Acquired - Arena Show Part I- Idea Dinner + YC Continuity

0:00Holy crap. Wow. Hello acquired listeners. You're going to say that. That's good. I'm at living. I got up here and I was overcome with emotion and none of this is scripted. Thank you so much for coming tonight. I like prepared things, and I should read them off my iPad here. But the only thought that can occur to me right now is how different this is than what you and I normally do. David and I are very used to being on Zoom, talking to each other through the internet. There are zero people watching live. And if we say something wrong, we delete it. And that's not happening tonight. But more important than that is we get evidence

1:01that people listen in the form of analytics, or tweets, or anecdotes here and there of someone saying, oh, I listen to the show. But there's no human visceral way to feel that. Like literally just for a fashion and an analytics dashboard and a number goes up. And this is so cool to see you. Real. Well, as fun as it is going to be to watch the show and we've got some great stuff planned.

1:30I think it will be much cooler to meet each other. For as many, they call it parasocial relationships, where you hear us talk but we don't get to meet you. We're going to try and meet as many of you as possible. We want a lot of you to meet as many other people as possible because you have an easy opener. What's your favorite episode or how did you hear about acquired?

1:52My buddy dragged me here tonight and I'd never heard of it before this But everyone's got some answer to that question so meet each other take selfies enjoy the time together. We have freaking climate pledgerina and enjoy the time in it Thank you to pitch book holy crap that John's not kidding pitch books is a pitch book is Seattle's like monster amazing business hiding in plain sight, and it's been really cool to get to another team more and more and more and understand the business and just learn how on four million dollars they've been able to build this multi-hundred million dollar business. It's inspiring to us. So thank you to John, thank you to Kai, thank you to Lauren and Val, thank you to Nas. Everyone we work with at pitch book is just awesome. So thank you to them.

2:49And Happy Star Wars Day. May the 4th be with you. I hear Paul McCartney. Yes, Paul McCartney is here tonight. We have a great show for you. That was last night. That was last night. We do have a great show, though. Tonight, we have Jim Weber, the CEO of Brooks Running. Another Seattle monster business that we're very excited to talk to you about. We have Anu Hariharan tonight from Y Combinator, the infamous Packing McCormick, from Not Boring, Mario Gabriela, from the Generalist, two of the Internet's finest publications, so very excited to chop it up with them. We learned from arena shows past.

3:35Live shows Pat very small live shows past that our normal format of telling a three plus hour story of a business doesn't work very well in this sort of Time where you're sitting down and you know, you could feel the audience getting antsy in those long stories, so we got three just like fast-paced great stories great segments for you tonight Be in and out in a couple hours I know. Well, we'll enjoy it along the way, but it's going to feel fast relative to your normal acquired episode. Speaking of, should we start our normal acquired? We got to do it the way that, I don't know, it feels like we have a way that we start acquired episodes, so we should do that. I should do that. Welcome to season 10, episode 7, the arena show presented by pitch book,

4:54of acquired the podcast 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 Pioneer Square Labs and our venture fund PSL Ventures and I'm David Rosenthal and most days I'm an angel investor based in San Francisco but today I'm an angel investor based in Seattle And we are your hosts. All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired, LaGoura, the agentic operating system that is redefining how the world's best legal teams work.

5:47Yup, it's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. LaGora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry? So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm.

6:13for months. They sat with the lawyers just watching how the work really gets done. And that's how you get features that customers love, like tabular review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Legora's bed here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time.

6:42And they recently launched LaGora agent offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required. And LaGora works where you already work. You can use it within Microsoft Word while redlining or drafting the early LaGora numbers essentially.

7:10speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Legora now has over 100,000 lawyers on the platform from 1200 legal teams in 50 countries. And crazily, they went from 1 million to 100 million in ARR in about 18 months. Truly insane numbers. And that is the real test.

7:35Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at logora.com slash acquired, and just tell them that Ben and David sent you. David, what do we have in Act One? Well, for Act One tonight, we start back.

8:04In February, 2021, when we were all bored at home, Clubhouse was a thing, GameStop was going to the moon, and we decided to call up our best internet friends, Packing McCormick, and Mario Gabrieli, and pick some stocks.

8:25Like everyone was doing. Like everyone was doing. Real quick, this is not investment advice. Do your own research. I'm glad you remembered that. And tonight, we're going to recreate that magic live here in person. Ladies and gentlemen, please welcome all the way from New York, Packey McCormick, and Mario Gabrielle. Whoa.

8:58Look how dirty my sneakers are, too. This is perfect. This is a weird start. So let's just change shoes from the beginning. Let's do it. So the only rule is, you will lose the idea dinner unless you are wearing. Did you ask us for a shoe size? I don't remember this guest. This is actually the second most embarrassing thing to the pick that I'm about to make. Well, we needed to delay a little bit because we have one more thing. Well, special surprise. We wanted to raise the stakes tonight.

9:27So 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. And a loser. That's very hard. Very. Yeah. Please welcome from the capital of Silicon Valley, Miami, Florida. Great longtime friend of the show and former Softbank Latin America managing director, Shu Nuyatta.

9:57Thanks, so let's dive into the idea dinner. I'm happy to report when we were deciding the order that we were going to go in. I came up with the criteria, which was whose picks historically have performed the best? That would be mine. That would be it. This is so rigged. In the way that you chose to select whose picks have performed the best yours performed the best. Yes. The not private picks, not blended, just public picks. Yes. OK.

10:34So I'm gonna back clean up and Mr. Mario Gabrielle is gonna lead us off before you tell us before you tell us your pick for all two people that don't know about the generalist tell us about the generalist Oh, wonderful. Thank you so much. The generalist is a publication that covers tech crypto and venture capital. I aspire to the level of depth of these two gentlemen and always enjoy collaborating with them. 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...

11:13deep writing about technology companies in the most whimsical style I can possibly imagine. Like Mario is a novelist at heart who covers tech companies, and it's very fun to read. Oh, thank you so much. I feel honored. Now before we grill you on your pick, a little like rules of the game here, we're all coming with our best investment idea starting today. What is today? May 4th? So the idea is to espouse something that you think would be a profitable investment, not investment advice. Starting today, going forward on a time frame that you choose to specify, and then shoe ultimately will be the judge, because we don't have the benefit of all that time to not have to actually play out. The God-like powers. Yes. So, yes. So, Mario, lead us off. Well, since shoe is really my audience.

12:11All right, gentlemen, my pick is Snowflake. Thank you. I heard of it. So for those who perhaps are less familiar, what is Snowflake? Snowflake is a managed data warehouse. And their 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.

12:42That initial idea was quite brilliant and you know has formed the company into the sophisticated elegant 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 seen in a long time and the stock traded as high as I think 403 a share Today it's about 183 185 So it has taken quite a hammering. Multiple compression, as they say. Indeed. And especially this first quarter, it really got like I think a 45% drawdown. But when you look under the hood at what the company has been doing, certainly some of the multiple compression is merited. But the growth on revenue, the net retention, the free cash flow.

13:37All of those things have moved in a stellar direction. So revenues up about 105%, net retention is 178, it was 168 the year before. Which I think is like a record for a public company net retention. It may well be, it's pretty wild. And yeah, they're generating 80 plus million in free cash flow.

13:59And, 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 year prior. So, I would submit to you that this is, you would submit to shoe. I would submit to shoe. Don't forget. That this is a business that has the potential to compound for...

14:23Many years, I think, over a three-plus year time horizon, it can do extremely well. It is a play that summarizes the growth of data in the technology industry, which feels like a safe bet. And it's run by one of the biggest ballers in the executive world. Frank Sloopman, who has done this now at least two and a half times, depending on how you parse it. And who is sort of the quintessential sustainable growth CEO. He is someone who knows how to manage in difficult circumstances. He's compared himself to General Patton. And this is a time for a Patton-like figure, I would submit. And so my biggest snowflake, it doesn't come without risks, but those risks I'm willing to take. You've come a long way from, I think your first pick was a SPAC.

15:16Can we put a moratorium on bringing up people's old pics? Nobody's portfolio looks good right now. Sorry David's less negative than everyone. Any thoughts from the peanut gallery on snowflake?

15:41You have every sector tailwind in the world and the question is gonna be like so of course more companies are gonna be using cloud Cloud data warehouses and ways that you want to have good UX around and then the question is are they gonna continue to capture all the value like how do they stand competitively? Yeah, I think the sort of net retention shows that they're very good at growing with this customer base They're growing faster than any other cloud company which isn't super surprising given their relative size but I think that's a fair question, but not one that I'm hugely worried about, given the overall growth of the sector. So we know for other comments. Wow. You're there. All right. All right. How are we doing this? I'm not going to do a real-time grader. Yeah. I'll be skewed by the first one, and then I'll be adjusting mid course. I'll wait. I'm taking a guess. That's very fair. Mr. McCormick. All right. So I think for all of us, for your pick.

16:40I asked the internet 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 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. So, wait, wait, but you're on CNBC like all the time. Like I said, terrible, terrible stock.

17:07As we did the rankings, I gave Mario a little bit of guff, but I think we were going back and forth for last place. And so the safe move, and we also decided to only do Publix because we didn't want to shill our private market portfolio companies. So Composer is one of the companies in my portfolio that makes it really easy to invest in automated trading strategies. I'm going to go with one of the strategies that they have that's risk on, risk off. It looks at Treasuries and actually NASDAQ outperforms S&P as an indicator and then puts you in a basket of like three X like TQQQ 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 because we're all the way out in Seattle Second thing you could do but we can't invest in this but

18:03Maybe there are shares going around. Apparently, it's possible to get into the equity tranche of Elon's Twitter take private. Oh. At least, like, he's aggressively trying to find people to take some of the equity. He's aggressively, so any of you want a piece of the Twitter take private. $43, $44, whatever. Minimum check. Minimum check. I think actually they are taking relatively small checks from what I've seen.

18:32Uh, here's the quest is stop boring capital size checks. It's not boring capital investing not boring capital that I That is outside, not boring capitals, very, very broad mandate. Maybe I'll throw a yellow check in there, but... Dude, you invested not boring capitals money in buying the Constitution. And this is too far. And this is outside. That one was a 15 billion percent IRR for a little while. Time has gone on, but that was a 15 billion... Not investment. It wasn't an investment. I was donating or contributing to the Constitution. So the Twitter thesis...

19:09And this isn't the pick, but the Twitter thesis is that everybody in this room, half of us are here because of Twitter. If you pulled the audience, the average that it would take to pull people off of Twitter has to be in the hundreds, if not thousands or tens of thousands of dollars, yet they're monetizing like Android right now, right? Like Twitter needs to be the apple of social media. It has a small but loyal and valuable user base.

19:35The board doesn't use Twitter. Jack is doing whatever Jack stuff, but like somebody's gonna come in and monetize that thing. I think you charge for verification, you get rid of the bot problem. If the 80 million people who use Twitter in the US paid $3 a month, you're looking at like a $3 billion recurring revenue opportunity annually for Twitter. And he's gonna firehead count. He has to to pay his debt service, but like, I would imagine 90% of people at Twitter, and if there's anybody in the room, I'm so sorry, but like don't do very much.

20:05And so there's a lot you can do on the cost side. And then I think with somebody like Elon, it's either going to go horribly, horribly, horribly wrong, or it's going to go really, really, really well. And I think that you can kind of build the missing WhatsApp of the US kind of on the Twitter platform, where you have all of these valuable, passionate users. So at $43 billion, do you think when he takes this thing public again in three years, that he can do that at a phase of whatever Facebook's valuation is at that time? Pretty safe to ask. Not the pick.

20:33We are just a straight up. We're not getting out of here at 8 p.m. tonight. There's a chance. So the reason that I'm in last place is because of a company named Open Door. Oh, yes. Yes. Not the pick. Open Door is the pick. And here's why because we're in Seattle and Open Door vanquished a Seattle company Zillow's Ibuying program.

21:01own the ibuying market themselves now did eight billion dollars of revenue last year and now this is I came from breather where we counted top line revenue is like anything that you know like it's a It's a generous top line. I saw a bank knows about this as well. The general is kind of top line. Just the we work thing and we competed with them and what a wonderful company. But still billion dollars of home. Exactly. Or did last year. They're currently trading at a $5.00 billion market cap.

21:35Housing is a multi-trillion dollar market and everybody in the country it seems like this past year learned how awful that process is and so this is a point and I've written about the company but this is a point that I am taking from Twitter which is somebody said it is the worst UI, UX, customer experience in the biggest market out there, and they have the best solution with Ibuying. Sometimes it doesn't have to be hard. I'm treating this more like a venture bet. Like two months ago, $5 billion was a like series be evaluation. So treating this like a venture bet that they're the leader in this huge market that is inevitable. They're operationally super sound. They finally turned an adjusted EBITDA profit last year so they can make money on this business.

22:18and they did like thousands and thousands and thousands of homes and their biggest competitor is dropped out of the market and Zillow's no longer doing ibuying so this market is there to lose Eric Wu is an absolute monster and it can't go any lower so i am doing what you're not supposed to do doubling down on my biggest loser open ladies and gentlemen all right all right what about um Redfin is still in the market, another great Seattle company. Are you concerned about them as a competitor? Are they above or below a billion dollar valuation right now? No, I think actually the mistake I made last time was I did a basket of these real estate stocks.

23:00It is a massive market that is awful to operate in right now, as a lot of people who bought a house over the past year have realized. I think that Redfin's going to do really well. I think that Zillow now that it's kind of back to its original focus is going to continue to do really well. I still love Zillow. And I think that Open Door is going to do the best. I think the biggest leading in Ibuying, I think that's a huge opportunity, particularly because they have the best company value in all of the world, which is Bips for Breakfast.

23:28pull every basis point out of operating these houses, and that is a really, really valuable thing. It does remind you of another Seattle company, Amazon, and that you really need to get your costs right, and they're the best by far at doing that. There it is. Ben? Because David is theoretically winning, I will go next. So I did actually what Pekki did. I made a list of things that I was contemplating, and I thought I'd share some of those just Because I think they're interesting things you could buy with your pick right now. Literally anything, because everything's on sale. I thought about Google again, which was, I think, the best pick any of us made, except Solana. Still an amazing business. Still cheap.

24:24by valuation, you know, any way you want to slice it, price earnings, price of sales, whatever, not my pick. I kind of like the the thesis that's going around FinTWit right now where people are saying Amazon has gone so low.

24:39that they're basically valuing the retail business at zero, and it's only AWS contributing to its market cap. And 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 Pecky. There's a Twitter one that I had too, which is by Twitter right now, because there's free $5 bills attached to every single share.

25:03And for folks that don't get that joke, 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 or $50. I don't know what market close at today. But I mean, that's free money if you think Elon is actually gonna complete the deal. Not my pick.

25:33What I'm going with is one that I know David and I have discussed at length. I can't remember if we've done it on error, but I looked back at our idea dinner picks and we haven't actually picked it on the idea dinner and that's coin base. This is a value investment. I'll explain myself, but this is a crypto value investment. So let's set the anchor point that we should all think about this business.

26:02In the last 12 months, they've done $10 billion in free cash flow. That's astonishing. 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. Wow. So if I was running a business that was generating $100 of cash per year just to make the math easy, would you buy that business from me?

26:33$340. That seems like a pretty good pickup, especially one that has network effects, the leading brand in the space, growing incredibly fast in a gigantic wave. Now people can think crypto is gonna 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 And here's where it gets kind of interesting. A Berkshire Hathaway style investment into a crypto company that is the leading crypto brand in the world. It seems pretty safe to me. Famous last words. But to me, you're like very cheaply valuing their unbelievable business that they have today. And sure, there's going to be margin compression and sure the take rates going to go down over time. But like, I think you have a lot of

27:32resilience based into the price, not to mention all the free options that come stapled to that business which are the NFT business and every other venture that they're going into. And on top of all this, I think a great way to play crypto in Web 3 is to look at the companies that have centralized all the activity.

27:51and 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- Not only that, but Coinbase and FTX, they make money whether crypto goes up or down. Right. As long as it moves. And if it goes up or down faster, they make more money. Right. So my pick is Coinbase.

28:17I got to say I really like it. I was thinking about this one too. And I think what talked to me out of it were a couple of things. One, I see a lot of pitches from senior X 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, there's a lot of comparing FTX and coinbase because they're right around the same market cap right now.

28:47FTX is like 200 people or something crazy. I love moving really, really fast. 14 engineers. That was still, that was one of the most surreal. Okay, this is the most surreal moment of acquired, but that might have been second, when we were interviewing Sam. This is Sam Bakeman-Free, the CEO of FTX, who Mario wrote a three-part unbelievable series on. And he was just in the middle of...

29:14his office and people were like trading behind him 100%. And almost certainly playing League of Legends over here. Yeah, fair, packy. I mean, the FTX bear case on Coinbase would be that derivatives are actually a much bigger market than trading direct equities or direct crypto. I think it's like three X to the volume in any given market is derivatives rather than the underlying asset.

29:41and FTX is better poised for the derivatives market than CoinBases. I still think CoinBases this market cap is an absolute steal. I agree. I think FTX is scary in lots of ways and are so efficient as a business, but especially factoring in the NFT play, I think there's a really nice upside here. The stuff that they've shown at least on the NFT side, I think looks pretty promising.

30:09Yeah, I love it. It's a bet that crypto stays big and that decentralization is probably not as important to the next billion users as it was my first thing, which is a pretty safe bet. I love the big actually. Also, would any of us have thought at Coinbase IPO time that they would be shipping enough to do like a big NFT play? Like I'd kind of in my head thought like, okay, we sort of have reached product staleness, but they've actually shown like a rejuvenation on it. Yeah.

30:38Another way of framing this is I liked this pick so much in January, and other people on this stage did too, that there were investments made in the company. And I'm speaking with pack of passive voice for fun. I like it a lot more today than I liked it then. Me too. Me too. Ben, you've made me nervous. What for two reasons? Because I'm going to beat you. All right. That was one.

31:07The other is when you were doing your not picks, which I'm not going to do, I got really scared that you were going to take my pick. Because my pick is the company that built this arena, which is Amazon. What about the naming rights? Built as an aggressive. Well, they didn't actually build the arena. And so I was thinking about this.

31:34It's trading at about a one and a quarter trillion dollar market cap. Most folks probably know, probably a lot of folks here work at Amazon. The stock got hammered last week after reporting earnings. 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.

32:03the only larger one being Walmart, which Amazon will almost assuredly pass very soon. So that means that Amazon is trading at two and a half times revenue, times last 12 months revenue. What are Amazon's margins, David? Well, it's the US. I thought about that. About 400 billion of that is retail revenue, but about 75 billion, more than 70 billion is AWS.

32:33revenue, which is very high margin revenue. 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 narrative on AWS is, yes, it's amazing. High margin business, hats are off to Bezos to Andy Jassy for building it, but its days are numbered. Azure and Google Cloud are growing faster.

33:03And Amazon, despite being the early leader in cloud, might end up losing this market. I think that's utterly ridiculous. AWS is growing at 37% annually on a $75 billion base. Google and Microsoft are growing at 45%. 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.

33:33But 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 37% a year. I cannot imagine any other asset I would rather own period anywhere. So that's AWS.

33:57On the retail narrative, like you said, literally, Goldman issued a research note last week. Now it was a thought exercise. They didn't actually mean this, but valuing retail at zero. That's in people have been doing this for 20 years. Wait, can I take an effort second? How does that work? They issued a research report as a thought exercise. 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, you would still buy the stock.

34:27they think retail is worth something, but that was the thought exercise. So let's, AWS has over a 33% market share of cloud of the internet. The largest application of the internet by revenue is e-commerce. Amazon has a 56% market share of US e-commerce, a 56% market share. 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. I did this. Which they intentionally make it that you have to download a CSV report. And you can't actually see that in the web UI. That would be very scary. So just me, over the last five years, I've grown my spend on Amazon by 34% a year. And in the last 12 months, I ordered 230

35:27items on Amazon. Because we had a kid. We have garage delivery setup. We have the Amazon credit card. They're launching by with Prime on the internet. I'm highly influenced by Amazon sponsored listings, which is a $30 billion high margin revenue business within retail. Which was approximately zero five years ago. Exactly. So this is my point. The narrative that retail is worth zero completely misses the point.

35:56The reason that retail lost a billion and a half dollars last quarter is Amazon invests so far ahead of the curve. It's unimaginable to me that I would buy things anywhere else but Amazon. And that vote is so deep that if they were to stop investing, they would become incredibly cash flow positive and they'd still have years of runway before any competitor caught up. And to your point, I think their CAPEX last year was something like three or four X, any of the other big tech companies because you're just building out these warehouses and data centers. Yep, totally. Okay, so, Debarro Abezza's framework, I think you got to think about what's not going to change in investing. And I think what's not going to change is one, the internet is going to keep growing. So I want to own AWS. Two, I and others are going to keep buying more stuff online. So I want to own Amazon retail. And I think that on the retail side, they'll keep adding

36:53credit cards, advertising, buy-with-prime, leveraging their infrastructure across other retailers on the internet, and all of those are high-margin products. It's my pick. No argument. I've no hope. Yeah. I got to play to the home top right. Yeah, yeah. I mean, what happened though to Apple stock after Steve Jobs, right? I mean, now that he's... That's a good pick. I think Andy Jassy could be the Tim Cook of Amazon.

37:22I love that. I love that analog. That's a good one. That's a neat little framework. All right, so two. So I'm going to change the rules a bit. First, I'm going to make some comments. Some generalist comments. Thank you so much. The first is you all said we're not good public stockpickers. And I'm going to posit that the future of investing is people who understand and create narratives. And that's what you all do.

37:51you 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. You're getting invited back to the exhibition. It's no surprise you all have or are launching funds. I love how this is starting so far. So, that's overall comment number one.

38:11Overall comment number two is you all think like venture investors. Yeah, nobody talked about downside I was waiting for the bear case and what could go wrong and for example Coinbase over earns 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 80% what happens to the stock, maybe 120 is really expensive, et cetera. So there was none of that. Generally, I'm not picking on them. And the third thing is you were all focused on companies that are cheap. There was a focus on, now it's a good moment because this 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.

39:06at these prices. Who said that? Who said that? By the way, the consensus biggest Twitter between the two of you. So I had five criteria. One was upside. The other was downside. The other was timing why now. The other was novelty, which you all failed on by the way. Snowflake, maybe the most novel, and there's no...

39:35Science to novelty. I mean obvious stock can be a great investment and the final one was flair Very scientific criteria. I liked bips for breakfast general patent that got me going all right Come on and so I have my ranking, but we're gonna we're gonna get the audience involved. Oh, 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 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. OK? So we start with random order. Open door. OK? Let's go. All right. This one nobody hits me. That's open door. OK, I kind of got that clap. That was like a 5 out of 10 clap. Then we go with Amazon. It really came through there.

40:39That's a solid eight out of ten clap. We are in the Amazon arena. So I'll notch it down to a seven. Home crowd. Coinbase. That was better than the Amazon clap. So that's an eight. And then snowflake.

41:14So just like the French elections, this is going to go to a run-off Between Snowflake and Coinbase, okay? Do we get to clap? Oh, no, because it'll sound louder Can do Okay, so think about it. Okay, one of these two Snowflake or Coinbase Snowflake Coinbase and the winner is Coinbase

41:58My pick was snowflake for the record only because of General Patton As excited as I am to be victorious and I am excited That's probably why. Yeah. Time will ultimately be the judge. And there is a tracker. There's an idea in a tracker spreadsheet that listener James Avery, I think James started it, right? James started it. Maintains, and so we'll get to, at any given point, look back and see who actually won tonight. And I think Open Door reports tomorrow. So we're going to have a little fun with that one. But we're talking about five.

42:43Five-year-old period. I think that's right. Yeah, so we reconvene again here. Yep, great. 2027. Perfect, perfect. See everyone. Everyone. And judge this contest. You'll need to use, you know, the rest of the arena at that. That's right. That's right. Well, Packie, Mario, Shu, thank you so much. Not only for doing this, but for like flying five hours to do this. Let's give him a hand. Six-and-a-half. You're so good. Thanks so much.

43:15Even more important than flying five hours. Thank you guys for being our friends. Oh, thank you guys. This is the best. I'll take it up. Not boring.co. Read thegeneralist.com. You should follow Shoe on Twitter. The future of public investing. The future of public investing. If you liked tonight, you're in for a treat on the internet. Thanks, Shoe. All right, listeners. Now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture.

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44:53the whole environment. And that's the real value. Trust has to be continuous now, which is why Vanta automates your security, your compliance, and the work to earn and prove trust. We're huge fans of Vanta over here. And literally hundreds of acquired listeners have become Vanta customers at their companies over the years. So you can get a thousand dollars off of Vanta at Vanta.com slash acquired. That's V-A-N-T-A dot com slash acquired for a thousand dollars off and just tell them that Ben and David sent you. All right, David.

45:23What is act two of our evening? 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 why commonator, 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.

45:54friends 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.

46:23So tonight, we have Anu Harharan, the managing partner of YC's Continuity Fund, which leads all of these late-stage investments, here to tell the story with us. Anu's had an amazing career. She went from a junior engineer at Qualcomm, great semiconductor company, to partner in Andrews and Horowitz, to now running YC Continuity. There's on the boards of Brex, local fan favorite convoy, fair.

46:50Monso, Gusto, Revenue Cat, Robbie, and Vouch. And Vouch. Ladies and gentlemen, welcome, Anu, Harry Harren. Thank you. Well, I'll give you a hug. We got you some shoes. Oh, great. So great to have you here. Thank you. Thank you for having me. I don't know if you noticed, but we picked that Waga music just for you. I know. I don't know who can save San Francisco. So, well, we'll do so.

47:24Pat, my hand, I think the lead singer of train, obviously San Francisco band, I think he wrote that song because he moved up here to Seattle. To always foreshadowing your next step. Yeah, next one I see is, you know, ready to move up to Seattle. I think YC, well, YC right now is remote first. So we all live in San Francisco, but we don't have an office. So the mountain view facilities. We own the mountain view building. We have that, but since the pandemic, All our batches have been fully remote. 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. Yes, that's not been true for the last three years. 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 and yet to learn how to test for that on Zoom.

48:23And then we also learned how to run the batch on Zoom. And we learned how to do a demo day on Zoom. And this is the new normal going forward? Is this 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 largely remote. But going remotely helped us 50% of our batches internationally. Wow.

48:53What's the application deadline for the next batch? The deadline has passed, but we are still accepting applications. YC always accepts even late applications. YC.com slash acquired. Get your late applications. Great. All for it. Not a real URL. All right, so wait. Let me kick us off here with just like a very, let's just write in. We wanted to ask you what is YC continuity?

49:22But in a very mechanical way, like literally, what is YC continuity? Is it a fund? Is it a set of funds? 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...

49:46cool if I seek and 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 pretty much do primarily the growth stage, CDSB and above.

50:07We have invested in a primarily YC companies, actually. We doubled down in YC companies. Our goal is to be a lifelong partner for all the enduring companies in YC to the extent possible. We also do a tremendous amount of post-patch programming. So people don't know this. If you go through YC today, you get ten times more what you got.

50:32in 2012 batch, or 2014 batch. So, we run three programs in continuity. We run the series A program. We help you teach and teach you how to raise the series A. So, we work with you on pitch decks, how to negotiate terms sheets, how to identify investors. Then we run... And that happens well after the batch. Usually the series A, most companies raise series A two to three years after the batch.

50:58Very few raised during the batch. So we, you know, we pretty much helped them nine months, six to nine months before they raised the A. We sit down with them and say, are you ready to raise the CDZ? Do you really have metrics that you need to see for a typical CDZ investor? How to put the pitch tech together? We run workshops.

51:20for how to help you raise the series, how to identify all the prep work. And we have, you know, YC runs on WhatsApp. I don't know if you guys know this. Did not know that. We have around 4,000 companies in more than 8,500 alumni. So literally every morning, my Ford is buzzing because I have so many WhatsApp groups.

51:41So we actually can vouch for this listener so You're on the board of revenue cat so we're doing our diligence and we texted Jake and cuz Jake's another fellow Ohio state alum and He actually was at our very first acquired meetup in San Francisco and I was like will tell me about some some stuff with Anu and he was talking about how you WhatsApped him I Don't know exactly how much of that I can share but That you proactively were what's happening him before around was coming together to Tell him you were considering an investment. Yes, so we actually know our founders From day one, right? Why sees one team? So even though continuity was launched seven years ago by the way You know why see itself is 17 years old, but we're one team So we actually know the companies through the batch so I knew Jacob in the revenue get example, I think

52:36even at the time of demo day when he was trying to figure out which investors to work with, he had reached out to us to say, hey, how should I think about this? You know, whether to race from seed investors or CDZ. And then he went through the CDZ programs, so that's how we helped him figure out, you know, which partner to go with, he decided to go with index. Behind the scenes, we had actually helped him a ton with how to pitch, how to negotiate the term sheet, and all of that. So by the time, I usually say, by the time we are investing, I'm not waiting for the founders to come tell me I'm fundraising. Well, it's kind of like, I mean, you acquired has been an investor, you know, acquired. White combinator has been an investor in these companies for years at this point. Before continuity started was why see, were there any like experiments in doing investing after the seed stage before continuity or was continuity the beginning of? Continuity was the beginning.

53:33Partners always invested in companies that graduated from demo days so and I'll give you an example a lot of people may not know this but Coinbase, which was the idea winner Did not get any money or I think he got 20 to 30% of his ideal goal on demo day, right? He went out and said I want to raise 750k only 30% of the round got failed. Oh my goodness crazy, so because there's no one understood Bitcoin at the time But our early stage partners have worked with these founders for 12 weeks. So they're not picking companies, so they don't go by idea. They are going by who are the most earnest founders that I want to give them a shot to build. And so quite a few of the YC partners helped fill Brian's round so that he can go back to building. Initialize being one of them, if I remember right, one thing.

54:29So, Gary, in fact, was the one that accepted Brian into the badge. But that was the culture in YC before continuity. It was more of the partners helping out the founders. Individual investors, you know, there was no YC follow-on capital. No, it was not just who built those relationships. It was the first time there was follow-on capital. Wow. So, how did this idea come together?

54:53It's sort of obvious now when you say all these things, but you're just thinking back to it was 2015. July 2015, when continuity was started, the idea of raising a fund, a growth fund, a white common. Most people would have thought that was crazy, right? So how did this happen? More people would have been skeptical and been like, then we're picking winners.

55:17Yes, 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 ten people who could write a hundred million dollar checks and so but what you saw was there were less than ten funds that could write a hundred million dollar checks But the median time to IPO. Can you guess what it was in 2015 11 years 11 years And so why see Adams came to why see partners often and said I You know, you train a so well at Demory to tea and you teach us how to raise and like then we are in the woods Right and we often we tell our farmers. It's never going to be as easy as Demory. Well, it's yeah like The pyramid has widened. It's still a pyramid

56:11But I didn't think about that back then. Yeah, there were, I don't know, less than number of investors you could count into hands that were writing $100 million checks. And so if you're like, I can't go public. I need $100 million plus to finance this stage of growth in my company.

56:27Either it's a supply demand equation, right? Yeah, so it was probably 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. Yeah, so YC itself was learning what are its companies going through when when do they get help versus when do they not so we saw an opportunity we saw that These companies still need help. And we are in a great place, an amazing platform that really could host to PG and Jessica on how they built it. YC can play a significant role. And one of the things that people don't understand, and I didn't, I was at Andreessen Horowitz before, right, is the YC founder never views YC as an investor. As the parent.

57:22So what does that mean? Anytime a company is going through any issue, five years after they've graduated, they will first come to their YC partner. 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 start this through. Does continuity change that relationship? Knowing that you...

57:50Are available capital now? I mean, we worked very hard not to change that. So it goes back to our mission. If you ask venture funds, most of the omission statements are on 10 to 15 or 20% of the best companies. Our mission statement deliberately doesn't have that. We want to help more founders start companies and more founders build enduring companies. So what that means is there are many times We may offer term sheets and they would say out of, you know, we would not want YC this round and we would like YC in the next round because you're already in the Captival. And we will respect that. Because it's 1D. We don't say, oh, you know, let's play all the tactics that we need to play in the close process. But we also know that if you've really helped them and earned the trust, we will earn the right to win.

58:45Yeah, and so we often internally have a saying that you have to earn the right to it and as long as it's the right decision for the company sometimes we're the right partners sometimes we aren't and we have to be honest about that for us We see company succeeding is more important than what the returns of our funds are but if we do write by them we know that we can have incredible returns history has shown that How do you structure the partnership?

59:12Like, is our YC partners one big pool that sort of comprise one investment committee across accepting into the accelerator, making growth investments, or is it more like a couple people are YC continuity, and then a handful of people are the accelerator partners making those admission decisions? Yeah, so the only stage has group partners.

59:35that run the groups. And on continuity, it's Ali and I, Ali Rogani, who was the former CEO of Twitter and CFO of Pixar, so we both run the continuity fund. So on the only stage, it's only one group partner needs to say yes. Then the company is accepted into the bat, so they apply, we shortlist a bunch of them, and they go through the interview process. But as long as one group partner said, A strong yes, I really need them in the batch. They're accepted. Now remember, the group partner is taking them and working with them for 12 weeks. So if they picked, if they didn't pick the right team, the feedback loop is really fast. So they learn, and they evolve for the next batch. Right, so.

1:00:20That's kind of why we went with the model of one yes is enough. On continuity, it's a three people investing team, investment committee, so it's just me, Ali, and one early stage vote, in case Ali and I don't agree, but it's primarily the continuity decision. Fascinating. And one other question, just to help sort of frame up the continuity operations, you're not a very high velocity investor. The continuity fund, I think only does a Hand full of deals a quarter maybe like leads to three investments a quarter. Yeah, so we've done 35 investments in seven years Wow Wow, so even less than I thought yeah, and we have three thousand five hundred companies that have gone through VIC so we've done less than one percent now It's for two reasons we were so we pretty much out of startup within VIC so when we first launched

1:01:12We were honing our investment strategy. What's right and what makes sense for the broader YC? And then I would say we've always been under capitalized relative to the success of YC company. And we are changing that. But every time we change that, the bad size grows and they're more successful. YC has just had a ridiculous...

1:01:33track record. If you look at, I'm sure there's some vanity stat that you know off the top of your head. Is it like total combined market cap of all YC companies? It's on the Pittsburgh Wall out there. What is it? Actually, it's well over 500. The Pittsburgh says 600 billion. 600 billion dollars. 600 billion. Yeah. So I think no matter how much capital you raise, you're probably always going to feel like you're hungry. Yeah, we always feel undercover. It's also we do global, right?

1:01:59Our entire team is sitting in San Francisco, but we have investments in India. We have three investments in India. In fact, the top three breakout companies in India in the last two years are all YC. We have investments in London. We have investments in Lata. We have investments in Middle East. Because for us, it's about a naval entrepreneurship globally. That's the mission. And continuity needs to support that mission.

1:02:26You know, continuity is this start up within the, it's just crazy to me that YC is 17 years old. I mean, I guess that's true, but like, that makes me feel really old. In my head, it's still like an innovation in the venture capital landscape. Yeah. That probably says more about the venture capital landscape. That's true. That's why we have a new tagline, the YC mom. How many of you heard that?

1:02:49We hear noise about that. We never thought of the mob, but I was like, oh, we're the YC Bob. It's like, I used to be on the other side of this because I quasi used to compete with YC in leading seed rounds. And the number of VC firms throughout the whole life of YC that talk about YC, often in negative terms. Can you believe what they're doing? Can you believe how many companies they're taking? Can you believe they're investing now? It's like, It's just like the Andreessen story that we told, you know, if your name is on your competitor's lips, you're winning. It doesn't matter what they say. You're winning. It is so true. I mean, I also think it's really hard to understand and appreciate an organization like YC from the outside. You really deeply understand YC in only two ways. If you're a YC founder and if you work within YC and I mean outside.

1:03:42When I was at Andreessen Horowitz, I actually did not understand the depth and the cultural nuance with which YC was built. And it's really hard to grasp that. Can we talk about that for a minute? Sure. I put this in the notes. My current mental model of YC is like a university. A top called an Ivy League university. It's very hard to get into. You take classes every year or every six months.

1:04:11There's an endowment attached to it, which is continuity now. And wait, wait, David, what do you mean by endowment? Are you saying that all of the proceeds from YC exits go into a big pool of capital that then funds continuity? Is that what you're suggesting by endowment? No, but I'm curious if that's the case. I meant more, it's really weird that 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, that's just very bizarre. But anyway, that's kind of what I meant. Is that a good mental model of what I see? What is it like? Yeah, think, let's say that, we say VIC's University for startups. So think of the accelerator as the undergraduate program and continuity as the graduate school.

1:05:08We are modeled after a university in the sense of we have applications. You don't need to know anyone to apply to IC, right? Second, we were the first to do mass production of investments in a batch of startups. No one had ever done that. Everyone usually does. I met a set of companies. We have a Monday, partner meeting and you pick one or two, right? And why see from day one was a batch?

1:05:34They always received investments together and that I think goes to the insight that the founders of Visee 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 So so fundamentally it came from the approach of a university and continuity is graduate school as they talked about like CDC is just one of the programs we run We have two others post day and growth post day focuses on Two months within you raised the CDZ. There's a six-week program. We'll 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. Right. 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...

1:06:27They have probably managed to sum total of three people in their life before these founders come. They really are like undergrad. Yeah, so you cannot expect them to know so how are you going to provide resources so that they do they can learn from others and they do as few mistakes as possible and Ask quickly as possible because when you're scaling you just go on a rocket should put your the the amount you demand out of these founders is a lot and their ability to learn in four years is, I mean, the bar you're setting is really high, right? And so in our community, that's why Brian Jessica comes to speak every batch. He's the opening speaker of every batch. Wow, every batch. And right now...

1:07:10For all these programs that we run, the growth program is how to scale as a CEO. 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 scale founders and scaled execs, like Tony Xu comes for that. He's execs the CFO of Dordash, the head of engineering of Dordash. They come for the respective session. So it's really good to see the entire community working, transfer their learnings to the next batch of companies.

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1:09:17So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely at scale, go check out servicenow.com slash acquired and tell them that Ben and David sent you. I actually want to ask on a thing that I, for some reason asked David, even though I probably should have asked you, when a company exits or has a liquidity event such as Airbnb, What is YC do with that liquidity and is YC and LP in itself for future continuity funds? So right now it's set up just like any other funds right so we have incredible LPs primarily university endowments because our mission is more University oriented so the structure is very similar to other funds And I think that's a new change for YC since 2015 because when YC was started

1:10:14This model wasn't proven so it was actually self funded by the founders Yeah, okay, so self funded by the founders. I know Sequoia was involved at one point putting up capital and I think that was the capital invested in two batches for I don't know five five-ish years Yeah, so I think the different people there were quite a few LPs that came in on a batch basis remember the first check In Vice-C, the first batch was $20,000. I know, my gosh. So when you're self-funding something, that's how you start, right? Right. But then when we asked time progress and when we asked startups to come to San Francisco, they needed at least 100 to 125K, given all the inflation, even if they wanted to stay in Montague for a period of time. So that's when we brought in LPs based on a batch so that if they could

1:11:09pretty much fill the rest of the gap that YC was not able to find. And so is that still how it works is each batch and each continuity fund has its own set of LPs that you go on an individual sort of fundraising mission for that specific vehicle? Yeah, so both we have early stage fund as well as the late stage funds and we have pretty much the same set of LPs across both funds. And as we've because our ambition is to grow the batch and why is that because we actually you know We want to keep the bar high and it's not that and when we say the bar high it is We want the founders to be working on the right problems Not the wrong problems. Yeah, there are amazing founders But if they're working on a problem because it's following a hype cycle And it's not a unique insight then accepting them we are doing a disservice to them because they've decided to stop doing whatever they're doing to work on this But we're not like an Ivy League institution that thinks that

1:12:07the bad size has to be only like, you know, Princeton probably has a fixed class size that doesn't grow. We don't want to be that because we think there are incredible founders everywhere. And if we have a chance to give them that first opportunity and that really opens up doors for them, we want to be able to do that. So we could see batch sizes of 1,000, 2,000 YC companies in the future. So our criteria is if our application volume keeps going up, And if there are that many really good applications, we need to learn how to scale. I mean, it's not you're already approaching the scale where you're like a liberal arts college at this point, like where you're graduating that many number of companies. Our acceptance rate is still below 3%. Our acceptance rate is only decreased. But I mean, I think this is why

1:13:05I think it's very hard to compare YC to Adventure Fun. Because if you look at the types of opportunities we have given people in different parts of the world, they would not have stood a chance anywhere else. That was true for Airbnb. That was true for Coinbase. That was true for DoorDash. One of the partners at YC kept funding DoorDash because nobody believed in the idea. It was the third food delivery startup that came out when they came.

1:13:35It was the first, I mean, it was a late application. He applied one week after the batch. And we've had pretty much like the bad started. But I think like, that's why it's such a powerful and mission-oriented organization. And, you know, it's very different. Maybe that's a good place to wrap. We talk about powers on acquired.

1:14:03we can speculate a lot, and I think we probably have on the show about YC's power at various points in time, but you know, you're in it. What do you think YC's power is in the Hamilton Helmer sense of like enables YC to earn better differentiated returns versus your competitors in the venture ecosystem? Is it...

1:14:28The traditional VC power is brand, but it feels like it's something else with YC. Yeah, I think brand also comes much later, right? Unless you, 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. At YC, I would say if I had to pick one thing, YC is really good at.

1:14:56across both early and continuity is we go by based on founders. And I know it sounds cliche, but I think we also have an incredible advantage in assessing what makes a founder a really good founder. And we have incredible about of data and pattern recognition and learning that we have honed it to a point that we know to spot them. 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. So we actually don't need the full 10 minutes. But sometimes one of the people will surprise us with the end of the interview. And I think the three things I can articulate what it is on the founder we look for. One is at the continuity stage, right? Often on the growth stage, people

1:15:46I think pay attention to the fund, but they don't. Like if you're at a venture fund or a growth fund, you probably hung out with the funder for a week or two weeks before the investment. Some total of three hours. By the time continuity invests, I probably know them for years or months.

1:16:01And I've had hours of interaction. 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 what their margins look like or anything like that. Yes, but if the three qualities hold, the metrics will show. I can either look at metrics, but sometimes metrics don't tell you how good the internal sausage making is.

1:16:30Many people can package the metrics in a fundraise deck. It's very well done. I mean, we teach you to do it on the day. We're the experts at it. So therefore, we know it's going to look great, right? So we also teach them what points to emphasize on. We actually do practice runs. We write in demo day. We actually even write this script sometimes. If they don't understand what it is. So we know how that's done. That's how can I help move it? Yeah.

1:16:59What 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 it single biggest indicator in correlation to how successful they're going to be? Because you won't be right about 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 of the growth stages, how well are you hiring?

1:17:29And if you're sloppy in hiring, it always hits all. So one of the things we look for is how well are they hiring engineers? How good are they hiring? Exactly. Will they be able to convince an incredible exec to come join them, right? That's second. And third is clarity of thought. Clarity of thought in the growth stage for us is can they write out two pages? What makes this a 5 billion or a 10 billion dollar company really well?

1:17:56And if you're doing those three things, you're going to be on top of your metrics, your product market fail, you know, attention. Now, there'll be rough edges. But I think because it, I see, we've had the benefit of watching everyone from day one. We know how Tony scaled. We know deeply well how Josh had gusto scaled.

1:18:16So we know a lot of those founders, so we then know, okay, these were rough, but just these are okay. These are the founders head and this is how you iron out. We also had the benefit, I mean, we've told a lot of these stories unacquired. If you're a growth investor looking at these companies new, you're like, I know this is all going great, but you know, those companies don't always all go great. Tony had some serious near death moments, your Airbnb was not up until the right journey the whole time. If I had to summarize, I know this is, we're interviewing you, not me here, but it seems like you invest based on the inputs rather than the outputs, or maybe the leading indicators rather than the trailing indicators, where if somebody's operating with those three principles,

1:19:02The business probably won't consistently produce the results that someone would like to look for in a growth stage investment, but they have a much higher probability at any given time of producing high quality results because those are the inputs that matter. Yes, absolutely. That's why we feel strongly that inputs can be influenced. If you're learning best practices and those are your inputs.

1:19:30Then you can actually influence company building. So when Tony comes and teaches our growth program and says, these were my darkest moments, these are my mistakes I made, and I sure hope you don't make these three mistakes. But these are two things I did really well. That's incredibly valuable. And so that color is very hard to get outside of IZ. Yeah. All right, as we wind to a close, long-time listeners know 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 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

1:20:21And let's start with the F because I think it's interesting like YC is so dominant. How could the whole thing go up in flames at this point? 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 that is the because it's we're 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. 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 you in as negative network effects are very powerful, but they also decelerate very fast.

1:21:08If we do any mistake with the community, then that would be the F. It's almost like operating leverage. The heavily community dependent business is just heavily levered. It reminds me of acquired. Exactly. Yeah, absolutely. This is an amazing group that you have. And congratulations from where, how far you've come. But we feel the same way. It's like it.

1:21:36It's so amazing, but that's that is our fear like we nurturing the community and keeping it The amazing thing that it is is is the number one thing. Yeah, we do okay, but you get the C's boring so we won't cover it But I want the a plus like give me the b-hag for YC from here like how do you change multiple orders of magnitude from where you are? Or do you want to be or the a?

1:22:02We definitely want to be our mission is to be the partner of the companies for the life of the companies. And continuity I would say has only strengthened the VIC community. Because before they would reach out whenever they wanted help or once in a while. But now we have a full machine.

1:22:26All the way to IPO and we have programming as I talked about and it's really got in the community super close and so I mean as I said we are highly undercapitalized for the success of I see companies wait wait when you say all the way to IPO so as IPO the end 10 years from now is there a YC post IPO component? Maybe right we already have post-ip if we already have so if it's so funny so we had the You know, we started with the growth program, which was just this CEO scaling program. And the post day companies were like, well, we need a program.

1:22:59And so we said, okay, we did the post-aprogram. Now our companies have come and said, we need a PIPO program. You got to get Airbnb and Coinbase to come teach us this PIPO, and I'm sure soon they'll be like, it's not like there's some magic moment, and Brian Tesske and Brian Armstrong and Tony don't have problems anymore. As we've seen, it's as hard as it gets. It never gets easier.

1:23:23I mean, you do it so many times that you get better and better at the job, but you have other questions to ask and you need a peer group for it. Right, so I think our ambition is how do we scale YC to support more amazing companies and to especially also do it globally? Yeah. Because I think the remote world will show us that companies can come from anywhere.

1:23:44We already see that. A lot of BDB startups are based outside the US, but they serve as US customers. I mean, I'm sure you all have heard of Deal and Alex lives in Israel. Right? So, YC has to learn to scale globally because talent is everywhere. That it is. Anu, thank you so much. Thank you for having me. Thank you. You have to help. Yeah.

1:24:16All right, listeners. Now is a great time to talk about one of our favorite companies, Statsig. Yes, there is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale. Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly.

1:24:44The real advantage is how quickly you learn what changes actually created value for customers, and how fast you can use that signal to guide what you shipped next. This is where Statsig comes in. It brings experimentation, feature flags, and product analytics into one unified system so teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved.

1:25:06So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com slash acquired to get started. 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 truly an unbelievable business growing from like 20 to 30 million in revenue.

1:25:33two 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 this story. Jim, it's so wonderful. We realized we had to make it its own episode. Yes. So we will be launching that in a couple days and 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 are thanks also to pitch book their whole team oh my gosh this was such a life experience like whoever would have thought seven years ago that acquired would be doing this there were 44 people on and off the stage involved in the production of that event so too many to think but definitely the pitch book team came out and full force to put it on we're super excited to share the the gym story with you the story of Brooks

1:26:30And we'll be doing that in a few days here, and listeners. We'll see you next time. We'll see you for the rena show part two.