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The Pinterest IPO

The Pinterest IPO

Wed, 24 Apr 2019 01:04

In the second episode of our APLUSS(Z!) IPO saga, we dive into the history behind the planet’s largest non-social social network, Pinterest. From The Pirates of Silicon Valley to the bloggers of Salt Lake City, the creation story behind this “productivity tool for planning your dreams” is far from your typical unicorn journey. Once labelled as the “next Facebook” by investors and press, ten years later both Pinterest-the-product and Pinterest-the-company are in fact anything but. Whether that’s a good thing or a bad thing… tune in to find out!


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the users used to drop by the office. That's so crazy to be. I know, and the woman dressed up as Pinterest for Halloween. Yeah. Yeah. Oh, here's ornaments for all of you. How many people work at your company? Great. All hand-made you 25 ornaments. I know. Great. Welcome to season four, episode five of Acquired, the podcast about technology acquisitions and IPOs. I'm Ben Gilbert, David Rosenpill, and we are your hosts. Today we are talking about a company that is not a social media company. Or is it Pinterest? For context, this is a company that has more users than Snap, though a little bit less than Twitter, is used by 80% of moms in America and is actually a pivot of an early failed mobile shopping app. But we will get into that. Indeed, we will. As always here in Acquired. This is episode two of the A-plus IPO saga. We are proud to be coming at you. Two days here after trading, we started trading on Thursday and then yesterday the stock market had the day off. We've got one day of data here. We'll be, of course, talking about the entire story of Pinterest, but I had a nice little pop in the market as well. That will touch on. Yeah. We've got so far, we have the PNL of the A-plus. Indeed. Indeed. All right. So listeners, today we are talking about a company's exit. And really that's what we do on every episode of this show. But there are lots of company creation topics that David and I can't help but discuss. And as many of you know, we have a second show for that, the limited partner show. So last week on the LP show, we spent an hour diving into a required topic for every entrepreneur, the term sheet. We went through line by line, analyzing each term of a standard series seed term sheet and, of course, offering our editorial on each one. If you are interested in hearing us, two non-loyers try to put it in as plain of English as we possibly can, you should definitely consider becoming an LP. And we have a big announcement today, as big news on that front. We have heard from a lot of you that you wanted to listen to the LP show, but you weren't sure how it worked. So we decided to change the sign up and offer every new person who joins a seven-day free trial, just so there's no need to take the plunge blind. You can listen right here in the podcast player of your choice in sign up in two taps. Only two taps. By tapping the link in the show notes or going to slash acquired. Yes, note the new and official name of the company glow. And as the person who works on the product behind the LP show, I am selfishly very excited to see how well the new trials feature work. So please do not be shy to check it out. Yeah, big congrats to bed and team for getting all that out. Thank you, sir. Our presenting sponsor for this episode is not a sponsor, but another podcast that we love and want to recommend called the founders podcast. We have seen dozens of tweets that say something like my favorite podcast is acquired and founders. So we knew there's a natural fit. We know the host of founders. Well, David Senra. Hi, David. Hey, Ben. Hey, David. Thank you for joining us. Thank you for having me. I like how they group us together. And then they say it's like the best curriculum for founders and executives. It really is. We use your show for research a lot. I listened to your episode of the story of Akio Marita before we did our Sony episodes this incredible primer. You know, he's actually a good example of why people listen to founders and to acquired because all of history's greatest entrepreneurs and investors, they had deep historical knowledge about the work that came before them. So like the founder of Sony, who did he influence? Steve Jobs talked about him over and over again if you do the research to him. But I think this is one of the reasons why people love both of our shows and there's such good compliments is unacquired. We focus on company histories, you tell the histories of the individual people. You're the people version of acquired and where the company version of founders listeners. The other fun thing to note is David will hit a topic from a bunch of different angles. So I just listened to an episode on Edwin Land from a biography that David did. David, it was the third, fourth time you've done Polaroid. I've read five biographies of Edwin Land and I think I've made eight episodes of them because in my opinion, the greatest entrepreneur to ever do it, my favorite entrepreneur personally is Steve Jobs. And if you go back and listen to like a 20 year old Steve Jobs, he's talking about Edwin Land's my hero. So the reason I did that is because I want to find out like I have my heroes who were their heroes and the beauty of this is the people may die, but the ideas never do. And so Edwin Land had passed away way before the apex of Apple, but Steve was still able to use those ideas and now he's gone and we can use those ideas. And so I think what requires doing what a founder trying to do as well is find the best ideas in history and push them down to generations. Make sure they're not lost history. I love that. Well listeners, go check out the founders podcast after this episode. You can search for it in any podcast player. Lots of companies that David covers that we have yet to dive into here on acquired. So for more indulgence on companies and founders, go check it out. All right, David. That is all I have before the illustrious history and facts. We're ready to dive in here. We are. Let's do it. So today we start our story in the 1980s, mid 1980s, early 1990s, special time for me probably probably was a little bit later for you, but for you Ben too. We're all all of us millennials growing up and there was another Ben, Ben Silverman, who was growing up in the middle of the country in Des Moines, Iowa around this time. And I remember growing up, my parents always used to joke whenever they talk about shipping me off to somewhere random when I was like being bad growing up. They'd say, you know, I'm going to send you to Des Moines. Family Des Moines is a really great place. Man. Anyway, Ben Silverman talks about how it is a really great place and it's going to play a big part in the story here. Have you been to Des Moines? I have not. It looks really awesome. It looks really awesome. Yeah. Is it part of the Quad Cities? Or is it? That is deeper than my knowledge on the area. On Midwest geography. Okay. Anyway, regardless whether it is or isn't Ben Silverman is growing up there around this time. And he is a middle child. He has two sisters, an older sister and younger sister. He comes from a family of doctors, of MDs. Both of his parents are doctors, they are ophthalmologists in Des Moines. His grandparents were doctors and both of his sisters would go on to become doctors later in life. So Ben thinks, you know, this is basically his destiny. He can't escape this. But he's a quiet kid and he actually says it a talk later that he wants to be known in life for the things that he makes, not the things that he says. Quite in contrast to your typical Silicon Valley unicorn family, this is going to be a theme here. Yeah. I was going to say, listen, Dave and I were chatting before the show. It actually takes quite a bit of research to find a lot of the best stories about Pinterest because they're a very sort of do the work and let the work speak for itself company rather than beaten a drum that many of their other companies do to attract talent and share the spotlight and be in the news a lot. It's just never really had that in their personality. No, totally. I mean, this is probably the most work we had to do researching the history of the company and founders in a long time. Not because there aren't great stories here, there are. We're going to tell them. But unlike Airbnb or Lyft or Uber, the founders Ben and Evan and Paul just don't talk about them. But we found them nonetheless. So Ben's going up and he's quiet kid. He likes to let his work do the speaking and he's very good work. He's very good student as you would imagine coming from the family that he comes from. He also supposedly collected stuff. Hard to verify if this is true or this was added as part of the lore later, feeling like I know Ben after watching basically every talk he's given over the last 10 years in the last couple of weeks. I actually believe him. Famously he supposedly had a bug collection where you'd have a awesome and you would pin bugs on. I think there was a Calvin and Hobbes. Yeah. He was about this. Yeah. So great. So Midwest. So Ben is a great student. Ben Silverman. Ben Gilbert was probably also a great student at high school. Silverman though goes to Yale and he does pre-med as he is destined to do. He majors in political science and does pre-med on the side. I remember I had tons of friends. I was in college right around this time too. Also do the same. Be pre-med but major and something else. One day though Ben wakes up. It's his junior year and he talks about he just kind of has this feeling that he's been doing pre-med and he's doing well of course. But he's just not sure that medicine is right for him. Not as destiny. It's not as destiny that he might have thought it was. He's interested in other stuff and in particular. And I can so relate to this because I was in basically the same moment in my life in history when I went to college. When he went to college was the first time he had his own laptop and his own dedicated broadband high speed connection to the internet. And he basically fell in love with it. He was like this is so cool. This is the industrial revolution of our time. And I'm a young person. I see this and he gets access to it in school for the first time. And he just starts tinkering. He builds a bunch of what he calls toys with friends while he's in Yale. He builds a website where you can try on eyeglasses. Remember his parents are ophthalmologists. So he's in college. He builds this website where you can virtually try on eyeglasses. I don't even know how he did this at the time with whatever web technologies were. Yeah, because in like 2014 or whatever when Warby Parker rolled it out it was like whoa it's incredible. Yeah. He basically invents Warby Parker. Just a little bit ahead of his time. So he's tinkering around with all this stuff and he decides you know I think I'm not going to go to med school. At least not right away. And so he goes and he talks to his other friends who were who were at Yale and also liberal arts majors but weren't pre-med and asked them what are you guys doing. And they're like we're going to all these consulting interviews and investment baking interviews because that's what you did. And Ben says okay cool I should do that too. He does the whole consulting interview circuit. He ends up getting an offer and joining a consulting firm which I think has been acquired now. I remember these guys corporate executive board. They were based in Washington DC and so he joins them. He moves down to DC after school and two big things happen there. Really important things that are important for the future of Pinterest. One he gets assigned randomly I believe to the IT consulting practice within CDB. He's like this is great. I love the internet anyway. I'm going to work on IT consulting related projects and he gets really into it and he starts reading TechCrunch which had just come out around. I remember this too. And he's reading about all these startups out in California like dig and you know Yelp was just getting started. This is the web 2.0 down at the web 2.0 era. And he's like yeah I really kind of want to be a part of this. The other really important thing that happens during his couple years as an analyst at CDB meets his girlfriend who would become his wife Divia and Divia worked also at CDB in the HR consulting group. So Ben's in the IT consulting group Divia's in the HR consulting group and as the story goes one night they're watching a movie in DC and they watch the Pirates of Silicon Valley which is I still have not seen I need to watch this movie. It's so I've heard it's so great. It's kind of like a crime that I haven't watched this movie. I'm not sure if it's more cringe worthy or more like legitimately awesome but it has so much of both that yeah I can't believe it was only ever a TV movie. I know and it's about Steve Jobs and Bill Gates and the rivalry between them and Microsoft and Apple. Highly dramatized in like whatever 90s or early 2000s sort of like camera angles and lighting and it's just so so utterly dramatic. There's this ridiculous line in there Ben talked about he gives a talk that I'll reference later where he literally has a slide and he has this this line this quote on the slide. There's this super cheesy line in there that I think Bill Gates character says there might be something going on in California. And according to them this inspires him and Divia and they're like you know what are we doing in DC? We got to move out to Silicon Valley and be where the action is. So they do a little while later this is this is 2006 I believe they move out to Silicon Valley out to Palo Alto. Ben ends up getting a job at Google in ad operations. Divia gets a job she wants to work at a startup so she gets a job at a cool startup right off Calab in in Palo Alto. You may have heard of it. It's called Facebook. She joins them in 2006. She's the first HR member she was doing HR consulting at CB. She becomes the first HR person at Facebook. I didn't know which is pretty awesome and it's also going to have a huge impact on Pinterest. Ben works at Google for a little under two years I believe he really wants to do a startup he knows like obsessed with tech crunch. She's tinkering with all sorts of stuff on the side and every night he's talking to Divia and he's like what about this? Like I want to work on this. And again supposedly they're having dinner one night and Divia is just sick of this. She's working at a startup and she's like Ben you know you might want to just either do this or just stop talking to me. And I could so imagine this. I'm Jenny and I've had many versions of this conversation and Ben's like you know what you're right. So it's fall of 2008 at this point and he decides he's going to leave Google. He's going to launch his own startup. He's going to live the dream. He has an idea and he's got a couple of friends that he's going to work on this company idea with and they want he wants to build a website that holds your that stores your medical history, your family's medical history. So not like an EMR but a place where you can store you know what what is your grandparents family medical history, your parents medical history you know your siblings and actually seems you know really relevant. So it's fall 2008 he goes off to do this. He quits Google he walks out and then like a week later we remember there's collapses. It's amazing. We'll get back later in the show to how impactful that event was on so many things in the world. So we've got a few of the four or five episodes now where that's been a turning point in the history of each of these companies. Yeah totally. And the most direct impact that that has on on young Ben Silverman and the company that would become Pinterest is nobody else who he was talking about doing with this ends up leaving and joining full time. I think some some people made him in a Google some people made him friends. He's he's talked about there were in PhD programs. Everybody's like nope the world's fall apart. Everybody go to cash keep your job. Don't do anything risky. Yep. And so Ben's out there. He's all alone. He's he's quit. He's gone. So he goes out and he tries to raise money. He has this idea this website he wants to build but ain't nobody. No angel investors or early stage feces at that point are investing in like anything. Let alone some random you know ad apps guy from Google who's a solo not technical founder. Come on the bottom is the best time to buy this is when you should be investing. Oh yeah. I can't wait to do the Airbnb episode hopefully later this year where we tell their version of this story which is also very similar. So he can't raise any money. He has no co-founders no ability to build a product. He does a bunch of things just to kind of pay the bills and get by. Fortunately Divya is you know working at Facebook and doing pretty well. So she keeps the keeps the the the fledgling family afloat. And they're still well well pre IPO at this point. I mean they hadn't found mobile yet. They hadn't this is this is still this is 2008. Facebook's doing well but it's doing well on venture dollars not on its it's real business model. Yeah totally. So Ben ends up moon lighting. He he helps design a product and a company called mighty quiz which was a Y combinator company. I think were they in the first batch. It wasn't the first but it was not the first but really very early. Yeah very early batch. They might have been in the same one as Dropbox. I think Dropbox was in the was Dropbox in the Reddit batch because Reddit I think was the first Dropbox man. Yeah it was it was first two or three years. It was definitely early on. They powered trivia games for other websites out there. It doesn't work of course but that's how he gets exposed to Ycomod. I was always wondering Ben goes back and he does talks at YC startup school. And I was like Pinterest did they do YC didn't do what but that's how Ben became involved with YC. He's doing this and he's looking for something to do. He he comes upon he realizes you know he loves this iPhone and the iPhone SDK had come out earlier that year in 2008 and it just started to open up to third party applications because remember the first year year and a half of the iPhone it was only apps from Apple. There were no third party apps on this. iPhone OS 2 that had the app store on the SDK. Yeah and famously Steve Jobs was against the idea initially of having third party apps on the iPhone. But yeah. Bezos style disagreed and committed and they shipped it anyway. Yeah. How different history would have been if that had not been the case. So Ben sees this and he's like okay this might be the wave that I can I missed the sort of Web 2.0 wave but this might be the wave that I can ride to build a big company here. And so he hooks up with another friend from undergrad from Yale named Paul Skiarra who very random that Paul would end up becoming his co-founder because Paul lives in New York is also not technical but Paul had a very important aspect to his background in skill set. He knew investors. He had been an associate at a venture capital for radius ventures in New York and he knew investors. And what was one thing that they needed money money and Paul of course was also saw the opportunity that the opening of the app store would unlock says okay great we're going to build a company we're going to build iPhone apps they decide to call the company cold brew labs because it sounded cool. Like listeners we try and pour over like what's the real origin story what's you know what is it like like we're doing a yo this is like this is all we could find like it that it sounded cool and they just rolled with it. Yeah I mean I think that was the actual story. Paul though because you know they need to raise money and Paul has all these investor relationships they decide it's natural he should be the CEO of the company. So he's in New York and Ben is out in Palo Alto and he's the CEO and they hit the fundraiser they decide well first they decide what are they going to do to build iPhone apps and they Ben has this idea I actually don't know who but there was better Paul they come up with this idea for a product that they call to TOT and we should pause here before diving into what to is this was like aha moment number one for me doing the research that Ben Silverman was not the initial CEO of Pinterest. Yeah I think that David you even texted me like whoa did you realize this this is just one of those things that ends up buried in the war that's the sort of super fun when we're diving in and trying to figure out what's going on Ben while the sort of visionary and you know the person that we chose to start the story with and in his upbringing was not the CEO of the company. And despite having left his job at Google earlier and been searching around for a company to start the decide that they're going to build this this app called TOT and release it on the app store. How they got the idea for this I don't know the idea is that you get all these paper catalogs you know direct mail catalogs sent to you in the mail for all sorts of things you know fashion home decor you know pottery barn what have you wouldn't it be interesting if instead of getting those in the mail you could get them on your new smartphone device David that is just what I want just what I want. Oh man I can't wait to read more catalogs and so they just they're going to do this but there's no like API for you know getting products and catalogs from companies so they started getting catalogs and just like by hand ingesting the product data into into the app like typing in like oh here's this you know dress at forever 21 it's priced at this like take a picture of it here's the picture. So talk about doing things that don't scale. And this is 2008 like there was zero evidence that anyone wanted to do anything that resembled shopping on mobile yet. Yep and a 2008 beginning of 2009 they so they think okay we've got this great idea we're working on this product now we're going to we're going to go out and we're going to raise money with you know our new great VC connections everybody turns them down they meet with like everybody in Silicon Valley people more or less laugh them out of the room rightly so at that point in time. So they get so desperate this is this is later on in the spring and actually David I'll I'll push you on rightly so because if they had invested they would have been the first investor in Pinterest so it is interesting it's like rightly so on rightly so for this idea yes well and that's the that's the art of of early stage investing which will we'll get into more as we go here so they're so desperate for money to pay the bills that they start applying to business plan competitions at colleges that they didn't even go to they're just doing anything to try and get some money and presumably also some money to you know pay some developers to actually build this because they can't build this according to bed they go to several they go to one I believe this was NYU I couldn't I couldn't verify but I believe this was NYU's business plan competition they end up getting second place in the competition so they don't get any prize money but what they get for coming in second is a meeting with a VC and that VC happens to be a VC in New York a brand new firm that has just gotten started at this point in time which side note must have been incredibly difficult to start and raise a first time fund in the middle of 2008 2009 man it was hard enough doing it at Wave in 2017 2018 and David to double down on that imagine how hard that is you're an early firm you're making one of your first few investments and it's Pinterest yeah exactly well so these guys first mark capital which is now great much larger VC firm based in New York they just got started they were the second place door prize in this competition and so they meet with Paul and Ben and this app called to and for whatever reason they take a shine to them and they say okay great what are you guys a couple hundred K like let's see what you do with this so first mark becomes the first institutional investor in cold brew labs you can read the the form D that gets filed Paul signs it as the CEO of the company invest a couple hundred K and we do this part later but just to sprinkle some numbers on this Pinterest their IPO price was at at $19 a share and when they open trading it was at 20 almost 24 bucks a share these shares were bought for one cent per share yeah so they do pretty well and I believe first mark still owns about nine nine nish percent of Pinterest man the art of of early stage venture capital embedding on teams great investment there with these resources they they are some developers the ship the app but nobody releases it because you know again who wants to really be shopping catalogs on your at that point in time 3.5 inch iPhone screen there's a few things there it's like no one was conditioned to that behavior yet phones weren't rich enough and their functionality to sort of give you the confidence that doing things like shopping or booking travel or anything on them was was like actually going to work and you you had sort of the the richness of the software required to do those things at this point in time you had 3G I think you were past the edge days of the iPhone but you know loading high quality images still took a while totally you know this was the era where trying to update your app took like two weeks so you know anytime that anything was wrong it it's not like that we have sort of the number one update speed that we have today but number two the the ability to change a lot of stuff on the server I think the apps weren't that sophisticated yet and had just a lot of really heavy stuff on the client side and so I think that not only were was there only a small segment of people willing to do this crazy thing called shop on their phone but then even more so it was really hard to actually iterate on this thing yep hard on all fronts so one day later on a couple months later in in 2009 Ben is visiting New York I assume he was visiting his Paula still there and a mutual friend says to Ben hey there's this guy here I know that I'm also friends with you guys seem really similar like you should just like grab a drink I think you would really like each other and meet while you're in town the friend he that the mutual friend was talking about is a architecture grad student named Evan Sharp and what Patrice really keeps finding the exact right people for these roles with just the right backgrounds exactly people at the right time fan as with all of these stories it's so funny when you dig into them you know the number of just random events that lead to these incredible stories and companies being created you know the same thing with the lift co-founders meeting on Facebook so Evan was he had a architecture background but he actually had some super applicable skills from from tech companies right it was it was not yet not yet so he's just an architecture grad student in New York Ben and Evan grab a drink they're chatting and Evan's you know saying like he has talking about how he he loves you know he's so into architecture and design and he's curated he has thousands of architectural photos and drawings and designs that he's saved online but it's so hard to keep them organized and he's got this whole system and and they're riffing in bed is like oh yeah like I love collecting things too and yeah I had a bug collection and I and and I've had this idea of of you know I love tinkering with stuff and like one of the things I'd always wanted to build is is a product that would let you collect things online and save them and organize them and they start riffing you know and eventually Ben's like man like we're really we're really in sync you should come join me and Paul at cold brew and and like work on what we're working on on toaten like maybe we can maybe we can move the product in this direction Evan though you know he's still in grad school and and he's super passionate about architecture and design and he does want to work in tech he wants to be a product designer but he's not super interested in a really early stage startup that doesn't have a lot of great prospects so in fact what he's interested in and I don't know if he already had this lined up but when he graduates from architecture school he goes and he works at Facebook as a product designer but he's like you know I like you guys I don't think I want to do this full time and drop out of school but but I'll work with you on the side and I want if he didn't have the job at Facebook yet I imagine this helps him in his interview process that he's working on the side with with a startup that would become Pinterest so they they all start working together and there was you know along the same vein tote did have this feature that they already had in there that let people save items for later that they were browsing in the catalog and the very few people who were using tote they all seem to be using that and as when they talk to users they seem to kind of like it you know and it makes sense I was talking with with my wife Jenny about you know what she uses Pinterest for these days and likes it and you know the analogy that she said to me is you know Pinterest is like the online version of when you're reading a magazine and you see something interesting and you tear the page out or you fold the page down to save it for later and that's literally what was happening in tote and so they decide to focus on that and and build out this feature a little more and they combine it with you know sort of this broader idea like okay let's get beyond just shopping and catalogs but kind of organizing everything that you come across on the internet so Evan designs it in his free time and he comes up with probably the most important unlock that really makes this happen from a product standpoint he comes up with the grid layout now it doesn't seem all that remarkable you go to Pinterest and everything is laid out in a grid of images but at the time this was this was really novel yeah the idea of laying out all these images in a grid in front of you but there were there were a couple things one it was it was liquid and adaptable so depending on the size of the images the grid would readapt and make the images all look good instead of resize to fit in like this very specific size squares the other thing that they did night I don't know if this was intentional or not but the grid was oriented around vertical photos not horizontal photos interesting to allow more more of them to to be across the screen at once yeah I imagine that's why they did it and and at the time the first version of this of Pinterest was only on the web not on mobile and and it even despite tote being you know coming out of Colt Blue abs to build labs to build mobile apps they said this product needs to live on the web wouldn't even come to mobile until 2011 but then when it did this vertical image prioritization was perfect for mobile I remember back at this time when Pinterest shocked the world with what is canonically the Pinterest layout there were so many little clones like everybody tried to add a Pinterest style view to their product or you'd see on hacker news oh Pinterest for X and Pinterest meant that fluid layout that was a sort of the board that was laid out in the you know adaptable fluid way to layout images there's sort of an interesting metatopic here that products get shaped using the technology available and what is easy using that technology and so it makes sense that on the web for the longest time what we saw were tables and what we saw were you know sort of articles that had in line images and it's not an obvious and easy thing to do in early HTML and CSS to lay something out in this way and particularly to do infinite scroll and a lot of the things that we come to expect knowing that these layouts exist now and it's it's fascinating to think whenever you're designing a protocol or a platform or a core technology that you're really shaping the you know first five years or whatever the first several set of use cases of what people actually do with it Evan he's an architecture grad student in New York who designs this and would go on to be one of the most influential you know internet and mobile UI paradigms you know the last 10 years super cool so they have this they're pretty excited about this new version of the product it's now November 2009 Thanksgiving and and over Thanksgiving uh Ben and Divya are at Thanksgiving they're watching TV Ben had been you know trying to think about what are we going to call this new product because tote doesn't make sense anymore and of course talking with Divya about it they're watching TV right assume at least most US listeners are going to remember the commercials that were all the rage at the time the dosekies commercials with the most interesting man in the world and those are commercials were so great how is this related David where are we going it's really it's related because they're watching TV a most interested a dosekies commercial with the most interesting man in the world comes on and Divya is like that's it that's the name for the company Pinterest because they were talking about pinboards and the interesting man in the world and that's when inspiration strikes and that's where Pinterest is born wow yeah so I don't know what the moral of the story is there like spend more time watching TV with your loved ones that's it I think I mean uh it's been more time with your loved ones feels like a great lesson to take away from any of this yeah yeah um so great they've got a name for the product it's all they've got this super innovative grid UI they're ready to ship January 2010 they launch they email all their friends in Palo Alto everybody that they know from Google and Divya's friends at Facebook and and and Evan of course is you're going to Facebook this time and nobody uses it everybody's like what is this for what are we supposed to do with this what's what's interesting to me too about this point in this story is it's not like they had done an exercise and said okay who's our core target user what is our ideal customer profile you know we all know today Pinterest is I believe it's like two thirds used by women and they didn't come up with it and say okay what product can we build for moms you know it was very much here's a thing that is very agnostic to who's using it and what they're using it for and let's just see I'm sure you'll get into this but like how how did they find that the right use case and who the real target user was yeah well so uh before that happens though they're they're trying to do everything they can to get their friends to use it to you know do growth hacking you know it's all the rage of the day so what they did what they think is gonna more be really cool they uh they go to the Apple store Ben goes to the Apple store in Palo Alto I don't know if he does this every day or just for a couple days and he just pull it up all the computers yeah he goes to the he goes to all the computers and he changes the home screen to Pinterest and all the computers in Palo Alto uh has precisely zero impact they um they applied a tech crunch disrupt and they get rejected uh it didn't they like pull some strings to like get in somehow I guess first mark was a sponsor uh and uh they pull some strings and they get them like a booth at tech crunch disrupt but they're not part of you know the battlefield like it's things things are bad everybody's pretty down but there is a ray of hope and there's some of the people that they've been trying to get to use it uh they were literally anyone they know were Ben's friends back in Des Moines uh that he grown up with and these people were like so far from Palo Alto techies but they seem to like it and the other thing they had going for them back in Des Moines was Ben's parents and Ben's mom you know they're still ophthalmologists in in Des Moines they've all these patients and Ben's mom just starts telling all of her patients to use Pinterest this is like the equivalent of like when uh the the snapchat story where it was Evan Speagle's mom was a teacher at school uh no no no his cousin I think all right it's right his cousin was yeah high school student and they were using it to message yeah yeah because um I message another apps were banned messaging apps were banned yeah so great but they all had their iPads this is like the Pinterest equivalent so they start seeing this and oh yeah okay interesting I'm not sure if this was related or not but on a whim um Ben goes to a conference in Salt Lake City uh that that January called the Alt Summit which is a big women-focused design and blogging conference I think a friend had suggested that he should go there but I don't think he had really that much intention of oh this could be this could be the promised land of our user base he goes there he's talking everybody about Pinterest gets a bunch of people signed up they start using him and then on the flight back from Salt Lake City to San Francisco uh well at the conference he meets he meets a woman named Victoria Smith who's a blogger who lives in San Francisco she has a blog called SF Girl by the Bay she's actually moved to LA now which is of course breaks the hearts of you know all San Francisco people but uh at the time she lived in San Francisco and so they kind of hit it off and they're on the flight back and uh they decide like hey let's do a collaboration together so Pinterest is gonna gonna work with SF Girl by the Bay and we're gonna do this thing called pinnit forward where uh Victoria will create a pinboard with all the things that mean quote unquote mean home to her things that inspire her of home and then they're gonna tag another blogger and ask the next blogger to do create a board doing the same thing for them and then just kind of pass it around through all the bloggers that are in this that we're gonna have been at the Alt Summit and uh they do it sounds like a growth hack it sounds like a growth hack the bloggers get really into it and they of course all have their like you know small but rabid fan bases of their blogs their audiences love it they start using Pinterest low and behold things start to turn around and and the company starts to work and so this is a total aside this is like this is 2010 a couple years later 2012 Pinterest is now a hot start up in the valley I'm starting business school at GSB at Stanford and uh in my electronic business class we had this great professor high Mendelsohn he's like a to name for a class I know electronic business is he's like a old school guy this is a holdover but he's super smart and he made us it like the first week in class uh do the same thing on Pinterest and I never understood why he had us do this random assignment on Pinterest and now I know this is what this is now for a start yeah the pinnacle it exit but he didn't tell us it was the pinnacle it exercise it was just like I'll you guys like go create a pin go create a Pinterest board of your hometowns and what like home means to you and only now years later do I see where you get the idea for it it's interesting thinking too about why it made so much sense for bloggers because for them whether it was part of their own process as a tool so you could imagine it it's kind of difficult to go and collect good links and good images and put them somewhere if you're trying to go look at a hundred different websites and then write a blog post about sort of a synthesis of all this stuff so it's both an interesting tool there but then also it's probably the best way to showcase at that time a set of things that you want your your fans or followers to go and look at much better than you know making a separate WordPress blog post for each thing that you want to show off totally there's there's a great talk Ben goes back to the alt summit in 2012 and that's where he has the this the slide that has the there might be something going on in California in that talk but one of the questions from the audience is this woman who says Pinterest is something like the best thing that has happened to my business and my following and the worst thing that has happened to my actual blog because I now do everything on Pinterest like it's just so much it's so much a better vehicle for if you're you know a design blog and you're sharing ideas and products that you find with people to use a service like Pinterest than it is to use a blog the site starts growing about between 40 to 50 percent month over a month at that point it's still really small but it really starts taking off and it sustains that growth rate for years and I mean that's that's a magic number for startups if you're growing 10% week over week or sort of that 40 50% range month over month I mean that is you are a high growth startup and that is that is how you know you're on to something yeah all these angel investors that two years ago would would barely even take a meeting with Ben they start to notice that something's going on there so in in May of that year Sean a Fisher who was the head of M&A at IAC she had started using Pinterest probably heard about it from a blog and she loved it she emails them and she's like hey guys I want to invest their minds are blown to catch me up what what your sister's after they were out of private beta they're still in private beta and they would be in private beta for the next two years so you had to you had invites and you can invite your friends so the site is still growing like crazy but and a lot of the invites were distributed via these blogs ah interesting so Sean invests and then she introduces Kevin Hartz who's the CEO of event break co-founder to you of event break with his wife Julia at that point and also prolific angel investor in Airbnb and others he invests friend of the show Scott Belzky invests and there's like serious momentum behind this company this is a fun aside but also part of the story July a couple months later they do the first real life Pinterest meetup with Victoria with the SF girl by bay uh by uh blog at a store in Noi Valley called Rare Device which is now moving to Hayes Valley but is like right down the street from from where Jenny and I live now and it's too funny that's the first physical Pinterest meetup and Ben goes and all these people come at it's not it's not like a huge amount of people but they're all like so engaged and they love the product so much and they're talking about how all the things that each other is pinning on about their homes and about everything else on on Pinterest is inspiring them to go do these projects and they're supporting each other and working with each other on these projects and Ben is like this is it we have figured out what Pinterest is who it's for and we're gonna double down on this and at this point Ben is doing things like giving out his personal phone number giving out his address saying like hey please reach out to me anytime you have any any feedback or you really started doubling down on building this sort of wildly intimate relationship with the Pinterest users around this time yeah and meetup start happening all over the country and so at this time this is this is great remember Devia was the first hr person Ben's way now I don't think they're married yet but a girlfriend soon to be wife Devia was the first hr person at Facebook Ben is so inspired about how fast they have to move here he copies he gets a poster of Facebook's move fast and break things motto and he makes that the Pinterest motto and then redesigns it they redesign it in Pinterest font and you know red lettering and they posted all over the office so the opposite of Pinterest's like actual mantra as a company years and years after that yep but in the in these these very early days this is when he realizes okay we gotta go we gotta move fast so they've just raised this angel round they keep growing and then the next spring they end up raising a ten million dollar which was series a from led by bestamer which was a very large series a for the time which which closed in May I want I want listeners pay attention to the timeline here this round closed in in May just to continue tracking the share price here that's at 17 cents a share yeah 17 such a share well and what was interesting about the so Sarah to Bell who's now who's a great investor now a GP benchmark she was an associate at bestamer at the time and she had heard about about Pinterest and she had found them and she had lobbied the firm to do it and Jeremy Levine the partner who ended up leading the deal he was coming out to San Francisco one day for to meet with a total he writes black post to meet with minted another company and she convinced him like hey we gotta go down to Pellow out so we got him you with these Pinterest guys and Jeremy had like 10 minutes before his flight was like okay fine go go down and then ends up canceling his flight stag and they and they do the deal but it was it was like I was like supposed to didn't lobby it it was supposed to be a longer meeting and then there was traffic because it was raining or something and by the time you got down there there was only 10 minutes for the meeting and then of course it's interesting enough that you just skip your flight yeah but yeah like I think we should put a stake in the ground right here and say just let's notice a trend of amazing women doing things like naming the company like pounding the table to make the investment I think Sarah should get a huge amount of credit for this spotting it super early exactly you know it's it's w comes up with the name it's Victoria Smith and the alt summit that which is all women focused bloggers and designers that come you know lands the the product market fit for the company it was it was Shauna had I see you who was the first you know elite angel investor to recognize the potential the company and want to invest and then it was Sarah who found them and and led did and pounded the table to do the series a at at the same time this is super fun so s.v. angel on Conway's firm they had passed on the company during the angel round and I a great friend of ours Leslie King Cade was working at s.v. angel at the time here in Silicon Valley and Kevin Carter who was also there at s.v. angel he was like man I think we might have missed this during the angel round that had happened with with Scott and and and Kevin and Shauna the past summer and and maybe we should like see you know we don't really do series a but like we might want to really try and take another look here and so Leslie and Kevin lobbied within the firm that s.v. angel that okay we made a mistake we should try and push our way into this round too Kevin specifically was like Leslie what do you like what do you think this is a female focus site or at least that seems to be the user base so Leslie pulls together a focus group of three women I think at the firm and basically went back to him and said yeah I know we passed but there's there's no way we can miss this so s.v. angel ends up coming in to this series as well and then this is so great both Sarah and Leslie Sarah leaves best summer Leslie leaves s.v. angel go and join the company as early employees and and we have to give shout out to Leslie too she's helped us with a bunch of these stories and research here and she's now she now runs the office and is and is chief of staff to the CTO at Convoy of in Seattle which is another great company that will be an acquired episode somewhere. Yeah thank you Leslie thank you for the stories that are to come in this episode and listener as you can find links to some some cool posts from Leslie's Instagram over the years from 10 employees onward at Pinterest. Yeah it's super fun go look at these these pictures that Leslie has documenting all this because this is the first time we've had like actual visual accompaniments to the stories that we tell here. Yeah because three different offices and yeah yeah super fun so we're now in July of 2011 they hit a million users remember it's still not open to the public you still have to have an invite to join in August of 2011 they're sure they listed as one of time magazines 50 best websites which actually meant something back then now probably less relevant remember the it was May when the series A got done we're still in August and and recent Horowitz spearheaded by Connie Chan who was on the deal team at the time there had gotten wind of all this great stuff that was going on at Pinterest and they come in Jeff Jordan and Connie come in and lead the series be just a few months later in the company there is 27 million dollars at a 200 million dollar valuation yeah for those keeping track at home share prices now up to 72 cents and in that time from May to August the valuation goes from 40 million to 200 million. This is what happens when you hit that exponential growth curve so they now have tons of resources a couple months later though in April 2012 a transition happens and this is I mean really was at this point a long time coming and probably had de facto already happened if not officially Ben Silverman finally becomes the actual CEO of Pinterest in April 2012 Paul leaves the company very amicably ends up doing a few things and he is now actually the chairman of a electric yeah an EV tele company vertical takeoff and flying cars company yeah called Joby Aviation oh that's awesome yeah super fun it's an LPs show prediction for the what was that from our 2019 predictions yeah you Vitaal who becomes the thing that's bringing the the growth just continues on a tear so the 2012 presidential campaign is in high gear at this point in time and Obama is running for his second term and Mitt Romney is running against him and both actually first in Romney Mitt Romney's wife and then Michelle Obama joined Pinterest and on the campaign trail start you know building pinboards I forgot about that their life and inspiration and it is huge for huge for the company in May so we're now one year from when the series A had happened the bestamer and sv angel series A we're now in May of 2012 Rakuten the Japanese e-commerce company comes in leads a hundred million dollar investment in Pinterest at a 1.5 billion dollar valuation man think about when you're raising money for a company and you're like you're selling 20 to 30 percent of it the leverage that they had to have at that point to say sure we'll accept a hundred million dollars but it's going to be on one for one 15th of the company yeah wild you know when Leslie had joined she had joined in November of 2011 so just a few months before she was the 10th employee so they were only like 10 people at the company is this a good time to talk about the really forward looking investment in general administrative uh absolutely infrastructure okay so listeners one thing that if you remember one thing from this episode to take away it's Pinterest thought so far ahead on a lot of things that most companies say oh we'll think about that later think finance think HR think people ops think workplace uh think culture it was amazing starting really at the you know very early on um from the company that Ben wanted to build and also you know in bringing Leslie and an employee 10 really starting to invest ahead of their growth rather than you know a ship that's burning down and you're trying to patch it well it's on fire I feel like this is really where the story of Pinterest and history of Pinterest diverges from a lot of your typical kind of Silicon Valley hyper growth company they they just they done the A then they had this crazy growth they'd done the B a couple months later and like your average Silicon Valley company at this point would have been like great let's pour all this money into growth and like go go go and to Pinterest and and Ben's credit I think in the long term uh but this really impacted the trajectory of the company they said now is the time to pause and build the foundation to support this hyper growth that we know we're going to go through so yeah they brought in Leslie as site operations manager they got really serious about hiring executives and they start bringing over again remember divia is head of eight was the first HR person at Facebook they start bringing over some great great great people from Facebook uh to come in and build out all the infrastructure around the company so a guy named Tim Kendall comes over and Tim had been an early Amazon guy and then had joined Facebook also very early was head of all monetization within Facebook he joins Pinterest in March 2012 at first running product he then eventually runs product engineering and all of builds the whole ads business for the company he becomes president of the company they bring over Barry Schmidt who was running marketing and communications at Facebook he comes and joins Pinterest uh Don fall who was running operations at Facebook comes and does the same at Pinterest and really a whole suite of and I remember I've lots of friends who also were at Facebook and moved over to Pinterest at this point in time and they start really building out a lot of the senior management and functions to scale up the company and all these people end up staying a really long time uh so Tim is now CEO of uh company called moment uh but he stayed about six years uh and built out all of these things at at Pinterest the other thing that they start really investing in and playing to their strengths is women engineers and women on the engineering team and this becomes a huge ass I mean this is well ahead of uh you know all of the all of the things we'll cover in the uber episode philosophy was our our team across all functions should reflect our user base or you know trend much closer to that than most of the industry so they have an early Pinterest engineer named Tracy Chow really becomes uh an absolute leader in recruiting for the company and diversity and uh in engineering and in Silicon Valley more broadly Pinterest has way higher percentage of female engineers than your average Silicon Valley company um and a huge asset to them it's interesting I was looking at it right before this it was it halvers around 2526% of their their engineering team right now a fun story too around all this time and right as Leslie was was joining the company so they had been in Palo Alto and their first office there which you can go look at all our photos and their great early photos they end up moving to San Francisco and this was a huge moment at the time I remember this like because Palo Alto was still headquarters of Silicon Valley and where startups were and there were very few companies that were in the city and Pinterest moving up from Palo Alto to SF was the start of really the center of gravity shifting up to San Francisco and it happened because Tim had just joined Tim Kendall and he had a friend who knew about they were looking for a big office space to support all this all this hiring they're gonna do this is the check-in factory yes he had a friend who knew about an abandoned chicken factory in Soma in San Francisco right next to the Caltrain station like perfect location and uh and so they jumped on it and the Pinterest now the core of what's now the Pinterest campus right around the Caltrain station there started in an abandoned chicken factory they have it they have it so through all this time though and all these fun stories there's no revenue there's no business model like the product is seeing tons of usage and engagement and growth but they're not making any money not a dollar revenue and and they're even making noise about the fact that they're not they're getting pressed for this they're getting you know Ben Solarman's getting asked a conferences and his party line is we want to be really thoughtful about this we want to have something like measured growth or thoughtful growth and we want to do monetization when we feel it is right for our users which they towed for years after you would think they would start experimenting with monetization which is too and also fits their personality but also they have a very traumatic experience with this right after the series B but before Tim Kendall joins to come in and and ultimately build out the ad and monetization platform they were seeing that one one of the things that started happening on Pinterest from the early days and especially coming from the blogging community is people posted pins and the pins were based on they put affiliate links in them so when you click through the pins the link it would be an affiliate link to whatever the retailer was that was selling the product and then the bloggers or whoever posted the pin they'd make a they'd make a cut on that transaction and so Pinterest definitely saw that this was going on they thought well this is pretty interesting it was probably designed as an experiment from the get go but they worked with a company called skim links in early 2012 and they without warning they pulled all of the affiliate links rewrapped them with skim links powered Pinterest affiliate links and Pinterest took over all those affiliate links that were running through the site it caused a huge uproar and to pinch it Ben and Pinterest credit they they pulled the plug on it immediately and they apologize and actually later on in 2015 they would kick all affiliate links period off the platform and just ban them totally but it was so powerful and demonstrated the monetization potential and Pinterest place in the commerce flow that for years afterwards they were still getting checks from like that week or two that they had affiliate links on they were still getting affiliate checks and it was like a very powerful way to prove the potential here yeah but then they bring they bring Tim on and they don't do anything Ben is eluded to for for the next two years around monetization after this 2014 is when they started yep it was mate May 2014 they launched promoted pins and by this point in time they had built all the product and engineering and ad sales functions and organizations to do this right they launched promoted pins the first promoted pin is from vineyard vines the the east coast fashion retailer it goes well it's they work just like we talked about with Emily White on the on the Instagram episode they work with a few select partners to start and then in December 2014 they open it up to everyone and it starts working really well so much so that in march of 2015 there's so much hype around the company they were about to hit a hundred million users they've just launched this advertising platform promoted pins that's going well they raise at an eleven billion dollar valuation going from they had raised a few times that's excessively higher valuations from the one point five earlier but this is a massive jump up this is a pretty firm commitment to we're going to be a public company it's really hard when you raise money at higher than a ten ten billion dollar valuation to say you know we're on an acquisition track of some sort yeah not just a public company but like this is the next Facebook you know there are all these people that have come over great people from Facebook there's all this potential the ad platform is working super well user growth is going great you know think about this eleven billion dollar valuation march of 2015 and we'll get into the IPO just now so that's been four years yeah four years since an eleven billion dollar valuation so things do continue to go well however user growth at this point right after this basically flat lines and they had just hit a hundred million users but as we've been alluding to they have started having a huge problem they've saturated most of their core target market in the US they do eventually start going internationally back in starting in 2016 2017 and that reignites growth but they just can't get men to use the product and is still a big issue to this day yeah that's a flash forward to some some numbers from the S1 listeners so today in the US they're up to what 250 million users but globally but in the US here it's 82 million if you go and you look three years ago in q1 of 2016 that was 65 million users in the US so when you look at their very nice user growth albeit not monetization growth internationally and compared to the United States international looks like oh great a high-growth company US looks like okay it's been pretty flat for a while when they did that big fundraise the vision like we were saying was this is going to be the next Facebook and I think what happens over the next couple of years is they realize the market realizes this is going to be a great company but has a very specific target market that is not every person in the world a very specific target market in a very specific time and place for use rather than all day every day like Facebook so that said though the monetization engine starts really working by 2016 two years after they launched it they did 300 million in revenue in 2016 2017 that grows over 50% they do 472 million in revenue 2018 that grows hugely again they do 755 million in revenue which is a serious amount especially given the and speaks to the power of like they saw with the affiliate link test the power of where they sit in the commerce flow that even though they have a relatively smaller user base compared to other big social networks there's incredible monetization potential here yep if you think in like a porter's five forces since they they have a tremendous amount of power in this value chain from when the user sees something they're interested in into where Pinterest can sort of steer their attention and how they can derive monetization from doing that they go into great detail in the s1 but this isn't just point of purchase it's awareness it's reminding people about the product it's steering them to a purchase and then it's actually executing the purchase so it is sort of all across the lifecycle of you buying something on the back of all this just last month in March of 2019 two very big things happened from the company to very big announcements first Leslie Kilgore joins the board do you remember Leslie Kilgore fed I do when I was trying to remember from where so I went and looked up on LinkedIn I thought it was something where I like it may have known her personally or something like that and then I looked up on LinkedIn and I was like oh previous acquired episode yes it's almost like we know her personally the acquired superhero with the writing shotgun alongside Barry McCarthy from our Netflix two party Leslie Kilgore who was the CMO and Netflix and now on the board it Netflix yeah yeah I think that's right so she just joined the board of Pinterest which is awesome I love it would love it when the heroes and not Carl I can come back into these stories and then of course second on March 22nd Pinterest files publicly files it's s1 to go public and then over the next week and a half as we covered on the lift IPO episode the lift IPO happens we'll talk about that in a minute during narratives but when Pinterest sets the range for its IPO on April 8th this is after the dip in trading from lift they set it at 15 to $17 per share which equates to about a range of eight and a half to 11 billion dollar valuation below the last private round which they had done another private round in 2017 that valued the company at 12.3 billion so this is pricing below it is and and listeners like they've done a series D series EFG a G1 or something like that and then they stop counting the letters but there's six rounds that are in this sort of 200 million 300 million dollar range of amount of money that they're they're raising they had that rapid acceleration in valuation and then continued to raise sort of hundreds of millions of dollars over and over again somewhere around that price point for a while as the user growth especially domestically was was flat lining so them on this past Wednesday April 17th the price the IPO at $19 to share above the range and then equates to a 12.6 billion dollar market cap very slightly above the last private valuation and then on Thursday they start trading and they pop up 28% close at $24 and 40 cents a share or a $16 billion market cap so a nice you know nicely above the last private round but still not a not as 10x here the share prices now above where every shareholder bought so you know we've only had one day of trading and I think we can discuss this but we saw sort of what happened with we lift in the couple of weeks after they they started trading but from what we know so far it looks like the strategy of pricing modestly and being below the last round and then letting the the pop sort of happen in the market has worked yeah as opposed to lift which we saw increased its range during the red show several times then priced above the red show then popped big time on the first day and then of course has been down since then so if there's one thing we should probably learn for ourselves on acquired is it's very likely we'll see a pop on the first day no matter what and then it's you know in the weeks and months that follow that we should really be paying attention yeah yeah so you know I think we and everybody were very excited and still are very excited about lift in their IPO but there was a lot of euphoria that has been tampered over the last several weeks so let's go into to narratives here so listeners what we decided to do in these IPO episodes is walk through what the bulls are saying and what the bears are saying and that way as we get into kind of our discussion we can kind of have a baseline representation of both sides on the bull case I think their growth rate relative to their comps of Twitter and snap is really encouraging they're growing much faster than than snap or Twitter to put some some numbers behind that Pinterest grew its user based 23% last year Twitter and snaps user numbers decline and so when you think about sort of this this tier of of ad based you know internet social I think we can leave social out for for Pinterest social ish business models platforms platforms yes that's at base platforms yes very interesting to compare there and and and very promising the other thing is and this is from a great financial summary on seeking alpha that we'll put in the in the show notes if the growth rate for both revenue and expenses stays the same in 2019 as it did in 2018 Pinterest will be profitable they'll earn pre-tax 65 million dollars because of the way that the business is monetizing well and user base continues to grow especially internationally more monetization domestically and then growth internationally there's really going to be a business here and and I think you got to really whip out your discounted cash flow models to try and understand is it is it worth 13 billion over some time frame but contrasting this against other IPOs that we're seeing recently where there may not be profitability in sight wouldn't shock me if it happened in the next year 18 months yeah well Pinterest is a classic case of the historic technology company business model of very high fixed costs that and basically zero variable costs they get leveraged of over a large user base and once that user base passes a point where the revenue from per user is is covering the fixed costs everything above that is basically pure margin now that is definitely not the case with marketplaces and especially real world marketplaces as we saw with left and we'll talk about soon with you where but doesn't mean they're bad businesses but it's just a very different business structure right do you mean else in in bowls before we go into bears you know I think the the bowl case we alluded to this earlier but you know I think Pinterest actually does a really nice job in the s1 laying this out and and and Ben has the silverman has always said this about it that it is you know you were joking about not a not a always a social network is it not a social network you know in the s1 they say Pinterest is the productivity tool for planning your dreams dreaming and productivity may seem like polar opposites but on Pinterest inspiration enables action and dreams become reality visualizing the future helps bring it to the life in this way Pinterest is unique most consumer internet companies are either tools or media Pinterest is not a pure media channel nor is it a utility it's a media rich utility that satisfies both an emotional and functional need etc we call it discovery and I think that is perhaps one of the strongest book cases here is that for product discovery there is nothing quite like Pinterest in the funnel you know for Google Google serves demand fulfillment better than anything known to man you know Facebook also serves discovery to a certain extent but I think it's not quite in the same way or as effective at it as Pinterest is Pinterest is where you go to specifically look for something at Facebook you're being shown products as you're looking at other things the Facebook newsfeed is like the best ad format of all time but it can be a little disruptive yeah it's like ads in a newspaper whereas to bring it full circle Pinterest is like browsing a catalog where you are intending to to get inspiration and then act on that inspiration yep so the biggest bear case at least to me is that they will not be the only ones to own this market for long we've seen Instagram before try to get into both commerce and a Pinterest style functionality of discovery both of them have not gone well their recent effort into commerce is much more serious and they've launched collections which is going to look a lot like Pinterest boards if Instagram can do to Pinterest what it did to Snapchat with stories they'll be in big trouble but I think to flip back to bull real quick it's a reasonable argument to make that Pinterest actually fulfills a much different emotional need when you open that app then Instagram does and Instagram may not be able to offer the same solution to that job to be done of getting inspired and collecting things in its format that Pinterest has been able to do by really solidifying its brand and this is what you go to Pinterest for yeah I mean totally to having gone and watched you know all these talks by Ben Silverman over the last few years to his total credit you know he's been if you were to listen to the narratives leaving up to the IPO he and Pinterest are talking about how Pinterest goal is not to get you to spend more time online it's to inspire you to do projects offline and take action in the real world that sounds like a sound bite he came up with to market Pinterest in reaction to everything that's happened with Facebook and Instagram and the rest of the internet over the last you know 24 months that's not you he's been saying that since 2012 and Pinterest has always been about that and so yes the the potential mitigation to that to Instagram is like Instagram's cultural DNA and Facebook's business model is about the attention suck and that is not the culture neither the cultural DNA nor the business model of Pinterest the biggest reason to be a bear here isn't that it's not going to be a good business or they're not going to be able to maintain the size of the business unless of course you think that Instagram's going to come and eat all their lunch it's that it frankly it's just the smallest of these these online ad platform companies and when disruptive markets are created the biggest opportunities tend to get filled first and then the smallest one the smaller ones tend to get filled over time so you know when we saw let's take marketplace businesses for example in the sharing economy if you look at what people spend in GDP it they spend on their house they spend on transportation then they spend on food and you look at sort of Airbnb and then you look at Uber and Lyft and then you look at door to action yes instacard and you know when you see a new paradigm like online advertising you know you see the biggest ones that are are taken are intent based search and then there's you know what we didn't realize was going to be such a big market but social media advertising and then there's this new thing that is you know I guess discovery based or inspiration based or curation based advertising which is just smaller like it's just not a bigger thing I was going to wait to make this point in grading but since we're already here I want to make the point that when I first started researching I was thinking there's basically two distinct online advertising markets their social based and their search based but Pinterest is really somewhere between there with the curation and discovery based and I think now I'm thinking about it more of as more as a spectrum and I think if you think about it as sort of a smiling curve where there's way more value creation if you go pure search or pure social there's there's less in the middle because frankly you're not spending as much time there and you're not doing mission critical things there as much as you are doing during during search but you know it's still a super sticky product a super useful product and a product that monetizes well it's just not one of the other two yeah well I think this is building off kind of the end of history and facts here where we alluded to this I'm not sure that it's not that the values I think there's a ton of value in Pinterest and what they offer to advertisers and this discovery engine works incredibly well and is very unique the the problem though is is just the product itself the consumer product is a niche product a very large niche but you know we alluded to it in history in facts there are 86 million ish MAUs in the US and a very very very high percentage of them are women and men despite years of trying on Pinterest part just don't use the product in nearly as I I a percentage they've tried to fix it I just don't know that it's fixable with what the product is so thus it's just a smaller market everyone is aware that they need to search for stuff and a third of those or a quarter of those people are aware that they need to be inspired and and curate stuff based on what inspires them yep hard to know if it is specifically men or women are that's just the way the psychological profile of users of Pinterest tend to fall out but there is a huge segment or segments of of the population at least domestically that despite years of knowing about Pinterest trying to use it just really isn't going to become engaged and use it in the same way as the other segments so you know I mean I think when you really think about it maybe this is the way to think about it with with Pinterest the market for the core Pinterest product is the same market as lifestyle magazines and if you think about what is the life the market for lifestyle magazines there it tends to skew heavily towards women design magazines home magazines fashion magazines there certainly are men that that read lifestyle magazines but just at a much smaller degree and that is the market that is where there is core fit with the Pinterest product and I think it's had and probably will continue to have a very hard time expanding outside of that all right so that's our bear case let's talk how did the IPO go so despite my pure burning hatred for this term under corn that's a terrible terrible terrible they effectively had a down-round IPO and let's talk about sort of flat round flat round IPO well yes technically flat okay share price was lower but because there were new shares issued the end market okay so this has happened before and we covered it well on the square episode where it was so significant of a down-round of the IPO that it actually took what a year or more to climb back up to their last private valuation price and so you know you saw people who had stock options at a strike price before the the IPO where then they actually had to wait years and years for that to recover from being underwater so they actually had a compensation issue across the board at the company that's not at all the case with Pinterest basically you know everyone is in the clear now now of course if you look and see the people bought shares at an 11 billion dollar valuation four years ago and it's at 13 now you know that's not a phenomenal return like it is for any of these early investors but I'm not sure that they could have done anything better and I think it was probably smart of them to not try to make this an up-round for vanity purposes they obviously saw what happened with the after math of the lift IPO and they swung the pendulum hard the other way in being conservative here it's interesting to know that we have another data point here of the public markets valuing companies within range of where the private markets have been and I think like there was a lot of fear coming into this wave of IPOs that those two things were going to be dramatically dramatically different it doesn't feel like they are no feels like they were they've been at the very least priced appropriately in the private markets maybe appropriately a couple of years ahead of the curve but not completely mispriced so I do think that's actually a great segue into what would have happened otherwise in talking about so why did they go public could they have not gone public could they have done a direct listing one thing that I found really interesting was that they actually have six hundred million dollars of cash in the bank and they've raised about a billion and a half over over time they're net operating loss right now after tax in 2017 was 126 million was and last year was 63 million so you know they're trending toward profitability they actually probably didn't need to raise any money in this IPO yeah this is really puzzling to me and we were talking about this before the show so by those numbers even if they maintain the same burn rate which they won't because they're trending to profitability assuming revenue keeps growing they have years of runway still in the bank why did they just raise all this money and delete themselves this seems like a clear case for me for doing a DPO yeah David it does feel like they totally could have done a direct offering here and they've got cash in the bank they're going to get profitable I do wonder are they have less than kill gore on their board you know access to Barry McCarthy here and and you know it's that went well enough that we're hearing rumors slack is going to do a direct listing here in the near future and so there could be two things going on one is they feel that their ability to raise cash right now is on really favorable terms so it's great to get that cash into the company for an unknown purpose the other is maybe they're gearing up for some some serious spend and they're going to branch out into something that requires a lot of new cash the same way that stitch fix used a lot of the cash from their IPO to actually start retail brands that that are our first party brands so you know I'm not sure that this international expansion is interesting because it's growing really fast from a user perspective because they actually started caring about that in 2016 whereas they were very domestically focused until then but they're really not monetizing any significance internationally so it could be to spend aggressively on bringing advertisers into and their international funnel but it's honestly a little puzzling I agree as well this all would have to be in the works long before the lift IPO but you know the only the reason I can think of is just to be conservative as well and make sure things go well because DPO's are still relatively unproven but again if you don't need the cash like it which to be clear lift and and Uber need the cash and we'll talk about that on the Uber episode but if you don't need the cash and companies have raised so much in the private markets DPO really seems like the way to go there's no lock up period there's you're not deluding yourself you're not selling more the company has a lot of advantages I'm you can tell I'm of the Barry McCarthy School of Thought here yeah well you know we've seen one DPO and here we are now asking like we're looking at every deal going why not why not DPO why not DPO why I mean look they did the standard thing and they did it pretty well and I think it's not like just because Spotify did it that's a thing that everyone feels like is a one of two options they can pursue now yeah yet yet let's see on Slack okay so we move to our newly retitled next second yes yes so David tell us about this retitling yeah so okay this is ordinarily where we would do tech themes but Ben and I were texting the other day and we love tech themes it's one of our favorite parts of the show but we realize that like it's actually something more than that and tech themes kind of sells it short so we're gonna rename this section to playbook and what's actually really interesting here is not just what themes in tech this particular company story reflects but what are like the actionable things that we can learn from this story that we can all put in our playbooks you know as operators as investors and we think this will be really cool and a good way in the spirit of Pinterest to catalog all the things we're learning from this show over time hey you so we're gonna this is gonna be our first experiment with playbook yep all right so we focused on this one but I just want to highlight it what makes Pinterest different is a significant focus on building out infrastructure in the company ahead of growth in wild contrast to other unicorn cousins yep I worry a little bit that people will take the wrong lesson from the surface level facts here and this is one of the reasons we do this show you look at the way Pinterest has carried itself over the last 10 years and then you you look at the way say Uber or Lyft have carried themselves or Airbnb too and like there is definite craziness going on within those other companies and their markets are so much bigger and they will probably end up being bigger companies in the long run Pinterest the market is smaller it's extremely well managed and will be a smaller company in the long run but I feel like much better managed the lesson is not don't manage your company well the lesson is target big markets one and two manage your company well such that you have the highest probability of succeeding within them yep it's a it's a great elaboration there another point that I wanted to I think this is really more a point of discussion and David we talked on the LP show about the downsides of being a tools business rather than a platform or a network or a marketplace Pinterest is kind of a tools business in that it's much more about me and maybe a handful of other people I'm sharing a board with and it's much less about communicating with other people seeing what other people are up to so it has I think less significant network effects how how do you juxtapose it sort of being a tools business but competing for the very same advertisers that these like strong strong network effect businesses are coming before yes great okay this is this is one of my entries in the playbook here you could debate on the network effects aspect and certainly social network effects in the way that Facebook Instagram you know etc have them Pinterest does not but I think they do have a very strong flywheel we should do a whole LP episode where we've talked about this where we just nerd out on like what we think the differences are between network effects and flywheels and whatnot but the flywheel is users add content and pins to the site the more pins there are in the site the more things there are that users new users and existing users get inspired by and then repin and so there's a super strong flywheel where as people come on and they add content that content drives more engagement from more users who add more content which drives more users within the segment of people who find this whole thing attractive even if it's not a super strong network effect you can still have a super strong flywheel yeah like I don't care I mean well maybe we should have an acquired pinboard so in that case I would care that you banner on the service but if we don't have a reason to collaborate I don't care that like you or like any my other friends are specifically on the service but I care that a lot of other people are because then they're adding content I care about the content right right and like I don't mean to say there's not network effects I mean you could imagine a way worse version of Pinterest which is you can't discover anything that anybody else uploaded like there's not a business there yeah yeah so it's a tool but the back end of that personal tool is powered by the incredible amount of data and work that everyone else on the platform is done what I think a lesson there is like an interesting one of to maybe modify the from our LPC show with you know the lesson wasn't quite don't build tools but it was like tools are limited but if you can figure out how to make a tool that gets better for users as more people are on the service is sort of like Jake was talking about on with his coaching networks these as an emergence that can create a powerful flywheel yep do you have more nope that's it cool I had a couple real quick one I was just struck in the history in fact like when we talked about it 2008 and the recession and the Lehman Brothers collapse like these massive events that happen in the economy and socially can have like such opportunity you know even like recession so like Airbnb and again what we've talked about this before and we'll cover it in depth on when we do an episode on them someday like when enabled Airbnb was the recession and specifically the housing crisis and same in a much less direct way you know led to the history that led to Pinterest and led to the history that led to lift whenever these big events happen it's always a good idea to just pick your head up and say hmm okay what is this gonna what retilling of the soil is this going to enable now both as an investor and thinking about starting companies the other thing I wanted to then I think this this story illustrates is just the power sometimes of just not stopping you know like Ben's story and and uh tote and cold brew labs and Pinterest and like doing the business plan competition you know it would have been so easy to just give it up you know uh and not stopping doesn't mean banging your head against a wall with something that isn't working it means not giving up on the idea of like building something period like pivot what you're doing into something that's gonna work and listen to users and find product market fit but just calling game over means literally game over yeah it reminds me of a great quote so Bolu the CEO of future advisor uh spoke at one of the first startup weekends that I organized like a decade ago or something and um I remember him saying the way to succeed is to just never admit failure like as long as you don't shut down you haven't lost and that's not fully true like that's a good way to you that you can have a you know small business that doesn't grow at all and just keep going but like it I think what you're saying is if what you're looking to do is big build something big and impactful as long as you don't give up and build in the direction of what what could catch it's unlikely that you will do that for your entire life and and have something that never works so just keep trying and of course it's like there's I think it's that there's two versions of giving up and or failing uh one version of it is what we are doing is not working we have failed at that we are going to give up doing that that's great like when that's clearly the case like you should do that and do that as soon as possible but don't do the other version of giving up which is saying and thus we are going to call game over and shut down the company and like go get jobs somewhere you know as long as you still have the desire and the resources to keep going like yep keep going yep and there's tremendous value in keeping a team together you know this is something I think that we realize at Pioneer Square Labs the the 25 of us that all sort of like systematically build companies over and over and over again is after you fail on a few things together or maybe even succeed on a few things together you know in your small group who's good at what you have norms and communication patterns and operations around how you work together and you get way more efficient at building together so if something didn't work like keeping the team together and keeping your processes intact and and keeping your knowledge of what each other's competencies are is hugely valuable and so I think for for anyone considering a pivot I mean it's it's almost like yeah you bring some baggage when you pivot but you bring far more value from being a team that knows how to work together yeah it's almost like the playbook is if you think you need to pivot you you probably should have pivoted you know a month ago but if you're thinking about shutting down your company and you still have a team you like and you know money in the bank or whatever resources you need to keep going you should definitely not shut down your company yep all right grading so the way that we grade these IPOs is rather than issuing a grade we discuss what a few years from now and a plus would look like versus you know say I see you D or F David I'll go first I think an a plus looks like cracking international monetization I think this company can continue to grow to become a 20 30 billion dollar market cap company over time if they can figure out how to continue growth internationally and how to monetize internationally like they they do domestically I don't think it's a crazy playbook to do that but I don't think there's a bigger success path than that yeah it's funny I was going to say like the a plus to me is yes they take this they yeah I think that's an a that's like an a minus day they pluses they take all this money they just raised in the IPO and they have some vision that they are keeping secret for now and Ben isn't telling anyone yet about how they're going to expand the market here and they use these these resources whether through acquisition or or investment internally to do that that would be like yes that takes them to you know multi hundred billion dollar market cap company I think it's really hard like I have no idea what that would be so so I think that's hard but yes otherwise I think the sooner you described is like super solid a minus day you know there's a possibility that they won't be able to monetize internationally like they they can with the US or even that people start churning off of them because Instagram manages to launch something that that sort of leverages their really close relationship with users to get them to start using a Pinterest like experience and you know Facebook is a total shark at figuring out whether they have something there or not and rolling it out broadly so my F there would be if one they can't monetize internationally or two they get their legs cut out by Facebook you know one thing that we didn't usually we find these things when we do our research but for whatever reason we didn't this time is do you think Facebook ever tried to buy Pinterest or anybody else tried to buy Pinterest so Facebook did not I not that not that I found try to buy Pinterest there actually was a story very early on in New York yeah yeah yeah Ben tried to encourage a magazine publisher to to buy them with the publisher this is back when they were told I think yeah it's like 20 times or something yeah yeah yeah yeah so that doesn't count but yeah I don't know if that's because nobody ever did try to buy Pinterest or their valuation grew so quickly just like the company so quiet and introverted yeah the stories never got told but this is a rarity in that there aren't stories like this out there kind of interesting thing about could anyone buy them maybe Facebook yeah I mean their valuation is you know they're 16 billion dollar market cap company of course somebody could buy them Facebook could buy them Amazon could buy them you know what I guess where would it make sense yeah and also like culturally you know I think Pinterest would be very attractive to Facebook right now for lots of reasons but could it work culturally within the company I think that be hard yeah well I think Facebook needs to do something to change both public perception and retain employees so it wouldn't strike me to see Facebook do something dramatic soon and so the C-D case I think is that they have fully saturated monetization in the US they can't monetize internationally and this is a break even 700 million to a billion dollar revenue business going forward yeah and frankly like they just raised a bunch of cash like the way that we grade these acquisitions is when you acquire this asset are you able to do something interesting with it you know with this IPO it's like they've just raised all this money what are they going to do with it so I think you know I'd like to see them take a shot on goal with that C-Depers you have to spend the money all right so we move on to carve outs yeah let's do it mine is I've done this podcast before but there was just an exceptional episode invest like the best it's a great podcast really good interview show recently had an episode with Eugene Wei and Eugene wrote this great blog post invisible asymptotes which shouldn't even call it it's an it's an essay it's a half novel and Eugene is super brilliant and there's five or six very interesting takeaways from this invest like the best episode my favorite of them is applying blockchain theory to social networks so if you think about what makes a blockchain work there is proof of work and then there is a reward for doing that work and the reward is sort of synonymously the proof of work and a has as an intrinsic value thing and that propagates out over a network and I had never thought before to use that paradigm to apply it to a social network and so when you do something like post on Instagram you're doing a proof of work and you're putting up that picture that picture has you know value and you get likes and follows in exchange for doing that work and the people who are the most successful on that platform are the people who are able to work within the constraints of that social media to basically do the most interesting thing within those constraints and a successful social network happens when you are able to create a format that where that proof of work is extremely variable so the breadth of skill is you can do really crappy things with it and you can also do amazing wonderful things with it and also that the perception of the value of the proof of work is variable and so it's not everybody agrees that that is the best picture and everybody can sort of have a different interpretation of what high quality is and a new social network can emerge when there is a tool set to do that proof of work to make that profile to do that image whatever it is that enables and of course I am Eugene says it much more eloquently but I will even trying to follow along because of my respect for you and Eugene otherwise you would have lost me a blockchain sorry well anyway it suffice to say it's interesting fodder if you're thinking about how do new social paradigms emerge and what creates explosive growth social network and what doesn't and I think the comparison to blockchain is a a metaphor it's an interesting framework yeah so great so great Patrick does an awesome job with the invest like the best podcast and I love it if if if you're an acquired listener who doesn't listen to that yet you definitely are going to love it too so add it to your your playlist okay mine is well first I want to underscore Ben your carve out on the lift IPO episode bill girlie's talk about running down a dream and finding and succeeding in a career you love I did run not walk to go watch it and it is so good I send it to so many friends like so great I just have so much respect for Bill and every dimension but so cool of him to like do this talk go do it at his alma mater at UT it's really inspiring no matter where you are in your career so I definitely want to underscore if you haven't watched that yet go watch it but my my carve up for the week is a similar somebody who has found a career that he loves and is succeeding at it is Alex Rodriguez a rod a rods interviews on ESPN and on YouTube are so good like I just love watching them whatever you think about a rod the baseball player like a rod the post career you know video and television journalist and interviewer is amazing like he's so smart he's so dedicated to was so dedicated to his craft of playing baseball and hitting and now to being an interviewer and just like watching him nerd out with with other people who are also dedicated to their craft is great so every interview is great one of my favorites is his interview with the Astro Center Field or George Springer so we'll link to that he also has a great one with Giancarlo Stanton at the Yankees and but you can't go wrong watch search a route on YouTube you'll you'll enjoy yourself thanks David well listeners if you aren't subscribed and you like what you hear you should subscribe we'll be gloriously covering all of the big upcoming IPOs and if you want to go deeper on what it's like to build a startup get interviews with expert operators and vcs and explore some of my personal beliefs and I know David's as well you should become a limited partner you can go to glow dot fm slash acquired seriously I promise you'll be overjoyed with how buttery smooth it is to get more acquired right here in your favorite podcast player and as of today everyone starts with a free seven day trial and with that we will see you next time yeah