How two straight guys bought Grindr and made $2B

0:00 The app store rating, Jeff, I was it one point eight. And remember, one star is the minimum, so it's really zero point eight is the was the rating on the app. And how are you doing a hundred million a revenue and forty five million a profit with a one point eight star rating? So we look at this And we just see opportunity. Basically how we got here was Sean and I were talking about Grind, I think last month and like how there was like this amazing story behind it and we found out that you were the two guys who bought it and took it public and made it this home run. But Sean is good friends with James Courier. Rick, I've had a bunch of run ins with you early on in my career. And then same with you, Jeff, and we were like we got to get these guys on because you guys have been a little bit behind the scenes. You don't talk that much. You're just kind of quietly behind the scenes, but you've had some major successes and Like I I thought it would been cool, uh it would be cool to like kinda give you a platform and like tell the story because I don't think you guys have told a lot of these stories publicly, uh, maybe ever, have you?

1:01 Not a lot. No. We um we we we've d we've done a couple here or there, um, but no, we have not been out there publicly and talked about what we did at Grinder, but we're happy to today. So let's do story time. How did you two guys end up owning Grinder? What is the story of Grinder before you? And then how did you guys get involved and what happened afterwards? I want to hear the Grinder story. Grinder was created founded by game a guy named Joel Simkay about 15 years ago. And Joel um is a gay man who wanted the ability to create an app to find other gay men GPS enabled, kind of like Uber, right? Uber really existed once the iPhone became ubiquitous and people could, you know, see where you are

1:42 The proximity uh it became, you know, really tight. So he created Grindr. Grinder took off and he ended up selling it to a Chinese company uh called Kun Lin. And then a few years later, Cyphyus, the committee for foreign investment in the US, forced the sale of Grinder. Okay. So they were worried that. that the uh the data that grinder was collecting could be used for you know, in n negative ways, uh by the Chinese ownership. Was that first sale a big sale? Like was Grinder considered like a big success at the time? Because I know some of the dating apps traded like for not that much money early on. Yeah, so I I believe Sam, uh I'm I I believe uh sorry, Joel sold it for I I wanna say two hundred and sixty million. Okay. Uh so it was a great sale and he owned ninety percent of the company. Very few um others had equity. So he did very, very well. And then Syphist forced the sale, right? So that's it true.

2:36 W was the Chinese using it? Wha wh what was that mean? Like they're I think I read they're like the accusation was that they were uh like straight men they were blackmailing straight men who are on Grinder. I think it's hypothetically true. That If you have the servers located in China and you're the Chinese government and you wanted to watch

2:54 It's sort of like if you know the answer to the question. You can use Grinder backwards. So if you know that you have users in the White House who are gay and using the app Well then you can figure out who those users are and you can track where they are and you can

3:07 say, Oh, the president's about to leave the White House because people on his forward team who happen to use the app are using it and they're doing it. Well, with the Ukraine war, we heard that soldiers on both sides were using the app to meet each other sort of between battles. And you know, people have talked about uh Olympians being outed in the village, and so work was done at Grinder to help avoid these sort of extreme cases. And so I think there is possibility for abuse and there are certainly people Who are closeted or not well discussed in politics, in the military.

3:36 And In high positions. Who Yeah, hypothetically if the Chinese government wanted to and they had access to the information, they could exploit that information and potentially use it to blackmail

3:49 You know, our politicians Okay, so that's like a real That that that sounds very reasonable why a sale was forced. So so when they force a sale, what does that mean? Like there's an auction one day? One year.

4:03 You have one year to sell to a US Ownership group. And if you do not, the government will take control of the business. And in the in the year The Sipious group, which is it's partly comprised of US intelligence and US

4:17 um elected officials and administrators like congresspeople. And so that Bor? Steps in in the company. They they sort of s put place the digital steps in process and administrative steps in process to watch during the one year and mandate the sale. So yeah, it is a mandated sale. Did you just learn about that in the news? Or like is there like a uh'cause you guys weren't like

4:38 I mean this was like a uh this deal was like a pretty like level up deal for y'all, right? Is that where you bought it or you bought it after that? There's somebody else bought it, then you bought it. No, we bought it because um yeah, again, the Cyphyos was forcing the sale. They had a certain timeline to sell the company. And there was, you know, it all the the typical buyers that you think about, there was always someone super conservative on the investment committee that was like, I can't be associated with gay sex, I, you know, I I can't do this deal. We um we looked at raising money from uh some uh folks in the Middle East, they could not be associated with gay sex, gay dating. So it really took a lot of the typical buy out of the process. And we were lucky enough to uh partner with another PE firm and actually buy the company. It came down to three buyers uh in the end uh that put in, you know, legitimate bids, and we are lucky enough to partner with the other PE firm and buy it.

5:31 Let me just s w what Rick is talking about. There's this weird thing where Companies that had helped Tinder. Go through all of its Systems. They were fine working with Tinder, but when it came to grinder, they were like, Oh, we don't want to touch that one. And right, right. I didn't understand, I think, the extent of the sort of latent homophobia that had at the time infected

5:53 The whole process. And we really benefit from that. Sort of Homophobic behavior because you have this incredible company. It's growing like crazy. It's incredibly profitable. The users love the product. Like it checks every box of what. You would love in private equity and you love as a product person.

6:09 And so The more we study the company and the product, we're like, this thing is just an amazing business. It's an amazing product. Joel really hit on something that sort of met the market's needs. It was dominant in this market position. And Mm. The people that are

6:24 looking to buy it at this point, it had gone through lots of sale processes. We had heard Playboy had tried to buy it and other you know, there were all these people that had tried over the years, couldn't come up with the financing, or couldn't make the deal work or They couldn't get the banks to work with them and get the deal done and so It ended up with three pretty non traditional private equity firms going after it. Uh ours being one of them. As Sam you said, it was a step up for us. We had not done a deal that was in the hundreds of millions of dollars prior to that. We had done tens of millions of dollars of deals. And

6:53 But when it came time to raise the money for the deal, we raised it. very quickly when we did find people that would listen to us and hear about the business. People loved the fact that we had uncovered This sort of glitch in the system that this homophobic thing that kept the price down and the deal available to You know, sort of newcomers to the space and operators. That was the other thing people love. They're like

7:14 I can't believe you guys have done diligence where you actually have a a a roadmap for the product, a roadmap for the security, a roadmap for the trust and safety, the moderation. We had done sort of all this work to understand what really the challenges were for the business. Hey, let's take a quick break for a message from our sponsor, HubSpot, who's making this episode possible. Listen, if you're trying to build something big and I'm talking about hundred million dollar or a billion dollar company One of the most important things is to focus on the market. Where is the opportunity? You are like a surfer on a surfboard, and you're trying to find the biggest best wave possible for you to go on.

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8:09 Alright, back to the show. So roughly w what'd you guys buy it for and what do you think it would have been had it not Like let's just say it was a straight dating app. Like what do you think the same business if same metric, same everything else? How much of a kind of discount or premium do you think it ended up at?

8:26 Rick, I think fifty percent off at least, right? The deal was for six hundred million, six fifty or something. Yeah, we we we well I mean okay, so on a multiple basis, we weren't really that far off of market. So We bought it for about six hundred million. It was doing less than fifty million, about forty-five million of IBITA when we bought the company. So you know, call that kind of twelve, thirteen X EBITDA. And the market was probably trading at more like twenty. The but the public companies. So, but there's a private company discount. So we we we bought it for undermarket for sure.

8:59 Um, but it was really just the the the lack of competition. in the process that allowed us to get that discount. This is such an interesting story. We learn so much in this process. Like That uh There was the other pieces to it, which was

9:14 Normally I would say that private equity firms don't want to touch a deal or investors that have more than sort of one Problem. And Grinder did have a bunch of problems. It had a very public problem with privacy and data, at least perceived.

9:29 problem because they were being sued for Um selling uh users H I V data. by governments in Europe and in the US. they had this issue with the Chinese ownership, which was a thorny issue, and having Cyphys involved. And this was one of the only cases ever where Cyphis had actually retroactively unwound a deal. Cyphyus had denied deals with foreign buyers, but they had never what they're trying to do with TikTok today.

9:51 Over the years is TikTok would be the second one after Grinder. And then in addition, it had a PR problem, and then lastly it had this sort of Latent homophobic problem of people just not wanting to touch the property. So it had this series of problems, none of which

10:09 in love with the business and the product and how much the customers love the business and how much potential and there was customer frustration for sure. But they had been sloppy on a lot of product work and a lot of customer care and a lot of modular they had made mistakes. Not awful. typical mistakes that small businesses where the growth gets ahead of them and they sort of get behind the ball and Because Rick and I had both worked at large companies in addition to startups, we understood the complexity of that jump.

10:33 From when you move from sort of five million users to twenty million users and all the complexity and the legal c you know things and the accounting and all the things that go into The difference in those businesses. We also looked at some metrics that um Were shocking, which was

10:49 The app store rating, Jeff I was it one point eight. And remember, one star is the minimum, so it's really zero point eight is the was the rating on the app. Well, like that was horrible. I think your glass door reviews were like pretty horrible. Like you had all the he was it was the management rating was like nineteen percent. I had never seen anything that low before. I was like whew. I still have a job at nineteen percent. And how are you doing a hundred million a revenue and forty five million a profit with a one point eight star rating? So we look at this. And we just see opportunity. We we realize this company is severely undermanaged. Um, you know, clearly from the glass door rating, iconic brand, strong stable cash flow, but we knew there was a lot of cleanup to do once we got in.

11:34 And you guys had already had success, right? You sold tickle for a hundred million dollars or stuff. So it's not like this was your You know, you didn't have to do this. You had options. You could be doing a lot of different things in life. And you signed up for like A big swing, the biggest swing you'd taken And with a lot of hairy problems. Uh you're like, Oh, it didn't bother me, but I want you to take me in the room because

11:56 Before we get to the kind of the turnaround and the the what happened and how how you guys did it. I just want to go back'cause I've been in situations like that before. And I remember feeling like Man, nobody really talks about this. Like I've read a lot of business books, I've heard a lot of business podcasts, but like Right now I feel pretty naked and afraid where

12:14 I don't really know if I'm making the wrong move or the right move'cause I'm doing a swing that's bigger than I've ever done. I'm in the room. It's unclear. There's still fog of war, right? The story hasn't played out yet. We don't know exactly what's gonna happen. It was much worse than we thought, too. When we got into Grinder, remember Covid hits in March, the deal's halfway closed. The users drop twenty or thirty. It just sort of this is a location based physical meet on site, you know, product. Covet hits.

12:39 Everyone's locked at home. We had Plans to basically live at least part time in LA from Tampa. So It got worse, and then we got there and we started reading through all the the actual data for the business that was and we're like ooh. This is much worse. I

12:53 Over the two and a half years I gained twenty five pounds. My cholesterol went up thirty percent. Like I didn't see my kids, like just just I it was Nostalgically, I look back at it so fondly. I really enjoyed my time, and I did love it at the time, but it was mixed with incredible stress. It was a very difficult Raw. But I think for Rick and for me Our

13:14 What we had learned in the twenty years prior was perfectly what the company needed at that moment. Like it was what felt so good was it was exactly the skill set we had built. to that moment is exactly what that company needed at that time. And so That match Felt amazing.

13:33 And as a product manager to work on a product where the users were so engaged. I had never seen anything like it, and I probably maybe never will. Where the engagement on the product was so high. That everything you tried, you either failed or succeeded almost over. I had run Yahoo Mayo before that. And

13:48 There's an Antitopy of The sort of the customers don't really care. You come out with amazing features and they're like, Yeah. seven percent adoption rate over six months. At Grinder, we would come out with a feature that was like, okay. twenty seven percent adoption in the beta where we hid the feature behind something in two hours. I'd be like, Oh my God.

14:05 This product is incredible. I mean it's incredible. It was so As a product manager, it was the most rewarding work I had done. But was there any doubt when you were thinking about buying it? Like I now you say like, Well, it it was a perfect skill match for us and all did you guys go for some long walk or there was a dinner one night where you were like Are we really gonna do this? Like did you have one of those conversations? Muscle. The the doubt muscle like I think it comes from um I tell people as an entrepreneur, after you've done four or five star ups, and Rick and I both have four or five star ups in our background and I technically we've probably each done like nine, but we don't even count the four that didn't get sort of far enough along. But

14:42 I have lost my Uh super happy gene where I feel incredibly happy when things go well. And I've also lost my super distressed gene when things are going badly and the stress is high. So I feel the stress. You can see that physical toll it took on my body over those two and a half years. But I don't recognize it in the moment. You said this. You said in the document you said So this is Jeff writing. He said, For me I've become

15:06 distrustful of times that feel too good and equally I am skeptical of moments that feel too low. So today I'm simply more uh emotionally leveled than I was in my twenties, in part because I don't trust highs Or lows. And that has helped me focus and persist when others might quit or get sidetracked. Yeah.

15:26 Yeah, I think that it's probably true for both of us, Rick. Rick feels a little bit better. He'll sometimes like shake me. We were We're at the NYSE and Grinders going public and he's like Dude, we're we're we're did it. We're like we're taking company public. And I was like Yeah, I know I just can't I just um I just don't I I know I'm supposed to tap into this incredible joy. I remember for the first time.

15:45 I got I wondered what it would be like when I got a wire. For more than a hundred thousand dollars. I got a wire for like seven hundred thousand dollars when Uh, Google bought one of my companies. And it was the first wire and I thought that will change. Everything.

15:58 Like everything about how I feel will change when that wire hits. And so I look, the wire hits, and I Yeah, I just I'm like it was like relief.

16:07 Combined with Resignation just like I I wanna ask some details about the deal. So you said w you raised six hundred million dollars. My um I'm curious, is buying a company for one million, ten million, a hundred million, and a billion Is that

16:23 at all similar. Like are are each amounts similar? Are they is one harder or one easier? And of the six hundred million, how much of it was y'all's money? Yeah, I can take that. So the the deal structure, the six hundred, there's about two hundred of equity that went in. And you know, some of that was our personal money, but most of it was outside money that we raised. There was two hundred million of debt, so Fortress was our debt provider. And then there was another two hundred million that was due, um, basically an earnout upon the exit. Right, so really with grinder

16:56 Uh only two hundred million of equity went into the deal. And uh we can Fast forward uh you know to or we can talk later about where the exit came out, but it ended up being a very, very good uh ROE return on the equity of only two hundred million going in. I think that the other answer is

17:14 It's roughly. The same Effort and work to raise a million dollars as it is to raise ten million dollars, as it is to raise a hundred million, as it is to raise The six hundred million. You deal with different players.

17:26 They may have different questions. But The businesses are all in such different states when you're doing it that the questions exist. There's always there's a skepticism amongst There's an enthusiasm and a skepticism when you talk to the debt guys and when you talk to the equity guys and you're trying to raise money. With Grinder the difficulty was simply

17:43 Most of the traditional channels were closed. And so we were dealing with Alternative debt, maybe slightly more expensive debt. We were dealing with alternative equity, so we're dealing with family offices. Um, instead of going directly with, you know, and we were dealing with alternative banks and lawyers and things like that, people who didn't Didn't mind working on the deal.

18:04 And when you raise that money, so do you guys as the kind of GP operator types do you end up owning twenty percent of the company or fifty percent or eighty percent because you've you've raised, you know Certain amount of equity, certain amount of debt. Like where do you what do you target? What do you try to land at in a deal like that? Well, we we worked with another PE firm. So um the way it end up being structured is that they brought in a lot of the equity. We had the debt that we had brought in from Fortress. They brought in a lot of the equity. And then so we had, you know, we we had our our piece of that, but then really because we ran the company, Jeff and I had a uh a slug of equity related to to you know to our roles as CEO for Jeff and COO for me.

18:47 But In general for an equity deal I think if a private equity deal You have Carrie. So you have sort of back end options and you might have

18:57 You to attrition have a fund. We don't do a fund, we do SPVs for individual deals. But yeah, we would want to try to depending on how much of the money we put into ourselves, you're structuring these deals in order to get twenty percent. Equity Amongst the partners of the private equity firm that you'll split. You'll do deals where you're at an up ten percent.

19:15 And you'll but you have you know You have investors, they're gonna take on a big slug. Debt is what you don't use in startups, what you do use in private equity is this incredible multiplier. So Even though the debt's expensive, it is so cheap.

19:28 Compared to equity. And Uh so I I sort of it's it is not that different to buy a company than it is to buy a house or an apartment building.

19:37 the sort of math works out the same. You you're using leverage, you're using cash. There's Oftentimes you're doing cash up front. And debt that you plan on any year once the business has been cleaned up a little bit to just restructure it right away. So there is more financial work being done. The role of your financial partners in those deals. We have an amazing

19:56 Lawyer, advisor, tax lawyer who structures deals in ways that's like artistic. And right. Just to make the deal work because we have to say like okay we have to do this so that this

20:08 This investor can bring money in this way, but we have to price it this way for this investor, you know, so it's just And we have this layer of debt, but this debt we don't want to hold on to it for more than a year because it's expensive. So we have another debt provider, but there's all these rules. So You do spend way more time in a private equity deal on the finance and it is it explains why some of private equity or majority of private equity is driven by financially minded people that maybe don't know businesses Well at all. Right.

20:34 Yeah, and Sean, to answer uh on the economics of of the deal. um from a high level at least, you know, we took Grind and we'll talk about how we got there, but we took it public for two billion on the New York Stock Exchange two and a half years after we bought the company. And uh as I mentioned, as part of the deal structure that earn out the first 200 million went back to the original owner. Or the owner that we bought it from. So that leaves you 1.8 with 200 million of equity going in, because the debt just stayed on the business. So we basically created a nine X return. Um on that two hundred million, right? So that's about uh 1.6 billion of value created.

21:12 you know, when you subtract out the original capital. So about one point six, and you know, typically you'd have a twenty percent carry on that. That's amazing. And what what's the um Was there any uh obviously you did a lot of cleanup, you did a lot of best practices, you did a lot you you executed a product roadmap and you marched down that way. So we don't have to go into all those details, but I'm just curious, was there any like Aha moment, key insight, fun strategic moment that happened that like actually helped you build that value. Well, there were some things that surprised us. Uh you know, when we first got in there we knew

21:44 We are gonna have to do a lot of clean up, but The uh the we knew that the talent was gonna be an issue, but we didn't know how bad it was. So Culturally, unfortunately, the Chinese had really They had ruled by fear. It was this black box, nobody knew what was going on. There's five people that had equity and and and really had any kind of

22:06 vision and knowledge of what was going on. So we and then we looked at the engineering team and Jeff can speak to this uh more than than more than me, and we realized they weren't that good. They s they were not committed to the company and definitely were not committed to the community that we served. And we ended up having a fire about seventy percent. of the staff, mostly the engineering team, we didn't expect it to go that deep. Uh, but when we got in, they realized how bad it was, how bad badly the tech stack had decayed. We realized at that point that we needed to do a kind of a three-part serial process.

22:40 The first part was reset the talent. The second was fix the tech stack. And the third is where it got to be fun. And that's where Jeff really shines, which is rebuild the product and start to drive revenue. With uh Was a large percentage of your staff gay? Th uh the uh of those that we kept on, a very high percentage. Was it weird like'cause like

23:03 I mean that there's like obviously cultural things going on here of like Two non gay guys are now buying grinder. Like and then you know it it'd be like me owning Ebony magazine. Like there's a uh you know, there's a clear like, ah, I don't know, like is could can I trust this guy? Is he he's not part of the community. Like that uh We I would say this was the biggest You sort of smile about it, but I I I learned so much.

23:31 I went in trying my best to understand the user's needs and you're you're lucky to work in a product where the customers are giving you this constant feedback. So I had been I had already talked to hundreds of customers during the diligence process. We had read through thousands and thousands of customer care issues. I had been on Reddit forums going through every single post about the company, and users were I would I would copy and paste into this document saying, like, what's this issue? And I want to find out what this is. Why is this happening? And then we get there. And we had um

24:00 The employees had never many of the employees that were left over from the Joel's original team. had incredible knowledge, but they didn't have incredible scale. They had not scaled before. So they didn't know like Oh, when you Pat when you do this and you're moderating We have customers in a hundred and ninety three countries. So

24:15 When you're doing this moderation and you're doing these things in multiple languages and you're doing these things where you're being You you I we I had this at Yahoo, so I just I just knew what to do when you have users in a hundred and ninety countries. I just kind of knew what to do when you pass these issues. And so I was able to bring on engineers. with me from Yahoo, the new scale right away.

24:34 And I think the best hire we did was We had the head of um Global privacy and safety. from Yahoo, who happened to be a gay man who had retired from Yahoo and I'd known him. He'd been there for eighteen years. And I called him and I said, I need you to help me on this company.

24:49 And he goes, What's the company? And I said grinder. He's like, I'm coming out of retirement. I'm gonna help you. I'm gonna do something for the community myself. He just said I'll do it for the community. He we were being sued at that point by um Thirteen attorney generals in the US.

25:03 over privacy and data leakage. Something the company had not done, but it was everyone believed the company had done. And um it was funny. Something the company did that actually saved like ten thousand plus lives a year was Was being sued for this feature. Which is what's your H IV status? So

25:18 And it's listed on your profile and that's certainly an important thing to know before you you meet someone. So He said, I'll do this. He got on the very first call with the thirteen attorney generals and they They said shame? Is that you? And he's like, Yeah, it's me. I now work at Grinder.

25:34 And they said. Yeah. You work a grinder'cause he'd met them all and knew them all from when he was at Yahoo. We constantly dealt with all sorts of issues at Yahoo and I'd learned about all these I dealt with the CIA, the NSA, the FBI, and every you know possible law agency when I was working at Yahoo when I ran mail.

25:52 And um Essentially twelve of the thirteen attorney generals basically said we're good. Like Shane's there, it's run by professionals, we understand. So Simply the upgrade of talent. Almost started to resolve problems right away. It caused tension inside the company because the same straight guys that came in were putting in people. They're like, oh, they're just putting in their lackeys everywhere.

26:11 By the time Rick and I left Seventy percent of the hires from the cu in the company were Um Minority hires basically. We were hiring people from the L G P T Q community, where we were hiring people that were in in the DEI, which is not something people I talk about anymore, but

26:25 We had the most amazing. Ability recruit. And it was a superpower for the business because we were able to pull talent From incredible places because they believed in the mission of the company. And So

26:36 We actually used the the mission of the business and the impact it was having. I don't think people understand the extent to which Grinder makes a difference in the gay community or the LGBTQ community globally. Most of the information you're gonna get on sexual education. About gay sex or uh People, trans people, that most of that information outside of English comes from Grinder.

26:59 So Fifty seven languages is how many languages Grindr takes its safety and anal sexual you know, information and publishes it in fifty seven languages. And when you need to know about trans healthcare And you need to find a doctor who will give you vaccines and you're a trans person and you're in India. Well that database is funded and built by Grindr. So

27:18 Those things that the company does, it's it creates a mission. It creates all this incredible but it also is Something Tinder will never do. Tinder won't save lives nearly at the rate the Grinder does simply on educating people about safety. And you can imagine if you're a closeted Trans or closeted gay. Um

27:36 guy growing up and you've not been able to talk to your family and you've not been able to talk to your community about Something that's going on in your life. Wow. Being able to find community on Grinder and being able to find that information. In a very

27:48 uncensored way was valuable. You know, what I think is cool about you guys is that um Your f OG Silicon Valley, like, you know. True and true, right? Like the big kind of tech yeah, web one point oh, two point oh, you were guys were there, you were in it. Even your near misses were basically correct, you know, whether it was like I drive before Dropbox or you know, Rick, you were doing branch out, which was kinda like LinkedIn and you

28:12 You were so close to like, you know, the the big the big big exit and uh the big big kind of reward of getting that that thesis right. Um But then you guys sort of like switched and you play your own game. You d you don't you're not just A venture firm you know, who's like only focused on, you know, venture back startups. Like you went into private equity, which is so different than like probably most of your friends in Silicon Valley.

28:35 Um Why I I guess like can you just talk a little bit about that and specifically like If there's other people who are kind of similar, right? I I put myself in this bucket. I was I thought I was a smart guy. I was working hard, but I was playing a game in Silicon Valley where

28:50 It's It's feast or famine. It's like either I'm gonna make a billion dollars or I'm gonna make pretty much zero. I'm and I'm gonna grind super hard and Really I'm just like I'm running around with a bottle trying to catch lightning is how I felt. And then as soon as I switch to these like

29:05 More bootstrap businesses or private equity, where I was buying just chunks of businesses that were already working and just growing them. I was like, Oh my God, this is so much easier. What was I doing before and why was I so brainwashed by the movies and the tech crunch and the Twitter and like what the VCs thought were cool. Like I really should have played my own game a little earlier. I guess can you talk to that uh talk to that maybe that person or you know, how you think about this? Yeah, Rick, don't you think one of the most common questions we get from our friends is can you tell me more about what you guys are doing? Because secretly I think I'd like to do that too.

29:36 Yeah, the way you guys describe it, it certainly sounds easier than starting a company. Like I I don't know if like anyone the fur whenever somebody comes and says I wanna be an entrepreneur, I'm like, Good God, why? Like You clearly have never done one before because All it does is just cause stress and gray hair and you know, you don't see your family and So Being an entrepreneur is so hard.

29:55 And I I love it. But I fear it. So Because I think the thing that's most scary about being an entrepreneur is the lack of control on the time. You don't know how long the company will take to get from

30:07 Initiation to Success. And it could take Twelve years. Fifteen years. It's not the it's gonna take a hundred hours a week. I'm not scared so much of the hundred hours a week. I

30:17 I enjoy Even though I'm quite the man of leisure. Nowadays, but I I enjoy the work. I don't fear the work. I just

30:25 Don't love the inability to control what my next decade will be like. And so with private equity. You You get a little bit Of the not quite sure, but the time frames definitely come way down. We we don't

30:38 go into a deal that's gonna take ten years with parametrically the math just doesn't work. Yeah, it and right now there is You know, I I think most of Our friend group for Jeff and I are either venture capitalists Or

30:53 Operators, entrepreneurs. Right. So as we look at, you know, having a foot and and kind of both of those where Jeff and I have both done over 50. Angel investments and um you know, and I've got thirteen unicorns out of that. So it's definitely worked, but the reality is, you know, I also met with a thousand companies to find the 50 that I really liked. And then, you know, some of those worked out. But as we look at our friends in venture capital, it's so crowded. They're all chased in the same AI deals at inflated valuations. And it's such a long process to make any money at it as well. I mean, some of these funds can take ten, twelve years before the the partners are making a lot of money. Once they start stacking funds, that's that's great and all. But you know, when you're fifty, you know, do you really want to go start a venture fund that's highly competitive? So that

31:44 didn't make sense. And as Jeff said, starting companies, which we've both done five, it's just so hard, right? You've gotta go raise money, you got the cold start problem, how do you get the flywheel going? It's just really hard. And then private equity is a little bit of both, right? Where we are like, okay, we can take kind of the best of we know how to run these companies, but we also know how to invest, um, and really try to, you know, multiply that money. So we found this this in between. And for us, you know, we're not looking to go raise a big private equity f uh fund. We really just do SP Vs. We find deals that we like that we think that we can add value and um and you don't have the long timeline. So that that was a good place for us. And if somebody's not gonna go buy a six hundred million dollar company like Grinder, but like you know

32:28 There's other kind of mid size ways to play this game, right? To go get a to go get a win. And again Unlike a startup, you're not playing the product market fit risk game where most of the time you're just building something that there's no market appetite for. It doesn't matter how How hard you work or how much you how well that product works. If there was no market need for it, you lose. Yeah, I think we could segment private equity a little bit for you. But but not even like I I don't want the kinda industry top down. I'm more like if I'm a guy

32:54 What would I be looking up? What would who would I be calling and what kind of deal would I be trying to do? What business would you not go try to buy or what business would you try to buy? A few ways you can source. So one is you use your own network. There's lots of businesses out there that are profitable. And for whatever reason They

33:11 The oftentimes the founders or the owners either wanna retire or they want to finally cash out of their business, or they're exhausted or You know, the co founders want to break apart a little bit or something. So there's that. It could be we talk to our venture capitalist friends and say in your portfolio, you must have companies that are Successful

33:30 But not venture businesses anymore. They're not gonna go public. They're not gonna break out. They're growing at ten or twenty percent a year right now. All of them have it. And some of these brands are like Amazing brands. And so Grinders a a home run'cause it's the dominant market player. you know, healthy business, profitable, et cetera. Usually these are like

33:48 It's not Such and such, it's the second or third player in that space. And They have challenges. They're having trouble recruiting talent, you know, at the same level they were earlier.

33:58 This AI thing's gonna be tough, so there's some challenges coming to the business, but The founder's motivated. I think he'll work with you or she'll work with you or the founding team. We generally are looking for deals where the founding team wants to stick around. At least part of them?

34:11 When we did Jib Jab, Greg left, but his CFO became the CEO and he's an amazing operator. And so We don't want to have to take over the whole business. We're looking to partner with the existing team that's there, and then we hope we can

34:24 Well the other thing's nice about an S P V is Sean, you might know a couple of businesses and you might say, I kind of get these businesses a little bit. I know some friends that really get them. And so with an SPV you can partner. We sort of put together the perfect mix of players. When we did Grinder Our friend Sam Yeagan

34:40 Chairman of Match Group, right? He had been the founder of Um a dating service that got bought by Match like He's Knew the space inside and out. He had been CEO. So

34:50 We partnered with Sam. He really brought us credibility in our when we were raising money from the family offices and he taught us A lot. He had a great network. We recruited from his network into Grinder that helped us balance out. We weren't just bringing people in that I knew from Yahoo and Google and other startups, we were bringing people in F had been at

35:07 Tinder and Match group and these others and um you're almost making it sound like a it's like a it's like a big it was like a like a scheme. It's like hey guys, here's the deal. This is happening in front of all of our eyes. China has to sell this. Let's get all of our homies. Let's throw in a little bit of cash and let's do this thing. Like no one else wants it. Let's do it. Like you make it sound like it was a party. We were on a call yesterday to talk about a deal. I called them about a deal that had come across my plate and I go. Don't you think if we put X and Y on this deal They're like they know this space so well. They'll be able to evaluate the tech and really help us put together an amazing product plan. The first three or four key hires are gonna really set the tone for this business if we can acquire it. And

35:44 So We benefit From the size of our network, from meeting all these entrepreneurs over the years, and particularly entrepreneurs that have had successful outcomes. They have amazing networks. They often are waiting for Something to do. That's like a big fun challenge. So

35:59 We we're always trying to figure out like who's that one operator that we know that needs the Or Who's that person that can give us the unique insight to this industry that can help us connect the dots? The other strategy, Sean, is to take small companies and bundle them up together.

36:16 And make them big. I think when you're looking for deals though. Most of the companies you'll find that will come to your plate when you're looking to do PE deals are not profitable. Or they're not profitable enough to make the economics of private equity really work well. And it can be really disappointing. The other thing is the entrepreneur has been told over the years My competitor

36:35 Three years ago when they we were all growing at sixty percent a year. Sold for blank X multiple on growth. And I'm like, I know private equity's We give them our equation for private we can give'em a spreadsheet. Here's how we're gonna price you. It's this times this times this. They're like, I know, but the SaaS business did them. We're like, Oh yeah, yeah.

36:52 SaaS businesses are multiples on revenue. Consumer businesses are multiples on EBITDA and they're like Well, yeah. I'm not going to be able to do it. I don't do the math, this is just how the math works out. And

37:02 So Private equity in general doesn't like consumer'cause it's often advertising revenue or it has other issues that they don't understand. So There are these little sort of mistakes or glitches in how private equity works, especially

37:15 In the small and medium size, sometimes all the way up to the big ones. That allow us to do deals. But even then Remember Rick said he talked to a thousand companies to invest in fifty, so like a one in twenty Hit rate.

37:29 Uh, private equity's the same. You're gonna look Initially at twenty something deals, then you're gonna look hard at five deals. And then I would say the close rate on a private equity deal, if it's a good deal and it's worth doing You're gonna close only one and three of'em.

37:44 So They they are spread. The hardest part about private equity without a fund is that it unlike Being a venture Angel investor, where you know, Rick and I could easily do ten investments a year as angel investors. We get enough

37:57 flow, we meet enough great teams, we can go out and find them and VCs will reach out to us and say, Can you help us on this deal? You know the space, can you invest in it? And You know, advise the CEO. So I think those deals come at pretty high quantity. On private equity.

38:11 They're smaller, you do have to a lot more work. To find the businesses to sell. Not always the founding team or the investors don't always know they need to sell or they want to sell. So you have to kind of talk them through it. So it's a different set of skills. It's longer between deals and we say no. In private equity, the risk has to be really low.

38:27 Because you're working on a deal and a could when we're a small team and we don't have a full fund You have to make the deal work. It has to pay. It has to pay at least one or two X. So We spend a lot of time on risk reduction, which is different than entrepreneurs. Angel investing or even a little bit later.

38:44 You're always doing the multiple on the One in ten success rate. Because you're gonna have a larger portfolio. In private equity we're instead doing all the math. We do very little math on what could happen. It's mostly what could happen on the bad side and what could go wrong.

38:59 And It feels wrong at first, but it feels actually enlightening over time. Like Being a chief risk officer instead of like a chief investment officer, really thinking about risk differently and understanding how to mitigate risk. It's made me a much better entrepreneur. If slightly more cynical.

39:14 Today's episode is brought to you by HubSpot. Being a know it all used to be considered a bad thing, but in business, knowing it all, it's everything. Because right now, businesses are only using about twenty percent of their data unless you have HubSpot. That's where they take data that's buried in emails and call logs and meeting notes. They become insights that help you grow your business because when you know more, you grow more. You see, being a know it all isn't so bad after all. Visit hubspot.com to learn more today. Were you guys'cause like when I think of Jeff, you talked about being a product guy. When I think of Rick, like you I think you had maybe a consulting background, but you kind of morphed into uh growth marketing or but but also product and just very traditional Silicon Valley CEO. I don't think that as having the skill set of looking at Excel and like running the math and doing the numbers.

39:59 But Is the A just not that challenging, or did you just have to acquire that skill? Sam, I can't believe it hasn't come up yet. But Rick has a HBS degree. So no, Sam, my background finance. My my background early on was finance.

40:13 So I started my career. in uh corp deb so MA and corporate finance then went to HBS. Uh and then that's where I met James Courier, Sean to your earlier call out of James, and we started tickle together. Uh and I was CFO there for seven years. So a lot of what Jeff is talking about really is my background um And being able to yeah to to you know look at look at the company, assess the risks and private equity can't take zeros. An angel investing, you can take a lot of zeros, and that's okay. I on the other hand am like A numb skull I have to look up

40:46 The acronyms in private equity. Which are just basic accounting acronyms. All day. I have to literally have it. I'm always like Even that.

40:54 I always forget one of the letters. I'm like the opposite. I when I was at Yahoo and I was in charge of billions of dollars of revenue and profit, I still was doing it. I was always like What's that one mean again? And they're like, That's the profit part of my I knew it. I knew that part. That's fine. I got it. I got it. And then Rick's Rick's like, Jeff, just put this vest on and shut up. He literally actually Rick and I have chats going on usually during meetings so that he can tell me what all the acronyms mean, or I'll be like that part's bad, right? He goes, Yeah, yeah, you don't want those things.

41:24 Yeah. Sean, but earlier to your your question, I have a thesis that's kind of barbelled, which is In the in the private equity deals, I think Jib Jab is interesting and grinder is interesting for different reasons. On Jib Jab, You know, we we we talked about we had to come in quickly. The company was doing about five million of I better.

41:45 And we bought it for twenty million, so four times EBITDA, which is a low multiple, but you know, Greg needed to sell it quickly and in and and that's where we came out. And we were able to put 15 million of debt on that. So really we only put five million of equity in. So just let's just use kind of round numbers. If you had five partners and you each put in a million dollars, if you could, if you had the ability to put a million in, you own twenty percent of the business. Right, and with Jip Jab, it was throwing off so much cash that we paid down the debt in about three years. And then we we did a refi where we recapped the company and and borrowed another 15 million and then ended up buying out kind of half the uh investors with that. And we've already repaid all of that.

42:26 And now we're just cash flowing the business. So my point there is that if you had a You know, a a chunk of money, a million dollars, you could go and buy one of these companies. for um, you know, get 20%. Now with Grinder, you know, that same check that we put in to jib jab does not get you much of a$600 million business, but we talked about the carry. the carry of twenty percent on, you know, more than one point five billion of value created is a very big number. Um now with Grinder, it was so big that Jeff and I ran it.

42:58 Right. With Jib Jab, we have someone else running it. So you could do multiple of these smaller companies and and just be a board member more passive and create a portfolio. Or when you do find the grinder and you're an operator like Jeff and I, that's when you're like, No, no, we got to go all in and run this thing. And you could do a blend, right? You could do like You could centralize business operations and marketing. and customer care and those things and by a bunch of different businesses more like IAC, right? You could do the Right.

43:28 private equity IAC model, and we have friends that that's That's their focus. They're like I wanna buy these And by the way, that can work incredibly well. Bending spoons out of Italy. Has an amazing business of buying individual apps, but then using a common set of backend pieces and engineers.

43:44 Right. They can reduce the cost by seventy percent, eighty percent on a business and grow it because they're really good at the game of how to grow businesses and do subscriptions. So Let's play a game. Rick, let's say I'm your nephew and I call you and I'm like Uncle Rick, I wanna get into this business. I'm looking at a a bookkeeping business.

44:04 There's like a commercial brokerage business, and then there's AI. I got to think about like is that gonna wipe out a business, or is there a business I can go in and bring AI that's gonna make it way better? That seems like something I should think about. What should I do, Uncle Rick? Give me Uh. I get like

44:18 generally what I'm supposed to do, but give me a place to look. What's a rock I should go look under? What's a type of business that you think is a good one to go look at right now? So I'd answer in two different ways. The areas that I'm most interested in right now would be AI and crypto. But I don't know if my nephew has any real, you know, expertise or any kind of moat around, you know. um the ability to to go in and do something in either of those categories, right? But let's assume the nephew can buy Bitcoin and can use AI. He's just not gonna build anything in crypto or build the new AI thing. Right. So then um I it pr th those are probably not the categories that I would steer him into because you really have to know your stuff. Or you are just not, you're not gonna be able to compete. So then it would probably be, let's go find an existing business with stable cash flow that has we love recurring revenue, even you know, consumer uh recurring revenue, subscription based revenue is great.

45:16 Let's go find something that's stable where you know the the owner is ready to to exit. and and be able to put some debt on that business. And if you can do that, if you can add debt to the business, you get in at a at a reasonable entry multiple and have some thesis, some way that you are confident you're gonna be able to cut let's say double revenue in the next, you know, three, four, five years. And then you're gonna get out at a higher multiple, I can do the math and show you why that's a five to ten X. The debt, the reasonable multiple, the increase in EVETA, and the higher multiple on the way out is a five to ten X. That's that be that's my advice. And how conservative are you when you're thinking of the upside? So for example, you're saying so like the big if there's two big ifs here. There's buying

46:00 buying it at a low price, which is one problem. And then there's a second problem of you just said, can I grow user base or revenue. That's that's Very challenging. Yeah, so the two things there would be one to ensure the cash flow is stable.

46:15 That you're gonna be able to repay the debt, right? Or else you lose a whole business and and that's a disaster. Um, and the second is that if you don't have a solid thesis on how you're going to increase revenue, you shouldn't be in that company, right? Jeff and I looking at Grindr, we we knew what we would need to do to double revenue. And in two and a half years we took Grinder from a hundred million of revenue to two hundred million of revenue, um, when we took it public. And what was your thesis for doubling? Well, I I mean some of it, and Jeff should jump in here, but some of it was really just upgrading from where the company was at the time. Again, the talent was terrible, the the the the the tech was decaying, and they hadn't launched any new products in a long time. So we knew if we could clean up those three areas and then apply the Tinder playbook, which Mat which you know match had done great with Tinder and Grinder had not applied any of that. We're like if we just do these things alone We should be up fifty percent if we do them really well a hundred percent.

47:17 Yeah, we went through I mean it got We went down to a low level. We went to individual screens and said, They're not even using the right buy buttons here. Like there are just patterns we know that work. You know you can do these conversions. You know you can reduce uninstall rates by ten percent. You know you can increase your SEO by blank percent. They didn't have a web version for Grinder. We knew that would be important. They didn't use Boost, the equivalent Boost feature on Tinder. We knew that feature would be we knew they were underpricing in certain markets and overpricing in certain markets. They weren't doing anything on pricing strategy at all. They just kind of uniformly used pricing everywhere. So

47:48 That playbook allowed us to put together sort of probably a three X in revenue, and all we needed was oh, you know, we needed a double revenue in that time frame. And so Same way you would do with risk reduction. We put together things saying, That's good for ten percent, that's good for forty percent, that's good for whatever, and when we were done with that whole list. We had high confidence that we could Grow the business.

48:10 Our first year was really hard because a lot more disruption happened in the business than we thought and we had Covid. Hit which dropped the business by thirty percent overnight and then it recovered. But We still hit our numbers, roughly. We came in almost with it'cause we came in almost within a million dollars on every quarter that we wanted to hit off that. Peace and

48:29 By the way, that included like getting rid of advertising in the product. They've reintroduced it since. But like we knew users hated the advertising and it was causing problems. We do want to get rid of advertising in the product, most of it. And So we are trying to cut revenue. in certain areas, grow revenue in other areas, increase retention, increase pricing on certain customers. Like some customers were price insensitive and they were just getting too much value out of the product. This is for the folks out there who have a business that does at least three million dollars a year in revenue. Because around this point, that's when you're able to look up after being heads down for years building your company.

49:01 And you realize two things. One, you've done something great. But you're still a long way from your final destination. And two, you look around and you realize I am all alone. I've outrun my peers, which means you're now making 10 million dollar decisions alone by yourself. And that is when mediocrity can creep in.

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50:04 joinhampton.com In the doc you guys sent over before the episode, um You talked about like the opportunity in health. that you see kind of like certain health trends or where where, you know, as an entrepreneur You know, your spidey sense would start tingling. Wha you know, can you describe what what you're seeing and what you think the opportunity is.

50:25 For me, what those areas of disruption coming from crypto and AI, that's really our investment thesis on venture. Almost like For private equity. Those represent high disruption points. Which can transform a space, they can disrupt a space, they can take, you know, big players and make them weak players, and vice versa. So there are plays in private equity for these, but there's a lot of unknown in those that make

50:46 private equity more dangerous. For the next couple years because businesses that have been very stable for a very long time have become potentially unstable from disruption. On the investment side, that's the perfect time to invest. Right, even though people are saying there's a bubble right now.

51:01 If you just take a macro level over the next decade, will there be more disruption, more wealth generated over the next decade, regardless of like if individual prices for companies are overvalued in the short term or the long run. Kind of like was Amazon overpriced in Two thousand. Sure, but was it overpriced by the next twenty years? No, it was underpriced by the next twenty years. So

51:19 As an investor AI does some things really well, and it does things well when there's a lot of documentation. And there's a lot of documentation in legal. Engineering. And in medical. And so those spaces are high value, tons of money being spent in those spaces.

51:36 And There's high need. The consumers desperately need better results from medical. They desperately need better results, you know, on engineering. Engineering costs are incredibly high for building high quality software and safe software that can't be hacked and all those other things. And so As you look at these areas, that's why I think those areas are right for disruption. It's not like an unknown thing. If you talk to the major VCs, they'll tell you.

51:58 Like Yeah, these are the areas we see entertainment as well. Is one I think the downside of entertainment is there's sort of a Insiderness. and a protection of IP and a legality to the entertainment industry that's always made it a little bit

52:12 Delayed? They're g seeing disruption. We see it in the long run, we tend not to see it as quickly, like that's why Napster didn't work and you know What Spotify came in for later. really had been done already, but just didn't happen because of some of the pieces.

52:27 I do like those spaces. I think as we were talking earlier about private equity, it's what makes me a little nervous. If I'm looking at deals, I'm like There was other dis disruption on the consumer side, which was when Facebook lost its ability to see data because Apple changed its rules in IOS fourteen. That broke so many small businesses. It literally just broke businesses. They could acquire customers before

52:48 And they could no longer acquire customers. And so what was seen is like this It's bad for you know, we're we're We're gonna fight back against Facebook. It really was An action that Apple took that hurt so many small and medium sized businesses. So On the consumer side.

53:04 That re the repercussions of the inability to acquire customers that are sort of reasonable price has destroyed so many businesses and it's made private equity is sort of interesting in this space now because where do you get consumer Where can you acquire customers when consumer When acquiring customers through advertising on

53:22 on Google and Facebook and meta platforms, it's just so wildly expensive. This um And what about this uh agency AI thing? I've been working with a number of entrepreneurs. We were trying to figure out how to do some businesses. That involved AI.

53:36 And I just kept saying, but how does this work if we can't talk to the old internet. Like if we can't talk to Trip advisor and we can't talk to Ticketmaster and we can't talk to uh NBA.com. Like if you can't do any of these things, how exactly does the world transform where I have an agent that helps me plan my weekend or my trip to New York City and all these things. And so There were all these.

53:57 companies starting that were building agents inside websites where you would and I don't like this theory. A million LLMs out there. Every time I go to a website I have to talk to an agent. And it's just sort of replacing

54:11 clicking on buttons with talking to an agent. I assume that the world will instead end up with a smaller number of agents that act on behalf of consumers going out and doing work. That changes fundamentally. The internet. It just means that

54:23 If you have a website today that sells tickets or bicycles or whatever it is It won't be so much the customers type in specialized.com or trek.com or whatever the bicycle company is and then go there and do it that traditional way. They'll talk to an agent. They'll say, Hey, I need a bike. I want a mountain bike. I'm doing all these things that I want you to do an evaluation of these things and it says, Okay, I picked these four bikes. And you say, That one looks good. Can I get a good deal on that? It says great, I'll go do it.

54:47 There is no way for the world to do that connecting right now, where it's like take the old world of commerce. And connect it with this new world of agents. And so You need a layer in there. They are building things like Mariner and Operator from OpenAI and Google that are attempting to surf the web on behalf of consumers and click buttons. Yeah.

55:05 Is not efficient. And Mariner and Operator are the first ones to tell you. It's not efficient. So what agency is is A I G E N C Y It's just the glue between the two.

55:16 So what happens is is when like an open AI Agent comes to a website, like a travel website or a luggage website. Right now it will surf every page looking for the request of the consumer. It can take like ten minutes. With ours, we just redirect that traffic to

55:32 an interim agent that doesn't intend to ever talk to consumer. It's not an agent that's gonna, you know make you feel good about yourself. It just talks to an agent that talks to other agents. So Agents is how can we retroactively build take the web two point oh world and the commerce world and allow it to talk to this new AI enabled world. And so I had learned a while ago that typically a lot of the ideas I have for startups required a step

55:56 that I assumed would be there, but I didn't know who was going to do it. And this time I wanted to be one of the guys that worked on the interim steps because I think those create incredible value. We see it over and over again. It's like the guys that are doing data centers and the guys that are doing The layers of um sort of strapping on top of these LMs, c rep you guys talked to the founder of Uh Replied for the AI coding, you know, it's really sitting on top of

56:19 L engines and so A lot of the value's been created in this middleware stage that's necessary to sort of put these two pieces together. And so that's what agency is. It's an attempt to take these old businesses that could experience incredible disruption and help them understand what's happening with the AI world and just transform their current business. They n everyone's not gonna be able to hire AI engineers. It's just not possible, you're right. You're You're not gonna you're not gonna be able to do it. There's just so few

56:46 And so You need the system that sort of my it glues the two together. So that's agency. Uh someone was um Sean and I had Tim Ferris on the other day. And we were talking about it. I watched through that in prep. Yeah, I was watching through it. Yeah. Dude, the top comment was like, Oh, uh three Silicon Valley Rich guys just discovered hobbies. Uh like they're making fun of us for like talking about something something so obvious. And it's sort of funny because you guys are web one point oh like OGs, like Um, Rick branch out when I was just getting going. That was like that was like the North Star of like this guy's got

57:20 thirty five million users in like a year. And you were in my mind were kind of the poster child for like raise a lot of money. Go big. and buy a lottery ticket and hopefully it pays off. But now What you're doing now doesn't seem like a lottery ticket at all. It seems like you've like reduced risk as much as possible. If you were twenty five now, Rick, do you think that

57:40 you would have gone the bootstrapping running a cash flow business, or do you think are you happy with the results of what you did with kind of buy buying lottery tickets? I don't think that Jeff and I would have been necessarily good at PE at twenty five. I think grinder worked because we could apply twenty five years of experience to it. So I don't I don't think yeah, I I think the the right call was

58:06 get that experience at twenty-five. I think that's when James and I found a tickle. I think I was about twenty-five. And um and you know, get all that experience, build that network. And you know, seeing the movie a thousand times and know how it ends, and then apply all of that to the bigger opportunity. So yeah, I wasn't ready back then at twenty five. Yeah, and I think that the the risk I think it's

58:28 Great. To go big. Like But I do think that there's a reason that Entrepreneurs in their twenty, we say freshmen and seniors make all the money in in the venture business, like in the entrepreneur business. So you either

58:40 Don't know the rules. So you go into your business and you break a bunch of rules without knowing, or you know all the rules. And you build a business that sort of takes advantage of the the weakness of a market because of the rules. And it's the sophomores and juniors Who kind of messed stuff up and Typically

58:55 As an investor, I see this as like, oh, they're a director or senior director coming out of Meta. or Google, they have incredible experience and now they're ready to do a startup. These typically have made not great entrepreneurs. But entrepreneurs that drop out of college or, you know Some of the group that Y Combinator sort of focuses on that are really scrappy.

59:14 We see a lot of amazing disruption there. And then people that have spent twenty years in the industry They may the risk for that startup may look Not as high. But the outcomes can be incredible, right? Like Salesforce. dot com. I mean that's an incredible but that's

59:27 industry experts trying to figure out like Wow, this trend of moving. Online to the cloud with Apps from Oracle sort of on prem. It's a

59:36 Kind of a boring. felt revolutionary, I guess, at the time, but I mean it it was sort of obvious. And But still incredible amount of value was created. So I think Value gets created at both ends.

59:48 And it's true, we're we're experienced, so we tend to be more seniors. And so the kinds of things we do, they look lower risk. And it's more sort of wiring together pieces of the world that need to be wired together. But it it can create a tremendous amount of value. There's still a huge amount of disruption in there. When I was young doing my very first start up on online storage People used to tell me no one will store anything online. I just remember thinking like

1:00:10 It's before the word cloud was invented. The word side load, we invented that during the thing. Like we just didn't have the vocabulary to talk about storing stuff in the cloud, but So I love the disruption on both sides as an angel. I'm sort of I like to find the guys in there the you know the

1:00:26 the men and women in their twenties that are finding big disruptive ideas. And I would love to invest in those, but also My network gives me access to incredibly experienced entrepreneurs that know the This market just needs this piece to disrupt it and I can put that piece in place. Well one of the other fun things about being in the game for so long is that you

1:00:46 M you've probably met a lot of the main characters today. back at their superhero origin story. So like I don't know, but like you know, Elon or you know, you guys were pre Y C, so like, you know Paul Graham, Sam Albana, whoever the players who have gone on to do like really interesting things, Zuck, early on. You know, um What w can you d are there any cool stories? Like what you know w who are these what were these people like?

1:01:09 I did my first deal with Travis From Uber, I did my first deal with Travis when I had iDrive. He started a company called Scour. He was out of UCLA with five guys. So Jason Drogan Travis they did Scour, I did iDrive, I had the largest collection of MP three's in the world on my file system. They have the largest video and um

1:01:29 music search engine built ever. We put the two together. It was Unbelievable. It was the most incredible thing. Travis was And an

1:01:43 through elbows. His team was really talented and their tech was awesome. And So yeah, w I got to know Travis when he was twenty four Four or twenty five and

1:01:52 Did he have the if factor then? Listen, I I've met so many of these guys that you and I know now to be billionaires, you know, when they were very, very young. Uh Zobny was started in the same dorm room of Dropbox with Drew. So my founders of Zobni that I did and sold to Yahoo. That was started with Drew. They both were Y combinators class, I think, two and three.

1:02:13 En so And Jack Dorsey, I knew him when It was Odeo and spent time with them and Twitter was failing. And we were I was trying to buy it for$19 million at Yahoo. Like so we've met all these people. They are roughly the same people. Some of them Have become personas and characters that are sort of surreal.

1:02:32 But then when you spend time with them, they're They're the same. You know, but when I read about'em online I'm like, Oh, that's Yeah. I I sometimes aspire. I'm like if I become a bil I always tell my kids, if I become a billionaire

1:02:43 Make sure I am incredibly interesting because the role of billionaires in the nineteen twenties was to entertain society through eccentric contributions and naming universities after themselves and Doing it, but not for Destroying the government and doing all these other things. So You know, there's you're supposed to entertain and keep people happy and add social good by building things that will survive generations, whether it's universities or parks or, you know, things like that. But

1:03:07 So Yeah, I I I admire my friends that have had the success, but I'll tell you the difference. Between my My most intelligent or most talented friends are not my richest friends. And the correlation between success

1:03:23 And Talent. Is not nearly the overlap you would think. We rewrite the story, the origin stories of so many of these companies. I talked with Brian when he was getting Airbnb starts, one of the VCs called and said, I'm trying to invest in the startup called Airbnb. And I spoke with Brian and we talked through like what he would look for in his first investor and why I like this investor and

1:03:44 Hearing from him. He's like interesting guy and he had interesting things to say and I loved Airbnb. I was one of the very first Airbnb hosts, but I didn't hang up the phone go Holy Shit.

1:03:55 Perfect. That guy has it. I hung up and said, Hard to talk to on the phone. I loved Airbnb as a business, but I didn't think That

1:04:10 Is the guy, but I hear VCs talk about this all the time. They're like when I met with this entrepreneur, I knew and I'm like Jack Dorsey is incredibly thoughtful. But not incredibly well liked when he was young. Not by his co founders, not by his investors, but he turned out to be an incredible entrepreneur. You know, to do square and to do like it's incredible. An incredible entrepreneur, but was not

1:04:32 I didn't walk away from my meetings with Ev And Jack and Biz and those guys and say Jack's the guy. And just was like huh. Check's curious fella.

1:04:43 Smart and fun to talk to, but curious. And like I do accept what Paul Graham says, which is And I think others have said this.

1:04:52 People who accomplish things In Startups. historically have a trail of accomplishments. So

1:05:00 They were Amongst the best at things they did. Now the things they had a chance to do along the way might have been a lemonade stand. But you'll see this thing like People will point for me. I sold raffle tickets for my school for something we were raising money for.

1:05:15 I didn't beat the other kids at the school in selling raffle tickets by like Seven percent. I beat them by seven hundred percent. Like I destroyed every record ever done in selling raffle tickets for my school. I remember when the principal goes And Seven hundred and seventy seven dollars of sale. You know, the person ahead of me was like sixty four s rail sales of tickets, and I sold like seven hundred and something. And there's like

1:05:37 I I don't know. And so You tend to see this record of accomplishment in all the things they did. Now some of the things they may have done early on in life They just they might have come out of a small town that they didn't have opportunities to do big things. So The best example of this, I would say, is like if you read uh Paul Graham wrote a blog post on it or an essay on his thing a long time ago about like, you know, the five founders who kind of

1:05:59 Uh stood out to him and it was like, you know, whatever. It was like Larry and Sergey, Bill Gates. It was like the people who had already done it. And he's like, number five, Sam Altman. It's like This guy who had done loops, I think sold for like forty million bucks or something. Not like nowhere near the accomplishments of Bill Gates, Larry Sergey. And he says like you know I remember when we first met him

1:06:17 I thought to myself I realized like Oh, this is what it would have been like to meet Bill Gates at eighteen. And he just he called it this is like ten years before Sam Alton became a household name. And so it's very interesting to me when people, you know, sort of have it. What is it? And I think as an investor, you want to be able to recognize it. As often as you can. I think that's a very profitable skill as an investor. I think as an entrepreneur you can actually

1:06:39 You can actually develop it. You can start to steal you know pieces of other people's games. You know, if you notice that somebody's really good at doing something, or you notice Oh, I thought I was good at this. Now I know that there's actually more room to grow there. Great. I'm gonna yeah, keep working at that. It s sort of resets the things. No, there probably is some uh I think Paul is sort of unique In his ability to sort of put Really complex ideas into simple ideas and turn those into action. So I think that's

1:07:06 Why Common had such incredible success in identifying the right founders in its first three or four classes. That was really Incredible. They're now like doing six or seven hundred companies per class. And so they they'll probably through the numbers say that they're identifying these things, but it's It had not been quite the persistent system that they were in those first like four or ten when they were doing Boston and the Valley, they were going back and forth. He and Jessica were going back and forth between

1:07:30 Boston in the Valley. That was probably the best hit rate, like Ron Conway's hit rate for S V Angel. Mm. In one. Was unbelievable.

1:07:40 Multiple hundred X. On S V Angel One. SP Angel Two's been good, I'm in it. Good fun. Then three is good and four but S V Angel One was incredible. So

1:07:49 Lots of people who say they have these incredible skills for identifying talent. I think In general it's like historical thing we rewrite, but I you do meet some entrepreneurs who are competitive. Or ambitious in a way that

1:08:03 Being a sociopath and being a good entrepreneur, it's like the circle comes very close to touching. And I realized somewhere along the line, I love doing startups. But I just don't have the sociopath gene in me. I would say there's a level of success amongst entrepreneurs that It may require a level of sort of Um Driver.

1:08:25 Or competitiveness that maybe is so far out on the on the uniqueness of the side. That's um that's like something I I aspi I mean I aspire to achieve what you you've achieved and you don't seem uh you seem pretty genuine. I've I've known Rick, I've I've I've known of you for many years and I Like you seem like a You seem like a pretty stand up dude.

1:08:48 If our first startups had been wildly more successful, had my had iDrive had I found somebody offered me two hundred and seventy five million dollars for iDrive. When I was uh in two thousand. And I was like, I'm raising it four hundred million, you know, screw it would have changed. My you know, I would be a different person. I would be the most annoying person you've ever dealt with today because I would have built wealth early in my career. My first sample would have been my first startup was a huge success and I would have told myself There was something I was told um by a very smart V C that I worked with and he said

1:09:17 The smartest people in the valley are probably right thirty percent of the time. And the s normal smart people in the valley are right about ten percent of the time. The sample size for the thirty percent right is that they're right so much more than the smart people around them, that they're basically one hundred percent right. They're wrong th seventy percent of the time, but their sample in their own brain is I'm right a hundred percent of the time, relative to my friends, because they We all sort of discount our failures enough that we see only, you know, the small selection of failure and successes. So

1:09:44 I think that's the problem. With This concept, which is smart people are probably still right ten percent of the time with their ideas and their work and their effort. If luck corresponds with that talent. That and you get enough shots at it, you know, like Rick and I think if you wanna be an entrepreneur, be successful, do it

1:10:02 Commit yourself to twenty years. You know, be an entrepreneur for twenty years, do four or five startups because The amount of luck that has to overlap from externalities and internal. Things that have to cross over to have that success. When it happens on their first startup.

1:10:16 We typically ascribe that to genius. We say like that's genius, and so probably half of those are true. Half of those like the people are really uniquely talented. The other half just the luck they had for when the wheel stopped and when they got their number was on their very first one. And that success multiplied many times because raising money was easier and access to talent became easier. The number of things you learn in the process of building a big company are you know, you learn a ton. And so you're getting your learnings earlier. So

1:10:43 There is just something to had the dot com burst happened three months later, I would have sold my company for hundreds of millions of dollars and Things would have been different and maybe I would have had more success today in terms of what people predict But I've had great success. I'm super happy. I love what I do. I get a chance to work on hard problems, but

1:11:02 Yeah I think about this a lot. You guys actually have the career that I I don't think I don't um I don't see myself having this, but the way that you describe it, I'm like that sounds amazing, which is you sort of have projects. I think Sean is um I think tends to do this quite well, where he finds a project and he gets in and it ends up being quite successful.

1:11:25 Um you guys have done that where it's like It's like every three or five years, it seems like you have like a new thing. If you look at your LinkedIn, it's like there it's like a chapter, very clearly chapters. Whereas what I tend to like is like multi decades on the same thing, which The way that you're describing your life now. I'm like, that sounds pretty amazing. Uh that sounds pretty fun. Uh d is there any can you speak to that of like of like the because you you also said you're like well you're like PE doesn't work for ten years, and I'm like Oh that's it? Teddy like It doesn't even work for ten years and it works for only four years? That's it? That sounds amazing.

1:11:56 No, I I think there's an evolution. So that's probably why it looks like on a resume it's every three to five years. What I've tried to do is find people that I really respect. And Sean, to your you know earlier question about you know finding those people early You know, I I can give you three examples. One would be James Courier, who, you know, was my classmate at HBS. We grew up four miles from each other in New Hampshire, never knew each other until business school, but he was someone that stood out as one of the brightest guys um among all the students there, which is a high bar, right? So and I in Jane, you know, James is one of my best friends. Jeff, um, one of my uh obviously closest friends as well.

1:12:37 Um, Jeff, you know, brilliant product mind. And um and another guy, Naval Ravacant, and and you know, Naval was someone that I met twenty years ago. And I give him a lot of credit. He was a guy that got me into angel investing, gave me a lot of good advice around that fifteen plus years ago, got me into crypto 11 years ago. And he was someone I just saw as just a really, really big brain. And all three of those guys I just I love hanging out with. They're all good people. And I've done things in my career with all three that have been really meaningful. Right. So for me the you know, w and then I need to add value, right? So

1:13:14 with um Jeff and James in particular, both high level big vision guys. and need an operator to make sure the execution gets done. And that's where I've been able to add my value uh to you know to find these guys that I I wanna spend my time with and I have a ton of respect for. And I think that that's a good life philosophy, right? So the five people you hang out with the most, you tend to like, you know, take on their thinking, their mannerisms, you know, the things that they say. So really, you know, think hard about who do I want to spend my time with. And for me, I've been blessed to find, you know, several people like Jeff and James in particular to run companies with. And be blessed that I can bring something.

1:13:57 What was pre guru Naval like? Like, you know, when he was like uh Guru in the making. And it it's actually funny. I'll go back to Naval, but there's a woman, Mel Robbins, who now is a huge podcaster. She worked for us. She was our head of marketing at C No way, really? And James and I found a tickle in this crappy Um basement level office in Cambridge Mass. Um she was our head of marketing. And my wife was listening to her podcast the other day and I recognized the voice. I was like, Is that Mel Robbins? She's like, Yeah, yeah, she's huge.

1:14:32 I'm like Mel was our like director of marketing in nineteen ninety nine. I had no idea that she blew up. So it's awesome to see that success for her. Would you have predicted that? No. No I mean she had a big personality and everything, but who would I mean uh I mean to that she's gotten so big, no. Um but she she's she's awesome. She's amazing. We had crazy team early days at Tickle. But Naval Naval has continu I mean, Naval was always really cerebral, incredibly smart. One of the smartest guys in Silicon Valley and that's the very high bar But

1:15:02 He's definitely gone more the guru thing, and I still see Naval all the time, and I you know have a ton of respect for him. And he's definitely gone more the philosophy and um and and and really, you know, really become this guru. It's awesome to see. But he was someone that early days inspired me. For those two areas, angel investment and crypto, that continue to be a, you know, a important part of my career. What was the light bulb moment for you with crypto? And then I guess like did anything change over time? Yeah, with crypto. I remember early days, Bitcoin, you know, was trading under a thousand dollars. And I said to Naval, so how big does this get? And he said, I said, What's the price of Bitcoin? He said a million

1:15:40 And I said, A million, it's only at like, you know, eight hundred. And I said, When? And he said, Before we die. And I was like, well, hang on, is it before we die? And he's like, I don't know when, but it will be a million dollars before we die. And I should've bought more. Um I bought some. Uh should have bought more. So I I love the way he can look out decades. And be right.

1:16:00 Yeah. Did he give you a why? Did he tell you w what the thesis and did it click for you right away?'Cause I remember the It took me like seven smart people telling me about Bitcoin. Before my dumb ass could figure out, like, all right, this maybe is worth doing. And really, even then, it's not even because I actually understood what they were saying. I was just like, okay. That's too many smart people saying that this is a thing.

1:16:22 Uh, for me to to just not participate and by the way, it's happening right now. If a million is true, then that means that it is still true that we are foolish for not being, you know, all in or whatever it Yeah, but like you know, at some point I started to like get a like wrap my head around like, oh, okay, I understand why this makes sense now. Uh like my friend literally sent me a PDF he had written, like a five page Where he was like If Warren Buffett

1:16:48 Uh if I use Warren Buffett's own investment like uh framework to look at Bitcoin. Here's the case. And I read that and that was the day it clicked for me. Yeah, no, I think Naval saw that early. I think he saw the disruption and being able to move money. v very much what stablecoins are doing now, but he saw that early days in Bitcoin um, as both a store of value and a transfer of value. And I think he was probably also looking at, you know, uh non inflationary, right? You've got a fixed supply and um and the ability for anyone to be able to buy Bitcoin, no matter where you are in the world. So I think there are a lot of things that he saw early days before

1:17:27 W were were you part of James's crew of uh one currency to rule them all when when James was brainstorming this? James, yeah, we talked about it a lot. Obviously it never went anywhere, but yeah, yeah, I was part of those discussions. Um you know, any of these things are just so hard to get off the ground and Bitcoin is at one incredibly unique Um technical challenge that was solved and uh and changed the world. Right.

1:17:53 Sean, I wrote this um I wrote this presentation for Yahoo in two thousand six, and it was about what I call the emotional adoption curve. And how Angry customers was the biggest predictor of disruption for these embedded spaces. And that instead people tend to entrepreneurs tend to focus on making customers Like delighting customers, making customers happy. And I said we really should focus more on pain and frustration and anger. It's the it's the negative emotions that drive behavior changes, not the positive emotions.

1:18:20 And so at the end I said if this is true. What are the industries most likely to be disrupted? The internet is a form of democratization that gives consumers power. to overthrow the chains that hold them back and make them upset.

1:18:34 And I literally said Finance and money. It's a weird thing. It's like controlled. It's imp it's it's opaque. They can't understand it. They don't understand what's going on. The next one was healthcare, especially in the US, like just disruption has to happen here. The customer is getting such a raw deal. It's so bad for the consumer, they're so angry.

1:18:53 And it has so much power over them, this rapture must come. Entertainment, I was like just it's confusing to consumers. They have to pay these cable bills and they don't understand like this is just gonna drive them crazy. It this was before voice over IP had taken over, so I'd written about Telephony was like one was coming. Finance I included like credit cards and all the other things that consumer were fairly. No, I yes and no on I have a good story on how I screwed up on the Bitcoin one. But um The last one, by the way, was uh

1:19:21 The government. Is that the customers have anxiety and they have frustration with government. And I'm Not a libertarian. But I can see still that there's angst and anxiety and and frustration, and so

1:19:35 Social networks add sort of gas to that fire. Now it's not always good. Just because the consumer's angry doesn't mean that we end up with like a a delightful solution at the end. It can be a a a worse solution, but the abuse of control at the top and typically monopolies or oligarchy type businesses or industries. Causes angry customers, and those are the most right for disruption. They're often hard to disrupt, but the power of the internet was, and what James recognized many people with currency was. What the internet has done for A in the most easy to disrupt industries will eventually happen.

1:20:06 When you network voices together and they can multiply That will eventually lead to disruption in these bigger, harder to crack spaces. And so We're seeing now. The internet's been around now for Twenty five years.

1:20:18 And all the manifestations of it. And all those things that come together, it's slowly taking away and sort of disrupting these industries that we thought couldn't be disrupted. And currencies and governments are closely tied together. But no, I obviously didn't totally see it because I bought crypto over the years, but

1:20:34 I always buy things I can't afford. To inspire myself to work harder. And I bought a Porsche. At one point that I couldn't afford and I went to sell it. And the guy office was like two thousand and

1:20:46 eight or something and he offered me bitcoin at like I don't know, it's well under a thousand bucks. It was like I don't even know, a hundred bucks or something. He's offering me Bitkey's like I just pay you in Bitcoin and I was like Nah, he should pay me in cash. I gotta pay the bills still. But you know, had I taken the bitcoin for that, it was like the three hundred and seventy two million dollar Porsche. I did the math at one point of what that Porsche would be worth today if I had just taken the the Bitcoin in it. So

1:21:12 Dude, you guys are awesome. It's um it's fun to talk to you because you're um I think you're like one one one generation above us, but a lot of like attributes that we both admire, which is Uh you've been in the game for you've been very Very consistent, but you also seem to be having a lot of fun. Uh you've done like some serious, but you've taken it almost in a weird lighthearted way that I appreciate like you like it seems like fun is a part of the conversation.

1:21:39 Uh and I and I really respect the hell out of that. You gotta you gotta find the right people to do this. with because it's hard, right? Whether it's PE, venture, or starting a company, find people that you respect and that you really want to spend those hours with. Um, Jeff is clearly one of those people for me. Jeff keeps me laughing all day. Um, he's hilarious, but also, you know, uh as you've heard today, incredibly insightful. And so good at what he does. So go find, you know, go find your partner if you're gonna do this stuff,'cause it's hard.

1:22:12 That's awesome. Well, we appreciate you guys so much. Yeah, thanks for coming on, guys. Yeah, thank you. That's it. I feel like I can rule the world, I know I can be what I want to I put my all in it like my day's all on the road, less travel, never looked at the first time. This episode is brought to you by HubSpot Media. They have a cool new podcast that's for AI called The Next Wave. It's by Matt Wolf and Nathan Lands. And they're basically talking about all the new tools that are coming out, how the landscape is changing, what's going on with AI tech. So if you want to be up to date on AI tech, it's a cool podcast you could check out. Listen to the next wave wherever you get your podcasts.

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