Jason Calacanis: Startups, Angel Investing, Capitalism, and Friendship | Lex Fridman Podcast #161

The following is a conversation with Jason Calacanis, who's an entrepreneur, investor, author of angel how to Invest in Technology Startups and as many people may know, he's a fun, brilliant long time podcast host of this Week in Startups and co host of the all in podcast with Chamath Balihapitiya, David Sacks and David Friedberg who all happen to be poker buddies and self proclaimed besties. The result is always a great listen due to both the love and the heated disagreements. Quick mention of our sponsors Brave Browser, Linode, Linux Virtual Machines four Sigmatic, Mushroom Coffee and Rev Speech Detect service. Click the sponsor links to get a discount and to support this podcast. As a side note, let me say that I've been learning a lot about real world finance in the past few months. To give you a bit of context on the side, I've studied trading from an algorithmic trading perspective as a machine learning and a game theory problem. Off and on for a few years in undergrad and grad school, I found the distributed complex system aspect of finance and economics in general fascinating. But now I find even more fascinating the human side of the whole thing. Ideas of greed, power, Freedom and Truth, WallStreetBets, Robinhood, and the whole beautiful mess around this topic allows us to have great conversations about human nature and the systems that underlie the rise and fall of civilizations. If you enjoy this thing, subscribe on YouTube, review it on Apple Podcasts, follow on Spotify, support on Patreon, or connect with me on Twitter lexfriedman. And now, here's my conversation with Jason Calacanis. I have a million things to talk to you about, but we do happen to be living through what I would think of as a historic event in terms of its impact, in terms of almost philosophically thinking about the role of people and how they can fight power. With this whole Wall street bets in GameStop situation, I was wondering, you've covered in your amazing all in podcast. You guys have been having fascinating battles over this whole situation. I was wondering if you could tell maybe from your perspective as it's unrolling the saga of Wall street bets and GameStop, what are some interesting insights that you have about this whole set of events?

In full disclosure, I was an angel investor in Robinhood before they launched in, and when I met the founder Vlad and his partner, they pitched me at a bar not too far from where we are right now in Palo Alto called Antonio's Nuthouse and my friend Adeo. It's a really good story. My friend Adeo had asked me to speak at his Founders Institute, which is kind of like an accelerator for people who are thinking about starting a company. And so I gave a talk, and then he said, hey, let's go to Antonio's Nuthouse and we'll meet Elon for a drink. And so Elon met us for a drink there, and. And it's. It's the divest of dive bars. Like, you'll take a beer.

And I love the image of all of this, you hanging out with Elon.

Dirt on the floor bar. Yeah. I mean, it is the worst bar in the Peninsula. Like, just garbage on the floor and, like, cheap beer and warm beer and, like, you'll pick up your pint glass and be lipstick on it. It's brutal.

Classy.

Not your lipstick, you understand? Somebody else's lipstick. Yes. And so we're sitting there, and Vlad walks up with his partner, and he says, you're Jason Calacanis. And I said, tell me about your startup. He said, how do you know I have a startup? I said, you recognize me? And I mean, that's the only way. And he goes, is that Elon Musk? And I said, yes, Elon, come say hi. And he came over and said, hi. I said, tell me what you do. He said, well, I'm a quant. I said, what's that? And he said, quantitative analysis. And I was like, oh, yeah, yeah, I know about that. That's like, you. You guys make algorithms and then try to beat the market, right? He's like, yeah. I was like, so you're gonna pitch me on a startup and you're gonna sell your algorithm to other people, and if it was so good, why wouldn't you just use it yourself and print money? He's like, yeah, yeah, no, no, that's not our business. Our business is we're gonna create an app to get millennials to trade stocks. And I said, hmm, you do realize there's no retail investors anymore. Like, the dot com crash, plus the 2008 financial crisis eliminated any individual's belief in participating in the stock market. And he said, that's the opportunity. I said, okay, I like it. Tell me more. He said, well, we're going to get these millennials to trade. I said, the same ones who live in their mom's basements and take Uber and Lyft and are on their parents have no money, got screwed and, you know, went 250k into debt for school and now can't get a job. Those people. And he's like, yeah. I'm like, okay, they have no interest in their future, but they're going to trade stocks. He said, yeah, that's the opportunity. I was like, how do you. How are you going to make money? And he said, well, that's the best part. It's going to be free. And I said, so your idea is to get a group of people who have no interest in saving for their future to trade and your business model is free? And he said, yes. I said, I'm in. Because in almost all cases, the crazy, outlandish ideas that nobody believes in are the ones that have the greatest returns. I mean, Uber I introduced to about 25 investors, and three of us said yes. So, you know, a full 12% of the community who saw that deal decided to do it.

So your sense about this idea being good had to do with the fact that this guy was just crazy and ambitious and bold thinking? Or was it that there's something here in allowing a much larger magnitude of people to be able to be investors?

Yeah, the way to do really well as an angel investor or just in technology or in life is to not say what could go wrong, but to say what could go right. And then to just imagine for a moment, if it does work, what would the world look like? And so when Elon was investing in Tesla and some other guys were running it and he was trying to save the company, you know, it wasn't, is this going to work? It was almost positively not going to work. It was, and he knew that. But if it does work, what does the world look like? And so that's really what you're looking for, is not the chances of success, but if it does succeed, does succeed, what would that look like? And you. That's what the world needs more people doing. And so when you looked at Robinhood, it was like, well, if he does succeed, what would the world look like? And now we've seen what it looks like. You have a generation who are so financially sophisticated that they know how to do puts and calls and shorts and research at a level that dominated the hedge fund industry. So let's pause for a second. These traders sitting there on a subreddit in a discord server are able to do analysis and research and then act in unison to say, we're going to beat, in the Robinhood sense, you know, this group of sophisticated insiders who have more access and more access to capital, but we will figure out how to solve this problem. And, and, you know, things. Most things don't work. It's like the Wikipedia, like, there's no way no way the Wikipedia would ever work.

Right.

Except it did.

Yeah, right.

Like you're, you're like, how is this ever going to work? You're not paying anybody, but it's built the largest corpus of an encyclopedia ever. So I think Robin Hood actually succeeded. And then what we saw was this system and a lot of the systems in our society, whether it's the political system, the Constitution of the United States, education, higher education, which you're involved in, and then even the financial system, we have not stress tested and stress tested it and we don't actually know all the edge cases and how it works. So Trump was able to just really put this crazy stress test like it, is the democracy going to hold? Are we going to break this two or three, you know, 200 some one year old experiment? And then we looked at the financial markets and it turns out there were more people shorting the stock than stocks were, than shares were available. I don't know how that's possible. And then I'm trying to uncover where can I see a list of people who've shorted the stock? And it's like, you can't, but we can tell you sort of how many. Every two weeks or maybe twice a week we can create a report, maybe. We know.

I was surprised that nobody knows the list of people who were shorted and you guys were trying to figure that out.

Yeah, there's no transparency on a lot of these systems. And if you call to try to short a stock, like, it's almost like they'll tell you on the phone, like, let me see, I think I might know a guy who has shares to loan out. So it's like, am I calling to like try to find like a 73 Mustang Grande in, you know, gold, you know, and you're going to call around. It's like, shouldn't this be like on a ledger somewhere and be completely transparent? So now we're seeing those things and I think the investigations will make it super clear. But of course, in a vacuum, without information, there are so many investors in these startups that conflicts can start to appear. And then you know how it is with people in conspiracy theories, the mind starts to wander. Right. And so in some cases there is actually a conspiracy. And then in other cases, people's mind will fill in like, oh my God, there's some grand conspiracy here. I can tell you. Robinhood's only goal is to get more people to trade stocks and to democratize it even more. And they apparently were on the brink of, you know, seizing as an as an entity, if they didn't get more money to cover all these trades, I mean, they were on the brink. And they raised three and a half billion dollars or something like that in a week.

Yeah. So in some sense, Robinhood enabled this very, like, the magic of this distributed system of Wall street bets. Right. You said Wikipedia, which is another. Which is probably one of my favorite websites and one of my favorite examples of, like, a distributed system somehow coming together in a way, just like you said at that crappy bar. You. I would have guessed it would never work. But if it does work, it changes everything, and it did. And Robinhood, in that same way, probably enabled or was one of the major enablers of Wall street bets, of giving power, like empowering young kids to learn about how this whole messy financial system works and take on the big, elite, centralized players.

Yes. And, you know, it's very easy when these companies get big. One thing that's changed is the footprint of these startups and the velocity at which they grow. So something like Airbnb is another perfect example of something that should really not work in practice, but it does. Like, I'm going to rent my couch or my extra room to somebody, like a serial killer, or I'm going to stay in somebody's house, like a serial killer's house. And, you know, it's like, it really sounds scary, but it actually works. And it has not destroyed the hotel business. It has added. So the best startups induce a market to exist. If you look at Uber or Airbnb, people replace their cars. And Uber was not competing ultimately with taxis. They were competing with car ownership, public transportation, walking, or just not going out. And then you look at Airbnb. A lot of people who stay in an Airbnb would not be taking a trip to Kyoto if not for the fact that they could get a $75 beautiful room with great reviews in Kyoto for three weeks. It inspires people and it manifests a market because the product is so transcendent. Right. And I think that's one of the things that Robinhood did. You can't learn how to do this options trading and puts and calls and all this sophistication stuff, Unless you actually do it, it's just too hard to learn. Except in practice. Just like poker. If you want to learn how to play poker or guitar or tennis or skiing, like, you could talk about it, you can watch YouTube videos, but at a certain point, you got to get on the mountain. At a certain point, you got to put some chips in the pot. And it's going to be painful. Like poker is going to be painful. You're going to lose a lot of money. That's why you should play at the small tables first. And, you know, even in trading, like, you look at people who are doing this crazy trading in GameStop, a company that's worth, you know, maybe a couple billion dollars, but certainly not tens of billions of dollars. Of course, the people who are throwing their money in last are going to lose it. I think everybody knew that. And so it was a momentum play. And they're betting against the hedge funds. So I think it's good for people to learn and become financially literate and just always understand the concept of the risk of ruin. The good news is, for a young person, the risk of ruin might be like they lose $5,000 or something, and then they have to build their stack back up. But that's really the only thing I am concerned about is there are people who will play poker or blackjack or sports betting or whatever it is and lose control. Just like there might be people who try alcohol and lose control. But we can't build a system based upon limiting, you know, the average person's behavior based upon somebody who can't control, you know, their ability to drink, you know, two glasses of wine instead of 20.

How does this whole thing end?

Probably in tears.

For whom? Yeah, who's crying? Is everybody crying?

Who's crying? When? So I think there were some of the hedge funds that were crying initially, then maybe some of the Wall street bets people who bought last would be crying. And then eventually there's an probably another set of hedge funds or even the Wall street bets mob. And, you know, that army, some of them might have broke ranks and then shorted the stock. So nobody knows. So everybody has to be aware of what's happening in the game. So if Wall street bets said, hey, let's squeeze these hedge funds because they have too much short interest, let's all buy the stock, then some of them might have said, okay, you know, it's at 2 or $300, maybe I'll join the short movement. Now that they've covered. And they could have shorted their. And been like double agents. So people have to understand, like, this stuff is gnarly. And it's a. It's a free for all. I mean, it is a literal free for all.

There's a kind of morality, like a big statement that Wall street bets made in terms of like, the elites can't just push us around. They can't bully around but at the same time, you know, they're also interested in making money. Right. What's your sense? You said that some of the people in the Wall street bets might have broken off and shorted the stock. Are they more interested? There was an emergent, like morality that emerged and, and said, like, we're not going to put up with the centralized elites. But is that going to continue? Are they going to fight the power structures that are bad for society, or are they going to now, like, I mean, are they ultimately going to introduce more chaos that's going to damage the economy and damage the world, or are they going to continue being the good guys and fighting the, the, the, the evils that manipulate the market? What's your sense?

You know, it, it really feels like the Dark Knight series of films where, like, some people just want to see the world burn. Yeah. I think there is a contingent of people who just literally want to see chaos. Yeah, like, you know, that contingent on some of these, you know, forums who just want to create chaos. Right. So there, there's certainly that chaos contingent. But I think overall what the ark will show is a group of people getting massively educated. You see it in crypto as well. There was like a three year period where all of these failed entrepreneurs who I knew who couldn't build companies were then coming back to me after their companies has failed or after they gave up or couldn't clear a market, raising money with the venture capital community. And they were doing ICOs. And I was like, I met you before, right? And they're like, yeah, yeah, yeah, no, I'm doing an ICO now. I'm like, okay, where's your company at? And they're like, here's a white paper. And I was like, this white paper with spelling errors in it that says you're going to destroy Airbnb because everybody's apartment's going to be on an immutable ledger. Wouldn't that be better in a regular database that was private and not public? Like, why does it need to be an immutable ledger so you can, it can't change. I'm like, not changing the database is a feature that does not seem like a good feature. And they couldn't explain it. They're like, well, just people aren't interested in ICOs. And there was that ICO mania. And what it showed was there's a global appetite for risk. People want to try new things. This is one of the great things about the human spirit. It is one of the great things about capitalism and one of the things that concerns me most about where we're at in society is the sort of socialism, communism. You know, entrepreneurship is bad, technology is bad, and polarization of wealth and, you know, people getting rich is a bad thing. When I grew up, I'm 50 now, but when I was a Gen Xer growing up, we kind of maybe too much idolized Bill Gates and people who are doing interesting things in the world. And we thought capitalism was a force for good. I still believe capitalism is a force for good because when a group of people builds a product or service that changes the world and they, and it gets globally distributed, whether It's Tesla or SpaceX or Google or Airbnb or Uber or Robinhood, you know, everybody gets to benefit from that product or service having to compete. And if you look at the places where there's no competition, like public education or less, you know, you know, established, you know, colleges and stuff like that, less competition for accreditation, degrees, like, things tend to get a little weird, don't they? And people tend to be protected and that's not good. You need, you need competition. Doesn't mean that, you know, people shouldn't have global health care. It doesn't mean that, you know, we shouldn't have a safety net. But we need to keep capitalism vibrant, especially because China has now co opted capitalism and created their own version of capitalism, which is communism. With capitalism, it's like this weird operating system. Like, we still want to keep communism. So we can take any of your gains at any time. Yes. But we'd like you to be entrepreneurial. Yeah. And then you have somebody like, you know, you know, the founder of Alibaba, Jack Ma, who disappears for a couple of weeks.

Who's that?

Exactly. Who's Jack Ma? He kind of disappears for a couple of weeks and then he comes back and he's really sorry about the things he said and then he disappears again. And like, you know, we have to be very careful. If China wins capitalism. Yeah. This is going to be an existential threat for humanity.

Yeah.

The Chinese are no joke. I mean, they are seriously focused and they are picking the winners.

It's a very weird system because it is, in fact, I don't know what you call it, like communism. Capitalism is such overloaded terms. But they do encourage entrepreneurship. But they, and they do a good job of it.

Oh, yes.

But, but then they're like, they're like the surveillance thing and they're controlling things in a way. It's weird because it seems to work really well for them in the short Term, Yes.

It's definitely got short term benefits.

So the question is, like, what, what, how that gets distorted and becomes worse and worse. Worse, which potentially might be. And I think on, you know, the, the entrepreneurial spirit, which you have a podcast all centered around, the entrepreneurial spirit is, is one of the magical things that makes this country great. I don't know if money is deeply tied into that. I do get bothered by people, you know, treating the word billionaire as if it's a bad word.

Yeah.

But in general, like, all the hard things, all the difficult things we're going through in this country, it seems like the way out is going to be making the. The entrepreneur the hero of society of, like, letting that young kid who. With the big dream and the guts to take the big risk and build something totally new, giving them a chance and whatever that involves. I don't think it's about taxes, I don't think it's about regulation, all that stuff. It's about us in just public discourse saying, that kid, that guy, that girl, they're badasses. Encourage them to do it.

We have to have people buy in to the fact that they have that opportunity. And I think one of the problems in society is the. There's a group of people who actually don't believe that they can succeed or they don't believe even more perniciously that other people can. And that's the group of people that I think are highly vocal, but a small group of people which are generally people of incredible privilege. Rich parents, white city dwellers, liberals. They kind of look and say poor people cannot change it a lot. And they're battling in their minds to protect poor people, but they have this very weird patriarchal kind of approach to it, which is they think that they're not capable of changing their lot in life. And they're like, it's not possible. And then once in a while I'll tweet something where I say, you know, it's really incredible that every piece of knowledge you could possibly want is now available for free on YouTube. And every course from MIT and Harvard and Stanford is available on edX or Coursera. And all that information is there freely available. And you can take the lectures. This is amazing. And then people will be like, yeah, but people don't have access to it. I'm like, they do. It's free. Here's the link. And they're like, yeah, but they don't have Internet. And I'm like, here's the chart of Internet penetration in America. Like, and they're like, well, poor people don't have Internet. And I'm like, really? Find me any downtrodden person without a smartphone with a high speed connection that capitalism provided for $12 a month or $15 a month. It's very hard to find that. And we have it so well in this country and there's so much opportunity, but people don't believe it. And that's actually one of the problems. See, the average American still watches four or five hours of television a day. And often I meet people and they're like, I need a technical co founder. And I, you know, but all I need is a million dollars. And I'm like, okay, well what is your skill? And they don't have a skill. And I'm like, well are you a designer?

No.

Are you a product manager? No. Are you a developer? No. Are you a sales executive? No. Okay, what are you? It's like, well, I have an idea. Well, as my friend Sam Harris, I think your friend as well says like, everybody has like a million ideas an hour. Like you don't really get credit for those. Even when you're asleep, your idea is spewing ideas, like zero credit for your ideas. It's all about execution.

You have to believe that you yourself can be the core of that execution. You yourself can build the thing and every no matter what your circumstances are. I mean, we could talk about like structural racism and all those kinds of things that breaks down. But from the individual perspective, when you just like are coaching or giving advice to an individual, you can literally change the world. I mean, Wall street bets is an indication of that in the financial space that you yourself can have can change the world. That's why this country is amazing.

Still the best country in the world, right? I mean it still is amazing. The opportunity provided to people, all this educational experience is online and, and the ability, what I tell young people who are looking for advice, I say, you know, the skill you need to refine is the ability to learn new skills. Like if you become good at learning a new skill. And Tim Ferriss, a friend of mine has really pioneered this. Like he can get to 60 or 70% of like the knowledge in a skill in some incredibly short period of time. Now I'm not saying he's going to become a virtuoso drummer or a great basketball player, but Tim and I were on vacation together in like a group vacation in Italy and there was a basketball court and I said, let's go, let's go shoot some hoops. I never shoot shot before and I was like, okay, come on, I'll teach you. And Tim is fabulously uncoordinated. People don't know this. Yeah, like, he tried to dribble a basketball into a layup and it looked like he had a blindfold on. I mean, you've never seen something less elegant than Tim Ferriss doing a layup in basketball. And then he watched me do it three or four times. And I watched him study me. And listen, I've been playing basketball in Brooklyn since I was a kid. I got a couple of moves and he was just taking notes and taking notes and taking notes. And by the end of a couple of hours of doing this, I could just watch him checking his form and figuring it out. That's every skill in the world now. And what I tell people is like, I'm like, have you. Did you watch Game of Thrones? And they're like, yeah, watch Breaking Bad? Like, yeah. I'm like, okay, that's about 400.