E769: #TWiSTLive@WSGR: Balaji Srinivasan (21.co, a16z): crypto tokens, ICOs, longevity, future tech

E769: #[email protected]: Balaji Srinivasan (21.co, a16z): crypto tokens, ICOs, longevity, future tech

this week in startups is brought to you by tracker life is too short to spend looking for your wallet and keys save that precious time and get tracker go to the tracker comm enter promo code twist to get 20% off any order and NetSuite from Oracle the last business system you'll ever need to get your free guide how to overcome the five obstacles to successful growth go to NetSuite comm slash twist hey everybody hey everybody welcome to another episode of this week in startups we're live at Wilson Sonsini wsg are a great law firm here in San Francisco and around the country they're my attorneys in fact you know do a wonderful job for us we have an amazing show for you today Balaji I got that part right yep Srinivasan Srinivasan Balaji Srinivasan I got it right is on the program let's give him a warm welcome now you and I know each other from the Twitter yep and also you have a site called 21 dot Co 21 Co which at some point somebody asked me to join and then some people started offering me money for answering questions so I answered a bunch of questions and I click donate it to black girls who code or I'm not sure one of the four very worthy charities there and then I just logged into it today and it's it's now worth five hundred dollars it's a pretty good donation for asking whatever four or five questions tell everybody what 21 Co is and why did you build it yeah sure so so basically what does 21 it's the simplest is you get paid to respond to emails and if anyone here is use LinkedIn there's an in mail feature where people can pay LinkedIn to be in your inbox but you don't get paid and senders also want to send mass messages they can't do that they want to send surveys and stuff like that they can't do that so they can actually pay you for your time and that might seem like a small thing but LinkedIn in mail even is kind of you know lacking as a product maybe in some respects is a five hundred million a year business for LinkedIn there's a huge market for just getting in touch with people cold and if you think about what's happened with email or the last you know maybe 10 years all personal email has sort of being pulled out because you know Facebook and texting and so on and snapchat and all intra-company email has been pulled out with slack right so the only thing that's left is really business-to-business email which is commercial traffic and commercial traffic you probably want to put a price on that and so now with digital currency you actually can and in fact digital currency one of the biggest things that led to it was hash cash which was putting a price on email so that's a quick version and so you were also a venture capitalist for a couple years at Andreessen Horowitz asila and part time see a part time now what did you invest in when you were at injury sin Horowitz and what's it like to work for Marc Andreessen well what I invest in so let me take the first part first so I you know invest in all the stuff which was the crazy stuff pushing the future but especially genomics digital currency and you know like reinventing government that type of stuff and you know there's folks there who are very you know excited about SAS businesses and the next Dropbox and so on and you know that that's also interesting stuff I'd source those deals but the kind of stuff that really got me excited was stuff that was hard technology and especially stuff in regulated industries which which company has objectively done the best of your investments which one would you say has been marked up and become the big win in your portfolio soylent yeah and of course we couldn't aetherium all right hold on a second Soylent is the biggest winner in your it's doing amazing yeah to me why this is doing so well because it I've had I've had it and it's absolutely horrific to drink okay I think sure but there are people who are and I have people who work for me who drink this stuff and they drink it exclusively do you drink this exclusively I don't but I like it and we get it for our office so let me ask actually just show hands who here has heard of Soylent okay okay so they're really single person's that's amazing that's amazing number one right right now who here actually you know has bought Soylent that's unbelievable for people who don't see the live audience that was close to fifty percent yeah have have had it so that's my kind of parity people who drink it regularly let's really get to the brass tacks oh it's about five people but here's the thing like you know the awesome thing about like with most businesses right yeah you know your problem is not you know indifference or rather your problem is indifference your problem is that people just don't even care right right everybody hears about Sue Ellen everyone's got opinion on it oh my god they're destroying food yeah right and so they've got an opinion on it and it's polarizing and in general in a market if you can polarize and 20% of people love you and they buy a subscription food subscription right like where they're getting it every single week that's amazing right so they've got I don't give out their numbers let them let them do that let's say they've got a very large group of people who are basically buying subscription food and if you look at the numbers on that when you've got an annual year it's nine figures in revenue is the is the word on the street that this is like it's essentially absolutely destroying it but let me give that let me get the highbrow pitch on it why is it not just slurry why is it not just slimfast or whatever right um basically the idea is okay well you know they went from a powder to are ready to drink and now they've got flavored ready to drink and what's really awesome about what they did is I'm on there are things they flip many of the 20th century modes on their head so for example Coca Cola used to keep the recipe like complete secret is the state secret part of the mystique of coca-cola finally Soylent open source a recipe and there's a website called DIY dot salient up me where you know for example women will supplement with iron and bodybuilders will put in creatine and so on and so forth and the best of those formulations are things that then they're gonna go and do in a first-party way so they kind of engage the community with it from the beginning so it's kind of one thing and the second is that with the soil and thing is a base you can now add kind of additives that will make it for different kinds of groups right yeah so it's this is this really awesome plastic kind of thing that is like nutrition 2.0 and really what it's about is like transhumanism and stuff like that not lots of what does that mean transhumanism what does transform does it mean it means human 2.0 right okay so optimizing to be better human yeah I mean like in a sense of you know what is healthcare right like you know healthcare means you know okay let's add a few years to somebody's life that's how often you'll measure healthcare outcomes right when you go and compare let's say Sweden to Ukraine you'll say okay they've got larger life expectancy but we're just you know we're not really trying to punch through we're just saying okay let's add a year or two right but actually if you look at the you know biology of Aging it looks like a coordinated process right backing into all the details of it it's something where it's not something that happens by accident in the same way that your maturation from a child – an adult is not an accidental process your maturation from an adult into an old person is something which is actually coordinated so if you could stop that you could actually extend life that's the kind of thing that transhumanist think about got it are you one of these transhumanists yeah I'd say so yeah do you want to live forever I'd be ideal yeah sure does it really do you really want to live forever well there's a lot of math to do yeah yeah so for that reason alone well you know well how do you think that I will do you me I'm 37 37 okay do how many years do you think we're gonna add to human life spans on average here in the United States due to technology in the next 3040 years in other words when you hit 70 or 75 and you're supposed to die how many more years you think you're gonna get well so let me answer the question slightly differently so okay um if you know what most people have as a mental model is they think that aging is something where it happens because random accidents happen to you oh I got you know hit by you know this rock and so my arm doesn't work as well and various accidents happened and function degrades and then you finally die right that can't actually be what happens because if so you'd have a so-called hazard rate like distribution and there'd be some humans who'd live for a thousand years because they would never actually encounter those accidents we see that with manufactured objects with cars that don't have any accidents just function for a very long time so it's actually something where there's it looks like there's a sharp cutoff point like actual biological switches a trigger that kill us at around like 120 is like the maximum age and what's interesting is most people don't know this because they don't like follow the literature obsessively but we've been able to extend the lifespan of mice we've been able to do this you know scientists have all this stuff breakthroughs I could show you like a whole slide deck where there's a recent drug where a side effect of it was it made the man look about 15 years younger like it made his hair turn from gray to like brown right and so my answer to your question is there's several different forms of you know molecular issues that cause so-called senescence like aging frankly I think we could probably get to unlimited life now will that be something that you could do for existing humans or would you need to actually do something in the germ line for the next generation I don't know the answer to that I do know that the technology is way more advanced than people think but it's all stuck in the research lab right now so how many years you think we're gonna add like if you had to just ballpark it if we if we were both supposed to die at 75 or what you think we could add 10 years by the time we hit it I think Lenny I think probably yeah I mean like there's stuff that's out there right now I mean this is a whole separate you know conversation but yeah I think you could probably add definitely 10 years that's within like the scope of what I call conventional medical kind of interventions that's within the scope of the life expectancy but so we've seen over the 20 century but the most interesting thing is to think of aging is actually the ultimate disease right right and you know one way of thinking about it is and this is a sentence where you can go and you can attack or analyze each individual clause but if the purpose of technology is to produce scarcity then the ultimate purpose of technology is to reduce or eliminate mortality and let me actually you know kind of break that down right so the first part if the type of purpose of technology is to produce scarcity so how do we market a technology we say it's cheaper we say it's better we say it's faster right and cheaper means okay it costs you less money which means it takes less human life in order to go and buy this thing and so essentially human life is that ruler by which you measure the cost of any new technology right cheaper bastard better faster right and so the purpose of technology is to reduce scarcity but the ultimate form of scarcity is our a limited human life spans if you can increase the human lifespan that is the ultimate wealth-creating thing for everything else downstream okay when we get back from this quick break we'll pivot and then we'll pivot the discussion from living forever to talking about icos and if this whole thing is the future of finance and venture capital or if it's colossal scam like the dot-com bust or if it's both when we get back on this week in startups okay everybody let me tell you about a product I love it's called tracker tra CK our track or without the e tracker is an amazing little product that you can attach to a keyring attached to your phone put in your wallet anything that you lose regularly now you know I Jason Calacanis M on top of everything I do and I never lose anything but once in a while I do and one of the things I'm Moi's misplacing is keys to cars and my wife also happens to suffer from this and we're constantly trying to find who was the last person with the Tesla key well when I got tracker I took all of our Tesla key fobs I took all of the different than minivans key fob and I put trackers on them now when something's wrong I can easily take out an app and Bing beep beep boop find the keys it makes a nice little beep it tells me where it is so when you misplace an item and you have 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basically me and all the injuries in Horowitz Partners get into it a little bit I don't know what it is with me and the injuries and Horowitz partners it's not you and then it's just what Twitter is Twitter is about gang warfare so just you've got you you messed with the wrong gang exactly I always feel like when I'm getting into it like all of a sudden it's like well here's another dreesen Horowitz partner here's another and also I'm arguing with three injuries and Horowitz partners and then mark blocked me then he unblocks me it's very weird so that was the question that you punted on before mark injuries is kind of a weird cat what's it like working for him I love I love mark I love him too but he's a little bit weird right well I'm weird also but basically like I mean I'm kind of a hybrid of Mark and Ben because I listen to as much rap has been but I'm also like a you know fundamentally a tech CTO which kind of guy like like Mark Godin what's it like working for him what's like working for him I mean it's it's one of these when a few people I can talk to you where I can speak as quickly as I can and he can speak as quickly back so we can just like on upload information yeah how do you make decisions on what to invest in and injuries and Horowitz well is it consensus is a contentious equals consensus a lot of different funds have different approaches to this so when you say hey I want to invest in a powdered beverage that'll make you live forever right well what's the conversation like how do you get consensus for something as wacky as that well obviously you have to present your diligence and so on and you know I'm not saying by the way that Soylent will make you look forever I'm saying so Stefan I'm joking I'm very but the investment so general partners can you know invest on their own if they have conviction and in fact not just us but many other firms have found that the best deals are often the most polarizing deals as well as the worst deals right but since VC is very upside driven you can only lose all your money but you can make 10 or 100x so typically polarizing deals are actually it's good that one person can have the Minority Report and say boom I really want to invest in this right with that said there's a lot of discussion prior to somebody pulling out that card and and you know saying okay I want to invest in this so when in dreesen Horowitz came into the space I said hey we're going to disrupt things a little bit we're gonna hire a huge staff and we have a bunch of support services that other VCS don't have yep so if you compare our benchmark which is just whatever six partners no support no you know insurers what's that now a lot of lawyers now had a lawyer so yeah well played and then you have andreessen horowitz with a bunch of services I remember when you guys came into space a lot of the VCS we're talking smack about you we're like you know don't work with you guys etcetera and then you guys were paying really high prices for the series B's and you became known for overpaying or paying a lot tell me about that strategy of maybe investing larger amounts of money than other firms were comfortable with and has that paid off and have other firms followed you or is that something you guys have reconsidered because there were some firms that I think got a little bit ahead of themselves maybe had too much money did you learn something from that as a firm I mean I think it's the only critique I've ever heard yeah I mean I think the firm has done pretty well and you know it's something where early and slack and early and Airbnb and all this other great stuff so ultimately you know the price you pay is market determined didn't judge by your insurance I mean yeah but people have the critique has been that you guys have come over the top and paid very high prices and put in very large abouts money is that critique valid or not and I think it's vodka just sour grapes by the other VC firms who weren't willing to pay the price that you were I mean you know like in international relations here whenever you have like a rising power then like you know the incumbents don't usually like that new rising power and they can manufacture or sometimes you know come with genuine grievances against the interloper but now I think we're really kind of in the club so I mean also that was before I joined the firm so okay well what is your take on the current state of venture with venture capitalists now that you're because you now you're essentially a full-time entrepreneur right I'm just part-time I'm seeing a venture capital so you're back on the other side of the table what's your take on independent of injuries at Horowitz most VC firms saying hey we're going to move down to what most people would have considered the series be in the impact in the day ten years ago which is show us significant traction and we'll give you twenty million dollars for 20% of the company or something in that range as opposed to being the risk-taking hey we're gonna do series say there was a moment in time where somebody I don't know who's you or some partner said hey we really don't do series days anymore and then Mark sort of backtrack those comments a bit but the truth is VCS and rooster hearts and others are taking are moving a little further down stream you would what we'd all agree in doing bigger rounds later with more traction what's your feeling on that trend and maybe the emerging angel class angel lists you know syndicates and taking up the early stage well so I so I actually I mean I think that was like maybe a live issue a couple of years ago but I don't think about that as much because I think that coins and tokens are a structural change the whole industry so that will affect all of what you're talking about because just a gigantic amount of capital has been unlocked and so I think our VC is moving a little bit down yeah because you know you you have angels and super angels and so when people can get financed earlier and they have you know lower capital cost to get to market and so and so yes pcs probably are like somewhat moving up the stack but they certainly still do AAS but I think that the the single biggest thing to ever happen to venture capital is you know the token launch the you know the ICO and and whatnot and I think that over the next five to ten years not without bubbles and reversals and regulatory issues and whatnot but over the next five to ten years it's going to result in a very rapid decentralization of technology outside of Silicon Valley and the reason for that is when the biggest unyuu know kind of you know appreciated drivers of why entrepreneurs come to Silicon Valley is because VCS don't want to get on planes too much and the reason for this is because if you've got ten board seats and you've got a company in Japan and you've got a company in Israel and you've got a company in India and so on you're basically spending your entire life on planes it's exhausting it's exhausting right so because of that on you you know if you're an entrepreneur in Israel or in India or what-have-you you've got essentially two options number one relocate your coming to the bear and then quote build a relationship with the BC or angel or whatever over time right or number two parachute in and try to build a relationship in sort of in an organic way and sometimes that kind of works if you've got a really good company you spend like three weeks on Sand Hill Road you're slacking back and forth with your team but it's a real pain right and an exceptional company can pull it off and sometimes you know VC's do it best abroad but what happens usually is the gravitational well of funding pulls it you in for the a round and then the guy gets on your cap hey offer to be around in the sea round so they can all just kind of drive around right and it's not like a selfish thing it's just like a logistical thing who wants to be on in twelve countries for twelve different board seats but what's gonna change now is everything else already been put in the clout right slacks in the cloud and you've got Google Docs has been there for a while at Google Drive is there all these other tools right and now the last piece is investment and funding is in the cloud and so now that means that folks anywhere in the world who have a good idea or can get set up and anybody in the world has a good idea can actually also buy some tokens even with $10 if you're in the middle of Mongolia right so it's going to massively change the entire industry over the next decade okay let's talk a little bit about what's happened to date I've been looking at these I cos most of them are by unknown founders who have never built a company most of them have built a white paper and in some cases they're raising twenty thirty two hundred million dollars based on a white paper is this wise to give people who've never had a successful company 30 to 200 million dollars in one chunk for writing a white paper yeah so good question so um you know my short answer to that is certainly I would not recommend every or even most or black even 90% of the icos that are out there today but I would also say that in 2014 there was a guy who had never run a company before who took in 18 million dollars in crowdfunding which was one of the highest crowd funds of all time and that was aetherium which has turned out to be probably the best startup investment ever right better than Dropbox better than Airbnb better than uber right better than stripe just in terms of from where it started to where it got to and how liquid it was during that time period is probably the best job investment ever right that was considered a gigantically huge crowdfunding in 2014 like way way way way beyond progress he was just a white paper all that type of stuff they no track record to my knowledge I don't think any VC is bought in as VCS like a lot of us about honest individuals but it wasn't like something that we went and marketed and it killed it right and so because of that I'm loathe to say oh somebody without a track record is bad without white paper is bad now are many of these guys gonna be the next theorem no Muslim will lobby right well they're not being bad but maybe the funding would be better if it was staged or change the tranche or something that it just seems very reminiscent of what we saw in the dot-com bubble where people raised spax or other you know incubator like devices of a hundred or two hundred million without any product yet and a lot of that you know was over funding that eventually resulted in complete and utter cratering of the industry do you see that happening here and what happens if as you said ninety percent of these might be bad if there was 90% go to zero which i think is a likely scenario what happens exactly what would happen because it's just all funny money because people don't know whose money this is do they well yeah so a couple of thoughts on that so first is with even you know the dot-com bubble one of the theses that we have at a 16z which we've talked about publicly is a whole Carlota Perez Gartner hype cycle kind of thesis and so essentially the concept here is that any technology will have like you know this this initial spike of inflated expectations everyone's super excited about it and then it drops off as people realize oh it can't you know do everything in sliced bread right and then that Kohl's and lots of bankruptcies happen consolidation happens and then those survivors who are hardy enough to make it through you get to kind of the the peak over here right and you went through that with Silicon Alley reporter and all this stuff right and you know the fact that you could survive and make it through we actually had a great essay on this you know a few years ago or about like how the second time and the third time you're in that trough you're like let's do this right but well it's kind of exciting right it's kind of you know you expect it yeah and you're like oh there's it's very easy to hire people when everybody is leaving and it's not tourist season like the hotels are cheap and there's no like it's easy to get a reservation and there's no lines at the great you know restaurants that's right and it's also an iterative game where a lot of the folks in industry have been around for a while and they recognize who had the grit to go through the hard times and those are the folks who they're gonna back in the good times right it's not 100% the reputation system Silicon Valley but it works reasonably well I think and so we're right at that peak right now I mean yeah maybe I'm not sure it's hard to call the top on something right this could be like a who knows there could be two more three more years like this right right um with that said I would say the you know the good thing about crypto is it's not this is not the first crypto bubble this probably the fourth right there was the one in 2011 then there's one in early 2013 late 2013 and the late 2013 one that was a real bear or most of folks who are in the space now or most of like I think the better coins and tokens and so on that you're seeing are from you know folks like you know brave and block static and civic and so on who are all players during that you know initial 2013 to 2017 bubble which was pretty brutal is like he went down to 176 dollars in like early 2015 a lot of folks lost their shirts and died so you know the answer is is potentially bubble ish yeah there's definitely publish aspects but a lot of folks industry are survivors of that and very few technologies have been built without published periods okay when we get back from this final break I want you to give advice to people who are in the room who have startups or ideas of if they should do an ICO or if they shouldn't do an ICO in other words who should be considering doing this and who shouldn't and then I personally want to ask you as somebody who's a fund manager and investor in 150 companies should my next fund if I were to create one B token-based or should I just go with classic LPS when we get back on this week in startups hey everybody let's take a minute to thank NetSuite plus Oracle for partnering on this week in startups and let me ask you this how many times have you asked these questions as a business leader why does it take accounting so long to close the books and why can't I get my sales numbers in real time do we beat our revenue goal or did we lose money what the heck is going on are we being audited when you start asking these questions it means that you've outgrown your business management software and QuickBooks and spreadsheets are fine when you're a bootstrap startup and when you're just getting started but you can't have mistakes and delays and you can't not be able to get fast answers when your startup grows up and becomes a big real sustainable business so the number one business management 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Twitter is basically just people with guns roaming around trying to kill each other right Somalia yeah I mean like I'm not see why I feel most at home there right I kind of feel like I would have done well in Somalia if I had I mean Somalia is a great anarcho-capitalist example in many ways but it's also kind of a dangerous you know place to live yeah I'm the captain I like her Wanda much better actually under Kagame he's done a great job but go ahead I just said I'm the captain now oh yeah wait and there was Facebook a Soviet Union Soviet Union right right what do you think of this whole Facebook thing this seems to me to be the craziest thing that's ever happened we're saying well with the Russia thing David they ran Russian ads Zuckerberg said there's no way this could have impacted anything then he did a public Nia Copa and said we're gonna do better but he cashed a hundred thousand dollars in ads for the Russians to put up anti LGBT and anti whatever ads and it's pretty clear that Facebook is very influential as a platform and he's now backtracked how do you think Facebook could impact an election first and to if it did impact the election let's say it's greater if it's greater than a hundred thousand and ad buys and it did impact the election and that can be proven what should happen well I mean you know does television impact the election does radio just the Internet yes facebooking back selection two billion people have it yes it's a big deal right okay so we all agree totally impact the election great yeah I mean despite Zuckerberg saying there's no way it could have impacted the election I mean I think so I didn't look at this I don't parse his specific statement way back tracked it anyway yeah but he said he thought it was ridiculous I think was the quote that an election could be swung I well I think I don't know what his exact quote is and I'd have to go and look at it my understanding is that he was saying that that ad buy was too small to have swung the election before the I buy but you okay fine fine yeah so I think the reason you might say that is a hundred thousand dollars is absolutely nothing to Facebook sure I mean that's I don't know what their revenue is like but that's got to be like per second or per minute or something like that right so what should happen if it did let's just say they used micro-targeting to target African Americans in swing states who came out for Obama and convinced them to not vote for Hillary or influenced him in that way and the money came from the Russians and the data was stolen what should happen what is Facebook's responsibility in your mind well so I've not been following this one very closely I've tried to tune out of all the political stuff actually but basically my understanding is that some of the money actually also went to like Jill Stein and Bernie Sanders ads as well as Trump ads right so it's just like a you know cross spectrum anti-establishment kind of thing and you know what should be done I don't know we're in terra incognita right now right you know I'm not sure there's any like rules against it and certainly frankly the American government does a ton of lobbying overseas for you know when there's elections are happening over there it's not a country around the world that hasn't had the State Department come in and do some stuff right other than maybe China and so so because of that I think we should look at you know yes like is what any law is violated sure that's something to look at but also be conscious of the fact that the US has done a lot of stuff worldwide it's not necessarily always the you know the most symmetric actor do you think Facebook should be regulated in some way um it is regulated already in many ways like FTC keeps finding it and yeah they got a Twitter you're fine an audit yeah yeah right do you think there should be some additional regulation around this type of issue in other words should all political ads be transparent should there the targeting be listed underneath the ad on the top level would to be something that would make you more comfortable with it if it in fact there was some shenanigans going on yeah so I'm simply I'm sympathetic to like the public choice theory of economics which is kind of you know the Nobel Prizes are being awarded for it which essentially states that if the goal is to hamper or constrain a company then regulation actually usually accomplishes the opposite effect which is it actually locks in an incumbent and so many incumbents actually when you get you know let alone the scale of a Facebook but you know a Pfizer or a Roche or what have you they actually unbalanced typically welcomed regulation because what it usually results in our compliance cost for all their competitors and actually it locks in the current status quo right yeah so so if you want to harm or reduce the impact of a large company I think the goal is actually to allow startups and are things to attack it and one of the tools you know just actually returning to the token the for a second we've got a completely new tool with which to break Network effects and to bootstrap two-sided marketplaces which is the token right and the reason is that basically you know one thing people have talked about for a very long time is okay Facebook's of 500 billion you know dollar company what if it could have split half of its equity with its with its users right um that would basically be 250 billion divided by 2 billion users so $125 for every man woman and child and Facebook actually quite a lot of money but in practice you would not do it completely uniformly instead you'd have like a function that kind of dropped off like this where the first ten thousand a hundred thousand and one million users would get more than the one billionth user because they contributed more to the network effect right so with tokenization this is possible and it's actually something where you wouldn't do with equity because equity is you know problematic but with a token you can have folks participate in network value creation on and something that's like this is basically we're doing with 20 code Francesa right if I answer a question I earn some coins and I could spend them on other questions yes but but even more than that so if I can bring up the website for a second yeah so let me see if I do a little demo here and then we'll get well we will answer the question of who I see who shouldn't yes which is a super important one I think because I'm getting asked by all my startups should I do it I see how and I have no idea what to ask him absolutely so so let me just explain at least what we're doing so we're actually doing a token launch without an IC o—- and the way it works is basically as follows so we call this like you know the first token based social network and what exactly does that mean right so rather up to this point with an IC o—- you've got in tokens for capital but we have tokens for labor and every time the user base doubles the amount of tokens that you get for signing up halves there's a strong incentive to be an early adopter and also to invite all your friends because you get a portion 25% of all the tokens that they earn so what's cool about this is basically because it's a bootstrapping mechanism that just strongly incentivizes early adopters so you get you know hundreds of thousands millions of folks you know onto the network and then we know already that if you get too many millions of users you can easily monetize a social network so it's a new way to bootstrap networks it's not an IC o—- but if it does work I think it's gonna be widely imitated by like mid next year or thereabout so this is kind of what we were doing with put 21 yeah it's a great idea it makes total sense to me that the first million people the first hundred thousand people who invite everybody should get ten tokens exactly the next million should get one token and the next ten million should get a tenth of a token very much like that this if I write a post that gets a hundred likes and shares maybe I get a hundredth of a token for every share because I created something valuable in the network yeah so the one thing that we're doing that's slightly different than that so um when you're generating content you're generating what you want to generate and people have talked about being paid for content but I think that a different way of thinking about it is if somebody issues you a task they already value the labor they're asking you to do so they direct your labor in a useful way rather than sharing content and hoping that someone will pay for it and said somebody sends you a task that they already know they're gonna be like amazon turk but for tokens exactly so one way of thinking about this is it's sort of like linkedin in the sense that you can target individuals Mechanical Turk and that you can give them tasks and digital currencies you can pay them for completely what so could be just for a question like you currently have you could work or gonna do their own tokens you think they could what do you think you probably have inside information are they gonna do what you think I sent it's chance percentage chance well big fan of Adam I actually don't know what his plans are on this um a percent chance I think it's hard to tokenize a very large existing network okay because you know when folks have tried to bolt on economics on to things where they spend a lot of time optimizing all the social stuff yeah it tends to make people mad and so it's sometimes easier to do it over dinner yeah yeah it's it's definitely when you introduce it you get all kinds of perverse effects like people creating fake accounts but you'll have to deal with exactly this right so we verify all users and so and so we actually because we built this as a commercial network rather than really a social network from the beginning one of my theses is of Facebook Twitter and LinkedIn LinkedIn has the least engagement of users on there and the reason I would I would say that is the case is that it's really a commercial network not a social network well you want or for the edges to have some monetary value associated with them but before digital currency that wasn't possible so we'll see if this one works well I go to my inbox on LinkedIn I have 18,000 actions and I I don't think I've ever gotten any quality anything that benefited me that's right so I'd literally have given up looking at it right and I I would much rather just literally have it be sorted by how many bitcoins they would allow me to donate to charity exactly and if it was sorted like when I get a thing from 21 I'm just like oh I can answer a question and 20 dollars goes to black girls or code 5 that sounds good to me because I can write a sentence or three and five minutes I'm a writer so it's great for me that's right to put some goodwill out into the world let's talk about icos and who should do them and who shouldn't yep because it seems to me that people who are buying I SEOs are buying them to speculate you would agree with this a lot of them yes yeah and so if people are buying them to speculate but they're what people are calling utility tokens that to me leads to a little bit of confusion because the purchasers want the tokens to go up in value but the person selling them is saying you're not buying these for the appreciation you're buying them because they'll be useful to you on an API basis is this some inherent conflict right now or you know discomfort in the space that needs to be clarified well I think because sec has started to talk about this right yeah yeah I'm a genius I think so you know for example if you go and buy a house right that house can appreciate in value but you can also use it right if you go and buy a demean right a demean you can use it but it can also appreciate in value right so not everything that you buy that has a use case that appreciation value is necessarily a security right there are examples that are not right they could be both they can be both right so the house right like the house right and so you know I think a really important question is is there genuine utility for the token or is it like kind of like a bolt-on right and we're gonna see how wide a class of things can be kind of tokenized in a way where there's genuine utility with that said I think there's definitely some coins out there and tokens out there that have genuine utility for example file point right where what is the token well you are basically buying a hard drive space on a thousand remote machines to store one megabyte of stuff that's clearly utility right yeah if your iam is that idea gonna work good yeah I think definitely why would people use that as opposed to the just plummeting cost of s3 it seems to me super good question yeah like this is like not gonna work because if I have a serious use for storage it's so de minimis the cost at s3 that why would I want it spread across a bunch of people's different machines I don't get an excellent question and so the answer is short answer is censorship resistance but let me give a longer answer right which is if Aaron's fall the news you probably seen that like a week or so ago the Spanish government went and raided the dot CIT registry and shut down 100,000 CIT demands for Catalonia right because the catalan was gonna have an independence movement so all these people were caught in the crossfire where their demands were either shut down or seized or what-have-you and this is something we're essentially government started overstepping where previously there had been more raised that had stopped them from being so intrusive at least in the West China been intrusive for a while but in the Western mean these mores that stopped people from like messing with DNS and you know stuff that was previously considered like a demilitarized zone right yeah now that's actually happening it's happening very routinely the the seal has been broken in I think you're gonna see that a lot more and that every time every time something like that happens it's a huge subsidy for every person crypto person is working on decentralized systems because the decentralized systems no one can take it away from you right they can't take away your domain with it's blocks a core so in a way what we're seeing with these deset the decentralized nature of crypto icos blockchain etc in a way it's being bolstered by the fact that twenty years into the commercial internet or so people are starting to get greedy and and governments are trying to stop it in fact if you look at just domain registrations we had whatever the white supremacist group was I forgot their name but they kept having their domain name registration yang called out yank and I can understand that if I'm the CEO of GoDaddy do I really want storm front on right as we're solving through myself all right do I want to be routing their DNS if I'm dying like it doesn't feel very good to be routing the DNS of a bunch of white supremacist right but should anyone be able to the domain system be independent and the DNS system be independent of that kind of censorship what's your position on it I find it a very confounding will proposition right now for me as a somebody's a free speech advocate right I'd like to see these maniacs I like the fact that the maniacs published themselves because at least we know where they are III think you know like you know III definitely agree that with freedom of speech I'm against censorship and the reason is because I think if you look at history censorship of that guy will often be turned back on you right like you know for example you know the house on American Activities Commission which is famous for McCarthy and investigations of communists actually started as something that was going after Nazis right almost people don't know that right so so it started as something that was going after unamerican Nazis and was turned on going after an American communist so if you start by going after Nazis it can get turned right that's kind of you can wind up in Hollywood yeah exactly any screenplay writers these few players that we're writing things to mock you as government officials exactly right so that's kind of one aspect of it the enlightened self-interest aspect and but the second is that it's also I think going to become less and less feasible because because of encryption because of decentralization because of all these technologies are rolling out it's not just you know antenna encryption on whatsapp it is the fact that we're building an entire parallel tech stack so you won't be able to see somebody's domain and you won't be able to see somebody's money and you won't be able to see somebody's files and you won't be able to seize their followers and so and so forth right all that stuff I mean you know why does Twitter have actually a great deal of power you know it is because if they want to they can block your account and then they can disintermediate you from all your followers right whereas they did this to me lo you nah police and other troll harassers that's right and so far it's being applied to folks who are you know like unpopular and negative and you know you know bad influences but that's a very powerful kind of power to take somebody away from the audience that they've built and you know it's something where I'm not sure we should entrust an entity with that it's something where would you want to build up a following of a million people and then have that yanked away from you just on a whim right because I got unpopular one day right right and then they and the counter-argument is well if I'm a private company like Twitter I just don't want to deal with someone like Milo or meelo have to pronounce that Milo just harassing people randomly is you know especially if they're african-american women's and calling them it Sweden Twitter's rights to do horrible names and doing crazy name-calling absolutely within Twitter's rights to do it and I completely understand why they did it yeah and I understand jack is under pressures and so on to that and who would want to you know support Milo versus the woman he's harassing nevertheless just like with the domains it's a precedent that it sets where that's a sword that can be turned on you and you know who like I'll give a good example of it where you know there was a professor a few weeks ago whose account was just banned by Google all his blog all this access all the stuff was gone and this was just a normal guy he was just he happened to have done some political blogging and so Google's filters picked him up as being like a bad guy and so he just got like computer froze on out of Google's you president of Gmail he'd use it for 10 years he had had all this adsense revenue is like a stats professor right so you know we can't trust in these systems to have a 100% you know positive rate innocence will get caught up in it and that's bad and decentralization allows it to be set up such that you can't take these kinds of properties away from people because 10 years ago you might have said oh who cares about my social network today it's like a primary source of income for a lot of people and they have no customer service rep they can get in touch with a Google or Facebook or Twitter they specifically don't have customer service reps at YouTube so that you have no recourse right when they turn off your account and we've seen that people built up huge followings on vine they shut vine down they built up huge followings on YouTube then they said you have to have 10,000 views to have the video make money and now you have that whole class exactly so these companies are getting so big they're able to really essentially silence people and that's dangerous yes right and I think like returning to your original point about should Facebook be regulated no but I do think that you know not more than it is but I definitely think that we should allow lots of decentralized competitors to crop up because what those will do is they'll chip away at all these individual features where the reason that Facebook is problematic in many ways is that there is no alternative and if you allow folks the ability to build those alternatives well then I think you're gonna have the market create some really interesting things and in this world the posts and the individual accounts would be kept on a blockchain yeah and you would essentially reconstruct your Twitter feed from the blockchain yeah basically I mean so it'll be a permanent record of every tweet you do with no ability to remove it one one caveat so I wouldn't necessarily be on the blockchain like the Bitcoin blockchain but a blockchain a blockchain and now the second point you mentioned is actually a very important one it's on the frontier of blockchain research so typically with databases you have four functions create read update and delete blockchains only have really create and read update and delete are things that you have to sort of emulate with blockchains and so they're not yet suitable for all purposes so that aspect of it's an undeletable blog post is something that we're gonna have to figure out the right way around right go up being able to go back into the blockchain and chain edit or something yeah this ways you could sort of emulate with like log structuring and so on but it's kind of a cutting edge problem right now and who should as a startup when you're thinking about your startup at what point should you consider Nico and then the second question I have is for people who are fund managers like myself or you previously where you are part-time or mark should we be thinking if you have unlimited access to high-quality LPS should you be thinking about taking crypto from random people and having a big open pool of capital and letting people trade it you know mid fund before you know disbursements what's the upside what's the downside should I do that and then again so for the fun Matt for the venture side an angel side and then also for the other side founders yeah should we look at deciding if you do I see us or not a good question so I would say as an individual I only do crypto investments except when it's a very close friend or somebody I know extremely well and they're still doing a conventional startup haha and you know that's not to say startups are over or whatever but I do think that more and more stuff is going to go to crypto over time as regulatory and other kinds of issues are worked out because if all else being equal if the regulations are equal if everything else is equal you'd vastly prefer a token over the equivalent you know alternative fine expenses because they're liquid they're programmable they've got all these you know great properties associated is that means I can give it to you so if we were both an increase in Horowitz one which had slack in it and I need to share pay for a house in college and you are long the fund and slack I could sell you my position at a 20% discount it just shifts over in dreesen Horowitz either decides they want to approve it or not they could actually do that for yes yeah but the second thing you said was not about the programmable programmable what does that mean explain that to the audience so several things about that so first is it means that you can actually run a crypto hedge fund where you can enter in exit positions programmatically you can balance things and there's folks who are doing that in fact I think everything moves to be a crypto hedge fund by about ten years that is to say right now you've got all these different sectors of finance you've got like individual angels and you've got VCS and then you've got your PE guys and then private equity private equity right hedge funds hedge funds exactly and you've got the usual funds mutual funds right and I think what happens is with digital currency first you have a completely new player entered the system who is the sub angel it is the kid in India with you know ten bucks saved up who buy some aetherium which is now possible to do right yep um and second everybody basically whether you've got ten dollars or ten million dollars or a hundred million dollars I mean the intraday trading volume of Bitcoin today is like 1.8 billion right people do not understand how big that is that is at the same scale of Google right like Google is like one and a half billion dollars trades hands you know on a daily basis so liquidity of these coins is already at the level of the largest public stocks right and so because of that I think from the largest hedge fund to the smallest individual investor it's all going to become a crypto here's an interesting statistic so you see today awhile back ran this study I actually want to update the chart but since sarbanes-oxley public stocks has just been falling because it's so hard to go public and many folks are just going private or exiting public stock markets that you've had you know the number of public stocks more than cut in half since since our bucks right and so with one things I've been doing with making a graph and around later this year the number of coins is gonna pass in a republic stocks got it okay not in value but in quantity in quantity that's right and and obviously non value because you know one hundred fifty billion market cap is less than in more capable and Apple right nevertheless unfair comparisons are sometimes really interesting here's another one coin market Capcom Adam Lud one pointed this out has more traffic than wsj.com right okay this random site okay has more traffic and that seems like an unfair comparison until one remembers why do people buy the Wall Street Journal in the past it was to look at the prices of stocks right and then the information was kind of a sidelight yeah right so now like coin market cap you know you could imagine they could build a really interesting site there right so I think all this stuff what happens over time probably 10 years lots of regulatory issues lots of bubble type behavior to be worked out but eventually the Internet becomes the world's biggest stock market and I think if I was doing something today right if I was creating a fund today definitely I just think all crypto because that's where the future is going to be so if I start a new fund I make a crypto and then I let anybody buy it in the world they don't let anybody but oh oh you mean I say launch a coin for your own Kripa sale yeah I was if I worried your launch fund – I can't say if I was or not for obvious reasons but if I were to do that and I just said it's gonna be a 50 million dollar fund and each coin is worth a dollar today and anybody can go buy them I wouldn't do that here's why it's just because I think whenever a new technology is coming out you want to try to figure out okay how can I use this to do something transformative also minimizing my technical and legal risk right so for example Netflix knew the internet was going to be a big deal but they also knew streaming video was too early stated mail-order for a very long time before they made that transition right and so what I would do is I would you know if you have the connections to it what you do I would just raise a fund as normal from normal LPS have that part be something that's completely understood and locked down and then go in and invest in various kinds of coins because you're not capital constrained right right for somebody who is capital constrained yeah then maybe they might do an IC o—- kind of thing but they take on huge amounts of legal risk in doing that got it there is this thug yeah in Switzerland in Switzerland realize it's a real place yeah and you can do whatever the heck you want with crypto there I understand it's like a loosey goosey kind of province where anything goes well correct so I'm not sure they'd market themselves that way I think they'd say loosey-goosey come to Zug yeah exactly so so I think it's Zuk Zuk in Switzerland is is B sounds like a Bond villain yeah yeah yeah no so that's where that's where aetherium got set up right right and so because of that it's become like the crypto valley right and so lots and lots of folks are set up Swiss Foundation oh you've been there no oh are you going no you gotta let me know me boo girl sure okay I don't know what's there but no is there a ther ther is there like just like a pile of etherium like just laying there like that would be interesting yeah I'm physically materialized yeah physically material I mean minecraft or Switzerland is a good place historically for banking and other types of right so it's not that unusual it's not like that random a place for it to become you know kind of cutting edge on the stuff but but yeah there's now other centers are starting to open up another place in the world like you know Finland and Singapore and Estonia and so on are all very pro crypto as soon you actually even wanted to try and do a cryptocurrency themselves and like Mario Draghi of the ECB said no you can't do that as long as you're part of the eurozone so at some point they might say mmm this is actually has more upside than being part of the eurozone so we'll see you know they did their residency thing they've got like millions of folks abroad who are effectively Estonian honorary citizens of a kind I was like one of the first of those – Tim Draper Steve Jurvetson brothers we're just kind of testing out the systems I'm the gold air is there a million person country on the border with Russia and if they can have millions of people around the world back them up and afresh should invade something we can protest right so what you're becoming you get a passport or citizenship what do you get its esit so ii resident i should be more precise it allows you to open a business and do business in europe got it yeah which is very useful tool so basically they're becoming like the delaware corporation headquarters ends just saying like hey do it for free here it's all good that's right so if you've got more residents and you have citizens and their export is basically they're you know excellent rule of law and internet-based systems for interfacing with europe you could imagine they might put a crypto aspect is that eventually right so there's folks there who've been thinking about that this is Estonia yeah so Estonia will be the first crypto state I don't know you know like China is actually doing extremely there they're very ahead of the curve in there they've been working on their own cryptic wine for a while in the government the government yeah so the remedy will become a coin you think I don't know I I do well here's what I would say I would say that what's happening now in China with blockchain and Bitcoin and so on remind what is happening what's happening they shut down right yeah so for those who haven't followed every single you know like blow of the blow-by-blow of it they Bandai cos then they are like basically shut down all bit coin and crypto exchanges and the rumor is that executives from those companies can't leave the country and so links yeah that's not great right but for him yeah but we we believe or at least you know a lot of folks who are been watching it think maybe the next shooter drop is related to mining that would be a big shock to the system but not it row if they stopped mining they could they could stop it they could take it over there like 60 70 percent of mining occur in there that's right so those people are stealing electricity from hydro dams is this an urban legend or is this true so I I think it's maybe freezed more negatively than that because you know the thing with power generation on the electrical grid is you can't store power very easily right batteries aren't that good right so it has to be blown off basically going off exactly so what happens is peak power consumption is typically like 12:00 noon and then minimum power consumptions like 4:00 a.m. or 5:00 a.m. right and during that period you need to maintain enough power generation for peak so often what people will do it will spin a waterwheel or otherwise throw off that excess power so in China they've done a lot of deals with basically what I called Bitcoin batteries where essentially it's better to store that as digital currency by mining than it is to store it as energy because you just can't store that much energy right and it'll burn some it's like steam off a pot of boiling water that's right so capturing something that otherwise would have been lost for a while if you looked at the Chinese blocks they were dispersed Li mind late at night in China time because they were using like kind of spare power who's doing that though is that the government I mean we have no way of knowing yeah I mean I know some of the folks involved you know but basically they're just extremely competent hardware and data center engineers over there who are running large data centers and they can do deals that people in the United States can't because the power companies are more open to it what's that mistake with Bitcoin to put in this hole for caca like we have to burn all this electricity and you know carbon dioxide into the planet like shouldnt they just have like just issued them like other cryptocurrencies as opposed to mining it no I think mining is actually super important but if you do that for the environment isn't it well so so what a lot of people do is they'll say okay you know bitcoin consumes this much power but look at Visa or PayPal and they can zoo much less right but I don't think that's actually the right comparison the right comparison is how much pirate is Bitcoin consumed and how much power does like the government of the United States consume right because what bitcoin is and what blockchain is more generally is its rule of law as to service right even into lawless places like Venezuela you can parachute in a predictable system of property rights begins with Bitcoin for money and then with the theorem for smart contracts and so on and over time what that means is rule of law as a service anywhere there's a smartphone so we're really doing is you're doing something where you know the blockchain is to the Constitution as a Constitution is to UK common law with common law you had the sort of informal formalism within the UK based on precedent then you got that formalized with the Constitution in the u.s. and now we go to the next step in smart contracts and blockchain was kind of like the next step so a country that's run by a Mickey Mouse dictator who might flip the currency around you know at will depending on what's happening or manipulated those people get to join a different countries Constitution by buying aetherium and buying Bitcoin they just basically opt out of that country in Constitution that's right so like because let's already happening in Venezuela right that's already happening in places that are not respecting the rule law and now those folks have an exit ready to have an alternative and we're seeing that in the statistics the number of wallets in Venezuela the number of coins being yeah and it's it's I mean like you know it's one of those things where probably five years from now every year it gets better and better the infrastructure um I don't know that there was a large Venezuelan Bitcoin exchange there one of the biggest things that's going to be developed are decentralized exchanges where you only need an internet connection in order to earn it and then I think stuff that hopefully like what we're doing where folks can just do labor turn digital currency will also be a big thing we're even if you don't have capital well anybody in the world can pick up a phone anywhere there's phones there's a job right so over the next you know five ten years we're gonna make it more and more and more accessible so that anybody in the world can kind of opt-out and just get this digital currency what does your gut tell you will happen here in the United States and how do you rate our regulatory organizations in their management of crypto to date I actually think they've they have exceeded expectations so far with the exception of maybe New York State in 2013 people you know thought that the u.s. car was gonna take a very you know potentially negative attitude towards crypto and a lot of technologists a lot of VCS and so on went and talked to folks who were institutional and the reason is cuz VC is the interface between disruption and institution right in the sense of you speak to the guy in the garage and you also speak to a large pension fund right so you're kind of a trusted interlocutor between both sides right and so as such you could go to them and you could you know credibly represent that this blockchain thing this Bitcoin thing could be a big deal let's not kill innovation in the crib could be a big deal for FinTech fortunately that worked and for the most part the government really stayed their hand from 2013 to 2017 on insofar as our regulations give us like somewhat annoying stuff but it wasn't like in Super Bowl the industry did not die by any means it in fact grew quite a bit right recently with the SEC document I actually kind of take my hat off to them because they did a few things first is they definitely got to speeding the technology if you read the documents a sophisticated paper there's at least some people there just add a document add a document that's right so this is like came out like a couple of months of a sophisticated paper and you know they're familiar with either scan they're conversing with the whole shebang which is impressive so that's kind of number one and the number two is they said either was a currency and they said you know effectively not all tokens are securities so they're not banned Venise an industry right and they've made pretty positive noises about blockchain and other types of stuff and so on so it looks like they're actually taking a fairly enlightened attitude towards it and let's hope that that continues when you look at the landscape here in Silicon Valley and you talk about hey Capital is going to be sort of uncoupled from Silicon Valley what do you think happens to this incredible Silicon Valley infrastructure that has created the greatest companies of our lifetime or in the history of humanity it's literally going to just not be competitive is that do you actually believe that that all of a sudden the next Facebook's the next Google the next apples and airbnb Zandu burs and lifts are all going to be just funded by random crypto ico sales and already have anywhere it's already happening I mean like aetherium did not have really a center in SF and you know what's the next Facebook thank Subaru etherium right and that was in Brooklyn and Berlin it didn't really have any presence here and you know I think like one of the big differences with blockchain as opposed to say something like mobile right mobile was extremely top down it was Apple and Google right so is instantly credible right like Android and the iPhone everyone did PR teams and they obviously have great tech teams and so on so super super top down the block chain began bottoms up in the most Bob's of fashion possible a pseudonymous post on a message board forum right no reputation no credibility only pure technical credibility so tickled while for it to rise and yet even now only eight years into it our Facebook and Google and Amazon and so on looking at Microsoft of the big five is the one that is kind of most ahead of the curve on blockchain they've been doing it with Azur and so on and that's because Sofia is hungry and Microsoft's the hungriest of them right yeah when you're behind you take risk that's right and actually so that you know as a sidelight deserves amazing even before his book he's just incredible credit for turning around Microsoft very very hard to do well I mean just the nature of being able to say we're gonna put office on Apple phones and Android phones and all of a sudden you look and it's like outlook is in the top 10 apps yeah and you're like oh well this could have been that way for the last five years if Steve Ballmer would have just allowed it to happen I I don't I don't you know I it's hard to run a large company and you know like all credit to see bomber and since of he grew enterprise profits the amazing thing to me was sathya didn't just open up microsoft on those dimensions cuz it would have been easy to do that and then see profits drop right he also increased profits like yeah you know a subscription it's it's so cheap yeah exactly and adobe right like they just figured it out exactly so suddenly all their products it was amazing how his leadership everything became like competitive office 365 stop losing accounts to google apps and you know their their code bush stuff is actually one of the best ways to get stuff on – you know iOS and there's like it was it's just really amazing that one guy could just transform so much stuff anyway he just deserves a lot more credit than he gets i think let's just do a little lightening round here before we go to a couple questions which of the fangs or top of Internet companies will be the largest in 10 years which one has the brightest future Amazon Apple Google Facebook I think Google is that's an interesting line so thinking through your thinking and then let's come to an answer of who's gonna be the big winner well okay so we had to ban the thing that I think about the the two things I think are the biggest risks for Facebook Apple Google Amazon I wouldn't put Netflix in there I mean f is great but Microsoft in there yeah Microsoft right so so I think the biggest two risk factors for them and obviously I've got a biased point of view you know what have you but our regulation and decentralization right okay um and the reason is they've gotten very politically unpopular recently on both left and right probably Google has lost I don't know 20 or 30 points of popularity in the last like a couple months alone with various episodes and that popularity is not coming back in my view because at a certain point when you get big and powerful enough you're gonna piss a lot of people off basically no matter what you do yeah and forced into really you know polarizing situations plus they've got lots of money and that always makes them a juicy political target so I think so those two things interact regulation and decentralization because their presence in the United States is something where I mean these are global companies which operate all over the world and have employees frankly from all over the world right like that's one of the things most people don't understand is Silicon Valley and technology is majority-minority its majority immigrant right most the folks short overseas right and majority of revenue is overseas yeah so when you start thinking about it from that perspective like the cash register is not an American cash right multi continent cash right it's a multi continent cash register right and four different ones of them to breakdown looks different but all them while they start in the US are really very much global entities so because of that there's been I think a tension between okay our customers are mostly overseas our revenues mostly overseas our employees are mostly immigrants we're headquartered in the US but probably you know most of our employees are actually maybe based around the world depends on some of them like mountain view and you know the Menlo Park camps are pretty big but so now they're going to be kind of forced into this thing are the American companies are the global kind of entities and all the stuff they set up with foreign corporations all the stuff I think is going to become under you know siege or the next three or four years because they've just lost too many popularity I think and I think that's a threat for them and then alongside that is decentralization where a lot of network effects can be broken now of these you know the ones that are like how would i rank order them I mean all of them have just really difficult to penetrate positions I would actually say Facebook is probably the most vulnerable of them because Amazon and you know Apple have large hardware manufacturing divisions and Google has Facebook also has large data centers but Facebook is probably the most vulnerable because I think you can break Network effects with you know tokenization yeah I think and we've seen that people just kind of get tired of social networks and move to the next one yeah people are a bit transient in them and they seem to also be generational right you know there was like a Facebook generation versus a snap Instagram generation yeah I'd say I'd say Amazon is probably maybe the hardest one to displace because of just the sheer scale of their physical manufacturing um and they have so much upside left to cabinetry section but yeah and that what the heck well in some cases they are sometimes on there too in the Kindle right I mean they're buying a lot of factories from what I understand right a physical plant I'll put it like that yes go plan yeah and they're just so such a small percentage of their market whereas Facebook is such a large percentage of their market yeah so I'd probably rank order them in terms of difficulty of disrupting Amazon first Apple second Google third Facebook fourth as I heard my order yeah yeah yeah but but I'm not saying they're going away they're going to be huge companies for a long period of time but I do think that they're gonna be facing these twin threats which are hits from that are very hard for them to counter because they're very big 'no stupi 'pl aligning against them on the policy side and then also on the technology side from decentralization like the the reason to go and build a decentralized social network or to build a you know a decentralized exchange or you know a decentralized marketplace is because it's not one of the big guys right and so you know why do you build a decentralized domain name system so Google can't yank your domain right so anyway that's why I think it's sort of like the Microsoft situation in the late 90s where they're gonna be put into no-win situations and winning is losing okay this has been amazing let's take two questions one from the chat room Ashley you there and then we'll run a microphone over to my friend over here we would like a crisp question please refrain from a commercial for your product or service if somebody does everybody knows the rules of this we can start if somebody does a commercial vail does a question everybody groan uh we can practice that okay so with that disclaimer a crisp question please I'm the CEO boniva my question is has either of you invested in a woman of color yeah definitely let me think would you count indian or asian in of color wait I don't know if we have a black founder and the poor black female founder in the portfolio but we have black men in the in the in the portfolio so yes black man but I don't think we have a black female founder yet but I have a feeling you have a great company in that we'll talk after okay congratulations actually I thought I remembered you from somewhere yes what are your thoughts generally on diversity in technology is it getting better do you feel it's getting better we're obviously very focused on it as an industry it feels to me like I'm seeing a lot more diversity in the early stage what are your thoughts on progress obviously there's a ways to go but is it getting better well so if you take like a global view I think that I'm very excited about technology getting to places like Nigeria India South America Vietnam places that were basically poor through the entire 20th century and that have a lot of talent now so stuff like what Mark Zuckerberg did with investing in and Ella in Nigeria I think is really interesting and so what I'm excited about is really from a global perspective tapping all this untapped talent great let's take a question from the chat room first so we can make sure the people who are on the livestream gets some play go ahead Ashley from Eamonn what is the future of icos will they be replaced by fork from core blockchains for specific use cases example be cash or ETH okay I don't speak French but can you translate that for the rest of us who don't speak crypto sure sure so what there's different ways that you can create a new coin one of them is what she just talked about her with that question mentioned which is do you fork an existing blockchain and basically airdrop coins on every existing holder of that chain or do you create a new coin and I'd say frankly it depends on the situation so a forking existing coin for example the Bitcoin Bitcoin cash fork meant that everybody who is part of who held coins in Bitcoin before also got coins in Bitcoin cash it was sort of like a stock split right and you know whereas an ICO is you're generating coins for completing your purpose right so I think that forking of existing coins will probably coincide with forking of developer groups like what happened with the theorem end theorem classic or with Bitcoin and Bitcoin cash there may be coins and tokens that build in some percentage of their token base as an air drop so that lets say 5% of your tokens are worded to all Bitcoin or aetherium holders you know by presenting their credentials and they get the coins back but I think there are two different tools to be used for two different situations great so let's take a question in the room I don't know where the microphone is but I see five hands going up so what will get like maybe five questions so this is a two-part question for both of you are we effectively seeing seed rounds become bridge loans in the sense that safes are never converting because of product and utility tokens and does that bode well for the employee option pool saying that there's no president set for token companies being acquired or any exit scenario yet okay great complex question well so what I think about that so I think the interface between what I call the coin table and the cap table is something which you know the industry is still figuring out probably a good way of doing it is as follows so let the coin table refer to the set of all coins and let's say that your company has X percent let's just say it's like you know 25 percent of the coins um one useful way to think about it something I've seen in some documents is imagine that 25 percent effectively hovering over the existing equity waterfall and then you have a Board of Directors boat or a shareholders vote to liquidate that and then that goes as cash through the waterfall right and that's a way that you can kind of take all the existing agreements that you have within the company all the investor relationships and and you know liquidation preferences and whatever and honor that while still creating this kind of new token so you basically take 25% of the coins that you're gonna sell and just pass them through to your shareholders pro rata yeah or on a percentage basis basically as if it was an exit right so let's say that 20% 5% of coins is worth you know like a hundred million dollars that's as if it was a hundred million dollar egg so there's a hundred million shares and we had shown 10 million shares as co-founders we each get ten million dollar coins with the code then we'd have a can we have a tax event well right exactly there's a couple of caveats right so the first is that um there's a difference you know distribution in the liquidation like a distribution is you just distribute those coins at their current you know value all right so we have mineral wallets what we haven't sold them so there's no taxes yes that's right and hopefully no tax and it also doesn't crash the price right right because some folks believe they're still future upset and they want to hold onto it right whereas a liquidation is you actually go and dump some or all those coins on the market and that certainly if done in an expert way can tank the price right yeah so that's kind of one aspect distribution purse liquidation second is something that doesn't occur in typical you know vc-backed companies which is a partial exit right you can choose okay if you got 25% let's go and distribute 5% today at this valuation right clear out the liquidation preferences Reverend still hold 20% right and the third thing is to agree on exactly how that spot price is determined is actually something you want to put in the contract beforehand because it can actually mean a very big difference if it's five or ten dollars lower right because like are you consulting coinbase your consulting point market caps price whatever that service better be up on the day of because it's like the difference between Oh 17 and a half cents a share versus 16 and a half it can make or break a deal sometimes so it's an important kind of thing so you know I'm not saying those are best practices I'm saying those are emerging things that I've seen ways to interface the coin table with the with the cap table yeah and I've had this come up a couple of times in discussions that I said just make sure that you don't put yourself in the position that the coins become worth so much money that the they be fall below much below what the equities worth and the people who gave you feel like idiots and you know for giving you money to start the company like Vinny Lingam and his company Civic is raised thirty million in the in the coin and you know how does that relate to the people who gave him venture money etc so is it's a definitely new area we're in on notes convertible notes what's nice about a convertible note with a date is that the founders and the investors have to sit down and say do we extend this note for a year or do we convert it now at a certain cap or another valuation and it's kind of a forcing function what I don't like about the way some safes are structured is I've seen safes where people sell you know one person at six million one person at 7 million another person at ten million other person at twelve million they don't know they paid different prices they all bought within the same 90 days and then they all convert at some point people get the cap table and they're like what just happened and a lot of bad feelings and what if you convert automatically at a price and sometimes people put their safes design this way we're gonna convert no matter what at a 10 million dollar valuation in 24 months or if the company's worth six million at that point in time well then you're screwing your investors by converting them at ten and then taking other investors at six and you just have to be careful that you don't get this adversarial relationship and I feel like the safe note was created in some ways as being adversarial and anti governance and what we've seen is bad governance kills companies so a lot of the companies I've seen die have had a lack of governance and said I wish I had a board I wish I had a lead investor who cared enough about the company that when we hit the wall we could have done something right so this idea that it's cool to have no governance I see a counter trend which is it's cool to have board meetings it's cool to have minutes it's cool to price your round because with VCS looking for more disciplined founders when they see oh here's four board decks and here's four sets of meeting minutes and here's the resolutions and we know the share price and we don't have to convert and have all those bad feelings of seven different convertible notes that happened over two years it's just really messy so this a lot it's one thing when there's one convertible note or two but when you start getting to these like you know a half dozen or I mean you probably see in this yeah and then all of a sudden the founders like I own how much like the freight there's a lot of shock on these cap tables when people figure out how much they own I mean also typically I mean the cap on the convertible is basically kind of the price on the round if you haven't exceeded that then it's kind of like Oh away you know even even hit what we wanted to it yeah I would agree with 95% what you said in the sense that I agree structure as good I agree regular board meetings are good I agree engage investors are good plans are good plans are good yeah right trying to hit targets yeah yeah all that stuff is excellent and necessary because the startup is a very unstructured thing and imposing some structure on it is handy especially for my folks who've been through the trenches I would say however that a founder has a sense of what they want to do should not for the sake of it give up veto control over the big decisions so for sure is that that's my only caveat yeah I mean losing control of your company not a great thing to do right so you want to keep control of your company but it's also quite nice to sit down quarterly and say what are we doing here and actually having your team say you know every 60 days we mean with the investors it would be nice it's a nice device for a founder to be able to go to the team and say I had a board meeting for inside comm this morning I said Koya it's like three weeks ago were like what is this board deck gonna look like and are the numbers are up into the right and do we need to kick ass in these less you know six weeks or four weeks before the board meeting it creates a sense of creates a sense of urgency when you go into the halls of Sequoia or in Greece and and you got to face the music and say hey do we hit our plan or not and present a plan and have people with 20 or 30 years experience say I've seen this movie before when we did Netscape when we did this other cloud company like though they can really have great signaling so it's cool to have governance I think okay let's who's got the I don't know we take one more from the do we have any more questions on line right here okay well don't say we have more questions on line or no okay let's take the quill go on line for one and then we'll go live this way people feel like it's but you're not stress we're gonna get you don't worry I see you I pronounced it right you know stress yeah okay so what is the best way to incorporate tokens into my syndicate a majority come from my real estate I'm assuming lp's with non tech backgrounds they trust me I want to include new tech without over well mning them I'm completely confused by that question do I really understand it I'm sorry I heard syndicates and tokens in the same thing so I don't get it all right well you want try one more time good let's try one more time how about what is the best way to incorporate tokens into my syndicate okay does that make sense sort of I guess you could have a angellist syndicate with tokens and then people would be able to then trade it I think Duvall has token list coinless is coinless yeah which is going to do let you do coin offerings but I don't think there'll be syndicates exactly I mean the thing is there's two different ways of doing it you can have a coin that folks buy into and that's your capital for your syndicate which is what you were discussing before possibly yeah and there's also your syndicate invests in coins I would certainly not recommend combining the two because you just got so many stakeholders and stuff and complexity I think you know investing in coins as an individual or as part of a syndicate is definitely a reasonable thing to do in 2016 I would say like doing an ICO to raise capital is something where only do it if you really want to do it and there's a law firm and so I'm backing you and recognize there's risk associated with it okay now I'll take a question from the room good good um so block you can say your name and your company by the way that one consider that part of a promotion a Devon Elliott founder of you know Souris which launched at launch festival in 2015 2015 fantastic so which by the way your idea became the subject of Silicon Valley's last season so you had the crazy idea to have a peer-to-peer network on mobile phones yes which is exactly what Pied Piper built what was it like to see your idea from the launch stage in 2015 become the Ark of Silicon Valley in 20 the TV show on HBO in 2017 I think that was a rough first night I didn't want to watch it I just filled it quite a few texts yeah kind of settled into it those prayers anything I should okay it's literally the same thing yeah I actually wanted to ask you did we we actually just pitch one of the writers at your event or what the writers of Silicon Valley have been to the event my poker game and I've talked to them on the phone but I never said you know a stress would be the great story arc of story books so it's possible they saw it and but anyway you created a distributed network on mobile phones this you basically made a second internet on mobile phones yeah but anyway go ahead and tell us your question so it's a wonderful diversion bid of it yeah thank you well so so blockchain is just part of a technical stack Nicole stack yeah of protocols right and it alone doesn't impart all of the things that are needed to run on decentralized untrusted Hardware as investors are you guys engaging any more technical due diligence for any of these companies yeah so well so I pH D and W from Stanford and CS and SATs are so I usually like to read the source code myself but you're absolutely right that you know it's not just the blockchain you know you have to look at every aspect of you know what what they're doing but the blockchain is a new primitive that allows you to monetize this protocol so that's kind of why we brought it up but I think you are right that you know the broader point the technical diligence actually is something which is critical in the space and it almost kind of replaces not deal flow exactly it sound like there's there will be people who will see certain coins early but many of the skills of VC is like oh I've got proprietary deal flow are going to become less and less important and the ability to go in and be like okay lion 47 over here why is you know this company using turnery rather than binary you know like a company might know of that's like a really weird design choice and you know why does their main dot CPP have 5,000 lines of code rather than being factored properly all those kinds of things you'd actually now want to have at least somebody on your team prior to investing who has read the source code and who can give some kind of you know attempt at you know trying to build it and look at it and I look in the eyes of the founder and I look at their product and craftsmanship and I figure out if I think they're going to quit or not so I use my degree in poker it's also actually very important from Stanford from the money I took from Stanford students playing poker I take that and then I decide what who to invest in it that's my diligence I should also say I'm not a degree snob we hire lots of folks I've hired many folks without high school degrees do you play soccer I play poker I even tried really yeah do you have money I have some it okay great that's a good that's all you need all right I'll teach you I'll teach you all right do we have time for one more question all right who's got I don't know who's got the microphone I don't think they're gonna let me ant I take another question you let me take one more Jackie all right it's got to be a lightning question right so I'm two minor from Accenture ventures so I had a question I think it was pretty inevitable that SEC would kind of step in with AI cos what is the best case and the worst case for that I mean are they going to try to recreate the stock market are they gonna really look at the power of what I cos can bring something new I think the best case is if they take I mean you have to sort of judge a revolution by its fruits right and so the blockchain industry today is at roughly 140 billion total if in four years it's at like you know three you know three or four trillion which is quite possible given its rate of growth then the SEC did a good job in terms of specifics I think probably the best thing that could be done in the best case is there's a very obvious set of things you have to do to make sure your thing is not a security right if there's a bright-line test and the Howey test is starting to get there maybe but there's but the bright-line test is because I'd never heard that oh well like so a bright-line test in general would basically be okay if you do X you're on this side if you do not X you are on that side okay so it's exactly what you say yeah yeah that's a bright line it's a bright line it's clear you're one or the other yeah that's okay okay so localism well it's not an actual test it's a colloquial it is something that lawyers will often say okay bright-line test yeah so so basically like the Howey test is something that SEC has said determines what is a security but then what that is with the Howey test is yeah sure so this actually goes back to 1946 70 years ago there's a case involving orange groves where people essentially came up with a set of three points that determines whether something is or is not a security it's like an investment of capital and a mutual enterprise where other people are working to make money for you right and if one of those three points is not there then your thing doesn't pass a Howey test and if it doesn't pass our test it may not be a security but ideally we'd have a test on the other side where if you pass this other test then you're definitely not a security and so for example a house appreciates the value it has utility but it's not a security a domain name appreciates the value it has utility it's not a security so one of the best things I see could do is figure out a safe harbor where if you do XY and Z then you're safe right and I'll reduce everybody's legal costs the alternative is that there's another country that does figure out that safe harbor earlier and for example is always some precedent for this so in the UK they came up with this FinTech regulatory sandbox right where it allows companies to get to market earlier like the next stripe without having to get all these banking licenses and so on and that was an innovation that threatened to pull US companies over there so actually the u.s. to its credit has actually responded with its own OCC type charter so you don't to get 50 state money transmitter licenses and so on so if there is some jurisdiction that says hey we're open for business you can do token launch in our jurisdiction that business that country if it markets itself properly worldwide we'll have a real shot at the next Wall Street right yeah and so so that's the alternative if the SEC doesn't do it properly then there will be another country that here's another worst case scenario people invest money they lose it they still have a lot of money left and they sue the people who lost their money whether they were right or wrong and whether they check the box that they knew that they were taking risk because as we've learned people can sue at any time for anything and they have could have no merit to their claims if the SEC sees a bunch of people or a bunch of state attorney generals who are looking to put a notch on their belt see a bunch of people take down 20 or 30 million dollar commissions like say tezo's did takes it they took a 20 million Commission on their 200 million raised and put a bunch into a non-profit if that project were to go belly-up and if everybody who put the money in still thought still check the box that they understood this was risky image they're just investing in a white paper and that they had all their eyes dotted and all their cheese crossed they could be in litigation forever and then state attorney generals could litigate you and regulate you and just break your chops until you cannot stand it anymore and you settle so that's the other reality is I call this the fair and fair use in the fair use statutes like there's a whole series of tests for something fair use in editorial and so we would go through this with the magazine all the time what percentage of the work did we use are we confusing the public etc are we infringing on the other person's ability to do commerce is there an educational or analytical reason for doing this there's a whole test you can go through and what I would just tell my team is will the other person feel it was unfair our use in other words forget the law do people feel it was fair and if their artist doesn't feel it was fair and the person in the original content owner expect a lawsuit potentially and I think that's what's gonna happen here is if people just like on Kickstarter if they don't get their product or the product comes so late and it's so bad they might sue and I think that's what's gonna happen with these icos is if the product never makes it to market which some number won't you're gonna start to see people sue if those people sue and there's no money to recover then Attorney General's might get involved and say where did the money go and I think that's what happened with the Dow right they were like what exactly happened here we'll oh yeah so let me jump in every second so um but I think tis this is actually a reputable project oh I had her on the show I think sure I think it is reputable what my point is if it fails which startups fail already fails it fails which is the likely scenario for startups sure so in the likely case that tezo's is like other startups and fails when it does fail will people say they took 20 million dollars and don't deserve it well yeah so so okay but I think that um in general you know success has a thousand fathers failures an orphan right right and correct right so everybody is genius when the market is going up and so on and very few people have the guts to make it through a bear market yep and you and I have both in different ways going through that yeah and three times yeah exactly and so that's something we're actually the folks who can make it through that and at least escape with their shirt or even make a profit are the folks who you want to bet on time and again right that's kind of at the individual entrepreneur level at the regulatory level you're absolutely right that failures often criminalized right where essentially there's a retroactive lens that is applied and everything that was seen in rose-colored glasses or a positive way before is now seen in a very harsh and negative way like the options backdating stuff in the mid-2000s where you know people were just looking for something to put on these calm people yeah and it turned out to be options backdating and we're very fortunate that Steve Jobs was not caught by that because like you know there was there's attempts to get him involved in that whole morass so you're right absolutely that retroactively Lee things can turn very sour and you know my advice on that would just be to paper up everything you can legally and try to minimize the amount of legal risks you're taking that you know sometimes you have to take legal risks and then just you know hope here's a corollary example for you seven years ago my friend of all says hey I'm doing this thing check it out and I fire off my syndicate I get a bunch of members a bunch of people invest and I said and then a bunch people said you're crazy for taking other people's money when you're investing in calm calm and meditation app like this is ridiculous you're gonna get sued by the members of your syndicate and I said okay and I wrote long disclaimers every time to the in credited investors these are accredited investors they're smart and I just said I am running the trench run syndicate like Star Wars where Luke Skywalker hits one in a million in the trench run that's how I invest my money if you are not willing to go to the Death Star and blow it up by hitting a one-in-a-million shot do not come with me on this journey and then I just explained you should have massive diversification and if I was telling my mom the percentage that she should invest in angel investments in B be somewhere between one and five percent of total net worth if you and you and I would invest it in at least 20 different 30 different names and I would expect to lose all of it so I like I literally put this in blog posts in the top of the offerings just over and over again and based on inside knowledge I have in the history of AngelList there's never been a lawsuit there's been one person who got upset and tried to sue because she felt she lost her money on one deal and it wound up not even going to court so if you are very very very very very upfront with the risks and people have to click through over and over again this is where having great counsel and being massively conservative it's important but I'll tell you what's really scaring me every time I go on Instagram I see ads for reg D offerings for companies that we all passed on investing in in Silicon Valley and didn't make it down stand to a road without getting left out of the room and then I see them on equity crowdfunding sites and I see them saying last chance to get your shares in the next flying car revolution and I'm like these people are advertising equities on CNBC and Instagram here's a here's a tip pro tip if you have to buy advertising to get investors your company is horrible and should not exist period because all you have to do is walk up and down Sand Hill Road or go on AngelList and get a syndicate raise money if you need to advertise a security what does that say about the value of the security if you need to buy ads on television to get people to buy it it says to me it's a screaming scam what do you think am I crazy what I think about that so I think that's I think it's the ultimate tell I think it's probably too strong and here's why okay is I would certainly agree that for folks who have the network who have the social connections who can get the meeting on Sand Hill who can get the meeting in San Francisco definitely go and do that right if you have access to capital through the social network as many folks you know in NSF and Stanford and what have you do then definitely use that that's the lowest risk of thing um but there's many folks who don't have that right and there's folks who are meritorious and they're in the middle of nowhere and maybe they've got a good business and they've got capital and you just take them rather than spend all the time to build up all those connections in the years of work or what have you they'd like to just say okay look I've got an amazing business let me push a button a net cetera right now you know the the whole reason that we can't put up ads for securities is because of the 1934 act right right which was prohibited general solicitation right that act is like 80 something years old and SEC did my to fight with the Jobs Act to permit a you know certainly watered down form of quasi general solicitation for equity crowdfunding of up to $1,000,000 yeah and Kickstarter for example does show that while it's not equity crowdfunding is just crowdfunding that certainly there are meritorious projects which did not have the connections from backers who did put up something online that did create wealth for people and they did take a risk on the article I think it's a good counter-argument I guess for me if I knew that a bunch of VCS passed on it and that they did have access to Sand Hill Road and then advertised to civilians as the last line of resort that's the group I'm talking about ya know which is a different case if you're talking about hey I I'm a nobody from right you know Boise Idaho and and and I have the greatest idea for the next gadget and I just need somebody I didn't gadget or whoever to see it so I'm gonna buy some ads yeah that sounds fine to me yeah and even taking it one step further I think the next step after the dorm-room startup is the developing world startup because now we have all these smartphones that are out there there's hundreds of millions billions of for sure right who now have internet connections and now they can have access to capital and all the we need is an internet connection to get that to them so that's the kind of thing that I'm thinking about not the folks who already have connections and so on it's the folks who their only connection is an internet connection we can now finance them so that that's kind of my mindset on this yeah it does seem as they say in ratatouille like not and everybody can be a great chef but a great chef can come from anywhere yeah exactly I think that's like what applies exactly here which is like not everybody can be a great entrepreneur but a great entrepreneur can come from anywhere right and I mean if we look at the history of Silicon Valley the number of outsiders greatly outweighs the number of insiders in fact there were no insiders until I don't know I don't think many berry entrepreneurs were born in the Bay Area yeah I mean who big about it like what's the name the venture capital dynasty Tim Draper that's it hmm who else has like two or three generations of investor I can't think of too many years only one I got who else know I'm not a carrier your kid so walk calmly would be the other one and in both of those cases Tim Draper's kids and Ron Kahn raise kids work absurdly hard I know both of those but and they have great deal flow and they're putting their heart and soul into it so it's out of 10,000 investors here I think maybe like less than 25 parents were investors yeah is my guess and we've got so many new folks and faces but we should take some more questions maybe or we have to finish right Jackie okay okay we've got an hour and a half all right everybody this has been another amazing episode of this week in startups special thanks to our host Wilson since Eenie and Emmy Award winning producer Jackie and managing partner Luke who gets the bills paid and we'll see you all next time on this week in startups bye bye


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