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big, big, big, big, big, big,

1:03

big, Welcome back everybody. We got

1:05

another awesome show today. Our guest

1:08

is Mike Maples Jr. partner at

1:10

floodgate, precede, seed stage, venture capital

1:12

firm, invested in companies. You guys

1:15

know, like Twitter and Lyft and

1:17

Twitch, Mike became an author released

1:19

a book titled Pattern Breakers, why

1:21

some startups changed the future. Today

1:23

we're gonna talk with Mike about

1:25

what he's learned from studying successful

1:27

seed stage investments, how some of

1:30

these ideas can apply to you

1:32

as an investor entrepreneur. Mike, welcome

1:34

the show. Thanks ma'am. It's a pleasure. We're

1:36

going to talk about your awesome

1:38

book, Pattern Breakers. Maybe let's just

1:41

like set the, set the pavement

1:43

for a little bit. You mostly

1:45

operate where, seat stage, series A,

1:47

precede. Yeah, I like to say that I invest

1:50

too early, way too early,

1:52

or even legally, ambiguously too

1:54

early. And so, you know, when we

1:56

invested in Twitter, they were deciding

1:58

whether to call it. voicemail 2.0

2:00

or TWTTR. My advice was to put

2:03

the valves back in. It was probably

2:05

the only advice that I've ever took.

2:07

And then Elon took all the valves

2:10

out. So, you know, when he renamed

2:12

it X. And then, you know, I

2:14

vested in a Twitch when it was

2:16

Justin.TV. And my colleague Anne invested in

2:19

lift when it was Zim Ride. And

2:21

they decided to launch this ride sharing

2:23

service with Pink Mustaches and in the

2:25

board meeting. The only downside is it's

2:28

illegal. And what are we going to

2:30

do about the fact that we're about

2:32

to launch something that's an illegal service?

2:34

A lot of these companies, and some

2:37

of them that I said no to,

2:39

foolishly, airbed and breakfast, you know, before

2:41

it was called Airbnb, these things are

2:43

pretty wild and pretty early at the

2:46

time that we have to decide whether

2:48

we want to get in trouble with

2:50

these people. Well, it's funny because all

2:52

those that you just mentioned, I wouldn't

2:55

say they all had a pivot. but

2:57

they may not have, where they are

2:59

today, have been when they were at

3:01

the seed stage idea. It may not

3:04

even been why you would have invested.

3:06

Maybe talk a little bit about it

3:08

at y'all's stage. How to even think

3:10

about that? You know, is that something

3:13

where, is it a luck sort of

3:15

tangent? You know, is it more that

3:17

you just invested in the right people

3:19

and they figured out? How do you

3:22

think about that on the, on the

3:24

really early stage? I'll say. I've heard

3:26

him say before that rule number one

3:28

is don't lose money rule number two's

3:31

don't forget rule number one. That's in

3:33

the world that he plays in the

3:35

world that I play rule number one

3:37

is don't pass on Airbnb because had

3:40

we said yes to it we would

3:42

have made 5,000 times our money on

3:44

that investment and so and and we've

3:47

had some that we're really good but

3:49

but we've had some really good so

3:51

that the interesting thing about seed investing

3:53

is. you're less interested in a margin

3:56

of safety and avoiding failure, and you're

3:58

more interested in... how asymmetric is the

4:00

upside if it works. Because you're taking

4:02

such incredible risk that you have to

4:05

get paid when it goes your way.

4:07

You've got to get paid for the

4:09

risk you take. And so it doesn't

4:11

make sense to make a bet on.

4:14

So you know, strikeouts don't matter, but

4:16

base hits don't either because you don't

4:18

get base hits don't compensate you for

4:20

the risk you took. You're swinging as

4:23

hard as you can at a chance

4:25

of a brand slam so that if

4:27

you do make very solid contact. So

4:29

it's a very different way of showing

4:32

up in the world, right? It's a

4:34

low probability, massive upside type of investment.

4:36

And because you have very little data

4:38

about the company, you don't have any

4:41

customers yet, you don't have revenues, you

4:43

know, all the things that Buffett talks

4:45

about, compounding and moats, starter doesn't have

4:47

any of those things. There's nothing to

4:50

compound yet. And so you have to

4:52

bet on the potential and you have

4:54

to. come up with ways of identifying

4:56

signal of great upside potential even before

4:59

it's realized. And so you have to

5:01

get comfortable with the idea that you

5:03

don't know exactly how the dots are

5:05

going to forward connect and you don't

5:08

know exactly how you're going to get

5:10

from point A to point B, but

5:12

you need to believe that the idea

5:14

embodies a set of powers that allows

5:17

it to have wildly asymmetric upside if

5:19

it works. You hit the nail on

5:21

the head with public market investor. Just

5:24

to show someone to say, hey, look,

5:26

I got a stock for you. Here's

5:28

a nice upside case. It's can be

5:30

a double or this thing could even

5:33

triple be a five bagger. You know,

5:35

if you go on CNBC, you're like,

5:37

this thing's gonna five X the next

5:39

couple years. Like, when that happens, people

5:42

will just lose their mind. Be like,

5:44

oh my God, this is amazing. This

5:46

thing doubled. But in y'all's world. Not

5:48

to say that that's a bad outcome,

5:51

but it's almost like the ones that

5:53

really drive the majority of returns are

5:55

the ones that are 50 a hundred

5:57

times up. So it's almost like, you

6:00

know, these ones that are double. and

6:02

triples in terms of two or three

6:04

acts. It's not that you don't want

6:06

those, but it's like the goal is

6:09

the 100, which is a weird way

6:11

to kind of retrain that muscle. That's

6:13

right. And Meb, it turns out that

6:15

you actually don't even want them. And

6:18

here's why. Let's, in a typical fund

6:20

that we have, we'll make about 40

6:22

investments. And if we succeed, let's say

6:24

we want to have a five X

6:27

fund. which is pretty good. Then our

6:29

best investment out of the 40 by

6:31

itself needs a return to an half

6:33

x the fund or more because the

6:36

way our business works is not a

6:38

normal distribution curve right it's a power

6:40

law and so the biggest outcome is

6:42

bigger than all the other outcomes combined

6:45

and so the two x outcome I

6:47

mean it's nice to make two times

6:49

your money it doesn't impact the funds

6:51

performance the one that impacts the funds

6:54

performance is the magnitude of your best

6:56

one. And so your best one has

6:58

to be really big if it's going

7:01

to be awesome. And so, you know,

7:03

let's let's just use raw figures or

7:05

ballpark figures. If you have a hundred

7:07

million dollar fund, you want to be

7:10

five X. Five hundred million dollars of

7:12

exit profits. And, you know, if you're

7:14

making investments about, you know, one to

7:16

two million dollars each first check, that's

7:19

a pretty big multiple, right? That's over

7:21

a hundred times your money. And that

7:23

turns out to be right. You know,

7:25

you have to get more than a

7:28

hundred X about 5% of the time,

7:30

if you want to be great. But

7:32

the rest of it doesn't matter. It

7:34

doesn't matter how many two X's you

7:37

have or five X's or any of

7:39

those, because... It's always nice to make

7:41

money, but you have to make enough

7:43

that you got paid for the risk

7:46

you took. What should people be looking

7:48

for at this stage? How have you

7:50

kind of... been able to figure out

7:52

and look at all the noise. It's

7:55

such an early, early genesis of a

7:57

business and say, hey, look, this, my

7:59

pattern recognition here is that this is

8:01

what matters to a seed stage investor.

8:04

Yeah, so here's the way I've internalized

8:06

it, Mad. What I came to believe

8:08

is that a startup capitalist adds value

8:10

differently than a corporate capitalist than a

8:13

normal business person does. So a normal

8:15

business person adds value the way we

8:17

always think about, you know, competitive advantage,

8:19

compounding, sustainable moats, but like a startup

8:22

capitalist, better doesn't matter in startups. And

8:24

the reason is that if you're better,

8:26

you're not going to get paid for

8:28

the risk you took. You're not going

8:31

to get a result that's worthy of

8:33

the sacrifice of entrepreneurship. And so I

8:35

like to say that a great startup.

8:38

has to be radically different, not just

8:40

different, but radically different. And so some

8:42

of your listeners, and this isn't a

8:44

startup, but this will get the idea

8:47

across the Tesla cyber truck. Do you

8:49

like the cyber truck? My son loves

8:51

it. Every kid I know absolutely loves

8:53

this thing. I have my moments. Some

8:56

days I wake up and like that

8:58

is literally the ugliest car I've ever

9:00

seen. And other days I'm like, you

9:02

know what, like it's definitely different. I

9:05

drive the model less. So let me

9:07

say I'm a huge Tesla fan. Yeah,

9:09

me too. I'm total fan boy, right?

9:11

But when I first saw him announce

9:14

it, I thought maybe he was joking.

9:16

Like I was like, is he really

9:18

going to ship that? And you may

9:20

like the cyber truck. Right, but like

9:23

here's one thing. Nobody ever says, how

9:25

does that compare to Ford F-150? The

9:27

difference is self-evident, and it's like, Elon

9:29

basically forces a very stark choice. He

9:32

says, live in my future or don't.

9:34

You know, the original Tesla Roadster, it

9:36

would have never... survived a normal comparison

9:38

with a portion 9-11. The seats weren't

9:41

as comfortable, the radio wasn't any good,

9:43

but it was an electric car that

9:45

nobody had ever seen before, it did

9:47

a whole different set of things. So

9:50

like what I've learned is that the

9:52

great startups are that way. Nobody when

9:54

they saw Twitter said, how's that different

9:56

from blogs? Or when you got in

9:59

your first lift ride for ride sharing,

10:01

nobody said, how's that different from taxis?

10:03

Is a startup if you have to

10:05

answer the question, how are you different

10:08

from the incumbent offering, you already lost?

10:10

Right, because now, why would somebody buy

10:12

from a company that's 80% likely to

10:15

go out of business if they have

10:17

a semi-credible alternative that exists? They won't.

10:19

They're only going to take it from

10:21

the startup if there's no other way

10:24

for them to get that empowerment. And

10:26

so, like, if you happen to like

10:28

cyber trucks, there's only one truck for

10:30

you to buy. Like, I like to

10:33

say, in the world of startups, everybody

10:35

sells, everybody sells apples. You're not going

10:37

to try to be the 10 times

10:39

better Apple. you want to be the

10:42

world's first banana. And you want to

10:44

say, look, you may not value bananas,

10:46

but for everybody who values the advantage

10:48

of bananas, I'm the only guy that's

10:51

got him come to Papa. And that's

10:53

like, that's the place you want to

10:55

be when you're startup. And so when

10:57

you're investing, right, that requires you to

11:00

sort of show up in the world

11:02

a little bit differently, right? You're not,

11:04

you're not focused on what could go

11:06

wrong. How big could this be if

11:09

it goes right? If people do choose

11:11

this new way, if people do decide

11:13

to break the pattern and go with

11:15

a new pattern, how meaningful is that?

11:18

And, you know, could that be a

11:20

household name like Twitter? Or is it,

11:22

are you kings of Dinky Land, even

11:24

if you succeed? And so, you know,

11:27

that's kind of what we think a

11:29

lot about. I might have been involved.

11:31

I'm trying to remember, but someone on

11:33

Twitter had actually a great comment that

11:36

I stuck in my head a bit.

11:38

doesn't act like he's living in a

11:40

simulation. He acts like he's living in

11:42

his own simulation. And I thought that

11:45

was kind of a really fun way

11:47

to look at life. I was like,

11:49

how would I act differently if this

11:52

is like, turns out, Meb, this is

11:54

a video game, you know, you get

11:56

to the end, you, you die, and

11:58

it's just like, all right, that was,

12:01

that was a simulation. How'd you do?

12:03

It's an interesting, interesting framework. All right,

12:05

so let's talk about pattern breakers. How

12:07

does this kind of help us think

12:10

about? you know, both from entrepreneurship side,

12:12

like in some of the ideas you're

12:14

talking about, they definitely, I think it's

12:16

really thoughtful, reminds me a little bit

12:19

of like Peter Thiel, the way he

12:21

thinks about kind of the monopolistic, but

12:23

in its own like category almost. Talking

12:25

me about this book. I think there

12:28

are two ways to think about it.

12:30

One is if you're a tech entrepreneur,

12:32

the benefits of the book are obvious,

12:34

right, because it kind of lays out

12:37

a set of frameworks for thinking about

12:39

technology startup ideas that are worth pursuing

12:41

pursuing. and we can go into some

12:43

of that. But if I zoom out,

12:46

part of what I'm saying gets back

12:48

to this Jonathan Livingston seagull notion, which

12:50

is you kind of have to decide

12:52

at different phases of life whether you

12:55

want to go with a flow and

12:57

be a new and improved version of

12:59

something and buy into the current set

13:01

of rules and just play well within

13:04

those rules, or if you want to

13:06

be radically different. And only by being

13:08

radically different can you make a radical

13:10

difference. in whatever it is that you

13:13

do right like so anybody who listens

13:15

to your show who buys stocks the

13:17

stock market may do well and if

13:19

you buy the index you'll do well

13:22

along with the stock market but you

13:24

won't outperform the average right you'll just

13:26

benefit from the fact that the average

13:29

did well if you want to outperform

13:31

the average you have to take the

13:33

risk of picking a stock and you

13:35

know every stock is priced based on

13:38

the wisdom of the crowds and what

13:40

they think it's worth And so any

13:42

time you buy a stock, in order

13:44

to achieve overperformance, you have to risk

13:47

underperformance relative to the index, right? And

13:49

so, like, there's no free lunch there.

13:51

The same is true of all things.

13:53

everything. So you know the other day

13:56

I was talking to somebody who read

13:58

it who has a bakery and they

14:00

said I enjoyed the book but I

14:02

liked it because it had ambitious founders

14:05

but how does it apply to me?

14:07

I run a bakery. I'm not going

14:09

to leverage technology inflections. I'm not going

14:11

to I'm not going to have some

14:14

social platform or digital APIs or any

14:16

that stuff. And I said well you

14:18

know there's this guy in Boston who

14:20

had this thing called the Cronut that

14:23

he just made up. And all of

14:25

a sudden, you know, he started attracting

14:27

a lot of customers. In the supermarket,

14:29

you have this five-hour energy drink. And

14:32

as far as I can tell, it's

14:34

the same ingredients as Coca-Cola, basically, except

14:36

it's in a smaller vial and they

14:38

charge more for it. And I sit

14:41

there and I think that's just brilliant.

14:43

You know, all these other knockoff colas

14:45

try to be on the same shelf

14:47

as Coke and have no chance of

14:50

selling any. And they spend the same

14:52

amount of... cost of goods sold, everything

14:54

else, and incomes this five-hour energy drink,

14:56

they're not even on the same shelf

14:59

in the supermarket, and they don't even

15:01

have the same use case as Coca-Cola,

15:03

and somehow they pull that off even

15:06

though they basically have the same ingredients.

15:08

And so I think that you can

15:10

lean into your difference regardless of whether

15:12

you're techno-centric or whether you're trying to

15:15

scale a giant company. I think that

15:17

there's always a chance to think, okay,

15:19

what would I do if I chose

15:21

to be different rather than better than

15:24

better? And a lot of people don't

15:26

realize that choice is available to us

15:28

because we get rewarded for being better

15:30

in all things. You know, in school

15:33

and when we work out harder, we

15:35

tend to get stronger. There's a, most

15:37

things, there's a direct relationship between doing

15:39

more of it and doing better at

15:42

it. And that's not true when it

15:44

comes to breakthroughs. So you're looking around

15:46

these companies, how do you distinguish, you

15:48

know, when you're sitting there, chatting with

15:51

them? Are there any key

15:53

characteristics of these pattern breakers? Like as,

15:55

you know, you're sitting across the table,

15:57

we say, okay, this is, this is

16:00

one of those, or, you know, like

16:02

this, maybe not so much. Well yeah,

16:04

so the first would be inflections and

16:07

I'm just out of curiosity, have you

16:09

ever been surfing before? We're right across

16:11

from El Porto, sitting under a surfboard,

16:14

so I didn't grow up surfing, but

16:16

I like to go, it's a lot

16:18

of fun. So inflections remind me a

16:21

lot of surfing, so in surfing, you've

16:23

got to be a good surfer. if

16:25

you're going to have a successful outing,

16:28

but you also have to have a

16:30

wave. And the surfer doesn't create the

16:32

wave, right? So, and without the presence

16:35

of a wave, when it comes to

16:37

surfing at least, there's nothing to really

16:39

talk about, right? You're just out there

16:42

floating in the ocean on a surfboard.

16:44

And so what I realized was that

16:46

technology startups are very similar that way.

16:49

Why is that? Well, the startup needs

16:51

to have a way to fight unfair.

16:53

If the startup is using the same

16:56

technology as existing companies, all they can

16:58

be is incrementally better. And so what

17:00

the startup does is they leverage an

17:02

inflection, a change event external to the

17:05

startup, to show up with something radically

17:07

new and different that's never been seen

17:09

before. So, you know, we talked about

17:12

ride sharing a little bit ago. The

17:14

iPhone 4S was the inflection. So the

17:16

iPhone 4S had an embedded GPS chip

17:19

in it. And so you could have

17:21

had the idea for ride sharing before

17:23

the iPhone 4S, but it wouldn't have

17:26

mattered because you couldn't have, the wave

17:28

wasn't there yet, right? There wasn't, there

17:30

wasn't any motive power to propel the

17:33

idea. Now all of a sudden the

17:35

iPhone 4S comes, but if you'd waited

17:37

too long, then the wave breaks and

17:40

other people catch the wave, right? And

17:42

so, so the key with these inflections

17:44

is recognizing that there's a window of

17:47

time. where for the very first time

17:49

a new type of empowerment exists that

17:51

can radically alter human capacities and behaviors.

17:54

And so then what the founder does

17:56

is something very important. They have what

17:58

I like to call an insight. And

18:01

the insight does involve the skill of

18:03

the entrepreneur. Just like the surfer has

18:05

to pick a wave, now you've got

18:07

to control the board, right? You have

18:10

to do something interesting with it. In

18:12

the case of an insight, the lift

18:14

it would have been, oh, that means

18:17

you can do Airbnb and be for

18:19

cars. So you had to connect the

18:21

dots, right? What are the implications of

18:24

the fact that I can use an

18:26

algorithm to find people with a phone?

18:28

Oh, that means I can locate riders

18:31

and drivers in real time and I

18:33

can display them on a map and

18:35

I can create a market clearing price

18:38

for supply and demand and all that.

18:40

They had to figure that stuff out.

18:42

But that's where the difference comes. One

18:45

of the things about the insight is

18:47

it needs to be non-consensus and right.

18:49

It can't just be right. And the

18:52

reason is that if it's consensus, again,

18:54

it's too incremental. If everybody likes the

18:56

idea, if everybody thinks it's going to

18:59

work, that means it's too similar to

19:01

what already exists, which means it's too

19:03

incremental. So like with Lyft, the non-consensus

19:06

part was, why are people going to

19:08

want to get in a stranger's car?

19:10

That's crazy. Now it seems obvious, but

19:13

at the time, that seemed kind of

19:15

crazy, you know, to get in a

19:17

stranger's car, especially somebody you didn't know

19:19

and never seen before. And so that's

19:22

where the insight comes in. And the

19:24

insight is really important because it's the

19:26

thing that lets you be unique. And

19:29

so like, you know, we used the

19:31

surfing metaphor earlier. It's not enough just

19:33

to have a good wave. Maybe you've

19:36

had this happen. One time I was

19:38

out in Santa Cruz surfing at a

19:40

crowd at time. And there's all these

19:43

dudes around me saying, dude, get off

19:45

my wave, get off my wave. Well,

19:47

that's not much fun. And so what

19:50

you really want is to find an

19:52

awesome wave, but you also want to

19:54

find an awesome wave. some way at

19:57

a beach that everybody thinks is closed,

19:59

where, you know, you're the only guy

20:01

out there peddling and you miss it

20:04

a little bit, you catch the next

20:06

one. And so there's really two conditions

20:08

that you're looking for. The inflection provides

20:11

the empowerment. It lets you show up

20:13

with something that nobody's ever seen before

20:15

that's radically superior to anything they've seen.

20:18

The insight allows you to be the

20:20

only one that shows up with it.

20:22

And that's what you really want to

20:25

be. You want to be the only

20:27

person that exists with a certain thing

20:29

that some set of people are desperate

20:31

for because it's so powerful. And that's,

20:34

you know, when you get those conditions

20:36

lined up, now you've got a shot

20:38

of being pretty good as a startup.

20:41

So thinking about these inflections, any happening

20:43

today, like any general macro, I mean,

20:45

I know everyone's talking about AI, right?

20:48

And like that's probably, I imagine you

20:50

see a ton of AI. startups and

20:52

ideas, but as you look around the

20:55

VC early stage space today, what are,

20:57

and you can also feel free to

20:59

mention any recent startups or investments, what

21:02

are some inflection points that's on your

21:04

brain here in 2025? Yeah, well, I

21:06

mean, it's obviously a really exciting time.

21:09

It's a time to be a little

21:11

bit careful, I think, because... You know

21:13

it reminds me a little bit of

21:16

the early days of the internet era

21:18

and two things can be true at

21:20

the same time You know something can

21:23

be overhyped, but the hype can be

21:25

long-term real, right? So I remember in

21:27

in 2000 if you'd bought stock in

21:30

Amazon you would have lost 95% of

21:32

your money But then you would have

21:34

made 500 times your money on the

21:36

other side of that and so Amazon

21:39

was clearly a long-term valid major change

21:41

event, but still I'd probably rather not

21:43

write at 95% of the way down

21:46

on the way up. I'd probably rather

21:48

just wait till it's a little bit

21:50

lower price and buy it and get

21:53

even more bent. of the upside. So

21:55

that's the challenge that we face today

21:57

is that there's no question that what's

22:00

happening in AI is really exciting and

22:02

profound and a sea change, you know,

22:04

more than an inflection, it's a sea

22:07

change. But then you got to say,

22:09

okay, well, who doesn't know that? And

22:11

how do you find ideas that are

22:14

non-consensus and right? And I see plenty

22:16

of AI ideas where I'm like, I

22:18

can totally see why people will want

22:21

this, I can see why I would

22:23

want it. But I just don't know

22:25

why there won't be 10 just like

22:28

it. And if that happens, then I

22:30

can't invest because I can't invest in

22:32

something that I don't think has a

22:35

fundamental insight. The problem is your opportunity

22:37

gets arbitraged away from the competition. And

22:39

so you have to, you know, we're

22:42

talking about Peter Thiel a little bit

22:44

ago. The part of it where he

22:46

talks about monopoly that I really agree

22:48

with is you want to stand alone,

22:51

right? You want to escape the comparison

22:53

trap completely. You don't want to be

22:55

better than the competitors, you want to

22:58

transcend competition and break free of it.

23:00

And so that's been the challenge with

23:02

AI. You know, we've made a few

23:05

investments here and there, but not as

23:07

many as some are making. You know,

23:09

I'm also interested in Bitcoin. For me,

23:12

it's sort of the crypto currency that's

23:14

hidden in plain sight. everybody's been investing

23:16

in Ethereum and smart contracts and Solana

23:19

and I think there's a lot of

23:21

virtues to those ideas as well but

23:23

if if there's a world where Bitcoin

23:26

becomes as mainstream adopted as gold there

23:28

would probably be an entire financial ecosystem

23:30

built around Bitcoin that would be really

23:33

interesting and I think that not enough

23:35

people have been paying enough attention to

23:37

that and I think that now there

23:40

might be some interesting change events you

23:42

know talk about inflections you know Regardless

23:44

of your politics, Trump's posture towards crypto

23:47

is certainly a major change event in

23:49

terms of the opportunities and upside in

23:51

crypto. be more scams too by the

23:54

way and so you know you may

23:56

go from tyranny to anarchy when it

23:58

comes to crypto on the way to

24:00

long-term stability but still it's an interesting

24:03

change of that interesting opportunity. There's a

24:05

question I've always wanted to ask someone

24:07

in your shoes who's done it a

24:10

bunch and has been around for a

24:12

while. you know the listeners on here

24:14

have got to hear me talk about

24:17

my angel investing journey and you know

24:19

we started over a decade ago and

24:21

as a quant you know the insight

24:24

that I thought was really important from

24:26

my side and you know kind of

24:28

doing this from an outsider perspective really

24:31

coming to this with the belief that

24:33

you know this is going to be

24:35

tuition for me I may not do

24:38

well I'm at peace with that but

24:40

Really the understanding that I wanted to

24:42

make a lot of bets and a

24:45

lot of small bets because of the

24:47

power laws you were talking about right

24:49

and I look back at the hundreds

24:52

of angel investments I've done now and

24:54

I really wish I'd gone back 10

24:56

years ago and Mark to each one

24:59

of them at the time I made

25:01

the investment so It's a yes, right?

25:03

So it's not all the thousands I

25:05

didn't invest in but it was yes

25:08

I invested and Mark did like one

25:10

to ten on how confident I was

25:12

that it would be the big winner

25:15

I wonder how much correlation would they

25:17

would be or just be a scatter

25:19

plot. Have you ever thought about this

25:22

where you look back and you're like,

25:24

you know what, damn it, I knew,

25:26

I knew Twitter was going to be

25:29

a monster success and these others, yeah,

25:31

you know, I thought it might be.

25:33

Do you think, like, how do you

25:36

think about that when you're making these

25:38

today? Is confidence play a role or

25:40

is it like, no, once it's a

25:43

yes, it's kind of? You know, you

25:45

know, with startups, you have to believe,

25:47

you have to believe, even when you

25:50

have to believe even when you have

25:52

to believe even when you don't. Because

25:55

as a founder you just wouldn't

25:57

be able to do the job.

25:59

There's just too many times where

26:01

you're on the verge of failing

26:03

and there's too many negative signals

26:05

you get. And so once we

26:07

invest, we're pretty much all in.

26:09

We're pretty much co-conspirator emotional sort

26:11

of part of the conspiracy to

26:13

change the future with the founders.

26:15

But I would say that if

26:18

you look at these funds that

26:20

have done really well, even the

26:22

ones that have made more than

26:24

10 times their money, their loss

26:26

ratio isn't that different. And so

26:28

when I invest, I have a

26:30

little bit of a different investment

26:32

thesis. I say, look, you know,

26:34

even if I'm doing a great

26:36

job, I'm 85% likely to lose

26:38

money. And so the question is

26:40

not whether I'm likely to lose

26:42

money. And it's not even whether

26:44

I think this company is likely

26:46

to make money. How can I

26:48

make that claim? Because even the

26:50

best, the very best the business

26:52

are wrong 85% of time. So

26:54

it turns out that being right

26:57

in my business. is not about

26:59

avoiding being wrong, how confident that

27:01

you are, that you're right. It's

27:03

about having a mechanism to decide

27:05

which opportunities embody enough upside, where

27:07

in the 15% case that you

27:09

are right, it's huge. And so,

27:11

like, you know, when I think

27:13

about, you know, in physics, they

27:15

talk about potential energy, mechanical energy.

27:17

And a potential energy is like,

27:19

I'm holding a pen up high.

27:21

And it has the potential energy.

27:23

If I drop it and it

27:25

hits the floor and it breaks,

27:27

then it converts the potential energy

27:29

when it was in my hand

27:31

into mechanical energy of hitting the

27:33

ground. But energy isn't lost or

27:36

gained, right? It's conserved. And startups,

27:38

what I find is that almost

27:40

all of the energy or value

27:42

is potential value. There's no actual

27:44

mechanical value created yet. Whereas if

27:46

you're late stage, if you're Warren

27:48

Buffett, It is about mechanical

27:50

energy. There's results to analyze. There's profits.

27:52

There's attributes of the business that can

27:55

be understood. And so, you know, you're

27:57

just the unit of analysis is just

27:59

different. I think that I like to

28:02

say Buffett is fantastic at seeing reality

28:04

better than the rest of us do.

28:06

And he sees the reality of the

28:09

truth of a business's ability to compound

28:11

for a very long time. Whereas I

28:13

like to say that a startup investor

28:15

has to see what could be and

28:18

has to kind of say, you know,

28:20

given that it's 85% chance of going

28:22

wrong, what could go right and how

28:25

right is it? and how right could

28:27

it be? And that's where the art

28:29

and the science is, right, is figuring

28:32

that out. And that's why it's hard

28:34

for most people to context shift, right?

28:36

It's really hard to do any other

28:39

kind of investing simultaneously with angel or

28:41

seed investing because it's just like, it

28:43

just operates under a totally different set

28:45

of laws and gravity and space time,

28:48

right? It's just completely different. It would

28:50

be like. No, the world's not in

28:52

Cartesian coordinates. It's a bowler coordinates, right?

28:55

You just have to understand an entirely

28:57

different way of interpreting the world and

28:59

events and those types of things. And

29:02

so, that's kind of how I see

29:04

it. But like, I never have an

29:06

investment thesis where I say, I'm confident

29:09

this company will succeed, because that would

29:11

not be intellectually honest to me to

29:13

say, the better way for me to

29:16

show up is to say, this is

29:18

how big it could be if it

29:20

does succeed. is it big enough? And

29:22

that's kind of how I like to

29:25

think about it. So given all those

29:27

parameters, how do you decide on 40

29:29

as the number? Because I feel like,

29:32

you know, again, as a quant, I

29:34

feel like, you know, all right, I

29:36

gotta get a couple of these big

29:39

winners. I feel like I should err

29:41

on the side of more, like, maybe

29:43

like 80 almost even. It's a great

29:46

question. And I'm not sure you ever

29:48

get comfortable. But here's the way I

29:50

look at it. So the first variable

29:53

as you rightly point out is how

29:55

many shots on gold do you have

29:57

so if you haven't 40 companies in

29:59

your portfolio, you have half as many

30:02

shots on goal as if you have

30:04

80, say, or half again as many

30:06

as if you have 160. The issue

30:09

though is you've got to also care

30:11

about the magnitude of your biggest win.

30:13

And so if you have 40 companies

30:16

instead of 80, the magnitude of your

30:18

biggest win on average will be twice

30:20

as high, because you're making twice as

30:23

big a bet per bet. So you

30:25

have two things at tension. You know,

30:27

if I had a portfolio fund of

30:29

just one company, well, if I invest

30:32

in Google, it would be the best

30:34

fund of all time back of the

30:36

day, right? One investment, it was Google.

30:39

But the problem is, if you had

30:41

one investment, usually it's not going to

30:43

be Google. There's an 85% chance. That

30:46

fund's going to return zero. And so

30:48

one feels like too few, although the

30:50

very best funds of all time have

30:53

fewer investments that are survivorship bias for

30:55

that reason. If you have 100 investments,

30:57

then your biggest investment has to return

31:00

half of the fund and it's a

31:02

hundredth of the fund, right? And so

31:04

the multiple on your first check has

31:06

to be a lot greater. And so

31:09

what I like to say is in

31:11

venture, the size of your fund and

31:13

the number of investments you make, it's

31:16

a lot like qualifying for the pole

31:18

vault in the Olympics. You're putting a

31:20

bar up and you're saying I'm making

31:23

a commitment to clear that bar. And

31:25

so if I raise $100 million and

31:27

have 40 investments, I'm basic rough math,

31:30

right? Two and a half million dollars

31:32

per investment, and my best one has

31:34

to return $250 million if I want

31:37

a 5X fund. And so I'm saying

31:39

to my partners, one of my companies

31:41

out of 40 will make 100X. And

31:43

if I don't believe that, I shouldn't

31:46

raise money. I shouldn't have a fun

31:48

size that big or that many portfolio

31:50

companies because I'm not going to, I'm

31:53

not going to clear, I'm going to,

31:55

you know, in the Olympics to call

31:57

it no height, right? I'm going to.

32:00

I'm gonna fall short of the bar

32:02

and get disqualified. And so that's how

32:04

I look at it. And so you have two

32:06

things at tension. You have how many shots

32:08

on goal you get and you want

32:10

a minimum number so that you get

32:12

any big outliers. But then if you

32:15

have too many, then the magnitude of

32:17

the outliers that you get won't be

32:19

big enough. And so, you know, I like

32:21

to say it's a function of what I call

32:23

picking skill, what percent of your picks

32:25

are outliers. And the higher your picking

32:27

skill, the smaller your portfolio can be.

32:30

That's kind of what it comes down to,

32:32

I think. A little bit of art, a little bit

32:34

of science, where, you know, comfortable, where do

32:36

you feel as the sweet spot? You know,

32:38

one of the things you talked about, I

32:40

was laughing, I was reading it, you had

32:43

a quote where you're like, breakthrough companies, need

32:45

to be built by missionaries, not mercenaries. And

32:47

then you talk about like being disagreeable. And

32:49

in my head, I just picture my wife.

32:52

talking about like just being stubborn. And so

32:54

I'm like always thinking like, is this a

32:56

good quality? Is this a bad quality? Maybe

32:58

talk to us a little bit about this,

33:01

because I imagine there's been times when you

33:03

got to start up, you know, and he's like,

33:05

no, like this is this. This is what we're

33:07

doing. And other times, like, like pounding them on

33:09

the head, be like, no, you're not seeing it.

33:12

You're just being a blockhead. How do you think

33:14

about that? How do you think about that? How

33:16

do you think about that? How do

33:18

you think about that? fundamentally a startup

33:21

is a disagreeable act. So a

33:23

startup is a disagreement with the

33:25

present. It's an affront to

33:27

the current sensibilities and patterns

33:29

of how things happen. And so,

33:31

you know, the very word status quo

33:33

has the word status in it. You're

33:35

going to have people protecting

33:37

their status as a function

33:39

of wanting to persist the status

33:41

quo. And so if you're a

33:44

founder, you've got to make some

33:46

decisions about what's important. Do you

33:48

want to fit in to the

33:50

status dominance hierarchy and

33:52

get along with folks all the time

33:54

and keep the peace? Or do you

33:57

sometimes have to break some glass?

33:59

So like. For example, the lift

34:01

guys, at first it was called

34:03

Zim Ride, and they had this

34:05

corporate commuting service. And then one

34:07

day they decide they're gonna do

34:09

an experiment where we do peer-to-peer

34:11

ride sharing, who put these pink

34:13

mustaches on cars. And my partner

34:15

Anne's at a board meeting, and

34:17

they're going through the pros and

34:19

cons, and one of the cons

34:21

is it's illegal. And Anne says,

34:23

okay, well, is it legally ambiguous

34:25

or is it just straight up

34:28

in your face illegal? illegal? And

34:30

they say, oh no, it's clearly

34:32

unquestionably illegal. So Anne says, well,

34:34

is this thing going to rock

34:36

people's world? Are people going to

34:38

love it? And Logan Green, one

34:40

of the co-founders, who's pretty understated,

34:42

says, I've never been more confident

34:44

of anything in my life. And

34:46

so Anne says, it is a

34:48

legendary response. Well, I guess we'll

34:50

have to get the law change

34:52

then. Here's the thing, though. Most

34:54

people, it doesn't occur to them.

34:56

It doesn't occur to them. that

34:58

launching an illegal service is one

35:00

of the available options. What was

35:02

the alternative? You could have gone

35:04

to the San Francisco City government.

35:06

You could have said, great news.

35:09

We got this new idea. It's

35:11

amazing. People are going to love

35:13

it. It's called lift. We just

35:15

need you to tweak this law

35:17

so we can launch. What would

35:19

they have said? They would have

35:21

said no. Of course, they would

35:23

have said no. So the only

35:25

way that you're ever going to

35:27

see if it's going to launch

35:29

it. have people fall in love

35:31

with it, and then you're negotiating

35:33

with the San Francisco government, but

35:35

now they've got to take something

35:37

away from people that they really

35:39

like. And if you're not willing

35:41

to do that, then you're not

35:43

going to fulfill the mission of

35:45

the enterprise. And so what the

35:47

founders have to do very often

35:49

is they have to, they get

35:52

into these situations where the present

35:54

fights back, it's not going to

35:56

fight back fair, you know, the

35:58

taxi lobby lobby. is not interested

36:00

in negotiating with lift and Uber.

36:02

You know, they're not looking for

36:04

some win-win agreement. You know, they

36:06

want them out of business, period.

36:08

And so, you know, when you're

36:10

in a situation like that, you've

36:12

got to decide if you want

36:14

to fit in with what is,

36:16

or whether you're going to have

36:18

to, you know, ruffle some feathers

36:20

and break some glass, you know,

36:22

takes cracked eggs and make it

36:24

omelet, I don't see any escaping

36:26

that. It's not always about doing

36:28

something that seems overtly overtly. hostile

36:30

to the present, you know, like

36:33

Justin Khan, before he started Twitch,

36:35

his prior company had a calendar

36:37

software, and then Google launches a

36:39

Google calendar, and Justin and Emmett

36:41

are like, okay, well, we're out

36:43

of business, so I guess we

36:45

better sell this thing. And I

36:47

heard online that they'd sold this

36:49

company on eBay. And I'd never

36:51

seen anybody sell a company on

36:53

eBay before. I didn't even know

36:55

you're allowed to sell companies on

36:57

eBay. But that's part of being

36:59

disagreeable too. It's like disagreeable is

37:01

not about just being overtly obnoxious

37:03

for its own sake, although some

37:05

founders are. It's really about saying

37:07

there are certain times you've got

37:09

to be willing to say, I

37:11

disagree. And I'm not going to

37:14

just go with what the other

37:16

guy says. I'm going to chart

37:18

my own path and do it

37:20

my way. And, you know, even

37:22

if it makes some people uncomfortable,

37:24

that's what I'm going to do.

37:26

Your career has kind of spanned

37:28

as a VC an interesting period

37:30

where a lot of companies have

37:32

decided to stick around the private

37:34

markets longer. You know, you've had

37:36

some new interesting... Areas for liquidity,

37:38

you've had public dipping into privates,

37:40

you've had privates that are now,

37:42

I don't know, what SpaceX, 300

37:44

billion dollar company is still private.

37:46

Are we ever going to get

37:48

any IPOs again or direct listings?

37:50

What's the the gate's going to

37:52

start to open up? How do

37:55

you feel about the VC market

37:57

here in 25? How are we

37:59

looking? I don't know if it'll

38:01

ever be... like in the really

38:03

good old days, back when I

38:05

was a founder, you know, kind

38:07

of in the 90s, a lot

38:09

of companies go public in three

38:11

years, four years. That was a

38:13

pretty mainstream outcome if things worked.

38:15

That almost never happens now. I

38:17

think that the stay private longer

38:19

feels like it's a little bit

38:21

here to stay. It feels like

38:23

the scale that you need to

38:25

be public is greater than it

38:27

once was. And you know. there

38:29

was kind of this little walk

38:31

on the wild side experiment with

38:33

spacks and that didn't go so

38:36

well. And so I don't think

38:38

that the attempts to have more

38:40

more companies go public sooner before

38:42

they're ready really panned out. So

38:44

I think fundamentally what that means

38:46

is that the magnitude of your

38:48

winners has to be higher when

38:50

it works. And so if it

38:52

takes longer for it to be

38:54

realized. Not only do

38:56

you have to get paid for

38:58

the risk, but you have to

39:00

get paid for the lack of

39:03

liquidity for longer. And so I

39:05

just think that's going to come

39:07

with a territory, right? You have

39:09

to be finding these companies where

39:11

if they work, the results are

39:13

so astronomical that it covers all

39:15

sins. I don't see that changing.

39:18

Let's bounce around. We've got a

39:20

few fun questions. If someone was

39:22

able to open the pages of

39:24

your surprise journal. What would be

39:26

some recent entries? Anything on your

39:28

brain you've been thinking about, surprised

39:30

about? I'm surprised at what an

39:33

individual can do with AI. I've

39:35

spent a lot of time just

39:37

playing with the tools and trying

39:39

different experiments and it just feels

39:41

like a superpower. So what I

39:43

guess the biggest surprise for me

39:45

the last six months is The

39:48

idea that very small teams can

39:50

massively force multiply and so like

39:52

I used to sit here and

39:54

think man you know I'm this

39:56

tiny little fund 150 million dollars

39:58

and there's funds out there raising

40:00

billions sometimes tens of billions of

40:03

dollars how do I compete with

40:05

them they have all these fees

40:07

they have giant teams they have

40:09

lots of budget to spend on

40:11

programs and awareness building now I'm

40:13

now I feel the opposite now

40:15

I feel like man it'd be

40:18

hard to run one of those

40:20

big firms because just the coordination

40:22

costs of keeping everybody on the

40:24

same page is just crazy high.

40:26

I've got this collection of what

40:28

I call 100 bagger startups and

40:30

so I try to create a

40:33

time capsule of every great startup,

40:35

what it looked like in the

40:37

seed round. And I, you know,

40:39

because I have all this data

40:41

and I study this, it's easy

40:43

for me to use the AI

40:45

to do a lot of really

40:47

interesting things. For example, I might

40:50

be interested in... People are saying

40:52

AI is going to enable a

40:54

shift of business models away from

40:56

software as a service to technology

40:58

enabled service. Well, then I can

41:00

say, okay, well, what are all

41:02

the 100 bagger startups that have

41:05

been technology enabled services or I

41:07

can run the AI against business

41:09

model canvas and run what if

41:11

scenarios 10 different ways and pose

41:13

a lot of what if questions

41:15

and like come up with like

41:17

lots of anomalies to lots of

41:20

anomalies to look for. And then

41:22

I can ask the AI, okay,

41:24

please consider this list of 100

41:26

bagger companies in business consumer. What

41:28

do you think will be similar

41:30

or different about them in the

41:32

next five to 10 years and

41:35

why? And I can ask that

41:37

to not just Claude but chat

41:39

GPT and I can, you know,

41:41

ask it in different ways and

41:43

like just the amount of insight

41:45

that you can gather in a

41:47

given amount of time and effort

41:50

invested is extraordinary. And

41:52

then there was this other book, I'm

41:54

trying to remember the author's name, it's

41:56

called a hundred baggers, it was written

41:58

about public stocks. I love this book

42:00

and I thought... you know, on the

42:02

weekends, I'm going to try to find

42:04

these hundred bagger stocks, you know, the

42:06

coffee can metaphor. And I was like,

42:09

but, you know, how am I going

42:11

to ever have the time to implement

42:13

the strategies that they propose in that

42:15

book? Well, now it's trivial easy to

42:17

do that. Now I can use the

42:19

AI to create the equation for all

42:21

the things that they should, and you

42:23

should care about, and I can run

42:25

it against thousands of companies. And so

42:27

now I have the tools. that a

42:29

massive team would have and now it's

42:32

just am I more patient than the

42:34

other guy who's investing and I think

42:36

I can win that game you know

42:38

because one of the things I learned

42:40

from Swenson you know we talked about

42:42

him earlier is patience is a form

42:44

of arbitrage. Most people think liquidity is

42:46

good but actually I think it's as

42:48

much of a bug as a feature

42:50

because what you realize is that if

42:52

you're buying assets that you have to

42:55

hold for a long time you don't

42:57

have much competition. because not many people

42:59

want to do that. And so you

43:01

end up competing less for those assets,

43:03

which causes them to be systematically underpriced

43:05

in many cases. And so I think

43:07

also patience is a form of arbitrage

43:09

and your willingness to hold a stock.

43:11

I could have never acted on that

43:13

insight very well, because I just didn't

43:15

have the tools to do the analysis

43:18

that I'd need to do to feel

43:20

comfortable about it. But now my wife

43:22

Julie and I on the weekends, you

43:24

know, we just do our little hundred

43:26

bagger analysis and we trade ideas and

43:28

we look at it and stuff and

43:30

it's fun to, you know, do it

43:32

with the kids and stuff. It's fun

43:34

to talk about and think about. And

43:36

you know, and let pick about one

43:38

stock a year. It's almost like in

43:41

so many fields, the knowledge pre-existing in

43:43

the world is now available to you

43:45

at your fingertips. And it's just such

43:47

an awesomely powerful idea. So I'd say

43:49

that's my biggest surprise. I mean, I

43:51

knew AI is important, everybody does, but

43:53

I just didn't realize how good the

43:55

tools were going to get and how

43:57

useful they'd be for a guy like

43:59

me. I keep saying I'm going to

44:01

spend the weekends. trying to get really

44:04

up to speed on putting these into

44:06

place. And then, as you know, seven-year-old

44:08

creeps in. It's a little harder. But

44:10

we've had Chris Mayer on the podcast,

44:12

author of a hundred baggers, and I

44:14

was looking on my bookshel, yeah, trying

44:16

to find it. We recently saw the

44:18

passing of arguably one of the investing

44:20

goats, particularly in the acid allocation world,

44:22

ELC, O, David Swinson, and sound like

44:24

he was a early LP for you

44:27

guys. Would love to hear if you

44:29

had any. thoughts about Swenson

44:31

any fun stories. I remember when we

44:33

first got started we would think about

44:35

who we would want as investors and

44:38

when your venture capital firm it's kind

44:40

of like saying I want Dave Swenson

44:42

to invest it'd be kind of like

44:45

saying I want to be a college

44:47

football player with Nick Savin or something

44:49

right it's just like he's kind of

44:52

a legend in the endowment field and

44:54

so we started to get to a

44:56

point where we're having some success and

44:59

We started to talk to the Yale

45:01

people and your first meeting with Yale

45:03

isn't Dave Swenson, right? They have to

45:05

vet you and some things and one

45:08

day he came out to visit us

45:10

and we were in California and the

45:12

power went out because there's this big

45:15

rainstorm and he showed up a little

45:17

bit sooner than his team. It just

45:19

so happened that his ride got there

45:22

quicker and so my partner Anne and

45:24

I, we started floodgate with, were lighting

45:26

candles in the conference room so that

45:29

there will be lights. And Swenson gets

45:31

there first and he just decides to

45:33

walk in on his own. So he

45:35

sits down and we're sitting there in

45:38

a dark conference room lighting candles and

45:40

he starts to just ask questions about

45:42

our business. And you know I have

45:45

this term that describes the startups we

45:47

try to invest in, we call them

45:49

thunder lizards, you know the metaphor comes

45:52

from Godzilla. And, you know, Godzilla hatch

45:54

from radioactive atomic eggs and emerged from

45:56

the ocean and started swiping holes in

45:59

buildings and breathing fire and eating trains.

46:01

like there are so many things I

46:03

learned from him, much more important than

46:06

the fun stories and stuff. And so

46:08

the rest of the Yale team came

46:10

in and this is like the first

46:12

time I've ever met him. And you

46:15

know, the rest of the team came

46:17

in and the whole rest of the

46:19

meeting, you'd be like, tell me more

46:22

about thunder lizards. There are so many

46:24

things I learned from him, much more

46:26

important than the fun stories and stuff.

46:29

The thing that I think a lot

46:31

of people don't realize about him was

46:33

he wasn't just successful. impactful investor. He

46:36

really was a great person. You know,

46:38

he had a great strength of character

46:40

and just some sensibilities to him that

46:42

just I really respected a lot. It

46:45

was an opportunity of a lifetime to

46:47

get to work with him. Yeah, he

46:49

seems to be kind of universally respected.

46:52

You know, it's funny because I read

46:54

this book this past summer and When

46:56

it came out, but you have a

46:59

fun story where you're talking about second

47:01

grade you I actually have a second

47:03

grader right now and you're talking about

47:06

reading Jonathan See Livingston Siegel book People

47:08

watches it on YouTube. You see me

47:10

covered in some white powder It's actually

47:13

cornstarch of today was Newtonian fluid volunteer

47:15

day in the science lab, but anyway

47:17

Tell us a little bit about that

47:19

book. I actually, so I read it

47:22

for the first time this year. I

47:24

had never even, I don't even think

47:26

I've even heard of that book before.

47:29

Tell us a little bit, your reference

47:31

to the Siegel book and why it

47:33

matters. Yeah, so in the early 70s

47:36

there were some books that I thought

47:38

were really interesting in hindsight that my

47:40

dad was interested in. One was Jonathan

47:43

Livingston, the Siegel, the other was Zen

47:45

in the art of motorcycle maintenance by

47:47

Persig, and then be here now by

47:49

Romidos. Jonathan Livingston Siegel's this tiny little

47:52

book, and I just saw it in

47:54

his office one day, and I asked

47:56

him what it was about. My dad's

47:59

style was to kind of say, well,

48:01

what do you think it's about? Why

48:03

don't you read it? You tell me

48:06

what you think it's about. So I

48:08

read it, and you know, it's about.

48:10

this bird who's a seagull and he

48:13

wants to achieve perfect flight, and he's

48:15

in this flock of seagulls and all

48:17

the other seagulls say, why would you

48:19

want that? You're a seagull, you know,

48:22

and our destiny is to be these

48:24

dirty, yucky birds that eat the scraps

48:26

off of the surface of the ocean,

48:29

and you know, he keeps getting obsessed

48:31

with wanting to fly fast. And it

48:33

gets to a point where he ends

48:36

up getting cast away from the flock.

48:38

And they don't want to hang out

48:40

with him anymore. So he ends up

48:43

finding kind of another kindred spirit. And

48:45

then he learns how to achieve perfect

48:47

flight. So I talked to my dad

48:50

about later and he said, you know,

48:52

what did you think it was about?

48:54

And I didn't have the vocabulary exactly

48:56

that I would have now, but the

48:59

thing I got from it was something

49:01

to the effect of... The limits that

49:03

exist in your life are not usually

49:06

limits of the world. They're usually the

49:08

limits that you impose on yourself in

49:10

your own mind. And that if you

49:13

want to achieve limitless success and a

49:15

limitless potential, you need to break the

49:17

chains of your own thoughts in your

49:20

mind, that's a more important set of

49:22

barriers to overcome. than anything that's out

49:24

there in the world that's trying to

49:26

stop you. And he was kind of

49:29

like, hey, not bad, you know, that's

49:31

a pretty good take. But that book,

49:33

when I was a kid, really influenced

49:36

me a lot because I noticed that

49:38

a lot of people all the time,

49:40

and we ourselves, even in our own

49:43

mind, we allow ourselves to buy into

49:45

the limits all around us. We allow

49:47

ourselves to play the game by the

49:50

rules that are defined by somebody else.

49:52

We just accept things for what they

49:54

are. And a lot of times, life

49:56

gets a lot more interesting when you

49:59

realize that life as we know it

50:01

usually. it was defined by somebody else

50:03

who just had the courage or the

50:06

independent thought or just the wherewithal to

50:08

just say hey I think there's a

50:10

better way I'm gonna try this way

50:13

and so I always liked that book

50:15

and you know Richard Bach is just

50:17

such an amazing author you know he

50:20

wrote some other great books to like

50:22

illusions and he ended up being pretty

50:24

famous in the 70s for this book

50:27

so that was the other thing is

50:29

just his style of writing is just

50:31

so it has a lot of whimsy

50:33

and Whit to it. So, you know,

50:36

it's also just a very magically crafted

50:38

book and a very well well conceived

50:40

story. So I've just always been a

50:43

fan of Jonathan Livingston Siegel, right? Ever

50:45

since I was a kid. Do you

50:47

know what your most popular tweet is

50:50

ever? I don't know. It's probably a

50:52

picture of my dog. No, no. You

50:54

had a tweet. I'm almost afraid to

50:57

look. No, it's good. It's fine. It's

50:59

fine. It was last year. He said,

51:01

I don't care who people vote for,

51:03

but I wish basic economic and financial

51:06

literacy was a high school requirement. And

51:08

we talk a lot about this on

51:10

the show. We've done a bunch on

51:13

this concept. How do you think about

51:15

how to teach kids how to invest

51:17

or even just about financial topics in

51:20

general? Are there any sort of ideas,

51:22

concepts? I think we even start teaching

51:24

it in like elementary school, you know,

51:27

money and just ideas about how to

51:29

think about probably arguably the most useful

51:31

skill that every single person will have

51:34

to know at some point. Instead of

51:36

shipping off these 18 year olds to

51:38

say, hey, should you take on 300

51:40

grand a debt or should you buy

51:43

a house? You get a credit card.

51:45

What are your ideas around this topic?

51:47

My awakening to it was, there's this

51:50

guy. asking the question, you know, why

51:52

aren't there more black entrepreneurs in Silicon

51:54

Valley? There's all kinds of different opinions

51:57

about it, but I was like, I

51:59

should at least do some work. to

52:01

try to figure this out. So I

52:04

talked a bunch of people and I

52:06

read some books and then I read

52:08

John's book. He wrote this book called

52:10

How the Poor Can Save Capitalism. And

52:13

I realized after reading John's book that

52:15

I didn't know Squat about the problem

52:17

and nobody in Silicon Valley that I

52:20

knew new Squat about the problem, that

52:22

we were just living in a different

52:24

universe. You know, so like what John

52:27

helped me realize was that like, and

52:29

by the way this isn't just... for

52:31

black people it turns out it turns

52:34

out anybody in a zip code with

52:36

a low FICA score average this applies

52:38

to but the example used in the

52:40

book was a lot a lot of

52:43

black people grow up in this country

52:45

where the only two stores near them

52:47

are the liquor store and the payday

52:50

loan store and they never they never

52:52

learn that the monthly price of your

52:54

loan isn't the only variable that you

52:57

should care about right that the that

52:59

there's interest rates and a bunch of

53:01

they never got the memo. They never

53:04

understood the idea of saving and compounding

53:06

and all these types of things, the

53:08

impact of that. And so what John

53:11

said that really struck me was that

53:13

financial literacy was the next civil right

53:15

and that everybody in advanced societies should

53:17

have financial literacy in the same way

53:20

that they are able to read words

53:22

on a written page. that it's just

53:24

such an important life skill. It's so

53:27

important and impactful to one success in

53:29

the world. And not just in terms

53:31

of how much money you have, but

53:34

in terms of just your basic understanding

53:36

how the world really works and how

53:38

value gets created in the economy. And

53:41

so, been really interested in that. And,

53:43

you know, John's done some really good

53:45

work on this with Operation Hope and

53:47

he's raised a bunch of money and

53:50

brought a lot of visibility to it.

53:52

that we could, there's a bunch of

53:54

problems that we have in education that

53:57

are. about to get to a threshold

53:59

where the only thing that will stop

54:01

us is our will to solve the

54:04

problem because we will have an infinite

54:06

supply of patient educators. There will no

54:08

longer be an availability problem. There will

54:11

no longer be an access problem. There

54:13

will only be a willingness to get

54:15

educated problem. And that's still a legitimate

54:18

problem. But that's good, right? In the

54:20

past, you might have said, even if

54:22

I believe financial literacy matters, you wouldn't

54:24

have been able to hire enough teachers.

54:27

You wouldn't have been able to embed

54:29

it in the curriculum. There's just too

54:31

much between that idea and operationalizing that

54:34

idea, but we're heading into a world

54:36

where anybody who wants to be financially

54:38

literate will be able to be. And

54:41

now we just have to help parents

54:43

understand that it's an important obligation that

54:45

they have their own children to make

54:48

sure that that that comes true for

54:50

them. Because if you don't have financially

54:52

literate children, you're basically excluding them from

54:54

the upside opportunity of being a citizen

54:57

of the US. You're handicapping their pursuit

54:59

of the American dream. And so, like,

55:01

I feel like it's one of the

55:04

most important duties of parents. And you

55:06

can't count on the schools to do

55:08

it, but the good news is now

55:11

you don't have to be a lot

55:13

of resources. soon that the AI tools

55:15

will be better than any teachers ever

55:18

been teaching it. Yeah, it'd be, it's

55:20

going to be fun to watch. You

55:22

know, I like, we had Brad Gerser

55:24

on the podcast talking about his Invest

55:27

America idea, you know, ceding. children born

55:29

in America with a brokerage account, which

55:31

I think is interesting because it gives

55:34

the one of the things I think

55:36

missing for a lot of people when

55:38

you try to teach this is it

55:41

feels too distant. You know, it's not

55:43

tangible, but having a connection to what's

55:45

going on in the real world. Certainly,

55:48

I mean, I remember back in the

55:50

90s, I was in high school, I

55:52

know a lot of these text stuff.

55:55

I mean, this was my favorite bubble,

55:57

right? Like a really fun time. But

55:59

I remember, you know, looking at the

56:01

newspaper with my dad, looking at quotes

56:04

in there, which used to be back

56:06

in quarters and halves, and, you know,

56:08

looking at loosened technologies, looking at AOL

56:11

and CEMGI and all these others. But,

56:13

you know, if you're not engaging in

56:15

these sort of ideas, it's a lot

56:18

harder to discuss the concepts, you know.

56:20

So I get really frustrated a lot

56:22

of... Critics say, well, you can't teach

56:25

financial literacy. People forget it. And I

56:27

say, well, you're probably just teaching the

56:29

wrong thing. Or you're not a good

56:31

teacher. Come on. That's such a terrible

56:34

approach to it. But, you know, hey,

56:36

maybe AI solves this and people can

56:38

get the curriculum and it'll be fun

56:41

to watch. By the way, I didn't

56:43

see your interview with Gerstner, but I've

56:45

heard him allude to this and I'm

56:48

curious about your take on something mebs.

56:50

One way I've internalized it is people

56:52

talk about UBI, Universal Basic Income. And

56:55

I've always felt that they had the

56:57

discussion backwards. Like, the idea isn't to

56:59

give people money so they can consume

57:02

more. We don't have a lack of

57:04

consumption problem in this country. In fact,

57:06

that's why most people are in trouble,

57:08

as they run up big debts or

57:11

their credit cards and all that stuff.

57:13

What I liked about what Brad was

57:15

saying was it's, I call it UBS,

57:18

Universal Basic Savings Savings Savings. What you

57:20

want to encourage people to do is

57:22

to say, look, I'm not afraid of

57:25

AI companies taking my job. I want

57:27

to own a share in that company.

57:29

And I want to be part of

57:32

our shared manifest destiny of being a

57:34

great country. I want to have a

57:36

stake in what happens no matter what

57:38

happens. And, you know, the way I'm

57:41

going to be a prosperous person is

57:43

to change my time preference so that

57:45

I'm not just trying to buy low

57:48

cell high this week, the latest meme

57:50

coin or the latest, you know. trade,

57:52

you know, game stop, whatever, the way

57:55

real wealth happens is through financial literate.

57:57

application of good decision making. And so

57:59

I often thought that that would be

58:02

an interesting thought, you know, like air

58:04

dropping money that vests over 30 years

58:06

to people. The only decision you get

58:08

to make is what what vehicles to

58:11

invest it in, but you do have

58:13

to invest it. You can't, you can't

58:15

just spend it on, you know, stummy

58:18

checks and, you know, what happened in

58:20

COVID. What I really like about cursors

58:22

idea. is essentially it gives investors skin

58:25

in the game in the sense that

58:27

they're all in the same team. So

58:29

like you're now cheering for the US

58:32

to do well or GDP and you're

58:34

cheering for Apple or Walmart, you know,

58:36

to perform and so you have a

58:39

stake, right? So to me, if you

58:41

look at the percentage of Americans that

58:43

don't own stocks. You know, especially directly,

58:45

it feels like we did this old

58:48

post, it's like four or five years

58:50

ago now, on the income wealth gap

58:52

and some solutions, and this was one

58:55

of our ideas where we talked about

58:57

it. There's actually an interesting app listeners,

58:59

and I put a tiny bit of

59:02

money into this, but because I love

59:04

the idea, it's called Griffin. But it's

59:06

an app that you know there's a

59:09

lot of these will connect to your

59:11

credit cards or you know they'll round

59:13

up the savings like acorns and you

59:15

got the robot visors and these are

59:18

all great but this one's actually it

59:20

scans all your credit cards and then

59:22

you can set the amount it could

59:25

be a dollar ten dollars thousand dollars

59:27

but it'll buy stocks in the companies

59:29

where you spend money and I was

59:32

like this is actually a really interesting

59:34

idea from a couple standpoint it's like

59:36

You know Amazon of course Uber lift

59:39

and then I saw into it on

59:41

there and I'm like son of a

59:43

bitch I hate that company But but

59:45

as you see this roster of actual

59:48

companies and it gives you like a

59:50

tangible connection because I feel like that's

59:52

what's missing about a lot of our

59:55

world as people look at like I

59:57

bought I mean look we're an ETF

59:59

manager hey I bought you know the

1:00:02

S-P-Y but that doesn't feel as tangible

1:00:04

to me as hey I bought Amazon

1:00:06

or whatever anyway it's also an interesting

1:00:09

idea from the standpoint of it hedging

1:00:11

your own personal inflation. So it's like

1:00:13

money where you spend, you're hedging with

1:00:16

the money you spend. And by the

1:00:18

way, listeners, use the code and best.

1:00:20

You'll get 25 bucks if you sign

1:00:22

up. I don't get anything, but you

1:00:25

guys get 25 bucks. Anyway, I thought

1:00:27

it was a fun approach. And it's

1:00:29

interesting. My grandfather did something that in

1:00:32

hindsight, I realize was pretty wise. When

1:00:34

I was in sixth grade, he basically

1:00:36

said, okay, look, look, Mike, here's the

1:00:39

deal. When you graduate high school, high

1:00:41

school, high school, And

1:00:43

so, like, what does that do?

1:00:45

You know, I'm in a, I'm

1:00:47

in a store and I'm deciding

1:00:49

whether I'm gonna buy a stick

1:00:51

of gum or not. I'm like,

1:00:53

well, you know, it basically cost

1:00:55

me two X, the price. And

1:00:57

so I'd say by the time

1:00:59

I graduated high school, I'd save

1:01:01

like 5,000 bucks. And, you know,

1:01:04

it's not a huge amount of

1:01:06

money, but it changes your relationship

1:01:08

to money. And it changes your

1:01:10

idea about what saving is. I

1:01:12

think that was a really great

1:01:14

gift that he gave me. It

1:01:16

was worth a whole lot more

1:01:18

than $5,000. Yeah, because it gives

1:01:20

you, again, the skin in the

1:01:22

game part too is meaningful. I

1:01:24

mean, I think everyone wants to

1:01:26

work towards something, you feel great

1:01:28

about the outcome and struggle along

1:01:30

the way, right? One or two

1:01:32

more quick questions, we'll let you

1:01:34

go. We always ask everybody, you

1:01:36

go sit down, you're hanging out

1:01:38

with a bunch of your fellow

1:01:40

VCs. And you sit down at

1:01:43

a table, you're having a meal,

1:01:45

having a coffee, having a beer,

1:01:47

whatever it is, and you guys

1:01:49

are talking, and you say something.

1:01:51

This is a belief you hold

1:01:53

about investing, or it could just

1:01:55

be about venture capital in general,

1:01:57

but 75 percent. So most of

1:01:59

your peers don't agree with. You

1:02:01

say it, they shake their head.

1:02:03

What's a belief you hold? that

1:02:05

most of your peers would not

1:02:07

agree with. Okay and I may

1:02:09

get myself a little bit in

1:02:11

trouble here. Please do. I believe

1:02:13

that there are aspects of Christianity

1:02:15

that are extraordinarily important to the

1:02:17

health and functioning of the Western

1:02:20

world and free society and I

1:02:22

think we underestimate that importance. And

1:02:24

by that I don't mean you

1:02:26

should go to church necessarily or

1:02:28

read the Bible necessarily, but there

1:02:30

were things that Jesus brought to

1:02:32

the world, if you look at

1:02:34

him purely through the lens of

1:02:36

philosopher King. So he sort of

1:02:38

said, the scapegoating mechanism is a

1:02:40

bad construct for how to resolve

1:02:42

problems, which, by the way, for

1:02:44

Jesus, that's how it was always

1:02:46

resolved. You sacrifice somebody and then

1:02:48

you have this big societal release

1:02:50

and you get on to the

1:02:52

next thing. He brought the idea

1:02:54

of human rights and humans have

1:02:56

value for their own sake. The

1:02:59

other thing that he brought that

1:03:01

was very important is this idea

1:03:03

of unconditional love. And so you

1:03:05

don't have to agree with somebody

1:03:07

and you don't even have to

1:03:09

buy into what they're saying, but

1:03:11

like it's better, I think, to

1:03:13

approach people in this world through

1:03:15

a lens of I want what's

1:03:17

best for them, no matter what

1:03:19

they do. I may have to

1:03:21

invoke consequences in certain situations, but

1:03:23

I should try to be on

1:03:25

a footing that says, I want

1:03:27

the best for all people, all

1:03:29

things being equal, and there aren't

1:03:31

conditions with that. I'm not going

1:03:33

to like you because you like

1:03:36

me or whatever, or because you

1:03:38

did something for me. And so,

1:03:40

like, those ideas I think are

1:03:42

really important, and I think that

1:03:44

the secularism has kind of thrown

1:03:46

the baby out with the bathwater.

1:03:48

It's caused people to forget. Some

1:03:50

of the great ideas that were embedded

1:03:53

in the core tenets first principle of

1:03:55

Christianity and I'm not trying to say

1:03:57

this through a religious lens. I would

1:03:59

say the same. is true about forgetting

1:04:01

about Aristotle or forgetting about Pythagorean geometry

1:04:03

or you know or the Pythagorean theory,

1:04:05

but like they're just certain things that

1:04:07

are great ideas that have stood the

1:04:10

test of time that we shouldn't forget

1:04:12

and we shouldn't have to relearn those

1:04:14

lessons because we're too dumb to see

1:04:16

what's in front of us. Last question,

1:04:18

what's been your most memorable investment? Good

1:04:20

bad in between, anything come to mind?

1:04:22

It's got to be Twitter in the

1:04:24

sense that, you know, in the early

1:04:26

days it was a podcasting company called

1:04:29

Odio. Apple decides to get podcasting away.

1:04:31

They decide they don't have a business

1:04:33

and they've got this little side project.

1:04:35

They're deciding what to call it. You

1:04:37

know, are we going to call it

1:04:39

voicemail 2.0, TWTTR? They don't even know

1:04:41

if they're going to release it or

1:04:43

if it's going to be a company.

1:04:46

Then it blows up at South by

1:04:48

Southwest and I'm trying to invest. And

1:04:50

then everything, you know, there's always the

1:04:52

fail well, they can't decide who the

1:04:54

CEO is. It just had so many

1:04:56

things, so much drama. And then one

1:04:58

day I'm picking up my daughter at

1:05:00

a play date and her mom says,

1:05:02

is it true you invested in this

1:05:05

Twitter company? I just saw them on

1:05:07

Oprah. And then, you know, not long

1:05:09

after that, the Arab Spring happened and

1:05:11

they'd had to not... take the servers

1:05:13

down on maintenance because the state department

1:05:15

said, hey, look, you know, we think

1:05:17

Ahmadinejod's trying to steal the election and

1:05:19

we want all this stuff in the

1:05:22

historical record. And that was when it

1:05:24

hit me that, okay, this thing's going

1:05:26

to be giant. I was so caught

1:05:28

up in, are they going to make

1:05:30

it or not? And what's the latest

1:05:32

problem? What's the latest thing to work

1:05:34

through? I hadn't zoomed out yet and

1:05:36

realized, okay. This is what I'm in

1:05:38

it for right is these kind of

1:05:41

outcomes and so that I'd say Twitter

1:05:43

was the first experience I ever had

1:05:45

like that where I was like wow

1:05:47

this is going to be way bigger

1:05:49

than I ever imagined it would be

1:05:51

Another recent one that's been fun has

1:05:53

been when you're in the airport and

1:05:55

you see transportation networking companies next to

1:05:57

the taxi, you know, you see Uber

1:06:00

and Lyft next to the taxis and

1:06:02

you're like, wow, you know, that didn't

1:06:04

even exist a decade ago. And here

1:06:06

they are just like a mainstream fixture

1:06:08

now of travel and hospitality. So those

1:06:10

are the fun ones when they really

1:06:12

work and when they just, they're just

1:06:14

everywhere. All at once much more broadly

1:06:17

than you could have ever imagined in

1:06:19

your wildest dreams. And so those are

1:06:21

cool. It's fun with something like that

1:06:23

works out Mike best place people to

1:06:25

find you is it floodgate Twitter? Where

1:06:27

can they follow your thoughts and going

1:06:29

zones? Yeah, I'd say M2JR at Twitter

1:06:31

X now. And then I've got a

1:06:33

sub stack called pattern breakers dot subsack.com.

1:06:36

Those are probably the best places to

1:06:38

go and a podcast on occasion. Yep,

1:06:40

Power Breaker's Podcast. Yep. Mike, thank you

1:06:42

so much for joining us today. It's

1:06:44

been a blessing. All right, thanks, Memt.

1:06:46

It's good to see you. Podcast listeners

1:06:48

will post show notes to today's conversation

1:06:50

at mebfavor.com. For it slash podcast. If

1:06:53

you love the show, if you hate

1:06:55

it, shoot us feedback at the mebfabor

1:06:57

show.com, we love to read the read

1:06:59

the reviews, please. review us on iTunes

1:07:01

and subscribe to show. Anywhere good podcasts

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1:07:05

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