SPEAKER_00: there's probably been a softening of the American capitalistic machine in that kind of way, where it's like, oh, we'll work from home, we'll do 40 hours a week. And I think that what's great about this is because it creates this massive chasm between the people who are actually desperately hungry and are willing to do whatever it takes, versus the people that pursue these capitalistic pursuits as a lifestyle almost more so than a... Preston Pyshka, Ph.D. A job. Adam Backman... imperative of their life. Yeah, exactly.
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SPEAKER_01: favorite guests of all time, Mr. Exits is here of the famous Instagram and Twitter accounts, praying for exits and the Twitter account Mr. Exits. He's been on the show. I think this is third appearance. He's one of two anonymous accounts I've ever had on the program. The other one was Bitfinex to the guy who was trying to take down tether on episode 1243. Yeah, Mr. Exits is a VC. He's an insider. I don't know who he is. I could know who he is. We sort of know who he is, but I'm trying to keep it up Mr. Exits that I don't know who you are. I appreciate it. That's
SPEAKER_00: a very kind of you kind of like the fantasy of you being anonymous, even though I see people know who
SPEAKER_01: you are now. You raised your own fund, you started investing. I did, which is great. And your fund one investments include Andro, my favorite startup by my favorite founder, Pomer Luecky, Virta, Deleon from Founders Fund company doing science and space, and Science.io, a healthcare IO company and factory.ai, autonomous coding. We'll hear all about that. But let's start off with what's life been like since you started the fund? You know, I've, it's been great. I've been an
SPEAKER_00: investor in venture capital asset class for about seven or eight years now through a variety of different vehicles. I'm really excited. I think that we're at the precipice of a really interesting shift in the cycle. And I think that all of the vintages that are probably coming over the next year or two have a good shot of being analogous to the ones that we saw in post global financial crisis, where we got a lot of interesting, the Airbnbs and the Ubers and the et cetera of the world. So I'm really excited. I think it's a great time to be, have interesting ideas and also a great time to have dry powder to follow those ideas. You are 100% correct.
SPEAKER_01: This is exactly like it was in 2009 to 2014. One of the most amazing vintages of all time. My first fund when I was a Sequoia scout, 600,000 or so deployed 120 million returned. So 200 X fund probably won't redo that. But my next fund after that was is five X on paper and I'm already in the black and got past the hurdle in terms of DPI. So this is the best possible time. And I think you're right about dry powder. The only folks who are investing right now, and the only folks starting companies are super highly qualified people. In order to have dry powder, you either have to have a leftover from ZURP or you have to be great at raising a fund. And in order to start a company, the hurdle is what would you say? Two, three times harder to raise half the amount of money? I'd say so. I think that the bar for the competency around the thing that you're raising
SPEAKER_00: around has become much higher. I think before basically anybody with a pulse and idea got funding. But now it seems like people are over indexing for subject matter expertise, second time founders, all of these heuristics that were probably pretty common back in the original vintages we were talking about seem to be coming to play again. And so, yeah, I think it's, again, it's, I think that having a higher bar leads to better outcomes generally. So, I think that it's probably the natural consequence of the pendulum swinging too far the other way the last couple of years. And I think you nailed that there, the people who are getting funding, a lot of them are
SPEAKER_01: second time founders, second time founders. They have a more efficiency, they have talent they can tap that they've worked with before. So things that might become really detrimental to a first time founder, like screwing up the cap tables, screwing up hiring, not getting product market fit when you're second time at bat, you're going to do those things just 10 to 100 times more efficiently, which means the dollars go further. You mentioned also subject matter experts, explain some examples of that. Yeah, I mean, I think that like, you're seeing this sort of came through an explosion of
SPEAKER_00: people who work at large organizations and are using sort of these paradigmatic shifts to their advantage to understand problems that large organizations have that won't necessarily be solved internally because of a variety of issues, whether it be red tape, just like whatever it might be. So I think that you're finding a lot of people in the same way that PayPal was like this amazing sort of like place for people to kind of spin out these ideas and go on and pursue great and large scale problems. I think you're going to start to see the same thing in places like SpaceX and Tesla and Andoril and all of these organizations, even OpenAI. I think that what you're going to start to see is maybe not second time founders, but people who have established themselves as great operators within these large organizations, maybe take the leap of faith to go and solve something that they noticed while they were in one of these big companies.
SPEAKER_01: Yeah, that is the alumni factor is critical. This is why I tell young people don't go into venture capital like at a school. I mean, you can try if you're really into it, it's your thing, but much better to go work at Andoril, learn watch somebody like Palmer, lucky build a company, go work at SpaceX, watch that team build a company, get some reps under your belt, put in your five years, and then man, you're gonna look at the world completely differently. And you're going to see opportunities in a way that you won't be able to understand until you've done it. Yeah.
SPEAKER_00: I think that's right. And I think that also to your point, there's a certain level of osmosis working around incredible, like conoclastic founders. And so if you get the chance to be around an Elon or a Palmer or a Collison brother or any of these types of guys, I think that it's worthwhile, especially early on in your career, just to get a framework for what an amazing founder actually looks like. And then from there, decide if that is you or not.
SPEAKER_01: And when you now as a capital allocator here, wrapping up your first decade, and now you're making bets from your own fund. So your ass is on the line here. This is your reputation. You look for what when you describe those kinds of iconoclastic founders, what is your signaling tell you is important in their personalities and approach? I pursue people who seem to have like, clearly independent thought, you know, there's a bunch
SPEAKER_00: of founders. And I'm sure you see this all the time with the volume of companies that come your way. But, you know, there's a bunch of people who just kind of parrot the general talking points on Twitter or Wall Street Journal or whatever. And maybe they wrap it in some angle that seems unique or whatever. But I think that there's groups of people that are just sort of like diametrically thinking when it comes to just broad ideas than most of the crowd. And I think that it's one of those things like there's this famous quote about pornography. It's like, how do you describe pornography? Well, you know it when you see it. One of those things where you talk to these people and you're like, wow, the way that you framework the world and the way that you kind of orient your own interests and stuff against the backdrop of what's happening in the world is entirely unique. And I think that value accrues to the people that are on the edges more so than the middle, because in the middle, it's kind of like democratized and accessible to everybody if it's obvious. And so if you go to these kinds of weird niche places where people are thinking in a unique way, I think that that gives you the best opportunity to, you know, if you're running a fund, return a fund, if you're starting a company, come up with an outsized idea. Yeah. So that's kind of my framework for it right now. Steve Adubato And I think Steve Jobs really did this perfectly in his Think Different campaign.
SPEAKER_01: Here's to the crazy ones, the misfits, the rebels, the troublemakers, round pegs in the square holes, the ones who see things differently, not fond of rules, and they have no respect for the status quo. You can quote them disagree with them, glorify, vilify them, but the only thing you can do is ignore them because they change things they push the human race forward. Some see them as the crazy ones we see genius because the people who are crazy enough to think they can change the world are the ones who do. All right, listen, we work with startups, and they are all over the map. Most of them very early stage precede seed, you know, going on to their series A, but some of our investments have gone on for ways those late stage funding rounds they've gotten acquired, hey, and a number of them have gone public. And there is one thing that unites them all they need to have their business insurance tight if they want to succeed. This is obvious. A lot of founders ignore it and they ignore it at their peril. If it's not tight, it's not right. And we need tight and right and we send them to broker and broker is business insurance built specifically for startups. Their single application helps startups get four quotes for four lines of coverage in just 15 minutes. broker will connect you with one of their expert brokers for unmatched service and it goes beyond your policy. They'll make the process painless and transparent, especially when you compare them to the incumbents, which are slow. So try in broker today with the code twisting at 10% off. There are already amazing prices their startup package in broker comm slash twist, EMB are okay er.com slash twist and use the code twist for 10% off we love and broker. Thank you for all the amazing support over the years, both on this program and the love and care you give to our startups. I mean, it's just so accurate when you think about venture investing, these people can be difficult, they can be hard to work for. But they will not accept the status quo. They're just going to ask for more out of their team members and themselves and they're going to think differently. So it is a cliche. But it's a cliche for a reason. It's because it's accurate. Yeah, I think that's right. And I think that you know,
SPEAKER_00: to your point, some of the most successful people that I've seen are also the most abrasive. And that's because they just don't tend to operate within the same set of rules as everybody else, because they see the world in a different kind of way. And so it's one of those things where I think that the best founders of this next generation will be looking at all these sort of rule sets in the same way that when the app store came out, there's all this disenfranchising of these legacy things. I think it's going to be a similar shift in that, even Elon with SpaceX and going up against NASA, JPL, all of these things, like there's going to be these people in these moments and times and specific verticals where they're just like, you know, part of my friends, but fuck the system. Let's move on to that. Like, let's usher in the next thing, you know?
SPEAKER_01: Yeah. Sometimes you got to force the issue, right? And Airbnb, Uber, in transportation and hospitality, they forced the issue. They reinterpreted the law. They bent it. Some cases broke it, whatever the case may be. They did what had to be done to force those products and services into existence. And sometimes you got to do that. And, you know, there was a very interesting thread. I don't know if you saw it on Twitter slash X this past week where I think they were quoting Reid Hoffman, who said, listen, when you're doing a startup, you're compressing your an entire average career into five years. So if you think about live life work balance, if you do a startup, you get in five years, what a person would get in a 30 year career, so then you get the other 25 years free. So you want to make that trade off, go for it, work six days a week, 14 hours a day, be consumed by it, just like somebody might be consumed by being an Olympian, or trying to get into the NBA or, you know, forming the Beatles or dire straits or Rolling Stones, whatever band it is, and you go on tour and you perfect your craft. That's the kind of sacrifice it takes. The mids don't like it. It's hard for people to hear, especially if you've decided that you want life work balance, just hard to hear somebody else say, no, I want to not have balance. I want to be extreme. And it's just very weird that we always have this conversation about it's kind of like the work from home versus being in an office debate. It's like both things can work, you know, one works better than the other.
SPEAKER_00: What's great about this. And to your point, I think that there's probably been like a softening of like the American capitalistic machine in that kind of way where it's like, oh, we'll work from home. We'll do 40 hours a week. And I think that like, what's great about this is because it creates this massive chasm between the people who are actually desperately hungry and are willing to do whatever it takes versus the people that pursue sort of these like capitalistic pursuits as a lifestyle almost more so than, you know, like a job imperative of their life. Yeah, exactly. And so, yeah, no, it's it. And Travis and you know, the hardcore founder,
SPEAKER_01: which Elon sent that email, I was there for it, you know, like, click here if you're hardcore, and there's the door if you're not, I think it's kind of like the hardcore founder is the founder that you want to bet on. And it's the one who changes the world. And yeah, they'll get a little bit of scorn from the mids or, you know, people who don't understand it, but that's just their choice. I don't want to say that as like a definite that like only those types of people make
SPEAKER_00: successful businesses, because there's countless examples of not. But I think that like, as a rule of thumb, those people will get to the place that they want to go much faster than anybody else. Yeah. And so if you're on a, you know, a proverbial shot clock, like we are as capital allocators, you know, you have to over index for these kinds of people, because you're also on a timeline, right? So actually, that's a good thing to point out, because yes, these are the ones who
SPEAKER_01: most often have outlier outcomes. So yes, that you could be successful without being hardcore might take you 20 years instead of 10. Why is there a shot clock in venture? Explain that to the audience who may not understand the clock that's ticking for you as a first time founder, a first time fund creator, there's a metric by which a lot of funds are measured against, which is internal rate
SPEAKER_00: of return IRR. And it's basically a function of time versus capital allocated that illustrates a number, which you basically should put up against the risk free rate of return, which I think in think JP Morgan's doing like liquid CDs for like, five or 6% right now. And so, as it's a function of time, it's in your best interest to have the quickest investment to exit metric as possible, because that will raise the percentage of your IRR up. And so, you know, in this kind of market, you're looking for, call it like 20 to 30% IRR is probably top decile fund. And so, it's in your best interest to find these founders the quickest, invest in them the quickest, and hope that they reach their sort of dreams and goals in the most rapid manner. Yeah, and this is where people don't understand the nature of our industry, we are not venture
SPEAKER_01: capitalists, given a bunch of money to just deploy to make people feel good about themselves or make society better. The money is being given by institutions that need that money to grow in order to hit their goals. If it's an endowment, like Harvard's, or Stanford's, it might be to build buildings or give scholarships or operate Ford Foundation, it might be in order to build wells or do educational things, you know, in the emerging markets or frontier markets. And if it's a family office, maybe they're trying to preserve wealth or grow wealth. There's all and there's a sovereign wealth fund, maybe they're trying to get off oil and, you know, have another way to make money. So they all have expectations of returns. And if you don't hit them, then you don't get more money for your next fund. And you have to beat, as you said, the bogey is basically you got to beat what no risk because this is high risk. So no risk is putting your money in treasuries for 5% a year. You got to be 5%. That's not easy to do, especially, you know, with these kinds of headwinds. So it's a really hard job. MOIC is the other term people use a multiple on invested capital, but MOIC doesn't take into account time. So you could say, oh, I 20x the capital, but if you did it in 30 years, that would be, you know, maybe not as good as, you know, doing it in 10, right time, there's sort of value, you have to take into account how much money you made. And over what period of time, it can't just be one or the other, you got it, you got to take both of those things into account. So let me ask you about defense, we had a period of time where people at Google, we're going to strike if they had to do anything for the Defense Department. And it looks like the industry has finally realized like, gosh, the world is a dangerous place. And we need to innovate. And Tony Stark, our industries, and if we don't, the Chinese have already done it. And they got some sick weapons coming out of China, on the supersonic front. And there's low cost weapons coming out of Iran. I learned about this when I was on my Middle East trip. We're on is making like these little drones and quad copters that cost 100,000. And then we make things that cost 10 million 100 million. And they can take down our hundred million thing with 100,000, a couple $100,000. You know, a swarms, there's an economic way to beat some of the best weapons in the world. And we have to catch up, huh? Yeah, I mean, I think that, like, you know, if you're a student
SPEAKER_00: of history, guerrilla warfare has always existed to some extent, which is like, you know, these people who don't have as much as the opposing force have some sort of like force multiplicative, you know, like, whether it be, you know, like ambushes or whatever. And I think that this just evolves over time. In any war, for the most part, you have one group that is vastly underfunded, and one that's probably more overfunded. That seems to be just kind of like how wars over the last hundred or so years have played out. You know, I think that what you're starting to see is this kind of evolution into tactics where, to your point, you know, a Javelin missile platform is what call it $350,000. And you're starting to see all of these people in like the Ukraine and like the Houthis and Yemen and start to use consumer drones that cost five grand off the shelf. And you attach some munitions to it, and you don't have to go through ITAR because they're all consumer. Yeah, we have this asymmetric thing going on here. People can use five $10,000 drones,
SPEAKER_01: send up 10 of them, one of them completes the mission. $100,000 mission complete. Nine of them didn't make it. And then we have some hundred million dollar predator drone. You know, that's been down or whatever it happens to be. So we need to really rethink everything we're doing. All right, everybody. Stephen Estes is a principal at CLA Clifton Larson Allen is a professional service provider that specializes in CPA tax consulting and wealth advisory. Welcome to the program, Stephen. Thank you for having me. So what are some tax strategies for VC backed startups? Well, I think first and foremost, when you're selecting an accounting firm, and you're trying
SPEAKER_02: to figure out how best to grow this thing, you want to find a firm that one is specialized with regards to exactly what you guys do. Like you want to find a firm that works with venture capital backed companies. I don't work with wineries. I don't work with manufacturing companies. I specialize in one thing, and that enables us to really go to market and help those clients as they grow. And then secondly, I would say, you know, it's kind of like buying clothes for your toddler, you know, in six months, you're going to outgrow these clothes or this firm. So you want to find a firm that's maybe a couple sizes too large that you know, you're going to grow into the same thing if you're trying to hire a CFO and that person specializes in companies in that 30 to 50 million ARR rate, and you're already at 40 million, you're like, Oh, great, we're right in their sweet spot. But it's like, no, that person's going to be completely out over their skis in two years, when you guys are now at 200 million. So I think it's important to just find the right team and know that you're going to grow and grow quickly. Get started right now at
SPEAKER_01: cla connect.com slash tech. Let them know your boy Jake house sent you cla connect.com slash tech to get started right now. Now we're seeing people being okay with investing in weapons. What made the switch for people? Was it the success of SpaceX? Do you think people are just more cutthroat? Or do you think we got enough pragmatists in venture capital that they understand United States is going to have to fight wars, unfortunately, and despite not wanting to be the world's police officer cop, until somebody else steps up, it's gonna have to be us.
SPEAKER_00: Yeah, I mean, I think that like, probably the largest tailwind for this is, it became very obvious that the way of life that most of us enjoy is more fragile than we think it is across a lot of different metrics. Like, for instance, you know, the pandemic was one of those moments in time where it's like, wow, everything as we know, but very rapidly can change. And then you see what happens in like these, you know, semi democratic places like the Ukraine, and obviously, like, in the Middle East, and you see that, like, you know, your way of life can change very, very quickly. And I think that, you know, given that we have all these interesting distribution platforms for all types of content, now, you get to see how quickly these things can change, you know, like a user generated content standpoint. And so I think that like, if you are a student of history, and you also are good at pattern recognition, which hopefully, if you're running a venture fund, you're at least one of those things, there's a precedent to be said for, you know, just like protecting, like, I've always had this thesis, and I've maintained this thesis for the last 10 years, they're like, well, everybody thought that we were going to like a more globalized steady state, I always felt like we were going to sort of shift back to more nationalistic perspectives. And I think that you're starting to see that play out right.
SPEAKER_01: That globalization would revert to nationalism. How did you get teed off to that? What was your warning signals? I mean, I just think that, like, you know, if you saw like the trade deficit
SPEAKER_00: between China, you saw all of these different sort of macroeconomic backdrops happening, like, there's no way that they could have sustained for much longer than they already did. And I think that at the end of the day, you know, like, as optimistic as like the idea of globalism is, you know, most people are tribal, they want to protect and do the best for the people around them more so than they do people that they've never met. And so I always thought that at a certain point, there'd be like a breaking point where, you know, people in America would want to support American interests again, over the interests of other countries. And so, yeah, I don't know. I thought about it, I saw it, because I thought, wow, if you give an individual
SPEAKER_01: complete power, whether it's over their startup, and their company, or a nation state, it tends to go to their head. And then they tend to start behaving erratically, or doing things that are against the interest of the participants in that system. So I'm starting to sound like apology now. But yeah, it was pretty obvious to me when Xi Jinping was like, Oh, we're taking over Hong
SPEAKER_01: Kong. And I was like, I know Hong Kong. I've been there. I love going there. I wonder how that's going to work. Pretty proud region of the world. They have their own independent spirit. And it was like, Oh, yeah, we're shutting down Apple News, which was like the New York Times. And a couple of these people who are selling books are going to go to reeducation camps. They'll be back in two years to apologize. And yeah, we're going to take over the court system. And you're watching it like, wow, this is like watching the prequels in Star Wars when they just take over countries, and they create trade blockades. And you're like, yeah, why George Lucas had his moments like they literally did a communications blackout, like in the Panamanas. And they just took over Hong Kong. And I said, that's interesting. All of that wealth and prosperity in Hong Kong has and all the trust that got built up there has been evaporated. Because one person is jealous of, you know, some, you know, CEO of this Alibaba group and, and financial and can't handle there being another person who is larger than life. They can't have their Jeff Bezos over there, because it takes away from Xi Jinping's position. And I just thought, wow, this person's gonna act erratically more and more often, I think. And sure enough, here we are. I don't know what China's thinking, but it doesn't seem to be a very well thought out, prosperous plan at this point. What do you think?
SPEAKER_00: No, I agree. And I think that like, what you're starting to see is that, you know, even in the Russian example, or even in the sort of Israeli Palestinian example, there's all of these like efforts to consolidate power in one way or another. And I think that that's going to be like a directionally true thing moving forward. People are gonna try to consolidate power back internally as much as possible. And yeah, I think that if you view that as a backdrop of what's likely to happen, there's more than enough reasons to invest in places like defense and space and, you know, manufacturing, onshore and nearshore energy, all of these things that kind of insulate you from, you know, the effects of other people and other places.
SPEAKER_01: In fact, you want to be anti fragile, right? Not only do you want to be resilient, but I believe anti fragile is, hey, in times of chaos, you become stronger, right? It's, it's, it's, it's a, I think people think anti fragile means you're just protected from downside. I think that's not how it was intended anti fragile is during chaos, you're stronger, right? You're more resilient, you're more powerful. And you know, Uber having Uber eats and having the ride sharing business versus people who had just one or the other was an example of that during COVID, right? It just made them actually do better. That to me is the benefit of us drilling for more oil and fracking in the United States. And obviously, we don't want to destroy the environment. But since we started doing that, and if we can get nuclear online, and we start building chips here, well, not only will it make us resilient, but maybe we start selling those chips or exporting that and we become even more powerful in times of trouble, right. And I think that's actually in some ways exciting is to start thinking about how can we be anti fragile, you know, and, you know, more so and I think it's very interesting you bring up Putin because that was also like completely self inflicted wounds, he decides to invade another country for what purpose everybody knows it's going to be a stalemate. In all likelihood, everybody knows it's going to just be death and dismemberment and the outcomes going to be not great for either party. And sure enough, here we are in year two. This is stalemate, both parties lose. And what is Russia gained from this?
SPEAKER_01: They lost Germany and the EU as a client forever. They're never going to go buy their oil. They're never going to trust them again. And then the West pulled out all of its businesses from Russian, Russian people suffered. I don't you know, it's hard to understand the thinking of a geriatric dictator, right? Like, dictators in their 70s. Like, what are they? What are they actually thinking? Well, I think that they realize, and it's, it's to your point that there's like a
SPEAKER_00: fragility to life, right? And if you're, you know, if you're a dictator of a place, it would be very hard to not become extremely egocentric about you and your legacy, and what you're there for and how people should remember you. And so I think that a lot of these guys, you know, are on, in the final quarter of their lives, and they're thinking, hey, like, the things that I wanted to do, the things that I want to accomplish, the timing in the window for that is rapidly coming to an end. And so now is the time, like, if I really care about my legacy, if I really care about how I'm written about in the history books, nationally, within my own country, there's certain things that I need to try to do to cement sort of like how I view myself from an egocentric perspective, right? Absolutely. And if that means Jack Ma's got to go. And if that means
SPEAKER_01: I need to claim some small amount of land for some previous glory, to make people love me a little bit more, I'll sure I'll jump the fence, I'll go do it. And does it matter what the ramifications are, which makes you actually appreciate democracy as messy and sloppy as it is. Everybody was saying two years ago, China is going to Trump the US, it's gonna, you know, we're going to be beholden to them. And that didn't happen. And you look at AI, and you look at all the greatest, you know, public companies and the market caps of companies, I think the United States is 19 of the top 25 market cap companies in the world, totally LVMH. I think there's two e commerce companies in China, that have bigger market caps, and obviously Aramco. And it's pretty, it drops off pretty quick after that, in terms of who's got a company that's worth hundreds of billions of dollars, whereas the United States has so many of them, and it seems like we're getting better. Yeah. So I'm long America. Same here. And then somehow that was
SPEAKER_00: like a contrarian perspective five years ago in the valley. If you were just deeply long America, and you loved America, and you just wanted to see, you know, 25 out of the 25 top companies in the world be American. Yeah, that was somehow kind of like a, you know, you're some sort of pariah if you are some sort of like, colonists, racist. Yeah. And it was like, well, how about
SPEAKER_01: we want to spread democracy and economic strength is a key component of that. And innovation is a key component of that and making people want to come here as a key component of that.
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SPEAKER_00: America. It's given me everything that I have, and it's given most of the people that I know everything that they have. And so I've never really understood the logic behind abstracting that away and saying, hey, maybe there's like, you know, maybe some sort of, you know, pseudo socialism or communism or whatever is somehow better when, you know, everything that you enjoy on a daily basis, yes, it's not perfect. Yes, there's ways you can improve, but by and large, you travel to any other country around the world and you know, it's a worse experience. So go ahead and try and change systems in some of those other places and see how that goes for you.
SPEAKER_01: Right. Like, how did it go for, I forgot the name of the guy who's been Putin's rival who kept, you know, every year they put 10 more years on a sentence. Yeah, exactly. By the way, newsflash,
SPEAKER_01: they put him in for like three years and then it became like nine and then now it's 20. And I think it's like six life sentences. Now, every time he's in jail, he commits another crime that they find. And he just doubles the sentencing. Yeah. Good job. Yeah. See what it's like to change it. Yeah. Good luck with, you know, marching in support of, you know, Hamas, you know, in another country, that's a dictatorship or the equivalent thereof. We'll see how that goes for you. You're going to wind up in jail and be re-educated. It's not going to be pleasant, especially if it's China or Russia, particularly statistic. All right. So what do you think is, what's the end game here between the US and China? Because you do have Xi Jinping coming to San Francisco to meet with Biden and the reports are maybe China wants to do some business because business ain't very good in China right now. And they're watching a lot of factories and I got laughed on all in by, Chamath laughed at me when I said like, you know, I think India is going to start making iPhones and they're making the twelves already. And, you know, and sure enough, India and Vietnam and some other places are taking over a lot of the manufacturing that we previously had in China. So that seems to have been escalated. What do you think happens here? Do you think China softens its stance in the US and China try to make some music together here? I mean, I think that that's probably very likely.
SPEAKER_00: And I think that if you think about it, like China is one of the most capitalistic places in the world. And so the second that you start hurting the bottom line of the Chinese economy in any way, shape or form, I think it incentivizes them to play ball in more of a way. And I think it's been quite obvious that, you know, to your point, there are these other manufacturing hubs that seem to be coming online that present interesting alternatives to China. You have Mexico, you have Vietnam, you have Sri Lanka, you have all of these different places that are arguably more willing to play ball, more democratic processes, easier to be able to set up businesses in those places and have them flourish in a way where you don't have this overhang of like, you know, governmental oversight. And so I think that to your point, the more that America starts to diversify its bets in this way, I think that the more China becomes incentivized to play ball. And I think that you're seeing it right now with Xi coming, you know, to America.
SPEAKER_01: Yeah, I'm encouraged by that. You had questions for me. I know you always like to ask me a question or two about how I look at things. Did you have any questions for me this time?
SPEAKER_00: Yeah, yeah. You spent a fair amount of time over the last couple of months, or maybe the last month in the Middle East. What was your interpretation of it? How do you think they're going to be playing ball with America moving forward? And like, yeah, what's your sense of the venture ecosystem there? Great question. I went in the spring, I think it was May,
SPEAKER_01: to Abu Dhabi and Dubai for the first time, had a really interesting experience there, met a lot of people, and was blown away by just how it felt like New York in the 90s. People were having fun drinking. It wasn't people in burkas, you know, women not driving cars, you would go to meetings in Dubai, Abu Dhabi, an equal number of men and women and very progressive, safe, you know, now, so it's still a monarchy, right? So it's not a democracy. But if you look across maybe three vectors, personal freedoms, check, and then you look at economic freedoms, check, and then you look at your ability to change who's running the country and political freedoms, okay, yeah, that has that's, that's not going to change in the short term. But massive changes on those other two fronts, and high functioning societies that really want to bet on moving from a petrol economy in the next 30 years to something else. And then this time I went, I got to visit Riyadh for the first time and spend time in Saudi is something I would not have considered 10 years ago, personal safety, I've been super critical of the region, not knowing, you know, how progressive it is. And what they've done in three years there is extraordinary. Women in meetings, not in burkas driving, people dancing at parties, music, you know, people having cocktails, perhaps, I don't want to rat anybody out, but it's a pretty progressive society all of a sudden, and then they too, are looking at, you know, trillions of dollars in wealth over the next 30 years. And then how do they shift it to and to what businesses now they've been involved in private equity, they've been involved in just starting to do venture, and then just starting to build companies. And what I was actually as a company builder was really interested in is how many entrepreneurs there are. So they are not just trying to be the dumb money in venture funds and private equity. In fact, I think they're kind of done with that reputation. It turns out the people who have the money in those countries, family offices, typically they were hard-fought businesses being like the Pepsi retailer or the money exchange or the Toyota dealerships. And of course, oil wealth. And over time they diversified. And these families built huge family offices with billions and tens of billions of dollars doing grinded out businesses. Then they started doing private equity and real estate. And now they're looking at venture. And these are like, remind me of American entrepreneurs, you know, Ray Kroc, you know, Phil Knight, you know, McDonald's and shoot and Nike kind of entrepreneurs grinded out entrepreneurs, salt of the earth, blue collar in a way, just running operationally hard businesses, and they see venture and they're like, Oh, wow, this is delightful. Wow, you you bet on all these things. And some of them become multi billion dollar businesses. What an interesting place, what an interesting place to put money. And so I think they're going to be the number two player in venture capital by 2030. I think it's going to happen in under 10 years. They've just gotten started the last two or three years in earnest, like looking at funds, and they know how to assess a fund, how to assess fund managers in the way that Harvard and Yale and Ford Foundation do. They've been educated in the United States. They've gone to Stanford, they've gone to Harvard Business School, they went to Wharton, they come back, they understand venture. They've hired, you know, people who've worked in venture before, and now they're opening offices up in the US. So not only they're going to be LPS, they're doing co invest now, and I think they'll be doing direct investments. So and then I saw a lot of entrepreneurs there. It wasn't just fund managers running around, it was entrepreneurs looking to raise money for their companies. Adam Newman was running around, it was obviously was raising money was talking to everybody shaking hands and taking pictures. So I think we got a, I think they're going to be like I said, the number two player, whether you want them to be or not, they've made their decision, venture and hospitality, you know, travel and hospitality to their region, and then sports. And they've already got real estate and private equity. But I think that's where they want to play. So they want to buy soccer teams, and they want to buy golf leagues, and they want to do real estate and buildings, private equity. They've already done that, but they really want to play in venture and tourism next.
SPEAKER_00: Yeah, that makes sense. And like, this is kind of maybe a bit off the beaten path of what's typically discussed on this weekend's startups. But do you think that this sort of level of progressiveness comes at a detriment to kind of like the moral fabric of society that most Middle Eastern countries operated under? Because what I find is amazing about these types of countries is, you know, you have a $100,000 watch and you go for a swim on the beach and you leave it on your chair and you come back and it's still there. Whereas in San Francisco, you drink half a smoothie and leave it outside for two seconds and it's gone, right? And so I think that the, I just wonder, like, what's your sense of like, you know, how it affects the sort of fabric of... Yeah. You know, you had moments in time in Saudi where, you know, the place was pretty progressive
SPEAKER_01: in the seventies, they had movie theaters, et cetera, then Sharia law. And, you know, the church was, you know, very much involved in people's lives and how the country operated. And now young people, I think, are more interested in personal freedoms, expression and entrepreneurship. And so I think economic opportunity and entrepreneurship is driving those societies to want to have that play a bigger role and individual freedom to go do those things. And then they realize, well, that's a better opportunity for us because I don't know how long people want the oil here. And so I think there's like a little bit of a crisis there. So to your point, like, society's going to change. There's so many young people in Iran, Saudi, other places, you know, in the region that the change is coming. And those young people, they don't want to live the way maybe their grandparents or great-grandparents did. And they're modernizing naturally as every generation does. And I think, yeah, they might have, you know, somebody get drunk and make a fool of themselves on the street, but you'll probably get picked up and talked to. It's kind of like Singapore maybe is where this all winds up, which is, yeah, you know, you can't chew gum in Singapore. Okay. You know, that's the price you have to pay. You can make a decision if you want to live there or not. Right. Right. So people move there and they make that decision. You make that trade off. For me at my age, watching what's going on there and thinking about the peace dividend, I don't have any business there right now, but I'm considering doing like this week in startups from the region and doing like 12 episodes from there, meeting the people, telling the stories over there, and then maybe doing my founding university or my accelerator there and getting to know the companies and maybe investing in some of the companies. I think if we do business together, like China and the US did for a while, that'll be better for everybody in terms of the peace dividend and building relationships. And if we don't build those relationships in that region, you can be sure China, Russia, and other dictatorships will want to court them, right. And already are, right. So it kind of have softened my view of it a bit because they've made so many changes. And I just think to myself, well, if we actually want to reward people, what is the reward for societies evolving towards more personal freedoms? I think doing business together is a pretty good reward, right?
SPEAKER_00: Yeah. No, I think that's right. And like from your perspective, just being on the ground there the last couple of months, what do you think for entrepreneurs and maybe even capital allocators, the biggest opportunity is to work with these types of countries in the way you just described?
SPEAKER_01: They're offering golden visas, which is a 10-year visa to Dubai. And they're all copying this general concept. But so just think of golden visa as you can come here, pay no taxes, we'll give you the ability to come here right quick, and then we'll pay for your apartment, your office space, and give you 250K in funding, and maybe 100,000 in grants for R&D credits. So imagine you're a founder, you went to YC or you went to Launch Accelerator or Techstars, you got 100K, your seed round didn't clear yet, you know, you're raised another 100K from Angels, and then all of a sudden, you know, Qatar, UAE, or the Kingdom of Saudi Arabia offers you 250 to 500,000 in seed funding and incentives. Hey, maybe that's pretty good. And I want to build an international company and I put it in Dubai or Riyadh or Doha or UAE. That's what they're playing for. They're trying to get founders to move there and put their companies there. And they will underwrite them to the tune of I think a quarter million or a half million dollars to try to get, you know, just but two or three more employees living there. And then maybe it grows to 10 or 20. So after the success of Careem and some other companies there, they're all in trying to build an ecosystem in the way Australia did, and the Nordic countries did. So I think that's what's going to happen is I think we'll see American companies, Asian companies, Australian companies, companies from the EU decide, hey, Dubai is a pretty central place. It's 4 billion people within two hour flight of Dubai or Riyadh. They're all like, pretty centrally located when you think about it, you can get to Asia, you can get to Europe, you can get to Africa, very quickly. The only place that's hard to get to is the US, 15 hour flight from San Francisco. So that's a bummer. But for everybody else, it's pretty great as a location for startups. So I think that's what's going to happen is a lot of start, we'll see a lot of startups move there. And there'll be LPs and people's funds. They've already announced, you know, who they're Lping. So that's been answered already. If you look at American funds, everybody has money from the region. I don't think there's any funds in the US that don't have money from some combination of UAE, Saudi, Qatar, Kuwait, Oman, they've decided they're going to play here. And they also fund fund to funds. So if you have a fund of funds in your fund, you probably have some Saudi family or Oman family, Kuwait family who backed that fund to funds and you don't even know. Right. Yeah, that makes sense. So if people
SPEAKER_01: want you to invest in their company, how does that occur now, Mr. exits, they DM you, or is the name of your firm now? Are you going to come out? Are you coming out today? No, I'm not coming out
SPEAKER_00: today. I mean, my firm is called my firm is called exits capital. Okay. I run it as a solo GP.
SPEAKER_00: I'm very widely available on the internet through a bunch of different mediums, whether it be Twitter or Instagram or email, you know, I check everything. And so if you're interested in working with me in some capacity, I'm easily reachable. And yeah, I'm excited to find interesting things to do together. So awesome. Well, listen, I'm fascinated by these tech, military tech companies,
SPEAKER_01: I would like to invest in a couple and at least review the opportunity. So what's your typical check size? 100 250 500 k, what are you doing in this? Ripping like 350 to 750 k checks? Love it.
SPEAKER_00: Yeah. How many names will you try to do in the fund? 30. Perfect. And you got a chance of hitting
SPEAKER_01: the power law. Most people when I asked them, how many investments do you need to have a chance at hitting the power law and having an outlier? They say 30, some pay 20, some say 50. The average is always 30. Right there. You have it everybody. Mr. Exits. If you don't follow Mr. Exits on Twitter slash X he's Mr. Exits there and on Instagram where he will take the piss out of everybody, including me and Mike and Pray tree out on the all in pod. And we love it. Praying for exits. We'll see you all next time on this week's service. Bye.
