And I'll tell you why I wanted to join. So with this podcast, we talk about a lot of people starting cool stuff. And there's like three things or four things that like every person who graduates college what they're going to start. And it's like a roommate matching app, which I did. It's like a way to like buy and sell stuff from college kids. And then it's like an agency. And interestingly, I've actually noticed that a lot of my friends who started companies and sold them, they're starting an agency because agencies are interesting ways to make money while learning. Um, and so what I wanted to know, I just wanted to ask you questions about the agency business. And I think
Yeah. And we had sort of uh we had a debate a couple podcasts ago where we were talking about Vayner Media and it's like sort of is this a good business or bad business? And so what one thing is like obviously it's not a shit business in the sense that like it you know they have happy customers they've got people they employ a bunch of people they make a lot of revenue uh but we you know we're sort of talking out our ass in terms of agency like you know what does an agency business model look like right I know what a software company looks like I know what a restaurant looks like because I started one of those I don't know what an ad agency business looks like so um I don't know talk us through like very simple you start an agency um you know, even before even maybe the one you sold before the one you're currently at. What does that what does like the first level of success look like?
Yeah. Yeah. Um yeah, I'll dive in kind of like the typical agency model. Um but um I I think that's a good place to start for sure. So when I started an agency, I I actually didn't mean to set out and start an agency. Um I um I had joined a startup and left that. But uh throughout my her like entire career, I've been like the YouTube guy. I was always pushing like let's work with influencers. Let's, you know, you've got to like implement best practices on your YouTube channel. And uh and this was starting back in like 2006. So, um, when I left my job and I thought I was going to consult and stuff, it was like, uh, this was maybe 7 8 years ago and it was like right at like I totally caught the wave of when all of a sudden brands and ad agencies were paying attention to influencer marketing. They all needed the strategy and like I've just been kind of hammering on that for years. So like um kind of out of the woodwork like all my old agency friends and and friends that had been at brands were hitting me up and they're like, 'Hey, can you help us with this project? Can you help us with this project?' And so um pretty quickly I just kind of realized there's a bigger opportunity than consulting. And so what I did was like I would take on these projects um and uh hire on you know I hired on a few people over time um and help them with uh really two services. One is influencer marketing. So I you know work with them on like developing a strategy in terms of how to integrate the brand into YouTube channels. I do all the influencer identification, contracting, all that. And then the other aspect of the business was basically implementing a lot of YouTube best practices for brand channels. um you brands spend a ton of time focusing on their Twitter, Facebook, you know, Instagram, but um they don't really put a lot of time other than the video itself into their YouTube channel. So that was my model.
Um is that a good summary by the way? Do you want me to go deeper? Oh, cool. Cool.
Yeah, that that makes sense. I'm curious like when you get a you get your first client like with your other agency, how big was your first client? Were they a small startup or were they like an established company?
So, uh, pretty big companies right off the bat like, um, one of my first clients was like Mountain View and Pepsi, um, Uniqlo, Annheiser Bush, InBev. Uh,
So why are they going with you kind of like new guy, new agency, there's a lot of other options.
Yeah, I I think because there weren't a lot of other options back then. Um, like obviously there were social agencies and you guys talked about Vayner and stuff. I I carved out a nice white space for myself in the sense that like there weren't really that many people just solely focused on for example like YouTube optimization. So like I got in with a lot of the brands um on like a really small retainer where like that was like our like our entire role. Um
Yeah, what's a small retainer?
Oh, like this is when I was just getting started. So it was like very very small. It was like you know uh you know three to five grand for for for that service. And how many clients could you have at one time? Five or six?
Yeah, we probably had five or six going at one time on on that part of the business. And then the other part was the influencer marketing part.
And then if you fast forward to like okay, agencies mature now. You sold the agency. Um same same types of clients I assume because you you started sort of at the top of the food chain there. And what are these what are these clients paying you on retainer by the sort of by the end by the time the agency sort of mature?
Um, oh, so before I sold it.
Yeah. Like what if you if you started off with humble beginnings at 5K, what is the mature look like? Is that 50? Is it 500? Like what does an agency typically get from these type of big brands?
Yeah. So I mean the the that's the the high end of the big brands is you know millions in uh in retainer fees a year and that's you know covering everything from you know they're doing strategy to the creative development helping them plan production you know doing social media and community management. So you know I mean there there are agencies getting paid tens of millions of dollars by you know massive Fortune 500 brands and that's that's definitely like the top end. Um, obviously I didn't get to that level. I I sold my agency when we were still relatively small.
And so, uh, fast forward to now, you said, you don't have to refer to your company. I don't care. But a company that is a $50 million range. What are the economics like these these businesses? I mean, with like a really profitable software company, you could have massive margins. Would that be the same for
Yeah. What's good margins, right? Like when I ran a restaurant, if you if you could get to 20% margins, you're crushing it. 10%
On like net margin, what what would it what would be good for an agency?
Yeah, good for an agency is 15 to 25%. Like that's that's solid. That's generally accepted as like the goal.
Well, 25 is good. 15's but that's not bad. I mean, so then is that before and and and as uh these let's say that you have partners in the business, is that where all of your guys' income or an owner's income come from is out of that 25% or is that before you calculate your net income?
Um it it varies uh depending on the agency. So I I'll like sidestep like us specifically, but generally, you know, um I know with like a lot of big agencies and and and so there's like two types of agencies. First off, there's like uh independent agencies and then there's agencies that are part of um like a holding company.
Yeah. The big two or three Omni.
Yeah. The WPs. Yeah. All those. Exactly. And so, um, I would say generally is probably, you know, with a lot of the the more independent agencies, um, it's going to be a combination of they, you know, get a a salary and then, um, out of that profit get some sort of profit.
What are the what what would the safe cut on $100 million agency, $25 million in income owned by one person? What do you think? Would that person take five million of that 25 million home?
Oh, that's a good question. I I actually wouldn't know um that for sure, but I I I would imagine if I was making that much money and I was the sole owner, that's probably the way I would approach it.
And are agencies trying to like is the endgame to be an agency or is it like, you know, agency and then as we get sort of these clients, we start to see opportunities and we start investing off the balance sheet or we start creating our own products or like what do you think is the sort of endgame for the smart people that are in this business?
Yeah, that's a good question. Um there are more agencies now starting to like diversify and um like develop products. I'm trying to remember but uh there was one agency I think out here in New York who recently uh got a bit of press and u
Yes. Yes, that's who it was. Um and they did just that. They were doing so much work with DTOC brands and were seeing so much success they decided to develop their own products. And actually, I we've got a a mutual friend, I think. Um Tim, do you know Troy Oenoff?
Yeah. He's he's got an agency. They're just a couple blocks over. Um you know, they've got a nice agency mostly focused on DTOC clients. Uh they're about 20 people and they've actually acquired a couple of their uh the brands that they're working with.
That that that's badass. And that's what I I don't follow Gary Vaynerchuk too much, but I've heard that's what he's trying to do. And in my head I'm like that sounds good. What what the hell you wait for? Do it.
What he says is he's buy old IP that is like sort of low value now but carries
I heard him say that. I'm like just do it now. What what brands? You got a thousand people. What do you
Brands from the 80s buy that IP and then la relaunch it as a you know brand refresh with movies and products and whatever.
Yeah. it. But you know, the thing that's interesting is like there's almost like uh uh you can almost break the agencies up and I mean you could break it up a million ways, but like I kind of think you could break it up into two kind of um almost like generations and there's like the classic uh traditional agency model where they want clients on retainer. They want to be focused on like the big brand kind of equity building work. And then there's like this um you know over the last couple years you know as people are focused more on D to C it's relatively simple to kind of get a small shop shop up and running. Um you've got a lot of entrepreneurial minded people who maybe started out as you know they're just running uh you know Facebook ads for brands and so they understand a little bit more kind of like how to sell things. And so I I see more and more of of those type of folks um focused on broadening and building IP um maybe getting into software and and expanding beyond the agency model because I mean full transparency the agency model
Uh to me this sounds like a cool business because you can kind of take whatever you're talented at and apply that to more people. That sounds cool, but there's a a lot of downsides. Can you talk about the downsides?
Yeah, I mean, so, yeah, at its core, you're selling through people's time, you know, like the the traditional model is you get a client on retainer and you basically assemble a team based on client client's needs and bill people out kind of based on an estimate of hours and incorporate kind of overhead um and your profit margin into that. Now, um what's challenging is what if a client has a lot of ass there's rounds of revisions like and and then also like um you know often times it's not like you're perfectly 100% having people sold through like maybe you need somebody who is like 50% on an account and their skill set is perfect for that but then you can't place them on another account. And so that that balancing act of people is is just brutal. like there's no way around it. Um it's really hard and especially if you scale up. Um because then you're trying to identify like if it just becomes a giant puzzle of like how to place people and get their time sold through um as efficiently as possible. And so that becomes really tough. It's a services business at the end of the day. So yeah, I mean you haven't worked in the restaurant industry, you know what that's like. It's like, you know, you've got clients, they're people. Um, you got to keep them happy. So, it's a lot of late nights. Um, pitching and winning business is a huge huge undertaking, you know. Um especially with the big brands like they will go out and basically do you know uh RFPs with you know a handful of agencies and uh you know they'll whittle down from you know anywhere from five to 10 uh a handful that they like you know so maybe you're pitching against three to five other agencies for a retainer which often times you don't necessarily 100% know um what that final cost is that they're willing to pay and so you spend at times several months uh working got it more often than not for free.
I have two questions to wrap it up. The first one is then why you know so the the profit here is in charge is to outs you know outsourcing your people so paying them $25 an hour and billing them out at $50 an hour. Why are you guys in New York then? I mean why aren't you in Toronto or St. Louis or Detroit?
Um, that's a good question. I would say probably the simplest answer is the fact that all the brands are here. Um, and
But you don't have to be there though, do you?
You the brands are here and so you definitely need people like you need booths on the ground. Absolutely. Um the other thing is like this industry is super like so much stuff just happens on the fly in the office and so um it definitely helps having people all in one place. Um and then the other thing is the talent. Um that said I'm sure and there are agencies that have a distributed workforce. Um there's not really uh any that are on a kind of like I would say like a a big significant scale, but I think eventually somebody's going to have to crack it because the overhead is really really high. And um but but the other thing I was going to say is that there are other avenues to generate profit. It's, you know, you can mark up media, you know, production and various services, but yeah, nine times, you know, out of 10, 80% of the time, you're marking up staff essentially.
And last question, and we've got to answer this in uh in a short amount of time because we're trying to keep this under a certain time. Um, you did YouTube in eight years ago. What's the What's the niche that you think is going to expand the fastest now?
I mean, Tik Tok is the hot thing right now. Tik Tok and live stream gaming, which you you know quite well.
Tik Tok and live stream gaming.
Yeah, I mean Twitch obviously Facebook gaming, but Oh yeah, the influencer stuff was going back to 2006 even.
Hold on. We have a slight debate here. Okay, so our our next guest actually is is joining us. He's in the seat. You can grab the mic. Daniel can't hear him.
He can't hear you, but but you hopefully will be able to hear him. Uh or I'll relay it. So you said you have the
It's like my experience on the internet basically. I can't hear the people disagreeing with me,
Wait, Brendan, can you hear Daniel?
Okay. What? What? Brendan.
You're not going to be able to hear him.
Nice to meet you in theory. I mean, I'm sure you're a wonderful person. I I was just curious to get your take and I won't hear your answer. Um,
But um do you not I mean the US military uh just banned Tik Tok for uh its soldiers and uh it does indeed seem of course that a lot of American software can't make it into China. Would you not take the view then that Tik Tok would at some point get banned um you know if it's banned for the military maybe that kind of expands over time and if that is the case how would it become kind of more popular wouldn't it just be relegated to China or do you think that that somehow the trade war doesn't shift from from uh how would you say from Adams to bits yeah
Yeah I mean I think that's I actually just read the stealth war which is all about that um trying to remember the author's name but um I mean if that's going to happen then It's obviously gone, but there are alternatives like right now like Triller is another one that's blowing up. I think that format even if Tik Tok was to disappear um is going to continue. Um you know there's Yeah. In addition to Triller, there's also a firework which is an even smaller one. But um
Everyone in America to the the next closest thing to Vine. [laughter]
Yeah. I don't think Lasso, but but probably Triller.
Cool. Well, Vernon, thank you for the time. I'll h I'll holler at you after this, but uh this was a perfect segment. I really appreciate it.
We're gonna call this segment we call you and you tell us all your numbers in your business and thank you for being the first of of that of that segment because people like hearing what is what is the what does the income sheet uh income statement look like for these types of businesses. So, appreciate the time, Brandon.
All right. For sure. Thanks.
Thank you, man. And I'll holler at you uh separately. Thanks.
Okay. Uh I think we're still set up to just go, right?
Just keep Hey, dude. I'm Sam. It's me, Sam. Hey.
Yeah. We've actually never really met either. I'm Sean.
Oh, you guys haven't met.
No, we're internet friends. So, now we're real world friends.
I am not internet friends with you, but I know you.
You We're not friends because you and I have never interacted, but I I share your stuff.
Well, well, now we get to be friends. It's great.
Okay. So, so for those who don't know, uh we need you to basically brag for two minutes. So, like, uh brag for two minutes so people want to listen to you is kind of the the shtick.
And welcome to our ghetto and we'll explain what the hell what the hell this room is and what we do.
Okay. Yeah. So, um, uh, a bit about myself. So, hi, my name is Daniel. Um, I hope you're already listening to this at 2x, so I'm going to talk as quickly as possible. So, you miss this boring introduction. Um, but, uh, I came I'm originally from Jerusalem, Israel. Um, came out to Silicon Valley when I was, I think, 18 or 19. Um, started a search engine called Q. Um, uh, which is kind of a, uh, machine learn powered search for kind of all your personal data. So, you could Slack, Gmail, Salesforce, Dropbox, Evernote, Base Camp, all in one place. got acquired by Apple in 2013 or ended up kind of uh running search and machine learning across the company um across iOS, OS 10, um a bunch of other launched and unlaunched Apple platforms. Um a lot of our product basically turned into and bled into Spotlight search. So that's kind of uh what we powered in addition to a bunch of other machine learning things uh at Apple, left Apple in 2017, was a partner at Y Combinator uh for about a year and a half. um ended up funding you know I don't know dozens maybe even hundreds of companies through that uh and then um obviously started angel investing along the way as well individually I'm an angel investor in a bunch of different companies from um uh you know Cruz to Coinbase to Uber to Instacart uh Gusto a bunch of others Figma um and uh kind of um I I think most interestingly uh in uh uh last year I I started a company called Pioneer um which is kind of like um part YC. It's weird I guess merger mesh of my careers. It's part search engine uh and part YC in the sense that we try to scout the internet for promising people around the world working on kind of interesting stuff. Um and we spot them using psychometrics, a little bit of machine learning, a bunch of different things. Um and once we find them we if they seem good we create a company for them on the spot and then fund them on the spot and then try to kind of push them over the edge. This is kind of my view that one of the main constrictions on societal growth and also as well as kind of the number of start interesting startups we see every year uh is self-editing. A lot of people you know that have this shower thought that they don't ever pursue and pioneer is very much meant to be a kind of a platform where people can kind of experiment with their ideas and and hopefully a a sucking uh engine if you will. I would say like a a black hole force for good where we can kind of pull people into our orbit and really almost radicalize them into starting their company because I think the world could stand to have many more startups and many fewer kind of large companies. It's really a sad place where we are today where when you think of it like there are basically five five large tech companies and then even in the startup world there's like three good deals a year. There's three good deals a year. Why shouldn't there be 20 or 30? Why shouldn't there be kind of an hour pelago of startups? many more people working on other things. Um, and so, you know, a lot of people think of accelerators. I I really hope Pioneer is a generator, a thing that creates founders that otherwise wouldn't have been. Um, so anyway, that's that's a bit about me. And how old are you?
Yeah. Uh, I am still hanging on to my 20s, but towards the end.
Wow. Badass. I I discovered Pioneer. Uh I think I tweeted at you maybe a few months ago because on one of my internet ran uh rabbit holes, I went to Pioneer. Yeah.
How many other browser tabs did you have open?
Like 65 of them. Actually, Pioneer caused me to open like 65 because it's like meet the Pioneers and then it's like here's a list of 18y olds. And each 18-year-old it'll be like I'm launching, you know, palmsized satellites. I'm creating a microwave that makes things cold.
On Pioneer, they were saying that.
What's that? Yeah. on Pioneer as all the ideas are like
Sort of more on the uh you know sort of crazy sci-fi. I felt like that's the vibe I got.
It's super interesting. Yeah. I mean it's it's gosh um I I do think uh it's important to stress that that we try to have a mix. I mean I I think the one of the lies that that that Silicon Valley is very good at spreading is that um uh you know everyone's working on large moonshots with and and and and the reason that's a lie is because every one of the successful moonshots often starts as a small fairly stupid project right even SpaceX good god SpaceX the most moonshot literal moonshotty company that exists today people forget but it started as this thing called the green Mars Oasis project a plan and put it on Mars. Do everything using Russian rockets. Be as lazy as possible.
Well, that's a huge project.
But it sounds like a Hollywood stunt, man. Shut the company down afterwards.
Compared to like self-landing rockets
Compared to the largest private space company in the world.
Yeah. I mean, it was basically like a rich guy's practical joke or a rich guy's project.
It sounds like like building a home gym in your house. If if we lived in LA and you know we had hundreds of millions of dollars, it sounds like the type of thing you know you shoot around with uh a couple bunch of friends over beers.
Um uh but of course Google was a Stanford University project called Back Rob. Um there's wonderful interviews of Mark Zuckerberg from I think 2005 six whatever saying there's no reason Facebook should expand.
This is great. This is a great interview. He's sitting on a couch in basketball shorts with a red solo cup and he's doing an interview and the guy's like, 'Okay, you're in whatever ex colleges now. What's next? high schools, you know, anybody. And he's just like, why does it have to be more? Like, it could just be a cool thing for colleges. I think sometimes if you if you try to do too much, it makes it less cool. And then like now he's giving internet to people so that they can use Facebook, like expanding beyond what you
Totally. I mean, arguably the most given the fact that they own Instagram and and WhatsApp, the most important company in the world. And and and and so people look at that and they think, well, like if you look at the fully formed um uh species, you're like, well, we're we're of a different genotype. I mean, there's no way I can do what Elon is doing. But if you realize where all these people got started and you kind of look at the early variants of what they do, it's kind of silly almost. And if you look at the old homepages of all these, I mean, it looks like a joke. Go ahead. Sorry.
So, what's something that you personally invested in? So, like I like the story about Facebook and SpaceX, but what's a company you invest in that today is seen as big,
But you remember how humble the beginnings were? So like what's something that's big today that you remember how sort of small it was in?
Um the funniest example I have of this is um a company called Notion. Um and notion is kind of a next generation confluence or or or wiki. Um it's used by a lot of the companies in here in Silicon Valley.
I'm a user. That's not how I describe it. I describe it as like a son of but better and um a little bit different. Well, I'm I actually Yeah, I'm certain I Ivan, the founder, would shoot me for my description and very much endorse yours. Um I'm a user. I'm not affiliated.
This is the website of our podcast. It's just a notion doc that our domain points to. Uh we and it's just a notion doc. That's it.
So So, so I mean notion is kind of a funny one. Ivan and I um many many years ago uh briefly worked together um which is how I got to know him originally and um uh we kind of kept in touch over the years and he mentioned he was kind of working on this thing and you know you can envision the initial pitch as it comes through is like at the we kind of went our separate ways he was he was kind of always very interested in the kind of um uh cognitive kind of enhancing software you know hyperproductivity that kind of thing. Um, and for me that stuff is super interesting, but kind of in in kind of a weekend way, you know, during the weekday I'm much more interested in figuring out how to like make something that will produce revenue, hopefully be successful that way. And so we kind of kept in touch and he mentioned he had started to work on this and you know, Ivan is the type of person who is very brilliant but very focused on making the perfect thing correctly. Uh, and in the back of my mind I was thinking, well, there's no way like it'll just take forever. And I mean it did take him a couple of years to kind of um how would you say uh the 40 years in the desert of kind of you know wandering to Israel. Um but you know he he got there four instead of 40 maybe. Um but it was definitely one of those things when it was started I was like I'm not quite sure this is going to work. In similar vein I I remember talking to Kyle vote to Kyle vote who two days ago unveiled to the world um Cruz's private. So Kyle's the guy started started well before that co-ounded Twitch which they sold to for a billion dollars and then Twitch now did Cruz which I think was another billion dollar self-driving car company.
It got acquired I I believe by GM for a billion dollar a billion dollars after 18 months or so. Um and I remember uh
He also bought the most expensive home in San Francisco which made the news pretty funny.
Yeah. Well, sure. But anyway, um the point is I I remember him uh kind of fundraising and it was not an obvious thing back then. This was before the autonomy hype. Um he I think in many ways created the autonomy hype with the acquisition. And here's a guy who like previously worked on software. Uh Twitch wasn't super popular yet. Uh he'd like done uh in MIT he was a safe cracker. That was his hardware experience. uh who's pitching you on him building self-driving cars. And bear in mind, again, this is 2013. This is like before all the hype. Um and you know, I I very much believe that it would be an obvious market of the future. I remember that quote from Henry Ford of uh you know, once the car was envisioned, it just had to exist. And I think that is the same thing is true for self-driving cars. Like once that concept leaves the drawing board and enters reality, mankind will create it. It is.
So what are you saying that you weren't sure that you should bet on him? I think the question was is what one of those it's very interesting situations where you you kind of have a lot of emotional belief in the founder. the market is very unclear and so you know at what point does the investor decide to kind of make the bet in on hard science on an unclear capex intensive you know area because they believe in the person and I think this is one of those things where you can afford to do this kind of stuff if there's a path forward if you really believe in the person and notably uh if the price is low where I probably would not do this is you know if you told me oh you know I'm I'm raising and the valuation is a billion dollars um uh you know obviously be very different if I was Andre Harwitz had a giant fund But for me, the angel investor at that point, I don't think that's
So you were an angel in that one?
Yes. Um, but it was one of those situations where super tenuous, super unclear. Um, uh, I actually think all good investments at the beginning are super unclear. Um, a lot of the great YC darlings almost didn't get into YC. Um, Airbnb was super on the fence. Um, I mean, even Stripe didn't properly do YC. There's no actual batch they uh participated in. Um, and this is the truth about the world, I think, is a lot of the stuff that is great always starts humble and small. Then, of course, their media teams get together and retrofit the whole narrative, and they'll tell you that, oh, Jeff Bezos was always into books as a kid. But, um, it's very unclear at the beginning whether something's going to turn into something.
Um, let's, uh, fill him in on kind of who we are, what we're doing, and then I've got a few questions.
Yeah, let's do it.
So, uh, you want to go first, Sean?
Yeah. So, so we so I started this podcast when I was selling the company and I got really bored and I was like, you know what would be fun? Uh, if we do exactly what we're doing right now, I was like, if I just take the interesting people that are all around me, some, you know, some I know, I'll start with them and then a whole bunch of other people who I just have like one degree away that I could reach out to and uh, let's shoot the shit together. Maybe they'll tell their story. Maybe we'll just talk about whatever the future looks like. I don't know. It'll be fun for me. I don't know if anyone will listen. Partner up with Sam because he's already got a bunch of people listening. He's got, you know, million people on his list who want to listen to him tell about the news and we said, 'Hey, let's do this together.' You know, let's partner up on this. So, we started this podcast and it's grown pretty quickly. Uh, but we started this, normally it was like the traditional interview style. Hey, tell me what you did. How did you start? How'd you get your first 100 customers? Real tactical stuff.
Uh, we just started coming, you know, to this office here, which is outside of the normal studio we do, uh, the interviews in. And we started shooting the shit and we call it million-dollar brainstorm where basically we just say, 'Hey, here's something that's kind of interesting.' Hey, you ever noticed this? Here's a problem I saw. Um, and you know, they're they're actually pretty halfbaked ideas. They're, you know, the name is sort of goofy. They're not million-dollar ideas. They're like zero dollar ideas. Um, but we but we're having a lot of fun with it. And this actually is what listeners like way more than the interviews. And so the sort of uh what I thought would be fun is take people out there who take people who like to look into the future, people who are on the edge and observing new things, have them join us as guests because a we're going to run out of ideas pretty quickly. Uh, and b it's just more fun to do better ideas. I feel like if you're one of those people that have ideas, you do not run out of them.
Well, you just see them every single day. [laughter]
Like, man, that restaurant concept add it with this that might that might
Okay. So, here's kind of an interesting thing at a meta level. What do you guys think of uh is it possible to give someone a startup idea or does it really have to uh does the person really have to feel like it's their own?
No, it is possible to give ideas and I'll tell you I'll give you my reasoning. Um so so uh so the hustle we we have millions of people who sign up and give them news and then we also have trends where we just explore different stuff and we charge a premium. It's like the hustle but more in depth like Harvard Business Review. It's like this it's a cool thing. I'll show you later. And in doing that I've met all types of cool people. Me and Sean have a circle of friends that are very badass but they're a different badass than your badass. You are friends with these guys who
You're a Silicon Valley badass. I would call this like Austin badass even though we're here. So we have loads of friends that have started and sold companies in the $1 million to hund00 million range. Very successful, but mo nearly all of them bootstrapped.
And what they do constantly, and I do as well, I've bought and sold companies with these guys or on my own, is they're businessmen or business women and they seek opportunity. They make the products better by either buying or selling other companies and then they sell the businesses. Yeah.
And for many of them, they don't give a shit about the product. I mean, they do. It's not like they're a scam artist.
They like building things
And they're totally product agnostic. And so if you want to build a nine figure company this way, it works for sure.
I see. So the other way I'd put it is we talked about this last time uh during we did a live show and a whole bunch of people showed up and one guy was like you know do you do you have to be passionate about the idea or somebody said something like that somebody else raised their hand and said you should absolutely be solving a problem that you're passionate about that's the way to do companies
And we disagreed uh and they he was like shocked that his you know why would this person say no that seems like an unpopular thing to to disagree with and we what we said was the top of the hierarchy is you're solving a real problem you're very passionate about it. It scratches a personal itch. That is best case scenario.
That's the Gartner quadrant where you're winning all things. But but the success bar is lower than that.
But if you want to make a lot of money and have fun doing it, you don't necessarily have to have that. You can, and that may will maybe be better, but you don't have to.
And last thing I would say is when we say these ideas, we don't I don't think the people listening to this even expect to take that idea and go do it. It just gets it trains their brain to constantly seek out ideas. And that's the real value of it. That's why I even like doing it cuz now all week I'm just jotting down ideas. I'm training my brain because I know every Thursday I got to come with something good. So all the other days I'm like
I've been thinking about on the whole jotting things down. So I like you guys I I actually view it it's funny. Uh I view this as somewhat of a problem and a disease. I have this text file of ideas I've been maintaining I think for 20 years now. It's probably megabytes in size. Um and for me it's a and it's an important outlet. Otherwise, it I literally cannot stop thinking about whatever that thing is. And um it's it's actually a little bit more acceptable now in my profession. Um but you know, I still run Pioneer. I have to I have like things I need to do. I you know, I have tasks. I can't start off, you know, just thinking about some this random idea that I just had. Um so I write it down. But here's what I'm wondering on writing things down in general. Okay, here's my contrarian Silicon Valley contrarian view. is writing down a terrible idea because I find the moment I write down an idea it exits the rock tumbr in my brain and I get peace which is the great thing but I stop thinking about it.
No, I don't think it's a problem in my opinion is because
But shouldn't you just keep it in your head? Keep it jumbling around.
I think you should research it because and I think that you should research it. Okay, so there's two types of people. Those who like you're that that actually will do shit and those who won't.
Right. Right. Right. the the I mean like there's people who just take action and there's those who just talk.
What's going on with the talkers? Are they too extroverted?
Why are they just talking?
Well, cuz they're afraid.
I think they're afraid or they don't really want it or they think it's cool to do this, but they don't want to. They don't actually like it. Um but my opinion is like look, like I think most cool ideas or successful things, they're probably not that original. So probably if you wanted to you could be like oh well I stole that feature from that that from that. Like you just
iPhone wasn't the first phone. Facebook not the first social network.
Yeah. You just steal a bunch of cool parts and you can pack package it in a really interesting creative unique way.
And so what I think it's good is um to actually write those down and do you can even do a little bit of research knowing that you're not going to execute on any of them. But what you do is you start seeing interesting patterns and best practices. Sounds like for you when you write it down, you're assuming the creative process stops at that point.
I I I find once I write the I have this for posts for for posts I'd like to write as well. Once I write the thing down, it going back to it. Yeah. It becomes like a dread task almost.
This is like when So, we both like the UFC a lot. We like uh you know fighting and there's this old wives tale that they tell the fighters which is don't have sex leading up to a fight. And they're basically like, no, you need that pent up, you know, sort of testosterone aggression. There's no real science to this, but they but the fighters follow it and they sort of feel like, okay, if you have sex, if you get that release, you won't have that same sort of hunger, that same tension built up. Sounds like it's basically that, like, you know, blue balls for the brain essentially [laughter]
To some extent. Yeah, I guess.
Um, yeah, I I don't know. It's it's been something on my mind. I I actually I think I I will do a post about this and so I haven't written it down. Um but uh you know I I grew up uh I I I am not today but I grew up as an Orthodox Jew. And in in Orthodox Judaism there's a very interesting concept of um the oral kind of Torah uh and and kind of Mosaic code is much larger than the Bible. And for many years that was not written down by by like sheer law. Um and then at some point they decided to write it down. And there are a bunch of reasons that are given as to why they didn't write it down. Um some obvious ones like they just wanted to keep it private from the Christians, whatever. Um but there's some kind of counterintuitive ones there. One being um that uh effectively things are much more plastic uh and malleable um when you keep them in your head or when you just discuss them and writing has this kind of calcifying effect to it where you put it down. One thing I was actually talking about to a founder recently of a fairly large multi,000 person company and they were trying to figure out you know the typical thing you're trying to figure out at that company that size is culture and values. Um, and you know, I always send people who who go through this process, the link to Enron's culture and values. Enron, for for those who don't know, is what used to be the largest one of the largest companies in the United States, let alone one of the largest energy companies, turned out to be a giant fraud and, you know, put thousands of people out of business. Um, uh, but of course they had wonderful values. They wrote on a piece of paper. I think it's like, you know, excellence and integrity and honesty. None of that matters. But I also wonder in general with values whether that whole thing, that whole process of writing it down doesn't work. Because again I I think I think writing's strength is its weakness which is it really calcifies things. Um it instills things and sometimes you want things to be a bit
Can I um This is a giant tangent.
I want to ask you a couple questions.
So what is your your you took time away from when did you quit working at YC full-time?
I quit YC um about a year and a half.
What is your day job now?
Um it's kind of split. I mean the major a lot of my time is spent on Pioneer.
Who runs it? me who works on it.
Uh, there's about four, six other people, actually.
So, you're the boss, but you're hands off.
Sounds like your hands on or you're not hands on?
Uh, both. I I don't know. You should ask.
Yeah, you should really ask them. [laughter]
Okay. Uh, is it does it make revenue or do you fund it yourself?
Um, we have a bunch uh we I mean it's partially funded by me. Um, we have two other investors. Um, Stripe and Mark Andre individually. Uh, it's it's a venture capital shop fundamentally. I mean it's powered kind of by software not by people. Um so if you ask if it makes revenue no but you know Pioneer holds equity positions in comp in companies that have since got
Basically it's a it's a small fund on paper I guess it has markups but you know
As a business it looks more like an accelerator than than other things.
A generator please. But yes right.
So yes
Have you how much money have you um angel invested on your own? Can you reveal that?
Oh um I mean in aggregate large number. Large number
Like much significantly south of it.
Seven figures.
A decent chunk of change. Has it returned?
I've had some returns. Yeah.
Has it returned all of it? Nor. Have you had a positive ROI across all?
Uh, I have invested more than it has returned if that's what you're asking.
Uh, that was a really inefficient way of asking. Sorry. What's your average check size?
Um, it depends. Like, I should really classify two things. If I'm investing for myself, it's anywhere from $20,000 to a million dollars. Or if the company's really large, tens of millions of dollars. But Pioneer's investments are much smaller, but significantly...
You say your investments are tens of millions. I think that's what you said. I don't know if that's what you meant though.
Yeah, I very rarely do those, so those will be very small.
But before you do, you get what I'm saying?
Basically earlier you said my total aggregate angel investing under 10 million.
No, I didn't say under. I didn't say under.
I thought when you said south, that's what you meant, like under 10 million.
I've invested north of $10 million. Just to clarify.
You were saying Pioneer is different than that in that it takes smaller bets but takes a larger position because it's early.
I think it'd be useful to clarify. I tend to do personal angel investing fairly rarely. The majority of outbound investments I do are through Pioneer, which are very small, tens of thousands of dollars, but much larger by total volume. Pioneer last year invested in about 90 people.
So the reason I'm asking this is I'm just trying to understand the structure of angel investing as a business.
I've done a few deals. Sean has done a few deals. I'm up, but hopefully we'll be up a lot. We'll see if it works.
Yeah, that hopefully is the important bit.
Hopefully is the very important bit. Basically, I did one deal and the earnings I just put all that back into different ones. So what I want to know is how did you roll that over with QPS?
No. Nope. Because it was under five years. And so what I want to know is angel investing as a business, how that works for you.
And I imagine you get deal flow that's phenomenal given YC connections and things like that. But that's what I'm getting at.
I think as an angel investor, I'm probably not as efficient as I could be because of two things: Pioneer and I'm a bit of an introvert. So it's much more satisfying to do a small number of deals where I work closely with the team and have significant ownership, as opposed to chasing every deal that comes through my inbox.
Who's the best angel investor you know?
There are a bunch. That's like asking what the best movie you've seen is. But someone I look up to is Mike Moritz from Sequoia Capital. He's interesting and endearing, and obviously has correct bets like Yahoo, Stripe, Google, Cisco. In the angel investing world, Y Combinator is probably the most durable animal. It seems to produce returns regardless of the partners. No one's managed to do something like that. I think Elad Gil is quite good.
I got a different question for you. In the brainstorm vein.
You posted this thing which is why I reached out to you. You said 2020 themes. And your blog is good. Shout out. What's your website?
dcgross.com. So you have a bunch of good blogs. One was 2020 themes. I want to hop around a couple of them and chat about them.
One theme you had was say yes to no code. We had the founder of Webflow on the podcast and we've been talking about no code. One example you talked about that most people don't know is UiPath. Talk about what UiPath is and what RPA is.
The whole no code thing is a circle jerk right now. I can't tell if it's legitimate.
I didn't use those creative words, but I made it very clear that it's overhyped. I still think there's more to be done, but you have to be careful in an overhyped market. One thing I tried to flag at the end of the post is selection pressure. In underrated markets, you get free selection pressure. If you're working on a hot market, you get the opposite. One of the coolest things about Pioneer is no one knows about it, so if you apply, you're interesting through that effect alone. As Pioneer gets more successful, selection gets harder. The RPA scene used to have great selection pressure 18 months ago because no one knew what it was.
Robotic process automation. Everyone's talking about it now. We're about to talk about it on this podcast. You have to be careful once the club becomes popular. That being said, RPA is similar to no code but more enterprise facing. The darling is UiPath, a European company funded by Sequoia. The idea is basically macros. You record a task on your computer and play it back. The twist is that macros are brittle. UiPath's workaround is to use engineers for the last mile. The innovation is not the software but the sales machinery. Salesforce is a database, and the innovation is in the sales team. UiPath does a lot of channel sales.
What's the path? Did they really innovate or just do it well? And what's their sales system?
They did it well enough. They have a sales team but do a lot of channel sales through resellers.
So why did you say say yes to no code? Sounds like you're hating on it.
I'm not hating on it. I think it will continue to be a strong meme. It's comical how hot it's gotten. But I wouldn't become a bear because Chris Dixon's point about cryptocurrency in 2012 applies: you cannot ignore a market with a lot of smart humans working on it. The market is vast. Deloitte does $43 billion in revenue, $12 billion in software consulting. All of that can be eaten by no code or RPA software.
Right. To clarify, when you wrote this post, you were saying what will continue to emerge, not that there are good investment opportunities. The window might have been in the previous 18 months.
That's right. I wrote the post as an observer. Not all themes correlate to ripe investments. For example, radar is interesting but hard for a startup today. There's a lot of interesting radar technology, but it's capital intensive and the use cases aren't clear.
When someone's working on radar, how does someone even spot that as a problem? It sounds really hard.
That's interesting. If you're trying to figure out what company to start, find a community where you can be at the real frontier. The guys at Zendar were working on radar before. If you're in a crowded space like Python, you have a lot of people. You want to find a pocket where few people are. For example, enterprise software: you can work at a large company, observe what's broken, and start a company to fix it. Sean at Twitch is doing that. They have an import-export list at Twitch.
Sean's actually doing this. We just got acquired. Twitch is now about 2,000 people. I told the team on the first day to observe and make a list called import-export.
I think you'll discover a lot of interesting businesses. I had a similar experience at Apple. I had a folder of manager scripts that are really good companies that should exist. For example, internal HR software is awful. I wanted to know everyone's important financial milestones. Apple is a 100,000-person company and no software could tell me when employees' stock would cliff and they might leave.
Every manager wants to know when the troops are leaving.
Especially with software engineers in San Francisco who are constantly looking for another job. You want software that tells you when to check in with people. No one does that. Performance review software is also bad. Stack ranking doesn't exist at large companies because it's uncomfortable, but it's the best way to find top performers.
So do you have a list like Sean does?
I have a general startup idea list.
You should share that. Do you do that request for startup meme?
We have a bit of that on Pioneer's website with simple ideas you could do in a weekend.
I saw your face when he said you should share that. You didn't want to. What's the reason?
I'm trying to convince myself to have your view that you can give people startup ideas. I've found it's harder than not.
But there are people who will and will not. The wills are few, but the will nots could still apply that across other things.
Totally. One way to think about it is what creators care about. Money, fame, and love. There's a fourth one from the founder of Vine: inspiration. When one creator sees another doing something interesting, it motivates them. Silicon Valley does a good job of inspiration through media. Sharing ideas is about showing the types of problems you see, not just the specific idea.
That makes sense. Maybe the best outcome is someone finds an adjacency to the idea. You said something earlier: if there's a lot of IQ on a problem, something will happen. What problem doesn't have enough IQ on it?
One broad area is enterprise. A 20-30 year old technical person is not exposed to enough enterprise life. There are many unmet needs. For example, if you're a sales team, you want to figure out the org chart of the company you're selling to. One company called The Org tries to do this, but it's industry specific and a weird sneakeret style. I think someone could knock it out of the park and build the next LinkedIn. Org chart as a service.
I tried to do this. I had the same problem.
There's The Org, and we pay for software that does this but it's industry specific. You need to think about what incentive the employee has to update their profile, just like LinkedIn. If you could figure that out, you might build the next big social network.
We use Media Radar and pay thousands of dollars, and it's only people at ad agencies.
It's the same playbook as LinkedIn. Let's put your resume online so you can get jobs. Then you have the network.
Totally. Another one I think is super tractable but I don't know how it makes money: are you guys familiar with SciHub?
