0:10

Hello, and welcome back to Equity,

0:12

a podcast about the business of startups where we

0:14

unpack the numbers and the new ones behind the headlines.

0:17

My name is Alex, and I'm joined today by

0:19

two of my favorites, but one is a change

0:21

of base. So quickly, Natasha, hello. How are

0:23

you? I'm doing well. I am fresh

0:25

off of seeing you. So how could I be bad

0:27

at all? Or tired even? I'm neither of those.

0:29

No. I mean,

0:30

I I'm definitely not tired because going

0:32

away for weeks is how I rest. But

0:35

we're joined today not by Mary Anne

0:37

Isabella, our dear friend who was on vacation this week,

0:39

but we've instead gone around and stolen from

0:41

one of our rival podcasts internally we had

0:43

with us Anita Ramos Swamy from the Chain

0:45

Reaction Crew. Anita, hi.

0:47

Hi. How are you? Well, Alex, when you said two of

0:49

my favorites, I thought you were gonna say one is more favorite

0:51

than the other. So I was

0:53

embracing myself for that.

0:54

I I mean, like, let's be

0:56

clear. No one loves all their children to

0:58

say. And it's also rude to discuss in

1:00

out loud and also, I think, rudeer to discussing

1:02

the recorded medium. So if I was gonna do that,

1:05

I replied just, you know, DM Natasha and say,

1:07

Do my favorite. But that's not

1:09

how you record a good show.

1:10

I mean, last time you were on equity, you

1:12

were so good that Tecker just gave you a podcast.

1:14

So this time, I wonder what's gonna happen

1:17

to whoever's listening. Don't don't set the bar

1:19

too high. It's post disrupt.

1:20

I'm struggling a little. I think we're all a little

1:22

worn out more than usual, but I am excited.

1:25

Okay. So because you brought that up, I'm just gonna tell

1:27

people, I've traveled so little in the last

1:29

three years that my ability to,

1:31

like, handle jet lag has gone to

1:33

zero. because, like, not drinking for ten years and

1:35

then doing, like, six shots. You're gonna fall down.

1:37

So I'm, like, oddly tired this week.

1:39

I just can't quite get back up to

1:41

speed. Is it just me or are you also from

1:44

that too?

1:44

Yeah. No. No amount of coffee has been

1:46

sufficient for me. Seriously. And can

1:48

we talk about the fact that Becca's just in India

1:51

right now? Like, she's unfazed.

1:53

I am very phased. And even since it's a

1:55

three hour, I'm in Jersey for people who don't know. it's

1:57

a three hour time difference. I'm back with Anita and

1:59

Alex

1:59

on the West Coast. So, honestly, that

2:02

that East Coast West Coast flight is just absolutely

2:04

brutal. It's, you know, right around hour four

2:06

when I really say it again. Like, okay. Like, we should

2:08

be landing sometime soon. Right? And I was like, no.

2:10

Two more hours to go. Like, nice try. That's so

2:12

true. I hate it when you pull up the map,

2:14

you're like Chicago. Look what?

2:17

Absolutely not. How dare the world

2:19

be this large? And then, like, I looked down and I'm like,

2:21

I've read my Economist I've eaten my cat cat

2:23

bar. I've drank my Fizzy Water, which is my center

2:25

airport like snack list. Yeah. And then I'm like,

2:28

great. Now what? And then I used to look around. I'm like,

2:30

I hate all these I hate United.

2:32

I hate life. So if if we do

2:34

sound fractionally more tired today, it's because we

2:36

actually are. But there's lot to get through this week. We're gonna

2:38

talk about launch house, Sequoia India

2:40

and Ed Tech over there. Be real. is

2:42

a social app that people are talking about. We're also

2:44

gonna riff on potential layoffs at Twitter,

2:47

how big they might be. There's some news out recently

2:49

that we're gonna have to touch on there. Then because we

2:51

have Anita on the show, we're gonna talk about Apple

2:53

cracking down on NFT functionality inside

2:55

the app store. Essentially, all your app

2:57

are belong to Apple And then finally, we're

2:59

gonna talk about my favorite thing in the world, which is China,

3:01

and we're gonna talk about what's going on with Chinese

3:03

startups. This, the latest Chinese Communist

3:06

Party Congress. So to kick off though,

3:08

Natasha, Launch House, to my

3:10

surprise, is back in the rundown.

3:12

Yeah. So it's been a little over a month

3:14

since allegations of harassment

3:16

and assault first came out against

3:18

lunchhouse, which is a venture backed

3:20

founder's club. It's just trying to be an IRL.

3:23

YC that creates hacker homes across

3:25

LA SF and New York as well as

3:27

other places. So Vox had this huge investigation.

3:30

And the reason it's in the news this week a month

3:32

later is because they are

3:35

having some changes with how they're conducting their investigation.

3:37

A former employee noted that

3:40

launch hospitals using the same law firm for

3:42

both their defamation kind

3:44

of claims that people were defaming

3:47

them and sending threats and, you

3:49

know, I got an email from their lawyers as well.

3:51

And then also, that same law firm

3:53

is going to be conducting their, quote, independent

3:55

third party investigation. Sounds

3:58

so really independent.

3:59

Yeah.

3:59

Right. And so I actually asked my my lawyer

4:02

friend and I was like, hey, like, is this

4:04

illegal? I mean, obviously, it's not. Right? Law

4:06

firms probably aren't gonna do that, but they did

4:08

kind of give like an optical. It was an

4:10

optical faux pas is how I would describe it.

4:12

The fact that the same client, even if

4:14

it's two separate teams, is kind of shared over

4:16

contrasting incentives. So

4:19

they split with the law firm. They're not the

4:21

longer gonna be investigators in this case.

4:23

There

4:23

there's two forms of conflict of interest out

4:25

there. One is purely visual and

4:27

one is more material. Yes. And a lot of people

4:29

spend time trying to avoid even the possibility

4:31

of someone thinking that there might be

4:34

a conflict of interest. I I would

4:36

say this is actually both it looks

4:38

bad and it possibly could have been actually a

4:40

conflict of interest because if you're paying someone

4:42

to do one thing and to do another thing, it

4:44

might influence what they actually choose to do and say.

4:46

So I think it's good that the startup

4:48

did this, but also bad that they

4:50

didn't see the issue in doing it to begin

4:52

with.

4:52

Yes. It's it's kind of out of this

4:55

members and people's pay grade to like be like,

4:57

hey, this doesn't sound right and I'm surprised to honestly

4:59

the law firm didn't bring up the optics. I

5:01

will say we don't know the exact terms

5:03

of the investigation on if this law

5:05

firm is going to be conducting it on

5:07

behalf of who and talking

5:09

to which people? So a lot of

5:11

questions. I do think it's important that Launch House

5:13

decided to split up with this law firm

5:15

because it shows that they're reacting to it

5:17

even the appearance of conflict of interest and They

5:19

did recently kind of publish

5:21

a full PowerPoint about what's next

5:23

for lunch house. It's part of their apology

5:25

tour. They aren't making their cofounders available

5:27

for interview to me. So if you're listening,

5:30

you should because then I will have a I'll write about

5:32

it. But until that happens, I don't think

5:34

it's news to have a comeback without

5:36

talking to the people waiting to come back.

5:38

So what is the future

5:40

for a launch house? because I was gonna ask that and

5:42

you've teased it now. So you're double here. I

5:43

mean, it's it's a bunch of things and I linked the whole

5:46

deck. I think, like, the two things that sit out to

5:48

me during my scan was that these

5:50

zero tolerance policies going to cover

5:52

a broader range of, quote, serious misconduct,

5:54

and that they're working with a diversity equity and

5:57

inclusion firm to audit and update its processes.

5:59

Obviously, this is all like kind of statements,

6:02

plans, promises. So,

6:04

I mean, it's like, it it has to actually

6:06

execute. And I I don't know where we're

6:08

at with that.

6:09

Anita, in terms of

6:11

reclaiming trust, how does that

6:13

set of activities sit with you? On

6:15

one

6:15

hand, I'm like, look, I'm not sure exactly what

6:18

else they could do given that things got so bad and

6:20

it's already out there in the public But at

6:22

the same time, I mean, companies can always be

6:24

doing more than just hiring like a DEI consultant.

6:26

I feel like that's an easy box to check, and you

6:28

can just say, oh, like, we're working on the problem. It

6:30

reminds me of, you know, the the the US

6:32

government, not to at them right

6:33

now, but every time there's, like, an issue, they're, like, oh,

6:35

we're gonna put together a committee. We're gonna fund

6:37

some research. We're gonna lock into the issue.

6:39

We're gonna generate some reports and it's like, okay.

6:41

I mean, you guys generated a report, but what

6:43

are we actually doing about it? So I think it's

6:45

just

6:45

a matter of, like, holding companies like Launch

6:48

House accountable for actually implementing some of the

6:50

changes. Which Anita, I know we were texting

6:52

about watching partner track. And I don't know how to stop

6:54

treating partner track too, which is like a Netflix

6:56

show. one of the characters did a racist

6:58

stand up routine. The law firm did an

7:00

investigation. A lot of people

7:02

were, you know, recorded saying that this was racist. This

7:04

is an appropriate this person should be suspended

7:06

and not on the partner, Chuck. And then they

7:08

made a formal recommendation to leadership and leadership

7:10

as five as a spoiler, but

7:12

leadership denied it. Like, I

7:14

don't care about

7:15

your spoilers. No. No. It's

7:17

such a good show. You should still watch it even if that

7:19

spoiled it for you.

7:20

The the character development It's so

7:22

good. But it was just such a good reminder of even

7:24

a fictional that is very realistic that,

7:26

like, investigations can come with conclusions, but

7:28

the actual implementation a whole

7:30

different thing.

7:30

More to come on that. We still have our eyes on launch house.

7:33

Natasha is still, I think, well, plugged into

7:35

to what's going on there. So we shall

7:37

touch back when the report comes

7:39

out. and then we'll see if

7:41

it actually seems to have any substance. Yes. But

7:43

in the meantime, let's scoot along back to

7:45

some of my favorite things. Here's some words that I

7:47

love. Sokoya, India, Ed Tech.

7:49

And Anita, this time around,

7:51

we're not talking about BIJUES. We're not talking about

7:53

even a new company. Instead, we're going back

7:55

in time to what appears to be an early Sakoya

7:57

India investment?

7:58

Yeah. So Sakoya India is really

8:00

invested in the Indian ed tech sector

8:02

specifically, and it was one of the sectors that

8:04

boomed, I mean, over the past couple of but it's

8:06

also been one of the hardest hit by this market downturn.

8:08

So it's really interesting to see, like, Sequoia

8:11

is basically eyeing this fifty million dollar

8:13

investment in an ad tech company called

8:15

k twelve. The deal hasn't closed yet, but they're

8:17

looking at putting in that amount of money. And this company

8:19

has raised more than seventy five million dollars

8:21

in previous rounds, and so K12

8:23

apparently has also engaged with TPG

8:25

and Excel, but it ultimately reportedly

8:27

decided to go with Sequoia to lead their round. It's

8:29

a huge opportunity in the market. Right? There's

8:31

three hundred million students in India, and

8:33

they have these college entrance exams that are

8:35

super competitive, so people take education

8:37

really seriously. But at the same time, there's

8:39

been some high profile struggles in the

8:41

sector and BIJU's the one that Alex brought up. That

8:43

was a really big deal. They cut five percent of

8:45

their workforce recently. they also

8:47

missed a deadline to file their, like, twenty

8:49

twenty one financials, which was pretty wild.

8:51

And they're facing these allegations that

8:53

they were I mean, this is India's most

8:55

valuable startup. Like, let me take a step back and say

8:57

that. BIJUZ is India's most valuable startup, so it

8:59

makes sense why Sequoia sees potential in

9:01

the sector. But at the same time, like, one big

9:03

story line that's been playing out with them is that

9:05

they, apparently, were using these sort of

9:07

pressuring sales tactics to actually sell

9:09

some of their software to families that couldn't afford

9:11

it. Yep. So it's a tricky sector, but

9:13

I will say about this particular deal, if

9:15

it does close, k twelve is a bit different.

9:18

from Bayshoes. It's actually a school management

9:20

company. And I was looking at some of the bets in

9:22

Sequoia's portfolio, Sequoia India, some of the ad tech

9:24

bets specifically. And it doesn't seem like there's

9:26

any clear competitors to k twelve,

9:28

whereas BIJU's does like video content and

9:30

sort of supplemental learning, and they have

9:32

a couple of portfolio companies that also do

9:34

that. Like, academy, Q Math,

9:36

Doudna is another one. So k twelve

9:38

might be a little bit of a safer

9:40

play in the sense that it's not it's not as

9:42

aligned with some of these other ad tech players that

9:44

have found themselves in trouble. Totally. I

9:46

mean and I think about safe. I was thinking about,

9:48

like, from a pure, like, VC

9:50

perspective, a great time to be betting on ed

9:52

tech. I'm sure it's a lot cheaper because

9:54

Biogen's out of this halo effect over

9:56

Indian startups and Indian ed techs are

9:58

specifically, which I'm drove up price as

10:00

everyone wanted a bite of Indian ed tech

10:02

when I would talk to US based

10:04

ed tech VCs and so to see

10:06

Sequoia's India branch get into it. I

10:08

mean, it just feels like a pretty, like,

10:10

offensive move. I

10:12

I don't know if it's necessarily risky,

10:14

but to your point,

10:15

The the halo effect is

10:18

also a recently formed Swedish

10:20

melodic death metal supergroup. How did

10:22

you enforce it? you said the h you

10:24

said halo effect and I was like, oh, I know that. Where

10:26

does that come from? So I just I just pulled it up, but it doesn't

10:28

make Swedish not finish. Sorry. No. I had the wrong of

10:30

my head. Well,

10:31

speaking of the halo effect, So BIJUZ was actually

10:33

planning to go public, and they were gonna do a spat

10:35

earlier this year. Oh, that's right. And they were

10:37

supposed to have a valuation that was

10:39

above forty billion dollars. Oh,

10:41

And the fund raised so they they raised this

10:43

month at a

10:44

twenty two billion dollar valuation, which is

10:46

flat from its prior round in March. Yeah.

10:48

A little little over half of what they were

10:50

supposed to do in this back in terms of

10:52

valuation. So it's definitely true what you said

10:54

Natasha about, like, this could be a good time to

10:56

make these bets because it's cheaper. And it's

10:58

like the South Asian. I saw in the story

11:00

that Manish wrote. The atech industry

11:02

in the South Asian market has cut nearly five

11:04

thousand jobs this year. It it's

11:06

like -- Wow. -- just where the money is

11:08

going and how it's gonna be spent, I'm sure it's

11:10

different than what it was last time this company

11:12

raised, which is worth noting.

11:14

Yeah. I'm just curious about that round they raised

11:16

at a flat valuation because On one hand,

11:18

it's great that they can still raise money. And on the

11:20

other hand, flat. You wonder about

11:22

the terms that were attached to that final

11:24

tranche. And if it was actually the same

11:26

terms that are just the same price. I'm not sure.

11:28

I'm speculating, but like, III

11:30

would love to read that. Yeah.

11:32

Yeah. I mean, reportedly, they were in

11:34

the market for this round for, I think, more than

11:36

four months. Maybe maybe even, like, longer than

11:38

that. So it took them a a little while to

11:40

actually put the funding together.

11:41

Yep. And speaking of funding

11:44

rounds that were puzzling over, ladies and

11:46

gentlemen, apparently B. Real has raised

11:48

sixty million dollars in the series b that was

11:50

not announced really publicly. Be

11:52

real in case you didn't know is a

11:54

popular social service. It's a bit like

11:56

front back if you remember that application.

11:58

Essentially, once a day, you get a ping. You pull each

12:00

phone, it takes a picture of what's in front of you and your

12:02

dumb face, and then it shares that with your friends on

12:04

be real. And it allows you to quote

12:06

be real, like Instagram because you

12:08

can't do what are called plannedids?

12:10

That's

12:10

a new one. planned Candids?

12:12

I haven't even never heard that,

12:13

Alex. I'm sorry. I was being so

12:16

savvy I remember you guys.

12:17

You just like, that's yeah. I like

12:20

it. Planded.

12:20

I thought I was gonna wow you both.

12:22

That flop. Anyways, be real though, not

12:25

lobby. Super popular, the

12:27

MAU growth is supposed to be around twenty million

12:29

now, which is very impressive. And I I'm

12:31

just curious. I'm gonna ask those totally honest,

12:33

like, do you guys use it much? I know some people at

12:35

TC do, and do you like it?

12:36

I love it. Yeah. Natasha and her keeping it

12:38

real. Okay. Anita, though, you do not post a

12:40

be real every day. Can we talk about your own? I

12:42

don't. I don't. I notice that you don't post it every

12:44

day. And that's my issue with BeReal is

12:46

that I feel like it's a few loyal on

12:48

my current list. It's a few loyal

12:50

people. I being one of them. And I I

12:52

do like it, but I also think, like, I

12:54

I roast one of my friends with this all the time, which is,

12:56

like, you're being fake on be real because she'll

12:58

wait till we all are, you know, going to the

13:00

brewery or going to dinner and then

13:02

open up. I thought you weren't allowed to wait. Oh,

13:04

you are. And and it says

13:06

you you've posted a late be real. So

13:08

it calls you out, but nobody really cares.

13:10

No one really cares. And so it's it's just funny to

13:12

see how it's evolved a little bit. It's like it is kind of

13:14

a version of an Instagram story. becoming

13:17

one of them, I think. I I don't know if you agree,

13:20

Nina. I I have a hot take, which is I think

13:22

the real is overhyped. Whoa. And maybe it's

13:24

something that just doesn't personally resonate with me

13:26

as much, but, like, I could scroll I'll take for

13:28

hours. Be real. Like, I it gets kind of boring. It's

13:30

like, okay. Like, you know, another photo of

13:32

my friends sitting at home, you know, working from home

13:34

in the middle of the day. Like, that's cool. I

13:36

feel like the engagement I struggle with.

13:38

Right? Like, you can only, like, look at what

13:40

your friends are doing sitting at home for so long.

13:42

But isn't it better to have episodic

13:44

social media as opposed to new platforms

13:46

where we can spend all over time. I

13:47

guess, if we think about their incentives of

13:49

the business long term, like, they probably want

13:52

people on the app throughout the day or if

13:54

they're on the app only once a day, like for them to

13:56

be super engaging that once a day, and I

13:58

do find myself kind of going

14:00

only have to take a picture for a few seconds

14:02

and then closing it. And so maybe maybe that's not

14:04

how all the activity is. But when I hear that they

14:06

have a lot of daily active users,

14:08

I don't know how active those daily

14:10

users are? I mean,

14:11

probably pretty pretty

14:14

active because It's pretty

14:15

much not being active. Right?

14:16

Well, I I guess I'm more thinking of, like, their

14:18

MAU to DAU ratio is probably very strong

14:21

compared to other social services, TikTok

14:23

aside, and maybe the Facebook big

14:25

blue app. I I just I wonder if it's that bad that they don't use it that

14:27

much in terms of total time. It will limit ad

14:29

revenue possibly because you have fewer time with eyeballs,

14:31

so probably less total income. But,

14:33

I mean, people aren't trying

14:35

to build the next Instagram

14:37

per se because we already have it, and people are

14:39

already a little bit over it because it

14:41

ended up becoming yet another

14:43

quasi super app that ended up having no

14:45

specific soul. And be real to any this

14:47

point does seem to have a specific

14:49

different usage pattern and maybe

14:51

that's a strength. I totally

14:52

see the value prop behind it and I see the

14:55

idea behind it in terms of it being different from the

14:57

ops that we already use I just wonder

14:59

if maybe, like, at least for me, I feel like my

15:01

brain is too broken already to really

15:03

be be a frequent b roll user. Like,

15:05

I need that constant engagement. I need those

15:07

dopamine hits and, like, Maybe that's

15:09

my problem. But I'm thinking about when I

15:11

interviewed Clubhouse's cofounder,

15:13

Paul Davidson, last week, and

15:15

he said that it's really hard to invent

15:17

a new habit. includes social

15:19

audio, but I think it also includes authenticity with

15:21

social media. A lot of people say that they want it.

15:23

I mean, none of us are consumer reporters.

15:25

So, like, I'll asterisk that, but I'm someone who

15:27

loves authenticity. I love Twitter. It's my favorite one

15:29

because I think that that's a little bit more stream of

15:31

consciousness than filters. At the same

15:33

time, I don't know if,

15:35

like, B. Riley is the

15:36

perfect one for me. But Twitter is also a

15:38

niche social network. Right? Yeah. The doing

15:40

Twitter and TikTok apart from the the medium

15:42

of content, the discreet unit of substance.

15:44

It's just a very different experience in terms of

15:46

how we approach it. So Like TikTok,

15:48

I think, to Anita's point, is broad.

15:51

Everyone can use it. It will spoonfeed you

15:53

some form of moving video of whatever it is you

15:55

find interesting. Twitter's much harder to use. I've

15:57

trained my algo so well on TikTok.

15:59

It knows exactly what to deliver to

16:01

me. So

16:01

I still only follow my friend Aaron. And

16:04

so all I get is stuff that she does and and

16:06

stuff and from people like her. So it's a very tuned

16:08

experience. But yeah, I just I feel like TikTok has

16:10

already done that thing. And so

16:12

everyone seems to be chasing to to occupy the

16:14

same seat. And I like that B. Riley was

16:16

trying to add more chairs to the table. It stands out.

16:18

But we gotta scoot along. We gotta let to go over. I don't

16:20

know if you've picked up on this lately,

16:22

but Elon Musk a South African entrepreneur is

16:24

buying a social media company. Have you heard about this

16:26

slide?

16:26

crisis.

16:29

If the distance runs away, this is

16:31

the reason off tomorrow. Let's just say

16:33

that. Okay.

16:33

News is that Twitter

16:35

might not undergo as many layoffs as we thought.

16:37

This is something to be learned on Thursday. as

16:40

of Wednesday, when we put together the script

16:42

originally, we were expecting Elon to lay

16:44

off around three quarters or up two, three quarters

16:46

of Twitter staff, and it turns out via

16:48

him dropping by the office. That's not gonna be the

16:50

case. So, dad, seventy

16:52

percent, thirty percent, I have no

16:54

idea, but the context here has dramatically

16:57

changed. And then I'll add one more thing before I get

16:59

your feedback, but the company is gonna

17:01

be taking on presumably quite a lot of debt in

17:03

this transaction. means that it needs generate more cash to

17:05

service that debt. One way to generate more free cash

17:07

flow is to fire people at least in the

17:09

short term. So I need us to start with you.

17:11

VIBES on the Elon Ax swinging

17:13

that may or may not come? The vibes

17:14

are really off. Like, I'm super confused. I

17:16

I guess he said that he's just kidding not

17:18

gonna lay off seventy five percent of the staff after

17:20

all. But either way, I mean, this is just really

17:23

awful having your whole workforce

17:25

of the social media platform sort of hanging in

17:27

limbo and wondering what, like, what the hell is gonna

17:29

happen next. Right. And it's

17:31

also, like, Twitter Unlike some other social media

17:33

platforms, it has always had a smaller

17:35

staff. So cutting seventy five percent

17:37

of people makes a

17:39

bigger dent here than in other places that

17:41

would have impacted around five

17:43

thousand six hundred employees and they only have seven

17:45

thousand five hundred. And I don't know. I just think

17:47

about that too is, like, one thing I've always thought about

17:49

is, like, For how the world, it doesn't

17:51

have that many employees. So

17:53

we'll see even if he doesn't lay those

17:55

people off, there's gonna be churn in many

17:57

ways. We'll see over the next

17:59

few months, there is even one the leader isn't that controversial.

18:01

So add in the controversy, add in the

18:03

fact that Twitter has a very political

18:06

and thoughtful staff I

18:09

think we're gonna see a lot of change on the personnel front. See, I

18:11

was thinking Alex when he said the thing about layoffs and

18:13

that being an easy way to generate short term cash flow.

18:15

Like, surely there has to be other ways

18:18

for Twitter monetize. Like, this isn't a

18:20

private equity backed, like, late stage company

18:22

where they have to trim the fat or anything. Not that

18:24

I'm even justifying layoffs and that's situation.

18:26

I just think that, like, you know, for for

18:28

this social network that should be growing fast,

18:30

should have a lot of potential, has a lot of

18:32

different ways they could perhaps monetize?

18:33

Like, why is it that layoffs is the first thing that

18:35

that these investors are jumping to? It kinda

18:37

reminds me of all the discourse around Toys R Us when

18:39

that deal fell through. Like, after

18:42

a certain point, if you keep slashing staff, you

18:44

have to do it in a smart way. Otherwise,

18:46

the people who actually are fueling your growth

18:47

are not gonna be there anymore. Yeah.

18:50

I was curious who we're gonna end up here. You know

18:52

me? Trying to talk about private

18:55

equity. Okay. So the reason why I picked the private

18:57

equity example is just because of the the

18:59

debt component. And often when a private so a

19:01

private equity firm will raise a bunch of

19:03

debt, use that debt to buy a company,

19:05

attach that debt to the company,

19:07

not to themselves, and they make

19:09

the company pay for the debt that they added to it

19:11

so they could buy it. So they essentially get to buy it for

19:13

free. And then when they take it public, the

19:15

company gets to keep the debt and they get paid twice. Yeah. Private equity. By the way,

19:17

that sounds illegal. It's not.

19:19

It's it's somehow Somehow.

19:21

I mean, I get why it's illegal. But, like, I'm

19:23

always kinda like, y'all know this is

19:26

Right? Sounds a little too good to be true sometimes. You're just

19:28

ruining companies so you can take money out for

19:30

yourself. Congratulations. I especially when there's a special dividend.

19:32

I love that.

19:34

No, Alex. It's it's called operational improvements.

19:36

Okay?

19:36

Please. Oh, right. I love having an

19:38

former investment banker on the show.

19:40

I love being

19:41

levered to the Gil. that

19:43

engenders operational excellence, I think, especially in a

19:45

rising interest rate environment. Anyways, why

19:48

cuts that first? The the gist is I think that

19:50

Elon and a lot of folks that

19:52

seem to be of the same kind of intellectual

19:54

and political mindset. I think that tech

19:56

companies are full of people who don't do anything and that they

19:58

can fire everybody. It doesn't matter. I think

20:00

this is because the over index on the

20:02

great man theory, essentially. Say more

20:04

about the great man theory. The great man

20:06

theory is the favorite to your

20:08

political viewpoint of all men over the age

20:10

of seventy. And it's

20:12

that single individuals can greatly

20:14

change the course of history. and that this is why people

20:16

fall in love with like patent and

20:18

Buffet and so forth. I I

20:20

having worked at corporations

20:23

startups, big and small run teams, been part of

20:25

teams. I'm I'm a much bigger believer in

20:27

the go further as a group aspect

20:29

of things. But if you do think that individuals

20:31

are the ones that enact most of the change in

20:33

the world, then the support staff are

20:35

fungible, and therefore cuddleable, and therefore extendable,

20:37

and therefore essentially, an option towards more free

20:39

cash flow.

20:40

I wanna end with this section a little

20:42

bit with talking about this letter that kind

20:44

of I guess it fits really well into this

20:46

theory because it's a response to it. It's

20:48

like saying, it's not as simple as one individual

20:51

as the winner. So employees wrote a letter

20:53

to Elon Musk, the Board of Directors and

20:55

General staff. And basically

20:57

said that this layoff will hurt Twitter's

20:59

ability to serve the public conversation,

21:01

quote, a threat of this magnitude is

21:03

reckless. undermines our users and customers

21:05

trust in our platform and is a

21:07

transparent act of worker intimidation. And

21:10

I think that I mean, it's such a powerful letter. I'm sure we'll link it

21:12

in our show notes. I think it's important to read. We don't

21:15

know too many details about it, but I do feel like

21:17

a little bit like This this is the

21:19

theme I was talking about last week where it's like reputation matters and the power

21:21

of the employee is really important

21:22

right now. And I think it's been interesting to

21:24

watch that letter get mocked.

21:26

by a lot of very wealthy people -- Yeah.

21:28

-- arguing that, you know, these people are are

21:31

more activist than employees and

21:33

blah blah blah blah. Man,

21:35

someone's at a touch? Yeah. I mean, you can decide who

21:37

it is in this particular scenario. But

21:39

if I was buying a company and I was

21:41

overpaying three x for it, given current

21:44

market norms, might not attack the people that are

21:46

currently making the servers blink. I

21:47

think that's why him walking in with like holding

21:49

a sink. Just like didn't sit right with

21:51

me the news that he it's kind

21:53

of reversing this rumor or whatever that the seventy

21:55

five percent layouts aren't gonna happen. That happened after

21:58

he walked in with a sink and I just think

22:00

that, like, Just morale wise, it's an

22:02

exhausting place to be right now.

22:04

I'm not a Twitter employee. I don't know what the

22:06

exact temperature is. I'm glad I'm not one right

22:08

now. It's quite obvious. It just it seems like I'm sure that a lot of

22:10

disagreement internally even I mean, it's just a

22:12

spectrum of emotions. And I'm sad about an s

22:14

after all, so I would just go camp out in their

22:16

cafe and and try and, I don't know, talk to some

22:18

of them.

22:18

Well, someone, please let me into Twitter HQ

22:20

again. Thank you. I know the last time I was there, we

22:22

checked a whole bottle of Jamison, but we're

22:25

gonna move on though. No more Elon Musk the rest of

22:27

the show. Yay. I'm pretty sure about

22:29

that. If we don't live up to that, we owe you a Coke.

22:31

Alright. Anita Apple

22:33

and the app store and rules of the

22:35

walled garden and rent seeking off

22:37

of payments is is a topic that we've

22:39

touched on on the show so many times. This

22:41

time, however, crypto has entered the conversation.

22:43

It

22:43

has, though, I regret to inform you that

22:45

Elon Musk is actually still related to

22:47

this somehow because the the new Apple rules

22:49

are gonna affect platforms like Twitter as

22:51

well. So Apple issued a bunch of new

22:53

guidelines for developers and a lot of them have to

22:55

do with NFTs, but they've also issued some

22:58

new guidance around social media

23:00

booths and like, promotional content, which

23:02

I'll get into in a second. But the NFT

23:04

stuff because I'm a

23:04

Crypto Gal. Check me out on Chain

23:07

Reaction, TechCrunch Crypto Podcast. It's

23:09

a

23:09

great time. Mhmm. Shane plug. But anyway, no. So Apple

23:11

issued these new guidelines. And basically, Apple has not really

23:13

said anything official about NFTs or

23:15

Crypto in the past.

23:17

For every in app purchase, the

23:19

Apple Store takes a thirty percent fee.

23:21

Basically, anytime you transact in the app, if

23:23

you buy or sell something, Apple gets a thirty percent cut

23:25

of it. And so they came out and said this week that

23:28

that will actually apply to

23:30

NFT's as well. And all NFT's have

23:32

to be purchased through Apple's in app payment

23:34

system. So If an exchange like an open c

23:36

for example wants to give

23:38

people the functionality to be able to buy and sell

23:40

NFTs on mobile, then they have to

23:42

succumb to Apple's essentially people

23:44

in crypto are calling it a thirty percent tax. Mhmm. And

23:46

the other thing that they said is that

23:49

NFTs cannot have token gated or

23:51

exclusive benefits on mobile. because

23:53

people were using that as a workaround to

23:55

having to use the Apple and App payment

23:57

system. Like people in crypto and crypto companies

23:59

and apps that have iOS

24:01

mobile apps, are trying to find any way that

24:03

they can to bypass that thirty percent tax.

24:05

Do do do you feel like this is gonna

24:07

hurt innovation specifically the

24:09

one that will see show up on the App Store

24:11

or Are they kind of swallowing

24:13

thirty percent? Yeah.

24:14

It's a good question. Well, the thing is, like,

24:16

Apple really cares about this and the reasons they've come

24:18

out and basically had these rules apply to

24:21

NFTs is because sixty to seventy percent

24:23

of their App Store revenue comes from gaming.

24:25

And gaming is a big growth catalyst for

24:27

web three and for NFTs in

24:29

particular. Wow. So it's it's really not just

24:31

like Crypto that's that's being affected by these

24:33

new rules. It's like gaming companies, and I do think

24:35

it will stifle innovation. I I think that's kind of

24:37

the point though. calling

24:38

time out. We're going back. Okay. Okay.

24:41

Okay. Okay. Thanks for everyone. Gaming

24:43

is a huge catalyst

24:45

for web three. I

24:47

mean, people say People say that. Right? Like, we're hoping

24:49

that that becomes true.

24:51

That's very different. That's totally fair.

24:53

I don't necessarily believe

24:55

that, like, NFTs are the future of gaming,

24:57

but I think that this is a defensive move from

24:59

Apple to keep everything on

25:00

their ecosystem and on their platform.

25:02

Okay. It's so smart of them. I'm totally

25:04

agree with that. I I'm just there's this

25:06

vibe of in in the crypto world, and I'm not

25:08

pointing fingers that you would need on pointing fingers at the

25:10

whole planet. That's fair. To take hoped

25:13

for things and then kind of scoot the

25:15

goalpost forward and be like, well, it's obviously gonna be

25:17

huge. Andres

25:18

then. So the the thing

25:20

with hype and and web three is that it's sort of a self

25:22

fulfilling prophecy sometimes, which is why I think Apple's

25:24

taking it seriously. Like, if it does end up being

25:26

true that NFT gaming becomes

25:28

a big thing, because there's so much money being poured into it,

25:30

you know, regardless of user demand. Like, we

25:32

we know from Uber and we know from all these startups that

25:34

you can sort of manufacture user demand.

25:37

That is so real. That is so real. I mean

25:39

and I I know last week when you

25:41

were interviewing Selana's founder,

25:43

co founder. Yeah. Anatollah Yakov Enko.

25:46

Yes. Tully. He mentioned

25:48

the interest in building us a lot of fun and

25:50

you've talked about Apple, which it's kind

25:52

of great timing. How is his

25:54

comments aged? since this happened? Yeah.

25:56

Well, I think they've actually aged pretty well

25:58

because he was sort of talking about

25:59

how building a Solano web

26:02

three phone is the web three world's response

26:04

to Apple and Google basically cracking down and

26:06

taking this huge fee. But the question

26:08

remains like, can Solana build this crypto

26:10

phone? And our crypto user is gonna

26:12

do this completely separately because so many people

26:14

who have the money to buy NFTs, most of

26:16

the target market, are wealthy people who happen

26:18

to own iPhones. Yep. So at the end

26:20

a day if a if an NFC exchange or a crypto

26:23

company wants to make money and they want

26:25

to onboard new users, forgive me

26:27

for using that term, but that's, like, you know,

26:29

the the way it's set in crypto, like, if they wanna

26:31

do that, they basically can't ignore mobile.

26:33

Right? That's how most of these transactions happen,

26:35

and they wanna get these iPhone so they

26:37

might have to just suck it up and pay that thirty percent

26:39

fee to Apple. Okay.

26:40

But then how does that work? Because one of the

26:42

best parts of Open Sea, especially back when we were

26:44

looking at numbers in the a February time frame when NFTs were

26:46

having their last major peak, was that they

26:48

took a two and a half percent cut, which I

26:50

thought was great. I mean, that seemed like

26:52

a perhaps defensible fee

26:55

for running a marketplace and handling transactions and

26:57

building a market and so forth. If Apple's taking

26:59

a thirty percent cut, if I buy an

27:01

NFT, do I the

27:03

buyer pay thirty percent plus two and a half percent or does

27:05

the seller of the NFT eat the

27:07

thirty percent tax? That's not clear to me.

27:09

I think it's

27:10

so an open question. I think either it

27:12

would end up eating into these NFC

27:14

exchanges profits or it would be passed on

27:16

to the buyers. The other question that I have that

27:18

I think is still outstanding for a lot of people is that

27:21

NFTs, like, the whole point is sort of this

27:23

dynamic real time pricing, which doesn't

27:25

exactly work for an app app store

27:27

purchases. Like, you kind of have to set a

27:29

price point for an item before you actually sell it. So I think this

27:31

is a big blow to NFT's on

27:33

mobile. And Apple sort of saying, like, hey, if

27:35

you guys want iPhone users,

27:37

then you're gonna have to play by our rules, and that basically challenges

27:39

the very core ethos of of crypto

27:41

and FFTs in the first place. Oh, god. Do

27:43

we

27:43

need a third smartphone?

27:47

brand or OS like

27:49

No. But not not

27:52

that. Something else. Something

27:54

that plays nice. Like, I think I think downside is these

27:57

phones, Android and iOS, became

27:59

more open over time because if you recall the

28:01

iPhone launched without third

28:03

party apps and then add it to an App Store. Yeah.

28:05

And now

28:07

it it seems like Google and Apple

28:09

had realized that they can generate enormous

28:11

incomes from these app stores. And so they they're they're

28:13

building the walls taller. And

28:15

I think now, given that every single sector

28:17

from online dating to social networking

28:20

to crypto, Everyone's very peevish

28:22

about these enormous fees that Apple is apparently

28:24

just wedded to. I really wish there's more

28:26

competition. I do

28:26

wanna bring everything full circle here about

28:29

Apple because thing is, like, with with

28:31

Google and with Android, the Solana Saga phone is

28:33

an Android phone. And the the Play

28:35

Store does take a fee on

28:37

Google, but the end of the day on an Android, you can

28:39

still sort of jailbreak it and install these

28:41

external third party apps. The the

28:43

benefit of buying an app through the Play Store is like

28:45

they say it's secured, it's verified, they've

28:47

vetted it, It's not gonna, like, up your phone. But at the same

28:49

time, you still have the freedom to do what you want with the

28:51

device. And on the iPhone, you you totally

28:53

don't. But the thing that always stands out to me when I

28:55

think about Apple is, like, regardless

28:57

of their, you know, quasi potentially

28:59

monopolistic practices. Regardless of

29:01

their super high fees at the end of the day, everybody

29:03

wants an iPhone. Like, people use it,

29:05

people love the product, and it's

29:08

amazing to me, like, how much we as a society are

29:10

willing to take from Apple? I I think

29:12

the thirty percent number I've heard so

29:14

many times this year has been the subject

29:16

of debate so many times this year that I

29:18

wonder if, like, they can't even take

29:20

it back because they've gone so

29:22

deep into committing to this number. I mean, I I'll

29:24

tell you Apple, no one will mad at you if you give up.

29:26

Like, no one's gonna be like, we're not gonna roast

29:28

you if you something. You

29:29

know, You know what Apple? There may

29:31

come a time in which you have enough

29:33

wealth. Maybe. Maybe once. You have

29:35

one less

29:35

option to get to. But China. I'm gonna be really

29:37

brief about this. Did you guys pay attention to

29:39

the recent Chinese communist party every

29:42

five year big meeting?

29:43

No. Do you tell? Every

29:45

five years, The TransUnion's party's leadership comes together. They

29:47

have a big thing, and they shuffle leadership

29:49

and talk about priorities and set plans and

29:51

so forth. The same person

29:53

who was in charge is still in charge for another five years breaking norms. And

29:55

what matters is that the kind

29:58

of inner circle of the

30:00

Communist Party leadership saw

30:02

a reduction in kind of pro market

30:05

reformist folks and more people

30:07

brought on that were a bit more in tune with Xi

30:09

Jinping's ideology. And markets reacted

30:11

to this by going and

30:13

selling off frantically on Monday. There's

30:15

been some recovery since, but a huge negative

30:17

signal. And I was just curious

30:20

know, what does that mean for Chinese start ups? Yeah. Because do you guys remember

30:22

back in, like, twenty eighteen when

30:24

Chinese venture capitals, like, nah gosh, you were a

30:26

question based news I think back then. Like, it

30:28

was bigger than, like, the US market for a

30:30

for a quarter there.

30:31

It was the yeah. It was insane

30:33

and it was something that, like, I feel like

30:35

I haven't even seen anything come close to it.

30:37

Like, Latin America is booming. But even

30:39

its boom was nowhere close to

30:41

China's boom for many reasons. And so

30:43

it's fall China's fall from Greece.

30:45

has been even more startling to see just

30:48

because of how hyped things were at that point.

30:50

And your story put it in a number

30:52

framework, which I think really hit home for me, just

30:54

how much things have changed.

30:55

Yeah. So the numbers are in q three

30:57

of this year per CB Insights,

30:59

Chinese startups raised about eight and a half billion.

31:02

That's down from the peak of twenty seven point seven

31:04

billion sudden, I think it was q four twenty

31:06

one in absolute dollar terms.

31:08

And then thought is sequential

31:10

declines you've seen in the Chinese startup

31:12

scene, maybe the recent sell off is

31:14

gonna make things even harder. And if that happens,

31:16

we're gonna be really

31:18

seen Chinese private capital disarms

31:20

retreat. And I you know, we're talking a lot in the

31:22

in the broader political context about a tech war

31:24

or some sort of like, you challenge of the

31:26

Empire's or whatever. And I I just wonder how

31:29

China can try to have technological dominance

31:31

when its private sector is is imploding

31:33

as it appears to be. Well,

31:34

my question to you, Alex, is, like, how

31:36

much worse is this compared to other regions

31:39

globally? Like, attack is kinda getting hit hard all

31:41

over the world. Like, is China doing significantly

31:43

worse than other country's tech sectors.

31:45

It was doing fractionally worse than other

31:47

country's tech sectors measuring from

31:50

recent venture a little peaks in dollar terms down to q three

31:52

results, but I don't

31:54

think anyone is sold off as hard as

31:56

China has since. my

31:58

vibe is that they were already lagging.

32:00

Throw this on top. Adding more negative

32:02

sentiment to the Chinese economy is a

32:04

bit like kicking the corpse. at

32:06

this point, but seems to be what's happened. So I I'm just very

32:08

curious to see what this does to q four numbers.

32:10

And if we kinda start putting

32:12

China instead of big number two

32:15

ish venture market to more like

32:17

third or fourth, which is really just not

32:19

where we thought things were going five

32:21

years ago. it

32:21

still continues to, like, surprise me. And we in

32:23

your story, you noted that the American

32:25

share prices of Chinese

32:28

companies are quite down, so we saw Alibaba,

32:30

Baidu, Pinduoduo, and

32:32

the Nasdaq Golden Dragon China

32:34

Index are all down. So it's not

32:37

just kind of the startups that are gonna be facing it.

32:39

It all starts at the top. It starts everywhere. It's

32:41

all around for

32:42

now. Someone once said, the fish rots

32:44

from the

32:44

head. I believe that. one more question for you,

32:47

Alex. Why do you think that this is happening in

32:49

China specifically? Like, what's the sort of linkage to

32:51

what's going on with the Communist Party

32:53

meeting? Oh, so

32:53

if you go back one or

32:55

two years to the time in which Ant

32:57

Financial had its IPO scuppered.

33:00

That was I think it was actually

33:02

a decision made by xizhouping. I

33:04

think he made that call. If I look forward to Jack

33:06

Ma disappear for, like, for a minute. And everyone

33:09

was like, where is he? Jack Ma disappeared for

33:11

a for a while. Yeah. Like, a

33:13

long minute. it. Yeah. It

33:15

was like a quarter hour of minutes if

33:17

we use minute in this modern parlance.

33:19

And then there was also the ed tech crackdown. There

33:21

was a crackdown on AI and

33:23

platform companies. And there were some intelligent

33:26

anti anti competitive regulation that came out

33:28

as part of this, but mostly it was cracked on a

33:31

private enterprise. and the current leader China is

33:33

moving the emphasis of the economy away from the private

33:35

sector towards the state sector, none of

33:37

which bodes well for business results. and

33:39

so to see his power

33:41

not just retained but

33:43

enhanced and stabilized even more by this this

33:45

shakeup of his essentially cabinet. means

33:47

that the hope that people had, that

33:49

things would get easier for business was

33:52

bull and that it's gonna get harder for

33:54

business. Everyone was like, Deuces. We're not

33:56

gonna buy these stocks. I like an explanation. Do

33:58

people still say deuces? That might be a

34:00

slightly archaic phrase. Anyways, Natasha, we are

34:03

so over time. We have stopped talking. equity

34:05

code for TC Plus. We're back

34:07

on Monday. Anything else that I'm missing?

34:08

We're back on Halloween. Don't forget that. Oh, that's

34:11

right. There'll be

34:11

a lot of spooky

34:12

puns. I'm gonna, like, just add

34:14

a bunch of promises to Alex Monday show to do list. Alright. No.

34:17

Please. And

34:17

that way, I can let everyone down all at once and

34:19

get over with, you know. Here's to hoping the markets

34:21

aren't too scary.

34:22

Thank

34:24

you again Anita for joining equity. Everyone else

34:27

follow us at equity pod on Twitter

34:29

and we will see you on

34:32

calling Farfetch i.

34:33

Equity Fridays are hosted by myself.

34:36

Editor in chief of TechCrunch plus

34:38

Alex Wilhelm and senior

34:40

reporters Natasha Moskares and Mary

34:42

Anne Asvedo. We're produced by Teresa

34:44

Locumsolo. We're editing by Cal Cal

34:47

Bryce Durbin is our Illustrator, plus the Stringer

34:49

leads audience development and Henry

34:51

Piccadet manages TechCrunch audio products. Thanks so much

34:53

for listening, and we'll be

34:55

back next week.