How to Invest in the Next Uber with Jason Calacanis | SALT iConnections New York

That's crazy.

Thank you. It was, um, you know, it was one of the original podcasts when podcasts were on your iPod. And for half the room, an iPod is a device before the iPhone that only played music, and you would hook it up and at night it would download podcasts from blogs and then load it up and make an album on your iPod that said 'podcasts', and then you would use your scroll wheel to pick it. Um, and I basically when I found out about podcasting, I was like, this is a great excuse to just talk to people instead of having lunch and then publish it, and a couple hundred people would listen to it. And then when the iPhone came out and got very popular and you could download it to your iPhone, it was pretty amazing. Um, and just last week, I had Brian Chesky from Airbnb, Reid Hoffman from LinkedIn, and Aaron Levie from Box, all of them on to talk about AI, which is having a spectacular impact on the technology industry and efficiency and productivity. And it's just wonderful to have these conversations and then have millions of people get to share them. I just got back from the UAE, and I was in Abu Dhabi and Dubai, and the number of people listening to the podcasts around the world is truly stunning. And All-In and This Week in Startups, it's like people think I'm their best friend because I've been in their ears, you know, while they're working out or going for a walk, having Friday night dinners. We heard earlier somebody was telling us that their husband and wife, like their big thing is to put the kids to bed on Friday night, open a bottle of wine, and I'm like, yes, where's this going super fast? And they're like, and then we watch you. And I'm like, wow, I never had that one before, but whatever, whatever. So they All-In and chill, yes, absolutely.

Yeah, so I started my career here in New York. I had a magazine called Silicon Alley Reporter in the '90s. There's probably three or four people in the room who read it. Back when zines and magazines were a big deal. And I was a journalist for a while, then I started a couple of companies. I sold one of them to AOL. And then Sequoia backed one of my companies, and I had introduced Sequoia to three of my friends in startups. One of them was an online poker, one of them was a micro-blogging service, and the other one was an electric car. And I said these three startups are going to go places, and they passed on investing in all three. And those three companies were obviously Tesla, Zynga, and Twitter. And I was an angel investing at the time, so I didn't invest either. But they came to me and said, hey, can we give you some money and make you a Sequoia Scout? And I said what's that? And they said it's the newest thing. Roloff who's our newest partner? I said I know Roloff, you worked with my friends at PayPal. He said yeah, he's our new partner. He was just there for a year or two, and he said I'll give you money, you invest it, and we'll split it 50/50. And I said, don't you guys as venture capitalists get 2 and 20? Isn't that how it works? And they said yeah, but we have 30 because we're Sequoia, but it's never going to amount to much. It's just $25 and $50K checks. So I in the first seven investments I did Uber, Thumbtack, and DataStax. And that Uber investment went 4,000X, not 4,000 percent, but well over a hundred million dollars. So then I started my own venture fund. Fund one and two were $10 million each. I raised them around the poker table with my friends in Silicon Valley. The third one was $44 million, which I just finished investing. And that's the first one where I had institutional money, Greenspring and some other folks. And then I'm raising Launch Fund 4. And so when you invited me to come, I was like, well, that makes sense, I'll come and talk, but I'm doing something very different, which is a public fundraise, which is called 506(c). And I believe that's going to change the venture capital industry and democratize venture capital.

Um, so you know, when you talk to a venture capitalist, when I was a journalist, I'd say, oh, so are you raising another fund? And they'd be like, turn the microphone off. And I'm like, what? And they're like, we're in a quiet period, we cannot talk about raising funding. Please don't mention that in your story because if you do, the SEC will reset and I have to stop raising and then wait six months and get put in a penalty box. And I was like, oh, okay. And then I talked to the lawyers and they said, yeah, you can't do that unless you're 506(c). I said, okay, 506(b), 506(c), what's the difference? They said one's public, one's private. I was like, well, I have 700,000 followers on Twitter and 50 million people listen to my podcast, and I don't know any LPs except for my friends, so yeah, I want to do the public. They're like, don't do it. And I'm like, why not? What's the cost of doing 506(c)? And they said the cost is you have to certify each of the accredited investors. I'm like, how do you certify an accredited investor? They said their accountant or their CPA or their money manager or attorney sends you a note saying Caitlin is an accredited investor. And I'm like, okay, what else? And they're like, that's it. I'm like, well, what happens at 506(b)? They're like, oh, people can just check a box, I'm accredited. I'm like, oh, so they can lie. They're like, well, basically they'll lie. I was like, hmm, okay, so we'll just do this certification. And now it's become a little bit of a thing. My friend Sophia Amoruso, who did Nasty Gal, and she's doing hers publicly, so she tweets, I'm raising a venture fund. What that does is you get to meet people who you wouldn't have met. And every time I meet someone, they're like, oh, you're raising a fund. I'm like, no, I just finished, but talk to me in three years. And so now I took it to the next level. And at LA, our website is launch.co, and if you go to launch.co/memo as in deal memo, right now, I just wrote the deal memo. Here's how we're going to invest this next fund, will probably be $100 million. Here's how we're going to invest it in early stage startups. And what that does is it creates a certain amount of intellectual honesty and rigor for me as a fund manager. Now listen, I've already made the money I need to make in my life, but I really enjoy investing in early stage startups, so it's a passion of mine. And I like to put my idea out there. I like to say, hey, here's not my annual letter looking backwards, here's my forward looking. And I don't know if you've sat through this LPs and you watch these pitch decks. I spent the last three or four months with designers on this pitch deck, and I'm like, all we're doing is talking about fonts and images. This has nothing to do with what I do every day. It's incredibly frustrating. I'm $10,000 into this design process, and it's stupid. And then I send the deck to people, and they don't remember anything. Well, I'm a writer, so I'm going to write my thesis. I'm going to write in crystal clear language as concisely as possible, and then I'm going to edit it and edit it and edit it. And I send this deal memo right now, and people actually understand what we're doing. So why is it controversial that you put it out there publicly? Because you're one of the first, no one's done it before. I don't think anybody's done it before. I think people maybe are very proprietary about their strategy. What I've learned is if I put my strategy out there, people smarter than me or haters, and I have a lot of those because I got lucky and I hit like three or four lottery tickets which people really hate. Like if you are the third investor in Uber, people are like, you Jason, you got lucky. What about the other nine times? Yeah, they're like that was luck too. No, but what I find is people get very aggressive to tell me when I'm wrong. And I just say, they say like, you're fat, you're old, here's a really something insightful. By the way, you're fat and old, and then I'm like, okay, I'm just gonna forget those two other insults from the internet, and then I'm like, but this nugget of truth is really good. This is a leak in my game, this is how I could be better. And so I just like to take that all in, and I don't feel I'm in competition with anybody. You know, objectively people would say that my fund competes with Y Combinator, right? And it is true, we're both in Silicon Valley, we both put a hundred thousand dollars into companies for six or seven percent. But Y Combinator accepts 1.4 percent of their applicants. They get 20,000 each class, so 40,000 a year. My firm's much smaller, we're only 18 people, we get 15,000 applications per year. We invest in a much smaller number of companies, 100 to 150 a year versus their 500. And we accept one point x percent. So if you put the two of us together and you assume that the people are applying to both programs, there's 50,000 people applying and three percent get accepted, or so, or two percent maybe. It's not like anybody who's an early stage investor could actually tell you there's a difference between the top two percent, the eight percent, or the 16 percent. The truth is when you have a program like we have with our accelerator or Y Combinator, it's like being Harvard or Stanford. Smart people apply to Harvard and Stanford, they do not make those people smart, they take smart people, they don't make them dumb, and on the margins they make them a little bit smarter.

Yeah, I wrote a book called Angel about this. But I've since refined it and I'm happy to tell you exactly the playbook. It turns out that when you have two or three founders in an early stage startup company, you have less of those companies go out of business than when you have one, for an obvious reason. Typically one of the co-founders will quit, they'll go get a job, they find out they don't like it, so you go from three to two or two to one, so you have redundancy. It's like a spare tire. And they also will push each other. The next is you want to have builders. You need to have builders on the core team. If you have three idea people, then they're just having to hire people. Um, and they're outsourcing. So we give them money and they just give it to an outside dev shop. None of the knowledge is inside the company. So you want builders on the team, maybe a developer, it could be a designer, product manager, etc. Now idea people are fine, but the truth is there's a couple hundred people in the room and last night we all had 20 or 30 ideas while we were sleeping. They're called dreams, some of them might have been nightmares. So collectively we all have 500 ideas. Of those ideas in the 500, there's three billion-dollar ideas. Ideas mean nothing. All that matters is execution. At the end of the day, if you look at a startup company, it's about a team that builds a product that delights customers. And all the great successes I've had in investing share incredibly driven, resilient, insane teams that were obsessed with products and who listened to their customers and delighted them. And everybody in capital allocation, you know, founders, they want to talk about the total addressable market, they want to talk about go-to-market strategies, competitive landscapes, matrix. All of that stuff is super important when you're analyzing Netflix versus Disney Plus, you know, or Salesforce versus HubSpot. But in the first couple of years, it's a much more simple process. And there are very granular things we look at. One of them is called product velocity. So of these 15,000 people who apply, we meet with 3,000 a year. We do a 20 or 30 minute phone call on Zoom. We record that phone call, we take that phone call, we transcribe it with AI, we take the AI transcript and we summarize it. And then while I'm here in New York, you know, going down to Minetta Tavern to have a burger alone at the bar, well on the way somebody on my team will text me, 'This company is sick, you got to hear this.' Boom, I put it on my phone, I put it on 1.5 speed, and I listen to the founder pitch. We now have all of that in the database. And then we will email the founder every three to six months an automated message: 'Hey, you met with us on this date. Um, and we're hoping to get an update on the business. And by the way, when you give us an update on the business, can you rate our firm? How likely are you to recommend Launch?' And sometimes people would put a three or a four or a five, because if you don't fund somebody, an entrepreneur is going to look at you and say, 'Well, you're dumb, you didn't fund us. I'm going to give you a five.' And then we say, 'Well, why did you give us a five?' And it says, 'I don't feel like you understood our business.' And then I email them like if it's under a five, they're like, 'Call in Jay Calacanis? I come in.' I email them: 'I understand you met with one of my associates. It didn't go perfectly. Um, we didn't understand your business. I apologize about that. I would love to jump on a call with you and make sure we fully understand your vision.' And it's that kind of hustle that we put into what we do. Most venture capitalists are narcissists and lazy and fat. I don't mean fat like as in I'm fat or I was fat, but I lost 40 pounds so feeling pretty good about it. Um, and so they take off like two or three months in the summer, two or three months, and they do like two investments a year. All these management fees, they're just in it for the wrong reasons. I would say three out of five, like 60-70 percent of them are just living high on the hog on fees and they don't work hard. And in our company, we are a service company. We're not the stars. We are like the Aman hotel, is what I tell my team. Have you ever stayed in one of these? I mean it is insane. I stayed at the Aman hotel in Tokyo and it was life-changing because the level of service and anticipation was incredible. And so we see ourselves as a service provider to these founders. We provide them with capital, we provide them with introductions in a network, and then on the margins some advice. The great founders generally don't need much. And then I act personally as a friend to them when they're having tough times because it's really hard. And so we take the work incredibly seriously. We meet with a lot of people, we invest in a lot of people, and then we track their progress. If they double or triple revenue, we put more money in until we hit 15 percent. And so now we're starting to build 10 to 15 positions in this incredible funnel. 50 million people watch the podcast every year, 15,000 apply, we invest in every fund about four or five hundred names, and then we try to get to 15 percent ownership in the top ten. There's probably 20 great companies created every year in terms of unicorns, and then there's probably three or four of them become decacorns, 10 billion or more, or 100 billion. There's probably one a year. And so it's a numbers game.

So, AI. This is the fastest pace I've ever seen in my 30 years in the industry. If you look at the other platform shifting changes, the internet, cloud computing, mobile, I think this will trump all of them. This is the crescendo moment of all of that innovation. And it's moving at a pace that's faster than I've ever seen. The innovations in mobile or cloud computing would happen every couple of months. The innovations happening in AI are happening every couple of days. And the reason is the people who are building AI are using AI to build AI, which is creating a loop of speed that is truly unprecedented. Um, I asked my three guests last week, Brian Chesky from Airbnb, Aaron from Box, and Reid Hoffman from LinkedIn, how much faster their teams would be, and they said, oh, it depends on position, you know, it could be 50% faster, 20% faster. And I said, in 2023 they all came to the conclusion that their teams would be 30 to 40% faster at their jobs. Information workers now, for programmers, they're going 50, 60, 70% faster. Not the best ones, but the weaker ones, because programming is a limited set of words. When you type, it knows what you're talking about and it's going to fill it in. It's a constrained data set. Um, and so they're doing great. Sales people are doing great. Writers are doing great. Accountants, lawyers, all of that. And so what I predict will happen is there'll be one group of people which embrace this and use this technology every day. They will get 30 to 40% faster at their jobs every year, which means every two years they will be twice as good at their job. I think there'll be a group of people who will not embrace this, just like we all know people who wouldn't use PCs or Microsoft Office or email or the internet, and they retired and they were worked out of the workforce. Um, you know, it might have taken 10 years back then for somebody to, you know, everybody had that like two guys in the office who refused to have a PC on their desk and their assistants printed out the emails. They were old school. Took them 10 years to leave and they kind of got pushed out. This is going to happen in 10 months. If you're not using these tools, you'll be out of a job in 10 months, I predict. If you're working on a computer for most of your day, and it's not meant to be hyperbolic. I think it's going to make every company two or three times more efficient and capital efficient. So for startups that means one set, and for big companies it means another set of complications. But it's happening whether you like it or not. The number one thing you can do, how many people used ChatGPT in the last 48 hours? Raise your hand high. Great. It's half the audience used it in the last 48 hours. And Google Bard is pretty impressive as well. I mean this stuff is moving at a fast clip. Um, and for startup companies, you know, it's going to drop the cost of starting a company by 50%. For the large companies, I think Google, Facebook, Tesla, maybe not Tesla because of the factories, Uber, etc., I think they will be on hiring freeze indefinitely. They're never going to hire more people. We could be sitting here five years from now and the number of employees at Google will be the same. So just let that sink in for a moment. It could even be less. And their revenue will grow 20% a year. So the revenue is going to triple every three or four years and their cost is going to stay the exact same. How is it possible? Well, because they're getting 30% more efficient every year. They're not going to add people. So right now those large companies can have $500,000 to $2 million a year in revenue per employee. They're going to be doing four, five, six, maybe even $10 million in revenue per employee. And that's how the world's going to bifurcate very quickly. And you're either going to be part of that massive massive earnings that are going to explode at these big companies, um, or you're going to be left behind. Now the good news is the problems that exist in the world, the number of problems is enormous. And so this isn't going to be cataclysmic for humanity in the short or midterm. I can't tell you 10 or 20 years from now when we have AGI, you know, general artificial intelligence, what's going to happen. But let's just say the next decade, um, you know, I'm pretty convinced that what's going to happen is you know this app that was too small or this piece of software that wasn't worth funding is going to be done by two people and get to five or ten million in revenue. So it's going to be amazing for humanity. Everybody's going to become a superhero. So you know if you weren't a good writer or you weren't a good designer, you're going to be better than the great designers are today. So just let that sink in. How many people in here are developers who code? Raise your hand really high. Or as a data scientist? Either of those two. Okay, it's like five or six people. It's a very small percentage. It's okay. Everybody in this room will be a data scientist and a developer within the next 12 months because all you everybody in this room knows the programming language of the future. It's called English. And you're fluent in it if you're here in all likelihood and listening to me or you're doing a great job faking that you understand what I'm saying. Um, there are people working on UX where you can talk to and say, 'I want an app that looks like Uber but more colorful, and I want a login screen that lets you put your phone number in and let you authenticate with your Google or Twitter account.' And it designs it. And you're like, okay, you've seen it crazy. Yeah, yeah. And then there's another group of people who are working on software where you say, 'Make me an app like Uber where you can track a cab with GPS and you can log in.' And it writes the code. And those two companies I've had on the podcasts, like multiple companies that do this. I've taken pictures from a dozen of them and I'm like, can you just merge these two companies and just publish the code? So that's coming. And um, it's going to make everybody a data scientist. You're going to be able to upload a data set and say, tell me what trends you see in this data set, and it's going to give you trends. They say, show me what charts should I make of this data, and it's just going to give you the charts. So the idea of going to you know somebody in your company and asking for those charts, um, it's going to be silly. So everybody's going to be a data scientist, everybody's going to be a world-class designer, everybody's going to be a developer. Let that sink in. And imagine a world where everybody in this room could create an app this weekend. Everybody in this room could create a beautiful brochure and a design and a logo, and everybody could write you know beautiful copy. It's literally and completely months away.

It's a great question. Um, the people doing the C and D rounds, the late stage, they might be a little more challenged because startups will not need as much capital. And so I think the venture tourists who came into venture over the last couple of years and thought capital was a mode and they could drop 100 million or 200 million into a startup, the founders may not be down with that anymore or they might just want to sell you some shares. So yeah, venture capital should never have gotten as big as it was. It is a boutique industry that requires small amounts of capital, and small amounts of capital create constraint, and constraint makes for great art. Founders should not have five years of capital. Artists should not have unlimited canvases and paint. Filmmakers should not have unlimited film stock and an army of actors. You need constraint. You need the pressure that creates the diamond. And that's why the last three, four, five years in Silicon Valley were so wasteful and so destructive and so fattening and made people lazy. And now that it's over, oh, my job is so wonderful because everybody starting a company is dogged and hardcore and they don't want a lot of money. They want to just get a chance and they want to work hard. And we don't have all the tourists both on the investor side and we don't have the actors pretending to be founders. Everybody thought they were a Jedi Knight the last five years, and now they're all dead and their arms have been cut off. Luke Skywalker, you know, and Obi-Wan Kenobi. They're one percent of the population. Founders are one percent of the population. The great ones. And we funded another 20 percent that should have never been funded. And now we're back to basics in Silicon Valley: fund less companies, more focus, less free in the office, less unlimited vacation, less nonsense, and just more team, product, customer. That's it. That's the flywheel. Everything else is nonsense and a distraction. And uh, you know, it's the greatest job in the world, what I do. And I really appreciate you inviting me, Ron, as well. Thank you so much for being and it's been great to meet everybody. Thank you for having me.