Acquired - The Lean Startup and the Long-Term Stock Exchange (with Eric Ries)

0:00Before we start, Eric, I did have to say, did you intentionally pick a building with gigantic stone pillars in a marble lobby to start your stock exchange in? Obviously. I was like, what building is he talking about? Do we have, I'm completely blind to that stuff. No, I have not, I did not weigh in on the, on the decor of the place. Welcome to season five, episode 10 of acquired.

0:37the podcast about great technology companies and the stories behind them. I'm Ben Gilbert and I'm the co-founder of Pioneer Square Labs, a startup studio and early stage venture fund in Seattle. And I'm David Rosenthal and I'm a general partner at Wave Capital and early stage venture firm focused on marketplaces based in San Francisco. And we are your hosts. Today we tell the story of an incredibly ambitious undertaking, creating a new stock exchange, a long-term stock exchange that is.

1:05Earlier this year, the LTSE was approved by the SEC as only the fifth body with such a license. And we have with us today, none other than the founder and CEO, Eric Reese, to talk about it. Welcome, Eric. Thanks, guys. Thanks for having me on. Yeah. Yeah. Yeah. Listeners, you may know Eric's name from his popular 2011 book, The Lean Startup. The LTSE was actually started from an idea that Eric had well writing the book, and there are a couple paragraphs at the end that explore it.

1:34And eight years later, here we are with the LTSC as an approved national securities exchange, and having raised $68 million from venture funds, including Andrews and Horowitz, Founders Fund, Floodgate, and many other top investors. It was super fun. I was on the plane on the way back from busing my family for Thanksgiving. Pulled out my copy of Digital Copy of the Lean Startup.

2:00went through and there it was about a page and a half right at the end right at the end of the very last idea in the book practically yeah yeah and uh you know I knew it was going to be polarizing from the start when I was writing the book so this is now go back to 2010 before the book even came out this is you know when the idea hatched for me and part of writing the lean startup you can imagine I felt a lot of pressure to eat my own dog food and use the techniques of lean startup in writing the book. So it was a very iterative process. And I had a ton of testing and experimentation and AB testing. And one of the final stages was I sent the full manuscript out to a lot of test readers from different audience archetypes of people I wanted to influence. And I'll never forget one of the test readers wrote me back. So the book is fine.

2:42except that there's one thing you have to take out. There's this idea at the end of the book about this stock exchange thing. And listen, you basically piss away the credibility you've carefully built up over 299 preceding pages. You just you flush it all away in one in one page. It's that bad. You must take it out of the manuscript. So that was it's auspicious. It's auspicious first reaction from a test reader. So that's when I knew I was on to something. Yeah, there reminds me of the the Google story where Larry and Sergey were working out of the WJK's garage and an investor came by to like a friend of the WJK's to meet them and they said, like, hey, we got this company working out of the garage. You want to meet things like, no, sneak me out the back. I don't want to talk. Yeah, yeah, every once in a while, you know, the conventional wisdom really serves you very, very poorly. And it's funny now because...

3:33It's always been very polarizing, but what people don't remember is that lean startup was very polarizing in the early years. Now everyone's like, oh, obviously, of course we're going to at least pay lip service to it whether people actually do it or not for a different conversation. But did your book coin the phrase minimum viable product?

3:50I had never heard that phrase before, but in the years since people every once in a while will dig up like an academic paper from 1984 or whatever or somebody used to, so apparently it has been used, has been used before. But I think I'm primarily the one to blame for the overuse of the phrase MVP. So I apologize. Anyone who's sick and tired about hearing about pivots or whatever, that's also my fault. Mostly wave portfolio companies. To all your portfolio companies, I apologize.

4:15It's worth knowing before we dive in, the LTSC has an ambitious vision to fix many of the problems that they see in the public markets today from short-termism.

4:24abrupt changes in governance from so-called tourist investors and visibility into who a public company's shareholders really are. So we're excited to explore some of the company's disruptive and as Eric, as you pointed out, controversial ideas today and discuss, sort of, will it be a decade from now as widely accepted as the Lean Startup has?

4:46So listeners, we had an awesome LP episode with Vlad Magdalene, the founder and CEO of Webflow this past week. As with many of our LP shows, we went deep with him on the nitty gritty of company building and what he's learned on his journey from building the no code website builder that has taken the industry by storm. You can become an acquired limited partner to get access by clicking the link in the show notes or going to glow.fm slash acquired. And if you stick around after this episode, you can hear an excerpt from that show.

5:15All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired, LaGora, the agentic operating system that is redefining how the world's best legal teams work.

5:29Yup, 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. Legora 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.

5:55for 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. Lugora'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.

6:24and 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 speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Legora now has over a hundred thousand lawyers on the platform from 1200 legal teams in 50 countries. And crazily, they went from one million to a hundred million in ARR in about 18 months. Truly insane numbers. And that is the real test.

7:17Plenty 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 legora.com slash acquired and just tell them that Ben and David sent you. And now on to the long-term stock exchange. But before that, before the lean startup, you went to the couple.

7:45pretty fat startups. Much has been written and said, of course, about your history and how the lean startup movement got started. But when you studied CS at Yale, right? And then you graduated and you joined a startup at the time called Dare.com, which was an early virtual world. And I believe if I'm getting my history right, operated for three or four years without launching a product, just hiring tons of people, raising tons of cash, and then burst out into the world. Like, how did you, you know, you're a senior at Yale. How did you decide, oh, I'm going to go join this crazy thing? So, all right. First of all, you got to go back in your time machine. I was originally in the class of 2000. So the dot com bubble swept through the world while I was an undergrad, but New Haven, Connecticut was like basically the last stop on the train before the whole thing imploded. So I did it. I dropped out of school and I did a startup from my dorm room, which, you know,

8:43could have what I should have been Facebook, but we didn't exactly know what we were doing. So we had kind of like the first half of the movie, the social network experience. Was it actually a social network? Was that, I'll tell you where I did, tell you think this is a good idea. We thought that college students from top universities, you know, Ivy League universities should create online profiles for the purpose of sharing.

9:03Sounds like a terrible idea. That wasn't so bad. It was so funny about it. I mean, now I can joke about, of course, at the time, this is horrible, but we thought that they should use those profiles for some experience, you know, real business. So we thought they should create profiles for getting a job. We should create a resume database and share the profiles with employers who wanted to hire them. So we were very focused on like an evergreen monster.com. Well, it wasn't job postings, but resume database. It was weird. Like in some ways, it was not like, it's really not a crazy idea. Like we could then do analytics to match

9:33to the right people, to the right jobs, and there was certain sensableness to it. But first of all, if we had actually understood the concept of a pivot, and if someone had even suggested to us the idea that we could pivot into being Facebook, we would have been totally dismissive, because we were like, no, no, we're trying to build a real business. We didn't really understand what a real business was, so we had no concept. The idea that there's the idea of a digital marketplace, so that then attention-based product would be valuable. We had none of that insight, and it was very much of a...

10:01of a moment when people were building digital technology without a clear purpose as to why. We just saw that everyone was doing it and it's just that's what we wanted to do and so we did it. This is a total aside, but it fits right into that. Were you at Yale at the same time as Matt Kohler? Was that I was? Yeah. I remember, I remember when he was a McKinsey consultant. We had coffee one day, he's like, should I get in? I should join the technology industry and he was thinking about some things he could work on.

10:28It's a small club of people from that, and that world who went on to do good things. Matt would of course be one of the first employees that linked in, and then first employees at Facebook. Yeah, one of the most important Facebook early employees on the business side, really. And it's a great VC now. Yeah. But anyway, that's that's what you were building a social network for college students focused on recruitment.

10:49And he would go. Yeah, exactly right. We could. We had any sense at all. We would have called. What should we do? What should we do? But yeah, I remember when he went to work for his one to work at Lincoln, LinkedIn too. And I was like, I was like, I was like, well, I already know about the social networks and it's never going to be anything, right? Like the biggest problem in a being in entrepreneurship is you, you learn what's not going to work.

11:08That's not something that can ever be learned. Yeah. Just because it didn't work before. It doesn't necessarily mean it won't work the next time. And that's what's the hardest thing in venture investing too. That drives us all crazy. You overfit on the data that you have access to. Anyway, long story short, I went back to the startup failed. So I, unlike the Facebook founders, I went back to school and finished my degree. If you've ever watched one of those movies about entrepreneurship or like the plucky protagonist goes back to the people who said it would never work. And they're like, you were wrong. I was right. You know, in real life.

11:36You get to be the one to go back and like remember when you said I should not drop out of school because nothing will ever come of it. You were right. I'm back. Thanks for that advice. It's just what's my homework. Yeah, it's basically some totally brutal and awful experience. But I love the process of being able to translate ideas into products like so quickly and the rapid pace and duration of startup. So when I graduated I was thinking about what to do next and you know, it was just applying to jobs.

12:02I didn't know if I would do a startup where I would go to a big company and I looked at a lot of stuff and my resume came across the desk of this crazy virtual reality startup in Menlo Park and they flew me out and you know we'd all read snow crash and the same sci-fi books and they're coming. It's coming next year for sure. It's been coming for a long time and they sold me on this incredible vision. It was a pretty small company at the time that I joined. They had really high quality venture capital backers and I want to do apprentice myself to the best entrepreneurs I could find. So I was like, this is an incredible management team. These people really know what they're talking about. You're gonna learn exactly what to do. I'm gonna learn exactly what to do. All the things I did wrong, I'm gonna learn how to do it right. And what's quaint about the story now is that by modern standards, it wasn't even that big

12:44of a disaster. We raised so much more money now. The company actually took the long for like 15 years, right? Like it didn't, you know, it didn't, didn't die right away. But like, you know, I'm a rice to tell people in my, like when I first started, I'd be like the joke of there.com is that raised $50 million with no customers. So, and people would be like, ooh.

13:04And now it's like, what was at the seed round? I'm like, I talked to like students now and they're like, I they don't get the joke. They're just like, right, then what happened? I'm like, no, that's, that's the lot of money that we set on fun. And they're like, what? So, you know, it's a very different era. But unlike today, we did not have any of the vocabulary that we started up. So we had no concept of minimum about product pivots, you know, continuous woman, none of that stuff. So it was self-consciously waterfall style development.

13:30By the time the product launched, I remember we had almost 200 employees. We had a whole warehouse full of customer service reps to handle the end space demand. This is a consumer world store product. Big nationwide launch TV and everything. The only problem was that the customers never read the business plan so they didn't know what to do.

13:53Other than that, it was a brilliant thing. It was an incredible team. That team has gone on to found an incredible array of startups and they've created, generates so much value in the world. So it was really a very talented group of people. But what companies came out of it? Arista, the network equipment company, the CTO there, and founder was the CTO of their...

14:14Well, I shouldn't be named dropping. A lot of cool people. Yeah. And I'm like, everyone I don't mention will be met, but the reds are very early. Asana people were, were there folks, actually, and then a lot of their people were early Google employees, because as, as there did rounds of layoffs, the earlier you got laid off from there, the earlier you wound up at Google. So the first people that laid off made the most money by far. So it's just funny, funny how this, how this world works. And no one should ever take investment advice from me, because I had many friends that who went to go work at pre-IPO Google and they're like, hey,

14:44should come check this thing out. It's can't tell you exactly why, but you should come. And I'm like, oh, Google, what's it? Yeah. I'm a Matt Kohler, told him it's like, I do this LinkedIn thing. What is that Facebook? Is that really going to be a thing? So I have turned down all the big, all the big opportunities in this era. And now you can pitch them to come list with you. Yeah. So actually, but it turned out to be for the best because I want up on a path that I wouldn't, I wouldn't trade for anything. But it's certainly, I mean, you know.

15:10If you're going to work in this business and especially if you're going to be in Silicon Valley, you will have to confront the financial costs of the road not taken every day, every year, all the time. If you get ego attached and you're motivated by the financial, it is a really horrible way to live. It forces you to only look forward.

15:30Well, you can do that, although I think that can be pretty stressful too, or try to develop actual equanimity about the outcomes here. You don't really have control over what's going to happen, and the uncertainty is so high, you can't predict, and you have to come to accept that. If you're going to make entrepreneurship in the entrepreneurial ecosystem a career, which is really like that's a new thing that's possible in history, that wasn't... It's even really new in the last 10 years. Yeah, very, very interesting. The time you were talking about, you were the crazy one to come out here. No parent is proud, you know, until 10 years ago that

15:59their kid is leaving a great education, turning down the job at the big company and making no money and starting a company. That's a new phenomenon. Yeah, yeah. It can be hard for the family and others to understand. But I think now we're starting to build up this idea that it can be a valid career and therefore it can have a certain kind of job security attached to it even though the individual companies may fail. So I do think that's a very exciting development. So you leave there as it's all imploding around you. And you start another company, IMVU. And one of your investors is Steve Blank. How did you meet Steve? He was a there investor. So I was very lucky. I mean, honestly, I don't deserve any of this. I was very, very fortunate. The refugees from there, you know, couple of them picked me to be a co-founder.

16:49of another company. And they were the ones that had the prestige and the relationships. I was just a junior guy on the engineering team. You know, what would I know? And so they recruited Steve and a bunch of other investors like, hi, this is a very Silicon Valley thing. It's like, I know we just lost you a ton of money. But how about you give us some more money. And this time, we'll actually make you some money. And you know, most of the investors, like if you're going to be a good investor and you have an entrepreneur that you like, you can't let the fact that they lost your money to turn you from making the next investment.

17:16they did that. He was one of them. But Steve's idea was, hey, guys, I don't mind setting some more money on fire here, but how about you guys audit my class that I'm just starting to choose to be working at the time, right? Yeah. Yeah. Yeah. We were in the very first or second year he was teaching what was he called customer development at Berkeley and my co-founder and I which slept down from Palo Alto. And that was a new phrase at the time. I mean, no one ever heard that phrase before. It's a whole discipline, but I was in the room when a room full of Berkeley MBA students, every class session,

17:45would like argue with him and push back and be like, this is the stupidest thing I've ever heard. I can't imagine that. And what was funny is that he came from an enterprise background. People don't remember Epiphany. Epiphany was a big enterprise software, you know, .com phenomenon. And he would be presenting stories from Epiphany. And the NBA is like, whatever you present to MBAs, they'll be like, Sure, it would work for X, but it'll never work for Y. Like, whatever X and Y doesn't matter. So they'd be like, sure, old man, that works for enterprise, but how would it ever work for consumer? And of course, we then did it at in view. And then I would be teaching in business. He would often sometimes invite me to guest lectures in his class or whatever. And if I meet with MBAs, they're like, well, sure, of course it's going to work for consumer, but how would it ever work in the difficult world of enterprise? And she's like, everyone can just pick a lane, pick a criticism that you want to have. No, that's not how it is. But it was considered completely crazy.

18:33Steve, even among Silicon Valley people, they thought he was nuts. And the crazy notion at that time for him was that you need to aggressively listen to your customers and that it's not about your vision. It's about what they tell you. And then you need to inform your product roadmap based on customer discovery. He was arguing for a parallel discipline to product development. He'd had his like really raw thinking about what do you do if you're the head of marketing for a waterfall style engineering company?

19:03that is absolutely convinced that their product is going to work after they set all the money on fire and do the big launch. Like, what can you do about that? I remember reading it. I was being in class like, you're being very derogatory towards engineers. This is not...

19:15Steve, this is not how engineers behave. And of course, he's like, yeah, it is. I was like, no, but there's like a new generation and we're do agile and do this. And he had never heard of that stuff. He was from a different time. So it was a cool, it was a very cool meeting of the minds, eventually, where he was coming at this from a marketing view where you should have these customer conversations in a very disciplined way. And he was trying to bring some rigor to that marketing activity so that engineers will take it seriously.

19:37I mean, that was really the whole point of it, is like, how do you sit down with a very technical team and tell them, listen, with all due respect, we're building the wrong product. You're doing, it might be technically excellent, but it's the wrong product. And now we have much better terminology and theory, and we've come a long way since those are original. Was Steven in his thinking about this? Was he influenced by crossing the chasm? Yeah, yeah, yeah. He was very into crossing the chasm and the innovator's dilemma. Yeah. You know, think about Jeff Moore, and of course, Steven, I didn't think about it until now.

20:07their marketers, like they're coming at it from a marketing background. And like, I wanted to ask you how you got inspired and it presumed worked with Steve to then write the lead startup after like four steps to the epiphany was already out there. What was the inside of, hey, this can be bigger and, you know, brought to a broader audience. You know, I was just frustrated that I had never had a master plan to do this. I just like, I remember buying copies of four steps to the epiphany for like everyone on my team and big. Well, everyone read this.

20:36on Friday, come into the office on Monday, and we're doing it starting Monday. That was my theory of change. When I was at in view, it was my job to try to explain why we did things the crazy way that we did them, because I came up from mentoring practice. So I was focused on speed of deployment, right? Continuous deployment. We were called on a single piece flow from lead manufacturing, applied to software development itself, viewing designed but undeploied.

21:02features as work and progress inventory and therefore a liability. Untested, unvalidated assumptions are inventory and are bad, not good. So you don't want to build that stuff up. You want to flush it out as soon as you're, so I, I would try to explain and I make up theories and I was constantly trying to come up with a language and a theory for why. But yeah, I certainly have been advocating for kind of like somewhat dubious and unpopular ideas. I have the, I have the staying power for that. And it took me a long time to even give it a name.

21:29at least start up as an even the first try by the way. It took me a long time to find a way to talk about this that I could get civilians interested in. Like, process junkies and people who are in demand, like, that would be more easy. Academics. Academics, you know, whatever. But like actual work people who work for a living who are like, I'm just trying to get my job done today. I don't really want to hear about your 92 step.

21:52process to whatever. I don't want this thing to fail, but I do have a job to do. Yeah. And so it took me a long time. First, I ran the like employee orientation and in view, like just explain to our own employees, why do we do things in such a crazy way? Like, why? You know, I've been an in view for like five-ish years and, you know, they brought, it's like very old, like classics, they brought up professional CEO. We didn't totally get along. I was like, you know what? I'm not going to be the founder who has to be kicked out. I'm just going to.

22:16I'll fall into a transition out. So I was thinking about what do I do next and all these VCs were calling me, hey, you should come be. I didn't know what the career path in Silicon Valley was like. I was like, it's all very interesting. And I was thinking about what to do next. And this funny thing started happening where VCs would ask me to come meet with portfolio companies that were going too slow.

22:39Because I had this reputation because of in views engineering prowess that I could magically make engineering teams. What is this totally how the mind of a you know.

22:49circa mid-2000s era VC worked, which is just like, oh, like these guys, they got some fairy dust. I don't know how this thing works, but like you just go sprinkle that over there. You got it exactly right. And I would be like, no, no, no, actually I'm not special at all. I just have this superior theory. And they'd be like, sure, sure, sure. But could you just do the dust anyway? So I go and have these meetings and meeting go like this. And if VC would tell the company, this guy can really help you, you should invite him for a meeting. A friend of the firm. Yeah, a friend of the firm.

23:19at the worst. So then they have to do it. So they invite, call me. Would you do us a favor and come, have a meeting? Sure. Come meet the whole management team assembled for me. And I would start telling them stories about what had worked for us at Infu. And I would say we ship software to production of 40 times a day on average. And they'd be like, that sure, that could work for like three, a three person team, but it could never work for a six person team or whatever. I've ever sized N, they were, it could never work for size N times two. And I'd be like, no, no, no, we doubled the number we're doing. And they would start to get angry.

23:47and they would yell, I would get yelled at in these meetings. They'd be like, that's crazy. That could never work. Because they didn't ask you for the meeting in the first place. I don't know what's going on. I thought I was just really bad at having these meetings. They would go so badly and the people would hate my guts and I'd be basically be like, ejected. You're like, you know what I need to do? I need to write a book about this because it's going so well. So I wish I had that. So at the end of the meeting, I'd be like, listen, you called me for this meeting. You asked me here as a favor and now you're mad at me.

24:13And you just like, and I'm not telling you a theory. I'm just telling you a story of what I witnessed with my own eyes. You think I'm lying? Like what? So that kept happening to me and I had this great idea. If I write some of these stories down, then the next time somebody calls me for one of these meetings, I can say, Hey, why don't you read this first? And if you think I'm crazy, maybe that's not how the meeting and then I don't get yelled at. This was my genius plan. Okay, that's how far ahead I was thinking. So the other thing you don't understand about that time is Startup people didn't blog. Yeah blogging was nobody had one of the first I was one of those I can tell you all the bloggers who were writing in Silicon Valley at that time because when I started blogging they all reached out to me Because I showed up in their HTTP referer logs

24:54and these blogs were so low traffic, they could tell when a new person entered the scene. Dave McClure, Sean Ellis, and Andrew Chen all called me within a month of my starting to blog to be like, what's up, who are you? And of course, they were asking, who are you because I did not put my name on my blog because I was embarrassed about it. It was anonymous. What was your blog called? It was called Startup Lessons Learned.

25:15in the passive voice, not by anybody. They had been learned, the startup had learned its own lessons somehow mysteriously. And that's how it started. And then people wanted to know who I was and they wanted to hear what I had to say. And I was like, well, I better give this theory a name. And I started talking about it just lean startup. And what were the concepts of MVPs and pivots? Had you already started to crystallize those at this point or did that come?

25:40Yeah, yeah, I did, but it wasn't like crystal clear. It was like I had this constellation of concepts, some of which have been long since, you know, left behind. I was, every bit is excited about teaching people about engagement loops, which is the retention flip side of viral loops, which I know nobody wanted to hear about that. Viral loops were too complicated, right? I was like, but that's just as important. And so, you know, the concept that really landed for people is actually still a failing of startups today. Everyone focuses on getting your countdown. So few people focus on retention, and even less people focus on revisiting pricing strategy. You have all these different levers. These things are unbelievably mispriced. I've never worked at a startup where a very simple set of experiments around pricing hasn't revealed dramatic, differently economics at. It's embarrassing. It was just a very special time where there was an incredible hunger for new ideas about entrepreneurship, and this thing wound up taking over my life.

26:29I know we're spending a bunch of time, but this really changed the fabric of the ecosystem. In reflecting back on it, can you identify what were some of the wins that were in the air at that point in time that people were hungry for this different way of thinking about startups?

26:48Yeah, it's hard to remember now, but 10 years ago was a financial crisis. Remember RIP good times and a whole thing. So first of all, it was very convenient to be known as the lean startup guy at a time when Sequoia Capital telling everyone to cut costs. And I got a lot of phone calls from founders who would be like, hey, I heard you can help me get out of my office, please.

27:05Did you help me with repo on furniture? Like, how do I get rid of these air on chairs to lower my burn rate? Yeah. And what's funny is I would tell people who would call me for these advice on burn eyes. I'd listen, the build measure learned feedback with the reason it's important is we can analyze every dollar you spend and we can ask ourselves, is that dollar helping us learn critical things that you need to know right now about your company or not? If it is, it's worth spending on.

27:31And if it's not, you should cut it, whether it's a crisis or not, it's pure waste. So just don't do it. And you can imagine the furniture guys would be like, uh, thanks. Thanks to that really helpful advice, buddy. Like, anyway, but by obviously right, like, I don't want this, like, there are people not very theory oriented. So it took me a long, long time to figure out how to make this practical for folks that they could actually do it. And I know, I mean, I really never dreamed that it would have the kind of impact that it did. It's quite a moving thing actually.

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28:48Think of it as a GRC engineer that's governance risk and compliance except that it's software and it doesn't sleep. It finds the issues drafts the fixes and cuts the time that you'd spend on vendor assessments in half. In half, which is exactly why more than 16,000 companies today run on Vanta. Companies like ramp, cursor and snowflake all stay audit ready and catch the risks that crop up between audits across every vendor.

29:15Every AI tool, the 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 $1,000 off Vanta at Vanta.com slash acquired. That's V-A-N-T-A dot com slash acquired for $1,000 off and just tell them that Ben and David sent you.

29:45I want to tell this story in media's rest a little bit, so the natural next question would be, you know, how did this lead to starting LTSC? But I think to set the stage for listeners, Eric, can you give us a high level overview of what on Earth are you doing? And then let's get to how did you get here and why? Oh, what am I doing now? Yeah, what is the LTSC? So, one of the privileges of getting to work with so many companies. I mean, I have, you name an order of magnitude of company.

30:13from like two founders in a garage up to the biggest multinationals and governments in the world. And I've had the privilege over the last 10 years of working with all of them. Because once the lean startup hits and becomes a thing, it's not just startups that want to talk to you, right? It's huge companies and nonprofits and NGOs. Like we can talk about, there's a whole community of people that study lean startup for national defense within the five eyes intelligence alliance across nations. I mean, it's crazy how many places this thing has gone. And in particular, Many of the early startups who were just two people in a garage when they first heard about me sort of they grew and got the product market fit So I mean, I was really a privilege to get to work with some of these companies as they scaled up and then yet to be called into these much bigger companies And it's like there's some things that are different at 10 people 100 a thousand 10,000 100,000 300,000 you know a million or more But there's some things that are very consistent and so I had had this experience and I to me felt like being issued a backstage pass to capitalism

31:12Like I get to see how business I have lived in California. I'm practically my whole life and now here I am traveling the world and getting to see all these problems and no matter where you go no matter who you talk to If you say like what are the problems that afflict your organization? Like be everyone's like a short-termism We're living quarter to quarter. You know, we can't make the right investments We're not really focused on the long-term. We have bad ownership. They all have constancy of purpose like it's just a epidemic problem and read Elon Musk's Twitter feed here or wherever. I mean, it's just it's like one of the very few things that pretty much everyone in business agrees on. And yet, if you ask people, what are we going to do about it? It's like asking, what are we going to do about gravity? You're not going to do anything about it. It's just a fact of life. It's like, you know, it's like, who do I complain to about gravity? Nobody. You just fall down when you fall down. Like that's just how we go. And so like we've attributed, especially in Silicon Valley,

32:08we treat the facts of our capital markets and the infrastructure of our financial reality as facts of nature when they are in fact human creations and they're changeable. And for whatever reason, this always struck me as wrong. So LTSC is our attempt to fix that problem by aligning ourselves with the next generation of leaders of companies who have a very different value system than what's come before. And their employees are activists. They care a lot about sustainability, diversity and equality. They genuinely believe that companies can be a force to change the world for the better, and they want financial infrastructure that supports that vision. And there isn't any. Yeah, and so this is just crazy.

32:55I know that the LTSC as a regulated body is very flexible in the type of guidelines. They defer to the entrepreneur. You let the companies pick a lot of the mechanics that they want to bring in. But what are some example ideas that you've had of mechanics that can change these things for the better, that companies who list on the LTSC versus the NASDAQ or in conjunction with the NASDAQ or New York Stock Exchange? What mechanics could fix this stuff? Yeah, so this is a very careful balance. I've learned this.

33:24over many years now of testing and testing and testing and refining this. Really you. Without which we would definitely be dead, that we need to have a principles-based approach here. So we need companies to say, I'm willing to sign up to these principles, for example, that the long-term investors are my valued partners and should be rewarded accordingly, that I'm going to treat all of my stakeholders as first-class members of my decision making process, my employees, my community, my vendors and suppliers.

33:54My customers you know the acid test Of certain companies in recent years is when you discover that there's scientific research that shows that your product is unhealthy and addictive for your customers Are you gonna do anything about it? Are you gonna bury the research and like think how different our world would be if certain companies have made certain choices That are different than they did make versus like think about an older generation of leaders like when you know Thailand all famously had to recall all the pills off every shelf in America and how like the short-term pain of doing the right thing. And they didn't even need to, but they did. They did it because they might have been necessary. Yeah. Because they understood that earning the public's trust over the long run is far more important than the short term. Is value creative for all shareholders? Exactly right. So you can just pledge those principles like.

34:40and be like, raw, raw, put it in your value. Whatever, put it in your S1 and be like, we're gonna be so great and all this stuff. Which every S1. Every S1 is unbelievable, right? Like we worked. Right, and that's the problem. Investors take those aspirations and then they just put it in the shredder. Yeah. So like this isn't even worth the paper you printed on because how do I know that you're serious about it? So the idea of LTSC is companies should commit to these principles by making a binding pledge to operationalize each one.

35:08and the flexibility that we have created is so that it doesn't have to be one size fits all, every company does exactly the same thing, but every company has to do something real, and we act as the certifying body to say, yeah, that's real, or it's not. So you make it by sort of registering the implementation of such a pledge with you, it then becomes like a securities violation to break it. You got it exactly right. So there's real enforcement penalties if you don't do it, and therefore only the good companies would do it.

35:35The bad companies would be crazy to do this. So you have like the perfect self selection. That's what you want. So for example, one of my favorites is public companies today, generally speaking, don't know who their owners are, which You can't run a private company this way, right? We obsessed about getting the smart money on the cap table. And the idea that when you go public and just give it up, like, well, whoever happens to buy it, I guess it's fine. And I've met so many companies who like, they literally pay for a service. I love this. This is my favorite. Like you've been in the Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal Federal

36:17for that transparency should reward them, should give them additional voting rights, should give them additional economics, additional superior capital raising opportunities, that kind of thing. That's a principle that's very high level, but we drive it down into the market microstructure and make it real. Let's dive into those. What could superior economics mean? If I hold the stock longer, my stock could become more valuable. You could have a progressive dividend that's paid out preferentially to those who have held longer.

36:47equity securities, there's this concept of preferred equity and common equity. There could be other classes of equity. And those different classes can have different economic terms. It's actually a very old idea. And when you talk to old timers and securities law and corporate structure, they're like, yeah, sure. This isn't impossible to do. It's just practically speaking, we don't do it because there's so many forces that pressure people into conformity. And yet, how ironic that we as the industry of innovation are hyper conformist and conservative about how we structure companies and how we make them bring them to the public. And then now we've kind of stopped doing it. So now we're so unhappy about the public markets. We're taking our ball and going home and we're not taking public until very, very late in their life. And how anti-social is that? I mean, these companies don't come public for 15 years. You know, when you were saying a minute ago about, I hadn't put two and two together, which is funny because

37:45we bring up the financial crisis so many times on this show, you know, whether it's... It really shapes everything that's happened in our era. Everything of this era, I think it's so right to say that shaped the desire for the lean startup movement. There also are like a bunch of trends, similar, huge trends in the financial world that have kind of led, I think, to LTSC. So I'll throw them out there. I'd love to hear your thoughts.

38:10One, so first you had the rise of algorithmic trading in the public markets. So you went from whether you were a value investor, growth investor, like whatever it was, like people were hitting buttons to make trades. Yeah, no longer. Not that long ago. And now most most trading and most ownership in the public markets are not people hitting buttons. It's machines hitting buttons and they hit them a lot faster and they care a lot less about the long term.

38:33You have the rise of index funds, right? So now you have a whole other class, which is a huge portion of the public equity market, which isn't even anybody making the decision. It's just a passive, you know, this fund is going to track the market. Oh, now we have the rise of passive funds. We have competing index providers who have different index formulas for what tracking the market is. So the active decision making has just been moved from the fund manager to the algorithm of the index provider. Yeah, abstraction on abstraction.

39:02It's getting wild. So now you have a situation I think in the public markets where what used to be a loud cacophony of voices in the marketplace voting on buying and selling shares. The number of active human voices has been reduced hugely. So a lot of this information flowing into the market. So you can be if you're a loud activist, shareholder, dissenting voice or whatever, you can now be heard in a lot. And if you move the stock.

39:27All these passive index and algorithmic trading is going to move with you. You can have a huge impact on a stock. And importantly, right now, governance is tied one-to-one with ownership. And so, you know, you could have these very short-term investors who just arrived who can vote and change control of the company, which makes sense. They own it. But Eric LTSC allows for a different view on that. So can you talk a little bit about separating economics from... Yeah, sure. Well, there was actually one thing real quick with that. So then you have...

39:55Snapchat go public, right? Or you have all these companies going public now with these dual-class, multi-class share structures. Snap was like the most agreeable. No, you guys get no votes. And I understand it as a founder. You're like, screw this. Yeah. But yeah. Okay. So what's the other path? Well, yeah. I mean, like I get the view that if you can be emperor for life, why not? Pretty good gig. But I think it, first of all, I think it's really important that people should see the fact that founders are taking these extreme measures is a reflection of an extreme problem.

40:25Like, these are extreme reactions to an extreme problem. I would point to two of them. First of all, in the old days, when I first got into this business, founders were in the biggest rush to go public, because they're billion dollars about to become fully liquid. I don't make a ton of money. The idea that you would put off becoming a liquid billionaire for 10 extra years. That's not an act of greed. There's something else is going on here, right? People are putting off their own mega payday. Now, of course, there are secondary transactions. People are like, they're not starving or anything, but like,

40:54Generally speaking highly capitalistic and competitive people would rather have one billion dollars and like fifty million dollars and they're choosing not to do that And you know the founders are one thing right but like the venture investors, right? Like you would have thought Ben and I run funds, you know, man, we would really like to distribute returns to our LPs so that we can raise new funds. And that would actually be better for the ecosystem as a whole. Like one of the problems we're having is all these early returns are frozen, they're not being recirculated like they used to be. And so there's not as much, even though we have a lot of seed sage activity right now, we could have exponentially more if we would unfreeze all these transactions. And similarly, like

41:35Very few founders can actually justify perpetual dual-class control of a company. Even if you're like, I'm the greatest CEO that could ever happen. And it's supposed to be like, well, even if you've developed dementia, or even if your children aren't as good as CEO as you, they should inherit the company from you. That's called feudalism. We have a lot of political experience with these systems and we know that it does not go well and most founders, if you really press them in private, they'll say, I don't think this makes that much sense.

42:04But that's how bad standard governance is. So Eric, what's an example mechanic then, where, David, I like the way you painted it, that for a long time, economics and governance were really tightly coupled, except for companies like media companies, where there was a reasonable argument of why a dual class structure should exist. You need to be independent from the subjects you were covering. Exactly. Yeah. And so then the last.

42:25Five, eight years, we see this incredible rise in massive, massively separated classes where the founders own everything. There's no way to ever change that. Sometimes the common gets no votes. It's crazy. And what's a way that you could sort of have a middle ground here? I think the compromise that I personally think is best is if you're going to be dual class organized. I think that's okay. But then you have to have a way for the long-term investors to join you.

42:51in that privilege class. They have to be able to earn their way into the better class so they can join you in co-determination of the company. That's really in the company's long-term interest because except for the very few of these founders that are investing in immortality, everyone else is planning to die. So there will be another CEO of this company one day and your dual class protections will not protect them.

43:11So what's the plan for the next CEO if you're really thinking about I want to create a lasting institution. What's the plan? Why would the next CEO care at all about your ethos of multi-stakeholder?

43:22development of your ethos of long-termism, like why? They could easily be as good as you do evading them. They could just be like, you know what, my incentives are to run quarter to quarter screw this. So we have to rely on all of the long-term stakeholders in the company, including the long-tenured employees, and hopefully this next CEO is himself a long-tenured employee, but also the long-term investors should all have a superior voting.

43:44Opportunity just like you do as a founder so you can imagine like every quarter that you hold the stock it adding some multiplier to the amount of votes you get exactly like the LTSC software makes it possible for company to design programs like this because they can track the long-term ownership in real time. And if you trade out, you know who the investors are. So like we don't mandate this specific voting system because you know it's controversial and there's some people who they think like one share two votes. It's like those big Wall Street Journal article about this one called one share two votes which basically like how hedge funds they borrow extra money like right of the last second before a proxy contest to get extra votes like that day and then get it. And just like I think that's indefensible but I that's currently allowed under the rules. So there's kind of

44:28a big debate about what's the best system, and I kind of feel like... because none of these systems is exactly right. We should have more experimentation with different models till we find the right one. I happen to like this particular one, but that would make sense for a Google-type company that really has control and is found or owned. I could see that making sense. I could imagine different scenarios for other companies, and I could imagine a smaller-capped company saying, we don't want to mess around with voting control. It isn't even really our issue. The issue is just creating an incentive for people to be long-term investors. That's due to something like a progressive dividend.

45:00So so I'm not ideological about it. I just think like neither side can really justify what it's advocating for. And we like this you see this a lot in ideological battles where everyone's like drawn to more extreme positions.

45:12because no, they don't, they feel like if you give those people an inch, they'll take the whole thing, right? And so now not to make any meta commentary here. Interesting. I mean, let's just say what it is. Like we're making sort of interesting political allegories. And I've heard you describe this before as allowing your long-term shareholders to become citizens that are public with you. And sort of let's get away from this sort of feudalism mentality. And let's say, look, if you want to go on a 20 year journey with us where you continue buying up your position in the company, you know, you help

45:42let's make good decisions, you own this thing for the long, of course you should be more participatory in helping us figure out where it's going next. I think it's actually very logical and really a genuine win-win. So it's even a win for the quantitative guys. This was a surprise to me. A bunch of these quantitative traders, they're not immoral, they're amoral.

46:03from the point of view of companies. It's not that they're trying to do something harmful. They just don't care. So I'll tell you a story. I was sitting with a quantitative trader once and I was trying to explain this system to him and he was just like, I don't get it, who cares? Why? He just was like, I don't, why is this important? And I was like, hey, imagine a hypothetical with me.

46:18Imagine one day in the future, you've engineered an artificial short against a company, and today the stock is down 10%. So you just made a lot of money, and he was like, yeah, you're just like seeing his face. I watched Billions, I'm feeling it with you. He's like, this is an awesome story. Tell me more. I'm like, okay, do you realize that the next day, like 3,000 middle managers who work at that company are running around because there's a crisis, it's time to change the company's strategy. Because the stock price. We just saw this on the Disney Plus episode, like when Disney was, they had their earnings call in August 2015, and they were like, we're seeing disruption in the cable industry. Court cutting is happening, ESPN is down, and they had plans for Disney Plus. Stock dropped 10%. They were like, we are accelerating the plans for Disney Plus. Now, in that case, it was the right decision. Bit like. But a lot of times. Even the company like Disney, Stock price makes a lot of impact. Absolutely. And so the guy was like, he was like, why? He couldn't understand why anyone would care. He's like, it's just a short.

47:16It doesn't have anything to do with them. It's just, you know, there's intrinsic values identical to what it was like. It was just as valuable. And the strategy was, and I was like, so, so you are approving of your role in governance here and changing the company strategy. He was like, this makes no sense when I short cattle futures that cows don't care. I was like, right. This, this guy is not someone who cares about governance. It's trying to wreak havoc. His average holding period in a security is 10 minutes.

47:39So he was subscribing to me when he his firm had this policy that he hated that if they get a proxy they must vote the proxy Lot of a lot of mutual funds a lot of firms have to view that you get a proxy you have an obligation to vote and it to him that was like I held it for 10 minutes and I was so unlucky I was fishing and I pulled up a boot right so man now I vote the stupid proxy I have no he's trying to get his book down to zero when proxy you know he would love it so I was like would you prefer he's like you're he's genuinely a tourist in the best sense of the word he does not care he's just passing through he just wants to get

48:14He's doing a technical thing, and so he would love for governance to be somebody else's problem. He would love to have that be completed, but he actually makes sense to him. And then we talked a lot of long-term investors, especially the big asset owners. We have built the world's most efficient trading system in history for trading 100 share lots. If you want to trade 100 shares of stock, it's awesome. You want to trade 3 million shares?

48:37Oh, now that's why stuff you got to go, yeah, you want to do that. You got to go to a big investment bank and you got to engineer a block trade. That's really difficult market when the market is closed, like all this kind of stuff. Yeah, it's really, it's very expensive and hard and for a lot of technical reasons that I don't know that would be of interest to your listeners. Most long-term investors are chronically underweight.

48:58the companies they really believe in, because they cannot get the allocation they want. They can't get into the good venture funds. They can't get onto a road show. They don't trade enough. And then once a company is public, they can't do the large block transactions they want to do. The stock price starts to go up. Now they They've missed their target. Normally, in the old old days, you would buy a big position. It would go up. You would take the gains from that position to buy more. But if you miss the train, now your target is behind. So they actually can't get the ownership they want. And so companies, even in some of these direct listings, we're seeing lots and lots of really good companies who just, they have too few long-term investors on the cap table. And it's not actually a good situation for anybody. And this is the craziest part.

49:38Not to mention those guys aren't setting the price because the price is set by the trades that are being executed. Sure. And if you're a long-term holder, then you're not making trades, so you're not helping push the information into the market about what's exactly right. So that drives way more volatility, way more confusion for employees. Your employees are generally your longest-term shareholders. And so they're watching the ticker every day. I mean, I ask CEOs who've taken their company public biggest change you noticed afterwards. They're always like, everyone's on Yahoo Finance every day now.

50:05Is that still true that employees are the longest-term holders? I always felt like when I was at Microsoft that everyone was dumping their stock all the time, just like... I mean, if you're a lot about the area you were there. I could probably guess what you're doing. You should have held that stock, Ben. But you are by necessity because of your grant here. Like, you get a grant and then you invest into that over four years. Yeah. Well, and if you think about the concept of career equity, which is like...

50:28The financial term that dominates most employees of most organizations, compensation is their perception of future promotion opportunities. People that are trying to make a career out of place are very long that place is survival. And so, for them, I think it's actually like toxic for them to be on Yahoo Finance. So if you use longer term compensation instruments, we obviously sell software to companies to provide the information to employees in a better way. But if you know, for example, If you know in real time, what the long-term investors are doing as a class, then you can report to your own employees. Here's the price as it perceived by our long-term investors with all noise removed. And you'll realize that like most days, nothing happened. The fundamental of the company. So like my dream one day is to have a big ticker somewhere where the same number just goes by. Don't do the industrial average and just the same number going by because most days, nothing happened. All this noise is just that. It's just always telling the way something does happen. It's news.

51:25The private markets have gotten so perverted now that like, what I'm about to say is very much idealist versus reality, but it's kind of like the private markets and venture investing, right? Like, an evaluation is assigned to a company. A venture firm invests at that valuation. You go work for a while, 12, 18 months later. 18 months go by, but no, there's another step change in valuation. Yeah, I mean, I know a lot of founders, no one in DC and a lot of people in New York can't believe this, but I know a lot of founders who don't think there should be continuous trading.

51:55You think about how Elon Musk runs SpaceX. There's a regularly scheduled company-driven auction where people can buy in or sell. The company sets the price. It's extremely restrictive as a regime. There's a reason he's so unhappy in the public markets. He's also has this thing in the private market. He's in complete control. Talk about a company that will probably never go public. That's what he said. This is the other trend I wanted to get your thoughts on. Really, I think it's probably since you've started LTSC.

52:24massive expansion of the private markets, staying private longer. We've talked about in the show before. I remember when Dave Goldberg was CEO of SurveyMonkey and he said, I'm never taking this company public. We're going to be private for life. Obviously now they're a public company, so that's different, but Dave sadly no longer with us. How have you guys learned through all of this change that's happened as you've been building LTSC? I was talking to a VC five years ago and he said to me, Eric, I just don't get it.

52:53Private companies can raise unlimited capital on whatever terms they want, whenever they want, with no disclosure requirements, no accountability, no publicity. Why would they go public? And I was like, great, let's, let us interpret your sentence as a bit field and let's make each clause of those a bit. I agree with what all the switches are set to true.

53:16Really, there's a thermostatic equilibrium that exists at all times within the private and public markets, and if you make being private relatively more attractive, or being public relatively less attractive, you will cause more gas to stay in one side of the chamber than the other, so companies will be private long. It's a very predictable consequence of policy choices that we've made as a society. I was like, do you honestly believe that all those bits will be true forever?

53:41And he was like, I'm not sure. I was like, well, why don't you call me back when the bleep hits the fan because this is coming. And the time to have invested in a solution to this problem is not the day that everything crumbles but five years ahead of time. So you should really be investing in LTSC and it didn't work. But other four side investors talk that way. And now here we are. And every one of those things is under threat, right? We have seen all kinds of management. We do. We work, you know.

54:08Not to name many names, but we have seen horrible mismanagement in the private markets. We've seen valuations that are totally out of control. And my personal pet peeve that I don't think enough attention is being to is we're seeing a large number of secondary transactions with relatively high volumes at high valuations with no disclosure and information asymmetry.

54:29My grandparents lived the depression and they told me stuff like these were like spooky stories for me growing up as a kid for my I would what did everyone else not have grandparents to live through the depression and they don't tell me stories I look around and I think I have heard these stories before this isn't right there's a reason that our grandparents worked out the system the hard way that you know large block transactions should come with account with accountability and transparency and that's how you prevent fraud and I think, as more and more stories come out, it's going to be pretty good. I think for LTSC, what's really the most interesting piece of the WeWork saga is the last gasp save that they tried was...

55:08An IPO. Yeah. So when you're scraping the bottom of the barrel of options. Well, we can't, yeah, all those or many of those bits seem to have flipped the other way. And so now we need to, you know, jam it out the door. Yeah, exactly. Yeah. That's not that's not the way to go. And I'm big, big part of our mission at LTSC is to get companies to adopt good governance from a very early age. Yeah. So we run by far the largest corporate governance platform for startups. But we don't call it that.

55:34Right, because you can't sell startups on corporate governance. No, I can't wait. Give me some corporate governance, but let me tell you like, what is that, the largest? So, so we go to market under a variety of brand names for distinct problems that that founders face, so like RNA valuations and captable management, runway planning. I can't tell you how many startups I meet with don't know how much runway they have. It's like Cardinal Sin, number one. Don't guess. Don't have some finance person, especially before you board. You better, you better know, but most founders don't. We do option planning.

56:03in hiring planning, which again, most founders don't, don't. And so these are all individual tasks. Individual tools, yes. So you can go to captable.io, fastforanay.io, hiringplan.io, startuprunway.io, and. So it's a good trend.

56:16Yeah, we're very straightforward naming and very consistent, and the tools are part of a common platform. We build them for founders to use themselves, so it's a high focus on usability and design, and you don't have to have a GC or a CFO to use them for you. We're just trying to take as much cost out of the ecosystem as we can, but then while we have you there, I'll give you an example, our hiring plan product.

56:39has completely free compensation data for market data for startups. So you can figure out for every job you're every job offer you're giving. We can tell you exactly what the 2050th and 75th percentile cash and equity grants are for your stage, your geography, your industry. That's just open or do you require like completely free? Just go to hiring plan.io. You can just sign up for it right now. Just cost you nothing. That's such a like zillow type thing. We're like all that data exists. So right now startups are paying a lot of money for that data. That's not needed. So we just we get it and we do it free and then

57:09while you're there, wouldn't you like to know if your offer letters that you give are at market or not? Sure you would. But while you're checking that, would you also like to split it up by demographics? Wouldn't you like to know if you have bias in your offer letters? Now, most founders are like, of course, I don't have bias. I run a perfect meritocracy. It's like, well, then great. The analysis will show what a great meritocracy you are. And then you'll feel good about yourself. But if it doesn't, well, this would be a lot cheaper to solve the problem now.

57:36versus when you're reading about it in the Wall Street Journal five years from now. And think how expensive these problems get when they're allowed to fester. So we really try to help people find their way to ethics and good governance. Because a lot of these mistakes are inadvertent. It's just ignorance. It's not it's not malice. It's just people don't know better because a lot of times it's the first time they're doing it.

57:56Yep. Well, this is a really good time to talk about. So where is the company now? You've got this license with the SEC. You have, I assume, a revenue generating business with all these SaaS tools that are going to kind of help people prepare. No one has listed yet. What could it look like when people list? When could that happen? Is that allowed to happen right now? Not yet, not yet. So you should think your listeners should think of us as having acquired the world's most expensive taxi medallion, but we're not yet driving the car around. So we got approved by the SEC in May.

58:25The bigger deal actually is we got our principles based differentiated listing standards approved, I think in August. So we're just starting to work our way through the technical filings now to actually stand up. The exchange is quite a involved process to do this in a regulated way. And this is a super set.

58:39of the requirements to list on any other. That's right. It's so much so that you can even do a list. So if you still want to go ring the bell and I see God bless you, this can be we're happy to be the secondary listing venue. So people could trade investors could choose which of the exchanges they'd like to and and when people do an IPO with LTSC, whether we're the primary or the secondary venue, you get the same level of liquidity and access to liquid options for your. Oh, interesting. So there's no liquidity penalty. So you could buy.

59:05shares that were previously on the NASDAQ, if that company's listed on NASDAQ, and then own them through the long-term market exchange? The literal words you just said describe how that works are not 100% correct, but not in any way that I know of it. But I functionally, that's exactly the right idea. The protections that LTSEM bodies are enacted through the company's charter, and they follow the security wherever it trades. So it's a pretty, I think the hardest thing, the reason this company took me more than five years to figure out how to start is just the technical and legal challenge of combining full liquidity with those protections was quite the intellectual challenge, but we got there. So anyway, to make a long story short, we should begin operations in 2020.

59:48And then this is, we put long term right in the name of the company. So our employees and investors are like, you know, we warned everybody. But once we start operations, you just lean startup instead of fast startup as you. That's right. That's exactly right. We've been trying to make this point for a long time that that lean doesn't mean fast in an absolute sense, but just fast compared to the industry that you were in. So we are actually, even though it took us almost three years to get this exchange approved, we're actually the fastest form one approval in history.

1:00:16So we're faster than it has ever been done before. It's just really free. Yeah. So anyway, but you used to travel to Washington by horse and buggy like it. Yeah. Yeah, it's exactly right. So we know we're trying to move the industry in a good direction. But the thing I wanted to say was so we will go live in 2020 and then we will be legally authorized to begin the process of soliciting companies to list on LTSC, which is why I kept table that I was so important. It's like, let's find them like you can't. Oh.

1:00:44Yeah, so it'll be it'll be a little while before so people are like series A, series B. That's when they should be thinking about hey like four years, you know, two, three years from now. But companies could existing public companies could also address right. And listen, and if someone in the class of 2020 IPOs wanted to list an LTSC, you know, we would be delighted and thrilled and that would be wonderful if that should happen. We'll work very hard to support them. But you know, just like as an expectation setting exercise, we don't really know how long this is going to take. And that's okay. That's why we raise a lot of money.

1:01:13And even by modern standards. So this is a show where we sort of analyze and grade businesses. So like I want to make sure we understand the business model. Traditionally, a stock exchange would be, they make money every time a trade happens. So they are incentivized to have lots and lots of transactions, which in part is why we see the lots and lots of transactions that we have today. Your business model is different. Tell us about that. We believe that one of the most powerful things you can say when you're selling to a customer, like when we sit down with a CEO, we want to be able to say to them, look,

1:01:43We are the only stock exchange you will ever meet where you're the customer. We make our money by selling you products and services that you believe are value add. And we sell some products and services to your long-term investors. We have trading on our platform, but our goal is not to serve traders primarily. We're not anti-traders. We don't think traders are bad.

1:02:03But we have enough financial institutions who primarily serve traders. We'd like there to be at least one whose main job is to serve. It's actual customers. So your marketplace without a take rate business model. Yeah, that's right. Yeah. I mean, it's like a marketplace like, you know, you're subsidizing a supplier demand, right? Like, and if you're an investment bank or you're in exchange, the supply is companies and equity securities, the demand of the investors. So who do you think they're serving? You know, you guys are flipping that on.

1:02:33Yeah, that's exactly right. In fact, they don't call them companies, they call them issuers. Yeah, right. It's one of my favorite euphemisms and financial services. The ATM machines that print out the real customers trade, the issuers just issue. That's what their job is to do the issuing. So that's the big part of what we do. Now we do have a stock trading platform and we want to be the premier stock trading venue for infrequent traders for long-term investors. So we've built up. You said earlier, a very valuable service you could offer is like, You want to buy $500 million worth of stock? We can facilitate you buying $500 million. So we have a number of things that we offer to companies where they can do those kinds of capital races without, you know, and still consummate the transaction aftermarket clothes where their investors can't be front-run, but where the company can have a say in the kinds of investors that can acquire the stock. So they can basically place the stock with their existing long-term investors. And is that the sort of service that you would charge for? Yeah, exactly.

1:03:25Got it. We try to build services that are valuable for companies at every stage of their life to and through the IPO. So we're very strong in the seed series, ABC stage, with these are kind of early stage tools we've been talking about. We have a separate product suite, which is not yet publicly announced, but where we have customers that are in the late stage, you know, pre IPO stage, and then you know, we'll eventually take those companies public we hope and maintain, maintain a software relationship with them as well as a listings relationship. That's our, that's our long-term goal. Got it. Cool. All right, listeners.

1:03:54Now is a great time to thank our longtime friend of the show, ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team and deploying them is no longer the hard part. Yeah, the hard part is knowing what permissions they have, what employees are using them for, or what decisions AI is making. AI security for an enterprise at scale is not a small concern. Like the risks are real.

1:04:20Exactly. And the challenge with AI is governing it, securing it, measuring it, and making sure that it actually delivers value. That is why ServiceNow built the AI Control Tower. Yep. AI Control Tower gives enterprises a single place to see, manage, govern, and optimize AI across the entire business. And it works with any AI, not just theirs. Every device on your network, every permission across every system, every AI agent, visible and secure in one place. And ServiceNow can do this.

1:04:49because they've spent more than 20 years building the operational backbone of the enterprise. The workflows, governance, approval, security controls, and institutional knowledge that power how work actually gets done across IT, HR, customer service, finance, and security. Service now already runs more than 100.

1:05:07billion workflows annually, and trillions of transactions for more than 85% of the Fortune 500. So when companies need a place to govern AI at enterprise scale, they're building on a platform at the center of how their business already operates. And in a future that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is, who's managing them all? So 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. So we're going to move to grading now and obviously.

1:05:44This is so speculative that it's difficult to grade. We have a mechanism for doing this because lots of times we talk about things that just happened. So let's talk about the A plus case. So what would it look like a decade from now if this has gone phenomenally well? And then let's talk about the F case where, hey, this was a great experiment. I'm glad we tried it, but why did it fail? Or why could it have failed? And I'll start with that A plus case by throwing out the idea that This might enable a whole bunch of goodness in the world and new innovation, but actually be a way worse business than any of the other stock exchanges ever have been. It's interesting that that could be an A plus for the world, but apples to apples if you bought shares of LTSC today, or if you had bought shares of NASDAQ in 1973, like buying NASDAQ in 1973 may have been a much better bet. I mean, that's totally possible.

1:06:35I've learned a lot about what it means to build a long-term oriented mission-oriented company, which I had paid lip service to that stuff before, but like I worked in consumer internet, you know. It's not the same, it's just not the same. The look on Eric's face is priceless. So, every person who comes to work here and every investor we allow to invest in the company, we have to have a serious conversation with them about risks and downsides. And in particular, we say we are trying to fix a trillion-dollar problem in capitalism itself.

1:07:04Tomorrailly has that famous adage about create more value than you capture. We're going to create that order of magnitude of value or die trying. That's what we know for sure. Whether we capture any of it for ourselves, I don't know. Probably is going to be fine. I'm pretty sure if you create a trillion dollars of value, you don't have to capture a very high percentage to make an awful lot of money. But we don't know. And frankly, we don't care. Now, our investors care.

1:07:30Because they want returns. But like, but we have a fair candidate. It's like, look, if you have an IRR target in your fund for like the next seven years, like please don't invest in this company. Well, I have to imagine, too, to what we were just talking about. You don't have to speculate, or you know, say percentages or numbers are anything. But like, if you just think about what the problems are with the current system, I think a lot of it does hinge around these.

1:07:51large dollar size transactions, whether that's a soft bank style round of a private and currently private company, where you're raising a billion dollars at once, with no governance and no rights and preferences, or you're in the public markets and you're a long-term holder and you're trying in a publicly traded security to get a $500 million position. Those are hard right now, and if you could solve those, and you could probably make some money on those transactions. You know, I just, that's all the things to worry about with this. It's honestly the thing I worry about the least. Like, you know, because people are always like, well, what if the income in exchange is just copy your reforms and put you out of business? I'm like, you mean if we change the world? Well, also, there's like an innovator's dilemma there. Like, I don't, yeah, right. I mean, wouldn't that be great? I tried really hard in the early years of this. I tried very hard to give this idea away for free to the income in exchange. I begged them to build it, so I wouldn't have to.

1:08:43And you know, here we are. So I'm not gonna cannibalize their revenue stream either. Like, they're not gonna get rid of the... That's always a problem. I wish they would copy us. That would be great. But it is important for us, especially in recruiting, just to be really clear-eyed about this, we don't exactly know what the rewards for us will be. But we hire people who are gonna sleep really well at night knowing we solve this problem. Whether we get paid or not.

1:09:08It's just that's not the most important thing and I think that's how you build truly great companies is you have people who are in it for the mission. You have an understanding that business model is important and economics are important in the same way you know that oxygen is important but like you don't live for oxygen. It's the other way around and that's become kind of a cliche idea in our world today but I think it's still it's even still underappreciated how powerful it is. Yeah. Okay well real quick if it completely fails.

1:09:32What are the most likely recent? Oh, how can we count the ways? I mean, and listen, we go through this with every employee. So, so I'm happy to be very open about it. The first and most obvious thing is...

1:09:42We are dealing with a very conservative system where change is really hard and people resist change. And it's not just in like a lot of enterprise software situations you have the generalized resistance to change that like people are used to it all crappy enterprise software and they don't really want to get the new stuff and we trained on a new thing like all that usual stuff. But here we compound that with the fact that this is a reform that is actively opposed by people who are making astronomical amounts of money from the status quo. And the government's involved. You said it not me.

1:10:11So it ain't gonna be pretty. And like a lot of people think it's a suicide mission to go up against those entrenched forces and win and it may yet be. Those people thought we'd be dead long before now so at least we've gotten something right and like Is there any reason why the why it would you would fail to be able to get companies to list? Is there something there? We'll get to that next. Sure. So yeah, that's like the generally like people didn't even think we could get this approved by the regulators That was a huge accomplishment in itself that was very very unlikely and we were sabotaged multiple times and we almost died many I mean I can tell you all kinds of crazy stories and what that look like behind the scenes but also

1:10:47even if we get everything right and we survive our political problems and we fight off the forces of darkness and end and end and end. Customers might still walk up to the precipice of this and say, you know what? I'd like to go second. Maybe everybody would like to go second. How do you how do you lean start up your way to knowing if customers will buy?

1:11:04We have spent a lot of our time on that question, but I think we use every trick in the book. So if your listeners have studied any lean startup, you'll know about how to build a Concierge MVP, you'll know how to build non-binding letters of intent as proxies. You name it, we've tried everything, and we have significant companies who have signed up as much as they're allowed to sign up so far. We obviously have all this software and we've built all these relationships. I have a lot of confidence in this, but at the end of the day, Until customers do it, you don't know. Now whoever goes first will reap unbelievable rewards, I think, of the messaging and positioning that that will win for them, as being seen as a leader who's changing capitalism itself. But maybe that's not enough to overcome. I was also demand from the long-term investor community, right?

1:11:55very significant. And they feed off each other. So when companies want to know more about why they should do this, they often say, well, how do I know what investors will think of this? And we're like, well, would you like to talk to some of them? That's like a radical idea, like what? Talk and make you imagine that. It's like, well, yeah, would you like, I can put you in touch with the CEO of some of the world's largest asset owners, and they'll take your call, and you guys could talk. And they're like, really?

1:12:21And when I talk to acid owners, I'm like, they're like, well, how do I know it's really true that the next generation of companies wants XYZ? I'm like, would you like to talk to them? Because we have become so intermediated. It's unbelievable, even like, I won't name any names, but you can imagine some of these next gen companies that have severe political problems all over the world with like unions and local governments and right. I always ask them, so have you talked to any public pension funds?

1:12:49about investing in your company or IPO. They're like, no, do you think I should? Well, in your own show, right? Well, no, you won't because those funds don't get invited. Oh, right, right. But they don't trade it. Only the allocators will be there. Only the allocators will be there. So, so it's actually like this wild situation where two of the most logical partners like being a being a good owner is one of the most underrated skills in our world today.

1:13:11Like you see this in sports, you see it in corporations, right? Like having good ownership, like really is a source of competitive advantage. And people who are investing for multi-generational timelines are excellent owners. So you would think that companies that have a long term perspective and excellent owners who have a long term requirement that they would naturally want to spend time together. And whenever we do get them together, it's amazing because they have such a bond.

1:13:37And yet, it's so hard to do because there's so many intermediaries in the way. And the intermediaries have no incentive to drive connection between investors and companies directly. That's how they get paid. So part of it is just having the willingness to build those relationships. So if that, if that's not enough, then it won't work. And then we even got into all the technical ways it could fail. Like that's like a hundred of. We will catch you with that one another time. I think this is a fantastic place to leave this. Eric, where can listeners find you and the LTSC?

1:14:04Sure, LTSC.com, for everything exchange-related, I am still using the leanstartup.com for my personal domain if you want to learn about me, and obviously we're all on Twitter and everywhere else. For the tools for earlier stage companies. Yeah, you can go to LTSC.com slash tools, or you can try any of our individual tools, captable.io, hiringplan.io, startuprunway.io. If any of your listeners are an venture capital firm and you'd like to extend the suite as a whole to your portfolio companies. We do all that kind of stuff too. And everything we do on the early stage size is for your freemium. So we're not extracting fees from anybody. We don't think that's right. And we also are the only provider in the space who actually believes that you own your own data. Not we. So we have. I was going to ask you about some other export. That says you said all you need to say you got it. So anyway, so please, anyone's interested. Please do give us your feedback and try those out. Thank you.

1:14:57Awesome. Well, listeners, that is all we have for today. If you like this or any other episode, please don't be shy about sharing it on social media or leaving us a review on iTunes. If you want to go deeper on company building topics, you should consider becoming an acquired limited partner and you can click the link in the show notes or go to glow.fm slash acquired. And all new listeners get a seven day free trial. And starting right now, here's an excerpt of our latest episode with Vlad Magdalene, the founder and CEO of Webflow. With that, we will see you next time.

1:15:36Welcome LPs. Today we are doing an episode I have been excited about for a long time with Vlad Magdalene, the co-founder and CEO of Webflow. Webflow is a company I am personally very passionate about since I grew up as a web developer, always fighting between building websites from scratch and PHP and hand-coding HTML and CSS. PHP. Dude. Facebook days. The lamp stack baby.

1:16:02There were wizzy wig editors out there. I know like dream weaver but they always required you to do all the hosting yourself They I don't know the state of the product today. This is like you know 12-year-old data But generated garbage code and webflow has been an amazing answer to provide the ease of use of a graphical user interface Well still being an enormously powerful tool and we personally use the site for acquired We use it for PSL and basically all of our portfolio companies use it as well So it's so powerful that even you know, I can now update the website which is you know, the last time I wrote a line of code, I think I was probably maybe 20 years old. So you have a lot. I have the designer Chris. So one year ago, David has a David has an editor login. So listeners, who is flat?

1:16:57Well, Webflow, you know, well, most of you may know this company only from the last year or two. It is a at least decade old company that I believe led you started as a side project in 2005. Yep. It was actually something that started when I was still in college when I was working at an agency part time as an intern and then turned into my senior project, then turned into a couple failed attempts at starting in as a business, then I joined into it, sort of worked there for a while, then had another failed attempt at turning into a business during sort of the Web 2.0 heyday, and then finally started it hopefully for the last time in 2012. Wow, all attempts to start the same business. Same business, same name, different co-founders every time, two of those attempts just by myself, sort of looking for a co-founder. The third attempt actually was with two Intuit buddies, one of which,

1:17:53So that attempt didn't work out and can go into sort of like the history behind that but sort of fizzled out and over time one of those co-founders ended up Starting his own company got into IC got acquired by Stripe and then came back as a senior product manager here So now you that's one of our product leaders circle of life exactly So I sort of worked on it in many different iterations with multiple people and finally something worked Wow, that's so cool. Well, we'll get into All of that. So it's the 2012 version. That was the start of the company. That's the best vintage so far. We know today. Exactly. Wow. And I think it only raised maybe a few million dollars between then and now when you did the... Yeah, so we started in 2012, started that with my brother and then one of my buddies from Intuit joined a few months later. Brian ended up being the third co-founder and then we about a year later we got into IC and then did...

1:18:51A seed round, which at the time seemed huge, was $1.4 million, even though other companies were closing their seed rounds much faster, or they were bigger, and then we ended up doing a small, well small relative to today extension of another 1.5 better year later, and then got to profitability and didn't worry about funding for a long time. That was about 2015, you get to profitability? Late 2015, yeah. Awesome.

1:19:17Listeners, you should know the company then for the last four years has raised no money as as Vlad said and then this year raised a $72 million series A from Excel that is coinciding today with sort of this no code movement. So I think we'll we'll get in a little bit of that. So this notion isn't brand new. Wizzy wig web editors have existed before. And it's kind of like the right ones run anywhere. It'll finally be good this time.

1:19:46still not good this time. So why is it that Webflow has really found product market fit and created this nice product with a web-based wizzier we get here when it's failed so many times before? So two things. One, I think if we tried the same exact thing in 2007 and would have failed and I'll tell you why. Like the reason direct manipulation works in Webflow is that we can actually, not emulate, we have the real thing Inside of the browser itself, so Webflow is built in a browser. You can sort of think of Webflow as dev tools or Web Inspector with a lot more visual tools on top, right? A lot of other Wizzy Week tools, what they try to do was like, hey, we're going to take a graphic design tool like Photoshop or...

1:20:25Illustrator or sketch or whatever and we're gonna try to randomly guess or best guess what the generator code should be It's the approach that doesn't respect the the core principles the core foundations of what the web is and the web is like, you know, you have these DOM nodes and they're essentially boxes on top of boxes inside of boxes, et cetera, and everything's a box, right? You want to make a circle, you have to make a box with random corners, right? That's a circle. Or you have like a, you know, an SVG or something like that. I think Webflow is the very first application that said, okay, here are the core primitives. You know, you have styles, you have classes, you have like CSS abstractions, and what we're going to do is create a pretty shallow abstraction that still forces you to understand those core

1:21:10Principles, not necessarily the core syntax. So for example, when you're doing layout in Webflow, it's Flexbox or CSS Grid. You just don't know it. The visual tools built on top of it are a representation of those same constraints and limitations. They're not like draw anything and then we'll try to guess what the code is. It's literally like adjust the margin and the padding. Exactly. You're almost like one to one making code changes. You're just doing it through a different language. It's almost like if you're using software to create music you have to understand the core principles of music you might not you know have a piano in front of you right but you don't get to cheat by by saying I'm gonna create like a masterpiece by not understanding like good rhythm and etc so that's the same thing with webflow like you it it does have a more

1:21:57you know advanced learning curve because you have to understand the box model because you have to understand you don't just draw box and then go like drag it anywhere you have to think okay when the screen resize I have to think of this box as being 50% of the width of the current viewport not 500 pixels right and then when I resize I'd change it to 495 pixels or whatever I sort of have to think in a more like relative the way that a friend developer would think but we're erasing like 95% of the complexity and like knowing how to glue all these things together etc and the other thing that made it possible was that

1:22:28When we first started building it in 2012 was the first time that browsers were getting good enough. There's like Chrome 1.0 days Safari and WebKit were kind of like on the they were using the same engine Firefox and Internet Explorer were sort of like the old guard in terms of like hey, this is like a way to like view documents or whatever But Google's really pushing Chrome as like an application platform like they were like Google Maps that sort of the standard of like what's what's possible as an interactive type of thing in the browser That was impossible in 2007, 2008, et cetera. So in order to create that full abstraction of like, I'm previewing exactly what's going to ship, you have to actually show that in the browser in an iframe or something. And browsers just didn't support that until like 2011, 2012, 2013 to be really like, that's when when browsers were like, we're kind of kicked into gear of like holy crap. This is the next way of application platform. Exactly. Yeah. Exactly. All right, listeners.

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