Every company has a story. Learn the playbooks that built the world’s greatest companies — and how you can apply them as a founder, operator, or investor.
Thu, 12 May 2022 07:47
We did an Arena Show!! This evening was so big and so special, we had to split it into two episodes for the podcast feed. First up is the Idea Dinner with our best internet buddies, Packy McCormick and Mario Gabriele (and special guest judge Shu Nyatta), followed by the story of YC Continuity with managing partner Anu Hariharan. Huge, huge thank you to PitchBook for making this night possible. Stay tuned for Part II!
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Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.
Holy crap. Wow. Hello acquired listeners. You're going to say that. I'm at Lebbing. I got up here and I was overcome with emotion and none of this is scripted. Thank you so much for coming tonight. I like prepared things and I should read them off my iPad here. But the only thought that can occur to me right now is how different this is than what you and I normally do. David and I are very used to being on Zoom talking to each other through the internet. There are zero people watching live and if we say something wrong we delete it. But more important than that is we get evidence that people listen in the form of analytics or tweets or anecdotes here and there of someone saying, oh I listen to the show. But there's no human visceral way to feel that. Like literally just profession and an analytics dashboard and a number goes up and this is so cool to see you. Real. Well as fun as it is going to be to like watch the show and we've got some great stuff planned. I think it will be much cooler to meet each other. For as many they call it parasocial relationships where you hear us talk but we don't get to meet you. We're going to try and meet as many of you as possible. You have an easy opener like what's your favorite episode or how did you hear about acquired? My buddy dragged me here tonight and I never heard of it before this. But everyone has got some answer to that question. So meet each other, take selfies, enjoy the time together, we have freaking climate pledgerina and enjoy the time in it. Thank you to pitch book, holy crap. That's not kidding. A pitch book is Seattle's like monster amazing business hiding in plain sight. And it's been really cool to get to another team more and more and more and understand the business and just learn how on four million dollars they've been able to build this multi hundred million dollar business. It's inspiring to us. So thank you to John, thank you to Kai, thank you to Lauren and Val, thank you to Nas. Everyone we work with at pitch book is just awesome. So thank you to them. Happy star, we're still happy star, we're still made the fourth be with you. I hear Paul McCartney. Paul McCartney is here tonight. We have a great show for you. That was last night. We do have a great show though. Tonight we have Jim Weber, the CEO of Brooks Running. Another Seattle monster business that we're very excited to talk to you about. We have Anu Hariharan tonight from Y Combinator, the infamous packing McCormick from not boring Mario Gabriela from the generalist to the internet's finest publications. So very excited to chop it up with them. We learned from arena shows past live shows, very small live shows past that are normal format of telling a three plus hour story of a business. It doesn't work very well in this sort of time where you're sitting down and you know you could feel the audience getting antsy in those long stories. So we got three just like fast paced great stories, great segments for you tonight. Be in and out in a couple hours. I know what we'll enjoy it along the way, but it's going to feel fast relative to your normal acquired episode. Speaking of, should we start our normal acquired? We got to do it the way that. I don't know. It feels like we have a way that we start acquired episodes, so we should do that. I should do that. Who got the truth? Is it you? Is it you? Who got the truth now? Is it you? Is it you? Sit me down, say it straight. Another story on the way. Who got the truth? Welcome to season 10 episode seven, the arena show presented by pitch book of acquired. The podcast. About great technology companies and the stories and playbooks behind them. I'm Ben Gilbert and I am the co-founder and managing director of Seattle based. Pioneer Square Labs and our venture fund PSL Ventures. And I'm David Rosenthal. And most days, I'm an angel investor based in San Francisco. But today I'm an angel investor based in Seattle. And we are your hosts. David, what do we have in Act One? Well, for Act One tonight, we start back. In February 2021, when we were all bored at home, clubhouse was a thing. GameStop was going to the moon. And we decided to call up our best internet friends, Packing McCormick and Mario Gabrieli. And pick some stocks. Like everyone was doing. Like everyone was doing. So, look quick, this is not investment advice. Do your own research. I'm glad you remembered that. And tonight, we are going to recreate that magic live here in person. Ladies and gentlemen, please welcome all the way from New York. Packing McCormick and Mario Gabrieli. Wow. Wow. Oh, my God. Oh, my God. Look how dirty my sneakers are, too. This is perfect. So weird start. So let's just change shoes from the beginning. Oh, yeah. Let's do it. So the only rule is you will lose the idea dinner unless you are wearing. Because you asked us for a shoe size. I don't remember this guest. This is actually the second most embarrassing thing to the pick that I'm about to make. Well, we needed to delay a little bit because we have one more thing. Well, special surprise. We wanted to raise the stakes tonight. So we brought in a judge who is going to grade each of our picks acquired style and declare a winner and a loser at the end of the night. And a loser. That's very harsh. Very deep. Yeah. Please welcome from the capital of Silicon Valley, Miami, Florida. Great longtime friend of the show and former South Bank Latin America managing director, Shu Nuyata. Woo! Woo! Woo! Woo! Woo! Woo! All right. Thanks, so let's dive into the idea dinner. I'm happy to report when we were deciding the order that we were going to go in. I came up with the criteria, which was whose picks historically have performed the best? That would be mine. That would be mine. This is so rigged. In the way that you chose to select whose picks have performed the best yours performed the best. Yes. The not private picks, not blended, just public picks. Yes. Okay. So I'm going to back clean up and Mr. Mario Gavrieli is going to lead us off. Before you tell us that. Well, I don't agree with the judge so far, but... Before you tell us your pick, for all two people that don't know about the generalists, tell us about the generalist. Oh, wonderful. Thank you so much. The generalist is a publication that covers tech crypto and venture capital. I aspire to the level of depth of these two gentlemen and always enjoy collaborating with them. We cannot write the way that you write, so there's no like aspiration. But so for people who haven't read the generalist, it is deep writing about technology companies in the most whimsical style I can possibly imagine. Like Mario is a novelist at heart who covers tech companies and it's very fun to read. Oh, thank you so much. I feel honored. Now, before we grill you on your pick, a little like rules of the game here, we're all coming with our best investment idea starting today. What is today? May 4th. So the idea is to espouse something that you think would be a profitable investment, not investment advice. Starting today, going forward on a time frame that you choose to specify and then shoe ultimately will be the judge because we don't have the benefit of all that time to have them actually play out. I love the godlike powers. Yes. So, yes. So Mario, lead us off. Well, since shoe is really my audience, I think I'll just take notes. All right, gentlemen, my pick is snowflake. Oh. Thank you. Part of it. So for those who perhaps are less familiar, what is snowflake? Snowflake is a managed data warehouse and their initial genius was that they separated storage and compute, made it super easy to take in all of this data that a company is managing, and to run queries against it super fast so you can get the insights and information from it. That initial idea was quite brilliant and has formed the company into the sophisticated, elegant product that it is today. That made it, you know, something of a pandemic, darling, if we recall, it was, you know, one of the craziest sort of IPO day pops that I think any of us have seen in a long time. And the stock traded as high as, I think, 403, a share. Today, it's about 183, 185. So it has taken quite a hammering. Multiple compression, as they say. Indeed, especially this first quarter, it really got, like, I think, a 45% drawdown. But when you look under the hood at what, you know, the company has been doing, certainly some of, you know, the multiple compression is merited. But the growth on revenue, the net retention, the free cash flow, all of those things have moved in a stellar direction. The revenue's up about 105%. Net retention is 178. It was 168 the year before. Which I think is, like, a record for a public company, net retention. It may well be. It's pretty wild. And yeah, they're generating 80 plus million in free cash flow. And, you know, the business in Q4 of last year actually got contract value of 1.4 million coming in, which is all of the revenue they had the year prior. So I would submit to you that this is you would submit to shoe. You would submit to shoe. But submit to shoe, judge shoe. Don't forget. That this is a business that has the potential to compound for many years. I think over a three plus year time horizon, it can do extremely well. It is a play that summarizes the growth of data in the technology industry, which feels like a safe bet. And it's run by one of the biggest ballers in the executive world. Frank Sloopman, who has done this now at least two and a half times, depending on how you parse it. And who is sort of the quintessential sustainable growth CEO. He is someone who knows how to manage in difficult circumstances. He's compared himself to General Patton. And this is a time for a Patton-like figure, I would submit. And so my pick is snowflake. It doesn't come without risks, but does risks I'm willing to take. You've come a long way from, I think your first pick was a SPAC. Bridge down SPAC. Can we put a moratorium on bringing up people's old picks? Nobody's portfolio looks good right now. Except you're a... Sorry David, it's less negative than everyone. Any thoughts from the peanut gallery on snowflake? I mean, you have every sector tailwind in the world. And the question is going to be like, so of course more companies are going to be using cloud data warehouses in ways that you want to have good UX around. And then the question is, are they going to continue to capture all the value? Like how do they stand competitively? Yeah, I think the sort of net retention shows that they're very good at growing with this customer base. They're growing faster than any other cloud company, which isn't super surprising given their relative size. But I think that's a fair question, but not one that I'm hugely worried about, given the overall growth of the sector. Sweet. No further comments. Wow. Well done. Shoot. How are we doing this issue? I'm not going to do real-time graded. I'll be skewed by the first one and then I'll be adjusting mid course. I'll wait. I'm taking a note. Okay, great. Mr. McCormick. All right, so I think for all of us... You have the internet for your pick. I asked the internet for their favorite stock. I ended up going actually with an oldie bit of goody, but we're going to get there. I think one of the most important things about 2020 and 2021 for a lot of people was learning about themselves. And what I learned is that I'm a terrible, terrible stock pick. So... Wait, wait, but you're on CNBC all the time. Like I said, terrible, terrible stock pick. And as we did the rankings, I gave Mario a little bit of guff, but I think we were going back and forth for last place. And so the safe move, and we also decided to only do publics because we didn't want to chill our private market portfolio companies. So composer is one of the companies in my portfolio that makes it really easy to invest in automated trading strategies. I'm going to go with one of the strategies that they have that's risk on, risk off. It looks at treasuries and actually NASDAQ outperforms S&P as an indicator and then puts you in a basket of like three X, like TQQQ, when things are good and it puts you in like long dollar when things are bad. So if I wanted to be super safe, that's my pick and that's actually where I'm putting my money. Not going to do that because we're all the way out in Seattle. Second thing you can do, but we can't invest in this. But maybe there are shares going around. Apparently it's possible to get into the equity tranche of Elon's Twitter take pride. Oh. At least like he's aggressively trying to find people to take some of the equity. He's aggressively, so any of you want a piece of the Twitter take private. 43, 44, whatever. Minimum check. I think actually they are taking relatively small checks from what I've seen. Here's the question. Is stop-boring capital. Is stop-boring capital investing? Not boring capital. That is outside. Not boring capital is very, very broad mandate. Maybe I'll throw a yellow check in there. Dude, you invested not boring capital's money in buying the Constitution. This is too far. This is outside. That one was a 15 billion percent IRR for a little while. Time has gone on, but that was a 15 billion not investment. It wasn't an investment. I was donating or contributing to the Constitution. The Twitter thesis, and this isn't the pick, but the Twitter thesis is that everybody in this room, half of us are here because of Twitter. If you pulled the audience the average that it would take to pull people off of Twitter has to be in the hundreds, if not thousands or tens of thousands of dollars, yet they're monetizing like Android right now. Twitter needs to be the apple of social media. It has a small but loyal and valuable user base. The board doesn't use Twitter. Jack is doing whatever, jack stuff. But somebody's going to come in and monetize that thing. I think you charge for verification. You get rid of the bot problem. If the 80 million people who use Twitter in the US paid $3 a month, you're looking at a $3 billion recurring revenue opportunity annually for Twitter. And he's going to firehead count. He has to pay his debt service. But I would imagine 90 percent of people at Twitter, and if there's anybody in the room I'm so sorry, but don't do very much. So there's a lot you can do on the cost side. And then I think with somebody like Elon, it's either going to go horribly, horribly, horribly wrong. Or it's going to go really, really, really well. And I think that you can kind of build the like missing WhatsApp of the US kind of on the Twitter platform, where you have all of these valuable, passionate users. So at $43 billion do you think like when he takes this thing public again in three years, that he can do that at, you know, a fifth of whatever Facebook's valuation is at that time? Like pretty safe to ask. Not the thing. So we are just a straight up. We're not getting out of here at 8 p.m. tonight. There's not a chance. So the reason that I'm in last place is because of a company named Open Door. Oh, yes. Yes. Yes. Not the pick. Open Door is the pick. And here's why. Because we're in Seattle, and Open Door vanquished a Seattle company, Zillow's iBying program, owned the iBying market themselves now, did $8 billion of revenue last year. And now this is, I came from Breeder, where we counted top line revenue as like anything that, you know, it's a generous top line. I saw a bank knows about this as well. The general is kind of top line. So fired. Just the we work thing and we competed with them and what a wonderful company. But still, so $1 billion of home. They're currently trading at a $5.00 billion market cap. Housing is a multi-trillion dollar market. And everybody in the country, it seems like this past year, learned how awful that process is. And so this is a point, and I've written about the company, but this is a point that I am taking from Twitter, which is somebody said it is the worst UI, UX, customer experience, in the biggest market out there, and they have the best solution with iBying. Sometimes it doesn't have to be hard. I'm treating this more like a venture bet. Like two months ago, $5 billion was a like series V evaluation. So treating this like a venture bet that they're the leader in this huge market that is inevitable, they're operationally super sound. They finally turned an adjusted EBITDA profit last year, so they can make money on this business. And they did like thousands and thousands and thousands of homes. And their biggest competitor is dropped out of the market and Zillow's no longer doing iBying. So this market is there to lose. Eric Wu is an absolute monster, and it can't go any lower. So I am doing what you're not supposed to do. Doubling down on my biggest loser, open ladies and gentlemen. All right. All right. Excellent. What about Redfin is still in the market. Another great Seattle company. Are you concerned about them as a competitor? Are they above or below a billion dollar valuation right now? No, I think actually the mistake I made last time was I did a basket of these real estate stocks. It is a massive market that is awful to operate in right now as a lot of people who bought a house over the past year have realized I think that Redfin is going to do really well. I think that Zillow now that it's kind of back to its original focus is going to continue to do really well. And I think that Open Door is going to do the best. I think they have the biggest lead in iBying. I think that's a huge opportunity, particularly because they have the best company value in all of the world, which is Bips for breakfast. Like they pull every basis point out of operating these houses, and that is a really, really valuable thing. It does remind you of another Seattle company Amazon, and that you really need to get your costs right, and they're the best by far at doing that. There it is. There it is. Ben? Because David is theoretically winning. I will go next. So I did actually what Packie did. I made a list of things that I was contemplating, and I thought I'd share some of those just because I think they're interesting things you could buy with your pick right now. Literally anything, because everything is on sale. I thought about Google again, which was I think the best pick any of us made, except Solana. Still an amazing business. Still cheap by valuation. You know, anyway, you want to slice it. Price earnings, price of sales, whatever. Not my pick. I kind of like the thesis that's going around FinTWit right now, where people are saying Amazon has gone so low that they're basically valuing the retail business at zero, and it's only AWS contributing to its market cap. And I think you can build some models to sort of show that. Would I take Amazon's retail business as a free option? Absolutely I would. Again, not my pick, just like Packie. There's a Twitter one that I had too, which is by Twitter right now, because there's free $5 bills attached to every single share. And for folks that don't get that joke, there's basically an arbitrage you can run. If you think that Elon is actually going to close this deal, and pay out every single Twitter shareholder at $54.20 per share, you can go buy a Twitter share right now for like $49, or $50. I don't know what market closed at today. But I mean, that's free money. If you think Elon is actually going to complete the deal, not my pick. So what I'm going with is one that I know Dave and I have discussed at length. I can't remember if we've done it on error, but I looked back at our idea dinner picks, and we haven't actually picked it on the idea dinner, and that's Coinbase. This is a value investment. And I'll explain myself, but this is a crypto value investment. So let's set the anchor point that we should all think about this business. In the last 12 months, they've done $10 billion in free cash flow. That's astonishing. That is money that's piled up in their bank account based on the profits of the business that they're operating. So they're printing money. The market cap at close today was $34 billion. So if I was running a business that was generating $100 of cash per year, just to make them at easy, would you buy that business from me at $340? That seems like a pretty good pick up, especially one that has network effects, the leading brand in the space, growing incredibly fast in a gigantic wave. Now people can think crypto is going to crash or the bubble is going to pop. They're the most established company in the space, and it is still the first ining of all of crypto. So you have the opportunity to do, here's where it gets kind of interesting, a Berkshire Hathaway style investment into a crypto company that is the leading crypto brand in the world. It seems pretty safe to me, famous last words. But to me, you're very cheaply valuing their unbelievable business that they have today. And sure there's going to be margin compression and sure the take rate is going to go down over time. But I think you have a lot of resilience based into the price, not to mention all the free options that come stapled to that business, which are the NFT business and every other venture that they're going into. And on top of all of this, I think a great way to play crypto in Web 3 is to look at the companies that have centralized all the activity and are able to run Web 2 style businesses or Web 2 business models using the heat and light that's all shown on Web 3. And Coinbase is literally the best example of that and has, I don't know. Not only that, but Coinbase and FTX, they make money whether crypto goes up or down. Right. And if it goes up or down faster, they make more money. Right. So my pick is Coinbase. I got to say I really like it. I was thinking about this one too. And I think what talked me out of it were a couple of things. One, I see a lot of pitches from senior X Coinbase people. And so it feels like there's a post IPO brain drain happening a little bit, which is natural. And you also don't love to see. I think FTX is, I mean, there's a lot of comparing FTX and Coinbase because we're right around the same market cap right now. FTX is like 200 people or something crazy. I love everything really fast. I'm like 14 engineers. That was still, that was one of the most surreal. Okay, this is the most surreal moment of acquired. That might have been second when we were interviewing Sam. This is Sam Beckman-Free, the CEO of FTX, who Mario wrote a three-part unbelievable series on. Sure. And he was just in the middle of his office and people were like trading behind him 100%. And almost certainly playing League of Legends over here. Oh, yeah, fair, packy. I mean, the FTX bear case on Coinbase would be that derivatives are actually a much bigger market than trading direct equities or direct crypto. I think it's like 3X of the volume in any given market is derivatives rather than the underlying asset. And FTX is better poised for the derivatives market than Coinbase is. I still think Coinbase as this market cap is an absolute steal. I agree. I think FTX is scary in lots of ways and are so efficient as a business. But especially factoring in the NFT play, I think there's like a really nice upside here. The stuff that they've shown at least on the NFT side, I think looks pretty promising. Yeah. Yeah, I love it. It's a bet that crypto stays big and that decentralization is probably not as important to the next billion users as it was in my first. Which is a pretty safe bet. I love the big actually. Also, would any of us have thought at Coinbase IPO time that they would be shipping enough to do like a big NFT play? Like I had kind of in my head thought like, okay, we sort of have reached product staleness. But they've actually shown like a rejuvenation on it. Yeah. The way of framing this is I liked this pick so much in January and other people on this stage did too that there were investments made in the company. I'm speaking with pack of passive voice for fun. I like it a lot more today than I liked it then. Me too. Me too. Ah. Ben, you've made me nervous. What for two reasons? Because I'm going to beat you. Alright, I'm a little good. That was one. The other is when you were doing your not picks, which I'm not going to do. I got really scared that you were going to take my pick because my pick is the company that built this arena, which is Amazon. Bob and naming rights built built as an aggressive. Well, they didn't actually build the right bet. And so I was thinking about this. It's trading at about a one and a quarter trillion dollar market cap. Most folks probably know probably a lot of folks here work at Amazon. The stock got hammered last week after reporting earnings. But just looking at the fundamentals, Amazon did $470 billion of revenue in the last 12 months. That is the second highest amount of revenue that any company has ever done ever. The only larger one being Walmart, which Amazon will almost assuredly pass very soon. So that means that Amazon is trading at two and a half times revenue, times last 12 months revenue. What are Amazon's margins, David? Well, it's good news. I thought about that. About 400 billion of that is retail revenue. But about 75 billion, more than 70 billion is AWS revenue, which is very high margin revenue. But so each of those retail and AWS, I think there is a bear narrative around that I just simply don't agree with right now. On AWS, I think the bear narrative on AWS is, yes, it's amazing. High margin business, hats are off to Bezos to Andy Jassy for building it. But its days are numbered. Azure and Google Cloud are growing faster. And Amazon, despite being the early leader in cloud, might actually end up losing this market. I think that's utterly ridiculous. AWS is growing at 37% annually on a 75 billion dollar base. Google and Microsoft are growing at 45%. But their market share combined is still significantly less than Amazon. So yes, it's growing slower, but it's bigger than both of them combined. But then just like none of that matters. The market that we are talking about here is the internet. This is the internet. This is the picks and shovels of the internet. And Amazon is the clear market leader growing over 37% a year. I cannot imagine any other asset I would rather own period anywhere. So that's AWS. On the retail narrative, like you said, literally Goldman issued a research note last week. Now it was a thought exercise. They didn't actually mean this, but valuing retail at zero. That's in people have been doing this for 20 years. Wait, can I get an after a second? How does that work? They issued a research report as a thought exercise. Well, they have a buy on the stock. And I think they were saying that like the upside is so much that even if you just value the Amazon based on AWS, you would still buy the stock. They think retail is worth something, but that was the thought exercise. So let's AWS has over a 33% market share of cloud of the internet. The largest application of the internet by revenue is e-commerce. Amazon has a 56% market share of US e-commerce, a 56% market share. So there's a really cool feature. If you go to your account in Amazon, of course, this is so Amazon. You can download CSV reports of your own spending. It's scary. Did this which they intentionally make it that you have to download a CSV report. You can actually see that in the web UI. That would be very scary. So just me over the last five years. I've grown my spend on Amazon by 34% a year. And in the last 12 months, I ordered 230 items on Amazon because we had a kid. We have garage delivery setup. We have the Amazon credit card. They're launching by with Prime on the internet. I'm highly influenced by Amazon sponsored listings, which is a $30 billion high margin revenue business within retail. Which was approximately zero five years ago. Exactly. So this is my point. The narrative that retail is worth zero completely misses the point. The reason that retail lost a billion and a half dollars last quarter is Amazon invests so far ahead of the curve. It's unimaginable to me that I would buy things anywhere else but Amazon. And that vote is so deep that if they were to stop investing, they would become incredibly cashful and positive. And they would still have years of runway before any competitor caught up. And to your point, I think their capex last year was something like three or four X, any of the other big tech companies because they're just building out these warehouses and data centers. Yep, totally. Okay. So, Debarro, a base of framework, I think you got to think about what's not going to change in investing. And I think what's not going to change is one, the internet is going to keep growing. So I want to own AWS to high and others are going to keep buying more stuff online. So I want to own Amazon retail. And I think that on the retail side, they'll keep adding credit cards, advertising, buy with prime, leveraging their infrastructure across other retailers on the internet. And all of those are high margin products. It's my pick. No argument. I have no. Yeah. I got to play to the home top. Yeah, yeah. I mean, what happened though to Apple stock after Steve Jobs, right? That's a good pick. I think Andy Tassie could be the Tim Cook of Amazon. I love that. I love that analog. That's a good one. That's a neat little framework. All right. So, shoe. So, I'm going to change the rules a bit. First, I'm going to make some comments. Oh, some generalist comments. Thank you so much. Lowercase G. Yeah. The first is you all said we're not good public stockpickers. And I'm going to posit that the future of investing is people who understand and create narratives. And that's what you all do. And you actually are very good stockpickers period because you understand the power of stories and narratives. So, this is the future of investing in my view. You're getting invited back to the next building of the show. It's no surprise. It's no surprise you all have or are launching funds. I love how this is starting so far. So, that's overall comment number one. Overall comment number two is you all think like venture investors. Yeah. Nobody talked about downside. You guys said we'll have a best bet advice, right? Like, come up time. Nobody. I was waiting for the bear case and what could go wrong and it didn't come out. For example, coinbase over earns from a consumer pricing point of view compared to any other platform you look at. That sells to consumers by some dramatic. It's a total outlier. And so if that collapses 80% what happens to the stock? Maybe 120 is really expensive, etc. So, there was none of that. Generally, I'm not picking on that. And the third thing is you are all focused on companies that are cheap. There was a focus on now is a good moment because this cheap expensive companies can be great investments. Expensive, so to speak. I think it's probably because we're in this part of the market cycle and so everyone's focused on everything's dirt cheap at these prices. Who said that? Who said that? No, I don't know. So, by the way, the consensus biggest Twitter between the two of you. So, I had five criteria. One was upside. The other was downside. The other was timing why now? The other was novelty, which you all failed on by the way. Fair. Snowflake, maybe the most novel. And there's no science to novelty. I mean, obvious stock can be a great investment. And the final one was flair. Very scientific criteria. I liked Bips for breakfast in general patent that got me going. Over high. Come in. And so I have my ranking. But we're going to get the audience involved. I'm going to hold my hand above a head and then you clap a certain volume. And I'll go one by one. And the loudest clap wins. And then I'll tell you if that was my pick or not. So we start with random order. Open door. Okay. Let's go. This one will be hit. That's open door. Okay. I kind of got that clap. That was like a five out of ten clap. Then we go with Amazon. The whole cat really came through there. That's a solid eight out of ten clap. We are in the Amazon arena. So I'll notch it down to a seven. Home crowd. Coinbase. Wow. That was pretty hot. That was good. That was better than the Amazon clap. So that's an eight. And then snowflake. Oh. That's surprising. Wow. It's pretty good. Let's go to the French elections. This is going to go to a runoff. Between snowflake and coinbase. Okay. Do we get clap? Oh. No, because it'll sound louder. You can do. Okay. So think about it. One of these two. Snowflake or coinbase? Snowflake. Coinbase. And the winner is coinbase. My pick was snowflake for the record. Only because of General Patton. Wow. I think I leave now, right? As excited as I am to be victorious. I'm going to be a winner. I'm excited as I am to be victorious and I am excited. How many people are saying crypto in this audience? That's probably why. Time will ultimately be the judge. There is a tracker. There's an idea that a tracker spread sheet that I think James started it right. It maintains. And so we'll get to, at any given point, look back and see who actually won tonight. Open door reports tomorrow. We're talking about five-year hold period. We reconvene again here. Yep. Great. 2027. Perfect. See everyone. And judge this contest. You'll need to use the rest of the arena at that time. That's right. Well, Packie, Mario, Shu, thank you so much. Not only for doing this, but for flying five hours to do this. Let's give him a hand. Six and a half. Thank you. You're a full-grader. Thanks so much. And even more important than flying five hours, thank you guys for being our friends. Oh, thank you guys. This is the best. I'll take it. KnopBoring.co, read thegeneralist.com. You should follow Shu on Twitter. He's a huge fan of public investing. The future of public investing. If you like tonight, you're in for a treat on the internet. Thanks, Shu. Thanks, guys. I think it's time to tell the audience about one of our very favorite companies. So we thought about not doing this at the show. And then we got to thinking actually it would be way more fun to do it at the show and have some of our friends with us here in person. So for our first sponsor of the night, our presenting sponsor for all of season 10, Vanta, the leader in automated security and compliance. We're huge fans. As many of you probably know, Vanta and their approach to the whole compliance process, Sok2, HIPAA, GDPR, and more. So tonight we have Vanta's head of engineering, Matt Spitz. Thank you for joining us, Matt. Thank you for having me. So Matt, I understand that you have played hooky on your company's off site to be here with us. That is correct. I'm taking advantage of not having children this week and doing an 18-hour turn in burn to Seattle. Well, we will make the absolute most of your time here. For folks whose friends drag them to this show and they've never heard of us or Vanta before, what is Vanta? Yeah, totally. So as you mentioned earlier, we do automated security and compliance. And what that means is that we offer a continuous security monitoring platform that enables companies to improve their security posture and prove it via compliance standards or otherwise. So my understanding of the normal way or the way before Vanta that this happened is you spent three months trading documents back and forth. I think you used technology to accomplish this. Compliance is the currency of security proof. And so in order to prove to a potential prospect or someone who wants to use your cool tool, they want to make sure that you don't leak their data all over the internet. So the language of that is a SOC2 compliance certificate. And this is a certificate where a human looked at your security posture and all these spreadsheets and screenshots that you put together to prove to them that they are the you are secure. They're inherently looking at a sampling of your data, it's like 5% of your data at a point in time to assess that you are a trustworthy company. And you might imagine that this is something that is very lossy. Yeah, it seems like kind of a shoddy way to assess for companies currently trustworthy or not. Exactly. And these are good for up to a year. And they're based on sample data monitored by a human provided by the company. And so what we offer is a continuous security monitoring solution that enables our customers first to monitor their own security posture. We offer them real time notifications if we detect something that represents a potential security threat. And then we use all that data, throw it into a dashboard that both our customers and an auditor can look at that just helps them sail through a compliance process. All right, so my final question. Why should anyone care about getting a SOC2? Like, I'm running a startup. It might die. I'm just trying to survive and find product market fit. Like, why should I go check this box? When you talk about compliance, what it really is is security. It's proof of security. And companies tend to invest in security for one of two reasons. Number one, they just got breached. And that's too late. The other reasons why companies invest in security for the first time is to get a compliance certificate. It's not just big companies trying to sell the big companies. A lot of our customers are two-person startups that want to make their first business deal. The platform that we offer them is really the foundation of their security program around which they can build workflows and things like that and enable themselves to keep their company and customer data secure beyond that first audit period. So if I'm hearing you right, the answer is company should care because it's a potential revenue on the table. If they become compliant, then suddenly there's new buyers who are available to buy their software. That's typically the entry point for security, yes. There's long-term benefits to investing in security too. A lot of the things that you do to simplify and centralize a lot of workflows end up paying efficiency dividends down the road as well. That's a hidden secret to investing in security earlier. It actually makes you a more efficient business also. But yeah. Well, thank you, Matt. Appreciate it. And if anybody wants to use Vanta to become, I don't have it in my script, but I've said it so many times, so I know compliant in weeks instead of months and get compliance that doesn't sock too much if I've seen your billboards correctly. I believe they can go to vanta.com slash acquired and get a 10% discount. That's right. Awesome. Thanks, Matt. Thank you so much, Matt. Thank you, Matt. Thank you, Sarah. All right, David. What is Act 2 of our evening? All right, we're ready for Act 2. And for Act 2, we have a story that I think most of you know, but that we have not yet told on the main feed of acquired itself. And that is why, commentator. Woo! Woo! Specifically tonight, we're going to tell part 2 of the YC story. I think most people know about YC's accelerator business that produced Airbnb, Dropbox, Stripe, Brex, Friends of the Show Modern Treasury. Vouch, Vanta, came out of the accelerator business. But most people don't realize that that is only one half of what YC is today. They are also one of the biggest and most active late-stage growth investors in the valley. And they have deployed literally billions of dollars into series B, C, D rounds, in startups, both YC alumni and non-YC alumni alike over the past several years. So tonight, we have Anu Haraharin, the managing partner of YC's continuity fund, which leads all of these late-stage investments here to tell the story with us. Anu has had an amazing career. She went from a junior engineer at Qualcomm, great semiconductor company, to partner in Andres and Horowitz, to now running YC continuity. Herbs on the boards of Brex, local fan favorite convoy, Fair, Monzo, Gusto, Revenue Cat, Roppy, and Vouch. And Vouch, ladies and gentlemen, welcome Anu Haraharin. Thank you. Well, I'll give you a half. We got you some shoes. Oh, great. So great to have you here. Thank you. Thank you for having me. I don't know if you noticed, but we picked that walk out music just for you. I know. I don't know who can save San Francisco. Oh, that's fine. Well, you do so. Pat, my hand, I think, the lead singer of Train, I was at San Francisco band. I think he wrote that song because he moved up here to Seattle. Oh, yeah. To Anu's foreshadowing year. Yeah, next step. So when YC is ready to move up to Seattle. I think YC will, YC right now is remote first. So we all live in San Francisco, but we don't have an office. So the mountain view facility is? We own the mountain view building. We have that. But since the pandemic, all our batches have been fully remote. Wow. So there's no requirement. It used to be before the pandemic. No matter where you were in the world, you had to come to mountain view. Yes, that's not been true for the last three years. And we have learned to do everything remote. We always read applications online, but we learned how to do interviews remote. That was strange for us because we believe in bringing everyone too much view for the interview. We had to learn how to test for that on Zoom. And then we also learned how to run the batch on Zoom. And we learned how to do a demo day on Zoom. Wow. And this is the new normal going forward. Is this the new normal going forward? Except there will be tweaks for the new batch. It has not yet been announced, but there will be a little bit of mix of in-person, as well as largely remote. But going remotely helped us 50% of our batches in the international. Wow. What's the application deadline for the next batch? The deadline has passed, but we are still accepting applications. Why see always accepts even late applications. YC.com slash acquired. Get your late applications. Great. Not a real URL. All right. So wait. Let me kick us off here with just like a very, let's just write in. We wanted to ask you what is YC continuity, but in a very mechanical way. Like, literally what is YC continuity? Is it a fund? Is it a set of funds? It's literally the word continuity. The way it was formed a lot of our founders, the alumni came and said, Hey, you took us through the 12 week program. This is really why we started a company. It would be so cool if YC can continue to support us in the form of investment and in the form of programs down the line too. Why do you stop at the accelerator? And so that's really how we came up with continuity. So it is a multi-stage fund. We pretty much do primarily the growth stage, CD's B and above. We have invested in primarily YC companies actually. We double down in YC companies. Our goal is to be a lifelong partner for all the end-euring companies in YC to the extent possible. We also do a tremendous amount of post-patch programming. So people don't know this. If you go through YC today, you get ten times more what you got. In 2012 batch or 2014 batch. So we run three programs in continuity. We run the CD's A program. We help you teach you how to raise the CD's A. So we work with you on pitch decks, how to negotiate terms sheets, how to identify investors. Then we run... And that happens well after the batch. Usually the CD's A, most companies raise CD's A two to three years after the batch. Very few raise during the batch. So we pretty much help them nine months, six to nine months before the raise the A. We sit down with them and say, are you ready to raise the CD's A? Do you really have metrics that you need to see for a typical CD's A investor? How to put the pitch deck together? We run workshops for how to help you raise the CD's A. How to identify all the prep work. And we have, you know, YC runs on WhatsApp. I don't know if you guys know this. We have around 4,000 companies in more than 8,500 alumni. So literally every morning my foot is buzzing because I have so many WhatsApp groups. So we actually can vouch for this listener. So you're on the board of revenue cat. So we're doing our diligence and we texted Jake. Because Jake's another fellow Ohio state alum. And he actually was at our very first acquired meetup in San Francisco. And I was like, well, tell me about some stuff with Anu. And he was talking about how you WhatsApped him. I don't know exactly how much of that I can share. But that you proactively were WhatsAppping him before around was coming together to tell him you were considering an investment. Yes. So we actually know our founders from day one, right? YC is one team. So even though continuity was launched seven years ago, by the way. Wow. You know, YC itself was 17 years old. But we're one team. So we actually know the companies through the batch. So I knew Jacob in the revenue cat example. I think even at the time of demo day when he was trying to figure out which investors to work with. He had reached out to us to say, hey, how should I think about this? Whether to raise from seed investors to CDZ. And then he went through the CDZ program. So that's how we helped him figure out which partner to go with. He decided to go with index. Behind the scenes, we had actually helped him a ton with how to pitch, how to negotiate the term sheet, and all of that. So by the time, I usually say, by the time we are investing, I'm not waiting for the founders to come tell me I'm fundraising. Well, it's kind of like, I mean, you acquired has been an investor, or not acquired. White combinator has been an investor in these companies for years at this point. Before continuity started, was YC, were there any experiments in doing investing after the seed stage before continuity or was continuity the beginning of? Continuity was the beginning. Partners always invested in companies that graduated from demo days. And I'll give you an example. A lot of people may not know this, but Coinbase, which was the idea winner, did not get any money. Or I think he got 20 to 30% of his ideal goal on demo day. That's right. He went out and said, I want to raise 750K. Only 30% of the round got failed. Oh, my goodness. It's crazy. So because there's no one understood Bitcoin at the time. But our early stage partners have worked with these founders for 12 weeks. So they're not picking companies, or they don't go by idea. They are going by who are the most earnest founders that I want to give them a shot to build. And so quite a few of the YC partners helped fill Brian's round so that he can go back to building. Initialized being one of them, if I remember right. One thing. Yes. So Gary, in fact, was the one that accepted Brian into the badge. But that was the culture in YC before continuity. It was more the partners helping out the founders. Individual investors. There was no YC follow on capital. No, it was not. It was not the first time that was followed on capital. Wow. So who? How did this idea come together? I mean, it's sort of obvious now when you say all these things. But thinking back to it was 2015 when July 2015 when continuity was started. The idea of raising a fund, a growth fund, a white common. Most people would have thought that was crazy. Right? So how did this happen? More people would have been skeptical and been like, then we're picking winners. Yes. So I think that at that time because growth capital itself was frowned upon. Right? Remember the narrative was you need to go public. You know, what the late stage investors are just throwing cash. There were only like, I think less than 10 people who could write $100 million checks there. And so, but what you saw was there were less than 10 funds that could write $100 million checks. But the median time to IPO, can you guess what it was in 2015? 11 years. 11 years. Yes. And so, why see albums came to why see partners often and said, you know, you train a so well at demoday and you teach us how to raise. And like, then we were in the woods. Right? And we tell our founders, it's never going to be as easy as demoday. Well, it's yeah, like the pyramid has widened. It's still a pyramid. But I didn't thought about that. Like back then. There were, I don't know, less than number of investors you could count into hands that were writing $100 million checks. And so, if you're like, I can't go public. I need $100 million plus to finance this stage of growth in my company. You know, it's a supply demand equation, right? So, it was frowned really bad. But I think YC's mission has always been, how do we support our founders more? And right, YC was learning through its evolution. Remember, like seven years ago, when Dropbox had raised a late stage private round. So YC itself was learning, what are its companies going through? When do they get help versus when do they not? So we saw an opportunity. We saw that these companies still need help. And they, you know, and we are in a great place, and an amazing platform that really could host to PG and Jessica on how they built it. YC can play a significant role. And you know, one of the things that people don't understand, and I didn't. I was at Andreessen Horowitz before, right? Is the YC founder never views YC as an investor. As the secret, right? As the parent. So what does that mean? Any time a company is going through any issue, five years after they've graduated, they will first come to their YC partner. They don't have to talk every quarter, they don't have to talk every month. They may not even have talked for a year, but they would reach out to the partner and say, I need urgent. There's an urgent issue. I need you for five minutes. I need you to help start this through. Does continuity change that relationship, knowing that you are available capital now? No, I mean, we worked very hard not to change that. So it goes back to our mission. If you ask venture funds, most of the omission statements are going to be on 10 to 15 or 20% of the best companies. Our mission statement deliberately doesn't have that. We want to help more founders start companies and more founders build end-euring companies. So what that means is there are many times we may offer term sheets, and they would say, we would not want YC this round, and we would like YC in the next round because you're already in the cap table. And we will respect that. Because it's 1D. We don't say, oh, let's play all the tactics that we need to play in the close process. But we also know that if you really helped them and earned the trust, we will earn the right to win. And so we often internally have a saying that you have to earn the right to win. And as long as it's the right decision for the company, sometimes we have the right partners, sometimes we aren't. And we have to be honest about that. And if we do write by them, we know that we can have incredible returns. History has shown that. How do you structure the partnership? Like, is our YC partners one big pool that sort of comprise one investment committee across accepting into the accelerator, making growth investments, or is it more like a couple people are YC continuity, and then a handful of people are the accelerator partners making those admission decisions? Yeah, so the early stage has group partners that run the groups. And on continuity, it's Ali and I, Ali Rogani, who was the former CEO of Twitter and picked up and see if we fix our. So we both run the continuity fund. So on the early stage, it's only one group partner needs to say yes. Then the companies accept it into the batch. So they apply, we shortlist a bunch of them, and they go through the interview process. But as long as one group partner said, a strong yes, I really need them in the batch. They're accepted. Now remember, the group partner is taking them and working with them for 12 weeks. So if they picked, if they didn't pick the right team, the feedback loop is really fast. So they learn and they evolve for the next batch. And so that's kind of why we went with the model of one yes is enough. On continuity, it's a three people investing team, investment committee. So it's just me, Ali, and one early stage vote in case Ali and I don't agree. But it's primarily the continuity decision. Fascinating. And one other question, just to help sort of frame up the continuity operations, you're not a very high velocity investor. The continuity fund, I think only does a handful of deals, maybe like leads to three investments of quarter. Yeah, so we've done 35 investments in seven years. Wow. So even less than I thought. And we have 3,500 companies that have gone through VIC. So we've done less than 1%. Now, it's for two reasons. So we pretty much started up with VIC. So when we first launched, we were honing our investment strategy. What's right and what makes sense for the broader VIC team? Yeah. And then I would say we've always been under capitalized relative to the success of VIC company. And we are changing that. But every time we change that, the bad size grows and they're more successful. I mean, YC's just had a ridiculous track record. If you look at, I'm sure there's some vanity stat that you know off the top of your head. Is it like total combined market cap of all YC companies? It's on the Pittsburgh wall out there. What is it? Actually, on the... It's well over 500 billion. It, Pittsburgh says 600 billion. 600 billion dollars. 600 billion. Yeah. So, I think no matter how much capital you raise, you're probably always going to feel like you're... Yeah, we always feel under capitalized. Also, we do global. Right? Our entire team is sitting in San Francisco, but we have investments in India. We have three investments in India. In fact, the top three breakout companies in India in the last two years are all YC. Wow. We have investments in London. We have investments in Latta. We have investments in Middle East. Because for us, it's about a naval entrepreneurship globally. That's the mission. And continuity needs to support that mission. So you said, you know, continuity is this startup within the... It's just crazy to me that YC is 17 years old. I mean, I guess that's true, but like... That makes me feel really old. In my head, it's still like an innovation in the venture capital landscape. Yeah. That probably says more about the venture capital landscape than anything else. That's true. Well, that's why we have a new tagline, the YC Mom. How many of you heard that? We hear noise about that. We never thought of the mom, but I was like, oh, we're the YC Mom. Well, it's like... I used to be on the other side of this because I... Quas, I used to compete with YC in leading seed rounds. And the number of VC firms throughout the whole life of YC that talk about YC, often in negative terms. Can you believe what they're doing? Can you believe how many companies they're taking? Can you believe they're investing now? It's like... It's just like the Andreessen story that we told, you know, if your name is on your competitor's lips, you're winning. It doesn't matter what they say. It's so... You're winning. It is so true. I mean, I also think it's really hard to understand and appreciate an organization like YC from the outside. You really deeply understand YC in only two ways. If you're a YC founder and if you work within YC. And I mean, outside when I was at Andreessen Horowitz, I actually did not understand the depth and the cultural nuance with which YC was built. And it's really hard to grasp that. Can we talk about that from it? Sure. I would love... I put this in the notes. My current mental model of YC is like a university. A top called an Ivy League University. It's very hard to get into. You take classes, you know, every year or every six months. There's an endowment attached to it, which is continuity now. And wait, wait, David, what do you mean by endowment? I want to... Are you saying that all of the proceeds from YC exits go into a big pool of capital that then funds continuity? Is that what you're suggesting by endowment? No, but I'm curious if that's the case. I meant more just like... It's really weird that a large part of the private capital markets and the venture capital markets in America, those dollars come from educational institutions, mostly private educational institutions. That's just very bizarre. But anyway, that's kind of what I meant. Is that a good mental model of YC? Yes, think about... Let me say that. We say YC's University for startups. So think of the accelerator as the undergraduate program and continuity is the graduate school. And we are modeled after a university in the sense of we have applications, you don't need to know anyone to apply to YC. Right? Second, we were the first to do mass production of investments in a batch of startups. No one had ever done that. Everyone usually does. I met a set of companies, we have a Monday partner meeting and you pick one or two. And VICE from day one was a batch. They always received investments together. And that I think goes to the insight that the founders of VICE had at the time, which was entrepreneurship is lonely. Being in a group is how you motivate each other to learn from each other. And that's your peer group. And so fundamentally it came from the approach of a university. And continuity is graduate school, as I talked about, like CDC is just one of the programs we run. We have two others, Post-Day and Growth. Post-Day focuses on two months within you raise the CDC. There's a six week program. We rebatch you. So now we have a new set of peers. And our scale founders come teach how to form a recruiting team, how to hire engineers. Because your job changes as a CEO. Right. And we're just writing a book about how your job changes and how to learn. And remember the median age of a VIC founder is 27, which means they have probably managed to sum total of three people in their life before they found it. They really are like undergrad. Yeah. So you cannot expect them to know. So how are you going to provide resources so that they do, they can learn from others. And they do as few mistakes as possible. And as quickly as possible. Because when you're scaling, you just go on a rocket ship path. The amount you demand out of these founders is a lot. And their ability to learn in four years is, I mean, the bar your setting is really high. And so in our community, that's why Brian Chesky comes to speak every batch. He's the opening speaker of every batch. Wow, every batch. Every batch. And right now, for all these programs that we run, the growth program is how to scale as a CEO. That's literally the program. It's a eight week session. It talks about hiring execs, performance management, culture, and so on. And we have scaled founders and scaled execs. Like Tony Shew comes for that. His execs, the CFO of Dordash, the head of engineering of Dordash. They come for the respective session. So it's really good to see the entire community working. Yeah. Transfer their learnings to the next batch of companies. I actually want to ask on a thing that I, for some reason, ask David, even though I probably should have asked you, when a company exits, or has a liquidity event, such as Airbnb, what does YC do with that liquidity? And is YC an LP in itself for future continuity funds? So right now, it's set up just like any other funds. So we have incredible LPs, primarily university endowments, because our mission is more university oriented. So the structure is very similar to other funds. And I think that's a new change for YC since 2015, because when YC was started, this model was in proven. So it was actually self-funded by the founders. Yeah. Okay, so self-funded by the founders, I know Sequoia was involved at one point, putting up capital. And I think that was the capital invested in two batches for, I don't know, five, five-ish years. Yeah, so I think the different people, there were quite a few LPs that came in on a batch basis. Remember the first check in YC, the first batch was $20,000. I know, my gosh. So when you're self-funding something, that's how you start. Right. But then when we asked time progressed, and when we asked startups to come to San Francisco, they needed at least $125K, given all the inflation, even if they wanted to stay in Montalieu for a period of time. So that's when we brought in LPs based on a batch, so that if they could pretty much fill the rest of the gap that YC was not able to find. And so is that still how it works is each batch and each continuity fund has its own set of LPs that you go on an individual fund raising mission for that specific vehicle? Yes, so both we have early stage fund as well as the late stage funds, and we have pretty much the same set of LPs across both funds. And as we've, because our ambition is to grow the batch. And why is that? Because we actually, you know, we want to keep the bar high, and it's not that, and when we say the bar high, it is we want the founders to be working on the right problems, not the wrong problems. Yeah. There are amazing founders, but if they're working on a problem because it's following a hype cycle, and it's not a unique insight, then accepting them, we are doing a disservice to them. Because they've decided to stop doing whatever they're doing to work on this. But we're not like an Ivy League institution that thinks that the batch size has to be only like, you know, Princeton probably has a fixed class size that doesn't grow. We don't want to be that, because we think there are incredible founders everywhere. And if we have a chance to give them that first opportunity, and that really opens up doors for them, we want to be able to do that. So we could see batch sizes of 1,000, 2,000 YC companies in the future. So our criteria is if there are, if our application volume keeps going up, and if there are that many really good applications, we need to learn how to scale. Yeah. I mean, it's not, you're already approaching the scale where... We're having around 400 companies to be batched. You're like a liberal arts college at this point, like where you're graduating that many number of companies every day. Our acceptance rate is still below 3%. Our acceptance rate is only decreased. But I mean, I think this is why I think it's very hard to compare YC to Adventure Fund. Because if you look at the types of opportunities we have given people in different parts of the world, they would not have stood a chance anywhere else. That was true for Airbnb, that was true for Coinbase, that was true for DoorDash, one of the partners at YC kept funding DoorDash. Because nobody believed in the idea. It was the third food delivery startup that came out when they came. It was the first, I mean, it was a late application. He applied one week after the batch. And we've pretty much like the batch started. But I think that's why it's such a powerful and mission oriented organization. It's very different. Maybe that's a good place to wrap. We talk about powers, unacquired. We can speculate a lot. And I think we probably have on the show about YC's power at various points in time. But you're in it. What do you think YC's power is, you know, in the Hamilton Helmer sense of like enables YC to earn better differentiated returns versus your competitors in the venture ecosystem? Is it the traditional VC power is brand, but it feels like it's something else with YC. Yeah, I think brand also comes much later. Unless you can either get brand because you have a lot of things you've built before and you launched. Or you just launch something and it takes, I mean, just the way you all started acquired. It takes incredible amount of time to build. It's never an overnight success. At YC, I would say, if I had to pick one thing, YC is really good at. Across both early and continuity is we go by based on founders. And I know it sounds cliche. But I think we also have an incredible advantage in assessing what makes a founder a really good founder. And we have incredible about of data and pattern recognition and learning that we have honed it to a point that we know to spot them. You know, you all have heard of the famous 10 minute YC interview and everyone asks, how do you know in 10 minutes? The fact is we probably know in the first two minutes. So we actually don't need the full 10 minutes. But you know, sometimes one of the people will surprise us with the end of the interview. And I think the three things, like an article it is on the founder we look for. One is at the continuity stage, right? Often on the growth stage, people I think pay attention to the founder, but they don't. Like if you're at a venture fund or a growth fund, you probably hung out with the founder for a week or two weeks before the investment. Some total of three hours by the time continuity in West, I probably know them for years or months and I've had hours of interaction. So you're saying that you're paying attention more to the qualitative founder properties. Even at the growth stage, then you are to their specific growth rate or what their margins look like or anything like that. Yes, but you know, if the three qualities hold, the metrics will show. I can either look at metrics, but sometimes metrics don't tell you how good the internal sausage making is. And many people can package the metrics in a fundraiser day. It's very well done. We teach you to do it on day. We're the experts at it. So therefore we know it's going to look great. So we also teach them what points to emphasize on. We actually do practice runs. We write in demo day. We actually even write this script sometimes. If they don't understand what it is. So we know how that's done. That's a how can I help moment. Yeah. And so what we look for is how fast does the founder move? What does how fast do they move mean? How fast do they ship? How fast do they iterate? Is it single biggest indicator in correlation to how successful they're going to be? Because you won't be right about many decisions early on. But at least are you learning from them fast and are you making changes? So that's one we measure. Second of the growth sheet is how well are you hiring? And if you're sloppy in hiring, it always hits all. So one of the things we look for is how well are they hiring engineers? How good are they hiring? Exactly. Well, they will be able to convince an incredible exec to come join them. Right? That's second. And third is clarity of thought. Clarity of thought in the growth stage for us is, can they write out two pages? What makes this a 5 billion or a 10 billion dollar company really well? And if you're doing those three things, you're going to be on top of your metrics, your product market fail, your retention. Now, there will be rough edges. But I think because it, I see we've had the benefit of watching everyone from day one. We know how Tony scaled. We know deeply well how Josh had gusto scaled. So we know a lot of those founders. So we then know, okay, these were rough edges. These are okay. These are the founders head and this is how you iron out. We also had the benefit. I mean, we've told a lot of these stories unacquired. If you're a growth investor looking at these companies new, you're like, I know this is all going great. But you know, those companies don't always all go great. Tony had some serious near death moments. Airbnb was not up into the right journey the whole time. If I had to summarize, I know this is we're interviewing you, not me here. But it seems like you invest based on the inputs rather than the outputs. Or maybe the leading indicators rather than the trailing indicators. Where if somebody's operating with those three principles, the business probably won't consistently produce the results and someone would like to look for a Negro stage investment. But they have a much higher probability at any given time of producing high quality results because those are the inputs that matter. Yes, absolutely. And that's kind of why we feel strongly that inputs can be influenced. If you're learning best practices and those are your inputs, then you can actually influence company building. So when Tony comes and teaches our growth program and says, these were my darkest moments, these are my mistakes I made. And I sure hope you don't make these mistakes. But these are two things I did really well. That's incredibly valuable. Yeah. And so that color is very hard to get outside of IZ. Yeah. All right. As we wind to a close, long-time listeners know there's a way that we need to close this and that's grading. And with these episodes where we're covering a company in flight, the only real way to grade it is to try and forecast future paths that could happen. So Anu, I'm curious in your mind, paint us the A plus the C and the F for YC a decade from now. And let's start with the F because I think it's interesting. Like YC is so dominant. How could the whole thing go up in flames at this point? Well, I think YC is the only platform that has strong network effects and as all network effects have shown, if we mess up the YC community, that is the way. Because we have this platform only because of the YC founders. And there are community values. I mean, we have written down community values. We have an internal bookface. We have an ethics code. I mean, name one, VC fund that has all that. Right. So that's why we don't look like a venture fund. As long as we do right by the community, we'll be good. But if you, as a network effects are very powerful, but they also decelerate very fast. Right. If we do any mistake with the community, then that would be the F. It's almost like operating leverage. Like, the heavily community dependent business is just heavily levered. It reminds me of acquired. Yeah. Our community is like, it's the... Exactly. Absolutely. This is an amazing group that you have. And like, congratulations from where, how far you've come. But we feel the same way. It's like, it's so amazing. But that is our fear. Like, we nurturing the community and keeping it the amazing thing that it is, is the number one thing that we do. Okay. But you get the C's boring, so we won't cover it. But I want the A plus. Like, give me the B-Heg for YC from here. How do you change multiple orders of magnitude from where you are? Or do you want to? B or the A. The A. Oh, the A. Yeah. A plus. We definitely want to. We want to be... Our mission is to be the partner of the companies for the life of the companies. And continuity, I would say, has only strengthened the YC community. Because before, they would reach out whenever they wanted help or once in a while. But now we have a full machine all the way to IPO. And we have programming, as I talked about. And it's really gotten the community super close. And so, I mean, as I said, we are highly undercapitalized for the success of YC companies. Wait, wait, wait, when you say all the way to IPO, so is IPO the end? 10 years from now, is there a YC post IPO component? Maybe. Right, we already have post-type... We already have... So, it's so funny. So, we started with the growth program, which was just this CEO scaling program. And the post-type companies were like, well, we need a program. And so, we said, okay, we did the post-type program. Now, our companies have come and said, we need a PIPO program. Yeah. We got to get Airbnb and Coinbase to come teach us this PIPO. And I'm sure soon they'll be like, we need a... It's not like there's some magic moment and Brian Tessky and Brian Armstrong and Tony don't have problems anymore. They all have problems with this company building. It's as hard as it gets. It never gets easier. I mean, you do it so many times that you get better and better at the job, but you have other questions. So, ask, can you need a peer group for it? Yeah. Right, so, I think our ambition is, how do we scale YC to support more amazing companies and to especially also do it globally? Yeah. Because we're... I think the remote world will show us that companies can come from anywhere. We already see that. A lot of BDB startups are based outside the US, but they serve as US customers. I mean, I'm sure you all have heard of Deal and Alex lives in Israel. Right? So YC has to learn to scale globally because talent is everywhere. That it is. Anu, thank you so much. Thank you for having me. Thank you. Thank you. I have to help. All right, well, we do have another friend that you want to talk about, and it is quite related to our last segment. So, for our next sponsor tonight, we have another one of our favorite companies, and we aren't just saying that. I mean, like, this is literally one of David and my favorite companies in the world. Vouch was founded by a fellow Ohio State alum that I went to college with. David and I have the privilege of being investors, angel investors, in Vouch. And more customers acquired is insured by Vouch. So, to tie it all together, of course, Anu is an investor in Vouch. I believe a board member with the YC continuity fund. So, please welcome Travis Hedge, our good friend, and the co-founder of Vouch who is here to drop some big news on stage tonight. Travis, welcome to acquired. Great to see you. Thanks, guys. Welcome, sir. Thank you. Great to be here. All right. Well, some people, I don't know who, but some people might not know what Vouch is. So, let's just start with that. What is Vouch? Vouch is an insurance company for the technology industry. That's pretty simple. So, you're telling me that tech startups need insurance, like business insurance. Yep. You're just as likely to get sued as a tech company as you are any other business, right? So, he's protecting his litigation, theft, and particularly important for our clients, cyber threats. I see. So, if I'm a startup, and I'm based in Seattle, like many startups here are, can I use Vouch? Well, David, Ben, so glad I... I'm so glad you asked. I hear you have an announcement to make tonight. So, this is particularly special to follow on you, because we launched our first market on Demo Day, August 19th, when we got down with our YC batch, two and a half years ago. And so, after two and a half years, 32 states can now say we cover 97% of US venture activity, because as of today, about 12 hours ago, we're live here in the state of Washington. Woo! I don't bet his literally been like dying. I'm just like jumping out of my seat right now for all, what is it? 50-ish PSL portfolio companies at this point to actually be able to use Vouch and get insurance in literally minutes instead of, I don't know what it takes, eight to 12 weeks through a traditional broker. It's like so game-changing. So, I am very excited tonight, personally, and I know many other folks are too. I don't have the words for how excited I am. So, I did want to dive into one interesting piece of sausage making in the business of insurance. There's actually three layers to it. And for folks who are very interested in this, I'm sure you're going to publish what you sent me as a blog post. I'll link to that in the show notes when this comes out. I just found the whole narrative about how an insurance company works under the scenes totally fascinating. So, maybe just as a little teaser on stage, what are the three layers of an insurance company, and what do you do versus what do you outsource? Yeah. So, the three layers start with distribution. Then you have underwriting, and then you have capacity. So, the capital to actually pay the claims when bad things happen. And so, most companies, the vast majority of the industry, focuss on one of those layers. So, distribution is your typical broker. They go to underwriters, and then they've been of a claim. Underwriters go to their capacity providers. What's unique about vouchers that we started off with getting licensed to sell insurance like anybody else. And if we were taking the lean startup methodology, we would have just stopped there. And just sold you guys a chub policy, whatever policy like anybody else. But the experience wouldn't have fundamentally changed. So, if you think about what Salesforce did, for instance, right? You took the roll of decks and turned it into on-prem CRM. But the magic doesn't happen by just digitizing each layer. It happens by creating entirely new business models out of that. And so, for us, the equivalent of moving on to the cloud and creating new revenue models was tackling the underwriting layer. So, we created the policies where we basically just started from scratch. Said, if you were designing risks specifically for technology companies, what would that look like? And then we, from a capacity perspective, partnered with the largest re-insurance company in the world to be our capacity provider. But when you're doing things like captable coverage and cloud coverage that the industry had never seen before, regulators and traditional insurance companies. They don't have the most excited reaction to that. And so, about three months in, once we realized we had product market fit, we very quickly shifted gears to say we've got to own as much of the value chain as possible so that we can control those decisions. So, you know, spent the next few months building the voucher insurance company, launched that last summer, as well as a few other big infrastructure investments. And it's those things that let us go from, you know, took a year and a half to do the first iteration on our products. To now we can do that in months and weeks and work, you know, that, it's those investments that will enable us to really compound and accelerate our progress over time. It's fascinating to me you were able to get to market as a new insurance company in a market that's extremely regulated, working with customers that don't look like most customers. Like, startups have no money and then only lose money for a while and have tons of risks. So, I'm just fascinated by this idea that you were able to launch with a product that felt good for most people, even though you weren't doing most of those layers on the back end because it takes years and years and years to be able to prove to regulators and underwriters and gain the confidence yourself as an underwriter that you actually can do that stuff. Yeah, and actually it comes back to breadth versus depth for me. So we went super deep and saying we're only going to cover venture back technology companies. And so most people looked at us like, that's a really small market, are you sure about that? But guess what? Those companies go on to become really big someday. And so by focusing narrowly, we were able to get really good at underwriting those companies. And that means we say no to a lot of business, right? We don't serve your typical Main Street businesses, but that level of focus is what enables us to do we do. Awesome. Travis, thank you so much for joining us tonight. Thanks guys, it's great. Hey listeners, Ben and David here back in the acquired home studios, we want to say a huge congratulations to vouch on their Washington launch and their Florida launch recently, but I can say as a Washington resident, I'm very excited for all of our Pioneer Square Labs companies to have the opportunity to use vouch. I've been waiting literally years for this. So it's about time indeed and all the Miami startups now. There you go. Our next episode will be the part two of the arena show with Jim Weber, the CEO of Brooks. I mean, I was just listening back to the segment this morning and truly an unbelievable business growing from like 20 to 30 million and revenue two decades ago to clearing over a billion dollars in revenue last year. Part of Berkshire Hathaway, deep personal relationship with Warren Buffett, purpose driven brand. There's just so many great things about that story. Jim is so wonderful. We realized we had to make it its own episode. Yes. So we will be launching that in a couple days and we really wanted to give it the space that it deserves. So if you aren't in the acquired slack, you should come join the 11,000 other smart creative members of the acquired community there. And we have one more friend of the show to think. And that is the soft bank Latin America fund. Now as folks know, their thesis has always been that the region was overflowing with innovative founders and great opportunities, but always short on that one essential ingredient of capital. The short answer is that they were right after all these years, they've been successful in deploying eight billion dollars in 70 plus companies. And they have one gigantic takeaway from all this that technology in Latin America isn't about disruption, but really just about inclusion because the majority of the population is underserved in almost every category from banking to transportation to e-commerce. And businesses similarly are underserved by just not enough great software solutions. A great example of this is portfolio company Jim pass that we've talked about on this show. They help employers offer Jim access and other services like therapy and sleep guidance to employees through a network of over 50,000 gyms and studios around the world. They've got this unique software platform. They're clocking double digit month over month subscriber growth as companies design hybrid workplaces. It's so cool. It's a global software company built in Latin America. Yeah, amazing. Great. So that's just one example of how soft bank is pairing great founders in Latin America with the capital and expertise they need to learn more. You can click the link in the show notes or go to Latin America fund dot com. Our thanks also to Vanta and vouch and to pitch book their whole team for doing this entire crazy thing with us. Oh my gosh. This was such a life experience. Oh, whoever would have thought seven years ago that acquired would be doing this. There were 44 people on and off the stage involved in the production of that event. So too many to think, but definitely the pitch book team came out and full force to put it on. We're super excited to share the Jim story with you in the story of Brooks and we'll be doing that in a few days here and listeners. We'll see you next time. We'll see you for the rena show part two. Who got the truth? Is it you? Is it you? Is it you? Who got the truth now?