a interview I did this week with, with Parker Conrad. I think it's a really interesting conversation. Parker's a really interesting guy and was very generous with his time. And so, yeah, excited for, excited for you to hear it now. Well, Parker, thanks for doing this.

• 49:52Speaker 02

  Yeah, thanks for having me.

• 49:53Logan Bartlett?

  In Rippling's office.

• 49:55Speaker 02

  Yeah.

• 49:56Logan Bartlett?

  Doing the stuff, IRL is, yeah, it's interesting. Getting back to real life and doing this. We were supposed to do this in New York, but you unfortunately got, got

• 50:06Speaker 02

  got sick. So.

• 50:07Logan Bartlett?

  So now here I am, weathering the, taking the chance, you know? It's all about the chemistry in person.

• 50:12Speaker 02

  Yeah, of course.

• 50:13Logan Bartlett?

  Well, thanks for doing this. So maybe let's start a personal background a little bit. So in prep for this, I guess, two things sort of stood out. One, you, you had an interesting story at Harvard with the Lampoon, right? And

• 50:28Speaker 02

  Man, the Lampoon, you've got that totally, totally wrong.

• 50:32Logan Bartlett?

  What is it?

• 50:32Speaker 02

  I worked on the Crimson and the Lampoon people and the Crimson people, they hate each other. There's like a big rivalry between the Lampoon.

• 50:40Logan Bartlett?

  Is Crimson Crimson serious and Lampoon satirical?

• 50:43Speaker 02

  That's right. Lampoon's funny and the Crimson, the Crimson people take themselves very seriously.

• 50:48Logan Bartlett?

  That's interesting. So you were, you were on the serious side of all this.

• 50:50Speaker 02

  I, I was, yeah. Actually, my, my COO at Rippling. And I worked together on the Crimson.

• 50:56Logan Bartlett?

  No way.

• 50:56Speaker 02

  And that's how we met each other.

• 50:57Logan Bartlett?

  But you overworked on, so you were a chemistry major at Harvard?

• 51:00Speaker 02

  Yeah.

• 51:01Logan Bartlett?

  And overworked on the Crimson to the point that your grades actually suffered?

• 51:06Speaker 02

  Yeah, I mean, I, I was just having a lot more fun on the newspaper than I was doing problem sets and response papers. And so I just kind of stopped doing them.

• 51:16Logan Bartlett?

  And, and then they said?

• 51:19Speaker 02

  And then they said, they, uh, they said, they kicked me out. I had to take your off. And I, I actually, I got hit with like, it was like the worst possible class to fail out on. There was, um, this really notorious gut at Harvard, um, that was, I can't remember the real name, but it, it, the, the, the sort of joke name for the course was the Bible. And it was sort of like a, an academic look at, you know, like the Old Testament. And I took the course because I looked at it and there were 10, uh, there were 10, uh, what do you, what do you call the like sessions where you like, you meet, um, like sections?

• 52:00Logan Bartlett?

  Yeah.

• 52:01Speaker 02

  Where you meet like in a small group. There were 10 sections, uh, 10 response papers and a midterm and a final exam. And I did the math on this and the, the, the response papers were part of your section participation grade. And I did the math and I was like, if I don't do any of the response papers and I show up at these sections and take the midterm and the final and cram for them the night before, I'll squeak out like a B minus and do almost no work. And they didn't look, they didn't like that. They looked at it as I had not done, I had not finished the response papers. And so I had not finished the class and they failed me. And then made me take a year off.

• 52:41Logan Bartlett?

  And so, so you took a year off and you went to go work at a newspaper?

• 52:45Speaker 02

  I did. So it turns out that like failing out of school, I was managing editor of the paper. And, uh, it turns out that a lot of managing editors of the Crimson end up failing out.

• 52:54Logan Bartlett?

  Wow, interesting.

• 52:55Speaker 02

  It's a common theme. And so.

• 52:57Logan Bartlett?

  What's, what's the, what's the consistency there? Is it just, is it actually like a pretty brutal time commitment? Or is it a type of person that decides to be the managing editor?

• 53:06Speaker 02

  I think it's, it's, it's a little bit of both.

• 53:08Logan Bartlett?

  Yeah.

• 53:08Speaker 02

  And it's a little sort of all consuming. Um, and so there was someone a few years, uh, before me that had failed out. There was someone, I think two or three years after that failed out. And so there was a whole network of people that were like, hey, like, you know, will some of those sort of Crimson alums like help me get a job at this, this newspaper in Little Rock, Arkansas?

• 53:30Logan Bartlett?

  So you're an Upper East Side, New York City kid?

• 53:34Speaker 02

  I don't really think of myself as an Upper East Side. I was a very bad Upper East Side, New York City kid, but.

• 53:39Logan Bartlett?

  A Harvard student going to Little Rock to work on, Little Rock to work on a paper.

• 53:45Speaker 02

  That's right. Yeah. So I moved to Little Rock. I didn't know anyone in Little Rock. I didn't know anyone who knew anyone in Little Rock. Showed up there, was covering night cops and crime. And, you know, like the, actually, Little Rock turns out was a big epicenter of a lot of gang warfare. I think it still is. And so it was covering like shootings and, you know, things like that.

• 54:07Logan Bartlett?

  And, and did you think you were going to be a journalist? Like, what was your path, your entrepreneurial path to actually starting companies?

• 54:16Speaker 02

  Well, the, the thing that I found, you know, when I was in Little Rock, all of my friends there, there were a lot of other really early career journalists there who had not failed out of school. And they, I mean, most of them wanted, had these sort of literary aspirations, like they wanted to be, you know, Ernest Hemingway and, you know, they wanted to, you know, write like Faulkner or something.

• 54:36Logan Bartlett?

  Sure.

• 54:37Speaker 02

  That was never, like, what I liked was sort of being part of this, like, group of people at the Crimson that were trying to, like, basically tweak the administration.

• 54:50Speaker 02

  And that was really fun, you know, was sort of like running that little organization. And I spent a bunch of time, like, after college, trying to, like, get back to that feeling of sort of like taking on, you know, something, the establishment, you know, whatever it was. And, and, you know, doing startups was sort of what, what sort of scratched that itch for me.

• 55:13Logan Bartlett?

  And, and you also, hopefully you're comfortable asking me about this, but you, you had cancer when you were really young, too?

• 55:22Speaker 02

  Yeah, I had, I had cancer when I was 23. And I mean, look, it was, it was a very curable type of cancer. So

• 55:31Logan Bartlett?

  Still, I mean, cancer is cancer, right?

• 55:33Speaker 02

  Yeah, cancer is cancer. But it was scary for like a week or two until, until it was clear that it wasn't going to be a big deal. And, you know, did some, you know, surgery and radiation and that kind of stuff. And then, then was fine.

• 55:47Logan Bartlett?

  Did that impact your perspective on like, anything career wise or attitude towards? I mean, it has to be pretty impactful of like how you view the world, I would assume.

• 55:59Speaker 02

  I mean, I think for me, it probably, it probably gave me a little bit of a kick in the pants from a career perspective, because it, I remember sort of like, you know, I was in a job, working for a pharmaceutical company in Los Angeles. And I, you know, I kind of looked at the sort of career path at that company. And there were all these rules about, you know, spending a certain number of years in this role, and then in this role, and then, you know, sort of, you could move up only with, you know, you know, once every two or three years, or something like that. And if you add up like, all the steps, I was like, geez, I'm gonna be dead before I get to the top here. And that was sort of the

• 56:41Speaker 02

  real impetus for me to, you know, to leave. And one of my roommates from college wanted to start a company. And I thought, man, if, if this thing works, and I don't, and Mike does it, and I don't, I'm gonna be an old man, like, kicking myself over like, what could have been?

• 56:59Logan Bartlett?

  Regret minimization, just like

• 57:01Speaker 02

  That's right. Of course, it was a terrible idea, and I should have stayed in my job.

• 57:04Logan Bartlett?

  Yeah.

• 57:06Speaker 02

  But

• 57:06Logan Bartlett?

  Seems like it worked out for you.

• 57:08Speaker 02

  Yeah, well

• 57:09Logan Bartlett?

  Maybe not that specifically, but it led you to an okay path.

• 57:11Speaker 02

  Who knows? So you're still knocking wood. We're still, you know, we're still, still trying to figure that out.

• 57:15Logan Bartlett?

  Yeah. And so that led you to doing this entrepreneur. So what was the name of that company?

• 57:20Speaker 02

  It, it's, it's now called Sigfig. So it's, it's still around. My co-founder is still there. It's sort of like a Wealthfront competitor.

• 57:30Logan Bartlett?

  Yeah. And so, so you did that for how long?

• 57:33Speaker 02

  I was there for about seven years of slow grinding failure.

• 57:40Speaker 02

  Of just constantly being, you know, months away from not being able to make payroll. We went out to raise, to raise a round of financing in 2009. Our, our investors at the time told us, look, in, they told us in January of 2009, we're not going to support you guys. So you better go out and talk to every investor that you can to raise money. And so we dutifully went out and like marched into like machine gun fire.

• 58:07Logan Bartlett?

  Yeah, yeah.

• 58:08Speaker 02

  Trying to raise money for an ad support. What was at the time, an ad-supported sort of content play?

• 58:15Logan Bartlett?

  And at the time, I mean, this isn't today. There, there aren't 300 VCs or whatever it seems to be. There's probably like 30, 40, 50.

• 58:22Speaker 02

  There's at least 75 because that's how many.

• 58:24Logan Bartlett?

  You made the list.

• 58:25Speaker 02

  That's how many we pitched. We pitched like every single one of them.

• 58:30Speaker 02

  And got told, you know, maybe to no by everyone.

• 58:35Logan Bartlett?

  Yeah. Which is, which, by the way, the, the maybe is worse than the no, right?

• 58:40Speaker 02

  No, yeah, no, there were, there were people that we spent lots of time went super deep with. We spent two years doing this and to get to like conclusive knows from everyone.

• 58:51Logan Bartlett?

  Yeah.

• 58:52Speaker 02

  So I, you know, I have some memory of like what it was like to raise money in Silicon Valley, you know, back when it wasn't sort of 2013 through, you know, 2021.

• 59:01Logan Bartlett?

  Yeah, yeah, yeah. And so, so then after that Zenefits, what was the original idea, idea for Zenefits?

• 59:09Speaker 02

  Well, the idea for Zenefits, for Zenefits was really, you know, I had had all this trouble raising money from VCs. And when, when I met with them to raise money, you know, everyone, there was always something that was sort of a theme that they were investing in. So we would get these questions and that would be like, well, is there, you know, what's your like social logo, local, mobile, social, local mobile angle to this?

• 59:36Logan Bartlett?

  The web three of 2009.

• 59:38Speaker 02

  Yeah, exactly. You know, or the, or amended reality of, you know, it was like, what's your, what's your Facebook app strategy? You're like, you know, and it was always like, it's Jesus Christ. It's an event. This has nothing to do with those, those trends.

• 59:49Logan Bartlett?

  Then you come back, you come back a month later with that strategy and they're like, no, no, we've moved on.

• 59:52Speaker 02

  That's right. And six months later, it was a completely different thing. And so I sort of developed this like, This view that like VCs, it was impossible to build a company that would ever fit into the thing that investors wanted to invest in.

• 1:00:08Logan Bartlett?

  At that moment, because you're kind of like whack a ball.

• 1:00:10Speaker 02

  Because like the, the, the, the, the time that it takes to build a business is too long. And the, the half life of these trends is too short. And so, um, you know, I, I had had this problem managing health insurance for, um, for the company, for Sigfig. You know, anytime we needed to hire a new employee, um, you know, they had to fill out their, their paperwork to enroll in health insurance. And I needed to like stop off at Kinko's to like fax in the application because that was the only way to kind of get it in the insurance company at that point. And, you know, I thought like, geez, maybe this makes no sense. Like this has got to move online.

• 1:00:49Speaker 02

  Um, and had, had sort of talked with a few different insurance brokers and realized what an incredible amount of money there was to be made. Being a broker. And so I sort of thought, look, VCs are completely unreliable. Um, I'm going to apply to Y Combinator. I'm just going to try and raise, if I can raise like just a few hundred thousand dollars, then I can make enough cash off of this business that I can grow it. And I'll, I'll never be able to raise money because I just know that I'm never going to be able to do that. And, but at least I can like, you know, generate a business that works. And I'll be like, I'll be like the local insurance broker that has some technology. And that was sort of like the goal.

• 1:01:29Speaker 02

  And of course, like, it turns out that, you know, when we had that type of business where there was sort of all of this money flowing in, those were exactly the kinds of businesses that VCs wanted to invest in. And, and we were able to raise enormous amounts of capital.

• 1:01:42Logan Bartlett?

  You probably had the attitude too. It's like, I don't need your money. And so therefore VCs are like, well, you have to, you have to take it.

• 1:01:48Speaker 02

  I mean, I, I mean, I like to think I didn't have like that attitude, but like. Um, I mean, I, you know, look, there, there have been times when I've raised money where it's incredibly easy to raise money. And there have been times to raise money where it's like incredibly, incredibly hard. And like, you, you sort of never forget the times when it's hard. And so, you know, you hopefully never get to sort of like full of yourself when, when things are going well.

• 1:02:11Logan Bartlett?

  So it became, it was easy and you went from the mindset of if I can get a couple hundred thousand dollars, I can, you know, turn this into a, and I don't mean to use this in the pejorative term that it gets used, but something of a lifestyle. Yeah. Which I think is condescending because most businesses are, but still that's the, that's the term as it's known. And then, uh, you went from one end of the spectrum to the other and you raised a bunch of money and went really fast to, I mean, one of the fastest growing companies ever from a software standpoint, right? Through that period of time. And what was the, was it a shift in mindset that said, hey, the capital's there and we need to do it? Was it that the market opportunity is there and so we gotta go fast?

• 1:02:52Speaker 02

  I always wanted to try and build something bigger. It was more that the, the fundraising, the reliability, like, like I, it just seemed like the capital markets were too unreliable to count on it. And so like, being able to run it as a lifestyle business was like the fallback. You know, that if I couldn't, if I couldn't raise money to sort of grow. And then what happened is like early on at Zenefits is it was just way too easy for us to close business. You know, we would, um, at my previous company, I went through seven years of this thing where we would sort of have five things that we thought, okay, these things are going to work. We're going to do these five things. And four of them would fail utterly and completely.

• 1:03:36Speaker 02

  And one of them would like mostly fail, but in that failure, there was some tiny glimmer of hope.

• 1:03:42Logan Bartlett?

  A little nugget that.

• 1:03:43Speaker 02

  That would give us like five new things and, and just keep us going for another six months to try the next thing. And at Zenefits, we would try five things and all of them would work, like every single one of them. And we tried two things that we didn't think would work just because, and those things would work spectacularly well as well. Um, and so it was just like a very different feeling. And what I got this advice, I remember from Peter Thiel, that he said, look, you've uncovered this sort of pot of gold in these sort of insurance revenues. And other companies, now that you've discovered this, other companies are going to pivot into the space,

• 1:04:23Speaker 02

  which they did. You suddenly had other competitors that moved in to sort of do what Zenefits was doing. And you need to soak all the oxygen out of the market for this. And that was, that was sort of what, and then I sort of, I made this decision, which in retrospect, proved like really incorrect, which was that, you know, it was so easy to close business that we were going to scale in advance of the engineering capabilities of the company.

• 1:04:56Speaker 02

  And so, you know, we had, the problem that we solved was really that, that there was all of this administrative work inside of a business related to, you know, initially enrolling people in insurance. And then the mandate sort of brought into kind of getting them up and running in HR systems more broadly than that. And sort of our plan was like, look, we're just going to take on all of that administrative work. We'll do it for you. And then we're going to sort of, you know, build the engineering team in the background to automate all of the sort of ops work that we're taking on on your behalf. And the problem with that approach, and there are a lot of companies that I think still do this, and it always ends in disaster, almost always ends in disaster, because it gets much harder to automate something once you scale it up. And so it's a huge mistake.

• 1:05:42Speaker 02

  And it's the biggest thing that we did very differently at Rippling is we decided on day one, there was going to be no internal ops at the company. And we held that for like a really long time, to such a long time that we were about, I think, five million in ARR before we hired our first support rep. And until then, it was like me and the engineering team doing customer support. And but it meant that like the it was software like end to end. And it's much easier if you can start with software and gradually grow the software. Then if you the the sort of if you have this approach that you rely on manual ops. These teams kind of take root and they're they're very hard to dislodge.

• 1:06:26Speaker 02

  Because it's very hard to build automation at scale. It's the process gets like too complicated.

• 1:06:32Logan Bartlett?

  Is it because it's not the change management of like replacing people's jobs that are already doing this to some functional way? It's actually that the software, uh, this it there's a sprawl of problems they're solving. And so better to start with something small.

• 1:06:46Speaker 02

  It just the complexity is too large. You get you get in this situation where there's this like blind man and the elephant problem where no one understands the full scope of like everything that the software needs to be able to do. And so you spend all this time building something to automate something that the team is doing. And and you take you spend months doing this. And then you turn it on and it's just completely broken because there's, you know, 30 things that you didn't account for.

• 1:07:14Logan Bartlett?

  So many edge cases.

• 1:07:15Speaker 02

  Or did edge cases and then and so then you have to turn it off and you have to go back to the drawing board and start over again. And so the automation around this stuff was was perpetually behind its benefits. And that led to a number of problems. One of which was that there was, you know, any process that you're doing manually, there's there's an error rate around it. And so the question is not like whether your manual processes is broken. It's about how broken is it? You know, it might be, you know, you might be right 90% of the time. You might be right 99% of the time, but it sure ain't 100. And that was a problem in the context of like what we were doing for clients. Like it had to be 100% and we couldn't make it 100%.

• 1:07:57Speaker 02

  And then the other problem, of course, is you get, you know, our we were upside down on gross margin. We had these sort of ballooning sort of cogs as the business was scaling very, very quickly from a top line perspective.

• 1:08:08Logan Bartlett?

  Because it's linear with headcount for the most part.

• 1:08:10Speaker 02

  That's right.

• 1:08:10Logan Bartlett?

  Yeah.

• 1:08:11Speaker 02

  Yeah. And, uh, and then, you know, it reached a certain point when the there was sort of this conventional wisdom in the market that the idea behind Zenefits was great. But, you know, the execution left something to be desired. And when that happened, everything that was sort of working so well for us from a top funnel perspective, that all started to dry up. And it happened at the worst possible moment, like three months after we raised this like massive, massive round.

• 1:08:36Logan Bartlett?

  I, I don't want to make you re-litigate. I'm sure you've talked about this ad nauseam, but at that point in time, I assume as a former, you know, journalist or someone that spent a lot of time in this, and I've heard you talk about like narratives, right? And like how important between media and VCs and startups and how narratives all kind of manifest themselves. And so was, was Zenefits in your mind, when you sort of play it back out, like the, the, there was this manual thing that you've now internalized and done differently, but then also because of that, the operational complexity and all that stuff, the narrative kind of got away from you. And then there were elements of people that, you know, started to shoot spitballs

• 1:09:18Logan Bartlett?

  and start to point at things that maybe they knew otherwise in the past, but decided to raise them as issues?

• 1:09:24Speaker 02

  I mean, I, I'd look, um, there, there's a lot about the public sort of story about Zenefits that I just vehemently disagree with. Um, I think, you know, one, one thing I'll say about this is that when things go wrong at companies, um, there are people who have like, who have institutional apparatus behind them. You know, they have, you know, crisis PR firms and, you know, sort of hot and cold running, you know, PR departments and, you know, deep investments in media relationships. And, you know, all of those things were true for Andreessen Horowitz and for David Sacks, who replaced me in Zenefits. And then there was me and I was like hiding

• 1:10:06Speaker 02

  in my house, like not talking to like anyone, like not friends, like barely even family, just kind of like hiding from the world. Um, and super depressed about the whole thing. And, and then sort of watched this whole thing unfold and the story unfold around me with this sort of growing horror of sort of realizing sort of what was being told about this. And one of the things, I mean, I even talked a lot about sort of how the sort of moment when I was forced out of the company, but there was this board meeting and at the board meeting,

• 1:10:48Speaker 02

  Andreessen Horowitz, Lars and Ben, um, uh, tried to convince me to stay on. They wanted me to be, they wanted me to stay on the board. They wanted me to stay on and run product.

• 1:11:00Speaker 02

  And I sort of said, look, I had this experience at my last company when I left of being sort of like demoted, but kind of like still hanging out. And it was not a positive experience for me. The company before is a good fit. And, and so I said, look, if I'm out, I'm out.

• 1:11:20Speaker 02

  And, and you know, I remember like in, in that board meeting, you know, they said, well, what are you going to do? And I said, well, I think I'm going to start another company. And Laura's looked at me and he said, you don't have another company in you. Like, there's just no way, like, I know when people have another company in them and like, you don't have it in you.

• 1:11:44Speaker 02

  And, and I, you know, so we, I agreed to step down under a lot of pressure at the board meeting. And we drafted this press release that was a friendly press release. It was like, I said, you know, great things about David and, you know, they said good things about me and like, you know, sort of the kind of anodyne sort of stuff that people say normally when people leave companies that are like, ah, you know, like new leadership needed for whatever reason. And there was this sort of agreement that we were all going to kind of march forward arm in arm over this transition. And David just issued a different press release, like literally just a different release than the one that we had agreed to.

• 1:12:23Logan Bartlett?

  Like, like right after that?

• 1:12:24Speaker 02

  Like the day I signed the paperwork on a Monday. And on a Monday afternoon, like a few hours later, the release came out and it was not the one that we had drafted.

• 1:12:38Logan Bartlett?

  So just a level set, I real-

• 1:12:40Speaker 02

  And the release was like, look, the company has all these compliance problems. And it's all, it's all because this fucking guy doesn't care about compliance.

• 1:12:49Logan Bartlett?

  And so, so just, just the level set, the personalities, I realize most people probably know this, but David Sacks was your COO.

• 1:12:55Speaker 02

  Yep.

• 1:12:55Logan Bartlett?

  Who's now a media personality himself, as well as a startup craft ventures. Large Doll Guard was the former CEO of Success Factors, who is your board member.

• 1:13:05Speaker 02

  Member from Andreessen Horowitz.

• 1:13:06Logan Bartlett?

  And Ben Horowitz was obviously, is Horowitz of Ben.

• 1:13:09Speaker 02

  Andreessen Horowitz, yeah.

• 1:13:10Logan Bartlett?

  And, and so was that, did, did the Andreessen Horowitz guys know that he was going to do that? He was your COO. He was going to step into, he stepped into interim CEO. Was that the original title?

• 1:13:22Speaker 02

  Yeah. So the, the original, what, what Andreessen Horowitz pitched me on in that board meeting was that, you know, David would step in for six to 12 months. They were like, look, there are these compliance issues. We want David to come in for six to 12 months and, you know, clean the stuff up, turn sales around, you know, like sales were really sort of, you know, starting to collapse. And then in six to 12 months, we're going to bring you back as CEO. And like, that was sort of the, what was pitched to the board me, I was like, you know, I don't know if I believe that, but that was like, sort of what they sort of like laid out on the table. I mean, it was a very friendly conversation agreement until the

• 1:14:03Speaker 02

  day that it got announced. And, and so it's when I, when I, and I talk about this mostly to emphasize just the level of like horror that I saw like when this stuff did in fact come out, because it was not what I was expecting when I, when I resigned.

• 1:14:23Logan Bartlett?

  And, and the compliance stuff, and I, I don't need you to go down the whole rabbit hole of this, but there was elements of that, that was known to the board, right? And there was some stuff that was, you know, people kind of knew that, hey, these people were licensed in some states, but not the other, and we probably have to play, pay a fine for it. But there was a level of, it wasn't, you were hiding this from, from the entire company or something.

• 1:14:45Speaker 02

  Yeah, no, I mean, there were, there were a few, there were a few different things that came out, like at least in the media about Santa Fe. And one was this sort of licensing compliance issue. And like broadly speaking, and there were a few exceptions, but, but for the most part, reps were properly licensed in their home state and they, they weren't licensed in other states around the country. And they, they weren't licensed in other states, largely because like, we didn't think that they had to be. And we got that advice repeatedly and in writing from our lawyers on this.

• 1:15:21Speaker 02

  And, uh, look, as CEO of the company, I own those mistakes. Sure. But there's a very different sort of moral character, I think, to like, hey, we made a mistake and we screwed this up because we, we didn't realize what was required. And like, setting out to sort of like subvert, like, the regulatory regime, which was like never the intention. It was just a pure mistake.

• 1:15:49Speaker 02

  And, uh, but that, you know, that, like, I was never allowed to say that. I mean, that was like, you know, and the company was very, and like, under David, was extremely set on me not being able to say like what I just told you. Yeah. And in fact, so set on it that I would meet with regulators and the company would send their lawyer and their lawyer's job, their only job was that when I was asked, well, so like, why weren't people licensed? They would sort of say, look, objection, that's attorney-client privileged communication. The company owns that privilege, not Parker. And so we don't want him answering the question. And I was told I couldn't answer it.

• 1:16:31Speaker 02

  And what was literally not allowed to sort of say, um, what, what I thought was sort of exculpatory, at least from like a motives perspective. And, um, why they did that, like, you know, I don't know, like, uh, did, and then did like A16Z, did they know that David was going to go down this path? I, I sort of have to imagine that Andreessen Horowitz did not realize that David was, I think he sort of decided to burn the company to the ground. So that he could come out of that situation as the white knight of compliance, you know, Mr. Sort of Compliance and go on and raise his VC fund. Which worked out extremely well for him.

• 1:17:15Speaker 02

  And, uh, you know, I mean, David used to have this like, sort of way of talking about this, like he, um, there's this great slide that he had at TechCrunch Disrupt. When he was being interviewed by Connie Laszlo's and the slide had these like three bullet points and the bullet point one was like, You know, it's no secret that Zenefits has a bunch of compliance issues. Bullet point two was like, the culture of the sales organization was broken. And bullet point three was, the sales organization reported to Parker, not to me. And the implication, the inference, I would even say the lie in that slide was that all of the compliance issues were on the sales team.

• 1:17:58Speaker 02

  And actually, like, something like 70% of the licensing violations were actually on the account management team that reported directly to David and happened while he was running it. And that, that never came out. And David managed to never have that show up anywhere in the media. Like, look, I own, you know, I'm just equally responsible for the management team as anything else. But it really kind of, it always sort of really grinded my gears that, you know, David was out there attacking me for the light, these licensing violations, most of which happened on his team, on his watch, while he was there as COO.

• 1:18:39Logan Bartlett?

  So, so you're holed up at...

• 1:18:40Speaker 02

  And by the way, I mean, those aren't the only, there was also, I mean, we could, we could talk for hours about, but there, there's also this, this macro thing and then this supposed party culture, which I can say was like largely just not true at Zenefits, like there are...

• 1:18:55Logan Bartlett?

  I actually took the staircase up here just to, you know, see if, see if Rippling had the same party culture. What was... It's a funny, it's a funny story.

• 1:19:02Speaker 02

  No, it is. I mean, yeah, look, I mean, you know, what happened is the landlord emailed our office manager and said, hey, we heard that someone, you know, we found a used condom in the stairwell. And at the time, we were in this building at 303 Second Street. There are like 30 other companies in that building. It's not even clear that it was someone from Zenefits. But we were the company that sent an all-employee email saying that this behavior is unacceptable, which then got picked up. In the media and sort of written and rewritten and rewritten to like, you know,

• 1:19:41Speaker 02

  sort of orgies at like high-flying tech startup and, you know, but largely that story was just not true.

• 1:19:50Logan Bartlett?

  I'm sure you took, took a bunch of stuff away from this whole experience, but the narrative thing, like VC's role in narratives and the whole media, I mean, Andreessen has future now. Here I am, holding a mic behind my, with my face, talking about this stuff, but what are your thoughts about just like narratives for startups and how it can be used or abused to the advantage of, I don't know, companies or VCs? You mentioned something about journalists wanting authoritarian, or like some authoritative figure in the past that they can look to and sort of talk about the definitive way things are.

• 1:20:28Speaker 02

  One thing that kind of sucks about this is that, you know, the, the media tends to have like two stories about startups and those two stories are like, you know, superhero and villain.

• 1:20:40Logan Bartlett?

  Yeah, rise and fall too.

• 1:20:41Speaker 02

  And that's it.

• 1:20:42Logan Bartlett?

  Yeah.

• 1:20:42Speaker 02

  And, and like, the truth is like neither of those two extremes and like, you know, I have for the most part, like not, I sort of took a vow not to read any of the news coverage about me or Rippling, starting about five or six years ago and have mostly stuck to it. And the reason is, is like, even when stories were, were, were positive, they just made me cringe. And like, when stories were negative, they made me cringe even more. Because like, you know, I'm not a saint, but I'm also not like the devil either. And, but that was like, there was, there's never sort of any room for nuance on this stuff. And so I think

• 1:21:26Speaker 02

  that drives like a lot of the media narrative around startups and a lot of the fascination around founders comes from that.

• 1:21:37Speaker 02

  From a VC perspective, I think it's slightly different. I think that, you know, for investors, I'm like a pretty deep skeptic about the idea of investor value add. Yeah. I think that most investors are value destroying and the more involved they are in companies, the more value that they destroy. And that was true, you know, for me, you know, even, even with some like objectively really smart people involved in my last company, like we would have been better off at Zenefits just doing like the exact opposite of like whatever Andreessen Horowitz told us to do. And like, it's not because they're bad or dumb. It's because like they learned all the wrong lessons from all of their past experiences

• 1:22:20Speaker 02

  that didn't apply to like our specific situation. And there's nothing more dangerous than a really sharp VC that really knows a lot about the industry and the market and how startups work that spends two hours once a quarter thinking about your company. Yeah. You know, it's just a very explosive combination or very combustible sort of setup. But like, one of the things that is very real about investor value add is brand, that investors bring this sort of brand in primature to the companies that they back. And I remember there was this thread on Twitter a little while ago where I think people were

• 1:23:04Speaker 02

  talking about like, what do founders want from VCs? And Keith Rabois had this theory that like what founders want is they want investors that increase their odds of success. And I remember thinking to myself like, no, that's, and I have an enormous amount of respect for Keith, but I think he's dead wrong about that. I don't, I don't think that's what founders are looking for from their VCs. I think that's what VCs want founders to be looking for from them and what they want to convince LPs they bring to the table. I think what founders actually want more than anything else is validation. Because.

• 1:23:44Speaker 02

  You get like no validation in this job. And for a long time, like early on in a company's lifecycle, you've like told all of your friends and family, you know, that you're going to go start this thing and it's going to be really successful. And then you go back and you like see them all like over Thanksgiving or over Christmas. And you're like, fuck, it's still not successful. And maybe not only is it not successful, but you're like super fucked and like, things are not working at all. And that's like, not what happens some of the time. That's what happens like almost all the time. Like even for companies that go on to be successful.

• 1:24:22Speaker 02

  And you're sitting there and you're trying to beg people to join the company and you're trying, you're pleading with early customers to try and get them to sign up and it, and, and like, it, there is zero validation that you get for a long, long time. And I think that the thing that, that, that investors bring to the table is brand. And that brand helps you on like a personal level, it, it helps people because they, they can go tell their parents that like, you know, oh, like such and such firm, you know, just invested in my company. Like I, I, you know, I, it is, it is working. Like it wasn't a mistake for me

• 1:25:03Speaker 02

  to do this. It, it changes the, it, it means that prospective employees are more likely to respond to your emails. It means that customers are less likely, or prospective customers are less likely to ask you, well, how long are you guys going to be around? And like, you know, like, I need you to fill out this like 57 page security questionnaire. Because like, they just believe that, you know, if this firm, this big name firm invested in you, it must mean that things are kind of like boxes are checked behind the scenes.

• 1:25:32Logan Bartlett?

  It's a shortcut. It's a mental shortcut for, it's like Harvard, right?

• 1:25:35Speaker 02

  Exactly.

• 1:25:35Logan Bartlett?

  There's an association with it.

• 1:25:36Speaker 02

  Same thing.

• 1:25:37Logan Bartlett?

  Does that, does that fit in with what Keith said, though, about increasing probability of success because people are more likely to join, customers are more likely to validate? Or is it pure psychological?

• 1:25:46Speaker 02

  Well, so, I mean, I think, um, yeah, I think it, I think it is absolutely real and it does improve your, it does increase the chances that you'll succeed.

• 1:25:53Logan Bartlett?

  Yeah.

• 1:25:54Speaker 02

  It 100%. It is, in my view, the like, the true real value add that I don't like it.

• 1:26:00Logan Bartlett?

  Yeah.

• 1:26:00Speaker 02

  Because I don't, I don't think that. That ought to come from investors and I'm like resentful of the fact that it does. But it is real and it, and it, and it does come from that. But that, you know, I think, you know, credit to A16Z. I think they were the first firm to like really figure that out and understand that that credibility came from the media. And so it, you know, Andreessen Horowitz, like all of everything that they've been able to do as a firm. I believe is like bestowed on them by the media. And by their incredibly aggressive media and PR strategy right from day one.

• 1:26:40Speaker 02

  And like my, like my view on this is the way to think about them is that they're really a PR firm with a monetization strategy of investing in companies. And like, that's the way to sort of think about it. And I, I'm convinced that like all of their decisions are through the lens of like, you know, how this is going to play, you know, from a brand perspective in the media. And there are advantages and disadvantages to do to that as a founder. The advantages to it are that some of this sort of, you know, this sort of magic brand pixie dust is going to like make its way onto you. The disadvantages of it are, um, you know, there are these cases when their interests and yours might not be aligned.

• 1:27:24Speaker 02

  And for 98, 98% of the time, that's not going to be the case. But I generally think that, you know, most, uh, I, most founders, I really think that their priority is the success of their company. I think it's just, you can't, you can't like start this thing and, and not care about it in a very real way. And there, there are obviously always going to be some exceptions. But I think, um, for, for a lot of VCs, present company exclusion.

• 1:27:52Logan Bartlett?

  Yeah, yeah, obviously.

• 1:27:53Speaker 02

  You know, it's really the, the order of priorities is like first their personal brand. And, and second, the brand of their firm. And third, the returns of their firm. And fourth, the success of your company. And in almost all cases, you are like perfectly aligned with them. And then there are these like very, very rare cases where that sort of falls out of sync. And then it gets, it can be very, very dangerous for you in situations like that.

• 1:28:24Logan Bartlett?

  Yeah, that's true. I mean, you obviously lived, lived that exact situation. It's a fascinating, I mean, obviously I, I've sort of fallen into doing this type of thing. And I did ever thought it would be something I got bored during the pandemic and started tweeting. And now, because, you know, when you, they actually, if you get to a certain number of Twitter followers, you have to have a podcast as the rule, actually. And so, but it is, I mean, obviously there's, I've spent a lot of time thinking about all this stuff, right? And for me, it was, the pandemic was going on and capital was, you know, abundant. It was totally plentiful. And it was like, how do I cut through the noise to try to future proof? I mean, I didn't wake up one day and say, all right, I'm going to fuck around on Twitter

• 1:29:08Logan Bartlett?

  and that's going to lead to a following. And then I'm going to up level into having a podcast and get to sit with people like yourself. But it is, there's definitely a lot of truth to the, to the perception and the brand and the willingness. I think one of the things that hopefully I can do is at least help tell some stories in a different, more interesting way than I think other people can. But it's obviously, you know, I'm doing this for some, to some end, right? It's not like, yeah. And so it's, it's an interesting, I mean, Andreessen has done it in a very systematic way, right? From the founding, obviously they've, they've had people on staff from the very beginning, but they've been pretty structured in how they think about it.

• 1:29:49Logan Bartlett?

  And if you look at, I mean, Sequoia, you know, they were founded in what, 72? And Andreessen was founded in 09 and both of them are held in, you know, if you look at Twitter followers, they're the top two Twitter followers, right? And so Andreessen found a shortcut to get there.

• 1:30:04Speaker 02

  It worked. Yeah, 100%.

• 1:30:05Logan Bartlett?

  Yeah. So, uh, well, thanks for going through all that. I guess shifting gears, let's talk about Rippling. So you decided, you learned a lot of stuff there, but one of which was the automation side of things and actually doing it a software way. So maybe talk a little bit about your existing company, which I think is super interesting.

• 1:30:21Speaker 02

  So Rippling really has one underlying insight. And that insight is that employee data.

• 1:30:28Speaker 02

  Is present in a lot of different business systems well outside of the HR department and HR business systems. And as a result of that, I think employee data is really actually an underlying primitive for a lot of business software. You know, well beyond sort of the traditional sort of HR verticals where we think of employee data playing a role. And that creates both a problem for businesses that we can solve and an opportunity, sort of a related sort of corollary opportunity for us. And the problem that it creates is that for companies, they have to update and maintain

• 1:31:10Speaker 02

  this distributed employee record across all these different business systems. And you see this, you know, whenever you hire someone, there are all these places where they need to be set up. And most companies will have some checklist of all the things they need to do when an employee joins a company, most of which are about, you know, distributing this employee data out to these various different systems. And then every time something changes, some subset or maybe even all of these systems are implicated and need to be adjusted manually by some administrative person. The way that this should all work is there should be one underlying system that handles the propagation out to everything else. And that's effectively what Rippling is and what we do.

• 1:31:50Speaker 02

  But the corollary opportunity is that most companies that make business software understand this dynamic. They know that the more information about employees that they ask for of their client, the harder their software is going to be to use, the more work it's going to be to implement, the more ongoing administrative administrative hassle it's going to create for their customer. And so as a result of that, most business software vendors actually, you know, ask for as little information about employees as they possibly can, which means that most of them know much less about your employees and your company than they ought to know.

• 1:32:31Logan Bartlett?

  Because they don't want the onboarding process to be more cumbersome and

• 1:32:35Speaker 02

  Exactly.

• 1:32:35Logan Bartlett?

  Increases the bar.

• 1:32:36Speaker 02

  And the ongoing administrative hassle and all that sort of stuff. And so that creates a whole bunch of downstream.

• 1:32:45Speaker 02

  Product problems and implications in a lot of these different, in sort of really a surprisingly wide array of software verticals. It means that most of these systems are underpermissed because you don't have good concepts of role-based permissions because you don't understand what someone's role is. It means that things like workflows and approvals and alerts are not as good as they could be because like you don't understand like concepts of routing, like you don't know who someone's, who the VP of someone's department is, maybe you know who their manager is, but you don't know like who the finance associate that's aligned with their team is, who their HR business partner is, you know, that sort of thing.

• 1:33:30Speaker 02

  It means that the reporting and the analytics in these systems are inferior because you can't cut and slice the date, slice and dice the data based on concepts like department and team and level and work location and employment type and what have you, or maybe you can do it on like one of those dimensions, but not all of them. And so there's this related opportunity for Rippling to kind of rebuild software in a bunch of different verticals with this deeply embedded understanding of role, which is another way of saying this deeply embedded understanding of your company. And I think that unlocks an enormous amount of product capability across a surprisingly

• 1:34:14Speaker 02

  wide array of software verticals.

• 1:34:17Logan Bartlett?

  And so, so to say this back to you, but if you have all of the employee information and hierarchy and, you know, teams and departments and titles and pay and all that, there's a lot of things that can hang off of that from a software standpoint that gives you the right to go into a bunch of different directions, be that something like, you know, a single sign-on, active directory, be it a bunch of different workflows and permissioning, tying all this stuff together with the core atomic unit being the employee information record hierarchy.

• 1:34:54Speaker 02

  Yeah.

• 1:34:55Logan Bartlett?

  And so how does that manifest? So HRIS is the core, I mean, employee information, right? So that's, was that the original start? Or was the original start, hey, we're going to do, like, how many products did you start with originally?

• 1:35:09Speaker 02

  So we, we started with payroll and HR.

• 1:35:14Speaker 02

  A single sign-on and identity and device management, like managing, you know, managing employee laptops and things like that. And so it was always like from day one, this, this idea of sort of like, you know, an employee system that was not an HR system, or it was not merely an HR system that extended sort of like outside of the HR department into the rest of the company.

• 1:35:40Logan Bartlett?

  So you almost started from the business problem rather than, hey, PeopleSoft was a thing back in the day. And so let's continue to build new versions of PeopleSoft in the cloud or, you know, mid-market PeopleSoft or whatever. It's like, hey, this isn't, if we have this data, we can, onboarding should be easy, offboarding should be easy, permissioning to different applications should be easy, all of that.

• 1:36:03Speaker 02

  Yeah. I mean, it was, so what we, what we sort of decided was most, most businesses take like a buyer centric view of the world. So they have an HR buyer and they, they build software for an HR buyer. They have an IT buyer and they build software for an IT buyer.

• 1:36:18Logan Bartlett?

  Which makes sense. It gives you someone to call. It gives you, the sales team can galvanize behind it, throw events, all that.

• 1:36:23Speaker 02

  It makes a lot of sense. But we sort of thought like, look, there's this problem that sort of exists across all of the entire organization and across all of these different buyers, which is this understanding of who your employees are and their job and role and function. And that, you know, different companies are selling the same basic thing to different buyers within the company. And the product is, is inferior because they, because they don't, the products are inferior because they don't tie together. And so you look at something like IT where they have this concept of identity, you know, whether, whether you call it, you know, single sign-on.

• 1:37:04Speaker 02

  Or like, you know, directories or federated identity or whatever it is, it is effectively, you know, who are your employees? And like that boils down to, in my view, like the HR data in a company. And those two things are actually like deceptively like very like much more similar than than than people think of them as being.

• 1:37:30Speaker 02

  And in that if if those identity systems, if they actually understood all of the the sort of what we call the employee graph, like all of the data about an employee, both from the HR system and from like all of the other systems that that that employees use around the business, you could build much better policies, you could build much better workflow, much better automations. There's a lot of stuff that you could you could do with that.

• 1:37:55Logan Bartlett?

  And this is kind of, I mean, if you look what Microsoft has done with Teams and now what they're doing with their video product Zoom, it's a similar insight, taken a slightly different way of, hey, if you have all this desktop applications, you can stitch together a suite of products that work better together, right? Than any one, and you're obviously taking an employee centric view of that.

• 1:38:16Speaker 02

  Yeah. So I think there there has been this conventional wisdom in in for software that for like the last like 10 or 15 years that I think is like largely wrong, or at least like no longer correct, which is that companies should focus very narrowly on one product. And when you look at some of the most successful, large scale business software companies, they don't do that, you know, like Microsoft is an example of what I would call like a compound company that's that's building multiple, you know, multiple products in parallel that

• 1:38:54Logan Bartlett?

  Modularity across.

• 1:38:55Speaker 02

  seamlessly seamlessly.

• 1:38:57Speaker 02

  The same thing would be true for SAP, for Oracle, for, for I think Salesforce. And the, the advantages of like focusing are like extremely well understood. And so I won't spend a lot of time like going down that path, but there are four distinct advantages that I see to building products in this like compound fashion. And one of them is much deeper integration. In Rippling's case, with Rippling itself and also with like this underlying employee record. And that unlocks an enormous amount of product capability across a lot of different software verticals. And I think you see the same thing with Microsoft where, you know, some of the ways

• 1:39:39Speaker 02

  that like, you know, Teams is like integrated with like other Microsoft products makes it better from product perspective, even though there are many things about Slack that are like, you know, superior like on its own. The second thing is that I'm convinced that when you look at, at business, a lot of business software is like, you know, workflows, alerts, role-based permissions, reports, analytics, like all the way down. And like everything converges at scale and becomes some version of the same set of like modular components. And so when you're building a lot of different products in parallel, you can abstract out

• 1:40:24Speaker 02

  those specific pieces and build them once, but also build them like a hundred times deeper than what any of your point SaaS competitors can afford to build. And so you have much better analytics and much better workflow automations and much better role-based permissions.

• 1:40:42Speaker 02

  And, uh, and so on those specific areas, a company that's building in this like compound way can, can beat point SaaS competitors from a product perspective. The third thing is that for buyers, you get this common UX. So you, if someone has taken the time to learn how to, you know, build a report in Rippling, if they know how to set up workflow automation, if they've learned our internal scripting language, God forbid, called RQL.

• 1:41:12Speaker 02

  They have superpowers for any product that they buy through us that do not apply if they buy a third-party point SaaS solution. And the fourth one is, and this one is sort of like very obvious with Microsoft, is that you have these pricing and contracting advantages when you can afford to basically amortize your sales and marketing and your R and D costs across multiple different SKUs instead of having to like make it all back on like one single SKU. And that allows you to run circles around competitors from a pricing perspective. And so, you know, Teams is like free in the Microsoft bundle and it's like, how do you compete with that if you're Slack?

• 1:41:56Speaker 02

  And, uh, and so those are the four things that I think, um, create this really big opportunity for what I call like a compound company.

• 1:42:06Logan Bartlett?

  Yeah.

• 1:42:07Speaker 02

  And there are a number of different areas where I think it could work. I think Salesforce is one example of, uh, of a company that's done this extremely successfully since the move from like on-prem to the cloud, obviously. And I think that Rippling is going to be another. And I think of Rippling as this like bizarro world version of Salesforce where you have a very similar set of tooling to what you'd find in Salesforce. It's just that all of it is built on a different underlying primitive.

• 1:42:37Logan Bartlett?

  Yeah.

• 1:42:37Speaker 02

  It's built.

• 1:42:38Logan Bartlett?

  Employee versus customer.

• 1:42:39Speaker 02

  Employee versus customer. And there's a, you know, there's a whole bunch of externally facing business process and workflow that it makes sense to operate on Salesforce because of this understanding of customers and relationships between leads and accounts and contacts and things like that. But there's this sort of other side of the coin, which is all of this internal business process, which, which needs all of that, but it instead needs an understanding of who your employees are and their role and job and function and their relationships to one another. And that drives, you know, everything about that system, you know, from role-based permissions to approvals and workflows and analytics and what have you.

• 1:43:20Logan Bartlett?

  Super interesting. And so you sell it modularly, right? You don't need to buy all the suite of stuff. You can, you can sell components at a time.

• 1:43:28Speaker 02

  That's right. You can buy, you can buy one, one thing or all of them. And so the, both one of our big advantages and disadvantages is that we have multiple buyers within a company. And the, the advantage, the disadvantages of that are clear. You know, it can introduce some complexity to the sales process. But the advantages are that it actually allows us to target, like all we need is one hit. You know, all we need is like, it can be the IT person, it can be the HR person, it can be the controller. You know, anyone who responds like, hey, I'm actually kind of interested in that. If, if they get on the phone and they're like, this is fascinating.

• 1:44:11Speaker 02

  They'll then connect us with all of the other people within the org. And so it gives us like three times as many leads.

• 1:44:17Logan Bartlett?

  Does your sales team break up by functional role? How does that work?

• 1:44:22Speaker 02

  We have, so we have AEs that, that sell, that are sort of the, the frontline contact across the board. But then we have solutions consultants in the background that we have like, you know, HR specific solutions consultants and IT specific solutions consultants and some for sort of other products as well. That will come in and go like really deep with sort of a prospective customer that has like, you know, wants to go really deep on that specific item.

• 1:44:51Logan Bartlett?

  And how do you execute with the velocity across? I mean, this is, it's, it's a lot of product sprawl, right? I think you've, you've hired in a lot of founders as well to help lead these different business units. How do you think about like breaking up the product management problem?

• 1:45:05Speaker 02

  Well, I think, I think, so first you need to think of it as a business unit, which immediately implies something about the organizational structure for these products. And I think you need to work to isolate all of these individual business units and teams and find, isolate them from like the broader, you know, process and complexity of the company. And then find all the ways that they sort of interfere with each other and compete with it, with each other. And, and like break up, you know, each of everywhere that that happens, like break that up into a service. And that can happen. You know, at the level like of like, you know, of infrastructure level, it can be like,

• 1:45:46Speaker 02

  you know, they compete with each other for CPU cycles and, you know, database rights and things like you need to break that up into sort of services, or it can happen at the level of like recruiting or executive attention, or

• 1:45:58Logan Bartlett?

  Go to market.

• 1:45:59Speaker 02

  You go to market or anything like that. You need to constantly sort of disentangle that so that people are not the product to sort of isolate these business units as much as possible. And I think you need, it's important that each of them be like run by a single and singular individual, often, which is often for us, someone who was a former founder. We have just an enormous concentration of people like that. I think, I think it's like, you know, over 50 former founders that, that work at Ripley in one capacity or another. And, but it doesn't, they don't have to be founders, but they have to be people that, you know, have that sort of temperament.

• 1:46:40Logan Bartlett?

  Yeah, can operate like that.

• 1:46:41Speaker 02

  That could, you could see doing that, whether they've done it yet or not, although always helpful if they have gone out and sort of, you know, beating their head against a brick wall for a long period of time and sort of like given up on that, but like understand the reality of what it's like.

• 1:46:56Logan Bartlett?

  And you also have said you like hiring people that have chips on their shoulders and also sense of humor. Is that like, how does that manifest itself in the company culture? And why are those traits that you found to be successful hires?

• 1:47:12Speaker 02

  Well, I think the humor thing is just that like people who have a chip on their shoulder and don't have a sense of humor can some, it's sometimes just a little bit

• 1:47:18Logan Bartlett?

  Those are called assholes.

• 1:47:19Speaker 02

  Yeah. Or just a little bit insufferable. So it's more fun if, if people, if people have a sense of humor. But, um, so one, um, two of our company values are, uh, we run hard and push the limits of possible. Um, and I've sometimes thought that actually maybe like a better articulation of like both of those, um, would, would be that I think people are capable of so much more than they believe themselves to be capable of.

• 1:47:51Speaker 02

  And that you look at, you, you look at different companies in different circles, in different situations, or just different institutions in different situations. And, and the amount that they're able to comp, to accomplish with the same amount of time, the same amount of resources is just like sometimes radically, radically different. And like, if you were to think about this from first principles, you might think, well, you know, I don't know, maybe if you like, just like really work hard, maybe you can get 20% more done. But you look at what actually happens and like, it's often like a one or two orders of magnitude, or even more than that. The difference between what, you know, sort of similar groups of individuals are able to accomplish in somewhat similar circumstances.

• 1:48:36Speaker 02

  And like Patrick Collison has like a, a, a thing on this that he does where he's like, he collects these lists, these lists, this list of examples of like, uh, people accomplishing like incredible things like very quickly, like, you know, building rockets to go to the moon in some very short period of time. And then, you know, contrast that with like the Van Ness like bus line, like, you know, like seven, five years or whatever it is. And I think that part of the, the most important job that you have as the CEO of a company is to set the, the pace and the, the sort of, this tenor and the sort of pace of execution for the business.

• 1:49:20Speaker 02

  And, and how much that your, your company is going to get done in a certain period of time is often like way more within your control as the leader of the business than, than you might think. And your job is really to, um, you know, to sort of, to sort of try and, and pull that out of people, um, you know, like what, that they can do more than, than they think they can. And, um, the thing that I think is really cool about, you know, people that, you know, have a little bit of a chip on their shoulder is those are people who like already sort of believe that about themselves, that, you know, that they maybe been discounted in some way, or that they're capable of more than sort of what's reflected in, you know, their past, or sort of, you know, what, sort of what they, what they've done historically

• 1:50:05Speaker 02

  in their careers. And so those, those people often like, sort of really rally to that banner and that idea.

• 1:50:13Logan Bartlett?

  How do you, how do you interview for that? Or how do you, do you, do you ask, like, is there any way to assess out if someone has a chip on their shoulder?

• 1:50:20Speaker 02

  Oh, um, well, sometimes it's like really clear. I mean, like some people like show up in an interview and it's like very obvious that, that, um, that they believe that, um, it's, it's like, again, it's, it's one of the things that, um, I love about hiring former founders because people have had that experience, like often have sort of unfinished business of some kind.

• 1:50:46Logan Bartlett?

  It's interesting. I remember every VC that turned me down for a job when I, uh, when I interviewed. Most of them aren't in the industry anymore.

• 1:50:52Speaker 02

  There you go. Yeah, no. So like, uh, you should come work here.

• 1:50:55Logan Bartlett?

  Yeah, yeah. I, uh,

• 1:50:57Speaker 02

  Great sense of humor.

• 1:50:58Logan Bartlett?

  I, I hope.

• 1:50:59Speaker 02

  Chip on your shoulder.

• 1:50:59Logan Bartlett?

  That's right.

• 1:51:00Speaker 02

  You would really fit in.

• 1:51:01Logan Bartlett?

  I hold petty slights, uh, as, as my friends like to remind me. Uh, well, um, so I guess one other thing, we were supposed to do this last week, uh, but you guys announced a big round. Congratulations.

• 1:51:12Speaker 02

  Yeah.

• 1:51:13Logan Bartlett?

  Thank you. How did you think about raising, obviously the, the market's been a little upside down. You guys are killing it from what I've been told, from what I can tell. How did you think about like raising now? Uh, I, I saw Jeff Lewis, who's, I, I consider myself a kindred vibe capitalist to him, but they, uh, they posted their memo of how all that played out. What about on your side? How did you think they were like, if it made sense to raise now?

• 1:51:38Speaker 02

  So in, in terms of like, why I think it made sense for us to raise, um, one of the sort of interesting things about Rippling is if you look, if you look at companies, I haven't, we haven't talked, you know, about exactly what our revenue is, but if you look at companies between a hundred million and 200 million in ARR, um, IVP did this sort of like study on this. Um, I think it was like a year or two ago where they, they looked at like, you know, a whole bunch of different SaaS companies and, you know, at various different sort of ARR thresholds, how much they spent on, you know, G and A, sales and marketing or in ARR and, and, um, uh, R and D as a percentage of their revenue.

• 1:52:20Speaker 02

  And if you look at SaaS companies between 100 and 200 million in ARR, the sort of 50th percentile, the median is that they spend 25% of their revenue on R and D.

• 1:52:37Speaker 02

  And the 25th and 75th percentiles are plus or minus five percentage points. So at 20 and at 30% of their revenue, which implies a standard deviation of like, you know, about seven to 10 percentage points. Rippling spends an anomalous amount of money on R and D. We spend about 50% of our revenue on R and D, and which is probably about three standard deviations away from the mean. There are a lot of reasons why we do that. I think it is like part of the sort of compound approach that we have to the market.

• 1:53:19Speaker 02

  But a big part of the reason why we raised the round. So Rippling at the end of the financing has now a little bit over $600 million in cash on hand. And so we have all of the last round that we raised and like, you know, most of the round before that. Sorry, the last round like before this one. So, and so like the reason that we raised it is I think of that 600 million. I think of it as like 200 million of it is so that we can continue this anomalous investment in R and D over the next two or three years, no matter sort of what happens in the financing markets.

• 1:54:03Speaker 02

  And having been sort of, you know, having been in this situation where I had to raise money in 2009, when I couldn't raise any money. That was sort of a big consideration for me. The other 400 million is for me to sleep at night while spending the first 200 million. And so like, that's sort of the way I think about, about sort of the, the financing for the company.

• 1:54:26Logan Bartlett?

  Yeah, got it. Well, congratulations on, on getting it done. And that was, when was the last round before that? That was last year?

• 1:54:36Speaker 02

  Yeah, it was in, in like August or September, I think.

• 1:54:40Logan Bartlett?

  It's, it's impressive. It seems like you guys are executing at a really high level with all this stuff, so.

• 1:54:45Speaker 02

  Well, I hope so. Not going to what?

• 1:54:46Logan Bartlett?

  Yeah.

• 1:54:47Speaker 02

  We'll see.

• 1:54:47Logan Bartlett?

  Obviously a big, big number. How'd you think through the, the valuation? And it was roughly, it wasn't quite 2X the last round, right?

• 1:54:57Speaker 02

  Yeah, a little less.

• 1:54:58Logan Bartlett?

  How did you, how did you come up with that number? How did you think about valuation in this world of public markets falling down? And what made sense of, I mean, at some point I've seen the power dynamic over the last two years. And companies like yourself often have, are in the fortunate position that they have ball control over what price they want to raise at and how, how it made sense. So how, how'd you think about it?

• 1:55:22Speaker 02

  So first, like I, I studiously like try not to have opinions about valuation. And I think I'm, I'm like a, I don't know how companies should be priced. I see like, you know, well, I mean, this time a little more than that, but usually like one round every two years or so.

• 1:55:42Logan Bartlett?

  Yeah.

• 1:55:42Speaker 02

  And so like, I don't, I don't have the best sense of it myself.

• 1:55:45Logan Bartlett?

  Oh, to be fair, I think over the last two years, VCs haven't known either.

• 1:55:49Speaker 02

  They haven't done that.

• 1:55:50Logan Bartlett?

  Yeah. And now it's even more weird.

• 1:55:51Speaker 02

  Yeah, now, now no one knows.

• 1:55:53Logan Bartlett?

  Now I know, yeah.

• 1:55:54Speaker 02

  But the, so the way that, I mean, so look, I mean, the round, we, we signed a term sheet in mid-April. So, you know, this wasn't, I mean, this wasn't a round that like, you know, came together or like in December or January or something like that. There was a fair amount of carnage in, by mid-April.

• 1:56:13Logan Bartlett?

  Yeah.

• 1:56:13Speaker 02

  In the public markets.

• 1:56:14Logan Bartlett?

  Yeah.

• 1:56:14Speaker 02

  It was a little more after mid-April.

• 1:56:16Logan Bartlett?

  Yeah, but.

• 1:56:17Speaker 02

  I don't know, 80% of it, probably 70%. And so, you know, and there are some, some really good investors who I think do know how to, how to think about this, you know, like in addition to Jeff, there was, you know, KP co-led the round, Sequoia did like a really big, you know, much more than their Prorata. Investment in the round. And so some of it is like, well, okay, you know, they, they, they seem to believe this. You know, the, the company's metrics are really strong. I think, um, and that, that helps. Um, one thing I think, um, you know, that was sort of common for, for investors that decided to invest in the round. One thing that I think they was sort of common across all of them is I think most of them looked at Rippling

• 1:57:02Speaker 02

  not as a SaaS company, um, but as a machine that produces SaaS businesses, each of which have abnormal growth characteristics. And so it's like very connected to the, the sort of idea of Rippling being a compound company and the idea that if you look at some of the businesses within Rippling that have launched more recently, there, the growth trajectory for like these individual businesses is on par with like where Rippling was, you know, uh, in the early days when we were at, you know, one or two million in ARR.

• 1:57:37Speaker 02

  Um, and so one of the neat things about the company, I think, if you're thinking about it from a valuation perspective, is this idea that you get not, not just the growth in the core business, but then you can sort of stack on the growth of, of these other businesses as they come out. Um, and that, that was something that I think was, was really exciting to investors as they thought about like, what would the right valuation or for, for a business like that be? And it might be sort of somewhat different than, you know, a, a single SKU SaaS business.

• 1:58:07Logan Bartlett?

  Yeah, that's interesting. Um, I guess last one, uh, San Francisco. You're from New York. How long have you been out here?

• 1:58:18Speaker 02

  Uh, I mean, I think of myself as not like living permanently in San Francisco, but I've been here since 2006. So.

• 1:58:26Logan Bartlett?

  You're starting to get to the point that I.

• 1:58:28Speaker 02

  It's getting to the point where I'm not just visiting anymore.

• 1:58:31Logan Bartlett?

  I, there's a lot of talk about the, uh, the demise of San Francisco has been, um, a narrative over the last little bit. What's your perspective on the city itself? Do you live in San Francisco proper?

• 1:58:42Speaker 02

  I do. Yeah. I live in the Mission.

• 1:58:43Logan Bartlett?

  And, uh, I, I get the feeling you're passionate about, uh, anti resettivism type stuff, but one of the big narratives right now at least has been Chesa, uh, and the district, the only district attorney I know the name of in the entire country.

• 1:58:58Speaker 02

  Yeah.

• 1:58:59Logan Bartlett?

  What, what's your perspective on this state of San Francisco right now as a tech city, as a city itself? Like what's going on from a homelessness crime, all that stuff?

• 1:59:08Speaker 02

  I mean, look, I, I am frustrated with all those things, like just as much as, as everyone else is. I mean, there have been three shootings in front of my house in the Mission, like literally, you know, within sort of 50 feet of my front door in the last year. Uh, and not like someone shot a gun, but like someone shot a person.

• 1:59:27Logan Bartlett?

  Yeah.

• 1:59:28Speaker 02

  And, and I think one was just yesterday. Um, and, and so, um, look, I, I get it. I mean, I think that stuff is super frustrating too. Um, I, I just think that, um, I don't think that like putting more human beings in cages for longer periods of time is going to solve it. Um, and like historically, like it doesn't seem to solve it. Um, you look at, um, you know, states that are incredibly aggressive about, um, locking people in cages and throwing away the key, like Louisiana, and they have some of the highest crime rates as well. You know, it doesn't, there, there's no, doesn't appear to be any real correlation

• 2:00:11Speaker 02

  between sort of doing that and like reducing crime. Um, but it is like, I think among the least admirable human characteristics that we have, that obviously it's very natural that, that human beings want to do that.

• 2:00:27Logan Bartlett?

  Yeah.

• 2:00:28Speaker 02

  And, um, but doing that is like how you get yourself into the situation that we're in now, where we have, you know, the highest incarceration rates in the world. Um, and so, uh, you can't, you can't fix the incarceration problem.

• 2:00:46Speaker 02

  If you're not willing to reduce sentences, reduce the frequency with which people go to prison, you know, even, even in cases of violent crime. Because like, look, you can't, you can't clear out the prisons just by getting rid of people or get, getting like, releasing people who have not done anything violent. In, in order to like, really adjust the prison population to something that is like even remotely normal, you're, we're gonna have to face the fact that sometimes even violent criminals who have been in prison for a long time, we've got to find a way to sort of get them out. And I've always thought like prosecutors are the, the sort of key to the solution

• 2:01:30Speaker 02

  to the incarceration rates in this country, because the prosecutors have all of the power and make all of the decisions about who goes to prison and for how long. And people believe mistakenly that it's not the prosecutors, that it's the juries. But that's not true. If you look at the way the criminal justice system works, you know, 98% of these cases plead out, because prosecutors come to people and they give them a choice that is no choice at all, where they say, look, if you plead guilty, then you will get, you know, a sentence that's five to 10 years, and you have a chance of seeing your kid someday again, before you die.

• 2:02:14Speaker 02

  And if you don't do that, we're gonna, we're gonna go to trial, we're gonna win, you know, 95% of the time, and you're gonna go to prison for life, and you're never gonna see the outside of that jail cell. And, and like, you know, faced with that choice, it's no wonder that like, people plead guilty, and of course they plead guilty even when they're innocent. Sure. So my view of this is like, look, prosecutors are actually, it's interesting, they're the only person in this whole sort of criminal process that is explicitly charged with looking out for the interests of all participants. Like in the sort of legal code of ethics in most states. That everyone agrees to when, you know, they, they pass the bar or whatever, become a lawyer.

• 2:02:58Speaker 02

  They line up that prosecutors are actually explicitly supposed to look out for the interests of the defendants as well as for, you know, the victims in the state. That's of course, not the way it works. Like no prosecutors work that way. Um, but it ought to work that way. Um, and there are like so few progressive prosecutors like that in the country. Um, that, you know, I'd, uh, like I, I want to, you know, support the ones that sort of have that approach.

• 2:03:27Logan Bartlett?

  Interesting. It's an interesting perspective. I, uh, I think it's contrarian, at least from what I can tell on where it's polling, but, um, it'll be interesting.

• 2:03:36Speaker 02

  Yeah. I mean, I have no idea. I mean, I have no idea if, if he'll survive. Um, I, I, I hope he will. Um, but yeah, we'll see.

• 2:03:45Logan Bartlett?

  Yeah. Well, good. Anything we didn't hit?

• 2:03:48Speaker 02

  I think that covers it.

• 2:03:50Logan Bartlett?

  Thanks for doing this.

• 2:03:51Speaker 02

  Yeah, of course. Thanks for having me.

• 2:03:52Logan Bartlett?

  I'm glad we're able to make this work.

• 2:03:58Logan Bartlett?

  Well, that'll do it. Thanks everyone for joining the 18th episode of Cartoon Avatars. Thanks to Zach and Parker for, uh, coming on and, uh, look forward to, uh, to seeing everyone here next week as well.