7x on Paper. Break Even in Cash. Adam Spector on Staying in the Game After a Sale.

Adam Spector, welcome to Built to Sell Radio.

It is great to be here. Thanks for having me. Thank you so much for having me.

You're welcome. I, you and I are members of an organization called PEF, Post-Exited Founder. I think that's how we actually originally got in touch because LifeIgniter had a pretty big exit. Maybe walk through that and how that's kind of changed your world.

Yeah, absolutely. So, John, so, so LifeIgniter was a really interesting company. The thesis at the time was we wanted to personalize every single internet action or activity. And the idea behind that— so this was— you have to think back. So this was like— I'm double-checking my memory even here— 2014, right? So 2014, it's pretty early days in the world of personalization. All of us are used to— when I say personalization, if you go on— I assume you look at YouTube regularly. Most people do. Your YouTube feed is completely different than mine, number one.

Sure.

But your YouTube feed actually also changes in real time. So if you're on the go on your phone, your feed might look a bit different than when you look at it on your computer sitting at your home or your office. It also might change based on your searches, based on activities, you name it, right? Like if you fly to a new country, you might start seeing new YouTube videos about being in Paris, if that's where you flew to or something. So my co-founder at the time, he actually came from, he's one of the 5 people who actually created the YouTube machine learning algorithm to personalize YouTube. So the first mass use of YouTube, of machine learning, not artificial intelligence. This is like very pre-artificial intelligence to personalize YouTube and they saw massive gains. So he decided to leave, has an amazing background, decided to leave YouTube and Google and went through Y Combinator and then kind of basically LiftIgniter was started. And with the idea being we want to go personalize all the other websites. So shopping websites, imagine you're looking for, you're wearing a nice black t-shirt, it looks like right now. You want to go personalize and get a great new black t-shirt. Well, how do you go find that t-shirt on the website or with news and media? Right. Well, YouTube seeing 20, 30, 40, 50%, I don't remember the exact numbers, improvement in click-through rate, in time on site, these metrics that really drive revenue for YouTube. Why can't everyone else drive the same numbers as well? And so that was the thesis of LiftIgniter as we were igniting your lift in a sense.

So you sold to website owners, people who had websites?

Yeah, we sold to media website owners and essentially, uh, brand owners, right? So you're selling your product online. You need to, you want to increase the value of the shopping cart. And so we would sell to those, those were our 2 target markets.

And what was the revenue model? Did you do a rev share or did you sell it just like right up?

One of the hardest challenges. Great question. It was rev share at times we tried to do. So we tried to do rev share, but doing attribution was really difficult, right? So deciding, was it because of us that you had this increase in sales? Or time on site, or it's because of something else. And so that was really difficult, frankly. The other one we tried to do is sort of sell essentially a SaaS agreement, right? So number of engagements or people on site or website visits, we would, we would price that out essentially on the amount, essentially amount of data flowing through our systems would be sort of more of a SaaS price.

And sort of walk me through sort of how big did you get? Maybe talk about the exit a little bit, like whatever.

So we were doing kind of the low millions in revenue, nothing like massive. We had raised decent money from venture capital. capitalists who were very supportive of things. But I think we realized that the market was incredibly difficult to sell into. And I don't know what's happened to it today, but I think it's still very difficult to sell into for the question you just asked, which is attribution. So if you can't prove that you're getting this massive uplift, how do you end up getting paid? Right? So yes, everyone wants more sales, right? Everyone wants to get more sales in any, any business and market, but being able to prove it and therefore getting paid for it and essentially showing you have an ROI It's difficult.

Yeah.

And so we were making some money, but it capped out and it just didn't keep growing. Some serious discussions with the board, decided to bring on essentially a new CEO to help us sell the business as well. Brought in that CEO, looked through selling it, found a company that was in the marketing space, which was sort of the space we were in, essentially a company called Maven, and got acquired by Maven. It was an okay exit. It was kind of more of a, I think, good landing spot for the technical team. I left, but more of a good, more of a good landing spot Spot with some good outcomes and paydays for everyone if they stuck around than anything else than that. So it was, it was an okay exit. It was not great, still an exit. And I think the investors got some money back and certainly the team got paid pretty well. And so it was okay.

Got it. So I'm reading between the lines that the VCs who invested had preference pref shares. They needed to get paid back first when all of a sudden there wasn't left much for the founders. I heard it described very similar exit maybe 3 months ago. As for the founder, he said, you know, there's life-changing exits, there's house-changing exits, and there are car-changing exits. This was a car-changing exit. I don't, I don't know if that resonates at all, but were you in any of those 3 buckets?

It definitely, it definitely resonates. This is definitely more than the car-changing exit. Um, for sure. Unfortunately, I mean, it was still an exit and, and I'm proud of where we got it to. And so it was something real and valuable for the team, especially, and, and for the investors. It worked out. But it was not amazing. And the funny thing about that actually in some ways is I also had sort of a card-changing exit at my very first job in Silicon Valley, not my own company by a long shot, but I moved out here, wanted to go work at a tech company out in Silicon Valley. I was very excited, got this amazing job at this company. The company sold for, it's called Clearwell Systems, got sold for $400 million. So it was a very good exit. And me as a very junior sort of peon down there, I still made card-changing money, which goes to show you that being the founder and all that stress and work you put in is not

all. Isn't that interesting? So you made kind of roughly the same amount between being a junior employee in a startup that had a huge success compared with being a co-founder of a very promising but very stressful business. How do you look at it now? I think, you know, enough time has gone by. I think it was 5 years ago, 6 years ago.

Yeah. Lift United was 2018. So, uh, 2018.

Okay.

8 years.

How do you look back on it now? 8 years. Frustration, resentment, satisfaction. Like, I mean, I like this. The easy answer is very satisfying. It's great. It was, you learned a lot that the employees landed where they should have, but like all that stuff is good. And that's, but like for you personally, do you, are you resentful of that business or?

Yeah, no, no. I, I, I actually, I actually kind of am. The, the challenges at the time. Um, so I wanted to keep going with the business. I, I didn't want to My co-founder who was CEO disagreed and the board disagreed. Granted, I was the business guy, he was the very strong technical lead. So if you're going to bet on someone, you're going to bet on a technical lead who has a chance of making things happen in a different direction and has value just for the exit potential with him and his background. So I understand in retrospect their decision, but no, it was very painful at the time. It was really, really hurtful because I felt like I was the one really driving the company. Making it move forward. My co-founder had kind of run out of steam in a lot of cases and was not interested in taking the next big leap. And I thought we really had something there. Obviously, in retrospect, I might have been very much wrong, but at the same time, at the moment in time, it was very frustrating because as I said, I thought I was the one really leading it and this was my place and we were going to make it happen. We had runway, we had things happening, we were moving into more exciting fields. And one thing I've learned, maybe not at that point, but certainly subsequently, In many cases is the people who do the best are the ones who keep pushing through. If you give up, you end up hurting your chances by a long shot. Whereas if you stick around, good things start happening. So one potential future that could have happened, right, had we stuck around and stuck at it, we had a team of top-tier machine learning people. Fantastic, really, really smart top-tier machine learning people. You know, what was it, 2021, 2022, when you start seeing really big things happen with top-tier researchers with machine learning and start artificial intelligence. And obviously that has just gone bonkers. Like, had we stuck it through and just said, you know, we really enjoy working together, we were able to raise money because we have a good team. Let's see what else we can make happen. Who knows what could have, what could have occurred? Maybe we would have had to pivot, right? The market itself wasn't the strongest, but so many things could have happened. And yeah, so, so long-winded way of saying, yeah, I was frustrated and it didn't all work out for the best. It was fine. I've done fine. There's no hard feelings in that sense, but yeah, it could have turned out very differently had we made different decisions.

Interesting. Walk me through the legal plumbing of that. I've never been involved in a venture deal, so I don't know the specifics, but did you, like, how did you get overruled effectively? Like, did the VCs have a veto on your business strategy? Did you not have enough shares? Like, how does that work legally? Great question.

Yeah, I mean, it's essentially, I had a board seat and my co-founder did. He was CEO though. He had a lot more equity than I did and the shareholders, the VCs did as well. And so, yeah, I mean, essentially it was sort of 2 out of 3 voted to say, hey, like we want to move on and try to sell the business and make that decision. And that was a really difficult choice. It was one, once again, I disagreed with. But yeah, I mean, essentially you get outvoted with shares and with board seats and decisions made. Those are tough decisions. Everyone's good people. We're all trying to do the right thing. But it's really hard when you're, when you really feel like you're pouring your blood, sweat, and tears into so many, so much, and you disagree with the direction and you feel like you have failed to convince the people you work closely with of the vision that you see. That's, that's a failure on my part that I failed to convince them, but it's also painful to think that I failed to convince them.

And did you leave soon after or did you stick around?

I left soon after. Yeah. I mean, the acquisition was very much focused on essentially the tech team and the talent there. And that's also tough, right? This is something that I felt like once again, I was driving in a really big way. And yes, I was not technical anywhere close to the way the rest of the team was. But that's, that's a tough thing to say goodbye to when you're in this like for 4 years and like pretty deep in it and working really hard and going through tough decisions throughout. It's— yeah. And I mean, I still— it's funny, our old offices are relatively close by to where I live today. And so I see that office on a pretty regular basis. And I think Man, the things that could have happened had we just stuck with it.

Interesting. Interesting. But where do you go from there? Because you did get involved in investing in startups. So maybe connect the dots for me. How do you go from leaving this company in difficult circumstances to becoming an investor? Maybe walk me through that journey.

Yeah, I mean, so many different things. One, my investing actually started before that. So, so one of the key things, so for your audience really should know, you know, I'm based in San Francisco. I've been here 16 years now. One of the key things that I realized pretty early on is I'm going out and hanging out with all these entrepreneurs who are building really cool companies and they're raising money and building really cool things. How could I go invest in them, but actually, but be able to do that? Essentially what I mean is no one wants to take some $1,000 check. From me, right? Like, and I didn't have very much money, so no one wanted to take my $1,000 check. So how could I go do that? Well, what you do is you get a bunch of people together who say, hey, we want to invest with you. We don't have access. Like, let's pretend there's lots of people on the East Coast. I'm from the East Coast originally. Lots of people on the East Coast who have access or have money. Sorry, I have access, they have money. Let's band together and we'll make some smart decisions. So essentially that's what I did. God, I want to say it was 2012, probably. When I started doing that and it led to all these opportunities actually because I started investing and of course post-Lift Igniter and even during Lift Igniter, I accelerated that because you're deep in the ecosystem, you're going to all the events. I mean, this is why I would argue everyone, if they want to invest in anything, you should be deep in it, right? To be better, have a little alpha, be better and different than everyone else. I mean, I was deep in the startup ecosystem. In fact, I would feel like in some ways I still am. Different than I used to be, but in some ways I still am.

Were you using like a syndicate, like a, what's it called, AngelList or AngelList?

Yeah, great. I recommend everyone get on AngelList, by the way. And we can talk more about that too. Yeah. So, so essentially we were, we were, so what I created was before AngelList existed and SPVs, special purpose vehicles, all those things was way before that time. We essentially created like a syndicate though, kind of a legal structure that allowed us to pool together money in a smart way. Everyone got different percentages. I personally did not get a, I don't get like a management fee of the investing that I was doing then. It just meant that my, you know, $1,000 or $2,000 check became a $20,000 or $50,000 check because we'd pool together our money and, you know, then my $2,000 would be 10% of a $20,000 check and I'd get, I'd get 10% of the proceeds if we sold, if we, if we got an exit.

And how did you do that at scale? Were like, like, were you taking those tranches of $20,000 and $50,000 and placing them directly with the founder? Or was there some intermediary or no?

No, no, no. So we would place it directly. So nowadays you can do it of via an intermediary a lot more. But at the time, a lot of the stuff at the time was very much so you just go direct. There weren't really a lot of angels the way they're, the way they're, the way there are now. So you could go direct and if you could provide some value, most founders would want you involved. And so, you know, some examples of this, one was a company that I got to know the founder. We went on a kind of founder retreat, like cowboy founder retreat. I forget why I went even, I think it might have been literally a marketing thing for LiftIgniter actually at the time. So I went to this event, LiftIgniter paid because it was with a bunch of like good like PR people and like newspapers and stuff like that. So it was like good marketing. Ended up hanging out with this founder there a ton. When we got back to San Francisco, we went and grabbed a coffee, started talking about his startup. He literally had just gotten into Y Combinator. And I was like, hey, I would love to invest. He's like, well, I'm doing a small amount for like friends and family. Essentially like before our demo day, which, because if you know anything about Y Combinator, after demo day or at demo day, your price usually skyrockets a bunch because you come a lot further and there's a lot more people bidding on your price because I'm doing a small round. So I invested. That company is what's now called Human Interest, which is a great 401 company, and they're worth, I don't know, $2 or $3 billion right now.

Really?

Yeah. Yeah. And I invested at an $8 million valuation. So yeah, we were literally at a coffee shop. He had like 2, 3 people on the team maybe at the time. They had no revenue, of course, nothing.

Yeah.

But, and we were just talking about, and I was like very impressed by what he was doing and how he was thinking about it. And we can talk about those sorts of things that I look for when I invest, but it just made sense. And so—

How has your portfolio performed since you started in 2012? Have you actually sat down to do the math and said that for every $100 I put into venture investing, I've gotten out, you know, Why?

So there's 2 answers there, John. So yes, I've definitely done that math. On paper, it's probably like, I want to say like a 7 or 8x overall. Wow. But big caveat with the but. So that's on paper, not realized returns. Realized returns were basically above breakeven, but basically breakeven. So the reason that's important is because I would argue early-stage investing nowadays is not a great place to play. I still do a little bit of early-stage investing myself, but not nearly as much. And we can talk about the reasons why. But at a high level, what I've learned over this whole period is like, look, so I'm, you know, we're, we're net positive. All the, every, every exit we get from now on going forward is in the money, right? Wonderful.

Mm-hmm.

At the same time, like, had we taken that money that we invested, all the investors in this group that I'm a part of and various funds that I've done as well, and just put it into the S&P 500, I don't know, we probably would've been maybe the same outcomes, but with a lot being a lot more liquid. So now, on the other hand, it's fun for me. I've enjoyed it. I've gotten to know a lot of founders. I've been involved in the ecosystem in different ways. It leads to all these new opportunities. So maybe it's still positive, even if the economics are the same as it would be just doing a passive index fund in the public markets.

You know, one of the most common things I hear from entrepreneurs who are planning to sell their business, when I ask them like, what are you going to do after? I hear things like, I'm going to do some angel investing or angel advising or venture investing or investing. Those are all very common themes, sort of different flavors of the same thing. It sounds like to me, I don't want all the hassles of running a day-to-day company, you know, like the employee nonsense and the regulations. Any of that, but I still want to be in the game. I still have something to contribute and I want to like support the ecosystem and be an advisor. That's what I hear. Walk me through what you learned from being on the inside of being an investor. Like what, what do people not get about being an investor in early stage startups?

2 things. One, you probably won't be as involved as you think you will be. So if you're doing it to be involved and be in the game, you probably won't be. Now, look, you might be in a lot more conversations. So if you're just enjoying conversations with founders and founders are looking for money, so if you want to just have interesting conversations, that's a great way to do it, is having money to invest. They'll talk to you. So that's helpful. So that's why you're doing it. Great. If you're doing it, on the other hand, to really think I'm going to be involved and help this business out, probably not. I'm actually shocked by how many founders and investments that I've made don't ask for a lot of advice. I think only 25% of my investments even send out quarterly updates, investor updates. Many don't. So you don't have any idea what's happening. And if you think you'll get some like great amount of satisfaction from investing because you feel like, oh, I helped this company grow into this massive new thing, don't expect that either. In fact, I actually feel almost guilty. Right. So the example with Human Interest, look, I got lucky. Maybe I like to think I have some skills, but I essentially got lucky. Like the founders did a lot of— the founders did the large, large Large majority of the work. I maybe gave— I may have— I hope I gave a little bit of good advice at the beginning and was helpful then, but they did all the work. So in the end, credit's to them. I just have to sit back and hopefully collect my money when they go public. That's it. So like, it's not the most fulfilling thing in the world. Right. And then you got other things, you know, you got taxes on top, then you have all these hassles that go into it. So do it for the right reasons, which is like you want to talk to lots of startups and this is a really good, easy way and entrée in. But I wouldn't do it for the financial return elements.

Interesting. Biggest mistake you made as an investor?

I mean, all the money that I've lost in so many different ways. Is there the biggest mistake? I mean, look, there's been, I said net-net, I've probably done, I think I've done way better than the large majority of venture capitalists who are professionals at this. But probably the big, actually 2 big mistakes. One is certainly the money that I've lost in bad decisions that I've made. I invested in a company that was a complete fraud. I actually, we got 90% of our money back, had to threaten to sue and a bunch of other things, but I invested in a company that was a fraud. I missed that. That was a mistake. Probably my other mistake, and this is just like life paths not taken because of the investments that I've made and success that I've had. I probably could have gone down the venture capitalist route and either built my own firm or done some similar things. And I regret, I don't really believe in regret, but I regret that a little bit that I didn't go down that path. further. And really, because I know plenty of people who are my age or similar have done very similar things when it comes to investing and have built really big and successful firms. There's something to be said for that. And I didn't go down that path. And so I regret that a little bit too. It's, I've passed my time now. I'm not going to go do that, but I had opportunities and I maybe should have.

Yeah. If you were talking to a founder and you are talking to a lot of them right now about to sell their company, they get liquid, they've got some cash and they're thinking, you know, I really want to be an angel investor. What would you tell them?

What are your goals is what I would actually ask as a question first. I'd say, what are your goals? Once again, are your goals to get— are your goals to be involved in ecosystem more? And then if the answer is yes, then yeah, then, then say I'm willing to lose $100,000, $500,000, whatever your money is per year that you're willing to invest in companies. You don't need to invest a lot to be an angel investor, right? You can invest $5,000 or $10,000. You could do it for a low cost. But hey, if that's— if it's worth it to you to essentially say, I'm going to lose this money, but I'm going to have so much fun spending time with these entrepreneurs, getting to know so many different ones, having great conversations about cool things they're building, then do it for that reason. If your goal is to increase your wealth and see it grow, I would really, I would like put it in public stock markets or invest in later stage things, which we can talk about, which is more of what I'm doing.

Mm-hmm.

But I would put it into late stage and not early stage startups.

When you say you're investing in late stage, maybe walk me through what you mean by that, how you're getting access to late stage deals.

Yeah. So I mean, late stage deals, you can get access in a lot of different ways. There's lots of special purpose vehicles. There's a lot of different groups online. AngelList is definitely the best resource for this. I would go sign up. So what I would do, actually, what I would do as an angel investor, I'd go sign up for AngelList. I'd become part of Angel Squad, which is something that Hustle Fund, which I highly recommend, great firm. They kind of help, help sort of— they're affiliated with in a sense. Angel Squad is great. It's a ton. It's probably, I don't know, 1,000 angel investors. They see deals on a regular basis. There might, there might be a yearly fee for it, relatively low. So you can see every deal that comes through and talk to them and hear the pitches and all these things. Great way to get started. So I definitely participate in that. And, and then you can see the deals, get involved. With that said, I still don't know if I would mostly put my money in early stage. It'd be later stage. In later stage deals, you see it from SPVs, AngelList, more likely to have later stage deals that are pretty interesting or various groups. So as an example, I was lucky enough to be part of a group that did a very, very, very late stage investment in a few different companies. So one would be Anthropic, right? So Anthropic, huge company. We were part of an SPV. Now SPVs, who knows how good they are? There's lots of questions around whether they're legal and how well they're going to work. When and if Anthropic goes public, I'll see if, you know, ask me in like a year from after that and see if I actually got money from that. But I should have. And that went, you know, that's going from— we invested at about a $330 billion valuation, which is crazy. But there's talk of them going public for $2 trillion, and that's in 8 months difference. Like, that's an amazing return in 8 months.

Yeah.

Now, once again, it will take longer for whatever the SPV is we're in to be able to sell, but other late-stage deals that get vetted. So Another one was Anduril. So invested in Anduril in a late-stage deal at about $6 billion valuation.

But how are you— you referenced this acronym SPV.

SPV, special purpose vehicle.

Okay. But how are you finding out about that kind of stuff?

Yeah. So some of it, most of the ones that I do, I hear of directly just because I'm now in the ecosystem. So people will give me a call and be like, hey, we're doing this deal. I'm part of a group as well. That's sort of a small group of investors that talk through different deals and have deals come up. in their network and they say, hey, we're doing this deal. Do you want to participate? Some of the funds that I'm also an investor, so I'm an LP in some funds, not very many. Limited partner. Limited partner. Yeah. In a few funds as well. They'll sometimes say, hey, like we're doing this deal later stage. It's not really for the fund itself, but do you want to participate? So as an example, just signed up for one this week that, well, one of the, the individual who runs the fund said, hey, this is a deal that I'm doing personally. It's not for the fund. Here's how much money I'm putting in, which is a significant amount. If you want to invest, Here's the link to go do it. Please sign up. It's like a 2-day decision and that's that.

And what kind of checks are you writing in these late-stage deals?

Our check size is still small. We're not, you know, my group is not one of these, you know, big, big players. So it's anywhere from about $50,000 to $100,000.

And this is a group of you that write the check and then you all have, and you're not taking a fee like most management companies, as I understand it, will take like a 2 and 20 or something. There's some sort of management fee. These are just buddies of yours that you've— Correct. Yeah, we just do it.

essentially pool our money. I'm doing it because I want to put money into these deals and writing a small, small check once again either won't get you in. Sometimes there's a minimum for a lot of these larger SPVs at later stages. I mean, these SPVs are raising $20, $30, $50, $100 million, maybe not the SPVs themselves, but in that funding round is big. And so the SPV doesn't want a ton of $1,000 checks. They want bigger checks. And so it's— I do it for that reason.

And what's the— like, what is the definition of an SPV? What does that mean?

It's—

I know the word, I know the acronym stands for it, but I don't know what it is.

Yeah, it's a great question. The way to think of an SPV is essentially a legal contract that brings together a bunch of people and says, okay, so we have an entity, let's call it Investing Entity A, as what your SPV is called. Your special purpose vehicle is Entity Investing A. Underneath Entity Special A, this contract, there's a dozen or 2 dozen or 3 dozen investors. But that entity is the only one that's actually investing in the company. So essentially, so the company, imagine I'm a company. I don't want to have 100 different individual investors because you cap out. There's actually some legal rules around how many investors you can have on your cap table. So I'd rather they pool together in a single contract that's a group of them. That's kind of, so that essentially the SPV represents a group of investors.

Got it.

And then you can also charge fees on top and other things as well if you're the SPV manager.

Okay. And so in a way, you're managing a small informal SPV.

In a sense, yeah. But we're just doing it directly in— then we invest in other SPVs in some cases, or we'll go direct depending on the circumstance and situation and what we're doing in the stage of the company and things like that. And yeah, so it's essentially our own special one, but without fees.

And how, like, if you had a pie chart of your net worth or your, however much you invest in Businesses, what proportion would be in early stage, call it VC/angel? What proportion would be in these kind of later stage SPVs? And then what proportion would be in like the public markets?

Man, that's a great question. I should have a good answer to that. Let me think through the numbers. I think at a high level, I bet, look, you have to understand, and your listeners should bear in mind, I'm a I'm fairly like, I've been in Silicon Valley 16 years again, and so I'm very pro technology and where that's taking the world. And I'm willing to make more bets on technology and where it will take us than most people probably are and should even be comfortable taking. So, and obviously, to be clear, none of this is financial advice, all the disclosures, etc., etc., all that other stuff. But I think mine is probably like 10 or 15% in early stage deals. Maybe another 10%, probably less than that even in later stage deals, mostly because I've only started doing later stage deals in the past 3 years. I think the world has changed a lot in the past 3 years, which is why I'm doing more later stage now. Then pretty much all the rest is in a few different alternatives. And then I don't know, at least 50%, maybe 60% is like public markets.

Okay. So this isn't the majority of your wealth. You're still hedging with some sort of public stuff and yeah.

Correct. But I would say my own, you know, if I'm doing an analysis of myself as an individual, I would say part of my failing is that I'm probably too conservative. So the best investors out there— You

don't

sound like it. I appreciate that. I think compared to people I know in Silicon Valley, I think I am.

Really?

Especially the investors, right? The investors here, the way you become really rich as an investor is you make one or two super concentrated bets and you get it right. Critical point and you get it right, of course, but you make really concentrated bets. I've taken the perspective that I'm going to make a bunch of smaller bets, essentially like an ETF, like public market ETF on early stage. Now the data actually supports— there's been a bunch of analysis of this. The data actually supports sort of an ETF-style approach to investing where you're investing obviously in companies you think are going to be really good, but a broad-based number of them will actually have better returns compared to just making very, very concentrated bets. With the caveat being, That's comparing broad-based bets to the average venture capitalist. The average— and to be clear, the average venture capitalist is terrible at their job. I have friends with lots of them, so no offense, but the average VC is not very good at what they do. And most of them have actually very bad returns. If you look at most venture capitalist funds, they underperform the market consistently over the past 10 to 15 years. Now, we've had a massive bull market in the past 10 to 15 years, but they massively underperformed. Now, the top 1%, maybe 5% of VC firms have absolutely blown it out and they've done incredibly well. So the ETF approach beats 95% of VCs, but it also isn't going to make you massively rich like the top 1% who just because of deal flow or brand name or whatever it is, gets into the hottest deals and they can throw a ton of money in and they see those companies Have massive, massive returns.

What is it about VCs that make them crappy at their job? I'm fascinated by that.

Oh man, like I, that's the, I will say this is an area that I have not spent probably enough time thinking about, but I can speculate. And to be clear, it's speculation. I think for a lot of them, you get very jaded very quickly. So you end up seeing a lot of the same deals. They all sound sort of the same. You're like, okay, I've seen 5 other companies that say they're doing the same thing. Why are you going to be different this time? And the fact is, they might not have actually seen 5 companies doing the same thing because the world has changed, right? So machine learning, when I did Lyft Igniter, those were really early days. Had, however, 8 years later we said, hey, we're now an AI company building other AI things, same team, slightly different story, we would have raised $100 or $200 or $300 million at a probably billion-dollar valuation. Right? Like the world just changes, but that's because the technology changes. And so just because you saw something and it didn't work a few years ago doesn't mean it won't work today. And VCs get jaded. They just see so many deals. So they're like, it's really in their job. Remember, their job is to say no. It's not to believe. Their job is to say no. And so you get good at saying no and it's hard to say yes. And so you say yes, maybe on the wrong things. And you can only, and you can only make a few bets. So once again, the VCs are trying to be very concentrated with good reason. That's how you win. The problem is that means you're doing, depending on the VC, 1 or 2, maybe 3 deals a year. And you're, you're talking to a dozen, 2 dozen founders a week. That's really hard.

It's a lot.

It's a lot. And then you, and you got to pick the 3 out of that. I can't even do the math, but like the 3 out of that 20, 30 people you're seeing a week, 3 to do out of the whole year.

So by contrast, when you did early-stage investing, it sounded almost, and I don't want this, this isn't intended to be criticism, but it almost sounded like you were writing like almost checks that you didn't expect to return anything. They were, you wanted to support the entrepreneur. Am I reading between the lines incorrectly or? A little bit incorrectly there. And that's my

own fault for not describing it. So no, we definitely wanted a return. That was absolutely the goal. But we, because I was already in the ecosystem, I didn't need to invest to kind of get more access. I was in it. I was going to every event and friends with everybody and all those things. And now I'm married with kids. I don't go to all that many events anymore.

Yeah.

But I was doing it. No, I thought there was a great return. And once again, on paper, absolutely has been, have a fantastic return profile on paper. The difference once again, though, is like I was too conservative. I wasn't writing these big checks, so I should have written these big checks into some of these bigger companies and said, hey, like, we're going to do more because it's not worth it to do the small checks. Like, don't get me wrong, if Human Interest— and actually I shouldn't say if— when they go public, right, that'll be a fantastic return on paper.

Sounds like it. Yeah.

But, but like our check size was relatively small. And therefore it's probably not going to make a life difference to me, right? It won't be— it'd probably be better than car money, what you just said, but it won't be house money either.

Yeah.

Because we just didn't invest enough in—

So how do you stick handle these conversations with your partner? I'd just be curious to know. Yeah. Like, how do you talk about it? Like, is it a shared decision? Is this kind of your fun money and you get to do with them whatever you want to? Like, where are you at with that?

Essentially, I try to write a short memo explaining why I think this deal's an interesting deal, and then we vote pretty quickly. So we move pretty fast in this case, in our little group, we move pretty fast. We've been doing it together for a long time.

Sorry, Adam. My question was more your spouse. I was wondering about your life partner. Like, how, like, is this like, Adam, just do your thing. I'm fine. Like, I don't care what you invest in.

Or

like, where are you guys?

Luckily, my wife is Very trusting of me and understands that I think deeply about the financial aspects. And I'm also pretty conservative, right? There are a lot of people who make a lot of bets, and I bet if I were someone who was making lots of bets or going into debt, she might have a very different perspective. But I'm the opposite of that. Once again, I'm probably too conservative and probably should be willing to spend more money on certain things and make bigger bets and bigger swings. So she trusts me that I can make these decisions and be smart about it. And she also knows, you know, I'm not mortgaging the house on the next great company. Now, maybe I should have, right? There's an argument I should have when I had the opportunity to invest in Anthropic, I should have said we're mortgaging our house. This company's clearly the future. And that would've been a, you know, 4 or 5x return in less than a year. But I'm too conservative for that. I'm not willing to put our house on the line. And if that goes wrong, we're out of a place to live. Like, I just won't do that. Okay. I don't know. Like, I'm lucky enough, honestly, like this is part of my peace about where I am in my life right now. That money's not going to make a massive difference To me, like maybe it means, you know, you fly business class instead of coach or something, but like I can still go on the vacations I want to go on. I can afford my daily things. I can sleep at night as well. And so mortgaging the house to make a massive bet on something wouldn't be worth the stress and it wouldn't change my life in a massive way. And that's actually really lucky to be able to say.

It's a really good point. I remember reading years ago one of Branson's autobiographies, Richard Branson, and he was describing the startup of the airline Virgin Atlantic, I guess it was. And he was, he had, he kind of negotiated a put option, meaning like the ability to, he was going to buy the plane, the first plane, but he had the rights to return it if it didn't work within whatever, 6 or 12 months and just hedging his bets. Like he wasn't, and I think there's a bit of a misconception about entrepreneurs, like we're all these wild risk-takers. It sounds like in your case and in many other cases, you know, you're relatively conservative with your investing.

Well, and this, look, this is once again something that I've come to conclude A little bit more in my, my older age. I still feel very young, but in my older age, which is that like the, the, I'm a good entrepreneur. In fact, you could argue maybe a great one, right? I've been around here long enough. I built some really good companies and I've been at it and I've kind of seen enough that like I'm better than the large majority, but I don't know if I'm great, like great, great. And the reason is probably because I'm not crazy enough, right? The crazy ones are the ones like Elon Musk who will put it all on the line, mortgage everything because he believes, he knows that he can work harder. And he's smart, not necessarily smarter, he just will work harder than everyone else. And I don't have that level of crazy where I'm just willing to throw it all down and make that bet. And that's a failure in a sense for me as a, as an entrepreneur. It's probably really good for my wife and for my kids and for my family and everything else because those people also burn out, right? You see the Elon Musks of the world, but there's also 99 other people who were wanting to be Elon, like Elon, like Elon Musk. And instead, have lost their houses and are in complete debt and have lost their spouses and wives and kids and everything else because they, they, they did bet it all and they bet wrong. So I'm, I'm okay with that tradeoff, but like, it's something I do have to recognize. I'll give you one other example that's sort of an interesting one about how I was able to see what was coming before everyone else, which is part of what being a great investor is about. But I was too conservative. So I kind of knew COVID was coming. I just, I once again, I'm kind of deep in the networks of all these people who are very connected. Lots of people having conversations. You start reading all these different things about it happening. Everyone's like, no, this isn't real. This isn't a thing. I'm like, no, this is like serious. I built up a bunch of cash, got ready for it. The day, it was some day, I think in March, but the day was like literally the worst for COVID when the market was literally the lowest. Like people had realized like, this is real. Like it's actually happening. Shut down. World is, world is in COVID lockdown.

I think it's when they closed out the NBA was like, that was the kind of straw that broke the camel's back.

They

canceled the NBA game.

I have to double check what exactly it would be. Cancel NBA, all these things It's just like done. The day the market was literally the lowest, I timed it perfectly. I literally bought on the public markets a ton of stuff. First of all, I didn't short it, so that was an error on my part. I didn't believe enough, but I did have cash and I bought. But guess what I bought? I bought freaking bonds because I was too conservative. And so like I did well, like in a sense, like they did okay, but like I was too conservative. I didn't really buy any of the risk-on assets that I should have bought. And they would've crushed it. And that was just me being conservative.

But you're tough on yourself because, I mean, for a lot of people listening, you're very aggressive. So I don't, yeah, I guess it depends on your context. You mentioned yourself, you're in Silicon Valley, so this may seem conservative, but on the outside I feel like, wow, you're invested in all these companies. You got a significant portion of your wealth tied to early-stage and private companies. It all sounds, I think you're tough on yourself.

I appreciate that, John. I'll take it. Thank you. And maybe I am, but I think I've missed out on far greater wealth creation by being more conservative. But once again, I don't regret that because that's just who I am and it lets me sleep well at night, which is far worth far more than a little bit of extra money in my bank account.

Yeah, for sure. For sure. Tell me about Chor. This is a new company you've got. Going? Like, give me the thesis here.

Yeah, new-ish. It's kind of an interesting story. So in 2000, this is literally, or 2020, sorry, not 2000, 2020, right before COVID started, I decided to start a new company, which was not a good idea because I did, I was like, I think COVID's like happening, but I also want to go start this company. And I had a good co-founder and we like, we should go do this together. So like the time's right, let's go do this. And we decided to go start this company. It was actually called Abstract Ops at the time. It's still running. We ended up raising $10 million for it. The whole thesis was we were going to automate the back office. So I know you and lots of the entrepreneurs that are listening have dealt with the problem that we solve, which is I have a vision for something that I care about deeply. Like I want to go build the best pie shop in the world or the best SaaS company or the best lawn mowing business, whatever it is. Right. And you're probably world class at doing that thing. You're really good, better than almost anyone else, which is why you took a bet on yourself. You said, I can bet on myself because I'm so good at doing this. You then grow the business. And then suddenly you're mired in all the day-to-day admin. You're like, oh my God, I got to run payroll. I don't even understand payroll because it's not why I started my business. I need to go do payroll. I need to figure out finance. I need to figure out compliance. I need to do all these things. I have no idea how to do them. I'm not good at them. And frankly, most companies fail not because the entrepreneur is bad at the core idea of their business. They are bad managers and they are bad at the admin, so they mess up those things. I was reading about a restaurant Chef in San Francisco recently. His his restaurant won got a Michelin star, all these other things. It utterly failed because he's a terrible manager. He's now realized that he sort of said like mea culpa. I'm a terrible manager. I'm great at making food, but I'm a terrible manager. That's why it failed. But if you go talk to so many founders, that is why their businesses fail is because of that. Because they've never like they don't know. Understandably, they don't know how to run the back office. So Chor, we, we do the back office work. We are essentially your fractional team, human resources, finance, compliance team to do all of that work. And, and, and so going back to the history, AbstractOps was meant to automate that with technology. That kind of failed because everything's an edge case with back office work. There's always random little things. So that sort of failed. Um, we then decided to name Chor. We got no money from our company. So we had $10 million we raised for AbstractOps. I got $0. I did get some customers and some revenue, all money losing. We were losing money. I made a personal loan to the company to cover payroll. I told all of our customers, we're going to raise your price by a ton because we need to make money now. They all stuck around and we've grown that 4 to 5x and profitably as well. And over the past almost 4 years.

Hmm. Where are you now? Revenue or number of customers? Like, what do you— what do you guys measure?

Um, we're north of 100 customers today. We are doing a few million in revenue a year. With pretty decent margins. And our goal is to grow, you know, I look, I would love to grow 100%, 200% a year because once again, I live in Silicon Valley and those are the numbers people do. But I'll be pretty happy if we can do 50% plus growth year over year. That's not bad.

Yeah, sounds like that would be an amazing exit. And sort of what are you thinking as it relates to ultimately chore and the long-term vision? Is this built to sell or will you eventually exit?

You know, it's a challenge that I think through a lot and a few reasons. Like one, we do have interest from folks on 2 different fronts. We get VCs who reach out who say, hey, we want to invest in you. And mostly what I tell them is like, we're not ready yet because I know what happens when you take venture capital money. And I don't care about raising some big round and announcing it to people. I just don't, my ego doesn't care anymore. And when you take it, you're on a clock. To hit, to figure out your next big thing and keep it growing really fast. And I don't, we haven't unlocked yet what that growth lever is to grow at 1,000% sort of numbers. So we don't know what that is right now. So I'm not gonna take venture capital dollars. We also had inbound interest from acquirers. Um, and, and it's something that I think through sometimes. It's really tough because I love my team. I love what we're building. I think we have a huge opportunity in front of us. The simple fact is like every company needs what we do. There are very few companies that do what we do. AI is making it essentially easier for us to do our job. And actually that means we'll probably be able to offer our product for a lower price over time, which expands our market, which means we can help every entrepreneur that's out there, which is kind of our personal mission is I want to make every entrepreneur a success. I hate the idea of all these businesses failing because they're bad at running human resources. Like, that sucks. So I think through all those questions a lot. I'm like, do we, do we take an offer? offer? Do we get sold? Is it better to be part of a bigger company?

How do you make that calculus? Like what's a lot of our listeners are trying to think that through right now. Like they're saying, do I stay or do I go? You know, like what, what is, I mean, so how do you think about?

Yeah. So I think in 2 different ways, I think, oh, the 2 main ways I think about it right now is like, look, there's a price in my mind. It's like, look, if someone offers me this much, I would sell as long as we guarantee sort of the team is going to be in good shape. If we can sort of say, hey, we're going to sell, but the team's going to be in good shape and I can make sure my team is taken care of for the right price. Yeah, like I wouldn't say no to that, right? I've been at this for now coming up on 4 years for Chor, 2 and a half before that for Abstract Ops. So, you know, 6 and a half plus years. Um, so it's a good amount of time. Uh, I wouldn't be against it if that opportunity came up. And I would be very happy being part of something that acquired us if I could go help something build bigger, right? I want to— my goal once again is I want to make every entrepreneur a success. So if we can do that better, As part of a larger organization, that's a win for me and it's a win for my team and it's a win for our mission and vision as a company. Now it has to hit the number that makes sense to me because otherwise, why would I give up the autonomy and frankly financial upside for me if I don't feel like I could also do something bigger and better, financially better, but also improve it, improve things for our customers?

How do you calculate your number?

You know, it's not a per— so we need X Millions of dollars to go afford this thing that I've always wanted. I've been able to achieve most of that in my life. So I think more about like, what do I think it really should be worth? And then what's the opportunity cost of me not saying yes to something? So one of those key things I think about a lot is like, okay, well, at our current growth rate and current profits, I have a good idea of how much money I will potentially make for the next few years. However, that is Contrasted with my concerns around AI and how AI is dramatically changing the market right now too, and saying, hey, like you maybe need to be part of something larger to make a really big play at this and really drive value. And if you're not part of something larger, you might get lost because either you don't have the right amount of data or other marketing, like dollars or whatever it is that you might need. And so there's real upside in becoming part of something bigger. And so that's, those are the things I play off a lot. And I think through those and I kind of tell potential acquirers those sorts of questions like, look, We're building really cool things with AI at Shore. I'm really excited about what we can get done here. At the same time, we're small. We're like teeny, right? Like it's a, it's a big, successful business for me as an individual and compared to many people, but we're teeny tiny in the grand scheme of things. And so if we can be part of something bigger for a number that makes sense in that if I look at my future potential earnings for me being CEO of Shore or me being a senior executive at some other company and having equity in it or other things, what do those numbers look like? And then can we achieve our mission and vision that we care about for entrepreneurs?

When you think about what it's worth, are you going to a multiple of EBITDA, a multiple of revenue? Like what, how do you, where do you land it? Because essentially it's a tech-enabled service. Would it be fair to say it's a tech-enabled service?

Yeah, I would say we're actually even more just services right now. Obviously everybody uses tech for sure. And we use lots of tech too in our day-to-day. We're putting, we're doing a lot more with tech. It's going to be very tech-enabled in the next probably 3 to 4 months, but More and more services today. So it's more of an EBITDA multiple for sure. And then, you know, we're more of a services business. So an EBITDA multiple on top of the services business.

So what do you think is a fair multiple? What, like if someone offered you, you fill in the number, 10x EBITDA, would that meet your expectations?

I think 10x EBITDA would be, I'm trying to think what our EBITDA numbers are going to look like for this year. I mean, 10x would be great. I don't think, I don't think those numbers are what exist right now in the market. I think the EBITDA multiples for a services business are like 2 to 3x.

Right now, would that be enough?

Probably not. But like maybe at the higher end of that range, you might start getting somewhere. It probably depends on the acquirer and what they're looking at and what they're doing as a business and what they could offer, right? If it's, if it's cash and equity, well then what's the equity really going to be worth in your company? Do I believe in that as well? Sure, I would love to make a bet for my point about making the bets, but I'm also conservative. So like maybe just the cash and I can just invest that myself and have that freedom to invest that cash however I want instead of betting it on a company and founders that I don't necessarily know. So it's a trade-off.

It all comes back to being an investor as we started this conversation.

It does. And something I talk about actually with every— I mean, the investor part's a good point, John. And what I mean by that is everyone should think about their lives, I think, in some ways as an investment and what they do as an investment too. So investing isn't just about money. It's about where do you invest your time? So I think deeply as much as I can about where am I investing my time and am I making a good investment? So for me, I want to invest in continuous learning and improvement and things like that. And part of that though means I'm taking, I mean, taking current time today to invest in something long-term or current money today to get a bigger return over time. And a lot of people forget that fact and that like, and I talk to like our employees on our team sometimes. I'm like, hey, like this is an investment in your, like You should learn how to use AI. I understand that, like, that it will take you time now and maybe it means you can't watch as much Netflix tonight, but like, but seriously, like the large majority of employees and like people out there in the world today, I think a lot of people in the world today want to sort of Netflix and chill, like post-COVID. That's kind of what you got used to. You can order on DoorDash, get your food, Netflix and chill. You did your job during the day. Congratulations. Well done. For me, I don't live my life that way. I live my life saying I want to continuously invest in my own personal improvement and my improvement for my company. And not just because I'm the owner, sure, that helps me if I invest in my own company and time there, but just because it's the right thing to do for myself. Like, I want to keep learning, so I'm continuously playing with all these tools and trying them out. And I think everyone should have that mindset of, I'm going to invest my time and my energy and potentially money in my future. And that's how you really grow as an individual. Um, and help great things come.

I can't remember who said that. You might know, someone referred to entrepreneurship as the ultimate marshmallow test. Have you heard that before?

I haven't, but I can imagine why.

You're familiar with the marshmallow test to give, you know, young kids a marshmallow and say, you know, I can leave the room. If you eat the marshmallow, that's it. If you, if I come back and there's, you know, you haven't eaten it yet, I'll give you 2. And it's like deferred gratification, heavy predictor of future wealth over time. And I think in a lot of ways entrepreneurship is exactly that, right? Like you're foregoing what you could otherwise do with your time, your money, your resources, your treasures, et cetera, and you are investing them for some future payoff down the road. Correct.

And by the way, I'm very much that way. I live for sort of the delayed gratification. The danger with that once again is you miss out on opportunities. And I actually, one thing I've tried to change as I've gotten older is say, I'm going to Put more money into things sooner because I think they will be useful and worthwhile than wait too long for it. And it can be very small, small things, right? It's like, should I buy a new car? Well, like, my car still runs really well. I don't need a new car, but will I enjoy it in different ways? And so like, and sure, I can sell my car, my current car for an okay amount. Is that an okay trade-off? That's tough for me because I'm like, my car works great. I don't need that. And it goes throughout my life like that, having to ask them that exact question. But I'm trying to be better in saying, you know what, I'm going to invest in certain things. And probably the biggest one where I invest more in now and what I highly suggest everyone does, invest in getting more time back. So why did I name my company Chore, right? Why is it called Chore? Is because I don't think anyone, especially not an entrepreneur, but anyone should be doing chores in their life. Do not be spending time doing things that you view as a chore. So that goes from everything from doing your own laundry. Guess what? I take my laundry to the laundromat for wash and fold because it is a bad use. I don't enjoy it and it's a bad use of my time. And guess what? They are experts doing laundry at the laundromat. They do a great job. My clothes come back clean. They're folded perfectly. All I have to do is put it away. That is worth me spending some money on and getting that off my plate. And now I have more time to spend with my kids or to do work on chore. Or everyone should outsource, like Or I try to outsource as many things at Chor that I can. So I have an EA, I'm using AI to do more things. We outsource a lot of our marketing. We outsource a lot of different product things that we do because there are experts out there. And yeah, I pay them more net, like per hour than I would if I had someone full-time on my team. But hiring those full-time people is timely, costly. I don't know their areas of expertise, so I probably would be a bad manager. And that's work at Chor. So I'm just going to hire the expert and say, look, This is your job. Do a good job. And if you don't, I'll let go of you and I'll find someone who can do it better. And maybe I'll pay more, maybe less. But does that make sense? Like, I just, I think people— founders, founders spend too much time doing chores and not enough time focusing on what their great, like their core competency is, their, their superpower is.

And I think there's probably also an element of You know, when you're, when you first start out, you have no money and you do everything by, by necessity. They're literally, you have to run the payroll, not payroll in the early days, but you have to figure out how the merchant processing works or the, you know, how you get the website DNS to point to the right. Like you have to do all that stuff, but you're right. Over time, that's a tough habit to break, right? Just to always be—

But actually, by the way, to be clear, I would actually disagree with you. So what you just said, I'm going to disagree with you on that, John, which is I don't think you need to spend time understanding how your DNS flows or all these other things. You literally, as a founder, your one goal should be, look, if you don't have any money at all, then maybe you shouldn't start the business. But if you have a little bit of money to go start a real business, you should make sure you set aside enough money to go hire a website developer who it's easy to get a website built up and just say, look, I want a general website that talks about my beautiful pie shop. I'll give you the photos. I'll tell you some of the language or tell me where I have to type in some language. I don't want to learn how to use Lovable or all these other tools to help me build a website. Just go literally just build the whole thing for me. Design it, build it for me. I will pay you $1,000 to take care of the whole thing end to end. I don't want to think about it. Just tell me where I go enter some data. I think you should be willing to do that. I think you should be willing to do that for payroll. Just say, I don't need to understand how the payroll system works. I just need to know my team is going to get paid. Maybe I want healthcare for myself. So like, I'm going to go hire a consultant, maybe like Chore, who's going to go help me figure that out. I don't want to figure out my taxes, so I'm not going to go become a bookkeeper and learn how to do that. I'm going to spend $250 a month to get Charged by Bookkeeper to go run this and do my taxes once a year for $1,000. Like, these are small costs when you compare it to the amount of time you're getting back to go actually build a company that's going to make you money. Like, the most important thing is to get your product to market, get customers to pay you for it, and then keep improving that product as your competitors come up. That's what you should care about.

That's so well said and a great endorsement for Chore. Where can people learn more about Chore and maybe connect with you online?

Yeah, absolutely. We are Hire Chore, so hirechore.com. Um, you should hire us to do your chores. hirechore.com, pretty easy. You can find me all over LinkedIn. Um, a little bit less so on Twitter, which I will always call it Twitter because I'm a former Twitter employee. But Twitter or X, I suppose. But you can find me kind of all over the place. Please get in touch. I'm happy to help out. I said I'm here to make every entrepreneur a success. And so reach out if I can be helpful. We'd love to see what we can do.

Adam, I appreciate you doing this.

John, it was my pleasure. Thanks for having me on.