the App Store rating, Jeff, was it 1.8?
1.8.
And remember, one star is the minimum.
So it's really 0.8 is the rating on the app.
And how are you doing 100 million of revenue and 45 million of profit with a 1.8 star rating?
So we look at this and we just see opportunities.
Basically how we got here was Sean and I were talking about Grindr, I think, last month, and like how there was like this amazing story behind it.
And we found out that you were the two guys who bought it and took it public and made it this home run.
But Sean is good friends with James Currier.
Rick, I've had a bunch of run ins with you early on in my career.
And then same with you, Jeff.
And we were like we got to get these guys on because you guys have been a little bit behind the scenes.
You don't talk that much.
You're just kind of quietly behind the scenes.
But you've had some major successes so far.
And like, I thought it'd been cool.
It would be cool to like kind of give you a platform and like tell the story, because I don't think you guys have told a lot of these stories publicly, maybe ever.
Have you?
Not a lot.
No, we've done a couple here or there.
But no, we have not been out there publicly and talked about what we did at Grindr.
But we're happy to today.
So let's do story time.
How did you two guys end up owning Grindr?
What is the story of Grindr before you?
And then how did you guys get involved?
And what happened afterwards?
I want to hear the Grindr story.
Grindr was created, founded by a guy named Joel Simkai about 15 years ago.
And Joel is a gay man who wanted the ability to create an app to find other gay men GPS enabled.
Kind of like Uber, right?
Uber really existed once the iPhone became ubiquitous and people could see where you are.
That proximity became really tight.
So he created Grindr.
Grindr took off and he ended up selling it to a Chinese company. uh, called Kunlin.
And then, a few years later CFIUS, the committee for foreign investment in the U S, forced the sale of Grindr.
Okay.
So they were worried that that the uh, the data that Grindr was collecting, could be used for you know, in negative ways uh, by the Chinese ownership.
Was that first sale a big sale?
Like was Grindr considered like a big success at the time?
Cause I know some of the dating apps traded like for not that much money early on.
Yeah, so I believe Sam, I believe, sorry, Joel sold it for, I wanna say 260 million.
Okay.
So it was a great sale and he owned 90% of the company.
Very few others had equity.
So he did very, very well.
And then CFIUS forced the sale, right?
Was it true?
Was the Chinese using it?
What does that mean?
I think I read there, the accusation was that they were blackmailing straight men who are on Grindr.
I think it's hypothetically true that if you have the servers located in China and you're the Chinese government and you wanted to watch, it's sort of like if you know the answer to the question, You can use Grindr backwards.
So if you know that you have users in the White House who are gay and using the app well, then you can figure out who those users are and you can track where they are.
And you can say oh, the president's about to leave the White House because people on his forward team who happen to use the app are using it and they're doing it.
With the Ukraine war, we heard that soldiers on both sides were using the app to meet each other, sort of between battles.
And, you know, people have talked about Olympians being outed in the village.
And so work was done at Grindr to help avoid these sort of extreme cases.
And so I think there is possibility for abuse.
Yeah hypothetically, if the Chinese government wanted to and they had access to the information, they could exploit that information and potentially use it to blackmail our politicians.
Okay, so that's like a real, that sounds very reasonable, why a sale is forced.
So when they force a sale, what does that mean?
Like there's an auction one day?
How does that play out?
They give the company one year.
You have one year to sell to a U.S. ownership group.
And if you do not, the government will take control of the business.
And in the year, the CFIUS group, which is it's partly comprised of US intelligence and US elected officials and administrators, like congresspeople.
And so that board steps in in the company.
They sort of put place the digital steps in process and administrative steps in process to watch during the one year and mandate the sale.
So, yeah, it is a mandated sale.
Did you just learn about that in the news?
Or like is there like a?
Because you guys weren't like?
I mean, this deal was like a pretty level up deal for y'all right.
Is that where you bought it or you bought it after that?
There's somebody else bought it, then you bought it.
No, we bought it because, yeah, again, CFIUS was forcing the sale.
They had a certain timeline to sell the company.
And there was, you know, all the typical buyers that you'd think about.
There was always someone super conservative on the investment committee that was like I can't be associated with gay sex.
I, you know, I can't do this deal.
We, we looked at raising money from some folks in the Middle East.
They could not be associated with, with gay sex, gay dating.
So it really took a lot of the typical buyers out of the process.
And we were lucky enough to partner with another PE firm and actually buy the company.
It came down to three buyers in the end that put in legitimate bids.
And we were lucky enough to partner with the other PE firm and buy it.
Let me just, what Rick was talking about.
There's this weird thing where companies that had helped Tinder go through all of its systems.
They were fine working with Tinder.
But when it came to Grindr, they were like, oh, we don't want to touch that one.
And I didn't understand, I think, the extent of the sort of latent homophobia that had, at the time, infected The whole process.
And we really benefit from that sort of homophobic behavior because you have this incredible company.
It's growing like crazy.
It's incredibly profitable.
The users love the product.
Like it checks every box of what you would love in private equity and you love as a product person.
And so the more we studied the company and the product, we're like this thing is just an amazing business.
It's an amazing product.
Joel really hit on something that sort of met the market's needs.
It was dominant in this market position.
And And the people that are looking to buy it.
At this point it had gone through lots of sale processes.
We had heard Playboy had tried to buy it.
And you know there were all these people that had tried over the years, couldn't come up with the financing or couldn't make the deal work, or they couldn't get the banks to work with them and get the deal done.
And so it ended up with three pretty non-traditional private equity firms going after it.
Ours being one of them, as Sam, you said, it was a step up for us.
We had not done a deal that was in the hundreds of millions of dollars prior to that.
We'd done tens of millions of dollars of deals.
And but when it came time to raise the money for the deal, we raised it very quickly.
When we did find people that would listen to us and hear about the business, people loved the fact that we had uncovered this sort of glitch in the system, that this homophobic thing had kept the price down and the deal available to you know sort of newcomers to the space and operators.
That was the other thing people loved.
They're like I can't believe you guys have done diligence where you actually have a a roadmap for the product, a roadmap for the security, a roadmap for the trust and safety, the moderation.
We had done sort of all this work to understand what really the challenges were for the business.
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So roughly, what'd you guys buy it for?
And what do you think it would have been had it not like?
Let's just say it was a straight dating app?
Like what do you think?
The same business, same metrics, same everything else.
How much of a kind of discount or premium do you think it ended up at?
Rick, I think 50% off at least, right?
The deal was for $600 million, $650 or something.
Yeah, well, I mean, OK, so on a multiple basis, we weren't really that far off of market.
So we bought it for about 600 million.
It was doing less than 50 million, about 45 million of EBITDA when we bought the company.
So, you know, call that kind of 12, 13 X EBITDA.
And the market was probably trading at more like 20, the public companies.
But there's a private company discount.
So we bought it for under market for sure.
But it was really just the lack of competition in the process that allowed us to get that discount.
This is such an interesting story.
We learned so much in this process that there was the other pieces to it, which was Normally, I would say, that private equity firms don't want to touch a deal, or investors that have more than sort of one problem.
And Grindr did have a bunch of problems.
It had a very public problem with privacy and data at least perceived problem because they were being sued for selling users HIV data by governments in Europe and in the US.
They had this issue with the Chinese ownership, which was a thorny issue, and having CFIUS involved.
And this was one of the only cases ever where CFIUS had actually retroactively unwound a deal.
CFIUS had denied deals with foreign buyers, but they had never.
What they're trying to do with TikTok today, over the years, is TikTok would be the second one after Grindr.
And then in addition, it had a PR problem.
And then lastly, it had this sort of latent homophobic problem of people just not wanting to touch the property.
So it had this series of problems, none of which... bothered us at all.
We just were so in love with the business and the product and how much the customers loved the business and how much potential.
And there was customer frustration, for sure, but they had been sloppy on a lot of product work and a lot of customer care and a lot of modeling.
They had made mistakes, not awful typical mistakes that small businesses, where the growth gets ahead of them and they sort of get behind the ball.
And because Rick and I had both worked at large companies in addition to startups, we understood the complexity of that jump from when you move from sort of 5 million users to 20 million users and all the complexity and the legal things and the accounting and all the things that go into the difference in those businesses.
We also looked at some metrics that were shocking, which was the App Store rating.
Jeff, was it 1.8?
Yeah, 1.8.
And remember, one star is the minimum.
So it's really 0.8 was the rating on the app.
Well, that was horrible.
I think your Glassdoor reviews were pretty horrible.
The management rating was like 19%.
I'd never seen anything that low before.
I was like, whew.
I still have a job at 19%.
And how are you doing 100 million of revenue and 45 million of profit with a 1.8 star rating?
So we look at this and we just see opportunity.
We realize this company is severely undermanaged.
You know clearly from the Glassdoor rating iconic brand strong, stable cash flow.
But we knew there was a lot of cleanup to do once we got in.
And you guys had already had success, right?
You sold Tickle for $100 million or so.
So it's not like this was your... You didn't have to do this.
You had options.
You could be doing a lot of different things in life.
And you signed up for a big swing.
The biggest swing you'd taken...
And with a lot of hairy problems, you're like, oh, it didn't bother me.
But I want you to take me in the room because before we get to the kind of the turnaround and what happened and how you guys did it, I just want to go back because I've been in situations like that before.
And I remember feeling like, man, nobody really talks about this.
Like I've read a lot of business books.
I've heard a lot of business podcasts, but like.
Right now I feel pretty naked and afraid, where I don't really know if I'm making the wrong move or the right move, because I'm doing a swing that's bigger than I've ever done.
I'm in the room.
It's unclear.
There's still fog of war, right?
The story hasn't played out yet.
We don't know exactly what's going to happen.
It was much worse than we thought, too.
When we got into Grindr, remember, COVID hits in March.
The deal's halfway closed.
The users dropped 20 or 30.
It just sort of this is a location based physical meat on site, you know, product COVID hits.
Everyone's locked at home.
We had plans to basically live at least part time in L.A. from Tampa.
So it got worse.
And then we got there and we started reading through all the the actual data for the business.
That was and we're like, oh, this is much worse.
I over the two and a half years, I gained twenty five pounds.
My cholesterol went up 30 percent.
Like I didn't see my kids like just just it was.
Nostalgically, I look back at it so fondly.
I really enjoyed my time, and I did love it at the time, but it was mixed with incredible stress.
It was a very difficult role.
But I think for Rick and for me, what we had learned in the 20 years prior was perfectly what the company needed at that moment.
What felt so good was it was exactly the skill set we had built to that moment is exactly what that company needed at that time.
And so that match...
Felt amazing.
And, as a product manager, to work on a product where the users were so engaged.
I had never seen anything like it.
And I probably maybe never will.
Where the engagement on the product was so high that everything you tried you either failed or succeeded almost over it.
I had run Yahoo Mail before that.
And there's an antipathy of sort of the customers don't really care.
You come out with amazing features and they're like, eh, 7% adoption rate over six months.
At Grindr we would come out with a feature that was like okay 27, adoption in the beta, where we hid the feature behind something in two hours.
I'd be like, oh my God, this product is incredible.
I mean, it's incredible.
It was so, as a product manager, it was the most rewarding work I had done.
But was there any doubt when you were thinking about buying it?
Now you say, well, it was a perfect skill match for us.
Did you guys go for some long walk?
Or there was a dinner one night where you were like, are we really going to do this?
Did you have one of those soul searching conversations?
Rick and I lack that muscle, the doubt muscle.
I think it comes from I tell people, as an entrepreneur, after you've done four or five startups and Rick and I both have four or five startups in our background and technically we've probably each done like nine, but we don't even count the four.
That didn't get sort of far enough along.
But I have lost my super happy gene, where I feel incredibly happy when things go well, and I've also lost my super distressed gene when things are going badly and the stress is high.
So I feel the stress.
You can see that physical toll it took on my body over those two and a half years, but I don't recognize it in the moment.
You said this.
You said in the document.
You said so.
This is Jeff writing.
You said for me, I've become distrustful of times that feel too good.
And equally, I am skeptical of moments that feel too low.
So today I'm simply more emotionally level than I was in my 20s, in part because I don't trust highs or lows.
And that has helped me focus and persist when others might quit or get sidetracked.
Yeah.
Yeah.
I think that it's probably true for both of us, Rick.
Rick feels a little bit better.
He'll sometimes like shake me.
We were, we're at the NYSE and Grindr is going public and he's like dude we're we're we're, did it.
We're like, we're taking company public.
And I was like, yeah, no, I just can't.
I just don't, I know I'm supposed to tap into this incredible joy.
I remember the first time I got, I wondered what it would be like when I got a wire for more than a hundred thousand dollars.
I got a wire for like 700000 when Google bought one of my companies and And it was the first wire and I thought that will change everything.
Like everything about how I feel will change when that wire hits.
And so I looked the wire hits and I feel the same exact I just I'm like it was like relief combined with resignation, just like ugh.
I wanna ask some details about the deal.
So you said you raised $600 million.
I'm curious is buying a company for one million, 10 million, 100 million and a billion?
Is that at all similar?
Are each amounts similar?
Is one harder or one easier?
And of the $600 million, how much of it was y'all's money?
Yeah, I can take that.
So the deal structure, the 600, there was about 200 of equity that went in.
And, you know, some of that was our personal money, but most of it was outside money that we raised.
There was 200 million of debt.
So Fortress was our debt provider.
And then there was another 200 million that was due basically an earn out upon the exit.
So really with Grindr, only $200 million of equity went into the deal.
And we can fast forward or we can talk later about where the exit came out, but it ended up being a very, very good ROE return on the equity of only 200 million going in.
I think that the other answer is it's roughly the same effort and work to raise 1 million as it is to raise 10 million, as it is to raise 100 million, as it is to raise the 600 million.
You deal with different players.
They may have different questions, but the businesses are all in such different states when you're doing it that the questions exist.
There's always, there's a skepticism amongst, there's an enthusiasm and a skepticism when you talk to the debt guys and you talk to the equity guys and you're trying to raise money.
With Grindr, the difficulty was simply most of the traditional channels were closed.
And so we were dealing with alternative debt, maybe a slightly more expensive debt.
We were dealing with alternative equities.
We were dealing with family offices um, instead of going directly with you know, and we were dealing with alternative banks and lawyers and things like that.
People who didn't didn't mind working on the deal.
And when you raise that money, so do you guys, as the kind of gp operator types, do you end up owning 20 of the company or 50 or 80, because you've, you've raised you know, certain amount of equity, certain amount of debt?
Like, where do you?
What do you target?
What do you try to land at in a deal like that?
Well, we worked with another PE firm.
So the way it ended up being structured is that they brought in a lot of the equity.
We had the debt that we had brought in from Fortress.
They brought in a lot of the equity.
And then so we had our piece of that.
But then really, because we ran the company, Jeff and I had a slug of equity related to our roles as CEO for Jeff and COO for me.
Right.
In general for an equity deal.
I think if a private equity deal you have carry so you have sort of back-end options and you might have.
We traditionally have a fund.
We don't do a fund.
We do SPVs for individual deals.
But yeah, we would want to try to, depending on how much of the money we put into ourselves.
You're structuring these deals in order to get 20 equity amongst the partners of the private equity firm that you'll split.
You'll do deals where you're at 10% and you'll, but you have, you know, you have investors, they're going to take on a big slug.
Debt is what you don't use in startups.
What you do use in private equity is this incredible multiplier.
So even though the debt's expensive, it is so cheap compared to equity.
Right.
And Uh, so I I sort of it's.
It is not that different to buy a company that it is to buy a house or an apartment building.
That's sort of math works out the same.
You're using leverage, you're using cash.
There's oftentimes you're doing cash upfront and debt that you plan on any year.
Once the business has been cleaned up a little bit to just restructure it right away.
So there is more financial work being done.
The role of your financial partners in those deals.
We have an amazing uh lawyer advisor, tax lawyer, who structures deals in ways that's like artistic and right, just to make the deal work, because we have to say like okay, we have to do this so that this, this investor can bring money in this way, but we have to price it this way for this investor.
You know, so it's just, and we have this layer of debt, but this debt we don't want to hold on to it for more than a year because it's expensive, so we have another debt provider.
But there's all these rules, so you do spend way more time in a private equity deal on the finance, and it is.
It explains why some of private equity, or majority of private equity, is driven by financially minded people that maybe don't know businesses well at all.
Right.
Yeah.
And Sean, to answer on the economics of the deal, from a high level at least.
We took Grindr public and we'll talk about how we got there, but we took it public for 2 billion on the New York Stock Exchange two and a half years after we bought the company.
And, as I mentioned, as part of the deal structure that earned out, the first 200 million went back to the original owner or the owner that we bought it from.
So that leaves you 18 with 200 million of equity going in, because the debt just stayed on the business.
So we basically created a 9x return on that 200 million, right?
So that's about 1.6 billion of value created, you know, when you subtract out the original capital.
So about 1.6.
And, you know, typically you'd have a 20% carry on that.
That's amazing.
And what's the?
Was there any?
Obviously you did a lot of cleanup and you did a lot of best practices.
You did a lot, you executed a product roadmap and you marched on that way.
So we don't have to go into all those details, but I'm just curious was there any like aha moment, key insight fun, strategic moment that happened that like actually helped you build that value?
Well, there were some things that surprised us.
You know, when we first got in there, we knew we were going to have to do a lot of cleanup, but we knew that the talent was going to be an issue, but we didn't know how bad it was.
So culturally, unfortunately, the Chinese had really, they had ruled by fear.
It was this black box.
Nobody knew what was going on.
There was five people that had equity and really had any kind of vision and knowledge of what was going on.
And then we looked at the engineering team and Jeff can speak to this more than me and we realized they weren't that good.
They were not committed to the company and definitely were not committed to the community that we served.
And we ended up having to fire about 70% of the staff, mostly the engineering team.
We didn't expect it to go that deep.
But when we got in, they realized how bad it was, how badly the tech stack had decayed.
We realized at that point that we needed to do a kind of a three-part serial process.
The first part was reset the talent.
The second was fix the tech stack.
And the third is where it got to be fun.
And that's where Jeff really shines, which is rebuild the product and start to drive revenue.
Was a large percentage of your staff gay? of those that we kept on, a very high percentage.
Was it weird?
There's obviously cultural things going on here of two non-gay guys are now buying Grindr.
It'd be like me owning Ebony Magazine.
There's a clear, I don't know, can I trust this guy?
He's not part of the community.
I would say this was the biggest...
I sort of smile about it, but I learned so much.
I went in trying my best to understand the user's needs.
And you're lucky to work in a product where the customers are giving you this constant feedback.
So I had already talked to hundreds of customers during the diligence process.
We had read through thousands and thousands of customer care issues.
I had been on Reddit forums going through every single post about the company.
And users were, I would copy and paste into this document saying like, what's this issue?
And I want to find out what this is.
Why is this happening?
And then we'd get there.
And we had – the employees had never –.
Many of the employees that were left over from Joel's original team had incredible knowledge, but they didn't have incredible scale.
They had not scaled before.
So they didn't know.
Like oh, when you do this and you're moderating – we have customers in 193 countries.
So, when you're doing this moderation and you're doing these things in multiple languages and you're doing these things where you're being –.
I had this at Yahoo, so I just knew what to do when you have users in 190 countries.
I just kind of knew what to do when you pass these issues.
And so I was able to bring on engineers with me from Yahoo that knew scale right away.
And I think the best hire we did was we had the head of global privacy and safety from Yahoo, who happened to be a gay man who had retired from Yahoo.
And I'd known him.
He'd been there for 18 years.
And I called him and I said, I need you to help me on this company.
And he goes, what's the company?
And I said, Grindr.
He's like, I'm coming out of retirement.
I'm going to help you.
I'm going to do something for the community myself.
He just said, I'll do it for the community.
We were being sued at that point by 13 attorney generals in the US over privacy and data leakage, something the company had not done, but it was everyone believed the company had done.
And it was funny, something the company did that actually saved like 10000 plus lives a year was was being sued for this feature, which is what's your HIV status?
So and it's listed on your profile.
And that's certainly an important thing to know before you you meet someone.
So he said, I'll do this.
He got on the very first call with the 13 attorney generals and they they said, Shane, is that you?
And he's like, yeah, it's me.
I now work at Grindr.
And they said You work at Grindr?
Because he'd met them all and knew them all from when he was at Yahoo.
We constantly dealt with all sorts of issues at Yahoo.
And I'd learned about all these.
I dealt with the CIA, the NSA, the FBI and every possible law agency when I was working at Yahoo, when I ran mail.
And essentially, 12 of the 13 attorney generals basically said, we're good.
Like Shane's there, it's run by professionals, we understand.
So simply the upgrade of talent almost started to resolve problems right away.
It caused tension inside the company because the same straight guys that came in were putting in people.
They're like, oh, they're just putting in their lackeys everywhere.
By the time Rick and I left, 70% of the hires in the company were minority hires, basically.
We were hiring people from the LGBTQ community or we were hiring people that were in the DEI, which is not something people like to talk about anymore.
But we had the most amazing ability to recruit.
And it was a superpower for the business because we were able to pull talent from incredible places.
Because they believed in the mission of the company.
And So we actually used the mission of the business and the impact it was having.
I don't think people understand the extent to which Grindr makes a difference in the gay community or the LGBTQ community globally.
Most of the information you're going to get on sexual education about gay sex or people, trans people most of that information outside of English comes from Grindr.
So 57 languages is how many languages Grindr takes its safety and anal sex.
You know information and publishes it in 57 languages.
And when you need to know about trans health care and you need to find a doctor who will give you vaccines and you're a trans person and you're in India.
Well, that database is funded and built by Grindr.
So those things. that the company does, it creates a mission.
It creates all this incredible... But it also is something Tinder will never do.
Tinder won't save lives nearly at the rate that Grindr does simply on educating people about safety.
And you can imagine if you're a closeted trans or a closeted gay guy growing up and you've not been able to talk to your family and you've not been able to talk to your community about something that's going on in your life.
Well, being able to find community on Grindr and being able to find that information in a very uncensored way was valuable.
You know, what I think is cool about you guys is that your OG Silicon Valley, like you know, true and true right.
Like the big kind of tech web 1.0, 2.0, you guys were there, you were in it.
Even your near misses were basically correct.
You know whether it was like iDrive before Dropbox, or you know Rick, you were doing branch out, which was kind of like LinkedIn.
And you were so close to, like you know, the big, the big, big exit and the big big kind of reward of getting that, that thesis right.
Um, but then you guys have like switched and you play your own game.
You don't.
You're not just a venture firm, you know who's like, only focused on, you know, venture backed startups that you went into private equity, which is so different than, like probably, most of your friends in Silicon Valley.
Um, why, I guess, like, can you just talk a little bit about that?
And specifically, like, if there's other people who are kind of similar, right?
I put myself in this bucket.
I thought I was a smart guy.
I was working hard, but I was playing a game in Silicon Valley where it's feast or famine.
It's like either I'm going to make a billion dollars, I'm going to make pretty much zero.
I'm going to grind super hard.
And really, I'm just like, I'm running around with a bottle trying to catch lightning is how I felt.
I was like, Oh my God, this is so much easier.
What was I doing before?
And why was I so brainwashed by the movies and the tech crunch and the Twitter and like what the VCs thought were cool?
Like, I really should have played my own game a little earlier.
I guess.
Can you talk to that?
Talk to that?
Maybe that person or, you know, how you think about this?
Yeah Rick, don't you think one of the most common questions we get from our friends is can you tell me more about what you guys are doing?
Because secretly, I think I'd like to do that, too.
Now, the way you guys describe it, it certainly sounds easier than starting a company.
Like, I don't know.
Whenever somebody comes and says, I want to be an entrepreneur, I'm like, good God, why?
Like you clearly have never done one before, because all it does is just cause stress and gray hair and you know you don't see your family.
And so being an entrepreneur is so hard and I love it, but I fear it.
So because I think the thing that's most scary about being an entrepreneur is the lack of control on the time.
You don't know how long the company will take to get from initiation to success.
And it could take 12 years, 15 years.
It's gonna take 100 hours a week.
I'm not scared so much of the 100 hours a week.
I enjoy, even though I'm quite the man of leisure nowadays, but I enjoy the work.
I don't fear the work.
I just don't love the inability to control what my next decade will be like.
And so with private equity You get a little bit of the not quite sure, but the timeframes definitely come way down.
We don't go into a deal that's going to take 10 years with private equity.
The math just doesn't work.
Yeah.
And right now there is, you know, I think, most of our friend group, for Jeff and I are either venture capitalists or entrepreneurs.
Operators, entrepreneurs.
Right.
So, as we look at, you know, having a foot and kind of both of those where Jeff and I have both done over 50 angel investments and you know, and I've got 13 unicorns out of that.
So it's definitely worked.
But the reality is, you know, I also met with a thousand companies to find the 50 that I really liked, and then some of those worked out.
But as we look at our friends in venture capital, it's so crowded.
They're all chasing the same AI deals at inflated valuations.
And it's such a long process to make any money at it as well.
I mean, some of these funds can take 10, 12 years before the partners are making a lot of money.
Once they start stacking funds, that's great and all.
But when you're 50, do you really want to go start a venture fund that's highly competitive?
So that didn't make sense.
And, as jeff said, starting companies which we've both done, five it's just so hard.
Right, you've got to go raise money.
You got the cold start problem.
How do you get the flywheel going?
It's just really hard.
And then private equity is a little bit of both right where we're like okay, we can take kind of the best of we know how to run these companies, but we also know how to invest um, and really try to, you know, multiply that money.
We really just do SPVs.
We find deals that we like, that we think that we can add value.
And you don't have the long timeline.
So that was a good place for us.
And if somebody is not going to go buy a 600 million company like Grindr.
But, like you know, there's other kind of midsize ways to play this game right.
To go get a win.
And again...
Unlike a startup, you're not playing the product market fit risk game where most of the time, you're just building something that there's no market appetite for.
It doesn't matter how hard you work or how well that product works.
If there was no market need for it, you lose.
Yeah, I think we could segment private equity a little bit for you.
But not even like, I don't want the kind of industry top down.
I'm more like, if I'm a guy, what would I be looking up?
Who would I be calling?
And what kind of deal would I be trying to do?
What business would you not go try to buy?
What business would you try to buy?
A few ways you can source.
So one is you use your own network.
There's lots of businesses out there that are profitable.
And for whatever reason, oftentimes the founders or the owners either want to retire, or they want to finally cash out of their business, or they're exhausted or, you know, the co-founders want to break apart a little bit or something.
So there's that.
It could be.
We talk to our venture capitalist friends and say in your portfolio you must have companies that are successful, but not venture businesses anymore.
They're not going to go public.
They're not going to break out.
They're growing at 10 or 20% a year right now.
All of them have it.
And some of these brands are like amazing brands.
And so Grindr is a home run because it's a dominant market player.
You know, healthy business profitable, et cetera.
Usually these are like It's not such and such.
It's the second or third player in that space.
And they have challenges.
They're having trouble recruiting talent at the same level they were earlier.
This AI thing's going to be tough, so there's some challenges coming to the business.
But the founder's motivated.
I think he'll work with you, or she'll work with you, or the founding team.
We generally are looking for deals where the founding team wants to stick around, or at least part of them.
When we did JibJab, Greg left, but his CFO became the CEO, and he's an amazing operator.
And so...
We don't want to have to take over the whole business.
We're looking to partner with the existing team that's there.
And then we hope we can.
Well, the other thing that's nice about an SPV is Sean, you might know a couple of businesses and you might say I kind of get these businesses a little bit.
I know some friends that really get them.
And so with an SPV, you can partner.
We sort of put together the perfect mix of players.
When we did Grindr, our friend Sam Yagen, he had been the chairman of Match Group, right?
He had been the founder of a dating service that got bought by Match.
He knew the space inside and out.
He had been CEO.
So we partnered with Sam.
He really brought us credibility when we were raising money from the family offices.
And he taught us a lot.
He had a great network.
We recruited from his network into Grindr that helped us balance out.
We weren't just bringing people in that I knew from Yahoo and Google and other startups.
We were bringing people in from Sam's network that had been at tinder and match group and these others and um, you're almost making it sound like a.
It's like a, it's like a big.
It was like a, like a scheme.
It's like, hey guys, here's the deal.
This is happening in front of all of our eyes.
China has to sell this.
Let's get all of our homies, let's throw in a little bit of cash and let's do this thing like no one else wants it.
Let's do it like you make it sound like it was a party.
We were on a call yesterday to talk about a deal.
I called them about a deal that had come across my plate and i go don't you think if we put x and y on this deal, They know this space so well?
They'll be able to evaluate the tech and really help us put together an amazing product plan.
The first three or four key hires are going to really set the tone for this business, if we can acquire it.
And so we benefit from the size of our network, from meeting all these entrepreneurs over the years.
And particular entrepreneurs that have had successful outcomes, they have amazing networks.
They often are waiting for something to do that's like a big fun challenge.
So we're always trying to figure out who's that one operator that we know that needs the chance to become CEO or to be president, or who's that person that can give us the unique insight to this industry that can help us connect the dots.
The other strategy, Sean, is to take small companies and bundle them up together and make them big.
I think when you're looking for deals though most of the companies you'll find that will come to your plate when you're looking to do PE, deals are not profitable or they're not profitable enough to make the economics of private equity really work well.
And it can be really disappointing.
The other thing is the entrepreneur has been told over the years.
My competitor, three years ago, when we were all growing at 60 a year, sold for blank X multiple on growth.
And I'm like, I know private equities.
We give them our equation for private.
We can give them a spreadsheet.
Here's how we're going to price you.
It's this times this times this.
They're like, I know, but this SaaS business didn't... We're like, oh, yeah, yeah.
SaaS businesses are multiples on revenue.
Consumer businesses are multiples on EBITDA.
And they're like... And I'm like, I'm not...
I don't do the math.
This is just how the math works out.
And so private equity in general doesn't like consumer because it's often advertising revenue or it has other issues that they don't understand.
So there are these little sort of mistakes or glitches in how private equity works, especially in the small and medium size, sometimes all the way up to the big ones that allow us to do deals.
But even then, remember Rick said he talked to a thousand companies to invest in 50.
So like a one in 20 hit rate.
Private equity is the same.
You're going to look initially at 20 something deals.
Then you're going to look hard at five deals.
And then I would say the close rate on a private equity deal.
If it's a good deal and it's worth doing, you're going to close only one in three of them.
So they are spread.
The hardest part about private equity without a fund is that, unlike being a venture angel investor, where Rick and I could easily do 10 investments a year, as angel investors we get enough flow.
We meet enough great teams.
We can go out and find them.
And VCs will reach out to us and say, can you help us on this deal?
You know the space.
Can you invest in it?
And advise the CEO.
So I think those deals come at pretty high quantity.
On private equity, they're smaller.
You do have a lot more work to find the businesses to sell.
Not always.
The founding team or the investors don't always know they need to sell or they want to sell.
So you have to kind of talk them through it.
So it's a different set of skills.
It's longer between deals.
And we say, no, in private equity, the risk has to be really low because you're working on a deal.
And when we are a small team and we don't have a full fund, you have to make the deal work.
It has to pay.
It has to pay at least one or two X, So we spend a lot of time on risk reduction, which is different than entrepreneurs.
When we're looking at angel investing, or even a little bit later, you're always doing the multiple on the one in 10 success rate because you're gonna have a larger portfolio.
In private equity, we're instead doing all the math.
We do very little math on what could happen.
It's mostly what could happen on the bad side and what could go wrong.
And it feels wrong at first, but it feels actually enlightening over time.
Like being a chief risk officer instead of, like a chief investment officer, really thinking about risk differently and understanding how to mitigate risk.
It's made me a much better entrepreneur, if slightly more cynical.
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Because when I think of Jeff, you talked about being a product guy.
When I think of Rick, I think you had maybe a consulting background, but you kind of morphed into a growth, marketing but also product and just very traditional Silicon Valley CEO.
I don't think that as having the skill set of looking at Excel and running the math and doing the numbers.
But is it A, just not that challenging?
Or did you just have to acquire that skill?
Sam, I can't believe it hasn't come up yet but Rick has an HBS degree.
So no sam, my background finance.
My background early on was finance.
So i started my career in uh, corp deb, so mna in corporate finance, then went to hbs uh, and then that's where i met james courier sean to your earlier call out of james and we started tickle together.
Uh, and i was cfo there for seven years.
So a lot of what jeff is talking about really is my background, um and being able to look at the company, assess the risks.
In private equity, you can't take zeros.
In angel investing, you can take a lot of zeros, and that's okay.
I, on the other hand, am like a numbskull.
I have to look up the acronyms in private equity, which are just basic accounting acronyms.
I have to literally have it.
I'm always like EBITDA.
I always forget one of the letters.
So I'm like the opposite.
When I was at Yahoo and I was in charge of billions of dollars of revenue and profit, I still was doing it.
I was always like, what's that one mean again?
And they're like, that's the profit part.
I'm like, I knew it.
I knew that part.
That's fine.
I got it.
I got it.
And then Rick's like, Jeff, just put this vest on and shut up.
Actually, Rick and I have chats going on, usually during meetings, so that he can tell me what the acronyms mean.
Or I'll be like, that part's bad, right?
He goes, yeah, you don't want those things.
Sean, but earlier to your question, I have a thesis that's kind of barbelled, which is In the private equity deals.
I think JibJab is interesting and Grindr is interesting for different reasons.
On JibJab, we talked about we had to come in quickly.
The company was doing about 5 million of EBITDA and we bought it for 20 million, so four times EBITDA, which is a low multiple.
But Greg needed to sell it quickly and that's where we came out.
And we were able to put $15 million of debt on that.
So really, we only put $5 million of equity in.
So let's just use kind of round numbers.
If you had five partners and you each put in 1 million.
If you could, if you had the ability to put 1 million in, you own 20 of the business.
Right.
And with Jip Jab, it was throwing off so much cash that we paid down the debt in about three years.
And then we we did a refi where we recapped the company and borrowed another 15 million and then ended up buying out kind of half the investors with that.
And we've already repaid all of that.
And now we're just cash flowing the business.
So my point there is that if you had, you know, a chunk of money a million dollars you could go and buy one of these companies for, you know, get 20 percent.
Now with Grindr.
You know that same check that we put in to JibJab does not get you much of a 600 million business.
But we talked about the carry.
The carry of 20% on, you know, more than $1.5 billion of value created is a very big number.
Now with Grindr, it was so big that Jeff and I ran it, right?
With JibJab, we have someone else running it.
So you could do multiple of these smaller companies and just be a board member, more passive, and create a portfolio.
Or when you do find the Grindr and you're an operator like Jeff and I, that's when you're like no no, we got to go all in and run this thing.
And you could do a blend, right?
You could do like you could centralize business operations and marketing and customer care and those things and buy a bunch of different businesses, more like IAC right.
You could do the private equity IAC model, and we have friends that that's their focus.
They're like, I wanna buy these, And by the way, that can work incredibly well.
Bending Spoons out of Italy has an amazing business of buying individual apps but then using a common set of backend pieces and engineers.
They can reduce the cost by 70 80 on a business and grow it, because they're really good at the game of how to grow businesses and do subscriptions.
So let's play a game.
Rick, let's say I'm your nephew and I call you and I'm like Uncle Rick.
I want to get into this business.
I'm looking at a bookkeeping business.
There's a commercial brokerage business, and then there's AI.
I got to think about is that going to wipe out a business, or is there a business I can go in and bring AI?
That's going to make it way better.
That seems like something I should think about.
What should I do, Uncle Rick?
I get generally what I'm supposed to do, but give me a place to look.
What's a rock I should go look under?
What's a type of business that you think is a good one to go look at right now?
So I'd answer in two different ways.
The areas that I'm most interested in right now would be AI and crypto.
But I don't know if my nephew has any real expertise or any kind of moat around crypto, the ability to go in and do something in either of those categories, right?
Let's assume the nephew can buy Bitcoin and can use AI.
He's just not going to build anything in crypto or build the new AI thing.
Right.
So then those are probably not the categories that I would steer him into, because you really have to know your stuff or you're not going to be able to compute.
So then it would probably be let's go find an existing business with stable cash flow that has.
We love recurring revenue.
Even consumer recurring revenue, subscription-based revenue, is great.
Let's go find something that's stable, where the owner is ready to exit and be able to put some debt on that business.
And if you can do that, if you can add debt to the business, you get in at a reasonable entry multiple and have some thesis some way that you are confident you're going to be able to cut, let's say, double revenue in the next three four, five years.
And then you're going to get out at a higher multiple.
I can do the math and show you why that's a 5 to 10x.
The debt.
The reasonable multiple, the increase in EBITDA and the higher multiple on the way out is a five to 10 X.
That's, that's my advice.
And how conservative are you when you're thinking of the upside?
So, for example, you're saying so like the big if.
There's two big ifs here.
There's buying, buying it at a low price, which is one problem.
And then there's a second problem of you just said, can I grow user base or revenue?
That's that's.
Yeah.
So the two things there would be one to ensure the cash flow is stable, that you're going to be able to repay the debt.
Right.
Or else you lose a whole business and that's a disaster.
And the second is that if you don't have a solid thesis on how you're going to increase revenue, you shouldn't be in that company.
Right.
Jeff and I, looking at Grindr, we knew what we would need to do to double revenue.
And in two and a half years we took Grindr from 100 million of revenue to 200 million of revenue when we took it public.
And what was your thesis for doubling?
Well, I mean some of it and Jeff should jump in here but some of it was really just upgrading from where the company was at the time.
Again, the talent was terrible, the tech was decaying and they hadn't launched any new products in a long time.
So we knew if we could clean up those three areas and then apply the Tinder playbook, which Match had done great with Tinder and Grindr had not applied any of that.
We're like, if we just do these things alone...
We should be up 50% if we do them really well, 100%.
Yeah, we went down to a low level.
We went to individual screens and said, they're not even using the right buy buttons here.
There are just patterns we know that work.
You know you can do these conversions.
You know you can reduce uninstall rates by 10%.
You know you can increase your SEO by blank percent.
They didn't have a web version for Grindr.
We knew that would be important.
They didn't use Boost, the equivalent Boost feature on Tinder.
We knew that feature would be.
We knew they were underpricing in certain markets and overpricing in certain markets.
They weren't doing anything on pricing strategy at all.
They just kind of uniformly use pricing everywhere.
So that playbook allowed us to put together sort of probably a three X in revenue.
And all we needed was, you know, we needed to double revenue in that timeframe.
And so same way you would do with risk reduction.
We put together a thing saying that's good for 10%.
That's good for 40%.
That's good for whatever.
And when we were done with that whole list, we had high confidence that we could grow the business.
Our first year was really hard because a lot more disruption happened in the business than we thought.
And we had COVID hit, which dropped the business by 30% overnight, and then it recovered.
But we still hit our numbers, roughly.
We came in almost within a million dollars on every quarter that we wanted to hit off that piece.
And by the way, that included getting rid of advertising in the product.
They've reintroduced it since.
But we knew users hated the advertising, and it was causing problems.
We didn't want to get rid of advertising in the product, most of it.
And so we were trying to cut revenue in certain areas, grow revenue in other areas, increase retention, increase pricing on certain customers.
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In the doc you guys sent over before the episode you talked about the opportunity in health that you see certain health trends or where, as an entrepreneur, your spidey sense would start tingling.
Can you describe what you're seeing and what you think the opportunity is?
For Rick and for me, those areas of disruption coming from crypto and AI.
For private equity.
Those represent high disruption points which can transform a space.
They can disrupt a space.
They can take big players and make them weak players, and vice versa.
So there are plays in private equity for these, but there's a lot of unknown in those that make private equity more dangerous for the next couple of years.
Because businesses that have been very stable for a very long time have become potentially unstable from disruption.
On the investment side, that's the perfect time to invest, right?
Even though people are saying there's a bubble right now, if you just take a macro level of the next decade, will there be more disruption, more wealth generated over the next decade, regardless of like if individual prices for companies are overvalued in the short term or the long run?
It's kind of like was Amazon overpriced in 2000?
Sure, but was it overpriced by the next 20 years?
No, it was underpriced by the next 20 years.
So, as an investor, AI does some things really well, and it does things well when there's a lot of documentation.
And there's a lot of documentation in legal, engineering, and in medical.
And so those spaces are high value, tons of money being spent in those spaces and there's high need.
The consumers desperately need better results from medical.
They desperately need better results on engineering.
Engineering costs are incredibly high for building high quality software and safe software that can't be hacked and all those other things.
And so as you look at these areas, that's why I think those areas are right for disruption.
It's not like an unknown thing.
If you talk to the major VCs, they'll tell you, like, yeah, these are the areas we see.
Entertainment as well is one.
I think the downside of entertainment is there's sort of an insiderness and a protection of IP and a legality to the entertainment industry that's always made it a little bit delayed on adopting technology.
They're seeing disruption.
We see it in the long run.
We tend not to see it as quickly.
Like that's why Napster didn't work.
And you know what Spotify came in for later really had been done already, but just didn't happen because of some of the pieces.
So I do like those spaces.
I think as we were talking earlier about private equity, it's what makes me a little nervous.
If I'm looking at deals, I'm like there was other disruption on the consumer side, which was when Facebook lost its ability to see data because Apple changed its rules in iOS 14.
That broke so many small businesses.
It literally just broke businesses.
They could acquire customers before and they could no longer acquire customers.
And so what was seen as like this it's bad for you know.
We're going to fight back against Facebook.
It really was an action that Apple took that hurt so many small and medium-sized businesses.
So on the consumer side, the repercussions of the inability to acquire customers that are sort of reasonable price has destroyed so many businesses and it's made Private equity is sort of interesting in this space now, because where do you get consumer, where can you acquire customers, when acquiring customers through advertising on Google and Facebook and meta platforms is just so wildly expensive.
What about this agency AI thing?
I've been working with a number of entrepreneurs.
We were trying to figure out how to do some businesses that involved AI.
And I just kept saying, but how does this work if we can't talk to the old internet?
Like if we can't talk to TripAdvisor and we can't talk to Ticketmaster and we can't talk to NBAcom, like we can't do any of these things.
How exactly does the world transform where I have an agent that helps me plan my weekend or my trip to New York City and all these things?
And so there were all these companies starting that were building agents inside websites where you would, and I don't like this theory that there'll be a a million LLMs out there.
Every time I go to a website, I have to talk to an agent.
And it's just sort of replacing clicking on buttons with talking to an agent.
I assume that the world will instead end up with a smaller number of agents that act on behalf of consumers going out and doing work.
That changes fundamentally the internet.
It just means that if you have a website today that sells tickets or bicycles or whatever it is, It won't be so much the customers type in specializedcom or trekcom or whatever the bicycle company is and then go there and do it that traditional way.
They'll talk to an agent.
They'll say, hey, I need a bike.
I want a mountain bike.
I'm doing all these things.
I want you to do an evaluation of these things.
And it says, okay, I picked these four bikes.
And you say, that one looks good.
Can I get a good deal on that?
It says, great, I'll go do it.
There is no way for the world to do that, connecting right now, where it's like.
Take the old world of commerce and connect it with this new world of agents.
And so you need a layer in there.
They are building things like Mariner and Operator from OpenAI and Google that are attempting to surf the web on behalf of consumers and click buttons.
It is not efficient.
And Mariner and Operator are the first ones to tell you it's not efficient.
So what agency is is A-I-G-E-N-C-Y dot A-E-I.
It's just the glue between the two.
So what happens is is when, like an OpenAI agent comes to a website, like a travel website or a luggage website Right now it will surf every page looking for the request of the consumer.
It can take like 10 minutes.
With ours.
We just redirect that traffic to an interim agent that doesn't intend to ever talk to consumer.
It's not an agent that's going to make you feel good about yourself.
It just talks to an agent that talks to other agents.
So agents is how can we retroactively build, take the web 20 world and the commerce world and allow it to talk to this new AI enabled world?
And so I had learned a while ago that typically a lot of the ideas I have for startups required a step that I assumed would be there, but I didn't know who was going to do it.
And this time I wanted to be one of the guys that worked on the interim steps, because I think those create incredible value.
We see it over and over again.
It's like the guys that are doing data centers and the guys that are doing the layers of sort of strapping on top of these LLMs.
You guys talked to the founder of Replit for the AI coding.
It's really sitting on top of LLM engines.
And so a lot of the value is being created in this middleware stage that's necessary to sort of put these two pieces together.
And so that's what agency is.
It's an attempt to take these old businesses that could experience incredible disruption and help them understand what's happening with the AI world and just transform their current business.
Everyone's not going to be able to hire AI engineers.
It's just not possible.
You're not going to be able to do it.
There's just so few And so you need this system that sort of glues the two together.
So that's agency.
Sean and I had Tim Ferriss on the other day, and we were talking about hobbies.
I watched through that in prep.
Yeah, I was watching through it.
Dude, the top comment was like, oh, three Silicon Valley rich guys just discovered hobbies.
They were making fun of us for talking about something so obvious.
And it's sort of funny because you guys are Web 1.0 OGs.
Rick branched out when I was just getting going.
That was like the North Star of like, this guy's got 35 million users in like a year.
And you were in my mind.
We're kind of the poster child for like raise a lot of money, go big and buy a lottery ticket and hopefully it pays off.
But now what you're doing now doesn't seem like a lottery ticket at all.
It seems like you've like reduced risk as much as possible.
If you were 25 now Rick, do you think that you would have gone the bootstrapping running a cash flow business?
Or do you think are you happy with the results of what you did with kind of buying lottery tickets?
I don't think that Jeff and I would have been necessarily good at PE at 25.
I think Grindr worked because we could apply 25 years of experience to it.
So I don't think, yeah, I think the right call was get that experience at 25.
I think that's when James and I found a tickle.
I think I was about 25.
And you know, get all that experience, build that network and seen the movie a thousand times, I know how it ends and then apply all of that to the bigger opportunity.
So yeah, I wasn't ready back then at 25.
Yeah, and I think that the risk.
I think it's great to go big, but I do think that there's a reason that entrepreneurs in their 20s we say freshmen and seniors make all the money in the venture business, like in the entrepreneur business.
So you either don't know the rules, So you go into your business and you break a bunch of rules without knowing, or you know all the rules and you build a business that sort of takes advantage of the weakness of a market because of the rules.
And it's the sophomores and juniors who kind of mess stuff up.
And typically as an investor, I see this as like oh, they're a director or senior director coming out of Meta or Google.
They have incredible experience and now they're ready to do a startup.
These typically have made not great entrepreneurs, but entrepreneurs that drop out of college, or you know some of the group that Y Combinator sort of focuses on that are really scrappy.
We see a lot of amazing disruption there.
And then people that have spent 20 years in the industry.
They may the risk for that startup may look not as high, but the outcomes can be incredible, right?
Like salesforce.com.
I mean that's an incredible.
But that's industry experts trying to figure out like wow, this trend of moving online to the cloud with apps from Oracle sort of on-prem.
It's a, It's kind of a boring, felt revolutionary, I guess, at the time.
But I mean, it was sort of obvious.
But still, an incredible amount of value was created.
So I think value gets created at both ends.
And it's true.
We're experienced.
So we tend to be more seniors.
And so the kinds of things we do, they look lower risk.
And it's more sort of wiring together pieces of the world that need to be wired together.
But it can create a tremendous amount of value.
There's still a huge amount of disruption in there.
When I was young, doing my very first startup on online storage, people used to just tell me no one will store anything online.
I just remember thinking, like, it was before the word cloud was invented.
The word sideload, we invented that during the thing.
Like, we just didn't have the vocabulary to talk about storing stuff in the cloud.
So I love the disruption on both sides.
As an angel I'm sort of.
I like to find the guys in their you know, the men and women in their 20s that are finding big disruptive ideas, and I would love to invest in those.
But also my network gives me access to incredibly experienced entrepreneurs that know the.
This market just needs this piece to disrupt it and I can put that piece in place.
Well, one of the other fun things about being in the game for so long is that you you've probably met a lot of the main characters.
Today, back at their superhero origin story.
So like, I don't know, but like, you know, Elon or, you know, you guys were pre YC.
So, like you know, Paul Graham, Sam Altman, whoever the players who have gone on to do really interesting things Zuck early on.
Are there any cool stories?
What were these people like?
I did my first deal with Travis from Uber.
I did my first deal with Travis when I had iDrive.
He started a company called Scour.
He was out of UCLA with Five Guys.
So Jason Droege and Travis, they did Scour, I did iDrive.
I had the largest collection of MP3s in the world on my file system.
They had the largest video and music search engine built ever.
We put the two together.
It was unbelievable.
It was the most incredible thing.
Travis was an incredibly difficult guy to do business with back then and cutting and strong and through elbows.
His team was really talented and their tech was awesome.
So, yeah, I got to know Travis when he was 24 or 25.
And did he have the factor then?
Listen, I've met so many of these guys that you and I know now to be billionaires.
You know when they were very, very young.
Zobny was started in the same dorm room of Dropbox with Drew.
So my founders of Zobny that I did and sold to Yahoo, that was started with Drew.
They both were Y Combinators class, I think, two and three.
And so, and Jack Dorsey, I knew him when It was Odeo and spent time with them and Twitter was failing.
I was trying to buy it for $19 million at Yahoo.
So we've met all these people.
They are roughly the same people.
Some of them have become personas and characters that are sort of surreal.
But then when you spend time with them, they're the same.
But when I read about them online, I'm like, oh, that's... I sometimes aspire.
I'm like, if I become a... I always tell my kids, if I become a billionaire...
Make sure I am incredibly interesting because the role of billionaires in the 1920s was to entertain society through eccentric contributions and naming universities after themselves and doing it, but not for destroying the government and doing all these other things.
So you know there's you're supposed to entertain and keep people happy and add social good by building things that will survive generations, whether it's universities or parks or you know things like that.
But so, yeah, I I admire my friends that have had the success.
But I'll tell you the difference between my most intelligent or most talented friends are not my richest friends.
And the correlation between success and talent is not nearly the overlap you would think.
We rewrite the story, the origin stories of so many of these companies.
I talked with Brian when he was getting Airbnb starts.
One of the VCs called and said, I'm trying to invest in the startup called Airbnb.
And I spoke with Brian and we talked through like what he would look for in his first investor and why I like this investor.
And hearing from him, he's like interesting guy and he had interesting things to say.
And I loved Airbnb.
I was one of the very first Airbnb hosts, but I didn't hang up the phone and go holy shit, that guy has it.
No, I hung up and said, guys, a little bit.
Hard to talk to on the phone.
Nothing against that.
But I loved Airbnb as a business, but I didn't think that is the guy.
But I hear VCs talk about this all the time.
They're like, when I met with this entrepreneur, I knew.
And I'm like Jack Dorsey is incredibly thoughtful but not incredibly well-liked when he was young not by his co-founders, not by his investors but he turned out to be an incredible entrepreneur.
You know to do Square and to do like it's incredible.
An incredible entrepreneur but was not.
I didn't walk away from my meetings with Ev and Jack and Biz and those guys and say Jack's the guy.
I just was like, huh.
Checks, curious fella.
Smart and fun to talk to, but curious.
And like I do accept what Paul Graham says, which is and I think others have said this people who accomplish things in startups historically have a trail of accomplishments.
So they were amongst the best at things they did.
Now, the things they had a chance to do along the way might have been a lemonade stand.
But you'll see this thing, like people will point for me, I sold raffle tickets for my school for something we were raising money for.
I didn't beat the other kids at the school in selling raffle tickets by like 7%.
I beat them by 700%.
Like I destroyed every record ever done in selling raffle tickets for my school.
I remember when the principal goes and 777 of sale.
You know, the person that had me was like 64 sales of tickets and I sold like 700 and something.
And they're just like, I don't know.
And so You tend to see this record of accomplishment in all the things they did.
Now some of the things they may have done early on in life.
They might have come out of a small town that they didn't have opportunities to do big things.
So the best example of this I would say is like, if you read, Paul Graham wrote a blog post or an essay on his thing a long time ago about, like you know, the five founders who kind of stood out to him and it was like you know, whatever.
It was like larry and sergey, bill gates, it was like the people who had already done it.
And he's like number five, sam altman.
And it's like this guy who had done looped, i think, sold for like 40 million bucks or something like nowhere near the accomplishments of bill gates larry, sergey.
And he says, like you know, i remember when we first met him i thought to myself, i realized like oh, this is what it would have been like to meet bill gates at 18, and he just he called it.
This was like 10 years before sam altman became a household name, And so it's very interesting to me when people sort of have it.
What is it?
And I think as an investor, you want to be able to recognize it as often as you can.
I think that's a very profitable skill as an investor.
I think as an entrepreneur, you can actually you can actually develop it.
You can start to steal, you know, pieces of other people's games.
You know, if you notice that somebody is really good at doing something, or you notice oh, I thought I was good at this.
Now I know that there's actually more room to grow there.
Great.
I'm going to keep working at that.
It's sort of reset the thing.
No, there probably is.
I think Paul is sort of unique in his ability to sort of put really complex ideas into simple ideas and turn those into action.
So I think that's Y Combinator had such incredible success in identifying the right founders in its first three or four classes.
That was really incredible.
They're now like doing six or 700 companies per class.
And so they'll probably, through the numbers, say that they're identifying these things.
But it's.
It had not been quite the persistent system that they were in those first, like four or 10, when they were doing Boston and the Valley, they were going back and forth.
He and Boston in the Valley, that was probably the best hit rate.
Like Ron Conway's hit rate for SV Angel in one was unbelievable.
He had like a multiple hundred X on SV Angel one.
SV Angel two's been good.
I mean, it's good fun.
And three is good and four is, but SV Angel one was incredible.
So lots of people who say they have these incredible skills for identifying talent.
I think in general it's like historical thing we rewrite.
But I do meet some entrepreneurs who are competitive or ambitious in a way that being a sociopath and being a good entrepreneur it's like the circle comes very close to touching.
And I realized somewhere along the line I love doing startups, but I just don't have the sociopath gene in me.
I would say there's a level of success amongst entrepreneurs that it may require a level of sort of um drive or or competitiveness that maybe is so far out on the.
On the uniqueness yeah, but when i hear about y'all's success, i mean that's, that's like something i i aspire.
I mean i aspire to achieve what you you've achieved and you don't seem uh, you seem pretty genuine.
I've i've known rick, i've i've known of you for many years and i like you seem like a, You seem like a pretty stand-up dude.
If our first startups had been wildly more successful, had iDrive had I found.
Somebody offered me 275 million for iDrive when I was in 2000 and I was like I'm raising it 400 million.
It would have changed.
I would be a different person.
I would be the most annoying person you've ever dealt with today, because I would have built wealth early in my career.
My first sample would have been my first startup was a huge success and I would have told myself.
There was something I was told by a very smart VC that I worked with and he said the smartest people in the valley are probably right 30 of the time.
And the normal smart people in the valley are right about 10% of the time.
The sample size for the 30 right is that they're right so much more than the smart people around them that they're basically 100 right.
They're wrong 70 of the time, but their sample in their own brain is, I'm right 100 of the time, relative to my friends, because they, We all sort of discount our failures enough that we see, only you know, the small selection of failure and successes.
So I think that's the problem with this concept, which is smart people are probably still right 10 percent of the time with their ideas and their work and their effort.
If luck corresponds with that talent that, and you get enough shots at it.
You know, like Rick and I think, if you want to be an entrepreneur, be successful, do it.
Commit yourself to 20 years.
You know, be an entrepreneur for 20 years, do four or five startups because the amount of luck that has to overlap from externalities and internal things that have to cross over to have that success.
When it happens on their first startup, we typically ascribe that to genius.
We say like that's genius.
And so probably half of those are true.
Half of those like the people are really uniquely talented.
The other half just genius.
The luck they had for when the wheel stopped and when they got their number was on their very first one.
And that success multiplied many times because raising money was easier and access to talent became easier.
The number of things you learn in the process of building a big company, you learn a ton.
And so you're getting your learnings earlier.
So there is just something to.
I would have had more success today in terms of what people, but I've had great success.
I'm super happy.
I love what I do.
I get a chance to work on hard problems, but I think about this a lot.
You guys actually have the career that I don't think I don't see myself having this, but the way that you describe it I'm like that sounds amazing, which is you sort of have projects.
I think Sean tends to do this quite well, where he finds a project and he gets in and it ends up being quite successful.
You guys have done that, where it's like every three or five years it seems like you have a new thing.
If you look at your LinkedIn, it's like a chapter, very clearly chapters whereas what I tend to like is multi-decades on the same thing, which the way that you're describing your life.
Now i'm like that sounds pretty amazing.
Uh, that sounds pretty fun.
Uh, is there?
Can you speak to that of like, of like the, because you also said you're like well, you're like pe doesn't work for 10 years, and i'm like oh, that's it, ted like it doesn't even work for 10 years and it works for only four years.
That's it.
That sounds amazing.
No, I think there's an evolution.
So that's probably why it looks like on a resume it's every three to five years.
What I've tried to do is find people that I really respect.
And Sean, to your earlier question about finding those people early.
You know, I can give you three examples.
One would be James Currier, who was my classmate at HBS.
We grew up four miles from each other in New Hampshire, never knew each other until business school.
But he was someone that stood out as one of the brightest guys among all the students there, which is a high bar.
Right.
So and, you know, James is one of my best friends.
Jeff, one of my obviously closest friends as well.
Jeff, brilliant product mind.
And another guy, Naval Ravikant.
And Naval was someone that I met 20 years ago.
And I give him a lot of credit.
He was a guy that got me into angel investing.
Gave me a lot of good advice around that 15 plus years ago.
Got me into crypto 11 years ago.
And he was someone that I just saw as just a really, really big brain investor.
And all three of those guys I just – I love hanging out with.
They're all good people and I've done things in my career with all three that have been really meaningful.
So for me the – and then I need to add value, right?
So –
With Jeff and James in particular, both high level, big vision guys and need an operator to make sure the execution gets done.
And that's where I've been able to add my value, to find these guys that I want to spend my time with and I have a ton of respect for.
And I think that that's a good life philosophy.
Right.
So the five people you hang out with the most, you tend to like, you know, take on their thinking, their mannerisms.
You know the things that they say.
So really, you know, think hard about who do I want to spend my time with?
And for me.
I've been blessed to find you know several people like Jeff and James in particular, to run companies with, and be blessed that I can bring something.
What was pre guru Naval like?
Like, you know, when he was like a guru in the making.
It is funny now to see how he's blown up.
And it's actually funny.
I'll go back to Naval.
But there's a woman, Mel Robbins, who now is a huge podcaster.
She worked for us.
She was our head of marketing at.
No way.
Really?
James and I found a tickle in this crappy basement level office in Cambridge Mass.
Um, she was our head of marketing and my wife was listening to her podcast the other day and I recognized the voice.
I was like, is that Mel Robbins?
She's like, yeah, yeah.
She's huge.
I'm like, Mel was our like director of marketing in 1999.
I had no idea that she blew up.
So it's awesome to see that success for her.
Would you have predicted that?
No, no.
I mean she had a big personality and everything, but who would I mean?
I mean that she's gotten so big.
No.
But she's awesome.
She's amazing.
We had a crazy team early days at Tickle.
But Naval has continued.
I mean, Naval was always really cerebral, incredibly smart.
One of the smartest guys in Silicon Valley, and that's a very high bar.
But he's definitely gone more of the guru thing and I still see Naval all the time and I have a ton of respect for him.
And he's definitely gone more of the philosophy and really become this guru.
It's awesome to see.
But he was someone that early days inspired me for those two areas angel investing and crypto that continue to be an important part of my career.
What was the light bulb moment for you with crypto?
And then I guess like, did anything change over time?
Yeah, with crypto, I remember early days, Bitcoin, you know, was trading under $1,000.
And I said to Naval, so how big does this get?
And he said, I said, what's the price of Bitcoin?
He said, a million.
And I said, a million?
It's only at like, you know, 800.
And I said, when?
And he said, before we die.
And I was like, well, hang on, before we die?
He's like, I don't know when, but it will be a million dollars before we die.
And I should have bought more.
I bought some.
I should have bought more.
So I love the way he can look out decades and be right.
Dude, that's awesome.
Did he give you a why?
Did he tell you the thesis?
Did it click for you right away?
Because I remember it took me like seven smart people telling me about Bitcoin before my dumb ass could figure out like, all right, this maybe is worth doing.
And really, even then, it's not even because I actually understood what they were saying.
I was just like okay, that's too many smart people saying that this is a thing for me to just not participate.
And by the way, it's happening right now.
If a million is true, that means that it is still true that we are foolish for not being all in, or whatever it is.
Yeah, but at some point I started to wrap my head around like oh okay, I understand why this makes sense now.
My friend literally sent me a PDF.
He had written like a five-page thing where he was like if Warren Buffett, If I use Warren Buffett's own investment framework to look at Bitcoin?
Here's the case.
And I read that and that was the day it clicked for me.
Yeah, no, I think Naval saw that early.
I think he saw the disruption and being able to move money very much what stable coins are doing now?
But he saw that early days in Bitcoin as both a store of value and a transfer of value.
And I think he was probably also looking at, you know, non-inflationary, right?
You've got a fixed supply and the ability for anyone to be able to buy Bitcoin, no matter where you are in the world.
So I think there are a lot of things that he saw early days before.
Were you part of James's crew of one currency to rule them all when James was brainstorming this?
James, yeah, we talked about it a lot.
Obviously, it never went anywhere.
But yeah, yeah, I was part of those discussions.
You know, any of these things are just so hard to get off the ground.
And Bitcoin is that one incredibly unique technical challenge that was solved and changed the world.
Right.
Sean, I wrote this presentation for Yahoo in 2006 and it was about what I call the emotional adoption curve and how angry customers was the biggest predictor of disruption for these embedded spaces.
And instead entrepreneurs tend to focus on making customers like.
Delighting customers, making customers happy.
And I said, we really should focus more on pain and frustration and anger.
It's the negative emotions that drive behavior changes, not the positive emotions.
And so at the end, I said, if this is true, what are the industries most likely to be disrupted?
The internet is a form of democratization that gives consumers power to overthrow the chains that hold them back and make them upset.
And I literally said, finance and money, it's a weird thing.
It's like controlled, it's opaque.
They can't understand it.
They don't understand what's going on.
The next one was healthcare, especially in the US, like just disruption has to happen here.
The customer is getting such a raw deal.
It's so bad for the consumer.
They're so angry and it has so much power over them.
This disruption must come entertainment.
I was like just it's confusing to consumers.
They have to pay these cable bills and they don't understand like this is just gonna drive them crazy.
This was before voice over ip had taken over, so i'd written about telephony was like one was coming.
Finance i included, like credit cards and all the other things that consumer were.
But did you walk the walk when when bitcoin, when you first heard about bitcoin?
No, yes and no.
I have a good story on how i screwed up on the bitcoin one but um, the last one, by the way, was uh, the government is that the customers have anxiety and they have frustration with government and government services and things like that.
And I'm not a libertarian, but I can see still that there's angst and anxiety and frustration.
And so social networks add sort of gas to that fire.
Now, it's not always good.
Just because the consumer's angry doesn't mean that we end up with like a delightful solution at the end.
It can be a worse solution.
But the abuse of control at the top, and typically monopolies or oligarchy type businesses or industries, causes angry customers and those are the most ripe for disruption.
They're often hard to disrupt, but the power of the internet was and what James recognized many people with currency was what the internet has done for A in the most easy to disrupt industries will eventually happen.
When you network voices together and they can multiply, that will eventually lead to disruption in these bigger, harder to crack spaces.
And so we're seeing now the internet's been around now for 25 years and all the manifestations of it And all those things that come together it's slowly ticking away and sort of disrupting these industries that we thought couldn't be disrupted.
And currencies and governments are closely tied together.
But no, I obviously didn't totally see it because I bought crypto over the years, but I always buy things.
I can't afford to inspire myself to work harder.
And I bought a Porsche at one point that I couldn't afford and I went to sell it.
And the guy offered this was like 2008 or something, and he offered me Bitcoin at like, I don't know well under a thousand bucks.
It was like, I don't even know, a hundred bucks or something.
He's offering me Bitcoin.
He's like, can I just pay you in Bitcoin?
I was like, nah, he should pay me in cash.
I got to pay the bills still.
But you know, had I taken the Bitcoin for that, it was like the $372 million Porsche.
I did the math at one point of what that Porsche would be worth today if I had just taken the Bitcoin in it.
So, dude you guys are awesome it's um it's fun to talk to you because you're um i think you're like one one one generation above us but a lot of like attributes that we both admire which is uh you've been in the game for you've been very very consistent but you also seem to be having a lot of fun uh you've done like some serious stuff but you've taken it almost in a weird light-hearted way that i appreciate like you like it seems like fun is a part of the conversation uh and and i really respect the hell out of that You got to find the right people to do this with because it's hard, right?
Whether it's PE venture or starting a company, find people that you respect and that you really want to spend those hours with.
Jeff is clearly one of those people for me.
Jeff keeps me laughing all day.
He's hilarious, but also, as you've heard today, incredibly insightful and so good at what he does.
So go find your partner if you're going to do this stuff because it's hard.
That's awesome.
Well, we appreciate you guys so much.
Yeah, thanks for coming on, guys.
Yeah, thank you.
That's it.
This episode is brought to you by HubSpot Media.
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It's by Matt Wolfe and Nathan Lanz.
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What's going on with AI tech?
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