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Is this one of these Korean, uh, I think it's one of these Korean beauty products. That's like my wife's Korean. So I am, I'm very up on all these. No, no.

You got to keep you on the, um, for your, for your, your skin, you got nanoparticles. Um, Incredible.

Droplet.io. Droplet. D-R-O-P-L-E-T-T-E.io. Use the promo code Zach for $50 on your droplet.

The company's called Droplet. Um, I don't know about nanoparticles, nor do I know anything about facial stuff, but the founder is amazing. And, uh, that she reached out and I've known her for a long, long time and, and other investors are smart. And so I was like, okay, whatever. I'm along for the ride. And so then I got one and I started using it and it makes me look pretty. So, you know, droplet for your skin.

Your unpaid talent has got to look pretty. Absolutely. You look handsome. All right, everybody. We'll see you next time. Bye-bye.

Look at that beautiful. Yeah. But anyway, nanoparticles, they do seem to work. Gotta make myself look pretty for your show, Jason.

That's another way of saying old, right? We've been doing this for a while.

No, Sage. I think we're going with Sage. We'll go with Sage. I am thrilled to be here with you today, Molly. I'm delighted as well. Okay, so tell me, let's do the path to Sage, the origin story. How did you get your start in this field and what's been the road?

I think you've heard me tell this before and it's so i'm from utah i'm the oldest of six kids both my parents grew up on farms uh and the one requirement they had is they wanted us to go to college outside of the state because they had never left that left the state of utah and so i was lucky enough to go to stanford and i think it's it's hard to believe now but even stanford in the 90s there wasn't a lot of talk about startups. They were kind of there, but most people who were good were going to consulting firms or pre-med. And so it was there's now you can't go to Stanford campus without everyone giving you a business plan and even thresholds. My firm, we have special venture fellows, which is a program that we run to help teach people about entrepreneurship. But at the time, it was still relatively nascent. And so through a circuitous path, I graduated Stanford in 99, and ended up starting getting some job offers from these startups. And it was not I didn't have a network of people to really help me understand it. And I remember one of them gave me a job offer that started north of $100,000, which is more money than I had ever seen. And I was talking with one of the executives there. And I said, Well, what are your profits? Like, we don't have profits. I go, what are your revenues? And they're like, we don't have revenues. I'm like, how can you pay me if you don't have profits or revenues? They're like, well, venture capitalists give us money. I was like, why do venture capitalists give companies money if they don't have profits and revenues? I mean, it was really naive. And so through that, I started to Google venture capital. I knew someone in Salt Lake City in Utah who had worked with Tim Draper. One of the companies that I had a job offer from was one of the companies in his portfolio. And so I networked my way in to go and meet with him. Really, I was just trying to better understand, help me understand how to think about where to go work. And walked him with a list of questions. And I started the questions. I don't know if he just chose not to answer them or if he didn't know the answers to some of the questions. I was like, the market and competitors. But he liked it. He was like, just go through the questions. I was like, are you going to answer them? And he's like, no. But just go through. I want to hear your questions. And so I went through all the questions. And at the end of it, he said, those are good questions. Why don't you just come and work for me?

Anyone who's familiar with Tim Draper and the legend of Tim Draper will not be super surprised by this.

And there's a lot of craziness to this, a lot of the serendipity, and there's a lot of what has made Tim as successful as he is, is his willingness to do things like this. It wasn't, you know, like, this has to fit a role. I left the building at the time and called, it was my boyfriend at the time, now husband, and said, I just got a, I think I just got a job in venture. He's like, no one just gets a job in venture. That doesn't make any sense. And started... I was the first... I was called an analyst at the time. They had 5 partners. And at Sandhill Road in 1999-2000-ish phase, there were... Most firms looked the same. Most firms were mostly white men. Most of them had either been in a business or had graduated from business school. There weren't a lot of junior professionals. I think there were like 7 of us at the time that we got to get together. It was like people at Redpoint and Menlo. But there weren't that many on Sandhill that were doing this job. And half of, I think, the partners thought I was an assistant for the first six months. But it was a great time to come and learn. And I just had to prove it. And I didn't have expectations. I was just like, I'm here to learn. I'm here to help Tim and the other partners. And then as I joined, literally, a couple months into it was when the market cracked. And I remember just trying to think, am I going to get fired? Because the market is down, why don't I get fired? And I was still so novice. I didn't understand management fees. I didn't understand that venture firms can usually survive, at least for a period of time, while the firms have all the volatility. But as the junior person, I mean, I was doing assignment for the benefit of creditors. I was helping companies sell chairs. Wow. And my CEOs will tell you this, I am very, very concerned about long term real estate leases, because I was trying to help companies get out of those real estate leases in 2000 and 2001. Interesting. And there was no obligation to do so. So I wouldn't say I was a three cycle investor, but I kind of in that first cycle was just, here's the bike and it's going downhill. And And I learned a ton through that experience. And I think unlike a lot of people who are like, my aspiration is to be VC or think it's a great job. I just really, it's like starting in the mailroom and working your way up. I was that equivalent. I just started at the bottom and kind of had to earn people's respect and learn to do the job over a long period of time. I don't think there was any assumption that I would ever be a partner, let alone someone running my own firm from me or from others around me. But I just kind of put my head down and did the work.

Oh, my God, there's so much that is amazing in there that I want to unpack, particularly the part where you just got forged by a downturn where it was just like, OK, well, my job experience is basically crash.

Well, it's important psychologically to understand that for every up, there is a down.

Yeah, exactly.

So the Redfin was, yeah, Redfin was DFJ. So that was my first investment that I led. And I know, you know, Glenn.

Absolutely. Okay. Well, I want to come back to that in the present, but then tell me about, so then you went on to have a long career at DFJ and some really, really notable winners there, right? Redfin, Livongo, Brightline, BetterUp. Were all of those

So that was my, yeah, that was the first investment that I led as a partner at DFJ. And so those, yeah, but the other investments, those were part of Threshold. So most recently, yeah, Brightline is part of our Threshold Fund 3. And so that was kind of that transition from DFJ into a more focused fund where I really started to specialize and look at healthcare around 2010, 2011. And most of my, a number of my investments in a threshold have that kind of general wellness and health thesis associated with it. But at DFT, I was more of a generalist.

Oh, my God. That's how we met for everybody. Yes, exactly. I've known Emily previously from doing an event with Glenn and getting to meet you there.

Well, there's a lot there. I mean, I think I mean, I think when you're starting, I actually really enjoyed starting more as a generalist and getting to understand a lot of different how technology impacts very complex industries. And so a lot of people are like Redfin to Livongo, how could those two be the same? And I think there's actually a lot of similarities, in that there was a really complex established market with a massive amount of inefficiency. I mean, the first battles we had at Redfern, where the National Real Estate Association that did not want us to put the data on the web. Now, everyone believes, of course, you can just go and look at a home, you can tour it virtually. At the time, we had to be able to demonstrate that we had agents with licenses, even to be able to unlock some of that data. So forget how hard it is. And once you do tip over the opportunities, but it takes time. So I think I've always kind of just been drawn to complexity and how technology can help transform really, really large markets. To start my own firm, I think this is in a unique circumstance. And it also kind of ties into some of the All Raise experience, which is, you know, I think if you look at most three cycle, female investors, many of them are now running their own firms. They're either running the firm or they have started their own firm. And I think there was both a desire to take the lessons that you learned over the last 10 years, but also do it differently, and be able to drive different kinds of culture, you know, diversity among the investors, diversity among the founders, making sure that all founders were feeling comfortable walking in those doors. And so I was lucky that i had worked with josh and my partner for most of that experience with DFJ. We shared a lot of similar values and we shared a lot of similar focus which is the website which is we really believe that there's a difference between investing at this early product market stage. of a company where there's early product market fit, but it needs to become a company. And we were seeing at DFJ, we had started where he and I were always investing that series A, that phase where we're taking a board seat and getting involved all the way through IPO. But as firms get larger, you start to do a lot of different things. And we had kind of seen and experienced that where we were focused on our little niches, but the firm was investing in China, we had India partners, we were doing a growth fund, we were doing a seed fund. And it's just that lack of focus, we felt diffused, not only didn't lead to great performance, but it diffused our ability to be really successful. And, you know, I like to use this example, which is so it's early, so work with me. But there's like, if you think about the evolution of an engine, there's like tinkering to try to see if something works, right, there's building the engine, and then there's pouring gas into the engine to make it go faster. Right. And I think tinkering, you can put a lot of money in a lot of little things and see if something works. you don't have to spend a lot of time because it's mostly the founders, a small team, putting things out to see if something is working. And then gas is another thing, which once something is evidence, you can put a lot of money into a small number of companies. If you're looking to increase AUM, increase the money that you're putting under management, those are good places to play because they don't require a lot of time. Put a lot of seeds out there and then wait until things flourish, and then we'll try to dump a lot of gas. The problem, what doesn't scale is that engine building. The mechanic isn't sexy, but it's required because if you pour gas in an engine that isn't well built, you're not going to go anywhere. Or it explodes. That is an intense thing. That is hiring and firing the right CEOs or VP of sales or looking at your go-to-market engine and really what got you to $25 million or to $50 million in revenue is not what's going to get you to $200 million in revenue. And going through that process, it is not something that can be scaled. It is a human relationship. It's someone sitting on the board, and it's working closely with those companies. And we really structured thresholds around optimizing for being the best mechanics, which means we have to have a small fund. We have to have a concentrated portfolio. We are... One of our SLAs, one of our ways of valuing ourselves, are we doing our job? Are we the first call for our founders? What's your father's like if something good happens great but something bad happens we want to be there for school are we the people that you can come to and actually help you think through those challenges and overtime because we come in early. We start to have very aligned incentives with the founder so when we're giving them advice. It's hard to always give advice without being self-serving. We like to say that. And sometimes I'll be like, here's my threshold hat, and here's my board hat. But what I really love is when the threshold and the board hat are as closely aligned as possible, because then there isn't that conflict. And if we're early investors, then I can help them navigate downstream investors, thinking about liquidity, thinking about structure. That's something we have to do, because I'm going to look very similar to them on the cap table. So that was a threshold that was really wanting to build a firm with a different kind of a culture that perceived differently, that had that focus strategy, investing at the early stages with a concentrated portfolio. And then the healthcare was something I had two very complicated pregnancies. I have survived melanoma. And I, as a consumer, was experiencing all this stuff and looking at me like, this is just so broken. And it was the same time where all these technologies are starting. You have this opportunity for technologies to come in to this ecosystem, but it's not just about the product or the technology. It's also about really understanding the ecosystem and payers and the alignment of incentives. But I've said, I think, finding ways to actually better scale our healthcare, you know, our healthcare services and our healthcare industry, it's not just a huge economic opportunity. And I believe that I believe there's real financial returns. But I also believe it's kind of a social, moral and political imperative because otherwise, it's going to bankrupt us. Like, we don't really have an option. And so when something is going to force, it's kind of like you're investing in climate change. You're like, if there is a crisis, that will drive innovation, right? And I think there is this crisis that will drive innovation, and how can we harness that innovation effectively. And so it was one of the things that was personally really compelling to me that also aligned with where I think there was a financial opportunity.

Okay, got it. So talk about that too. There seems to be this probably eternal debate about generalists versus specialists. Like what was it that made you want to found your own firm, which is just a huge, awesome deal no matter what, but also one with a thesis, with a sort of a specialty and focus. Focus is like a big part of your website. Yeah.

It's just, I mean, it's, it's not just, it's, and as we can talk about how we're even limiting women's rights further in healthcare and limiting their ability to participate economically, um, which is honestly, if you look at, you know, the past are where we were when you had early Roe v. Wade was a percentage of GDP versus where we are today. Like the economic growth of our country is really dependent upon the involvement of women and our ability to participate effectively in the workforce. Um, so there's a lot of challenges but on the other side, you know, the number one reason for bankruptcy in our country is medical debt Right. And so we there's a lot of a lot of challenges here. And there's a lot of Yeah, there's there's going to need to be like, you know, these technologies that can increase access, they can better do diagnostic, there's a it isn't there's not a silver bullet. And it's, it's not, you know, it's not going to happen overnight. But I do believe there's a lot of really brilliant people that are now working hard to actually bring some of these solutions to market. And I'm, I try to stay positive. I do think that the way that my children, my daughters are going to be treated and how they experience healthcare will be very different than what we experience.

You know, I find it so ironic. I think about this a lot. And I talk about a lot of a lot of as it happens, women, roughly my age, do want to start their own companies for various reasons. And I would say that health care is probably, you know, it's ironic to be an investor in health care when health care is probably the biggest barrier to entrepreneurship that I can think of in this country. Like so many people could figure out how to get the rent paid and do the things that they need to do to build a startup if they didn't have to pay two grand a month or more. for healthcare. Yeah.

They are very, very activated.

I hope so. Well, they're going to be raised like super pissed. So I just think they're going to come in with a different set of requests.

So our current funds $375 million. And we... Our typical check size is anywhere from $5 or $6 million up to like 12 to 15. So it depends on the company where they are on that stage. The vernacular is changing.

How big is the, in terms of mechanics, no pun intended, how big is the fund and what is the check size and like how many investments would you say you do a year?

Like what is early, what's seed. But oftentimes, we are the first board member, or we are the first board member that you would anticipate staying all the way through, like if you know, through an exit. So kind of that is like, usually they're at that stage where they're not just a product, and they're looking to stabilize as a company. You know, we can invest like for that we would we looked at over time as companies are doing well look to invest like 25 to $30 million as they as they progress. But our portfolio is going to be reasonably concentrated, so 25 to 30 positions. And because we take board seats or board observer seats in almost every investment, your finite resource is your time. And so we're oftentimes doing 2 investments a quarter, maybe 1 or 2. But I think there is importance. And this is part of being in the industry. We spend a lot of time with a lot of founders. know, we're not saying no. There's a lot of things we think are great, but they're just not right for us, for whatever reason. Right. And sometimes it's just we don't think we're going to be the best partner can really actually help you de-risk your business. Yeah. And we try to, you know, have those conversations and very explain them. And I think for us, we can also be helpful in making introductions or helping them navigate other investors because people look at us and they're like, Oh, no, that's a concentrated fund. It's not, there's no signal risk. There's no signal risk if we don't invest. There's also no signal risk. I think this is going to be another profound issue for a lot of companies that have raised a ton of seed capital from platforms. If everyone keeps sending me investments, I'm like, well, why am I so lucky? You guys have better data than I do. You've supposedly been following the company. It's really great. Why don't you just want to lean in? Why do you want me to lean in? And so that becomes a challenge that I think I'm seeing a lot of founders now navigate. Whereas if it's a... We've had this happen a number of times, particularly the last couple years where we had large platform funds that were investing in our companies, and then they wanted to preempt the next round. But the board members conflicted with the founder because they want the cheapest price and the founder wants the highest price. And they're trying to manage that. And so you end up with a board that's thresholds in the founders. And I can call a late stage investor and say, hey, there's inside interest. But we're actually exploring outside interest. And if you guys hit off with the founder, I will ensure that you guys have a place in this, and you get excited, I'll make sure that you actually get to invest. They can take that call from me and know that I'm being totally sincere, because I don't have a conflict. I'm not going to be writing a 50 to $75 million check. And so there's founders, you want all of them, you will, but you just try to make sure that you actually have the right people on your cap table that can help you navigate that's going to be important.

Right.

I'm not the gas, I'm the mechanic. I don't compete with gas. I actually want to help the company find the best. pump available that is the right quality investor at the right price.

Right. So there's sort of, you're describing, I think, like multiple layers of value, you have a thesis that keeps you specific, so that if you see a great company, and you want to pass them on to somebody else, You can easily say, they are amazing. I promise you, I vouch for them. They're just not within our thesis. And that's why we're not investing. Cause that really is seen that can be seen as like, don't show me something that you wouldn't invest in. So that's one layer of value. And then the other layer of value, it sounds like you're saying is because you're so stage specific that when you recommend a company for a further round, it's believable because you're not trying to continue to follow on.

We'll brainstorm that later. But I think there is... Yeah, I mean, that is the... And it's married with... We think it helps us you know, sometimes it helps us drive better returns, because we are focused. And, you know, we we know what we can do, we know what we can't do. But there's lots of roles for we're grateful for a lot of our peer investors that are doing follow on capital, because that's great for the companies as well. We just, you know, we've just carved out our niche, and we're really happy with it. Yeah.

I selfishly want to figure out how we can turn this metaphor into something more renewable energy-ish, but we can... Yes, if it works, that's fine.

Yeah, I mean, when you start to look at the data, it's actually really shocking. I mean, we weren't even, women were not even considered in most clinical trials until like the 90s.

Um, I have like a million questions I want to ask you, but I also want to ask about some of the companies in the portfolio, especially one that, um, I got selfishly obsessed with and that's why I get to do these interviews is Tia, the one stop, uh, one stop shop solution for women's healthcare, because we have this sort of double whammy, which is that healthcare is broken and healthcare for women specifically is medieval in many cases.

Right. So, I mean, there is, I think that really distinctly understanding the biology and how we're impacted. There's even things that like, um, thinking about when you should get immunizations based off of your menstruate cycle and the fact that your immune system is naturally suppressed while you're ovulating. because they're trying to... This is stuff that should not be hidden. This is for 51% of the population and 80% of the medical spent. So we have the numbers, we have our disproportionate amount of the dollars, and yet there hasn't been customized solutions for this audience. And yeah, when I think about healthcare, I try... I'm pretty simple in that I just go after really big markets. right, because there's so much complexity and there's so many people going after super super niche like and we've done this in pharma like every single sub derivative derivative derivative of cancer from a therapeutic, but then you can charge a million dollars for we've broken our body into so many different pieces and sub pieces, but no one is actually just looking at the person ahead of you, which is doesn't make any sense given that this body is the most amazing complex biological system. and it's a system. And so for systems, you need system level solutions, which means that if you are having issues with your weight, we also probably need to address your sleep. And we also probably need to do your mental health because if you're depressed, you're not going to be able to make the behavior modifications to be actually be able to reduce the weight, which will probably reduce your chances of diabetes or cardiovascular. I need to look at you as a person, understand what's going on and thinking about a solution that holistically addresses those issues. And so I got very excited with TIA because it was a company that was predicated upon the best clinical protocols for women, but did it in a way that made the experience something that you wanted to do. And I say this to people, which is how many other companies can you, any healthcare company can you think of that where people will go and post Instagram experiences of their health interventions? I can't think of one. Follow Tia on Instagram or Twitter. I'm looking it up right now. And they feel seen and they feel heard. And we haven't, there's enough money going after particularly these young women that are having babies like, you know, spoiler alert, that's some of the most important revenue for our health systems. And so, treating them with dignity and respect and helping them navigate all the complexities of going through those transitions, which are huge, that we've just kind of put women through, that should be a really big business. You overlay some of the challenges we're having in the political environment and other and there's just, I think, healthcare is becoming something that people are going to have to actively select as a consumer and it's going to be representative of what they value. I think Tia is well positioned for that. Yeah.

Oh, I know. I mean, literally they were just like, oh, I'm sure their bodies are basically just like dude bodies, but maybe small men with like ovaries.

Yeah, no, well, and it dwindled after 2000. And if you looked at that number, we had more women partners in 2000 than we had in like 2008. Because a lot of them left. And there's, it is probably one of my biggest concerns right now. It is it is a capitalistic industry, right, which means our job is to take money, invest in companies and make more money. You can overlay that with all the things that we're talking about, which are very important, and I believe can align incentives and make people do amazing things. Because oftentimes, founders, we ask for the impossible, which means that they can't just be driven by financial returns. There has to be something that's compelling and drawing them to do it that's bigger than that. But at the end of the day, your ability to be a successful venture investor is return-driven. And so I think that's important to explain to any investor, particularly women coming in, is that there's no title. It's not the job that just protects you. Your investments have to ultimately return capital. And anytime there are downturns, that gets really challenging because a lot of people who've been investing, very simplicity, best ventures, buy low, sell high, And we're now in a market where you bought high and you might not be... Maybe you're going to be working really hard just to get your money out. Maybe it's not going to work. And there's some risk associated with it. But you're... Where you started is in a really challenged position. And so a lot of investors that just have only been investing the last cycle in these last couple of years, particularly the last two or three years, you know, that's going to be really challenging. And we need to kind of address that and help them navigate it. So they can continue to have successful careers.

And how much of, okay, so you were, as I mentioned, a founding member of All Raise. We have had this kind of culture conversation. Talk to me about culture, the culture you want to build in Threshold, the importance of women in venture, how VC has changed. I mean, again, as we started looking for three cycle investors, it is startling, especially the further you go back in time, how the number of women dwindle even more. than the pretty small number we're currently at.

And then the question is, over what period of time do you judge them? And how are you giving the same amount of runway to the same number of people. That's what's going to be the really important component here. And so when I was thinking about and Josh and I were talking about building thresholds, it is important to put front and center that our business is about returning capital to our limited partners. Making money is going to be important. And that will be something that we all need to be held accountable to. Our business is also about risk. Which means that some of them will not work out and that is okay. I don't want to punish people if they make a risky bet that doesn't pay out, but you do want to say you at least have to be aware of the risks. Do the diligence so you understand the risk that you are taking and that the upside is worth the risk. High risk, not a lot of upside, not what we should be doing. But high risk and enormous upside, that's what we should be doing every day. And some of those won't work out, but that's okay. I also really believe a good partnership isn't about consensus. And it's not about trying to sell a deal to your partners or horse trading. I'll like your deal if you like my deal. That leads to all kinds of bad behavior. Yeah. And so we really think about it as our job is to try to push each other to make the best decision possible. And so it's not a voting system where it's like everyone approves this deal. It's you bring a deal and everybody's job around the table is to ask questions, to question assumptions, to push that individual or the couple of individuals that are digging into the company to make sure they've seen every potential risk. And if they look at that, and they're deeper and saying, I'm willing to go, then it's kind of the Jeff Bezos, you know, you can disagree, but you commit, then it's a special company. And we've made collectively that commitment to each other and to the company that we're gonna do everything we can to have them be successful. And so there is an individualist component to it. But I also think it's really important that it's a small enough team, where people feel like they're working for the threshold portfolio in all companies, versus here my deals, here's my partner's deals, people writing their own spreadsheet for their performance. That's just not how we operate.

But I mean, so we mean, just to be more specific, do you mean that some people are going to look like they are poor performers? Some people will be poor performers, right?

I think if you get big, it's hard, because you're such a small cog in a very big machine that a lot of people... And I saw this at DFJ. If there's 15 or 20 partners, if things are going well, maybe I get rewarded broadly. But really, what people are going to value at me are my own companies. And so building my track record is really important for both staying at the firm, but also being able to have opportunities to go elsewhere. Yeah. And that creates a weird dynamic, right, where decisions because the product of a venture firm is its portfolio. And so thinking holistically about that portfolio and how to do reserves and how to help companies and who are the fund drivers. If everybody is caring about themselves versus thinking about the whole of the portfolio, I think it can make... People don't share information as freely. Decisions aren't as strong. So I think transparency is one of the most critical components to strong decision making. And so you have to create a... Clearly outline the rules of how people are going to be thought through and rewarded. Clearly align incentives. um, create safety where people can share what's going wrong without being, you know, worried about immediate snap reactions, but problem solving. It's like you've identified a problem. What's the solution or how can we work together to have a solution? Um, and then I wanted different people from different perspectives. We have, you know, very young investors. We have investors, Heidi Roizen sits around our table. Like you want to talk about a three cycle investor? Like I'm not going to tell you how many cycles, but She's had a lot of cycles. There's nothing that she hasn't seen or experienced. And if not her, it's when someone in her network. And so it's really important for someone from that context to be talking to someone in their 20s. Both have really valuable insights. One is not right. These are the problems, but the world is always constantly changing. And the way that that person in their 20s sees the world and how they're engaging with the world helps force us to think about how things are changing so we really try to think about how to bring that diversity and then that diversity also plays for the founders because they walk into a room or zoom Brady Bunch screen, and they see lots of different people of different, you know, backgrounds, genders, ages. And that to me, makes that they also in some way, they can see themselves somewhere on that screen. And one of the things that makes me really excited is a lot of people talk about, you know, gender diversity, which is one of those I've spent more time on, I know better. I have a number of female investors, founders, but so to every single one of my male partners. Yep. And those females walk into that room and know that that male partner is completely comfortable working with a strong woman and helping them navigate them and treating them as a true equal and partner. And so that gets me more excited. It's not just me doing it, but how do you actually create an ecosystem where we're looking for the best companies that we can invest in, in the sectors we know, and then disproportionately, we're able to win when those founders are women.

And then the other piece of it is really... Is that unusual, would you say for people who don't work inside venture?

I don't know if I'm seeing the oblivious push through being positive. I have to think through that.

Yeah. So far I haven't either. I just sort of, I just invented that in my mind.

Like what if that was a good thing? I, it's really, I was joking my husband at one point, you know, where you, when you have kids, you go through the process, which you're like, oh my God, my parents didn't know what the hell they were doing. Because you realize you're giving all this advice and they're looking at you and you're like, wow. And there's definitely that moment in a lot of these boardrooms or a lot of these discussions where suddenly people are like, well, Emily, you look around, you're like, who's the sage person? And then everyone's looking like, you're it. How did that happen? And I think there's like, that's one of the things of like approaching all of them with humility. So I have seen bubbles burst. I have. And I have, I can experience, you know, winding down companies, I know how structure impacts companies long term, I've had young investors come to me and say, can karta walk me through anti dilution and build your own excel model. You need to like honestly most of the industry needs to walk through a term sheet actually understand what those terms mean because they didn't understand what they were signing up for and if you don't know it and someone else is coming and putting structure in your company i guarantee you that they're gonna win. So make sure you deeply understand it because there's whole industries that are built off of that kind of predatory behavior. And so I think there's some of those tricks and components and you've experienced it. And oftentimes experience comes through bad decisions, right? Or seeing others bad decisions. And so I do think there's a toolbox that I have that a lot of individuals don't have. But also for being really frank, You know, I called a mentor of mine who's in his late 60s and said, what was it like when interest rates were high? Because let's be honest, we've never invested the venture industry, the modern venture industry, as we know it, from 2009 has never experienced substantial interest rates. And particularly from 08 down forward, we've basically been in almost a zero interest rate environment. We lose capital. When was the last time you heard the word fixed income? You're starting to hear it a lot now. You can't make money on fixed income. And so people are going to start to allocate investments really differently. So there's some things that are the same. There's some things that are different, right? Interest rates are different. We had amazing globalization, tailwinds that are now headwinds. And that's going to be a challenging thing to navigate. It used to be the technology adoption was... Every company was starting to do technology adoption. And that was something that could be a competitive advantage. Technology in a lot of industries are now table stakes. And you also starting to see consolidation of vendors because there are so many different options. We've had created so many companies that people get to choose and there's pricing pressure on that. And so I think it's important. I look through and saying, yes, here's things that I've learned in the past that can be useful, but also making sure i think the analogy game in ventures really dangerous when i saw this in two thousand because there's never a perfect analogy in our business there's always something different and i'm trying to look at doesn't saying like let's just really break it down to the space levels and what are the keywords for this business and how should we think about what the rest are that we have going for it and then if you want to get really. Which is important is what are the keywords for customers. it's not just what our business is. Our business is predicated upon the success of our customers. And so I think every single investor should do that exercise and really try to understand the impacts of these new environments on their companies, not just running out of cash, which of course is a critical one. But there's the second and third derivatives. And I find that when boards are starting to have those discussions, then you can kind of work toward solutions. Like we talked about, it's like, here are the problems, what are the solutions? When people devolve into panic, or fear, or trying not wanting to tell their partners a company isn't working out or not. That's when I'm seeing really bad behavior. And that's an enormous stress for founders, because that's not about that's providing solutions that are about the investors versus solutions that are really useful for the company. And so I haven't seen that optimism necessarily help me. Most of what we've seen in the market is really experienced people that are a little bit bummed and realize the next couple years are going to be really hard, some of whom are rolling up their sleeves and some of whom are rolling out saying, I've done this, I don't want to do this again. And you're seeing younger investors that are on the spectrum of panic to humility and learning. And I think in this job, the best way to be a long term investor is to stay humble.

What about founders on that trajectory, especially since a lot of founders have never could never even imagine a scenario where you have to aggressively cut spending or you will not be able to raise potentially a dollar, right? Like it's not even in some cases, it's not even about raising an up round. It's like, you might not be able to raise full stop.

Yeah. Oh, one of the things I said frequently in 08, 09, when I was on the board is that, I mean, we're in the business of being long-term right in venture, right? Long-term trends. So you want to have that long-term perspective, but you got to be present to win. So it doesn't matter if you have the right idea, if you're not there at the finish line. And so how do you think about balancing those trends with survival and going through that? And again, each company has its own exercise. I think that for a lot of these founders, the analogy that I've used, and I think I didn't like analogies, but they were playing American football. They had all the pads and tons of people out on the field and was being really aggressive. And then suddenly, everyone's like, no, no, no, we meant the other football, soccer. So it's like, it's just a ball, nothing else. Get rid of everybody. And by the way, do that right now.

And it really is the rules. I would argue we might even be entering into rugby territory, like it's a ball and you're going to get hit a lot.

Everyone's going to be bloodied and bruised. Yeah. Fair. That's actually, I will take that going forward.

Take it. Take it.

It's all yours. It is not. And we really, the rules just changed almost overnight. And the playbook, which people had established, suddenly they have to play a different game. And that is, I do honestly believe the companies that make those changes and can optimize for this game, because Like, it's bad that we're going through this process. But if we really zoom out, this is a better game to play. Driving companies toward profitability is a better and more sustainable business. Really finding where there's true leverage versus just throwing capital at companies, true leverage in that technology is going to lead to more scalable solutions. So it's hard, but I honestly believe that the companies that do learn how to play this game and do it well are going to be substantially better off for it and will be able to be much better, much more viable, long term, enduring businesses. But you got to get through that transition. And I think it's a lot of it. It's not just about the money, and it's helping manage the psychology. And I think one of the things that you can't... One thing I don't have a lot of patience for is a lot of shaming of the founders while they screwed up. Boards approved plans. Yeah. And then now they're asking for a new plan. And that is fine. And that's rational. But it's like we made decisions. And now we need to make different decisions. And you're going to have to implement it. And it's hard and enormous amount of the weight goes on it. But also recognizing individual board members culpability, individual investors culpability, the industry's culpability in it, and then trying to figure out how to actually work through it where you can. I think that's important because it wasn't just a lot of bad like actors that weren't being rewarded for that action. It's amazing. It's like aligned incentives. If you do this action, you get a really big round, they're going to do that action.

So it reminds me a little bit of the conversation that's happening about tech employees now, you know, like, oh, they're so entitled, when that was 100% a two way street in terms of perks and benefits. And so it seems like what you're saying is the culpability goes both ways. You can equally shame the venture industry for throwing massively distorting size checks at young founders who were, of course, going to crash that car.

Yeah. And I think one of the things we have that is risky that not a lot of people talk about is the founder secondaries. And that was a really new phenomenon that I had not seen in the last couple of years.

And define this. This is the ability for a founder to sell their own shares, get really, really rich.

This is when the founders are selling their own shares. And so I think we've seen it over the last... I'd seen it in my first 15 years, but it was usually like, I just want to be able to buy a house. So my wife stopped yelling at me. I just want to be able to... There's a stability to go big, where you just take some risk off, but it's already a very stable... It's a business that clearly is generating those revenues, clearly has a path. That got... Because there was so much money that was not only coming in to fuel primary capital, but because there was so much money, there was also a lot of activity on the secondary capital. And sometimes you just see, you know, founders primaries that were in the 10s of millions of dollars, secondaries in the 10s of millions of dollars. That is also good. I think another thing that's going to really bite the industry is that gets hard to still work. And if you're if you took the money.

Will it bite the industry because you have founders who are so rich that they don't have to stick it out anymore? Or because you will have founders who expect that going forward, and it's not going to happen again?

I think they're so rich, they won't stick it out. Because there's a certain point where you're in depending upon how truly motivated you are to solve the problem. There's a certain point where you do need some, you know, alignment or incentives. And we've already seen that you actually own a name. So there's a lot of companies that the founders are no longer there. And one of the kind of or they're hiring CEOs. I talked to another large platform fund and they said this is the largest number of CEO searches they've done in their history. And the one, the highest factor that they saw where there's a correlation was founder secondary. Fascinating. So there's been a lot of challenges. There's also a lot of great founders that have been working their butts off. um haven't done secondaries and are now looking at valuations where they have to work run to stand still right they have to work for the next three years and they have to try to explain to their employees for the next three years for what they thought they were worth know, a year ago, but it was kind of funny money. So, there's a lot of this, which is there's the economic survival of the business, tune the engine to optimize for this new environment. But then there's the psychology of like, how do we do this and get people aligned and allow them to go through the challenging process of recognizing that the world has just changed? Because that just doesn't happen every night.

On a kind of related note, how do you think about secondary sales by fund managers? Because especially as returns get harder, maybe funds that took some money off the table during those boom times and made sure they got closer to returning a vintage did the right thing there?

I don't... I think that's... I mean, I think that's... Different funds have different strategies there. And I think that is fine. I mean, I think it's like, again, you want to have... Be explicit with the founders and the incentive alignment and you don't want to have investors pumping a value. trying to sell it and then getting out, which I don't think is really... But there's a lot of smaller venture firms. That's a critical component. And not just because they need the returns, but also as companies are staying private longer, and you're accessing capital in the seventh, eighth, ninth year of your existence, it makes a ton of sense for some of those early investors to be able to get liquidity for their funds, because that's not what they... We all have our own cycles. And so that's a transition of people who are looking... We have a lot of... This was more common. I don't know if it'll be as common, but crossover investors who are looking to come in when they're private, but could also support the company when they're public. And that can create a lot of stability in the cap table. Because what you don't want as a founder is to go public and have everyone be like, yay, party, I'm out. That creates enormous volatility with your company. So I think that that is actually a strategy that if deployed thoughtfully can help a company, you know, make multiple transitions, including when they actually go public.

I want to be mindful of your time, you have to get back to supporting all these founders. But I do want to ask you what you as our let's stick with our rugby metaphor for a minute here. As the match goes on, you know, people are, the bruising is getting more noticeable. Certainly. I think we all agree we're in for at least a couple more quarters of pain. Um, what do you see coming based on your experience in, you know, 99, 2000, 2001, 2008, like what are the rhyming hits that we should start to watch out for? Like, we haven't seen a lot of recaps yet, you know,

Yeah, I mean, it'll be interesting. I think we will start to see I think there's been a lot of quiet activity, a lot of bridges. I think that you there's I and I, I would ask, I think one of the things that is challenging this environment is everyone. And it's like the up and down, everyone wants to celebrate the big valuations. But then it's like, you know, shaming companies that are doing layoffs, and then shaming companies. And I kind of feel like there is this world where you just have to exist outside of it and really think through what's right for this business, and how do we help structure this business. And I am kind of grateful we're at this age where you know who cares about layout is everyone is every company needs to do that and i think that that's the psychological piece of like stop worrying about the outside world tells you to do it like play the game that makes the most sense for you i do think one of the things that you saw. in 2000, 2001, and definitely in 08, 09, were the founders that were in the game, regardless of what, like they were, they were going to play the game. And if it gets harder, they play harder. And they're like, I guess we are like true rugby players. That game always scared the crap out of me because I felt like, like people's ears got ripped off.

I played in college and let me tell you, don't do it. I think I, I think I still have bruises that haven't healed from then.

But there's a certain kind of persona that will do that. There's a certain kind of person that is willing to put themselves out there and get hurt over and over again. There's something about your psychology that is drawn to that and uniquely capable of handling that. That is truly a good analogy for being a founder. It is not an easy journey. And that's one of the things that we always explore at Threshold. It's not just what are they doing, but why. Because the why doesn't change. The what can evolve over time, but the why is that motivating factor that puts them out on that field, willing to get those bruises or ears ripped off or other components of their body. And if the why was I want this is cool. If the why was I saw I wanted to go like to YC and I think I'm going to be rich. Those whys, those get off the field pretty quickly. Yeah, because those those are not like your true rugby players. You know, those are the people that like the pads, or they wanted to be. taken care of.

And I think so. They might have gone to Wall Street, right? But this was a similarly easy path to a lot of money.

And so I had people from Utah talking to me about my kid is going to go to YC. Isn't that like just a master's degree and then they'll make money? Right.

Like, no, no. So does this then start to bias the tip the field toward mission aligned founders, like founders who do want to tackle big, complex, society changing problems and less like I don't, you know, I don't want to name names, but like B2B HR sass type thing.

I think some of the there, I think it will definitely mean that the field is going to be true rugby players that aren't afraid of bruises and that are there to play the game. Um, I would argue that like, you might be bored of, you know, HR systems, but... They're really important. They're really important. Like I would, I would, I would say a Neil is a rugby player, like building workday was not easy, even if it's so I mean, I have my, I think you and I have a lens that has this mission about it. But I think there's going to be a lot of different, I don't necessarily want to say that it's just like a founder going after one industry or not, because people have their, their, their missions can be their own thing. But I do think that this idea that it is a calling, not a company, and it is a fight, and it's going to be challenging versus this easy walkway. I think that we're seeing the founders right now that are okay, this is the new game, I'm playing this game, and I'm going to win this game. And we're seeing the ones that are like, this is not what I signed up for. And I think you're going to go those ways. And we're going to go through that process. And then companies that are started in this environment, where people recognize that, you know, this is, you know, rugby without the pads, those are going to be the companies that I think can be really compelling. And that to me, it's it's less about like, everyone's like, oh, down markets, and You know, it's less on the economic piece of it. It's really about the psychology of why do you do this and how hard you're willing to fight to get it. Because that is really oftentimes the difference. We invest in companies, but companies are built by people and the people psychology and their ability to recruit and their ability to do the impossible is what long term creates value. And I think we're going to have a phenomenal slate of entrepreneurs, both the ones that survive this game, but also the ones that want to get on the field right now.

I love it. I love it. This is the perfect place. And Emily Melton is a managing partner and co-founder of Threshold. And my tip to all of you founders, as you head out onto the rugby pitch, you just wrap tape around your ears. That's what keeps them on. Get your tape and let's go. Thank you for having me. Amazing.

breakdown again, you went by that pretty quickly breakdown again for me what types of data and why it's valuable.

Yeah. So Arcadia is an energy data platform. We unlock all of the geographically limited monopoly utility data that is, you know, all around the world across 10s of 1000s of utilities. We plug, we uncover that data for companies in new energy companies, or carbon accounting, or all sorts of different sort of use cases. And that data is sort of, you know, it's incumbents that don't really have an incentive, frankly, to make it easy for, you know, companies to actually get access to the different energy usage data, tariff data, cost data of how energy is priced, and then payment details as well. And so our platform now operates across the world, across 10,000 utilities. And we make it super simple for anyone to get data from that incumbent utility, no matter where they may be.

I would imagine. Yeah. Um, but draw that bright line for me about how it enables, for example, the development of renewable energy development and deployment. Like, where does this? Where does this data company become a climate solution company?

Yeah, of course. So let me talk a bit about the problem. So utilities, you know, are the worst. They're special. They're special dinosaurs. So, you know, public private entities that are geographic monopolies, right, that's a structure that's persisted for a century. And so what that means is, there's these little fiefdoms, right, but it is you know, trillions of dollars of infrastructure, that is the meters, the wires, frankly, the bills you and I pay, and we joke in the office is that taxes and power bills, it's basically something every, every person in business will pay. And so within the utility, there's, there's a ton of rich data that is we sort of put in three buckets. One is usage, how you use energy throughout the day, historically, there's a lot of rich data that lives within your utility account that we unlock, even on time payment history to help underwrite customers. The second bucket is rates and tariffs. So power is not the same cost throughout the day, There are things called demand charges, there are weird taxes. Tariffs are wildly complex, maybe purposefully so. Sometimes when we see how these proceedings go down, you really wonder if they're just trying to make the most complex thing under the sun. But these tariffs we normalize through a single API we unlock for companies that need to understand, for example, how to size the solar system, when to discharge my battery, when to charge my EV. And then the third bucket is payments. So, you know, that payment relationship, and being able to understand costs, transact, manage a single bill for energy services, those are the three sort of big buckets of data. And as you can imagine, the applications sort of run across all of electrification. I think that's what makes the business so interesting and exciting is we operate and our customers we serve are across rooftop solar, community solar, which we're the largest player in the US, energy storage, electric vehicles, electric vehicle charging, retail energy, and even carbon accounting is one of the fastest growing parts of the business today.

Yeah, I mean, I think these are such interesting solutions, because they sort of sit at it's, it's literally the the interconnect, which is already an energy term, but it's, you know, the ability to say, if I am going to create a new renewable energy development. I'm going to build a huge solar farm, like I'm going to simplify it even more. I'm going to build a huge solar farm. I need to know who needs energy when, what demand there's going to be, when I should deploy it so as not to pay the highest rates or not cost my customer the most. And all of that is literally like, you just can't do that unless you know how utilities work.

Yeah, definitely. So I'll go back a little bit. So I, this is my second startup. And the first company, we would go to buildings, try to make them more efficient. save them money. And through that whole process, it was sort of this realization that you can't actually deploy infrastructure, you can't actually deploy new energy solutions, unless you understand the raw data of how a business or a customer is using energy, what it costs, you know, all this rich data from the incumbent. There are a lot of similarities to what we're doing between what we're doing and what's happened in the world of FinTech. Flatt is a great example. Fulio, another one for sort of, you know, communications, programmatic communications and connecting to telephony and SMS. But in the payments world or in fintech, if you want to connect to the incumbent, if you want to understand my checking and savings account, there needed to be a pipe. And there's so many of those companies, a single API makes it really simple, right, for you to build your business. So I learned that hard lesson through my first startup, to come here and realize if we're actually going to deploy DERs, distributed energy resources, new clean energy solutions, energy efficiency, Someone had to unlock the incumbent effectively, the old dinosaur. And there have been attempts at this in the past. During the Clinton administration, there was a thing called the Green Button Initiative, where they said, hey, utilities, it's time to finally... The public has basically paid for all these meters through rates. It's time to unlock the data. And there's like five utilities that have effectively done that in two decades. And so We took a page out of a playbook that, again, you've seen in other parts of the tech industry where if we can build a simple API solution, unlock that data, people can build all sorts of new value, deploy new infrastructure. And so I think one of the more exciting things in the journey has just been fundamentally believe that this software opportunity around data is the biggest opportunity in energy. Because, you know, if we do our job, right, we see a huge acceleration in the deployment of new clean energy solutions and products.

So now speaking of valuable, I feel like the one and a half billion dollar valuation question is, how did you get the utilities to give up this data?

Totally. And I'll give you some examples of this that are You know, my last company, and you see this still with a lot of companies today, a lot of this is estimates or manual work. Yeah. Right. It's, um, you know, the energy efficiency company, manually reading bills to understand how you use energy, what your tariff structure is, how much am I actually going to save you to create a proposal? Um, you know, almost 5 million rooftop solar proposals went through our tariff engine last year, as an example. If you install a battery and you want to know when to discharge it for the most value and when to pull power for the most value, you need to understand tariff structures. For our community solar business, if you want to connect a customer, don't want to ask for a credit score because it's regressive. You can actually get on-time utility bill payment history, which is an amazing indicator of if you're going to pay the next power bill. to help underwrite a customer. And so there's just so many to your point. You know, if you really want to deploy a solution and make it bankable, understanding that data of how you use energy at the core system of record, which is the meter that the utility owns, that's that's incredibly valuable.

So then tell me how these become products. So you're built on two separate business units, Arcadia and Arc. Can you break down sort of what those are and like why, you know, I the individual might want to connect to the system and give you my data?

Yeah, yeah. So Arcadia is sort of, Arcadia is the company, Arc is the data platform for, you know, let's say software developers or, you know, larger companies like Ford to access the raw data I described, energy usage, rates and tariffs, or payment information. So ARK is a series of APIs. And I think what's really interesting, and we're seeing so much more of this, maybe see even some of the companies you're looking at, is we have large enterprise companies, big energy companies like Anji and... companies like Ford, and Rivian, and EVgo. But we also have a lot of software engineers who've left Fang who are looking to start their climate tech company, and they just come pick up an API and start building. So that's our... We actually started... So when I started the business, it was this big idea, unlocking this data is going to unlock millions of new innovators. And it was crickets Because at the time, it was like Nest, Tesla, there just weren't that many. I mean, it's kind of amazing how far we've come in like eight years. Yeah. In terms of like new products, new solutions. And so we went really deep in the community solar market, because it was the one place we were seeing just fast moving water and they needed it all. And community solar is for those that don't know, it's not on a roof, connected to your home, it's in a field, right, or it's far away. But to monetize it, to provide savings to customers, you need energy data, and you need billing. So it needed the whole platform. And so we went really deep in community solar. We're the largest manager of these assets in the country.

When you say manager, do you mean you own and operate? Like, did you actually develop them?

So we work with over 50 different solar developers. Sometimes it's big private equity funds. Sometimes it's a small shop that's building owning the project. And then they come to us and they say, Hey, we need you, we need your platform. And we need you to, we also do some customer acquisition to under the Arcadia brand. We need you to get customers and manage the bill, the credit for 25, 30 years for the life of the project. And so we're the software layer to monetize their asset. And that was, that was like the first vertical, right? It was like fastest growing segment of solar in the US. Honestly, it makes more sense than rooftop solar. Not everyone has a roof.

This is where it might be a good idea for us to step back and sort of explain how renewable energy works at the electron level, right? Because I think that people are under the impression that, well, the deal is you put rooftop solar on the roof, and then those are the electrons that your house uses. And so this idea of this distributed community solar thing might not make that much sense. And there's only some states you can build in, right? Let's go like all the way down to like, let's go renewable energy credits and BPPAs. Let's do this.

It's always tough to know how deep to go. We can super geek out, but I think like

High level, how does this stuff work will be super useful for people.

Short story is like the utility cannot tell me which electrons are lighting, you know, firing my, my laptop up or in the light bulbs above me, they don't, the physics of an electrons and electron electron, when it goes into a pool, it sort of gets lost. And even sometimes in those rooftop cases, you're not consuming your own electrons, you're spitting back out to the grid or pulling from the grid. What community solar is, is on my distribution grid, so in the poles and wires in my neighborhood, someone builds a solar project, interconnects it, So it's feeding clean electrons into that grid. And those electrons get lost, they're part of the grid. Now, it's offsetting if you need, you need 100 electrons, and I just added 10 that are clean, you're directly offsetting the need for 10 fossil electrons. So you're you're immediately impacting the grid. And effectively, with community solar becomes a financial transaction. The customers buying power both from the grid, but directly from that project, right? And the clean electrons from that project. Now, we as the intermediaries, the tech platform, we're helping doing all the accounting, all the billing, and all the management of those electrons flowing, you know, understanding how many electrons flowed into the grid, how much value was created, and then a customer paying for it. And so it is it's a complex transaction, of course, but it's virtual. Um, and you may not be consuming the exact electrons that came from that project, but the customer in buying power by paying that project through our platform is helping build a new clean energy project on the grid.

Right. And there's this concept called like additionality so that the more you build, the more fossil fuel based electrons you can replace over time. And you can totally see when we, I feel like when we describe it in these words in this way, you can completely see why like, oh, obviously you need software to do that.

Yeah, I mean, really the simplest way to think about it is it's rooftop solar just in a field in your neighborhood.

Right. Or like upstate New York, it seems like is where they all are.

There's a lot of it up there. That's, that's for sure. And we're seeing, and like, you know, at the end of the day too, not everyone owns a roof. Not everyone's going to live in a home for 20 odd years. Um, and so, and the community solar at the end of the day is actually like, it's the most equitable clean energy product. I think rooftop solar has been a, like, it's, it's a rich person's product kind of has been for a long time. And what's amazing is we're able to give people who are in apartments or low income customers who've never had access direct bill savings. And there's no long term commitment, you're not have to like take out a new mortgage. It's frankly, like the best clean energy product in America. So we went, we went really deep. And we, like I said, we manage almost, you know, almost half of all the residential focused community solar megawatts in the country.

Wow. How many projects is that, or megawatts?

It's over 500 different projects across 15 states. And like, you know, even before the IRA passed, it was the fastest growing, you know, from a small base, but fastest growing segment of solar for all the reasons I described. post IRA, we're going to see, you know, there's specific incentives that just make community solar, like maybe even the best infrastructure project in America, because you're getting all these tax credits as a developer, you're getting economies of scale by building larger projects. And you get to sell power to a retail customer, like you or I, who end up who are paying some of the highest prices for power in the country. Right.

Okay, so that's, and then as a consumer, like someone can just go to Arcadia and sign up for this anywhere? Are there geographic restrictions? Like, do you have to be located near?

Yeah, like everything in energy, right? It's, it can never be as simple. Yeah, it's, it's, so, and it goes back to what you said about interconnection, right? You can't just build a project and plug it into the grid in every state. And so states have to pass rules and legislation that says a community solar developer can build and can interconnect and can sell that power to you or I. And there's 16 states in the US that have that today. California just opened their market, and we should have the first projects flowing in 24, which is super exciting.

Hot damn, we got a lot of sunny spots.

Oh, yeah. Not a lot of people. And a lot of people who, yeah, it's, you know, California was already the best solar state in America with rooftop, but with community, it's, it's going to be an amazing, you know, for all the multifamily properties and people who can't access, it's going to be a really huge market. Um, but it does require that regulatory change because, because we've been living in a monopoly, you know, own generation world and that that's changing, but slowly.

I feel like too, as long as we're saying this about utilities, we should say like, these are regulated monopolies. These are not, this is not an accidental monopoly where they got really big, like an Amazon or a Facebook. These are monopolies that have been explicitly. At least in California and some other states. allowed and incentivized to exist that way. And that's why some of this is so difficult, because it's not just about enabling regulation in some states, it's about removing regulation that was written into law with the helping hands of some of these utilities. I mean, they're not all in favor of this.

No. And it's a great point. I'll step back for a second. So I, you know, most climate tech founders will tell you they're like dyed in the wool environmentalists. And I care deeply about the environment. But I actually came to energy work through politics. And when I worked on Capitol Hill, right out of college, I had an amazing job working for a congressman. And when I learned about you know, regulatory capture, and the structure of these monopolies, and the fact that you couldn't just provide power to your neighbor or plug in a new clean energy project. To me, it is Yeah, the market structure is just broken. And obviously, technology is one way to unlock that innovation. And I feel like regulators are always a step behind the market. But I think because of all the focus on climate decarbonization, you're seeing a lot of... One of the most powerful entities in America is your local public service commission. And it's kind of a crazy thing to say Uber realized that with cabs. And I think the entire climate tech world is realizing that now with energy.

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Totally. So, um, and that's exactly we, we, we had so many people, you know, in the last few years knocking on our door saying, How are you getting this data? Um, can we use it? That it was amazing to come back to the original idea, unlock this platform for for companies. So I'll give you a couple of different examples. Um, you know, I'm a rooftop solar company. I may knock on your door and say, Hey, I want to install solar storage, and EV charging in your home. They can get the home energy data, the rates and tariffs and give you a proposal that's actually accurate. That shows you cash flows over 20 years. Another example is a battery business that's installing just batteries behind the meter, let's say in a in a commercial building, to know when to push and pull power based on the distribution rate time of use rates. We have an EV company that we'll be announcing soon that is within their app, basically going to tell you what's the cheapest charge and what's the least carbon intensive charge. And you just push a button and we take care of all the calculations behind the scenes. And then carbon accounting, I think most of the... Yeah, talk more about that.

That's interesting that that's becoming a big part of this. I mean, it's not that surprising, but considering we don't have a price on carbon, like I wonder how people are

Yeah, so we're, if you'd asked me two years ago, I wouldn't even known this was going to be a use case. But most of the carbon accounting for the built environment today is sort of made up. It's all estimates. It's a 12 Main Street kind of looks like 50 Main Street. Maybe the weather's the same, we're just gonna say, this is how much energy they used. And the thing is, we're sitting on the actual energy usage from the meter, 24-7, 365. And you just take that data set that we pipe in and you map it to carbon and you have an accurate auditable view of and that word, like, you know, might be the most important because we keep hearing from CFOs.

It's not maybe like, uh-huh. Yeah. Auditable.

Like, you know, there's a lot of people running around, you know, saying, you know, all this stuff is mushy, etc. And it's like, all right, here's the data to make it work. And so, yeah, I think I think our platform should become sort of the standard for the built environment, you know, you know, you should not be able to do carbon accounting unless you have that raw utility data, primary source data. And it should, you know, we, we're simply the data provider. So we, you know, we provide data to companies like Salesforce's net zero cloud, we're working with Persephone, watershed, all the major sort of full ESG providers, we're just the data input so they can produce produce accurate reports.

In a post IRA world, do you expect that that carbon accounting part of your business and potentially a post SEC regulations around reporting? Do you expect that that part of your business will leapfrog even maybe some of the other, you know, renewable energy parts of the business?

I mean, it's the fastest growing part of the business today. It cuts across every major enterprise, public and I think eventually private, too, who need to report to investors and boards. it will become, yeah, if it becomes standard, you know, it will become wildly important. And we also have, you know, one of the things is we're seeing companies in Europe, right, pull up gas data, back during the crisis, where they were anticipating the crisis in Europe, you know, to be able to understand how we transition. So that the data being used for carbon accounting, I don't Despite whatever the SEC might do, it's sort of a runaway train. I think every enterprise, every investor, every board is thinking about it anyway.

Right. Even private companies, I'm hearing more and more and more solutions being aimed at private companies because they're realizing they've got somebody that they want to partner with or some potential customer who's like, you have to have this.

Yeah. Yeah. I think it's become necessary. And we're hearing from investors, mostly for larger businesses, like if you're not... If this isn't auditable, if there's no assurance to it, then we're not going to consider it real. And so yeah, huge opportunity, not just for us, but frankly, to make sure that all this stuff is not just greenwashing. Right. This is not just, hey, a made up estimate. We're going to move on now, which I think a lot of it was the last few years.

I wonder too, like this is a little bit of an aside, but Not really, like we know that one of the most impactful and boring solutions is just sheer efficiency, right? Less usage, which is such an easy sell in so many ways, because it saves people money, it saves businesses money to use less energy to be more efficient. And yet without that raw data, like it's, you know, that's the shock you need to go like, wait a second, I used how many I use what, and I paid What? And like, I wonder to what extent you're able to or interested in, or do you outsource, like, do you bundle it with insights that just say, Hey, if you were actually more efficient, you'd save this much money in these many, you know, tons.

One of my, uh, one of my favorite customers, a company called butterfly that goes to franchises think like subway. And basically said, you know, uses our platform to pipe in data, understand how they used energy and benchmark it against weather. And then they go to them and say, Hey, I'll fix your bill. Let's say 500 bucks a month, or I'll give you a 10% discount if you let me do X, Y, Z for free. And you know, people are like, uh, sure. Savings. Great. And no problem. Yeah, and like energy efficiency, you know, then it becomes a monetizable asset because you have data that shows how this place was using energy before we did the measure, how it's using energy after, I can go get financing to go, you know, install those lights or the switches or whatever that made the place more efficient. So, no, I agree with you. And I think efficiency, because I also came from that world, that was part of my last company, I think it always struggled from data. Like you could do things and people would always say, well, maybe that would have happened anyway. Right.

Or like, I feel good about it, but I don't know if it mattered.

Yeah. And to be able to actually say, yeah, you lowered your demand charge, you lowered your overall energy usage, and here's the data to back it up, that makes it monetizable. And I think that's a huge... We're seeing a number of companies use our platform effectively to do that. I think you're hearing a lot of businesses, too, Um, you know, try to create new credits, new financing. Basically, if this building used energy during less carbon intensive times, and I can prove it, that should generate a credit that someone else is willing to pay for. So I think there's all sorts of new models that come out of just like having data that never existed before.

It's so interesting. I love it. Um, talk about the journey. So you have been at this a while, you said about eight years. in, you have a hostile industry, incumbent industry, you have a hard story to tell, right? You're coming, you're either starting or coming right out of the kind of cleantech 1.0 bust, I would assume. And it's just complicated. Like what was the, now you're sitting here, you've got this great valuation, you've raised a lot of money. You're the you're the like the one I think a lot of software developers in this space aspire to. But tell us how you got here.

Yeah, I mean, I've, since I since college have been really focused on energy, right? This is me, you even said it's like, And I'm still learning about energy markets. Like it's such a deep and complex space. I think the conviction early on was just around there is literally, we will not see the pace of innovation or deployment if this data did not exist, right? If this data was not available. And nothing has changed. And you're right. Fundraising in the early days was super hard. I see people raising at 15, 20 cap seeds even now. I think our first round was at 3.

I shook my tiny fist at God. Yeah.

So I've seen it. I just think it's... To me, I still think we're running our own race. We're... we have this breadth now to this 10,000 utilities worldwide. There's no reason to go anywhere else, you can pick up a single API and get all this data. You know, there's been it's highly regulated, even community solar, right? Tons of fits and starts to that business is a stink and open up, how's it going to be structured. But I fundamentally believe you know, this is the biggest software opportunity and energy is unlocking the incumbent. And I think you could, you know, some people could argue that that was true in fintech with, you know, over time, we'll see around payments and, and, you know, connecting to payments networks or connecting to incumbents with plaid. Like, it just feels like we cannot actually decarbonize fast enough unless someone solves this. And so put aside all the fundraising and the painful regulatory bumps, it's just... That's a conviction I think everyone at this company has. It's like, unless the core infrastructure data becomes available, we're just not gonna... We're not gonna be able to decarbonize fast enough.

And then finally, just talk about that software opportunity, because I've been trying to evangelize. I think this, I talked to, you know, like a young person who was like, yeah, my friend wants to start a climate company, but like, they don't know anything about carbon capture or hydrogen. And I was like, dude, if you want to start an investable super impactful climate company, like there are a million software solutions out there that need to be built, like just help us get this message out that this is that you can't I mean, this is the world we live in, right? Like you cannot accomplish anything without software. Otherwise, you just have like dead assets and hardware.

Yeah, totally. I look, I think there's, um, There's, there's so many different parts of the value chain that, uh, like, look what we're doing. Like I said, the alternative is manual or estimates or, you know, and it's, it's software sort of makes that job easier. I think, you know, data, obviously gives it trust.

Like it's not even just a manageable, right? Like it's like you said, it's greenwashing software is what makes it actually reliable.

Totally. There's huge opportunities still in aggregation of assets, and you see a bunch of companies in the space. And I still think there's there's a ton of opportunities to aggregate different assets. In fact, the other day I saw a company that hasn't launched yet, but is looking to aggregate water heaters as assets in power markets. Like there's there's still so many opportunities there. There's tons of I love that stuff.

Describe go back and I love that stuff. Describe how that would work. Like how each water heater is actually a little battery, right? Like a little little energy storage.

We're gonna get nerdy again. So let's do it. every water heater is a thermal battery in your basement. You don't need 100% of the hot water that's in that tank, unless your family's showering, right. And so if you put a little controller on it, tell it to only heat 50% of the water, because you know, you understand behavior in the home, you can get paid in power markets for managing all of that electricity. It actually a thing called frequency markets, which is like the quick on off frequency regulation. So there's all sorts of like opportunities, and you need software to manage, let's say 10,000 of those devices, the data to aggregate it. Now, I think another really big opportunity is just making workflow simpler and easier. If you're a commercial solar developer, you're dealing with a lot of paperwork, a lot of back and forth with banks and lawyers and accountants. And there's like so much opportunity to just make that process simpler. And that's like an easy software problem. I think it's been solved. You know, across other industries. So there's a ton of stuff out there. Yeah, it doesn't all have to be new chemistry and really hard climate stuff.

And it can be wonky financial tools. I promise I'm not going to dig us.

Yeah, I mean... That's the stuff. And the IRA. So I have this fundamental belief that I also... Every new industry is born out of some regulatory arbitrage. And that can even be true. That's true about social media platforms. And the fact that... It's at the Supreme Court right now. They're talking about, is a social media platform a publisher? And the IRA just unlocked massive new problems to solve, whether it's tax equity, making that simpler. So I would encourage... If there are founders listening to this, go deep in the IRA. Go find your hole to plug.

I love that. Yeah. All right. Kieran Batraju is the CEO and co-founder of Arcadia. Thank you so much for the time and the geeking out. I love it. You got to understand, like, you know, the money is made in the markets that no one else understands. I think the crypto bros showed us that. So like now do that in energy.

Yeah, except our stuff is real. Thank you, Molly.

You should just know that going in. Then we're going to talk about the IPO window, maybe opening back up again in 2023 after a pretty more abundant 22. Instacart and SoftBank owned Arm are both gearing up to go public. We're gonna do a little compare and contrast and break down those two businesses.

I don't know what time it is. But I'm a little jet lagged. I got back from Japan, great trip. And I saw this new story and get to talk to Molly about it. So I thought we should talk about this FT story about Sequoia leaving citizens board after electing to not participate in a pay to play around. So we'll talk all about the dynamics and we'll speculate for 20 minutes or so on what the heck is going on there.

What's the difference? Rolling on PJs while you fire the little guy is always going to get you it's always going to get you some anonymous quotes in some sort of newspaper somewhere.

Yeah, and very interesting to see Instacart and their numbers, which were leaked, perhaps, but they seem to be doing good. They seem to have right in the ship as it were. And then Dapper Labs has a duo of stories. We're going to catch up on the action by the Southern District of New York, a very serious office that doesn't take actions lightly, and they tend to take things to the mat. And so they are in a lawsuit with Dapper Labs over the selling of NFTs. And then another story in the block describes some anonymous current and former employees who are not happy with the CEO over spending lavish spending, maybe we're marketing expenses.

It's gonna be a great show. Stick with us. This week in startups is brought to you by Squarespace. Turn your idea into a new website, go to squarespace.com slash twist for a free trial. When you're ready to launch use offer code twist to save 10% off your first purchase of a website or domain. Contra is a commission free marketplace for freelancers and independent creators. Get $500 off your first hire at Contra.com slash twist and Ravello looking to affordably scale your product development with global tech talent in US time zones. Hire vetted remote developers in Latin America with Ravello. Get 20% off for the first three months at Ravello.com slash twist.

Yeah, find out.

Back. Are you sure it's a Monday? Do you know what day it is?

Welcome back, everybody. It's it's a Monday.

Or did I feel like it would make it better in a way where then that night, you would just sleep and you just sort of wipe out the existence of the previous time zone? No, you know, it's just as a mental game.

Well, I left Tokyo at 5pm and I got back at 9am and I slept two hours on the plane. Then I slept like three hours when I got home and then I stayed up all night and I don't know what time it is right now that we're taping but I'm hoping that this jet lag is easier coming this way when I when I went to Japan. I got there at 10pm which was 5am our time and then I went cat skiing the next day. I did the most challenging skiing physical activity I've done in 20 years. So that was dumb, but did it make it worse?

That's awesome. I think they're having that kind of skiing. in Tahoe right now, too. He might as well just paradoxically, I left helicopter up there and like, do it all over again.

If I had thought this through a little bit more, I would have added a day or two of rest, and onsens and just chilling for the first two days I got there not immediately tried to do to ski the abandoned ski resort while driving up to the top and cat skiing. It was it was it was crazy. I did something that was incredibly challenging.

I think so too. Yeah. I think we're like, we're, I think we're like there, I mean, before this last, because there was another storm that just came in on Saturday, I think we were at like slightly dry for most of this, like, I think we might have kicked the drought kind of situation. Yeah, we did. Yeah.

I literally left and I let a family use the house because it was their ski week. And they're like, Oh, yeah, it's a record ski record snow in Tahoe. And I was like, Oh, wow. So I leave to go find the powder and it dumps powder, like in record amounts. But we have, thank God California has the most I think this is the record or second snowpack tap in the history of recording.

They don't capture it anymore. And it's, like, going to happen when all this snow melts. It's going to run off. And then, meanwhile, the Colorado River is still legit empty. Like, we literally need all this water anyway.

The drought seems to be like, yeah, it goes for like six, seven, eight years out here, it's horrific, and then we have these incredible monsoons, and then it overflows, and we don't capture any of it. I was just thinking that California has a very laissez-faire attitude towards water. that we could do a better job in. All of the water just runs off into the ocean here.

Anyway, something to think about.

Wouldn't it, though?

Wouldn't it? Just an idea, a thought. Just throwing that out there. We need it to live.

The problem in California, when I lived in Santa Monica, Southern California, all of the you know, be bone dry for 100 days, then it rains, and all the oil and garbage will have built up in the streets, you know, and gone down the sewers, then the water comes and it flushes it all. directly into the ocean. So instead of capturing any of that, the garbage, the water, they're just like, yeah, it doesn't rain here that much. So we just might as well just let it run off into the ocean, like they could capture that and the garbage. So yeah, we'd be better. Yeah, humans can. There was a lot of news when I was gone. And one story stuck out to me because a lot of founders had questions about it. And maybe we could talk about that one as we kick off here.

Yeah, let's do it. So last month, Sequoia left the board of its portfolio company, Citizen, otherwise known as the app that scares the crap out of you because every time you wake up in the morning, you have 10 Citizen notifications and none of them are ever good. Maybe that's just Oakland. Anyway, Sequoia left the board of Citizen after declining to participate in a pay to play round, which there's a lot going on in that sentence, but let's sort of unpack it one by one. Why this matters is that these crammed down rounds have apparently been happening frequently in this new environment and maybe this is a good time for you to start by explaining what a pay-to-play round is and how it happens.

Sure. If you're raising money, you went to an accelerator, your valuation was 2 million, you just see it around your valuation was 8 million, 6 million, whatever. You raise a series A 30 million posts, and then you're a series B at 100 million. Okay, the company then doesn't get proper product market fit. It's spending too much money. It anticipates since hey, those four fundraisings I just described happened easy peasy lemon squeezy in the height of the boom market, you know, founders expect, okay, I'll just do a series B and double the valuation and be great. Maybe I'll even sell some shares to the new investors and buy an apartment. So then you find an environment where people re value the company, they say how much revenue you got and how much you're burning. And it turns out, let's just make a number appear if they had a million dollars in revenue, people are valuing it at 100 times revenue in the last round, the new investors say a million dollars in revenue, okay, 10 times that. worth 10 million to me, the person as well, raise our last round and 100 million and nobody can agree. And then some people might have the ability to block some valuations. Now, citizen, I just made up an example of a composite based on what we've seen that pretty much tracked the last five years of the bubble. they were valued at 447 million. So this could have been, you know, really expensive. And then nobody wants to invest, maybe the company's burning a ton of money. So nobody sees a way to fix this. And then somebody comes along and says, I would invest, you know, if I saw the company, and you laid off all these people, and you got to, you know, 30 people and you had 3 million in revenue and you know, there's a chance for this to get to break even in a year or two and then be profitable. I would do it but I would only do it at this valuation. And now if that valuation was 20 million and the company had raised 50 that the math doesn't work out, right? You have more, basically debt on the books, more capital put in than you do room to invest. So they say, Okay, move all of the existing investors to common, and the board would have to vote on this. And they get 20% of the new company, they lose their preferred shares, they get 20% of the company, there's no longer a preference stack. So they don't get their $50 million at first. And then anybody who wants to can participate in this new round. So to keep any reasonable amount of ownership, you have to put money in. And if you don't put money in, you're going to be washed out. Recapitalize is a way to say this. So the round is paid to play, you pay, or you basically are going to lose a bunch of equity. And it's kind of cutthroat. I think we've had many conversations where people just say, I don't, I really would not want to be the person who suggests the pay to play around, or offers it because it creates a lot of bad feelings. And here we are lots of bad feelings.

This round, in the case of Citizen specifically, which was, which I think you mentioned most recently, valued at $447 million, had an equity conversion rate of 10 to 1, meaning that the shares of those who did not participate in the current funding round would be reduced to a tenth of their previous value. Sure. So you have these bad feelings, and then you have this kind of larger question of the signal that it sent. So in this case, Sequoia refused to participate. Sequoia had led Citizen Series A in 2017. Choose. Elected. Elected. Yeah, I mean. As opposed to refused?

You know, refused is a little bit charged. Right. You know, when you're making, the way an investor should make this is they should value it based on the current market. Yep. And they should elect, they should choose to invest or not based on the best interests of their LPs. So refusing makes it seem like it was an obligation like they had to think they don't have to so I'm guessing the press use that word maybe refused.

They declined to participate. They elected not to. Like, sure. Mike Vernal left the board. OK, big statement. Yep. Refused. The press did use that word per Nick, who is updating our notes in real time. I guess the question. So then one of the people close to Citizen said Sequoia's decision was ruthless. It's very possible that Citizen itself like may have people close to Citizen use the word refuse. and that as its earliest backer, it had abandoned the company in its hour of need. I wonder how much of that is an attempt to counter the signal that gets sent in the case of Sequoia electing not to participate and then leaving the board.

Yeah, so lots of bad feelings all around. And if you are the VC, you do not comment, right? Because there's no upside here. Yeah. It could be. We don't know. if the company was run terribly, the founders did a terrible job. It could be they didn't take anybody's advice, it could be they spent money like, ridiculously, and weren't focused, right. And Sequoia might have looked at and said, You know what, this company is not being run well. It did not manage its finances properly did not have a path to profitability, we can't put bad money after good, we made a good investment in something that was very promising. And then in the execution stage, it wasn't very, they proved to us that they can't build a robust, profitable business. So as an investor, can you imagine coming out and saying that? It's like, you can't come out and say bad things. It's like saying bad things about your ex situation, right? Like, is there any upside in that? Like, people get divorced. And you can look at this like a divorce, like, you really isn't going to go out and bad mouth your ex spouse to other people. It's really not a good idea. So I think that's probably what happened here.

I mean, it seems like a lose lose for citizen, like, it seems like a lose lose for a company that is in need of a fundraise, finds itself in a situation where they are participating in a pay to play round. And then you have a major investor who led one of your rounds, elect not to participate and leave your board. And there's no whether they say anything or not, it's hard for that not to be a signal, right?

That's what typically happened quietly. All right. And usually people say nice things about each other if it does come out. And so let's look at a couple of other logical things here. And I know people know I'm affiliated with Sequoia, they've invested in one of my companies, and I was a Sequoia scout. And so does Sequoia have money?

little bit $80 billion under assets under management. I believe they have about a billion.

Does Sequoia know how to build large, meaningful companies in the world? Right? Have they participated in building companies for the ages and know how to operate these businesses? Yeah, better than anybody, you could argue. So this is a group of people who have a ton of money, a ton of knowledge, and they elected to not participate in this funding round, which was a distress funding. It is the job of the founders, you know, in consultation with the board to not get themselves into this kind of situation, right? Again, not to super blame the founders. But if something doesn't work out, and somebody who has an unlimited amount of capital, and a lot of knowledge and chops in the space elects to not participate, it signals to me that maybe the company was not being operated at peak operational excellence. Let's you know, just to be kind. That's my that's what my gut tells me. And, you know, they still have a small ownership percentage, but somebody leaked this because they were hurt. Right. Definitely.

Sequoia would never leak it. I can't imagine why they would. Yeah, exactly. What's the upside, right? It would be right. What's the upside?

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When you look at this dispassionately from just the kind of external reading, Sequoia does not appear to be the bad guy here. right? Like Sequoia appears to be a firm that made a decision in the best interest of itself piece.

It's basically how you're supposed to make every decision. You're supposed to look at every decision and say, will this return capital? Now, as an investor, you also want to have a heart. Sure. But you when it comes to writing the check and making the bet, you have to then make a dispassionate trade. Very hard to do in venture capital, because as we see in venture capital, as opposed to me J trading Facebook and being like, I can I'm criticizing Zuckerberg's behavior over here. And I made the trade. It's a public thing. I'm not like, I haven't seen Zuckerberg in person in I don't know, seven, eight years, you know, like, I have no relationship to Zuckerberg. I can make a dispassionate trade. I didn't spend 567 years with the company trying to build it, and then make a dispassionate trade. And know, the press is going to, you know, this is a juicy story that doesn't come out. So there is what they call palace intrigue here, big money intrigue, like, oh, Sequoia, biggest name in venture capital, who this startup is a very polarizing startup, you remember, I think they had put a bounty out at one point, we covered that story.

I think I interviewed the founder on marketplace back in the day, and about this idea of like, incenting people to run to crime scenes. And I mean, it's been, it's been pretty controversial. It also makes me wonder about the firms that force the pay-to-play scheme. Yeah. Is that also a smart business? What should we tell founders about how there's probably going to be more rescues like that headed their way in a tough funding environment?

we, without going into specifics, we did one of these during this down market, there was an asset still had a lot of value was damaged. Founders wanted to try to keep it alive. And, you know, it was a very modest ask. And it was literally like investing in a friends and family around see around to put in a very small amount of money for a larger amount of capital in a business that was valued at 10 times what we invested in that. And I thought, Hmm, should I do this or not? And I had, I thought about loyalty to the founders, etc. And then I thought about our LPS. And I balanced it, you know, okay, I trust these founders. I got some, you know, experience with them. And I think it's a good trade. Now, anybody who doesn't participate in it is going to get crammed down, but they would have had a zero otherwise. And so when the person who's doing the cram down round says, Hey, I'm putting the offer out here, I realized this price is not what anybody else paid for it. Therefore, you can come in alongside me, you can pay to play. So I'm not excluding you from this. That's why the the play part is put in there. This way, it's back on the original investors, you're choosing not to invest. got this new valuation, you had the chance. So this you bought shares at $1. Now they're worth 10 cents, you like them at $1, but you will participate in 10 cents. Okay, you made your choice. And I choose to buy them at 10 cents. It's just that when it's a private company, there's a lot of feels a lot of feelings. This also is a this might have also been now that you bring up the, you know, the discussion on marketplace with like, how people were a little uneasy with the startup. This might have just been a convenient time to disengage from a startup that was just a little too spicy. Maybe right? Like, yeah. I maybe Sequoia didn't or other investors didn't like this idea of the bounties or the sending people to crime scenes and just said, you know what, we invested in this because we thought it was an interesting concept originally, but, you know, it didn't pan out. And they're doing things that are a little too aggro for us to be associated with when the founder Andrew frame was also on twist episode 1117.

He mentioned they were going to try to build some kind of quote vigilante protection service, where people in high crime areas could pay a monthly fee to essentially have a security guard escort them from place to place.

I mean, Uber for security guards is a brilliant idea. That exists to a certain extent. Actually, I'm in. Now, if you said, hey, wouldn't it be great if during a high crime time, you could click a button, or if you were an individual who's a public person and needed security on demand, you click a button and for 40 bucks an hour, have somebody sit outside your house for a night like that sounds like a Batman as a service we have.

I mean, my neighborhood has like a lot of neighborhoods that have some kind of an HOA. have private security. That's like becoming more and more common where you just sort of pool your money and you pay for somebody to patrol.

It is a huge deterrent uncommon. Yeah. I'm putting cameras up. We had the the license plate reading company that small towns are doing license plate reading companies. So it reads all license plates that come into your area, a little bit of privacy concern there. But you know, it dumps the data every 30 days or something. And you know, hey, this license plate hasn't been in the neighborhood before. Okay, yeah, it's a delivery truck. Who cares? It's an Uber. Oh, you know, it's a unmarked van that's beaten up and it's sitting on the side of the road somewhere idling. Okay. could be a reason. But we should send somebody out there to check it out. Yeah, somebody's living in their van. Okay, good to know. Oh, somebody is, you know, lost. Great. broken down car, you know, whatever it is. So, yeah, they seem like spicy founders.

I'll be honest. Oh, 100% spicy founders. I wonder the extent to which we're gonna start to see. I mean, spicy founders have had it a perfectly good run, right for a long time. Like spicy founders isn't always a problem. In fact, often it is considered a feature, not a bug. But I wonder the extent to which we're going to start to see, you know, for various reasons that range from spicy pounders to simply just hiring the pirate fire. Here's the thing about being a pirate, you better is it gonna get more successful. But just on the point of pirates, because otherwise you get killed by the other pirates. Exactly. If you want to be a pirate,

you got to be successful at that job. And so, you know, citizen successful, I don't know that they made a they ever found a business model that worked. I think they were trying to figure it out. And it's a free product.

And they got to vigilante as a service, like, you know, sounds like they didn't find they have a subscription, they have like a premium product that they always try to get me to sign up for whenever I open it would be worth it. I don't know. But generally, as we like get deeper into this downturn, I do wonder about this, like quantitative versus qualitative, and having to set the feelings aside and be a little more ruthless. which is part of the industry and always has been like it's finance at the end of the day, finance with relationships. But because there are so many founders who had a really easy time raising, who have not seen a downturn, and we're talking about funds, not just Sequoia, but funds that feel like they have unlimited capital. Like, I do wonder if we're going to see more publicly hurt feelings like this has been a business conducted in private for a long time, but you wonder how much of it's going to come out as, as these firms start to make harder and harder decisions.

Yeah, it tends to come out, you have dribs and drabs of stuff, you know, the, there's an incentive to be magnanimous. in these situations, if you're the investor, you never want to say something bad about a founder, because that other founders like, Oh, well, if it doesn't work out, you're gonna say something bad about me, or vice versa. So for these founders, if they did leak this, I don't know that they did, but kind of feels like it would be a leak from that side. Or it could be a an angel investor who is aware of this talk to the founders and leaked it on their behalf. anything's possible here. So I don't want to speculate more than speculating every possible more than we already have 20 minutes every time. But I'm speculating for the help of the founders listening, like, yeah, if it doesn't work out, you can just quietly, you know, have your opinion about the other person. If somebody asks you, hey, should I have them as an investor, you can say it didn't work out for me. But you might have a different experience or say nothing. And that that really is, I think how Silicon Valley works. I you don't hear people bad mouthing people, it's very subtle here. And you want to keep optionality. What if the citizen founders, one of the citizen founders, their next business is Uber or Airbnb. Hey, you know, so you want to keep good relations and vice versa. But if they come up with a great idea, that's a guy who's going to back them again. Keep keep everything friendly. enemies accumulate as these companies go out of business. You got to just try to be kind to everybody on the way out. It's hard enough. You know, you get these stories once in a while the press loves these stories. I'm not saying they shouldn't cover me there. But the press loves these stories. These are you know, they don't happen often. And, but I wouldn't read too much into it. Like, you have to make the right trade as an investor for your LPS. And remember, they had FTX member square invested in FTX. And they had written that blog post that was effusive about how great Sam Bankman Freed was. VCs are on high alert right now. Oh, God, if you backed their nose, if you backed FTX, you're on high alert. And And you can't have those kind of things back to back. So maybe they saw like, oh, this could have had this could have other issues. Like, what if they do vigilante as a service, and somebody gets killed, and then Sequoia back vigilante as a service, they may have been trying to unwind this for a while, they may have been asking the founder, hey, please don't do crazy things. Like vigilante as a service, we, you know, it blows back on us kind of situation. Yeah.

So, so much to speculate about. So much.

But you know, far be it from us to speculate.

Far be it from us to speculate. For 25 minutes. No, for 25 minutes.

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We are going to potentially get the opportunity to speculate in public about publicly traded companies that we've had many questions about, because it looks like the IPO window might be opening back up. Here we go. After a quiet 2022, Instacart and the really dishy one, SoftBank owned Arm, are both reportedly gearing up to go public this year. That's a big deal. There were basically IPOs in 2022. There were 181, which was down 82.5% from 2021, when there were over 1000 IPOs, that was an all time high. But it looks like at least so far, of course, you know, Stripe remains the outstanding question. But so far, it looks like we're going to see two major IPOs in Instacart and Arm. So we can break them both down here.

Yeah, I mean, Instacart took that huge valuation cut, if you remember. Yeah, we talked about that on the show 75% 75%. And then they've been talking, I guess about their results publicly, they had a leak, always.

But it's the kind of leak that makes you think they're talking about it publicly as they like raise attention for their IPO, you know, That does happen. Especially since it's good news and not bad news in the case of Instagram. Yeah.

Good News League is like, hey, hey, Valleywag, you're never going to believe it. Our revenue is up 50%.

What has happened that Wall Street Journal is a new Valleywag? Bless. Yeah. Yeah, they did leak that or somebody leaked, sorry, that in Q4 2022, far be it from us to speculate, but someone leaked. Revenue was up more than.

Not insta CFO at AOL.com.

Oh, no, I accidentally said. Well, nice revenue was up more than 50%. Even though order volume only grew 16% because Instacart turned on advertising in the app. Boom, instant money machine. We have seen this happen with a bunch of consumer tech businesses, Amazon, Uber, and now Instacart. Yes, reportedly gross profit was up more than 80%. And for the full year 2022, Instacart revenue increased 39% to $2.5 billion. So at a $10 billion valuation, which is what they cut the internal valuation to back in 2022, Instacart would only be trading at Forex 2022 revenue.

Okay, great. Seems reasonable. Yeah, there were a lot of headwinds against this business, lots of competitors. Amazon, Uber is doing delivery of groceries now. I think DoorDash is doing delivery of groceries now too. And so, those services work really well. They have large networks of buyers. I have to say, and I'm not just saying this because I'm Team Uber still, but I've been using the Uber grocery product, and it's faster. And we have Instacart too. And we were Instacart and Good Eggs only. And now Uber's taken a decent chunk of that because it's just so much faster.

This kind of feels like, I remember saying this when GoPro was about to go public, that like, you better just go ahead and do that now. Like now's your shot. Go public, raise that money and then, you know, chunk along. But I don't know that there's going to, for all of the reasons you just mentioned, I don't know that there's going to be a better window for Instacart than there is now because it is hard to pinpoint the differentiator. Like they've got, I like that Instacart has a lot of stores, a lot, and it's easy to choose from them. I don't find the shopping to be particularly high quality. That's probably regional. Right? It depends on where you are.

The issue really with these services is, you know, unlike Amazon, where I've never gotten a mistake. Yeah. Every Instacart order has three mistakes or two mistakes. And you're just like, I'm going to deal with it.

It's like a meme. It is like sort of a joke, like, Oh, what'd I get from Instacart? Nine pounds of sugar. Whoops.

You know, or it's, you know, it's, and for me, it's just something subtle. Like I like a certain type of Greek yogurt and they substituted the brand. I absolutely hate, you know, and I'm just like, right. you know, now I got to eat the yogurt, you know, you start getting your first world vibe on where you're just outraged that like, the Greek yogurt that you love is now you're getting the one that's not as thick as the, and everything that they've done, I mean, ironically, everything they've done to try to mitigate the mistakes just as work.

So like, you have to go in and you have to select which things to substitute with, which not. And then you have to communicate constantly, like, I will, oh my god, when that shopper is, oh my god, they call, they text, they're like, it's like going shopping with a teenager, it's now going to take three times as long.

What about this? I just, what about this? Exactly. I just check to not no subs. No substitutions. That's it. Yeah. And it makes everything super easy.

And then when you're going through that experience, and you're mad about it, then you feel like such a first word a world a hole. Yes, that I just then have just started to go to the store. I'm like, you know what, I'm just gonna go to the store. And that's bad for Instacart. Like they don't they want me to sit there and have a first world experience.

But I don't there is something nice about going to the store and perusing the aisles and seeing what's there. Sometimes I had that experience, you know, when I go up to Lake Tahoe, And I'm in the mountains, there's no Instacart. And it's quite nice for me for a change of pace to do my own shopping, as opposed to, you know, having it delivered to my doorstep. But I do think this advertising business is a very interesting wrinkle. If you think about hitting scale with these businesses, and then you are Frito Lay, or you are Budweiser, or Eggo Waffles, something, you know, then you, they always give you that, oh, do you want to add this to your order? And it's like, do I want to add eggo waffles? Of course I do. Like, he doesn't like those. Oh, it works like a charm. So are you going to advertise on television, and then hope that your eggo waffle or your frosted flake commercial your Budweiser commercial incensed me to actually buy that product? Or would you like to have the Google search version of that product, which is, hey, when somebody's at the checkout counter, would you like somebody to say eggo waffles and dangle them above your cart? Right? Like, that's literally what they're doing away from me.

I know.

to like, and if it's dangling above the last bag, here's your eggos, just say it, say the word, click.

Well, it's just like an end cap. I mean, it's, you know, it's, it's like having the promotional part of the grocery store. And I always buy those stupid cake cookies with the pink frosting that are disgusting. Like, this is brilliant. In terms of integrating advertising, there's almost no better way to put advertising to turn it on than in a place where people are already shopping and are just like, oh, okay, sure, fine. I mean, I'll go through those stupid, it's like, Instacart, it's like three screens.

And I'm just like, yeah, I want one of those and some of that and give me this and... They get me on Uber Eats, like when I'm ordering food, they're like, hey, side of guacamole or, you know, do you want flan? And I'm like, yeah, I want flan. I'm not supposed to eat it, but I do want it. And like, this is, I think... Smart revenue. it, it's what brand CPG advertisers have always coveted, you know, the checkout, and they've never had access to it. And because you can't fit that much in the candy bars at the checkout, right? You can't put a bunch of products there. They have like, magazines and candy.

So it is funny now that you mentioned it, like, I'm picturing in the store aisles, those, those last aisles that are and they are crammed with stuff. I mean, it's like, there's the magazines and then there's candy and then there's like a row of chiclets and then this and that. I mean, you can almost feel the desperation of the bidding on the checkout aisle. And now it's like digital checkout aisle where it's just like recommendation, recommendation, recommendation. I mean, it's really actually, you could imagine that becoming a huge part of it. You could imagine that, imagine that, especially in a competitive environment. being the thing that keeps you afloat. It might be the business. And maybe it becomes the business.

Maybe it actually is the business. Maybe Amazon's business ultimately is people buying ads and breaking even on the delivery of it. Yeah. It might even, that might actually be the business. Like we don't really need to make money off of your order. We break even on it. But we have this advertising moment at the end that just is so coveted. We make money off that. Finding great engineers is time consuming. It's expensive. Let's face it, it's a pain in the neck. If you're looking for qualified international developers, without those crazy time differences, Ravello is the answer. Ravello is a talent platform that matches you with vetted full time remote developers in Latin America, which is to say, they work in the U.S. time zone, right? This means your engineers, your product managers, your designers, your executives, they can collaborate in real time with your devs. Plus, it's so much more cost effective than hiring in the U.S. and you're going to get matched with vetted candidates within three days. Revello handles all the annoying stuff. Payroll, taxes, benefits, all that mashugana, they take care of it. This means you can hire internationally without the headache. Revello's engineers are full-time, and embedded in your team like normal employees. They're proficient in AWS, Rust, Ruby, React, Python, Node.js, all that good stuff. And Revelo's customers include GitHub, Foursquare, Carta, Indiegogo, and Kickstarter, among many others. So here is your call to action. I want you to go to revelo.com slash twist and mention twist to get 20% off your first three months. Plus, they offer 100% risk free 14 day trial period. If you're not satisfied, you pay nothing nada zero zilch. That's ravelo.com slash twist r e v e l o.com slash twist. Mention twist to get that 20% off. So arm. This is, I believe. So SoftBank bought arm, right?

SoftBank bought arm when it was public. Right. So arm is a fascinating company. It is a chip. It's British, and it's a chip design company, meaning that it doesn't actually manufacture its own chips. It's actually quite clever. It's like the lowest, you know, capital intensive way to do this. They create this chip architecture and license it, license its chip blueprint technology, basically. And then they take a royalty on products that are sold using that technology. So once you build the chip using arms blueprint, charge you for the blueprint, and then they charge you a royalty fee every time you build and sell one of those chips. And so, in 2021, Arm reportedly generated $2.7 billion in revenue. The licensing and the royalty revenue were somewhat close to even. The licensing revenue has been growing a lot faster. But Arm was founded in 1990 as a joint venture between Apple, Acorn Computers, and VLSI Technology. In 1998, it went public on the NASDAQ and London Stock Exchange, but then in 2016, it was bought by SoftBank for $32 billion with, and this was reported in 2020, the intent always to sell it to somebody like NVIDIA. So in 2020, NVIDIA reached a deal to buy ARM from SoftBank for $40 billion in stock and cash and SoftBank would get a 10% stake in NVIDIA. I mean, this would have been a blockbuster, like just an absolutely absurd deal. NVIDIA becomes basically the king of the world. However, in February 2022, after more than a year of regulatory scrutiny, the acquisition was canceled. And NVIDIA kind of had to go back to the drawing board in some ways, but they remained pretty strong. And then SoftBank is looking to take arm public. Everybody was like, oh, God, SoftBank really ate it on that deal.

I always knew arm because when you when I was back in my PC era back in the day, you had a choice to buy an Intel PC or an arm PC, the arm ones were cheaper and more powerful, way more bang for the buck, it seemed and then Intel did like, ooh, the Intel design, you know, Intel inside campaign, the jingle, and really said, Hey, you know, we were the better ones, but it was kind of like a coke and a Pepsi kind of thing. Or maybe RC Cola and Coke might be a better analogy. But They also do all of the smaller chips for wearables and smartphones and that kind of stuff. So I think that was their big innovation as well.

That's why they were kind of an Intel killer. Because you recall, Intel has been is still like arm eight Intel's lunch by building mobile chip designs. And Intel never really cracked the mobile market, I think still. has not cracked the mobile market, which has been a big question for them. So then the theory was that if NVIDIA had acquired ARM, and this, I think, was sort of SoftBank's plan all along in acquiring it and taking it private, NVIDIA would then control the market for GPUs, which, of course, are the key to AI processing. They've become really big for autonomous driving development, huge for crypto mining.

And then they also would have had access to all of this sort of mobile chip development, just stepping back from arm, and, you know, wish them a great IPO. Congratulations. And I hope masa makes a bundle of money and gets back in the game. I know he's got to be clear, we're expecting papers and like April ish, I have to say, I have stepping back. I am very impressed at how fast the chips act went through. have been given that a lot of thought. Have we ever seen a bipartisan bill like this, to subsidize businesses go through this quickly? I mean, the great financial crisis and that that would be one where they did the bailout of all the banks or whatever, right?

But this is not an incentive.

Yeah, yeah. So it's kind of different, right? That was acute. It wasn't like, So then you see this chips and science act. And we started hearing about this, like a couple years ago in 2021, maybe it starts bubbling up. And then it's like, boom, it's in effect. And boom, everybody's building factories. And like these incentives are going, it's big, right? 52 billion or something. It's like this giant thing, and roughly 280 billion to boost domestic research, according to Wikipedia. And I was wondering why, why is this going? Why is this train going so fast? You know, oh, China. Yeah, exactly. And why exactly are they so concerned about chips in China? And then all of this stuff with the lab theory comes out. And I was like, ah, they really think I think what was happening is people really think the relationship with China over this lab league thing was going to come out and be like, really hairy, and gnarly. And this Taiwan situation, and all of this craziness going on, we didn't want to be caught short with not having chips. Is it too tinfoil hat? I'm admitting it's a tinfoil hat kind of moment. I know.