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Arena Show Part I: Idea Dinner + YC Continuity

We did an Arena Show!! This evening was so big and so special, we had to split it into two episodes for the podcast feed. First up is the Idea Dinner with our best internet buddies, Packy McCormick and Mario Gabriele (and special guest judge Shu Nyatta), followed by the story of YC Continuity with managing partner Anu Hariharan. Huge, huge thank you to PitchBook for making this night possible. Stay tuned for Part II! If you want more Acquired, you can follow our newly public LP Show feed here in the podcast player of your choice (including Spotify!): http://pod.link/acquiredlp **Sponsors:** Thank you to our presenting sponsor for all of Season 10, Vanta! Vanta is the leader in automated security compliance – making SOC 2, HIPAA, GDPR, and more a breeze for startups and organizations of all sizes. You might say they’re like the “AWS of security and compliance”. Everyone in the Acquired community can get 10% off using this link: https://bit.ly/acquiredvanta Thank you as well to Vouch and to SoftBank Latin America! https://bit.ly/acquired-vouch https://bit.ly/acquiredsoftbanklatam *‍Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.*

Ben GilberthostDavid RosenthalhostMario GabrieleguestShu NyattaguestPacky McCormickguestAnu Hariharanguest
May 12, 20221h 33mWatch on YouTube ↗

EVERY SPOKEN WORD

  1. 0:00 – 0:00

    Intro

    1. SP

      [audience cheering]

  2. 0:00 – 5:36

    Live at Climate Pledge Arena: welcome, gratitude, and how tonight’s show will work

    1. SP

      Ooh!

    2. BG

      ... Holy crap. [chuckles]

    3. DR

      Wow. [chuckles]

    4. BG

      [audience cheering] Hello, Acquired listeners. [chuckles]

    5. DR

      [audience cheering] You didn't tell me you were gonna say that. That's good.

    6. BG

      I, well, I'm ad-libbing. [chuckles] I got up here, and I was overcome with emotion, and none of this is scripted. [chuckles] Thank you so much for coming tonight. I, I, um, I, like, prepared things, and I should read them off my iPad here. [audience laughing] Uh, but the only thought that can occur to me right now is how different this is than what you and I normally do. [chuckles] Uh, David and I are very used to being on Zoom, talking to each other through the internet. There are zero people, uh, watching live, and if we say something wrong, we delete it, and that's not happening tonight. [chuckles]

    7. DR

      [chuckles]

    8. BG

      But, uh, more important than that is, you know, we, we get evidence that people listen in the form of analytics or tweets or, uh, a- anecdotes here and there of someone saying, "Oh, I listen to the show," but there's no human, visceral way to feel that. Like, we literally just refresh an analytics dashboard, and a number goes up, and this is so cool to see you real. [chuckles] [audience cheering] Well, as fun as it is going to be to, like, watch the show, and we've got some great stuff planned, I think it will be much cooler to meet each other. For as many... uh, they call it parasocial relationships, where you hear us talk, but we don't get to meet you. We're gonna try and meet as many of you as possible. We want y- uh, a lot of you to meet as many other people as possible, 'cause you have an easy opener, like, "What's your favorite episode?" Or, uh, "How did you hear about Acquired? Like, uh, my buddy dragged me here tonight, and I never heard of it before this." [chuckles] Uh, but everyone's got some answer to that question, so meet each other, take selfies, enjoy the time together. We have freaking Climate Pledge Arena, uh, and, and enjoy the time in it. Thank you to PitchBook. [audience cheering] Holy crap, that-

    9. DR

      Yeah.

    10. BG

      John's not kidding. [audience cheering] PitchBook's is- uh, PitchBook is Seattle's, like, monster, amazing business hiding in plain sight, and it's been really cool to get to know their team more and more and more, uh, and understand the business and, uh, just learn how on $4 million, they've been able to build this multi-hundred-million-dollar business, and it's inspiring to us. Uh, so thank you to John, thank you to Kai, uh, thank you to Lauren and Val, thank you to Nas.

    11. DR

      Thank you, guys.

    12. BG

      Uh, everyone we work at, with at PitchBook is, is just awesome, so thank you to them. [audience cheering] And-

    13. DR

      Uh, Happy Star Wars Day, Ben.

    14. BG

      Happy Star Wars Day. May the fourth be with you all. [chuckles]

    15. DR

      And may the... [chuckles] [audience cheering] Uh, I hear Paul McCartney's here.

    16. BG

      Yes, Paul McCartney is here tonight. We have a great show for you, uh-

    17. DR

      [chuckles]

    18. SP

      [chuckles]

    19. BG

      That was last night?

    20. DR

      That was last night.

    21. BG

      We do have a great show, though. Uh, tonight we have Jim Weber, the CEO of Brooks Running, another Seattle monster business that we're very excited to talk to you about. Uh, we have Anu Hariharan tonight from Y Combinator, the infamous Packy McCormick from Not Boring, Mario Gabriele from The Generalist, two of the internet's finest publications, so very excited to chop it up with them. Uh, we learned from arena shows past, live shows pa- very small live shows past, that, uh, our normal format of telling a three-plus-hour story of a business doesn't work very well in this sort of, uh-

    22. DR

      [chuckles]

    23. BG

      ... time where you're sitting down, and, um, you know, you could feel the audience getting antsy in, in, in those long stories. So we got three, just, like, fast-paced, great stories, great segments for you tonight. Um, be in and out in a couple hours. I don't know. We'll, we'll enjoy it along the way, but it's gonna feel fast relative to your normal Acquired episode.

    24. DR

      Speaking of, should we start our normal Acquired episode?

    25. BG

      We gotta do it the way that, uh... I don't know. It feels like we have a way that we start Acquired episodes, so we should do that.

    26. DR

      We should do that. [upbeat music]

    27. SP

      Who got the truth? Is it you? Is it you? Is it you? Who got the truth now? Is it you? Is it you? Is it you? Sit me down. Say it straight. Another story on the way. Who got the truth?

    28. BG

      Welcome to season 10, episode seven, the Arena Show, presented by PitchBook of Acquired, the podcast- [audience cheering]

    29. DR

      Ooh. [chuckles]

    30. BG

      ... About great technology companies and the stories and playbooks behind them. I'm Ben Gilbert, and I am the co-founder and managing director of Seattle-based-

  3. 5:36 – 6:56

    Act One setup: recreating the “Idea Dinner” stock-picking game (with rules)

    1. DR

      Well, for act one tonight, we start back in February 2021, when we were all bored at home, Clubhouse was a thing, GameStop was going to the moon- [chuckles]

    2. BG

      [chuckles]

    3. DR

      ... and we decided to call up our best internet friends, Packy McCormick and Mario Gabriele. And, uh-

    4. DR

      ... pick some stocks. [chuckles] And to be-

    5. BG

      Like everyone was doing.

    6. DR

      Like everyone was doing!

    7. BG

      Real, real quick, this is not investment advice. Do your own research. [laughing]

    8. DR

      [laughing] I'm glad you remembered that.

    9. BG

      [chuckles] Yeah.

    10. DR

      [chuckles] Uh, and tonight, we are gonna recreate that magic live here in person. Ladies and gentlemen, please welcome, all the way from New York, Packy McCormick and Mario Gabriele. [audience cheering and applauding] Whoa!

    11. MG

      All right.

    12. DR

      [chuckles] Oh, my God.

    13. MG

      Oh, let's go!

    14. DR

      Uh, look how dirty my sneakers are, too. This is perfect. [chuckles]

    15. MG

      This is a weird start, uh, to just change shoes from the beginning-

    16. DR

      Oh.

    17. MG

      But, uh, let's do it.

    18. BG

      Yeah, so, so the only rule is-

    19. MG

      All right

    20. BG

      ... you, you will lose the Idea Dinner unless you are wearing, uh- [chuckles]

    21. DR

      Did you ask us for our shoe size? [laughing] I don't remember that.

    22. MG

      I just guessed. This is actually the second-most embarrassing thing to the pick that I'm about to make. Ah. [laughing]

    23. DR

      [chuckles]

  4. 6:56 – 9:49

    Surprise judge arrives: Shu Nyatta + playful stage antics

    1. DR

      Well, we needed to delay a little bit because we have one more thing. A little special surprise. We wanted to raise the stakes tonight, so we brought in a judge who is going to grade each of our picks, Acquired style, and declare a winner and a loser at the end of the night.

    2. BG

      And a loser? This is very harsh. [laughing]

    3. MG

      Very harsh.

    4. DR

      Very mean. [laughing]

    5. MG

      Yeah.

    6. DR

      Please welcome, from the capital of Silicon Valley, Miami, Florida. [laughing]

    7. MG

      [laughing]

    8. BG

      [laughing]

    9. DR

      Great longtime friend of the show, and former SoftBank Latin America managing director, Shu Nyatta. [chuckles] [audience cheering and applauding] Woo-woo!

    10. MG

      Ooh.

    11. BG

      Thanks, pal.

    12. DR

      All right, so let's dive into the Idea Dinner. Um, I'm happy to report, when we were deciding the order that we were gonna go in-

    13. MG

      [chuckles]

    14. DR

      ... uh, I came up with the criteria, which was whose picks historically have performed the best? That would be mine. That would be me. [chuckles]

    15. BG

      [chuckles] This is so rigged.

    16. DR

      Yeah.

    17. BG

      In the way that you chose to select whose picks have performed the best, yours performed the best.

    18. DR

      Yes.

    19. BG

      And not private picks, not blended-

    20. DR

      Nope

    21. BG

      ... just public picks.

    22. DR

      Yes.

    23. BG

      Okay. [chuckles]

    24. DR

      So I'm gonna bat cleanup, and Mr. Mario Gabriele is gonna lead us off. Uh, before you tell-

    25. MG

      And why is that? [chuckles] Yeah... Well, I don't agree with the judging so far, but, uh... [chuckles]

    26. DR

      Uh, before you tell us your pick, um, for all two people that don't know about The Generalist, tell us about The Generalist.

    27. MG

      Ah, wonderful. Uh, thank you so much. Uh, The Generalist is a publication that covers tech, crypto, and venture capital. Uh, I aspire to the level of depth of these two gentlemen, and, uh, always enjoy collaborating with them.

    28. BG

      We cannot write the way that you write, so there's no, like, aspiration. But... So for people who haven't read The Generalist, it is, uh, deep writing about technology companies in the most whimsical style I can possibly imagine. [chuckles]

    29. MG

      [chuckles] Thank you.

    30. BG

      Like, Mario is a nar- novelist at heart who covers tech companies, and it's very fun to read.

  5. 9:49 – 14:14

    Mario’s pick: Snowflake as the durable data compounding play

    1. MG

      All right, gentlemen, my pick is Snowflake.

    2. DR

      Ooh.

    3. BG

      Mm.

    4. MG

      Thank you. [audience laughing]

    5. BG

      [chuckles] Heard of it. [chuckles]

    6. MG

      So for those who perhaps are less familiar, what is Snowflake? Snowflake is a managed data warehouse, and their sort of initial genius was that they separated storage and compute, made it super easy to take in all of this data that a company is managing and to run queries against it super fast, so you can get the insights and information from it. That initial idea was quite brilliant and, you know, has formed the company into the sophisticated, elegant, uh, product that it is today. That made it, you know, something of a pandemic darling, if we recall. It was, you know, one of the craziest sort of IPO day pops that I think any of us have, have seen in a long time. And the stock traded as high as, uh, I think 403 a share.

    7. DR

      Wow.

    8. MG

      Today, it's about 183, 185. Uh, so it has taken quite a hammering.

    9. BG

      Multiple compression, as they say.

    10. MG

      I- indeed.

    11. BG

      [chuckles]

    12. MG

      Uh, and especially this first quarter, it really got, like, I think a 45% drawdown. Um, but when you look under the hood at what, you know, the company has been doing, certainly some of, you know, the multiple compression is merited. But the growth on revenue, the net retention, the free cash flow, all of those things have moved in a stellar direction. So revenue's up about 105%. Um, net retention is 178. It was 168 the year before.

    13. DR

      Which that, I think, is, like, a record for a public company net retention.

    14. MG

      It may well be. It's pretty wild. Um, and yeah, they're generating 80-plus million in free cash flow. Uh, and, you know, the business in Q4 of last year actually got contract value of 1.4 million coming in, which is all of the revenue they had the, the year prior. So I would submit to you- [laughing] ... that this is-

    15. BG

      You would submit to Shu.

    16. DR

      You submit to Shu.

    17. MG

      [chuckles] I would submit to Shu, Judge Shu-

    18. DR

      Don't forget. [chuckles]

    19. MG

      [chuckles] Uh, that this is a business that has the potential to compound for many years. I think over a three-plus-year time horizon, uh, it can do extremely well. Um-... It is a play that summarizes the growth of data in the technology industry, which feels like a safe bet.

    20. DR

      Mm.

    21. MG

      And it's run by one of the biggest ballers [laughing] -

    22. BG

      [laughing]

    23. MG

      -in the executive world, Frank Slootman, who has done this now at least, you know, two and a half times, depending on how you parse it. Um, and who, who is sort of the quintessential, uh, sustainable growth CEO. He is someone who knows how to manage in difficult circumstances. He's compared himself to General Patton. Uh, and this is a time for a Patton-like figure, I would submit. [laughing]

    24. BG

      [laughing]

    25. MG

      And so my pick is Snowflake. Uh, it, it doesn't come without risks, but, uh, those are risks I'm willing to take.

    26. BG

      Oof.

    27. DR

      You, you've come a long way from, uh, I think your first pick was a SPAC. [laughing]

    28. MG

      Yeah. [laughing] Bridgestone SPAC.

    29. BG

      Whoa, whoa, whoa, can, can we put a moratorium on, on bringing up people's old picks?

    30. MG

      [laughing]

  6. 14:14 – 21:24

    Packy’s winding road to the pick: Twitter take-private thesis… then Opendoor

    1. PM

      All right, so I think for all of us-

    2. DR

      You asked the internet for your pick.

    3. PM

      I, I asked the internet for, uh, for, you know, their favorite, favorite stock. I ended up going actually with an oldie but a goodie, but we're gonna get there. So I, I think one of the most important things about 2020 and 2021 for a lot of people was learning about themselves, and what I learned is that I'm a terrible, terrible stock picker. [laughing]

    4. MG

      [laughing]

    5. PM

      So-

    6. BG

      Wait, wait, wait, but you're on CNBC, like, all the time.

    7. PM

      Like I said-

    8. DR

      [laughing]

    9. BG

      [laughing]

    10. PM

      ... I'm a terrible, terrible stock picker. And, you know, as, as we did the rankings, I gave Mario, uh, a little bit of guff, but I think we were going back and forth for, for last place. And so the safe move, and, uh, we also decided to only do publics because we didn't wanna shill our private market portfolio companies. So Composer is one of the companies- [laughing]

    11. MG

      [laughing]

    12. DR

      [laughing]

    13. BG

      [laughing]

    14. PM

      ... in my portfolio that makes it really easy to invest in automated trading strategies. I'm gonna go with one of the strategies that they have that's risk on, risk off. It looks at, uh, treasuries, and actually, Nasdaq outperforms, uh, S&P as an indicator, uh, and then puts you in a basket of, like, three X, like TQQQ, uh, when things are good, and it puts you in, like, long dollar when things are bad. So if I wanted to be super safe, that's my pick, and that's actually where I'm putting my, my money. Not gonna do that, 'cause we're all the way out in Seattle. [chuckles] Second thing you could do, but we can't invest in this, but, uh, maybe there are shares going around. Apparently, it's possible to get into the equity tranche of Elon's Twitter take private. [laughing]

    15. DR

      Oh.

    16. BG

      Well, at, at least, like, he's aggressively trying to f- find people to take some of the equity tranche-

    17. PM

      He's aggressively... So if any of you-

    18. DR

      Could give him a hand

    19. PM

      ... want a piece of the Twitter take private, forty-three, forty-four, whatever, billion dollars.

    20. SN

      Minimum check?

    21. DR

      [chuckles]

    22. PM

      Minimum check, I, I, I think actually they are taking relatively small checks from what I've, what I've seen. Um-

    23. DR

      But here's the question: Is Not Boring Capital-

    24. SN

      Stonk, stonk-sized checks?

    25. PM

      [chuckles] Stonk-sized checks. Yeah, exactly.

    26. DR

      Is Not Boring Capital investing-

    27. PM

      Not Boring Capital, that, that, that is outside Not Boring Capital's very, very broad mandate. [laughing]

    28. BG

      [laughing]

    29. PM

      So, like, maybe I'll throw a YOLO check in there, but, um-

    30. BG

      Dude, you invested Not Boring Capital's money in buying the Constitution.

  7. 21:24 – 28:52

    Ben’s pick: Coinbase as a ‘crypto value’ platform with free options

    1. BG

      Because David is theoretically winning, I, I will go next. Um, so my f... I m- I did actually what Packy did. I, I made a list of things that I was contemplating, and I thought I'd share some of those, just, um, 'cause I think they're interesting things you could buy with, with your pick right now. Literally anything- [laughing] -because everything's on sale. [laughing]

    2. PM

      [laughing]

    3. BG

      Uh, I thought about Google again, which was, I think, the best pick any of us made, ag- uh, except Solana. Uh, uh, still an amazing business, uh, still cheap by valuation-

    4. PM

      Yeah

    5. BG

      ... you know, any way you wanna slice it, price to earnings, price to sales, whatever. Not my pick. Uh, I kinda like the p- the thesis that's going around FinTwit right now, where people are saying Amazon has gone so low that they're basically valuing the retail business at zero, and it's only AWS contributing to its market cap, and I, I think you can build some models to sort of show that. Would I take Amazon's retail business as a free option? Absolutely, I would. Again, not my pick, just like Packy. Uh, there's a Twitter one that I had, too, which is buy Twitter right now 'cause there's free $5 bills attached to every single share. [laughing]

    6. PM

      [laughing]

    7. BG

      Uh, and, and for folks that don't get that joke, there's an in... There's a, there's basically an arbitrage you can run. If you think that Elon is actually going to close this deal and pay out every single Twitter shareholder at $54.20 per share, you can go buy a Twitter share right now for, like, 49 bucks or 50 bucks. I don't know what the market closed at today. But, I mean, that's free money if you think Elon is actually gonna complete the deal. Not my pick. So what I'm going with [chuckles] is one that I know David and I have discussed at length. I can't remember if we've done it on air, but I looked back at our Idea Dinner picks, and we haven't actually picked it on the Idea Dinner, and that's Coinbase.

    8. DR

      Mm-hmm.

    9. BG

      This is a value investment. Uh, and I'll explain myself, but this is a crypto value investment. So e- let's set the anchor point that we should all think about this business. In the last 12 months, they've done $10 billion in free cash flow. Uh, that's astonishing.

    10. DR

      That- that's a lot.

    11. BG

      That is money that piled up in their bank account based on the profits of the business that they're operating, so they're printing money. The market cap at close today was $34 billion.

    12. PM

      Wow!

    13. BG

      So if I was running a business that was generating $100 of cash per year, just to make the math easy, uh, would you buy that business from me at th- $340?... that seems like a pretty good pickup, especially one that has network effects, the leading brand in the space, uh, growing incredibly fast in a gigantic wave. Now, people can think crypto is gonna, you know, crash or the bubble's gonna pop. They're the most established company in the space, and it is still the first inning of all of crypto. So you have the opportunity to do, uh, and here's where it gets kind of interesting, a Berkshire Hathaway-style investment [chuckles] into a crypto company that is the leading crypto brand in the world? Uh, it seems pretty safe to me. [chuckles] Famous last words. But, uh, uh, uh, uh, to me, you're, like, very cheaply valuing their unbelievable business that they today- they have today. And sure, there's gonna be margin compression, and sure, the take rate's gonna go down over time, but, like, I think you have a lot of resilience based into the price, not to mention all the free options that come stapled to that business, which are the NFT business-

    14. DR

      Yes

    15. BG

      ... and every other venture that they're going into. And on top of all of this, I think a great way to play crypto and Web3 is to look at the companies that have centralized all the activity and are able to run Web2-style businesses or Web2 business models using the heat and light that's all shown on Web3, and Coinbase is literally the best example of that, and has, I don't know-

    16. DR

      Not only that, but Coinbase and FTX, they make money whether crypto goes up or down.

    17. BG

      Right.

    18. DR

      As long as it's moving.

    19. BG

      And if it goes up or down faster, they make more money.

    20. DR

      Right. [laughing]

    21. BG

      So my pick is Coinbase.

    22. PM

      I gotta say, I really like it.

    23. DR

      [laughing]

    24. PM

      I think it's really good.

    25. DR

      Yeah.

    26. PM

      I was thinking about this one, too, and I think what talked me out of it were a couple of things. One, I see a lot of pitches from senior ex-Coinbase people, and so it feels like there's a post-IPO brain drain happening a little bit, which is natural, and you also don't love to see. I think FTX is... I mean, like, there's a lot of comparing FTX and Coinbase-

    27. BG

      Yeah

    28. PM

      ... 'cause they're right around the same market cap right now.

    29. DR

      Yeah.

    30. PM

      FTX has, like, 200 people or something crazy.

  8. 28:52 – 35:05

    David’s pick: Amazon as the best ‘own the internet’ asset (AWS + retail leverage)

    1. DR

      ... because my pick is the company that built this arena, which is Amazon. [chuckles]

    2. PM

      Ah.

    3. BG

      Or bought the naming rights. Built, built is an aggressive- [laughing]

    4. DR

      Well, okay. [laughing] They didn't, they didn't actually build the arena, but... [laughing] Um, and so I was thinking about this. It's trading at about a one and a quarter trillion dollar market cap. Uh, most folks probably know, probably a lot of folks here work at Amazon. The stock got hammered last week after reporting earnings. Um, but just looking at the fundamentals, Amazon did $470 billion of revenue in the last 12 months. That is the second-highest amount of revenue that any company has ever done, ever. The only larger one being Walmart, which Amazon will almost assuredly pass very soon. Um, so that means that Amazon is trading at two and a half times revenue, times last 12 months' revenue. Uh-

    5. BG

      What are Amazon's margins, David?

    6. DR

      Well- [laughing]

    7. PM

      [laughing]

    8. BG

      [laughing]

    9. DR

      [laughing] Uh, I thought about that. About 400 billion of that is retail revenue, but about 75 billion, more than 70 billion, is AWS revenue, which is very high-margin revenue. Um-... the reas- but so each of those, retail and AWS, I think there is a bear narrative around that I just simply don't agree with right now. On AWS, I think the bear, the bear narrative on AWS is, yes, it's amazing, high-margin business, hats are off to Bezos, to Andy Jassy for building it, um, but its days are numbered. Azure and Google Cloud are growing faster, and Amazon, despite being the early leader in cloud, might actually end up losing this market. I think that's utterly ridiculous. AWS is growing at thirty-seven percent annually on a seventy-five billion dollar base. [laughing] Google and Microsoft are growing at forty-five percent, but their market share combined is still significantly less than Amazon. So yes, it's growing slower, but it's bigger than both of them combined. Uh, but then, just like, none of that matters. The market that we are talking about here is the internet. Like, this is the internet. This is the picks and shovels of the internet, and Amazon is the clear market leader, growing over thirty percent-- growing thirty-seven percent a year. I cannot imagine any other asset I would rather own, period, anywhere. Uh, so that's AWS. On the retail narrative, like you said, literally, Goldman issued a research note last week, now as a thought exercise, they didn't actually mean this, but valuing retail at zero. [chuckles] That's... People have been doing this for twenty years with Amazon.

    10. BG

      Wait, can I dig into that for a second? How does that work? They issued a research report as a thought exercise.

    11. DR

      Well, they have a buy on the stock, and I think they were saying that, like, the upside is so much that even if you just valued Amazon based on AWS-

    12. BG

      I see

    13. DR

      ... you would still buy the stock. They think retail is worth something, but that was the thought exercise.

    14. BG

      Mm.

    15. DR

      So let's-- AWS has over a thirty-three percent market share of cloud, of the internet. The largest application of the internet by revenue is e-commerce. Amazon has a fifty-six percent market share of US e-commerce, a fifty-six percent market share! I... So there's a really cool feature. If you go to your account in Amazon, of course, this is so Amazon, you can download CSV reports of your own spending. It's scary. [laughing] I did this.

    16. BG

      Which they, they intentionally make it that you have to download a CSV report, and you can't actually, like, see that in the web UI. [laughing]

    17. DR

      No. [laughing]

    18. BG

      That would be very scary.

    19. DR

      So just me, over the last five years- [laughing] ... I've grown my spend on Amazon by thirty-four percent a year, and in the last twelve months, I ordered two hundred and thirty items on Amazon, [chuckles] because we had a kid. But, you know. [laughing] Um, we have Garage delivery set up, we have the Amazon credit card, they're launching Buy with Prime on the internet. I'm highly influenced by Amazon-sponsored listings, which is a thirty billion dollar, high-margin revenue business within retail.

    20. BG

      Which, which was approximately zero five years ago.

    21. DR

      Exactly. So this is my point. The narrative that retail is worth zero completely misses the point. The reason that retail lost a billion and a half dollars last quarter is Amazon invests so far ahead of the curve.

    22. BG

      Yeah.

    23. DR

      Like, it's unimaginable to me that I would buy things anywhere else but Amazon, and that moat is so deep that if they were to stop investing, they would become incredibly cash flow positive, and they would still have years of runway before any competitor caught up.

    24. BG

      And to your point, I think their CapEx last year was something like three or four X, any of the other big tech companies, 'cause they're just building out these warehouses and data centers.

    25. DR

      Yep, totally. Okay, so to borrow a Bezos framework, I think you gotta think about what's not going to change in investing. And I think what's not gonna change is, one, the internet is gonna keep growing, so I wanna own AWS. Two, I and others are gonna keep buying more stuff online, so I wanna own Amazon retail. And I think that on the retail side, they'll keep adding credit cards, advertising, Buy with Prime, leveraging their infrastructure across other retailers on the internet, and all of those are high-margin products.

    26. SN

      It's a good case.

    27. DR

      That's my pick.

    28. SN

      No argument.

    29. BG

      Nah, I have no- [clapping]

    30. DR

      Yeah. I gotta play to the hometown crowd. [laughing]

  9. 35:05 – 37:27

    Shu’s critique + scoring rubric: upside/downside, timing, novelty, flair

    1. SN

      So- [chuckles] I'm gonna change the rules a bit.

    2. DR

      Of course.

    3. SN

      But first, I'm gonna make some comments.

    4. SN

      Oh.

    5. SN

      Some generalist comments. No problem.

    6. BG

      Thank you so much.

    7. SN

      Lowercase g.

    8. DR

      Yeah.

    9. SN

      The, the first is, you all said we're not good public stock pickers. And I'm gonna posit that the future of investing is people who understand and create narratives, and that's what you all do. And you actually are very good stock pickers, period, because you understand the power of stories and narratives. So this is the future of investing in my view.

    10. BG

      You're being invited back to the Next Arena Show. [laughing]

    11. SN

      It's no surprise, it's no surprise you all have or are launching funds. I, I love how this is starting so far. [laughing]

    12. SN

      So that's overall comment number one. Overall comment number two is you all think like venture investors.

    13. DR

      Yeah. [chuckles]

    14. SN

      Nobody talked about downside. [laughing]

    15. SN

      You guys give out investment advice, right? Like, enough times.

    16. SN

      Nobody... I was waiting for the bear case and what could go wrong, and it didn't come out. [laughing] For example, Coinbase overearns from a consumer pricing point of view compared to any other platform you look at that sells to consumers by some dramatic... It's a total outlier. And so if that collapses eighty percent, what happens to the stock? Maybe a hundred and twenty is really expensive, et cetera. So there was none of that.

    17. DR

      [laughing]

    18. BG

      [laughing]

    19. SN

      ... Generally, I'm not picking on them.

    20. DR

      No, no.

    21. SN

      And the third thing is you are all focused on companies that are cheap. There was a focus on, "Now is a good moment because it's cheap." Expensive companies can be great investments, expensive, so to speak. I think it's probably because we're in this part of the market cycle, and so everyone's focused on, "Everything's dirt cheap at these prices!"

    22. BG

      Who said that?

    23. SN

      Who said that?

    24. BG

      Nah, I, [laughing]

    25. DR

      [laughing]

    26. SN

      Somebody said... By the way, the, the consensus pick is Twitter- [laughing]

    27. DR

      [laughing]

    28. SN

      Between the two of you. So I had five criteria. One was upside, the other was downside, the other was timing, why now?

    29. BG

      Mm.

    30. SN

      The other was novelty, which you all failed on, by the way. [laughing]

  10. 37:27 – 41:18

    Audience clap-off and winner: Coinbase wins the room (Snowflake wins Shu)

    1. SN

      And so I have my ranking, but we're gonna, we're gonna get the audience involved.

    2. DR

      Oh.

    3. BG

      Oh.

    4. SN

      So I'm gonna hold... I don't know if you know this from, like, an old show. I'm gonna hold my hand above a head, and then you clap a certain volume-

    5. BG

      [laughing]

    6. SN

      -and I'll go one by one, and the loudest clap wins, and then I'll tell you if that was my pick or not, okay? So we start with random order, um, Opendoor, okay? [audience clapping]

    7. BG

      Let's go! [laughing] All right, it's not gonna be Opendoor.

    8. DR

      This way, nobody hates me.

    9. SN

      That's Opendoor. Okay, I kind of got that clap is... That, that was like a five out of 10 clap. Then we go with Amazon. [audience clapping and cheering]

    10. BG

      Got a hometown. [laughing]

    11. DR

      Really came through there. [audience clapping]

    12. SN

      That's a solid eight out of 10 clap.

    13. DR

      Yeah.

    14. SN

      We are in the Amazon arena. [laughing]

    15. BG

      [laughing]

    16. DR

      [laughing]

    17. SN

      So I'll notch it down to a seven. [laughing]

    18. BG

      [laughing]

    19. SN

      Home crowd. Coinbase. [audience clapping and cheering]

    20. DR

      Wow, that seems pretty... That was pretty high. That was good.

    21. SN

      That was better than the Amazon clap, so that's an eight. And then Snowflake. [audience clapping and cheering]

    22. BG

      Oh, that's not bad.

    23. DR

      Ooh.

    24. BG

      That was surprising.

    25. DR

      Wow!

    26. BG

      All right.

    27. SN

      Wow. Yeah, that's pretty good.

    28. DR

      So let's go data warehouse.

    29. SN

      So just like the French elections, this is gonna go to a runoff-

    30. DR

      [laughing]

  11. 41:18 – 46:16

    Sponsor segment: Vanta explains continuous compliance and why SOC 2 matters

    1. BG

      I think it's time to tell the audience about one of our very favorite companies. So th- we thought about, like, not doing this at the show, and then w- we got to thinking, actually, it would be way more fun to do it at the show and have some of our friends with us here in person. So for our first sponsor of the night, our presenting sponsor for all of Season 10, Vanta, the leader in automated security and compliance. We're huge fans, as many of you probably know, of Vanta and their approach to the whole compliance process, SOC 2, HIPAA, GDPR, and more. So tonight we have Vanta's Head of Engineering, Matt Spitz. Thank you for joining us, Matt. [audience clapping]

    2. SP

      Thank you for having me.

    3. BG

      So Matt, I understand that you have, um, played hooky on your company's offsite to be here with us.

    4. SP

      That is correct. I'm taking advantage of not having children this week and doing an 18-hour turn and burn to Seattle. [laughing]

    5. BG

      [laughing] Well, we will make the absolute most of your time here. Uh, for folks whose friends dragged them to this show, and they've never heard of us or Vanta before, what is Vanta?

    6. SP

      ... Yeah, totally. So as you mentioned earlier, we do automated security and compliance. And what that means is that we offer a continuous security monitoring platform that enables companies to improve their security posture and prove it via compliance standards or otherwise.

    7. BG

      So my understanding of an, the normal way or the way before Vanta that this happened is, you spent three months trading documents back and forth. I think you used technology to accomplish this?

    8. SP

      Compliance is the currency of security proof, and so in order to prove to a potential prospect or someone who wants to use your cool tool, um, they want to make sure that you don't leak their data all over the internet.

    9. BG

      Naturally.

    10. SP

      So the language of that is a SOC 2 compliance certificate, and this is a certificate where a human looked at your security posture and all these spreadsheets and screenshots that you put together to prove to them that they are... That you are secure. They're inherently looking at a sampling of your data, so like 5% of your data, at a point in time to assess that you are a trustworthy company. And, um, you might imagine that this is something that is, uh, very lossy. [chuckles]

    11. BG

      Yeah, it seems like kind of-

    12. SP

      Yeah

    13. BG

      ... a shoddy way to assess if a company is currently trustworthy or not.

    14. SP

      Exactly. And, and these are good for up to a year, and they're based on sampled data monitored by a human, provided by the company. Um, and so what we offer is a continuous security monitoring solution that enables our customers first to monitor their own security posture. Um, we offer them real-time notifications if we detect something that's, uh, represents a potential security threat, and then we use all that data, throw it into a dashboard that both our customers and an auditor can look at, that just helps them sail through a compliance process.

    15. BG

      All right, so my final question: why should anyone care about getting a SOC 2? Like, I'm running a startup, it might die. I'm just trying to survive and find product market fit. Like, why should I go check this box?

    16. SP

      When you talk about compliance, what it really is, is security. It's proof of security, and companies tend to invest in security for one of two reasons. Number one, they just got breached, and that's too late. [laughing]

    17. BG

      [laughing]

    18. SP

      The other reasons why companies invest in security for the first time is, is to get a compliance certificate. It's not just big companies trying to sell to big companies. A lot of our customers are two-person startups that want to make their first business deal. The platform that we offer them is really the foundation of their security program, around which they can build workflows and things like that, and, and, and enable themselves to, to keep their company and customer data secure beyond that first audit period.

    19. BG

      So if I'm hearing you right, the answer is c- companies should, should care because it's potential revenue on the table. If they become compliant, then suddenly there's new buyers who are available to buy their software.

    20. SP

      That's typically the entry point for security, yes. I mean, there's long-term benefits to investing in security, too. A lot of the things that you do to simplify and centralize a lot of, of workflows end up paying efficiency dividends down the road as well.

    21. BG

      Yep.

    22. SP

      That's a sort of hidden secret to investing in security earlier, is it actually makes you a more efficient business also.

    23. BG

      Hmm.

    24. SP

      Um, but yeah.

    25. BG

      Well, thank you, Matt. Appreciate it.

    26. SP

      Thank you, Matt.

    27. BG

      And, uh, if anybody wants to use Vanta to become... I don't have this in my script, but I've said it so many times, I think I know, compliant in weeks instead of months, and get compliance that doesn't SOC too much, if I've seen your billboards correctly. [laughing]

    28. DR

      [laughing]

    29. BG

      Uh, I believe they can go to vanta.com/acquired and get a 10% discount.

    30. SP

      That's right.

  12. 46:16 – 48:30

    Act Two begins: the hidden second half of YC—Continuity as a growth-stage investor

    1. DR

      All right, we're ready for act two. And for act two, we have a story that I think most of you know, but that we have not yet told on the main feed of Acquired itself, and that is Y Combinator.

    2. BG

      Woo!

    3. DR

      Woo. Specifically, tonight, we're going to tell part two of the YC story. I think most people know about YC's accelerator business that produced Airbnb, Dropbox, Stripe, Brex, friends of the show, Modern Treasury, Vouch, Vanta came out of the accelerator business. But most people don't realize that that is only one half of what YC is today. They are also one of the biggest and most active late-stage growth investors in the valley, and they have deployed literally billions of dollars into series B, C, D rounds in startups, both YC alumni and non-YC alumni alike over the past several years. So tonight, we have Anu Hariharan, the managing partner of YC's Continuity fund, which leads all of these late-stage investments, here to tell the story with us. Anu has had an amazing career. She went from a junior engineer at Qualcomm, great semiconductor company-

    4. BG

      Yep

    5. DR

      ... to partner at Andreessen Horowitz, to now running YC Continuity, where she serves on the boards of Brex, local fan favorite Convoy.

    6. BG

      Woo!

    7. DR

      Woo. Fair, Monzo, Gusto, Revenue Cat, Roppy, and Vouch. [chuckles]

    8. BG

      And Vouch.

    9. DR

      Ladies and gentlemen, welcome Anu Hariharan. [clapping]

    10. AH

      [clapping] Thank you!

    11. DR

      Welcome, Anu.

    12. AH

      Well, I'll give you a hug. [chuckles] Sorry.

    13. BG

      We got you some shoes.

    14. AH

      Oh, great. [chuckles]

    15. DR

      [chuckles] So great to have you here.

    16. AH

      Yeah, great to have- thank you. Thank you for having me.

    17. DR

      I don't know if you noticed, but we picked that walkout music-

    18. AH

      I know

    19. DR

      ... just for you.

    20. AH

      I don't know who can save San Francisco, so-

    21. DR

      [laughing] Oh!

    22. BG

      [laughing] Oh! Shots fired.

    23. DR

      Well, you know, so, um, uh, Pat Monahan, I think the lead singer of Train, obviously a San Francisco band, I think he wrote that song 'cause he moved up here to Seattle.

    24. AH

      Oh, interesting.

    25. DR

      Yeah.

    26. BG

      So Anu, he's foreshadowing your-

    27. DR

      Yeah

    28. BG

      ... next, uh-

    29. DR

      So when YC is, you know, ready to-... move up to Seattle?

  13. 48:30 – 55:39

    How YC went remote + the mechanics of Continuity (fund structure, programs, and WhatsApp ops)

    1. AH

      I think YC will, YC right now is remote first.

    2. DR

      Ah.

    3. AH

      So we all live in San Francisco, but we don't have an office.

    4. BG

      So the Mountain View facilities-

    5. AH

      The mount- we own the Mountain View building. We have that, but since the pandemic, all our batches have been fully remote.

    6. DR

      Wow, so there's no requirement... It used to be, before the pandemic, no matter where you were in the world, you had to come to Mountain View.

    7. AH

      Yes, that's not been true for the last three years. Um, and we have learned to do everything remote. We always read applications online, but we learned how to do interviews remote. That was strange for us, because we believe in bringing everyone to Mountain View for the interview-

    8. DR

      Mm-hmm.

    9. AH

      -and we had to learn how to test for that on Zoom. And then we also learned how to run the batch on Zoom, and we learned how to do a demo day on Zoom.

    10. DR

      Wow, and this is the new normal going forward?

    11. AH

      This is the new normal going forward, except there will be tweaks for the new batch. It has not yet been announced, but there will be a little bit of mix of in-person as well as, um, you know, largely remote.

    12. DR

      Hmm.

    13. AH

      But going remote really helped us. Fifty percent of our batch is international.

    14. DR

      Wow. What, uh, what's the application deadline for the next batch?

    15. AH

      The deadline has passed, but we are still accepting applications. YC always accepts even late applications.

    16. DR

      YC.com/acquired, get your late applications. [laughing]

    17. BG

      [laughing]

    18. AH

      Great. All for it.

    19. DR

      We're working on it.

    20. BG

      Not, not a real URL.

    21. DR

      [chuckles] Yeah. Uh-

    22. BG

      All right, so wait. Uh, let me, let me kick us off here with just, like, a very... Let's dive r- right in. We wanted to ask you, what is YC Continuity, but in a very mechanical way. Like, like, w- literally, what is YC Continuity? Is it a fund? Is it a set of funds?

    23. AH

      It's a, you know, it's literally the word continuity. So the way it was formed, a lot of our founders, the alumni, came and said: "Hey, you took us through the 12-week program. This is really why we started a company. It would be so cool if YC can continue to support us in the form of investment and in the form of programs down the line, too. Why do you stop at the accelerator?" And so that's really how we came up with Continuity. So it is a multi-stage fund. We, uh, pretty much do primarily the growth stage, Series B and above. Uh, we have invested in, uh, primarily YC companies, actually. We doubled down on YC companies. Our goal is to be partner, a lifelong partner, for all the enduring companies in YC, to the extent possible. We also do a tremendous amount of post-batch programming.

    24. BG

      Hmm.

    25. AH

      So people don't know this. If you go through YC today, you get 10 times more what you got f- in 2012 batch or 2014 batch. So we run three programs in Continuity. We run the Series A program. We help you how to teach... and teach you how to raise the Series A. So we work with you on pitch decks, w- how to negotiate term sheets, how to identify investors. Then we run-

    26. DR

      And, and that happens-

    27. AH

      Yeah

    28. DR

      ... after, well after the batch.

    29. AH

      Usually, the Series A... Most companies raise Series A two to three years after the batch. Very few raise during the batch. So we, you know, we pretty much help them nine months, six to nine months, before they raise the A.

    30. BG

      Yep.

  14. 55:39 – 1:04:44

    Why Continuity was created in 2015: longer IPO timelines and scarce growth capital

    1. DR

      Wow! So who... Uh, how did the, this idea come together? I mean, it's sort of obvious now when you say all these-

    2. AH

      Yeah

    3. DR

      ... things, but y- thinking back to... It was 2015 when-

    4. AH

      July 2015.

    5. DR

      July 2015-

    6. AH

      Yeah

    7. DR

      ... when Continuity was started. The idea of raising a fund, a growth fund, or w- by Combinator, most people would've thought that was crazy, right? Like, so what... How, how did this happen?

    8. BG

      More people would've been skeptical and been like, "Then we're picking winners."

    9. AH

      Yes, so I think that at that time, because growth cap- growth stage capital itself was frowned upon, right? Remember, the narrative was, "You need to go public. You know, what... The late-stage investors are just throwing cash." There were only, like, I think, less than 10 people who could write $100 million cheques then.

    10. DR

      Um-

    11. AH

      And so... But what you saw was, there were less than 10 funds that could write $100 million cheques, but the median time to IPO, can you guess what it was in 2015?

    12. DR

      Wow! 11 years?

    13. AH

      11 years.

    14. DR

      Yeah.

    15. AH

      And so YC alums came to YC, uh, partners often and said, "I, uh... You know, you train us so well at Demo Day to t- and you teach us how to raise-

    16. DR

      Mm-hmm

    17. AH

      ... and, like, then we are in the woods," [laughing] right? And we often- we tell our founders, "It's never going to be as easy as Demo Day."

    18. DR

      Well, it's... Yeah, like, eh, the, the pyramid has widened. It's still a pyramid, but I hadn't thought about that. Like, back then, yeah, there were, I don't know, less than number of investors you could count on two hands that could- that were writing $100 million cheques.

    19. AH

      Yes.

    20. DR

      And so if you're like, "I can't go public, but I need $100 million-plus to finance this stage of growth in my company," you know, it's a supply-demand equation- [chuckles]

    21. AH

      Yes

    22. DR

      ... right? Like, [chuckles] -

    23. AH

      Yeah. So it was primarily that, but I think YC's mission has always been: How do we support our founders more? And right, YC was learning through its evolution. Remember, like, seven years ago was when Dropbox had raised a late-stage private round.

    24. BG

      Yeah.

    25. AH

      So YC itself was learning what are its companies going through? When do, when do they get help versus when do they not? So we saw an opportunity. We saw that these companies still need help, and they... You know, and we are in a, a great place and an amazing platform that really kudos to PG and Jessica t- on how they built it. Um, YC can play a significant role. And, you know, one of the things that people don't understand, and I didn't, I was at Andreessen Horowitz before, right? [chuckles] Is the YC founder never views YC as an investor.

    26. DR

      That's the secret, right?

    27. BG

      Right.

    28. AH

      They view YC as the parent. So what does that mean? Any time a company is going through any issue, five years after they've graduated, they will first come to their YC partner.

    29. BG

      Hmm.

    30. AH

      They don't have to talk every quarter. They don't have to talk every month. They may not even have talked for a year. But they would reach out to the partner and say, "I need urgent... There's an urgent issue. I need you for five minutes. I need you to help sort this through."

  15. 1:04:44 – 1:12:59

    YC as ‘university for startups’: network effects, scaling batches, and global ambition

    1. DR

      I would love... So my... I put this in the, in the notes. Um, my current mental model of YC is like a university, a top... Call it an Ivy League university. It's very hard to get into. You take classes, you know, every year or every six months. Um, there's an endowment attached to it- [chuckles]

    2. AH

      Yeah. [chuckles]

    3. DR

      ... which is Continuity now, and, uh-

    4. BG

      And wait, wait, David, what do you mean by endowment? I wanna w- uh, h- are you saying that all of the proceeds from YC exits go into a big pool of capital that then f- funds Continuity? Is that what you're suggesting by endowment?

    5. DR

      No, but I'm curious if that's the case. Uh, I was- I meant more just, like, it's really weird that, mmm, a large part of the private capital markets and the venture capital markets in America, those dollars come from educational institutions, mostly private educational institutions.

    6. AH

      Yeah.

    7. DR

      That's just very bizarre. Uh, but anyway, the, the- that's kinda what I meant. I- is that a good mental model of YC?

    8. AH

      Yes.

    9. DR

      Like, what is it like?

    10. AH

      In fact, we say that. We say YC is university for startups. So think of the accelerator as the undergraduate program, and Continuity is the graduate school. Um, and we are modelled after a university in the sense of we have applications. You don't need to know anyone to apply to YC.

    11. BG

      Hmm.

    12. AH

      Right? Second, we were the first to do mass production of investments in a batch of startups. No one had ever done that.

    13. DR

      Yeah.

    14. AH

      Everyone usually does, "I met a set of companies. We have a Monday partner meeting, and you pick one or two," right? And YC, from day one, was a batch. They always received investments together, and that, I think, goes to the insight that the founders of YC had at the time, which was: Entrepreneurship is lonely. Being in a group is how you motivate each other to learn from each other, and that's your peer group.... and, uh, so, so fundamentally-

    15. SP

      Mm-hmm

    16. AH

      -it came from the approach of a university. And Continuity's graduate school is where, as I talked about, like, Series A is just one of the programs we run. We have two others, Post A and Growth. Post A focuses on two months within you raise the Series A. There's a six-week program. We re-batch you, so now you have a new set of peers, and our scale founders come teach how to form a recruiting team, how to hire engineers, because your job changes as a CEO.

    17. BG

      Right.

    18. SP

      Yeah.

    19. AH

      And no one is writing a book about how your job changes and how to learn. And remember, the median age of a YC founder is 27, which means they have probably managed a sum total of three people in their life before they founded the company. [laughing]

    20. SP

      [laughs] They really are, like, undergrads coming.

    21. AH

      Yeah! So you cannot expect them to know. So how are you gonna provide resources so that they do- they can learn from others, and they do as few mistakes as possible, and as quickly as possible? Because when you're scaling, you just go on a rocket ship path. You're, you... The, the amount you demand out of these founders is a lot, and their ability to learn in four years is r- I mean, the bar you're setting is really high, right?

    22. SP

      Mm-hmm.

    23. AH

      And so in our community, that's why, like, Brian Chesky comes to speak every batch. He's the opening speaker of every batch.

    24. SP

      Wow, every batch?

    25. AH

      Right, every batch.

    26. SP

      Wow.

    27. AH

      And right now, uh, for all these programs that we run, the Growth program is how to scale as a CEO.

    28. SP

      Hmm.

    29. AH

      That's literally the program. It's a eight-week session. It talks about hiring execs, performance management, culture, and so on. And we have scaled founders and scaled exec. Like Tony Xu comes for that. His execs, the CFO of DoorDash, the head of engineering of DoorDash, they come for the respective sessions. So it's really good to see the entire community working-

    30. BG

      Yeah

  16. 1:12:59 – 1:18:56

    Continuity’s investment edge: evaluating founders via leading indicators + YC’s long-term access

    1. DR

      What- maybe, um, maybe that's a good place to, to wrap. You know, we, we talk about powers on Acquired. Um, w- we can speculate a lot, and I think we probably have on the show about YC's power at various points in time. But I've c- you know, you're in it. W- what do you, what do you think YC's power is, you know, in the Hamilton Helmer sense of, like, enables YC to enable- to earn, uh, differentiate- better differentiated returns versus your competitors in the venture ecosystem? Is it... The traditional VC power is brand, but it feels like it's something else with YC. [chuckles]

    2. AH

      Yeah, I think brand also comes much later, right? Unless you've... You know, you can either get brand because you have a lot of things you've built before and you launched, or you just launch something and it takes- I mean, just the way you all started Acquired, it takes incredible amount of time to build brand. It's never an overnight success. Um, at YC, I would say, if I had to pick one thing YC is really good at, across both early and continuity, is we go by based on founders. And I know it sounds cliché, but I think we also have an incredible advantage in assessing what makes a founder a really good founder.

    3. DR

      Hmm.

    4. AH

      And we have incredible amount of data and pattern recognition and learning that we have honed it to a point that we know to spot them.

    5. DR

      Hmm.

    6. AH

      You know, you all have heard of the famous 10-minute YC interview, and everyone asks, "How do you know in 10 minutes?" The fact is, we probably know in the first two minutes. [laughs]

    7. DR

      Yeah. [laughs]

    8. BG

      [laughs]

    9. AH

      So we actually don't need the full 10 minutes. [chuckles] Yeah, but, you know, sometimes one or two people will surprise us by the end of the interview. Um, and I think the three things I can articulate what it is on the founder we look for: one is, um, at the continuity stage, right? Often in the growth stage, people, I think, pay attention to the founder, but they don't. Like, if you're at a venture fund or a growth fund, you probably hung out with the founder for a week or two weeks before the investment, sum total of three hours. By the time Continuity invest, I probably know them for years or months, and I've had hours of interaction. So really-

    10. BG

      So, so you're saying that you're paying attention more to the qualitative founder properties, even at the growth stage, than you are to their specific growth rate or, you know, what their margins look like or anything like that?

    11. AH

      Yes, but, you know, if the q- three qualities hold, the metrics will show.

    12. BG

      Hmm. And what are the three qualities?

    13. AH

      I can either look at metrics, but sometimes metrics don't tell you how good the internal sausage making is-

    14. BG

      Yeah

    15. AH

      ... right? And many people can package the metrics in a fundraise deck.

    16. DR

      [chuckles]

    17. AH

      It's very well done. I mean, we teach you to do it on Demo Day. [laughing]

    18. DR

      [laughing] Yes, they get that.

    19. AH

      So we're the, we're the experts at it.

    20. DR

      [chuckles]

    21. AH

      So, so therefore, we know it's gonna look great, right? So we also teach them how, uh... what points to emphasize on. Um, we actually do practice runs. We write, in Demo Day, we actually even write the script sometimes- [laughing] ... if they don't understand what it is.

    22. DR

      [laughing]

    23. AH

      So we know how to do that.

    24. DR

      That's a, "How can I help?" moment. [chuckles]

    25. AH

      Yeah. Um, and so what we look for is, how fast does the founder move? What does how fast do they move mean? How fast do they ship? How fast do they iterate? Is the single biggest indicator and correlation to, um-

    26. DR

      Hmm

    27. AH

      ... how successful they're gonna be, how soon. Because you won't be right about most, many decisions early on, but at least, are you learning from them fast, and are you making changes? So that's one we measure. Second, at the growth stage is, how well are you hiring?

    28. DR

      Hmm.

    29. AH

      And if you're sloppy in hiring, it always hits a wall. So one of the things we look for is, how well are they hiring engineers? How good are they hiring execs? Will they be able to convince an incredible exec to come join them?

    30. DR

      Yeah.

  17. 1:18:56 – 1:23:12

    Grading YC’s future: failure mode (community erosion) and A+ vision (lifelong partner, beyond IPO)

    1. BG

      Yeah. All right, as we wind to a close, longtime listeners know w- there's a way that we need to close this, and that's grading. And with these episodes where we're covering a company in flight, uh, the only real way to grade it is to try and forecast future paths that could happen. So Anu, I'm curious, in your mind, paint us the A-plus, the C, and the F for YC a decade from now. And let's start with the F, 'cause I think it's interesting. Like, YC is so dominant, how could the whole thing go up in flames at this point?

    2. AH

      Well, I think YC is the only platform that has strong network effects, and as all network effects have shown, if you, if we mess up the YC community, that, that is, that is-

    3. BG

      Hmm

    4. AH

      ... that is the... Because it's, we are, w- we have this platform only because of the YC founders. And there are community values. I mean, we have written down community values. We have an internal book face, we have an ethics code. I mean, name one VC fund that has all that. [laughing]

    5. BG

      Right.

    6. AH

      Right? So that's why we don't look like a venture fund. So for us, as long as we do right by the community, we'll be good. But if, if you, in as nega- you know, network effects are very powerful, but they also decelerate very fast.

    7. BG

      Yeah.

    8. AH

      Right? If we me- if we do any mistake with the community, then that would be the F.

    9. BG

      It's almost like operating leverage, like, a community, a heavily community-dependent business is just he- heavily levered.

    10. AH

      Yeah.

    11. DR

      It reminds me of Acquired, right? [laughing] Like-

    12. AH

      Yeah, that's right

    13. DR

      ... our community. Like, it's a-

    14. AH

      Exactly.

    15. DR

      Yeah, absolutely.

    16. AH

      This is an amazing group that you have, and, like, congratulations from where, how far you've come.

    17. DR

      But we feel the same way.

    18. AH

      [laughing]

    19. DR

      It's like, it, uh, it's so amazing, but that's, that is our fear. Like, we... Nurturing the community-

    20. BG

      Yeah

    21. DR

      ... and keeping it the amazing thing that it is, is, is the number one thing-

    22. BG

      Yeah

    23. DR

      ... that we do. Um-

    24. BG

      Okay, but you can't... The C is boring, so we won't cover it, but I, I want the A-plus. [laughing] Like, give me the BHAG for YC from here. Like, how do you change multiple orders of magnitude from where you are? Or do you want to?

    25. AH

      B or the A?

    26. DR

      The A. The what's the-

    27. AH

      Oh, the A.

    28. BG

      Yeah, A-plus.

    29. AH

      Uh, we definitely want to. Uh, we want to be... Our mission is to be the partner f- of the companies for the life of the companies. And continuity, I would say, has only strengthened the YC community. Because before, they would reach out whenever they wanted help or once in a while, but now we have a full machine all the way to IPO, and we have programming, as I talked about, and it's really gotten the community super close. And so, m- I mean, as I said, we are highly undercapitalized for the success of YC companies. [laughing]

    30. BG

      Wait, wait. When you say all the way to IPO, so is IPO the end? Ten years from now, is there a YC post-IPO component?

  18. 1:23:12 – 1:30:01

    Sponsor segment: Vouch launches in Washington + how modern insurance is built

    1. BG

      Thank you. [clapping] I... We have to hug, yeah. All right, well, we do have another friend that you want to talk about, and, uh, it is quite related to our last segment. So for our next sponsor tonight, we have another one of our favorite companies, and we aren't just saying that. I mean, like, this is literally one of David and my favorite-

    2. DR

      It is

    3. BG

      ... companies in the world. Uh, Vouch was founded by a fellow Ohio State alum that I went to college with. David and I have the privilege-

    4. DR

      [laughing]

    5. BG

      ... of being investors, angel investors in Vouch, and we're customers. Acquired is insured by Vouch. So to tie it all together, of course, Anu is an investor in Vouch, uh, I believe a board member with the YC Continuity Fund. So please welcome Travis Hedge, our good friender and the co-founder of Vouch, who is here to drop some big news on stage tonight. Travis, welcome-

    6. DR

      Ooh

    7. BG

      ... to Acquired. [clapping] Great to see you.

    8. SP

      Thanks, guys.

    9. DR

      Welcome, sir.

    10. SP

      Thank you. Great to be here.

    11. BG

      All right. Well, some people, I don't, I don't know who, but some people might not know what Vouch is, so let's just start with that. What is Vouch?

    12. SP

      Vouch is an insurance company for the technology industry.

    13. BG

      That's pretty simple. So you're telling me that tech startups need insurance, like business insurance?

    14. SP

      Yep. Uh, you're just as likely to get sued as a tech company as you are any other business, right? So we protect against litigation, theft, and particularly important for our clients, uh, cyber threats.

    15. BG

      I see.... So if I'm a startup and I'm based in Seattle, like many startups here are, can I use Vouch?

    16. SP

      Well, David, Ben, [laughing] so glad I- [laughing] I'm so glad you asked.

    17. BG

      I hear you have an announcement to make tonight.

    18. SP

      So this is particularly special to Follow Anu, because we launched our first market on demo day, August 19th, when we got done with our YC batch two and a half years ago. And so after two and a half years, thirty-two states, can now say we cover ninety-seven percent of US venture activity, because as of today, about twelve hours ago, we're live here in the state of Washington.

    19. BG

      Woo! Woo. [clapping] Ben has literally been, like, dying. I am, like, I'm, like, jump- I'm just, like, jumping out of my seat right now. Uh, for all, what is it, fifty-ish PSL portfolio companies at this point to actually be able to use Vouch and g- get insurance in literally minutes, instead of, I don't know what it takes-

    20. SP

      Weeks

    21. BG

      ... eight to twelve weeks through a traditional broker. It's, like, so game changing. So I, I am very excited tonight, personally, and, uh, I know many other folks are, too.

    22. SP

      I, I don't have the words for how excited I am right now. [laughing]

    23. BG

      So, uh, I did wanna dive into one interesting piece of sausage-making in the business of insurance. There's actually three layers to it, and for folks who are very interested in this, I'm sure you're gonna publish what you sent me as a blog post, and we'll link to that in the show notes when this comes out. Uh, w- I just found the whole narrative about how, how an insurance company works under the scenes totally fascinating. So maybe just as a little teaser on stage, what are the three layers of an insurance company, and what do you do versus what do you outsource?

    24. SP

      Yeah, uh, so the, the three layers start with distribution. Uh, then you have underwriting, and then you have capacity, right? So the capital to actually pay the claims, you know, when bad things happen. And so most companies, the vast majority of the industry, focuses on one of those layers, right? So distribution is your typical broker. They go to underwriters, and then in the event of a claim, underwriters go to their capacity providers. What's unique about Vouch is that we started off with getting licensed to sell insurance like anybody else, and if we were taking the, like, lean startup methodology, we would've just stopped there-

    25. BG

      Hmm

    26. SP

      ... and just sold you guys a Chubb policy, a whatever policy, like anybody else.

    27. BG

      Yep.

    28. SP

      But the experience wouldn't have fundamentally changed. So if you think about, you know, uh, what Salesforce did, for instance, right? You- so somebody who took the Rolodex and turned it into, you know, on-prem CRM, but the magic doesn't happen by just, like, digitizing each layer. It happens by creating entirely new business models out of that. And so for us, you know, the equivalent of, like, moving onto the cloud and creating new revenue models was tackling the underwriting layer. So we created the policies, you know, uh, where we basically just started from scratch. Said, "If you were, you know, designing risks specifically for technology companies, what would that look like?" Uh, and then we, from a capacity perspective, partnered with the largest reinsurance company in the world to be our, our capacity provider. But when you're doing things like cap table coverage and cloud coverage that the industry had never seen before, uh, regulators and traditional insurance companies, [laughing] you know, uh-

    29. BG

      [laughing]

    30. SP

      ... they, they don't have the, like, most excited reaction to that. And so about three months in, once we realized we had product market fit, we very quickly shifted gears to say, "We've got to own as much of the value chain as possible so that we can control those decisions." So, you know, spent the next few months building the Vouch Insurance company, launched that last summer, as well as a few other big infrastructure investments, and it's those things that let us go from, you know, took a year and a half to do the first iteration on our products-

  19. 1:30:01 – 1:33:37

    Back in studio: wrap-up, what’s next (Brooks Part II), and final sponsor thanks

    1. BG

      Hey, listeners. Ben and David here, back in the Acquired home studios. We want to say a huge congratulations to Vouch on their Washington launch and their Florida launch recently. Woo. But I can say, as a Washington resident, I'm very excited for all of our Pioneer Square Labs companies to have the opportunity to use Vouch. Uh, I've been waiting literally years for this, so it's about time. Indeed, and all the Miami startups now. There you go. Our next episode will be the part two of the Arena Show with Jim Weber, the CEO of Brooks. I mean, I was just listening back to the segment this morning, and, uh, truly an unbelievable business, growing from, like, twenty to thirty million in revenue two decades ago to clearing over a billion dollars in revenue last year. Part of Berkshire Hathaway, deep personal relationship with Warren Buffett, purpose-driven brand. There's just so many great things about that story. Ah, Jim is so wonderful. We realized we had to make it its own episode.... Yes. So we will be launching that in a couple days, and, uh, we really wanted to give it the space that it deserves. So if you aren't in the Acquired Slack, you should come join the 11,000 other smart, creative members of the Acquired community there. And, um, we have one more friend of the show to thank, and that is the SoftBank Latin America Fund.

    2. DR

      Woo!

    3. BG

      Now, as folks know, their thesis has always been that the region was overflowing with innovative founders and great opportunities, but always short on that one essential ingredient of capital. The short answer is that they were right. [chuckles] After all these years, they've been successful in deploying $8 billion in 70-plus companies, and they have one gigantic takeaway from all this, that technology in Latin America isn't about disruption, but really just about inclusion. Because the majority of the population is underserved in almost every category, from banking to transportation to e-commerce, and businesses similarly are underserved by just not enough great software solutions. A great example of this is a portfolio company, Gympass, that we've talked about on this show. They help employers offer gym access and other services like therapy and sleep guidance to employees through a network of over 50,000 gyms and studios around the world. They've got this unique software platform. They're clocking double-digit month-over-month subscriber growth as companies design hybrid workplaces.

    4. DR

      So cool. It's a global software company built in Latin America.

    5. BG

      Yeah.

    6. DR

      Amazing.

    7. BG

      Just great. So that's just one example of how SoftBank is pairing great founders in Latin America with the capital and expertise they need. To learn more, you can click the link in the show notes or go to latinamericafund.com. Our thanks also to Vanta and Vouch, and to PitchBook, their whole team, for doing this entire crazy thing with us. [chuckles]

    8. DR

      Oh, my gosh, this was such a life experience.

    9. BG

      [laughs]

    10. DR

      Like, who ever would have thought seven years ago [chuckles] that Acquired would be doing this?

    11. BG

      There were 44 people on and off the stage involved in the production of that event, so too many to thank, but definitely the PitchBook team came out in full force to put it on. We're super excited to share the, the Jim story with you, the... and the story of Brooks, and, uh, we'll, we'll be doing that in a few days here. And listeners, we'll see you next time.

    12. DR

      We'll see you for the Arena Show Part 2.

    13. SP

      Who got the truth? Is it you? Is it you? Is it you? Who got the truth now? Huh. [singing]

Episode duration: 1:33:37

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