He raised $350M from China and had to return most of it

Welcome to another CEOism Pod. We have Duncan Logan with us today. Duncan has a very prominent background, I would say, right now. CEO of Nine Zero. He builds an ecosystem where breakthroughs happen. So he's all about community agglomerations, which is also one of my things, believe it or not. Network effects. He's all been about entrepreneurship, innovation, and climate in the last 10, 20 years. Formerly CEO of Rocket Space for 11 years. So we're just going to talk about his venture and his background, which is very impressive as a boy that came from Scotland. So Duncan, welcome to the podcast. Tell us a bit more about yourself and what you're up to.

Yeah, thank you. So as you said, I'm originally from— well, not originally from Scotland. I, you know, I am Scottish. But also now American. I have dual citizenship. But yeah, I started life as a farmer in Scotland, and, you know, I think pretty quickly got drawn to London, to the big city down there, and became a derivative trader for a bank, Swiss bank, and then got into entrepreneurship when I was still young, 24. And so started my first company at 24. We sold that company when I was 27. It was called CityPro. And that just got me totally addicted in the startup world. I then joined a friend's company, Ben White. He was building a company called Message Labs. That company grew to be 700 people and sold to Symantec in 2008 for $700 million. So that was a great experience being part of the team building that. I moved across to the US in 2008 and started RocketSpace, which was this first kind of real idea of bringing like-minded people together. We can talk about that more, but RocketSpace was basically a co-working space/accelerator for venture-funded tech companies. So you had to have raised one round of funding to get into Rocket Space, and you had to be a tech company. And it became famous for companies like Uber and Spotify, Kebam, MOG, Supercell, Flexport, all these little startups that went on to become unicorns. And the idea, you know, really took off. We raised a total of about $350 million into that company, opened in China, opened an office in London. Um, and, and that's where this kind of experience of watching what happens when you bring great people together in a physical community, um, really started to take off.

Let's start with the Scotland boy or farmer boy from Trader. How did that happen? Like, what did you always had, um, an admiration, an admiration for wealthy people and capitalism? Was that the, the move initially?

Yeah, definitely always, always very capitalistic. Um, you know, I was definitely a kind of Thatcherite in the UK of, you know, break the unions and, and, you know, there's two types of people in the world: those who are making things and creating things, and then there's the takers, the politicians and, and others. And I've always been a maker. Um, so yeah, that's, that's where it started. But my, the, the reason I didn't go into farming was my, my parents actually sold the farms when I was going through university. So it kind of really freed me up to go and look at other things. And, um, yeah, I was drawn to the excitement and the money of financial, you know, trading and so forth. Managed to get into a graduate program, um, and, um, yeah, went from there.

And then you saw your friend had a $700 million exit.

Yeah, so Ben—

Open doors in your mind, like, oh, that's like groundbreaking, isn't it?

Yeah, I mean, MessageLabs, the team that built MessageLabs in the UK were a unique group, and we're still all really good friends. It was led by Ben White, but there was Chris Topman, uh, Joss White, um, Steve Millard, um, you know, there's a whole crowd of people who are now all really successful in the UK. I think the thing that surprised me most was we had that exit, which I think at the time was the second largest technology sale ever out of the UK. You know, $700 million now is a B round or a C round, but back then $700 million was a lot of money. The thing that surprised me most was when I moved to the US, nobody cared. Nobody had really heard about the company. Um, and you know, I thought it would give me a lot of, um, access and crescendo being part of that team, but really nobody, nobody cared at all. And so, um, yeah, it was a rude awakening. I was back to, back to zero, uh, in the US.

And what prompted you to launch your own business? Because entrepreneurship is not, uh, inside everyone. I think it was National BLS, right? And That was your first one? What was your first pure entrepreneurial experience?

My, my, the, the first pure entrepreneur, I, well, I think I'm, I'm, you know, I'm, I'm pretty confident in myself. I would always back myself to, to land on my feet. Um, you know, I'm not one of these people. I'm, I'm the third son out of four kids, and I think they say the, the first son becomes a, is a conservative, ends up as CEO, the CEO, uh, of some Fortune 100 company. And then, um, you know, by the time you get to the third son, they're, they're more reckless, willing to try everything, um, yes, you know, all over the place. So, um, you know, I think I had that going for me, but, um, um, I just like the idea of of, you know, I, when I go at something, I put my, I really go at it. I go all in on it. And even when I was working, uh, you know, in banking, I would be in there at the weekends. I'd be, um, you know, working way more hours than anyone else, uh, because I was just really passionate about it. And I think when you're, when you're that sort of, if you've got that addicted nature to work, you kind of naturally say, why am I doing this for someone else? I really want to do it for myself, right?

And then Rocket Space obviously was, uh, usually successful. So tell me about the biz model here, because yeah, like coworking space, eh, we, we work, we know how that went. But you were more than that, obviously, were an incubator. Did you get shares in Flexport and in Uber?

I wish. Um, the, the— yeah, the, the Uber story is, um, is, is crazy because I, I really could have had shares in Uber. And, um, at the time when they were doing that round, I thought the minimum check size was $25,000. And I, I would, you know, I hadn't been working for a number of years. I was just setting up this new company. I was putting all my money into that, and I, I didn't have $25,000 that I could really, um, allocate to Uber. Little did I find out that later there were some people who put in just $5,000 and they got $25 million back.

Uh, put like $40K and I think that banked him $100 million.

Yeah, well, the people actually, $25K would have got you $100 million back. Naval, I think, put in $25 Um, but these people, you know, because Uber was in, in rocket space, you know, Chris Sacca was there, Naval was there, uh, Fred Wilson would be there, Jason Calcanis would be there, Robert Scoble would be there. All these people kind of hung around, uh, that space at the time. It really was a pretty unique environment.

So what, uh, were your best bets, right? Because you raised $150 mil for that. Where did that 150 mil go? How much did it yield on the back end?

Well, we actually totally— in total, we raised $350 million, but we spent a big chunk of that buying a building in San Francisco, 123 Mission, which was a couple hundred million. And the objective there was really to get the model of coworking sorted out. And that model, I think, is opco-propco. Where you own the asset, where you're paying down the mortgage rather than paying an ever-increasing rent. And, um, so that was an objective back then. But, um, you know, I think Rocket Space didn't get the, the great exit we wanted. The, the money we raised was from China. We actually, um, that became very problematic, and we ended up returning that capital and winding the company down. But it gave me enough of an insight to put all the best parts together to build 9Zero.

And that's so impressive. I'm eyeing the 123 Mission Street. That is a big boy right there. Uh, it's huge building. Um, how did you manage that psychologically, like winding down the full company, returning the capital? Wasn't that like super stressful?

Yeah, I mean, if you think starting a company's, um, hard work, it's actually, you know, really hard work winding it all down. And it's still going on. We had entities in Shenzhen and Beijing and Shanghai and China. We had holding companies in Hong Kong. Um, we had European companies, uh, U.S. companies. So you have to literally thousands of of, um, suppliers and all the rest of it. And it's, it's just a process of, you know, trying to wind these things down and, and get out of agreements and so forth. And, um, we, we did all that, but yeah, it's, it's been a huge amount of work.

Why China? You and I talked about China, uh, yesterday, I believe. Uh, do you have ties there? Um, I know that Chinese investors are eager to invest in stuff like real estate, especially in America. I'm from, uh, Canada, right? And they invest a lot in Vancouver. Like, they own like 80% of Vancouver. It's crazy.

Yeah.

So what was the philosophy back then to raise from China?

So I'd been to China on a number of trips, and it's, you know, when you get into the, the first-tier cities, the second-tier cities, you just see this, this enormous hunger of Chinese people to improve their lives. And they are incredibly entrepreneurial.

They are—

it's incredibly competitive over there. And, you know, I would go around these, these startup ecosystems in China, and they are 7 days a week, you know, 18 hours a day, uh, just working so much harder than I saw happening in the US. And, and at the time when we went into China, Xi Jinping had really relaxed the rules on entrepreneurship. So there was a lot of entrepreneurs really getting going and building big companies like Baidu and, you know, obviously Alibaba, Tencent, JD, all these companies were well known, but there was a, you know, a ferocious pace. And I, I thought it would be great to be the connector between, you know, to have an operation in China, an operation in the US, and an operation in Europe, to be that connector between those three economies. Unfortunately, what we didn't predict was Xi Jinping clamped down on— really, he clamped down on so much money leaving, so much RMB leaving China into the West, and it was really beginning to hurt the Chinese economy. And we had raised our money from a company called HNA, Hainan Airlines, out of Hainan Island. And they were just— they were a great group of people, really smart people. I really like them, you know, trustworthy. But unfortunately, that company got decimated by the Chinese government as they were trying to pull a lot of the capital they had been spending back into China.

And how do you raise capital from China? That in itself is an incredible challenge, right? Do you speak the language? These guys, I mean, like you said, they work so hard to get that capital, right? They don't part with it easily. So what was your tip to raise from them?

Yeah, so I, um, I, I don't speak, uh, Mandarin, um, or Cantonese. Um, I— so the first thing I did was I set up a Chinese advisory board. So I got, um, on one of my trips I met a great, great Chinese person, and I said, listen, I want you to come on an advisory board, and I want to build up to 4 people who can help RocketSpace get going in China. So we, we set up an advisory board, and then I hired my EA, was actually bilingual, so she was fluent in both Mandarin and English. And so that was a great help there. And obviously I had apps and things that can translate text messages and things like that. But yeah, you have to get onto their system. You know, I got onto WeChat, we got everything going through there. And You know, China was fascinated with Silicon Valley. They really wanted to build their own Silicon Valley, and Rocket Space had become, you know, that focal point in San Francisco. And so we just took that opportunity from there.

Building community is another thing you're incredibly good at. Um, any tips to have Uber— uh, so Travis, uh, to have Jason, to have Naval all in the same space? Like, what your, your tip and your tricks?

So the, you know, I think, I think everyone thinks that, um, you know, entrepreneurs are always chasing money, but actually the money is the, the money's the, not the easy part, but it's the ubiquitous part. The, the hardest part is the talent, you know. And great quality talent like Travis, when Uber was in Rocket Space, it was Ryan Graves. When they moved in, it was Ryan Graves still who was CEO. And talent is just really attracted, high quality talent is really attracted to other high quality talent. So once you've got a Travis and a Ryan, and Ryan, at Hootsuite and Ryan at Flexport. You know, once those people are there, then the money wants to chase those high-talent people. So that's where Naval and Jason and, and others, you know, even Fred Wilson would be in there at times. And, um, you know, so this— there's this thing around— yeah, it's definitely talent. Money chases talent, not the other way around. So if you can pull the talent together, talent will attract more talent, and, and that's how it goes from there.

So it's having like one big domino fall first, right? But how do you attract that big domino? What kind of event would you organize there? How would you make it, um, hypey, clouty to, to be there?

So I think that comes down to, again, it's another key thing for a startup I think Y Combinator says, "Make something people want." Well, when we started RocketSpace, there was really no coworking. And pardon me, the idea of having office space, which is you're paying per person per month, was still a very new idea. And so when we went out and said, "We're going to do this," actually, before I even launched Rocket Space, I put it out there that I was thinking about doing it. And over 100 companies signed up, said, "Hey, if you're thinking about doing this, I think this is a great idea." And then once I had that list of 100 companies, we only had room for, in the first week or two, we only had room for 8 or 9 companies. So I just cherry-picked the best companies off the list. And that's where you get started from. Um, but I think if you share your vision, you know, of what you really want to build, um, and, you know, it's something that's going to supply a need in the market, then yeah, you'll, you'll find people that are keen to be involved.

Any Adam Newman stories? Because you were building at the same time, yeah, and you've probably talked to Adam and studied what he does. Anything?

Yeah, not really. I mean, I definitely studied. I met Rebecca. I think I only spoke to Adam once. But I thought— I had never heard of WeWork when we were starting RocketSpace. And when they came along, I remember when they opened their first building in in San Francisco, and I went and saw it. And, you know, they, they were a couple of years ahead of us and had capital, and we're, we're really going after a different market and so forth. But I, you know, one of the problems I always thought we had at RocketSpace was lease arbitrage. We were signing long-term leases and servicing— well, the problem I thought WeWork had was lease arbitrage. They were signing long-term leases and servicing them with short-term revenue streams. And because of that, we had always signed partnership deals with landlord. I just thought, yeah, there's no way they're going to raise serious money because everyone's going to look at their business model and say it's fundamentally flawed. That did not seem to matter. I mean, Adam's ability to raise capital is insane. Quite incredible. His ability to share a vision is phenomenal. His ability to persuade people to his vision is incredible.

It's like even it's over Steve Jobs level, I would say. Like, he's so good.

It's a, it's an insane talent that he has. And, you know, a lot of people, you can say whether you like the guy or not or whatever, but you, you know, if you just go back to the brass tacks, I think you have to say he's got some incredible talents that he, he managed to pull off what he did. Equally, WeWork, I don't think people understand just what a monster of a startup WeWork was. They were opening 2 buildings a day at their peak. They had 700 offices around the world and 750,000 members. This was a— it really was— okay, it collapsed, but it was an incredible feat that that team managed to execute. Absolutely incredible.

Yeah, yeah. The follow-up, the obvious follow-up question is like, were they scaling something that was unscalable? Were they just opening more offices that would, would lose money? Which I think was the reality. They, they had literally like a billion dollars to burn from, uh, SoftBank, right? But yeah, opening at that scale was bold and impressive, I think. Um, All founders need delusion, right? But I think that's, uh, that delusion has been taken a bit too far because Adam was already building that for what, a decade? And he had the data that most of his, um, offices were, were not super profitable, right? I think he was waiting for like something magical to, to turn it around.

But yeah, yeah, I think this is the sometimes the curse of venture capital. I think WeWork absolutely should have paused and slowed down, paused their growth for a bit, and sorted out the economic model. I mean, anyone can sell a dollar for 50 cents, but you just can't do it for long. Of course, if you're selling dollars for 50 cents, it's going to fly off the shelf. And I think their business was a little bit like that. It was just too good to be true. And that's why demand kept coming. I actually do think people will throw the baby out with the bathwater, but it's a little bit like Napster. WeWork has proven there is enormous, enormous demand for what they were doing. Their business model wasn't right and their financials weren't right, but But demand is the secret there. And, you know, Napster was the same. Napster proved there was enormous demand for file sharing, but the business model wasn't right. And then what did we see? Along came, you know, Spotify and iTunes and Apple and, you know, Dropbox and Box and all these other people that managed to get the business model right. So I think, yes, WeWork was a, you know, was this kind of very public profile, uh, failure. But I think it actually opened a window more than people think.

Yeah, for founders, right? Because you need to take notes from what they did right, for sure. And people need to remember that like 90% of businesses fail. So it's not like if we work with— it was unique, right? But maybe they should have bought some of these buildings, right? Like, other than just having one floor to them is one thing. And then Adam, I think, was building like a social network on the back end, which is smart. Is like unite all the smartest founders together at one place. But that took— well, yeah, he was out of his element as well. He's a real estate guy ultimately. Um, I think maybe they could have pulled something off because, as you know, LinkedIn still sucks nowadays, right? And if you can have a trusted space and people that you met physically and have that app have a bunch of features to bring the community together, I think that could have gone somewhere.

Yeah, I think, you know, this is why 9ZERO is just focused on climate startups. Now, you can argue, I would argue, every company in the world is already a climate company because you're all—

yeah, why?

Because every company has some sort of impact, either positive or negative, on the climate. You know, GM is a climate company, Ford is a climate company, um, Coca-Cola is a climate company. And I think gradually over time, they're all going to be driven to be more climate aware, more climate positive. And so, you know, 9ZERO is focused on climate companies, but that's not really a vertical, it's a horizontal. But the reason we're building 9ZERO is because of this natural human nature that people want to be around other people who believe what they believe, who are passionate about what they're passionate about. And, you know, it starts from the most basic thing, and I've seen this firsthand having worked— I did some work at San Quentin Prison with the inmates there. People are a product of their environment. You cannot help but be a product of your environment. And of course, you know, unfortunately, if you're born into a gang neighborhood in Oakland there's a pretty high chance you're going to end up in a— yes, in a gang in Oakland. And, you know, away you go, because humans are pack animals, for want of a better term. We, we want that social cohesion with other people. And so obviously you see gang, gang formation, it can go wrong. You see, you know, cults, uh, religious cults, which can go wrong.. But the same physical behavior is also true in the right direction. If you wanted to become a world-class soccer player, you could try and practice with your friends at home, or you could go and hang out with the Real Madrid team. Where do you think you'd be more likely become a world-class soccer player? When you hang out with other high-quality people. And, and the same is true for entrepreneurs. Yeah, entrepreneurs Being an entrepreneur is an insanely lonely, tough, um, environment. Yeah, but if you can surround yourself with other entrepreneurs who are going through the same thing, working hard, but you can learn, compete, everything with those people, you will become a world-class entrepreneur as well. If you're hanging, you know, how the best way to become successful is hang out with successful people, you know, that's That's it. And that's what we're putting together at 9.0. Yeah.

And what about the thesis we discussed, you and I? I mean, I'm not in the center of SF, right? But I leverage podcasts to talk with the top 1% performers in the world. SF sounds cool, but I prefer Oaxaca with the mountains, the dogs, and the freedom and the best life ever, right? So do I actually need to be in SF? I'm in SF in a couple of weeks a year just to invest in some founders. I'm in Austin as well, but I wouldn't— I probably wouldn't have a house there anytime short term.

I think you don't have to be. It's just a lot easier if you are, is the honest answer. So the, the, the concept we play around with is, is called homophily. It's, it's this kind of idea of birds of a feather flock together. That's the science behind it. And there's another term called scenius, and that is when genius fills a physical place, a scene, when a scene gets filled with genius. So you might say Hollywood was a scenius for filmmaking. Wall Street was the scenius for investment banking and trading. Silicon Valley and now San Francisco is a seniors for tech entrepreneurship. So I don't really care what you want to become an expert in, but whatever it is, and if you're going to be an entrepreneur, you better be an expert. If you, you know, you think you're going to succeed without putting in the work, you're, you're grossly mistaken. So whatever it is you're passionate about, it pays enormous dividends to go and hang out in that place. There is a thing called oxytocin, this, this trust that happens, and it, and it needs to be physical. We can have this, uh, Zoom call, but it would take about 13 Zoom calls to get the same trust between us of, of having lunch together or meeting physically. So the physical peace is super important. And when people come in, they see it.

Yeah, I'm gonna counter that. Uh, I grew up like behind a screen, right? Like, uh, playing World of Warcraft. I had friends in third grade that I've never even seen, right? I've seen their characters on WoW, but I've never even seen them, and they were friends. My co-founder Sunny I've met him 3 times in real life, um, and we speak together every day, and the work speaks for itself, right? Like, trust to me is more than oxytocin and sharing a steak together. Of course I'll want that, right? And I'm doing like physical masterminds here in Oaxaca. I do see value in that, but I think kids of my generation that grew up behind a screen they look out, they'll look at performance first, you know, and they'll look at actions over like my words, right? It's like I can promise them the sky, but if they see that every day I'm showing up, every day I'm closing business, every day I'm sending them some dollars, it's like, let's unite, you know, and let's fight together. And it's like a computer is incredibly efficient. I don't need to walk to restaurant and spend an hour and then wait for the waiter to bring me the bill and all of that. So I do believe in some of that, less than like you, you made it in Europe?

About that, yeah, I think you would be 10 times more successful if you were physically in, in the scene. And, and here's, here's the challenge of it, is that San Francisco is, just because of the nature of so many entrepreneurs, so many investors It's hard. It's like a layer cake. You know, there's the dinners and the poker games and the card games going on between the A players, you know, between Sam Altman and, you know, Mark Andreessen and Ben and Travis and, you know, all the people at the grade A. And then there's the next tier down. Everyone's trying to move up the layer cake. You arrive in San Francisco and you might get invited to a couple of corporate events. Your law firm invites you to drinks and you think this is great. And then you get SVB or a bank invites you out to a cocktail and you mix with different founders and you're thinking, this is great. But eventually you realize there's another 4 or 5 layers above you. And where You know, where Reid Hoffman and the kind of titans of Silicon Valley are hanging out is not with the starter group of Silicon Valley. And everyone sits somewhere in that layer cake. And the truth is, you know, the people at the top get the best view of everything that's going on. They get into all the best startups. They get into, you know, invest in all the, the great companies. They, they have the most insightful conversations about what's happening. So I'm not saying you can't do it anywhere. I mean, there's people build unicorns in cities all around the world. There's no exclusivity. I'm just saying it's a lot easier if you're right at the heart of the scene.

Yeah, I'll take your word for it. Um, still want to have a house there like one day. Um, another part of my brain is like, what if I build something so outside bubble and so successful that people come to me, right? Like, well, that's, yeah, pretty strong thesis that I'm still keen on making happen, right? Like, without shaking hands and all that. Although I do believe in like building relationships, I also think this is going to scale in the AGI age, right? Like, even when superintelligence hits, I still think humans are going to want to hang out together and build relationships together. I think that's a strong moat against it.

I think this is a common thing we've seen all the way through history of time. I mean, there was a building, the Italian Renaissance, which was Leonardo da Vinci and all these people, they actually all were working in one. There were sculptors and artists and playwrights. They were all in one building in Florence funded by the Medici family, this Italian banking family.. And it drove out this incredible genius pool of people that had all come together into one location. That's the first one. We know about Bell Labs where they invented solar panels and Wi-Fi and stuff. That was this place where Bell put all their best people to come and think up and invent the future. Skunk Works, Lockheed Martin's kind of place where they put their best people and said, you know, come and think up the future, and they came out with incredible new aircraft and so forth. Um, so we, we see this happening, and it, you know, it goes all the way back to coffee shops, um, that used to be in London where once people stopped drinking alcohol all day, you know, they used to drink alcohol a day because water would make you ill. So water would make you ill. So once it'd been turned into alcohol, it would kill the, kill the bugs. So you drank alcohol. But once coffee arrived, people would actually be sober and start getting into really kind of conversations. And that's where Lloyd's of London, the insurance group, came out of. So these scenes have always existed, um, and I think they'll continue to exist in the future. We're social animals.

Shout out to our sponsor, uh, studythegreats.com. So I was listening to, uh, Leonardo da Vinci's bio just yesterday on this channel here. Uh, Skunk Works is also there, Bell Labs is also there, uh, all the, the innovation labs are there and they're great to study. And Leonardo was such a beast, man. But, uh, and I don't even— I would argue he's not even a product of his environment, right? Because he was born in sort of isolation. I think he was just a super brain, um, and, and someone like very obsessed with the zero-to-one phase, right? Like, uh, he was notorious for not finishing, uh, his works when he started. He spent some time in jail, right? So he had a chip on his shoulder. His times actually was like, um, spending— it was a lot of military and conquest times, right? So he worked for a lot of, uh, warlords, um, yep. And the first warlord, actually, he was hired to, to do entertainment for him. So he had like all these weird positions, and he studied all kinds of weird topics like how fluids move, right, and all of that.

That's right, the canals.

And he was a risk taker as well, right? He dissected like, um, I think 30+ bodies in a year, while most people would stay away from that because they would just die from listeria. I really love this guy. Duncan, what are your priorities this year? What are your top 3 goals? What do you want to achieve this year?

Well, we're open and running. I mean, it's all business related for me. We're, you know, we're open and running on the West Coast. We really want to get to the East Coast, to New York. We're restructuring the business into its long-term play. Into an opco, propco. We would love to find a co-GP to buy our first building. We've got phenomenal economics and it makes sense. You know, I think startups should always set themselves up for a long-term game and it makes total sense that we should be buying the asset. We can do that because we're geo-focused. We bring a lot of people to one single location rather than WeWork's model, which is to be kind of poly-focused. They have a lot, you know, they'll have 50 different locations in Manhattan. We all just have one. So it kind of works for us in that way. But yeah, it's just building and growing the business. We're 2.5 years in, it's going super well. We're profitable, we're raising more capital. We're starting to invest, you know, learn that lesson by not investing in Uber and Flexport. So we invest in companies through a syndicate. So we have a syndicate that we're investing in the best companies we see, and hopefully that becomes a portfolio of unicorns in the future.

I was— Duncan and Charles