Jason Calacanis On the Expensive Lesson Coming to Silicon Valley

we've had this conversation before. You know, it's easy enough for a publicly listed stock. You just look at a line on a screen and you get some sense of how things are going much much harder in venture capital world. And then, just to add to that, you also have this really interesting culture and dynamic around VC and angel investing where it seems like everyone is incentivized to pour more money into stuff and to get the valuations up.

And then the question is what happens when that dynamic starts to go away or at least becomes a little bit more challenged, which is what has happened over the past few months. Right, all kinds of interesting dynamics publicly listed companies like Amazon or Facebook. They might come on struggling times, but I don't think anyone really doubts the viability of the business with startups. Of course, some of these companies may just not have business models that work.

They may be a long way from anything resembling profitability, and have might have to make tough decisions about growth for survival. All kinds of sort of tricky questions arise in the private tech world that you just don't see when we're talking about public stocks exactly. So let's talk about it more. I want to jump right in. We have a big guest today. We're gonna be speaking with Jason Kellacanis. He is a popular podcaster on the All

In podcast. He is an author, he's an angel investor who has done over three deals over eleven years, very outspoken on former journalist, former journalist, former blogger specifically over many years, and he's going to talk to us about the state of the world. Jason, thank you so much for coming on. Odd lots O big fan of the show. Thanks for having me. You know I d M do you you know a while back about having you on,

and then I looked in our d M history. We haven't really talked to much, but I saw like in like two thousand nine, You're like, Hey, I'm going to be in New York and meeting some people for dim sum. Do you want to come? And I don't think I responded or I definitely didn't go. But I should have because you've had like a pretty great like thirteen years or ten years since then, so I should have been this such a humble brag. I was too busy to respond to the big angel investors m me to grab line.

I blew it because you've you know, I'm here, but you've had a good This is uh, this is my credo as an angel investor. Actually, I have twenty or so people in my investment company, Launch and the syndicate dot com. Yeah. The first thing I teach new investors is never underestimate anyone, because we will see people from you know, a random assortment of beginnings and weird products and terrible ideas and and uh, all of a sudden

they changed the world. And so you know, if you if you look at the first version of like uber the app, Travis hated it, and I was like, really ugly, and you know, he was just beside himself at it Wash you invested in it. I think that round was four and a half million dollars. Yeah, five million dollars something like that. In Calm dot com was worth five million dollars. When we invested, Density was around four million dollars. Density dot ioh that's another unicorn we invested in so

and that cohort. When I started angel investing was right after the Great Financial Crisis two thousand nine, two thousand and ten. What happened was I um was running a company called Mahalow dot com which is now called inside dot com. It's still running to millions of dollars a year in revenue. And Sequoia rule off Botha, who was the latest partner there. He was he had just started as a partner there, working with Michael Murritz and Doug Leoni. And they said, you know, you introduced us to all

these really cool companies. Would you be a scout for us? And I said, how did that? How would that work? And they said, well, we'll give you money and then we'll split the returns. And I said, well, don't you get and two percent? Like management? Vie said, oh, we get more than that. We you know, we're pretty good at this but this is gonna be small potatoes. So we're just gonna ask you and uh Sam Altman and you know this other person to be Scouts for us.

And Sam famously did Stripe as an investment in the Scouts program, and I did Uber and Thumbtack and a couple of others, and three of the first seven deals I did became unicorns. So you mentioned Credo at the very beginning, and before we had this conversation, I was looking on your Twitter account and you tweeted something that intrigued me. You referred to a basic technique that you've learned in the dot com era. Trust the founder, but believe the product and customers. What did you mean by

that and how is it relevant? Now? That's a great question. So you know, when you're journalist, which is where I started in the nineties, when I was coming to the dot com era, people were really well media trained. They were spinning, you know, really crazy yarns, and I was just trying to figure out, like, is Scott Karnet from About dot Com the real deal? And is you know,

this woman from my village the real deal? Or are they you know, Charlottean's and you know, is this double click thing that Kevin O'Connor is doing, is it real? You know? That was kind of the job of a journalists asked questions and then maybe when we actually used the products and when we actually talked to customers or we talked to employees, we actually then got the ground truth.

And so it was that skills that I learned as a journalist doing Silicon Only Reporter, my second magazine when I was in my twenties in New York in the nineties, which was awesome New York in the nineties was fantastic um and so got a very similar conversation on all thoughts. Just recently about clubbing, we had the Globe dot Com CEO Stephen patter Not. Yeah, I got some good stories about those guy, do not I covered them. I'll tell

you that for in a second. But anyway, you have to look at the reality of what a startup is. A startup is a group of people a founder plus whoever they can recruit, building a product that then has some contact with customers. And when evaluating startups, it's important to meet great founders and hear what they have to say. I would argue it's more important to use the product

and talk to the customers. And that has been something that in crypto as one example, or the dot com era as another example, or in a boom market that people forget and so you know you can trust but verify as a really good management philosophy. And this is my philosophy of startups, which is, yeah, sure, talk to the founder, but don't forget to talk to the customers,

and don't forget to use the product. Can I ask a question about now that you've seen several cycles of booms and bus and participated them, and if my memory is correct, and tell me if I'm wrong. My memory is that your Tech magazine in the late nineties either you held onto it too long. You didn't sell at the top, and so you had a chance to make the same amount of money, but you held on too

long and then it went to zero. And then you did another media thing in the early two thousand's weblogs, Inc. Which kind of competed with Gawker. And I kind of felt, like Mimi felt was at the time you sold too early, or that you overcorrected from the magazine experience because you're like, well, I just gotta get some Is that correct? And sort of like, what did you learn about climb and bus

from those experiences? Yeah, as many um folks who have gotten rich said, you know, like how did you get rich? Selling too soon? Uh? Is like a really good credo as well. You learn these heuristics over time. And so Alan Meckler had offered me twenty million dollars for selicon HOI Reporter, you know before the boss. I didn't take it. I was just a poor kid from Brooklyn. But you know, I still like in our report it was at eleven million dollars in revenue at seventy five employees, and I

built it off my credit cards. So I was kind of on a rush. I had done New York, you know, to the nines, like you know, it was on Charlie Rose, had a ten thousand word New Yorker profile. I mean I had checked every box in terms of you know, feeling my oats as a you know, the next media mogul. You know, I felt pretty good about things. And then the dot com bust happened, and I wound up selling the assets of Silicon Reporter to dal Jones and got two years of salary. They fired me a week after

I sold it. To them and paid out my two year contract because they didn't want me there because there's too much of a too much trouble. And then I started weblogs, Inc. And when I started weblogs, Inc. The goal was to create a hundred blogs and put ads on them. And the idea of putting ads on blogs was, you know, antithetical to the concept, and people like Dave Winer and other folks were like, Hey, you can't have ads on blogs, and I was like, I think we

could on a weblog have ads. And Nick Denton and I started going at it, competing against each other, and a O L offered me thirty million dollars for an eighteen month old company, and I was like, well, that's ten million more than I was going to get for Silicon Reporters. So and I only have one investor, Mark Cuban, and I was like, yeah, I'm going to secure the bag and uh, you know, that's how I got my first chip and it was one of the greatest trades

I ever did. Now Denton wound up selling for a hundred fifty million, but then gave it all to UH Computer Tel And I would guess via, I'm going to guess that Nick and I did about the same on exits for that, except he spent ten years of his life on it in two years on a trial, and I did it for eighteen months. So there's also the value of time. What was the transition like from journalists

to angel investor? Because I imagine journalism probably gives you a decent set of skill sets to do due diligence on a company and do your research and you know, go out and meet and talk to people. But on the other hand, I imagine there's quite a bit of maybe culture clash between really cynical journalists yeah, and optimistic changing the world Silicon Valley types, or at least that's how I imagine it. That is actually the perfect summary. And I is just talking to Molly what about that

today because she just did this transition. So I would say, if you're a good journalist, like you know, really good journalist who knows has answered questions, knows how to understand a story, triangulate the truth by talking to multiple sources, I think you start on second base. I think you're basically of the way there, and if you have a network, you might be six of the way there. If you had a brand, you might be sixty of the way there. So the only thing you have to learn it you're

exactly correct. As journalists, we're telling stories, and yeah, we want to be cynical. We want to really assume that what's being told to us is some percentage of the truth. But Raschaman style, like the Kurosawa film, there's usually three versions of the truth, yours mind and the actual truth, or there could be even more versions in a story

that's super complicated, like say their nose or whatever. So you start triangulating the truth and that goes back to, you know, the tweet that you quoted earlier, which is, hey, for me, there's really three things here. There's the team, there's the product as customers that it can also be compared letters in there. So you start triangulating around those things. You do have to switch from and it happens organical because when you start working with founders and backing them,

you then put yourself in a position of power. You put yourself in a position to be the person who is not telling their story but enabling their story, and then you move from the sort of cynical approach to

this optimistic approach. Now, the fact is half of the founders you'll meet will be some version of incompetent, not ready, you know, delusional, or you know, in some small percentage of the cases, you know, frauds, crooks, Charlatan's, and then the top half will be earnest, qualified and you know, ready to change the world. And so your job is to figure out which which group you're betting on and

making sure that you invest in the right group. And you're not gonna get it right every time, but you do have to come to it with a radical optimism. And so you are basically making a long list of things that can go wrong in a business, and then

a short list of things that can go right. And then if you're really trying to go for an outli or success a meditation app or you know, a cab company, which were my two biggest hits to date, you're going to have to say, Okay, I'm gonna rip up the list of what could go wrong and just assume the founder will figure out ways to navigate that with their team,

and then look at what could go right. And if you figure out what can go right, then you could hit a hundred x a thousand x two thousand x investment and that power law is what venture is about. You mentioned power law distribution, and this is something that has come up a number of times when we've been talking about VC lately, this idea that the model basically rests on. You know, you throw money at a bunch of companies and you're really hoping that one of them

will hit it out of the park. And I guess my question is, given the current dynamics, you know, it seems like some of the froth is going out of the market. Is that sustainable, Like should you always be aiming for the biggest company or could it make sense in VC land to maybe aim for not unit horns, but like nice looking horses with medium growth trajectories that do well but aren't necessarily superstars. Yeah, it's just not

possible to make the single and double concept work. Um. Single and doubles is what public market investors do or late stage investors do, and all the frauth's out of the market, and we've we've now cut into the we're now pouring out the cappuccino. So it's really been quite a contraction. Now. It's it is unbelievable how hard this has fallen for certain companies and how far it's corrected,

and that's the best time to invest. So absolutely, I'm I'm not happy about a downturn, obviously, but I am extraordinarily optimistic about the returns will see on the companies we invest in over the next three years. This is going to be the best possible time to put money to work, and I'm I'm redoubling my efforts trying to invest in twice as many companies in the coming years because valuations have come back down to reality. And I'd say two out of three companies I wanted to invest

sent over the last two or three years. If I didn't invest, the number one reason I didn't invest was because of valuation. The companies just the math didn't make sense to invest in a company that has no product in market at a fifty million dollar valuation, or if it's crypto, it might be a hundred to a billion dollar valuation, which just defies logic. And you know, I grew up with mentors like Michael Mritz, Doug Leoni, Bill Gurly, you know, George Zachary, people who had been in the

game for a long time. And then my contemporaries and I chum up David Sachs, etcetera. You know who who grew up investing together. Over the last decade, we all looked at revenue and customers and try to build models. And the last two years people throw that out the window and it just didn't make sense to a lot of us. So I spent the last two years raising money for my existing portfolio and selling positions and existing companies largely and mean still investing in the earliest stages.

But now I'm it's young um time. All right, I have a thousand questions, But since you mentioned cham, I'm going to ask you a question that's kind of about him, but it's actually much more about a lot of investors these days. And I think you've even talked about it on one of the All In episodes. But we're in a moment where, thanks to crypto and I guess thanks to SPACs as well in the case of Chama, a lot of vcs are invested in publicly liquid assets. Cryptocurrencies

are the most common. But of course, you know, Cham for much of one brought all these spacts, would talk about them, They've all done basically terribly in many cases vcs. You know, throughout history, vcs were invested in companies that public retail just didn't have access to for several years. Now in any of them are invested in cryptocurrencies that

the public can trade. Do you think this is a problem that so many investors historically VC type investors are basically either tacitly or explicitly pumping their bags on social media for retail. Good question, Yeah, it's a great question. Um, it's really two different groups. So I'd say SPACs and crypto are very different, and I'll explain why. So let me start with crypto because that's where the problem is. So crypto has created an entire shadow, in my mind,

illegal stack um that is skirting securities regulations. I believe the overwhelming majority of tokens are securities, but they're being dumped onto retail investors, and this is being done explicitly by venture firms. I won't mention any names who are buying into companies early getting into tokens, and then those tokens are being listed on exchanges and the public can buy into them. The public is buying into them a

common enterprise in order to get a financial gain. They have no interest in using those tokens for any utility. These are not Chuck e Cheese tokens. They're not United Miles. We all know what's going on here, and to then liquidate your position in the second or third year of the crypto company. I'm not going to mention any specific companies here or firms, but you don't need to be a genius to just look at the activity out there. This is going to blow up in the faces of

the venture community. Regulators are very permissive in our country. Our country, generally, our legal system is you're innocent until proving guilty. But I think there's a lot of guilty parties that you know, flipped securities and called them tokens. And I think the sec Justice Department is in the first inning of taking action against these companies. And sure it would be better if they had given us clear guidelines. But having been in the room for these discussions over

the past five years, people suspended disbelief. They shopped for attorneys who told them what they wanted to believe about tokens and the how we test that. You know, listen, I'm no lawyer. Don't take advice for me. I'm just a kid from Brooklyn. This was actually the ultimate irony, which was that like, if you went to a regulator and asked permission, they would often tell you know, but if you just went ahead and launched it after doing

your own legal study, they usually wouldn't say anything. Yeah, so people knew Tracy that what they were doing was fughazi. They knew that this was a grift. I have no sympathy on anybody who gets their risk lapped or gets a speeding ticket or worse, because I would like to see accreditation laws be changed so that people can take a test just like a driver's test or in the few states that have gun owner test gun permit tests.

We could just educate people. Maybe it take a three our course, you take a fifty question tests, doesn't have to be a series seven. But hey, this is diversification. Hey, these are risky assets, these are non liquid assets. This is preferred shares, these are common shares. You know, here's how governance works, here's how boards work. Just so you know, a normal person who's not in the top six percent of the country who are credit investors, could participate in this.

That's what the SEC needs to do. That's what our government needs to do. Have a path for people to be educated to participate in these things. What the country doesn't need is for sophisticated investors to then create a path for people to circumvent the securities law and then flip tokens. I have spent the last five years being criticized because I've said all along, you know, if you can't use the product, if you can't talk to the customers, you know, calling back to your asking me about that

tweet I did, and my experience as a journalist. If you can't talk to the customers, you can't use the product, then it's probably either a fraud where it's a pre launch company. You and I think the majority of these tokens that are being sold are either pre launched companies, which would value them at three to ten million dollars, or their frauds or they're run buying competence, or their frauds run buying competence. It's some combination of those three buckets.

And I invest in the first bucket pre launched companies or you know, about to launch m vps all the time in my accelerator. But I don't take the shares of those companies and put them on a listing and tell people have fun staying poor if you don't buy these tokens and you don't get it, okay, Boomer and all this other bullshit that these very sophisticated investors did to the public. So I don't have strong feelings on a shoe, but it's a complete utter grift. Do you

think there's gonna be a criminal response in some cases? Certainly? You see, you think the regulators are only in the second ending, so that would imply that there's a lot

more coming, Like what is this? Look? Yeah, I mean these it's just a little f t Alwa was flipping and grifting, you know, property Justice and the Southern District Company York and Florida's you know district attorneys, Like there's a large group of district attorneys who would like nothing more than to get the pelt of a crypto you know, grifter and put it on their wall for when they run for mayor or governor. And people have lost a

lot of money, so there's a lot of people. Wouldn't have been a political appetite for, say, prosecutions, because people like when the line goes up, but when the line goes down, I assume people want to see someone pay well. Also, you know, that's when somebody who's in your local jurisdiction says, hey, my aunt took a second mortgage on our home and bought this cryptocurrency and they lost their money. And three

of our friends also did it. And so now there's an actual victim, as you're pointing out, Joe, because the tide's gone out, and those people essentially got a free option because you know the cynical view, but they got to buy the cryptocurrency. If it was up, they could sell it like these retail investors. And now that it's gone down, since it was illegal, all of them can now go after these companies. And so that's just starting.

And we're like two pitches into the first ending. We are not even close to the second ending of this. It is going to become five years. If if what I learned from the dot com eraor is any guide, it's going to be years of litigation and pain and suffering. Now do people go to jail? We just had somebody on the FBI's most wanted list who was the bitcoin queen. So I don't remember a dot com person being on the FBI's most wanted list. So if that might be

the canary in the coal mine. When the FBI's most wanted list winds up being three or four crypto people, I think you've got pete grift just on this topic. You are invested in robin Hood, and robin hood is pretty highly leveraged to crypto nowadays. At least did they make a mistake, you know, I think it's fine for people not speaking about robin Hood. I think it's fine for people to participate in crypto if there are accredited

investors and if they're educated. I sincerely believe people should be able to do what they want to do with their money. They're allowed to go to Vegas, they should be able to do that. So on the retail side, I do think people should be able to buy tokens or crypto. I just think it should all be regulated. And I think you know what coin base and robin Hood and all of these platforms really need to think about, is you know, when they put these tokens up, who

should be buying them? And what knowledge base do they need? And I think I'm a big fan of the freedom for you to do with with your money what you want, but I also think there's a responsibility of the people creating the tokens to do it. And now what is the liability for platforms. I think that's somewhere in between. So you know, the people who are creating these things, those are the people who are responsible. And those early investors, I'd say, the platforms and other folks like they're one

percent responsible for this. Like people should be able to buy and sell whatever's back, they should be able to gamble. I'm a gambler. You us know that, So I feel fine about that. But I also think that the silver lining of all this is people are very critical of this, you know, gen Z stocks, Robin Hood, Generation, Meme stocks, crypto. I actually think what we've done is we've made one of the most the most sophisticated generation financially that's ever

been created. What these twentiesome things have learned in their first couple of years or decade of investing dwarfs, what the generations before them knew. I know, young people who are trading puts and calls and shorting socks and buying crypto and alternative assets. So I think all that's really good, and I think you'll learn by doing so, even if people did, you know, get burned a little bit by

game stop. I am super permissive of young people and retail investors being able to do what they want with their money, and I do think they understand the risk they're taking. So even the people who bought Crypto, I think they knew what they were doing. They wanted to make an absurd return in a short period of time, and if they got burnt, that's on the It's like going to Vegas and just putting all your money on like one hand of blackjack. You knew what you were doing.

You knew it was stupid, bad, But you have the freedom to do that, and you should have the freedom to do it. That's my personal belief. All right, So what do you think about your podcast co host and uh say, this is my fintech that I'm taking um public in aspect, it's to me what Geico was to

Warren Buffett and tweeting and posting about public companies. Okay, so let me talk about SPACs generally so that I don't get reaggregated and say, jakel through your mop under the bus, that was gonna be, that was gonna be, that was gonna Here's the thing about SPACs. If you want to participate in SPACs. You've decided to do what venture capitals do for a living, which is these companies

are highly, highly risky. You're deciding to invest in Amazon, Netflix, I Village, double Click, you know, pick the company Facebook, and then all the failed companies before they were traditionally ready to go public. In other words, you know, in recent years, people have had billions of dollars in revenue in the public. If you want to invest in a company with tens of millions of dollars or millions of dollars or a hundred million dollars in revenue, you're now

playing the VC game. This is a high volatility game. This is like playing pot limit Omaha. You know in Macau. You're not playing in your Texas hold them game anymore where it's predictable. You're playing a high variance game. And so we were investors in the private market for a company called Desktop Metal. We love this company, we love the founders, we love everything about it. They decided to

do us back. Okay, great, Now we're at ten dollars company's worth you know whatever, a billion more than it's private market evaluation. And now it's trading at two dollars and forty eight cents still a great company, bird, Joe B. I'm not investors in those companies. I know people who are investors in them. Those are all getting crushed too. Why Because the big feature of being private when you're nascent is you get to figure things out right and

you're you're not onto public scrutiny. These private companies go through pivots. They have revenue you know, surge and then collapse, and then they have competitors show up, and then they have things break, they have regulations. The greatest feature of Uber and Airbnb going public after ten years being private was that these businesses were very stable relative to the spack companies that are coming out. So again, do your homework. If you want to play VC as a retail investor,

you better be in it for ten years. I invest in companies in decade increments. I still own my robin Hood share, still own a lot of my Uber shares, and I decided to hold both of them for the second decade. Right. That's the problem with SPACs is that people came into them and thought these were very mature companies, and if you looked at any of the data, you knew these were private market companies. Going public earlier. Now, this is how the market worked in the eighties. We

just haven't had it during our lifetimes. People who told me, you know who were vcs in the eighties, the Microsoft's and the Lotus of the world will go public in years three, four, five, six, We decided to have companies go public in years eight eleven, So, you know, recently in our lifetimes as adults, you know, in the nineties and two thousands. So I'm glad there's more inventory to

people to choose from. I think going into the spack you know, disastrous companies and you know they've all lost what collectively in some cases more, you know, go into those and look for bargains. I think, I think you'll find some there. But for somebody to take these electric car companies that haven't delivered cars yet and then value them at a hundred billion. I was on you know all In and My in my other podcast this we can start ups talking about how ridiculous these Lucid Rivan

whatever SPACs were. It was a whole cohord of them. And so buy or beware if you're going to play VC. The VC game is to get to know the founders, to talk to the early customers. Nobody did that work. You gotta do that work if you want to bet

that early. I was about to ask exactly this question, because it feels like to me, with SPACs and the VC space more broadly, to your point, it feels like a lot of it comes down to whether or not in the sponsors are acting in good faith, or whether or not they just see this as a tool to get a bunch of money. And you know, the money's there, people are throwing it around. Why not start us back and just get a piece of it and we can maybe, you know, figure out what to do later, or maybe

that's not even part of their plan. How do you actually go about, you know, evaluating founders or sponsors on that basis, How do you figure out whether people are in it for the right reasons? Yeah, I would just look at the core business. Like so, let's take BuzzFeed trading out of dollar sixty nine at the time recording this two eight million dollars in market cap. That company

has three or four hundred million in revenue. I think they're going to do four hundred million this year, and their run rates about four million, so they're trading at less than their run rate there there price to sales ratio is like point six or something on point seven. This is crazy, Like this company should never go on public Media is a terrible business obviously, but you just have to look at the revenue. You have to live in growth. I don't, but I'm looking at it. I

know this sounds crazy. I have to look at the growth rate and the spend. And I don't know if Jonahs made massive layoffs over there, but if you laid people off and this is a profitable company, well then we'd start looking at and saying, Okay, I don't know. If it starts growing twenty times earnings, fifteen times earnings, ten times earnings, maybe two or three or four times price of sales ratio, you could actually see it being a takeout candidate for somebody. So and I'm not giving

financialized here, but I do look at Peloton. I do look at you know, BuzzFeed and some of these that have gotten really walloped and say huh, and how much cash do they have? Like we're going to get to the point, Joe, where like in the dot com era, the company has more cash cash on hand and marketable securities will be greater than their market cap, in which case you could buy the company, sell the asset, and then distribute the cash and make a killing. So I

think that's why Zendesk is being taken private. I don't know if you saw. Have they got over a billion dollars in revenue, over a billion dollars in cash? They're getting sold for ten billion or something or going private for ten billions. So that's when you know, you know, we're bouncing on the bottle. But you just have to again to your question, Tracy, look at the customers, look at the product. They will tell you the truth. The promoters, the the press, the analysts, the CEOs like, all of

that is secondary to the customers. Anybody who talks to customers who own a Tesla or who are an Airbnb host, or who are Uber drivers, or who take Uber or take Lifter, use door Dash or Calm, they'll tell you they love the product right or they love participating in the marketplace. Or if you just look at how long have they been an Uber driver, how many rides have they done, how many door dish delivers have they done? That will tell you a better story than any promoter

or any CEO. And these promoters will live and die with the track records. I think Trumath will have a great track record at the end of the day. Now he's my friend, I'm and I'm by I am as proviased source. But I know he's very thoughtful. And you know, people should understand if they're going with SPACs and they're playing VC, you're playing a very high volatility game. It

should be counterbalanced. That should be the small portion of your portfolio, and the rest of your portfolio should be balanced with you know, index funds and you know blue chip companies and bonds and real estate. Right, That's what's getting lost here is you know these really high risk, high reward companies and opportunities. What percentage of your portfolio

should they be. When people ask me about angel investing, I'm like, if you really love doing this, low single digits is what I would tell my mom or my brother if they want to do the work and make sure they can afford to lose the money. Same thing with SPACs, same thing with crypto. So you mentioned, okay, like in this back wreckage there might very well be

some diamonds in the rough that come out. And you also mentioned in the very beginning that you think this is like a great time to be investing in early stage companies because valuations have come down so much? Do you think this is a great time to get aggressive?

But let's talk about like the last few years. One of the things that's come up on our show is like the right like all these people who had like sub stacks and rolling funds on Angel List suddenly getting into the angel investing game over the last two years, maybe starting in March COVID or a little bit before that. Like how bad is the pain going to be of all these different startups? Like what is the survival rate

going to be? And how prepared are these founders for an actual downturn the likes of which maybe we haven't seen in roughly twenty years. Yeah, startups die, you know, so that's your starting point, right, um, And then you know you're fund is tends to be you know, a typical venture capitalist has thirty names and a fund thirty companies, and you know the top two companies will be ninety five of their return. So that's kind of par for

the course, right, that's what you expect. Now. A lot of founders raised money when the market was hot, and a lot of them were in denial and thought every round of financing, we get easier, and why shouldn't they

think that. They got into an accelerator, they raised an angel round, they did a pre Series A, they did a Series A. All of that was pretty easy, and it got easier each stage, and then Series B they had people asking them to take their money, and then seriously, they had people throwing money at them and not doing diligence. So just imagine you're a founder, you're thirty five years old, and that's the market you were born into. Okay, you're

going to think about the world a certain way. Okay, yeah, it's gonna get harder, but how hard could it get? Like every round of financing you've done to now has been easier than the next round. So everything you've experienced has been a complete head of age, and whatever you learned up to this point is not going to service

you going forward. It's kind of like being like the smartest kid in your school and then you wind up going to Harvard and it's like, yep, you're a dime a dozen where you are the most beautiful actor and talented person in your you know, uh, summer stock and your your high school musical and then you go to Hollywood and it's like, Yep, you're just like everybody else. There's nothing unique about you. Sorry. You know, that's what

the transition people have to go through now. And many of the people who I watched up close and personal became better at raising money from vcs thank getting money from customers. That is the big red flag. You have to be better at servicing your customers than servicing your investors. It's important to be able to get investment, but ultimately that investment is all in service of delighting a customer, retaining a customer, and expanding the spend with the customer.

And that's, you know, the change people have to make. I've seen a lot of people who thought they were Jedi knights and all of a sudden they get into a serious Jedi battle and they lose two or three limbs. This is like serious Jedi ship. Like you think you are a Jedi, You think you know how to use a lightsaber, and then you come up against a Sith board and you lose your hand, period, end of story.

Like that's what's happening here. People were pretending to be Jedis they're pretending to be entrepreneurs and they are just not cut out for you know, we've seen obviously the announcements of layoffs, right we we know they're picking up, and we've seen them are founders even today in July. Have they sufficiently marked their mind to reality or are they still Are there still many who are in a

state of denial. Most are still in denial. Sort of related to this topic, there's been a lot of talk recently about the end of the millennial subsidy, or I guess like the urban lifestyle subsidy, the idea that all these conveniences that people took for granted before, like ordering a car through Uber or ordering food via grub Hub and things like that, that the cost of those are all going to have to go up as the company's sort of pivot from spending lots of money to grow

their market share to actually making a profit or at least trying to. Now, how is that playing out? Like, do you see evidence of that in the companies that you're either invested in or very very familiar with. Yeah, I mean we would be the best example of it.

You know, they were losing a dollar a ride and then they went down to losing sixty cents a ride, and then twenty cents a ride, And so for anybody who was an insider, it was abundantly clear that at any point in time when the competition with lift and other services, or door dash, for on the east side of the business, when that competition abated and those second third tier players ran out of money and stopped getting free capital, then the network effects would benefit whoever was

in the leaded right, and so Uber clearly was in the lead. And we actually see that manifesting itself over the last couple of years, which is to say, drivers are getting paid more money, drivers are drawn to the Uber platform, the prices of ubers have gone up. Uber's revenue has surged. And now what we'll see this year I predict and and Dar has been pretty clear about this is the money printing machine will turn on, just

like Amazon can do that. And I want to stop right there real quickly, because when we recently had Jim Chainos on the show and he said, you know, look for many of these so called sharing economies, whether it's door dash or grub hub or Uber or whatever like that should have been the most amazing. Everyone was home ordering stuff online with stimulus checks from the government and they couldn't make money in and his lines like if they can't make money in when when will they? And

so why do you think it's a way? Why do you believe that? I mean you still hold your uber shares or something. So why like what's you know you think they're gonna that's doable, that they can turn the corner and that they're there existing craziness. Are two things

to look at. Number One, stock based compensation is for these companies has been a large portion of their losses um and so if stock based compensation changes a little bit, and that's been a big back channel in Silicon Valley and with the large fund holders of private equities, is hey, maybe we need to talk about stock based compensation now that all these layoffs and hiring freezes have happened at the fangs and you know, certainly layoffs and uh, salary

cuts even I think are going to start next. That's going to be the true sign that we're in something dark is when people's salaries get cut. Wait for that. That will be the true time's coming down. I think the way it works is and this is like the cynical inside or stuff that people don't like to talk about. But what people do is they lay off a bunch of people. Then they reset the salaries and hire people back at lower salaries. And so that's de facto a

salary cut, right. So if you lay off a third of your staff and then you put the positions back out, but they're at a lower price and people can work from home and they can work from anywhere. That's the way for like a Facebook or an Apple to reset it without saying to the people who currently work with them, hey, by the way, we're cutting your salary. They just say you. Apple just says you have to come back to the office. So you don't come back to the office. Okay, so

you don't want to work here anymore. You were overpaid. Now we're going to put those salaries at a different number. In some companies, if things get really dark, they might just say, hey, we're the management team is taking cuts and everybody else is taking ten and then they just challenge people. If you don't like it, you can leave um. And if things get really dark. I think it's a fifty that we'll see this happened in the second half of the year. You know, I've seen the layoff approach.

First it's a reorganization, then it's layoffs, then it's mass layoffs, then it's pulling the offers that have been done. Remember those were a lot of big headlines. Oh I had an offer at this company, it got rescinded. The next piece is the salary cuts, so that that's the true bottom signed look for that. It's not guaranteed, but it could happen. And so we got to this with you know, Uber, and if they couldn't make it in twenty I think

a lot of these companies got too big. Facebook, Google, Uber, Airbnb all could operate with less people and in a market where the public markets want to see cash flow, it's just time to shift gears and do that. Airbnb like oh a third of people during the pandemic. I think Uber did something similar. And so these companies were getting rewarded in a low interest rate environment where they could just keep raising capital for growth top line. Now

people want to see the bottom line. Uber is perfectly positioned to do that. And what you have to do if you're one of these rockets scientists is just say, are you gonna take less Ubers or do less door Dash or less uber eats, if it costs one dollar or two dollar more, the answer for plus of use cases is I'll absorb the one or two dollars. And

the proof of that is that's actually happened. Ubers have become more than two or three dollars more expensive now for uberpool, Will it make a difference if somebody was paying six bucks and now they have to pay nine. Yeah, there are some people who might say I'm going to take the subway, but that's not the people who are the profit anyway. And the prophet is in the whales and the and the bigger rides and the and the more luxurious rides, the Lincoln Town cars, etcetera. So yeah,

it's pretty easy to figure this out. If Uber charges two dollars per ride or delivery or doorshus the same thing, which they're all doing, and they cut their staff and they cut stock based compensation, these things become money printing machines. Now I get Jim's point. Jim's point is like, why didn't you do that before? Well, we weren't being rewarded for that before the investment community told us to do

the other thing. And so when you saw Derek come back, I think it was last year and he just said, listen, I met with all of our large shareholders. They said they want free cash flow, they want profits. I'll give you that. He's pragmatic. Uh, you know, he's a dog. You know, he knows what he's doing. He's not his first time at the rodeo, and so he's willing to make the cuts and raise the prices and and that's what everybody's gonna do and they get rewarded for that,

and then you know what will happen. Everyone's gonna be like, why aren't you growing faster? And something that's just the pendulum of being a seat EEO and a board. They're like, we want more than you're over your growth. Can we get to So you gotta play the game as the rules are saying, to play it on the field, you know, And the rules of the game are now show us profits. The companies that showed profits, you know, didn't get the funding previously. What's your base case for how bad things

might get? And then secondly, you know you mentioned that in the current down cycle, you're still taking a bunch of meetings and there's still opportunities out there at an even lower valuation. How much money is actually out there on the sidelines and ready to get deployed in the current cycle. And how much does that help. There's a ton of what I call, you know, dead or boring money, money in bonds or boring assets and safer assets, and so yeah, people are scared right now. I think there's

a lot of existential and macro issues. We talked about it on All In, you know, every week, and so you know, some people like David Sacks is incredibly obsessed with the Ukraine. It's like become his entire Twitter feed and it's like I thought you were assass investor, David, like you know, but this is a perfect example, Like he is very scared about that escalating. He's a very smart individual, one of smart people I've ever met in my life. So smart people right now are very concerned.

Some of them are concerned about Taiwan someone they are concerned about, you know, or they were concerned about COVID. Everybody's got a different thing that makes them scared in the world. I don't operate that way. I because I get to invest in the early stages. I know, great companies are built all the time, and great companies are built when there's wars going on in the world, when there's famines going on the world, all these terrible things

can occur. And Google and Uber and Facebook and robin Hood and other great companies are gonna be made independent of those things. Entrepreneurs are gonna keep creating. And in fact, when the market is the most troubled, that's when your selection gets easy. Year Because if you're creating a company in two thousand and eight, two thousand nine, two thousand and ten, well you have to be a true maniac. I mean, you have to be a true mission driven founder who is going to do this no matter what.

And I've just seen it so many times in my career. People who were starting companies in the early nineties were maniacs. People were starting them after the dot com bust at nine eleven were complete utter maniacs, myself included. And people who started them after two thousand and eight were complete and utter maniacs. And that's when the great companies are formed, and then they grow through the down and up markets consistently. That's really what it's all about. So I don't worry

about these things. I do not live in fear like a lot of my other contemporaries and get obsessed with these things. I just like to focus on the founder and the customer and the product. It's really you know, it's one of the great things about just being a simple kid from Brooklyn. I don't need to overthink this. I don't got no Ivy League education. I didn't go to Stanford, I didn't get perfect s A T S.

I just look at what the product does. I look at what the customer thinks of the product, and I placed my bets, and you know what, that's a better way to do it. In my mind. It's simple. Just put the ball in the basket, take a good shot, rebound the basketball, and then on the other side, you know, take a good shot and put the ball in the basket and then yeah, fu, yeah, let's go. I mean, that's what else would I do? No, I mean, I just would like to see New York win a championship.

I did a little spreadsheet a year ago, during the pandemic. I was kind of trying to figure out what I would do with the last decade or two or three of life I have left. When my friend Tony, she died the day after my birthday, and kind of rocked my world a little bit, and I just thought deeply about what I want to do and what actually gives me joy and fun. And yeah, I like skiing, and I like hanging out with my friends and laughing and doing podcasts and writing books and watching the Nick Game.

Yeah every week I felt. Yeah, we had him on the show year ago. Yeah, it feels the best. I mean, he's he's amazing, great human being. Uh. I mean, even with all the outburst and craziness, which I thought when I met him was for TV, and now I realized he's just it really is truly who he is. I mean, we've had some epic battles at our private poker game.

But when I had my little like existential fifty year old, you know, Jacal crisis, I just thought, well, fuck, if I keep infesting at this rate and I go up or I double the number of dollars I invest every year, Yeah, there's a chance I could be traced Commas and I could buy the Knicks or make a run at them.

So why not create an outrageous goal. So my my two outrageous goals are to you know, invest over the next ten years and be one of the top five investors in the history of Silicon Valley and have a long shot chance of leading a syndicate. That's why I bought the domain name the syndicate dot com, and I invest in a hundred deals a year at the syndicate with eleven thousand of credited investors, it's the largest one

in the world. If I keep doing that, I might be able to lead a syndicate to buy the next someday, and that would be a great thing to do in my six these you get that or run for office. So it's one of those two daughter. My daughter's in Nicks fans, so hopefully you can turn them into winners. Jason Calcannis, that was a lot of fun. Thank you so hope that was entertaining. It was very entertaining. Thank you so much for coming out in a lot my pleasure. Thanks. Hey,

don't forget to rate and subscribe everybody. Oh yeah, we got it, we got I'm a podcaster. I gotta have him to rate. Tell a friend about the pot. That was fun. Yes, I'm thinking, sorry, I'm thinking. Do you remember that Simpsons episode where like Homer Simpson goes to work for Hank Scorpio and he wants to buy the Dallas Cowboys. He confesses his dream is to buy the Dallas Cowboys, and at the end of the episode, Hank Scorpio buys him the Denver Broncos. No, I don't remember that.

I was thinking, you know what Simpson's episode, I think I gonna reference, Well, you know, Jason was talked about I just do this ten more years. I thought you were gonna refer to the one where Homer bought um Halloween pumpkins before Halloween and just thought that just keep holding, just keep holding the pumpkins and draw a straight Actually, actually that's not Yeah, that's not a bad episode too,

to reference. Because one thing that keeps coming up in in all of our episodes lately is just the like sicklick reality of human nature and this idea that for years investors were comfortable with these companies growing market share, spending money, raising more money um in public or private markets in order to do that, and then suddenly it's like, oh, no, no,

you you really do have to return a profit. And then, you know, I think Jason is right, at some point in the cycle, people will come back and be like, no, no, it's time to grow again. This is your opportunity. He made about to the chainos point about like, oh, well, why weren't they making money in twenty And it's like market wasn't telling them to make money. The stocks were going straight up. I hadn't really thought about that, but you know, it's something that comes up. It comes up

on our energy episodes. It's like, what are investors rewarding at a given time? And so if that on paper, yeah, it's a good environment for some of these gig economy companies. But if the market is still in that mode of no, we're not going to reward you for cutting expending, We're not going to reward you for slamming the brakes on growth in the name of profitability, maybe I could see how that's a counter argument for why weren't they profitable

at that time? Absolutely, it just feels like there's a tendency for people to run too far in either direction, and it's really hard to stamp out because to some extent that's human nature. Right. Yeah, By the way, the issue with all these legacy vcs getting into unregistered securities, arguably with crypto tokens and then tweeting about them, and

then retail investors buying them on exchanges. I thought Jason's comments were pretty pointed on that, and like, it does seem to me like this could be lawsuit season or investigation season. And I do wonder if any of these sort of legacy vcs will regret pivoting towards talking about publicly traded instruments as much as they did. I'm very curious to see how it shakes out. I still think

the regulators should have been there from the beginning. I mean, some of these tokens quite clearly resemble securities offerings you vote and dividends can theoretically create. So that sounds yeah, absolutely, so why not say that that's illegal or it should be a registered security? And where were the regula whatever? Yeah? But yeah, I mean it does feel like some sort of shakeout or reckoning is coming, but I guess it's hard to predict. All right, Um, should we leave it there?

Let's leave it there. This has been another episode of the All Thoughts Podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway and I'm Joe Why isn't all You kind of follow me on Twitter at the Stalwart follow our guest Jason callicanas On Twitter, He's at Jason, Follow our producer Kerman run Is at Carmen Arman, and follow all of the podcasts Bloomberg onto the handle at podcasts. Thanks for listening.