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Arena Show Part I: Idea Dinner + YC Continuity

Season 10, Episode 7

ACQ2 Episode

May 11, 2022
May 12, 2022

We did an Arena Show!! This evening was so big and so special, we had to split it into two episodes for the podcast feed. First up is the Idea Dinner with our best internet buddies, Packy McCormick and Mario Gabriele (and special guest judge Shu Nyatta), followed by the story of YC Continuity with managing partner Anu Hariharan. Huge, huge thank you to PitchBook for making this night possible. Stay tuned for Part II!


We finally did it. After five years and over 100 episodes, we decided to formalize the answer to Acquired’s most frequently asked question: “what are the best acquisitions of all time?” Here it is: The Acquired Top Ten. You can listen to the full episode (above, which includes honorable mentions), or read our quick blog post below.

Note: we ranked the list by our estimate of absolute dollar return to the acquirer. We could have used ROI multiple or annualized return, but we decided the ultimate yardstick of success should be the absolute dollar amount added to the parent company’s enterprise value. Afterall, you can’t eat IRR! For more on our methodology, please see the notes at the end of this post. And for all our trademark Acquired editorial and discussion tune in to the full episode above!

10. Marvel

Purchase Price: $4.2 billion, 2009

Estimated Current Contribution to Market Cap: $20.5 billion

Absolute Dollar Return: $16.3 billion

Back in 2009, Marvel Studios was recently formed, most of its movie rights were leased out, and the prevailing wisdom was that Marvel was just some old comic book IP company that only nerds cared about. Since then, Marvel Cinematic Universe films have grossed $22.5b in total box office receipts (including the single biggest movie of all-time), for an average of $2.2b annually. Disney earns about two dollars in parks and merchandise revenue for every one dollar earned from films (discussed on our Disney, Plus episode). Therefore we estimate Marvel generates about $6.75b in annual revenue for Disney, or nearly 10% of all the company’s revenue. Not bad for a set of nerdy comic book franchises…

Season 1, Episode 26
LP Show
May 11, 2022

9. Google Maps (Where2, Keyhole, ZipDash)

Total Purchase Price: $70 million (estimated), 2004

Estimated Current Contribution to Market Cap: $16.9 billion

Absolute Dollar Return: $16.8 billion

Morgan Stanley estimated that Google Maps generated $2.95b in revenue in 2019. Although that’s small compared to Google’s overall revenue of $160b+, it still accounts for over $16b in market cap by our calculations. Ironically the majority of Maps’ usage (and presumably revenue) comes from mobile, which grew out of by far the smallest of the 3 acquisitions, ZipDash. Tiny yet mighty!

Google Maps
Season 5, Episode 3
LP Show
May 11, 2022


Total Purchase Price: $188 million (by ABC), 1984

Estimated Current Contribution to Market Cap: $31.2 billion

Absolute Dollar Return: $31.0 billion

ABC’s 1984 acquisition of ESPN is heavyweight champion and still undisputed G.O.A.T. of media acquisitions.With an estimated $10.3B in 2018 revenue, ESPN’s value has compounded annually within ABC/Disney at >15% for an astounding THIRTY-FIVE YEARS. Single-handedly responsible for one of the greatest business model innovations in history with the advent of cable carriage fees, ESPN proves Albert Einstein’s famous statement that “Compound interest is the eighth wonder of the world.”

Season 4, Episode 1
LP Show
May 11, 2022

7. PayPal

Total Purchase Price: $1.5 billion, 2002

Value Realized at Spinoff: $47.1 billion

Absolute Dollar Return: $45.6 billion

Who would have thought facilitating payments for Beanie Baby trades could be so lucrative? The only acquisition on our list whose value we can precisely measure, eBay spun off PayPal into a stand-alone public company in July 2015. Its value at the time? A cool 31x what eBay paid in 2002.

Season 1, Episode 11
LP Show
May 11, 2022

6. Booking.com

Total Purchase Price: $135 million, 2005

Estimated Current Contribution to Market Cap: $49.9 billion

Absolute Dollar Return: $49.8 billion

Remember the Priceline Negotiator? Boy did he get himself a screaming deal on this one. This purchase might have ranked even higher if Booking Holdings’ stock (Priceline even renamed the whole company after this acquisition!) weren’t down ~20% due to COVID-19 fears when we did the analysis. We also took a conservative approach, using only the (massive) $10.8b in annual revenue from the company’s “Agency Revenues” segment as Booking.com’s contribution — there is likely more revenue in other segments that’s also attributable to Booking.com, though we can’t be sure how much.

Booking.com (with Jetsetter & Room 77 CEO Drew Patterson)
Season 1, Episode 41
LP Show
May 11, 2022

5. NeXT

Total Purchase Price: $429 million, 1997

Estimated Current Contribution to Market Cap: $63.0 billion

Absolute Dollar Return: $62.6 billion

How do you put a value on Steve Jobs? Turns out we didn’t have to! NeXTSTEP, NeXT’s operating system, underpins all of Apple’s modern operating systems today: MacOS, iOS, WatchOS, and beyond. Literally every dollar of Apple’s $260b in annual revenue comes from NeXT roots, and from Steve wiping the product slate clean upon his return. With the acquisition being necessary but not sufficient to create Apple’s $1.4 trillion market cap today, we conservatively attributed 5% of Apple to this purchase.

Season 1, Episode 23
LP Show
May 11, 2022

4. Android

Total Purchase Price: $50 million, 2005

Estimated Current Contribution to Market Cap: $72 billion

Absolute Dollar Return: $72 billion

Speaking of operating system acquisitions, NeXT was great, but on a pure value basis Android beats it. We took Google Play Store revenues (where Google’s 30% cut is worth about $7.7b) and added the dollar amount we estimate Google saves in Traffic Acquisition Costs by owning default search on Android ($4.8b), to reach an estimated annual revenue contribution to Google of $12.5b from the diminutive robot OS. Android also takes the award for largest ROI multiple: >1400x. Yep, you can’t eat IRR, but that’s a figure VCs only dream of.

Season 1, Episode 20
LP Show
May 11, 2022

3. YouTube

Total Purchase Price: $1.65 billion, 2006

Estimated Current Contribution to Market Cap: $86.2 billion

Absolute Dollar Return: $84.5 billion

We admit it, we screwed up on our first episode covering YouTube: there’s no way this deal was a “C”.  With Google recently reporting YouTube revenues for the first time ($15b — almost 10% of Google’s revenue!), it’s clear this acquisition was a juggernaut. It’s past-time for an Acquired revisit.

That said, while YouTube as the world’s second-highest-traffic search engine (second-only to their parent company!) grosses $15b, much of that revenue (over 50%?) gets paid out to creators, and YouTube’s hosting and bandwidth costs are significant. But we’ll leave the debate over the division’s profitability to the podcast.

Season 1, Episode 7
LP Show
May 11, 2022

2. DoubleClick

Total Purchase Price: $3.1 billion, 2007

Estimated Current Contribution to Market Cap: $126.4 billion

Absolute Dollar Return: $123.3 billion

A dark horse rides into second place! The only acquisition on this list not-yet covered on Acquired (to be remedied very soon), this deal was far, far more important than most people realize. Effectively extending Google’s advertising reach from just its own properties to the entire internet, DoubleClick and its associated products generated over $20b in revenue within Google last year. Given what we now know about the nature of competition in internet advertising services, it’s unlikely governments and antitrust authorities would allow another deal like this again, much like #1 on our list...

1. Instagram

Purchase Price: $1 billion, 2012

Estimated Current Contribution to Market Cap: $153 billion

Absolute Dollar Return: $152 billion

Source: SportsNation

When it comes to G.O.A.T. status, if ESPN is M&A’s Lebron, Insta is its MJ. No offense to ESPN/Lebron, but we’ll probably never see another acquisition that’s so unquestionably dominant across every dimension of the M&A game as Facebook’s 2012 purchase of Instagram. Reported by Bloomberg to be doing $20B of revenue annually now within Facebook (up from ~$0 just eight years ago), Instagram takes the Acquired crown by a mile. And unlike YouTube, Facebook keeps nearly all of that $20b for itself! At risk of stretching the MJ analogy too far, given the circumstances at the time of the deal — Facebook’s “missing” of mobile and existential questions surrounding its ill-fated IPO — buying Instagram was Facebook’s equivalent of Jordan’s Game 6. Whether this deal was ultimately good or bad for the world at-large is another question, but there’s no doubt Instagram goes down in history as the greatest acquisition of all-time.

Season 1, Episode 2
LP Show
May 11, 2022

The Acquired Top Ten data, in full.

Methodology and Notes:

  • In order to count for our list, acquisitions must be at least a majority stake in the target company (otherwise it’s just an investment). Naspers’ investment in Tencent and Softbank/Yahoo’s investment in Alibaba are disqualified for this reason.
  • We considered all historical acquisitions — not just technology companies — but may have overlooked some in areas that we know less well. If you have any examples you think we missed ping us on Slack or email at: acquiredfm@gmail.com
  • We used revenue multiples to estimate the current value of the acquired company, multiplying its current estimated revenue by the market cap-to-revenue multiple of the parent company’s stock. We recognize this analysis is flawed (cashflow/profit multiples are better, at least for mature companies), but given the opacity of most companies’ business unit reporting, this was the only way to apply a consistent and straightforward approach to each deal.
  • All underlying assumptions are based on public financial disclosures unless stated otherwise. If we made an assumption not disclosed by the parent company, we linked to the source of the reported assumption.
  • This ranking represents a point in time in history, March 2, 2020. It is obviously subject to change going forward from both future and past acquisition performance, as well as fluctuating stock prices.
  • We have five honorable mentions that didn’t make our Top Ten list. Tune into the full episode to hear them!


  • Thanks to Silicon Valley Bank for being our banner sponsor for Acquired Season 6. You can learn more about SVB here: https://www.svb.com/next
  • Thank you as well to Wilson Sonsini - You can learn more about WSGR at: https://www.wsgr.com/

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Transcript: (disclaimer: may contain unintentionally confusing, inaccurate and/or amusing transcription errors)

Ben: Holy crap.

David: Wow.

Ben: Hello, Acquired listeners.

David: You didn't tell me you're going to say that. That’s good.

Ben: I'm ad-libbing. I got up here and I was overcome with emotion. And none of this is scripted. Thank you so much for coming tonight. I prepared things and I should read them off my iPad here, but the only thought that could occur to me right now is how different this is than what you and I normally do.

David and I are very used to being on Zoom, talking to each other through the internet. There are zero people watching live and if we say something wrong, we delete it. That's not happening tonight. More important than that is we get evidence that people listen in the form of analytics, tweets, or anecdotes here and there of someone saying oh, I listen to the show, but there's no human visceral way to feel that. We literally just refresh an analytics dashboard and a number goes up. This is so cool to see you real.

As fun as it is going to be to watch the show—we've got some great stuff planned—I think it will be much cooler to meet each other. Many call it parasocial relationships where you hear us talk, but we don't get to meet you. We're going to try and meet as many of you as possible. We want a lot of you to meet as many other people as possible because you have an easy opener like what's your favorite episode? Or how did you hear about Acquired? My buddy dragged me here tonight and I never heard of it before this. Everyone's got some answer to that question so meet each other. Take selfies and enjoy the time together. We have a freaking Climate Pledge Arena and enjoy the time in it.

Thank you to PitchBook. Holy crap, John's not kidding. PitchBook is Seattle's monster amazing business hiding in plain sight, and it's been really cool to get to know their team more and more, understand the business, and just learn how on $4 million they've been able to build this multi-hundred million dollar business. It's inspiring to us. Thank you to John. Thank you to Kai. Thank you to Lauren and Val. Thank you to Nas. Everyone we work with at PitchBook is just awesome. So thank you to them.

David: Happy Star Wars day, Ben.

Ben: Happy Star Wars Day. May the Fourth be with you all.

David: I hear Paul McCartney is here?

Ben: Yes, Paul McCartney is here tonight. We had a great show for you, that was last night. We do have a great show, though. Tonight we have Jim Weber, the CEO of Brooks Running. Another Seattle monster business that we're very excited to talk to you about. We have Anu Hariharan tonight from Y Combinator, the infamous Packy McCormick from Not Boring, and Mario Gabriele from The Generalist, to the Internet's finest publications. Very excited to chop it up with them.

We learned from Arena Shows past, very small live shows past, that our normal format of telling a three-plus hour story of a business doesn't work very well in this sort of time where you're sitting down and you can feel the audience getting antsy in those long stories. We got three just fast-paced great stories, great segments for you tonight, that will be in and out in a couple of hours. We'll enjoy it along the way, but it's going to feel fast relative to your normal Acquired episode.

David: Speaking of, should we start our normal Acquired episode?

Ben: We got to do it. It feels like we have a way that we start Acquired episodes so we should do that.

David: We should do that.

Ben: Welcome to Season 10 Episode 7, the Arena Show, presented by PitchBook of Acquired. The podcast talks about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert and I am the co-founder and managing director of Seattle-based Pioneer Square Labs and our venture fund PSL ventures.

David: I'm David Rosenthal, and most days I'm an angel investor based in San Francisco, but today I'm an angel investor based in Seattle.

Ben: And we are your hosts. David, what do we have on act one?

David: For act one tonight, we start back in February 2021 when we were all bored at home, Clubhouse was a thing, Gamestop was going to the moon, and we decided to call up our best internet friends, Packy McCormick and Mario Gabriele, and pick some stocks.

Ben: Like everyone was doing.

David: Like everyone was doing.

Ben: Real quick, this is not investment advice. Do your own research.

David: I'm glad you remembered that. Tonight, we are going to recreate that magic live here in person. Ladies and gentlemen, please welcome all the way from New York, Packy McCormick and Mario Gabriele.

Packy: Look how dirty my sneakers are. This is perfect.

Mario: Weird to start. Let's just change shoes from the beginning. Let's do it.

Ben: The only rule is you will lose the idea dinner unless you are wearing—

Mario: Did you ask us for our shoe size? I don't have room for that.

Packy: This is actually the second most embarrassing thing to the pick that I'm about to make.

David: We needed to delay a little bit because we have one more thing, a special surprise. We wanted to raise the stakes tonight so we brought in a judge who is going to grade each of our picks, Acquired style, and declare a winner and a loser at the end of the night.

Ben: A loser. That’s pretty harsh.

David: Please welcome me from the capital of Silicon Valley, Miami, Florida. Great longtime friend of the show and former SoftBank Latin America Managing Director, Shu Nyatta.

Let's dive into the idea of dinner. I'm happy to report when we were deciding on the order that we were going to go in. I came up with the criteria, which was whose picks historically have performed the best? That would be mine.

Ben: This is so rigged in the way you chose to select whose picks have performed the best, yours performed the best?

David: Yes.

Ben: Not private picks. Not blended? No. Just public picks.

David: Yes.

Ben: Okay.

David: I'm going to clean up and Mr. Mario Gabriele is going to lead us off.

Mario: Why is that? I don't agree with the judging so far.

David: Before you tell us your pick, for all two people that don't know about The Generalist, tell us about The Generalist.

Mario: Oh, wonderful. Thank you so much. The Generalist is a publication that covers tech, crypto, and venture capital. I aspire to the level of depth of these two gentlemen and I always enjoy collaborating with them.

Ben: We cannot write the way that you write so there's no aspiration. For people who haven't read The Generalist, it is deep writing about technology companies in the most whimsical style I can possibly imagine. Mario is a novelist at heart who covers tech companies and it's very fun to read.

Mario: Thank you so much. I feel honored.

Ben: Before we grill you on your pick, a little rules of the game here. We're all coming with our best investment idea starting today. What is today? May 4th. The idea is to espouse something that you think would be a profitable investment—not investment advice—starting today, going forward on a timeframe that you choose to specify and then Shu ultimately will be the judge because we don't have the benefit of all that time to know how it actually plays out.

Shu: I love the Godlike powers.

Ben: Yes. Mario, lead us off.

Mario: Since Shu is really my audience, all right gentlemen, my pick is Snowflake. Thank you.

Ben: Heard of it.

Mario: For those who perhaps are less familiar, what is Snowflake? Snowflake is a Managed Data Warehouse and their sort of initial genius was that they separated storage and compute. Made it super easy to take in all of this data that a company is managing and to run queries against it super fast so you can get the insights and information from it. That initial idea was quite brilliant and has formed the company into the sophisticated and elegant product that it is today.

That made it something of a pandemic darling, if we recall. It was one of the craziest sorts of IPO day pops that I think any of us have seen in a long time and the stock traded as high as I think $403 a share. Today, it's about $183, $185. It has taken quite a hammering.

Ben: Multiple compression, as they say.

Mario: Indeed, especially this first quarter. It really got, I think, a 45% drawdown. When you look under the hood at what the company has been doing, certainly some of the multiple compression is merited, but the growth in revenue, the net retention, the free cash flow, all of those things have moved in a stellar direction. Revenue’s up about 105%. Net retention is 178%. It was 168% the year before.

David: Which I think is a record for a public company net retention.

Mario: It may well be. It's pretty wild. They're generating $80 plus million in free cash flow. The business in Q4 of last year actually got a contract value of $1.4 million coming in, which is all of the revenue they had the year prior. I would submit it to you.

Ben: You would submit to Shu.

David: You would submit to judge Shu.

Shu: Don't forget.

Mario: This is a business that has the potential to compound for many years. I think over a 3+ year time horizon, it can do extremely well. It is a play that summarizes the growth of data in the technology industry, which feels like a safe bet, and it's run by one of the biggest ballers in the executive world, Frank Slootman, who has done this now for at least 2½ times depending on how you parse it, and who is sort of the quintessential sustainable growth CEO.

He is someone who knows how to manage in difficult circumstances. He's compared himself to General Patton, and this is a time for a Patton-like figure, I would submit. My pick is Snowflake. It doesn't come without risks, but those are risks I'm willing to take.

David: You've come a long way from I think your first pick was a SPAC.

Ben: Can we put a moratorium on bringing up people's old picks? Nobody's portfolio looks good right now. Sorry. David's less negative than everyone.

David: Any thoughts from the peanut gallery on Snowflake?

Ben: You have every sector tailwind in the world. Of course, more companies are going to be using cloud data warehouses in ways that you want to have good UX around. Then the question is are they going to continue to capture all the value? How do they stand competitively?

Mario: Yeah, I think the sort of net retention shows that they're very good at growing with this customer base. They're growing faster than any other cloud company, which isn't super surprising, given their relative size. I think that's a fair question, but not one that I'm hugely worried about, given the overall growth of the sector.

Ben: Sweet, no further comments. How are we doing this?

Shu: I'm not going to do real-time grading. I'll be skewed by the first one and then I'll adjust mid-course, I'll wait. I'm taking notes.

Ben: That's great. Very fair.

David: Mr. McCormick? You asked the Internet for your pick.

Packy: I asked the Internet for their favorite stock. I ended up going actually with an oldie but a goodie, but we're going to get there. I think one of the most important things about 2020 and 2021 for a lot of people was learning about themselves. What I learned is that I'm a terrible, terrible stock [...].

Ben: Wait, but you're on CNBC all the time.

Packy: Like I said, terrible, terrible stock [...]. As we did the rankings, I gave Mario a little bit of guff, but I think we were going back and forth for last place. The safe move and we also decided to only do public because we didn't want to shell our private market portfolio companies.

Composer is one of the companies in my portfolio that makes it really easy to invest in automated trading strategies. I'm going to go with one of the strategies that they have that risk-on, risk-off. It looks at treasuries and actually, NASDAQ outperforms S&P as an indicator, and then puts you in a basket of like TQQQ when things are good and it puts you in like long dollars when things are bad.

If I wanted to be super safe, that's my pick and that's actually where I'm putting my money. Not going to do that because we're all the way out in Seattle, but we can invest in this. Maybe there are shares going around. Apparently, it's possible to get into the equity tranche of Elon's Twitter take private.

Ben: At least he's aggressively trying to find people to take some of the equity.

Packy: He's aggressive. If any of you want a piece of the Twitter take private, $43 or $44 million minimum check. I think actually they are taking relatively small checks from what I've seen.

David: Here's the question, is Not Boring Capital investing?

Packy: That is outside Not Boring Capital's very, very broad mandate. Maybe I'll throw a yellow cheque in there.

Ben: Dude, you invested Not Boring Capital's money in buying the Constitution.

Mario: This is too far.

Packy: That one was a 15 billion percent IRR for a little while. Time has gone on, but that was 15 billion. It wasn't an investment. I was donating or contributing to the Constitution. This isn't the pick, but the Twitter thesis is that everybody in this room—half of us are here—is because of Twitter.

The average that it would take to pull people off of Twitter has to be in the hundreds, if not thousands, or tens of thousands of dollars. Yet they're monetizing like Android right now. Twitter needs to be the Apple of social media. It has a small but loyal and valuable user base.

The board doesn't use Twitter. Jack is doing whatever Jack stuff, but somebody's going to come in to monetize that thing. I think if you charge for verification, you get rid of the bot problem. If the 80 million people who use Twitter in the US paid $3 a month you're looking at like a $3 billion recurring revenue opportunity annually for Twitter.

He's going to fire the headcount. He has to pay his debt service, but I would imagine 90% of people on Twitter—if there's anybody in the room, I'm so sorry—don't do very much. There's a lot you can do on the cost side.

Then I think with somebody like Elon, it's either going to go horribly, horribly, horribly wrong or it's going to go really, really, really well. I think that you can kind of build the missing WhatsApp of the US on the Twitter platform where you have all of these valuable passionate users. At $43 billion, do you think when he takes the same public again and three years later that he can do that a fifth of whatever Facebook's valuation is? It's pretty safe to ask. It's not the pick.

Ben: We're not getting out of here at 8 PM tonight. There’s not a chance.

Packy: The reason that I'm in last place is because of a company named Opendoor.

Shu: Not the pick?

Packy: Opendoor is the pick and here's why. Because we're in Seattle and Opendoor vanquished a Seattle company. Zillow's iBuying Program, owns the iBuying market themselves now, did $8 billion of revenue last year. I came from Breather where we counted top-line revenue. It's a generous top line. If Softbank knows about this as well, the [...] is just the way we were thinking when we competed with them, and what a wonderful company.

Still, $8 billion of homes that Opendoor did last year. They're currently trading at a $5.00 billion market cap. Housing is a multi-trillion dollar market and everybody in the country seems like this past year, learned how awful that process is. I've written about the company, but this is a point that I am taking from Twitter, which is that somebody said it is the worst UI/UX customer experience in the biggest market out there and they have the best solution with iBuying.

Sometimes it doesn't have to be hard. I'm treating this more like a venture bet. Two months ago $5 billion was a Series B valuation. I'm treating this as a venture bet that they're the leader in this huge market that is inevitable. They're operationally super sound.

They finally turned and adjusted EBITDA profit last year so they can make money on this business. It's thousands and thousands of homes and their biggest competitor has dropped out of the market and Zillow is no longer doing iBuying. This market is theirs to lose. Eric Wu is an absolute monster and it can't go any lower. I am doing what you're not supposed to do, doubling down on my biggest loser. Open, ladies and gentlemen.

David: Excellent. Redfin is still on the market. Another great Seattle company. Are you concerned about them as a competitor?

Packy: Are they above or below a billion-dollar valuation right now? I think actually the mistake I made last time was I did a basket of these real estate stocks. It is a massive market that is awful to operate in right now as a lot of people who bought a house over the past year have realized. I think that Redfin is going to do really well. I think that Zillow now that it's kind of back to its original focus is going to continue to do really well. I still love Zillow.

I think that Opendoor is going to do the best. I think they have the biggest lead in iBuying and that's a huge, huge opportunity, particularly because they have the best company value in all of the worlds which is tips for breakfast. They pull every base point out of operating these houses and that is a really, really valuable thing. It does remind you of another Seattle company, Amazon, in that you really need to get your costs right and they're the best by far at doing that.

Ben: There it is.

David: All right, there it is. Ben?

David: Because David is theoretically winning, I will go next. I did what Packy did. I made a list of things that I was contemplating and I thought I'd share some of those just because I think they're interesting things you could buy with your pick right now. Literally, anything because everything is on sale.

I thought about Google again, which was I think the best pick any of us made except Solana. It is still an amazing business, still cheap by valuation. Any way you want to slice it, price-earnings, price to sales, whatever, not my pick. I kind of like the thesis that's going around Fintwit right now where people are saying Amazon has gone so low that they're basically valuing the retail business at zero and it's only AWS contributing to its market cap.

I think you can build some models to sort of show that. Would I take Amazon's retail business as a free option? Absolutely, I would. Again, not my pick, just like Packy. There's a Twitter one that I had to which is to buy Twitter right now because there are free $5 bills attached to every single share.

For folks that don't get that joke, there's basically an arbitrage you can run. If you think that Elon is actually going to close this deal and payout every single Twitter shareholder at $54.20 per share, you can go buy a Twitter share right now for $49 or $50. I don't know what market closed out today. That's free money if you think Elon is actually going to complete the deal. Not my pick.

What I'm going with is one that I know David and I have discussed at length. I can't remember if we've done it on air, but I looked back at our idea dinner picks and we haven't actually picked it on the idea dinner, and that's Coinbase. This is a value investment and I'll explain myself, but this is a crypto value investment.

Let's set the anchor point that we should all think about this business. In the last 12 months, they've done $10 billion in free cash flow. It's astonishing. That is money piled up in their bank account based on the profits of the business that they're operating. They're printing money. The market cap at close today was $34 billion.

David: Wow.

Ben: If I was running a business that was generating $100 of cash per year—just to make the math easy—would you buy that business from me at $340? That seems like a pretty good pick-up, especially one that has network effects, the leading brand in the space, growing incredibly fast in a gigantic wave.

Now people can think crypto is going to crash or the bubbles are going to pop. They're the most established company in this space and it is still the first inning of all of crypto. You have the opportunity to do—and here's where it gets kind of interesting—a Berkshire Hathaway–style investment into a crypto company that is the leading crypto brand in the world. It seems pretty safe to me. Famous last words.

To me, you're very cheaply valuing the unbelievable business they have today. I'm sure there's going to be margin compression and sure the take rates are going to go down over time. I think you have a lot of resilience based on the price, not to mention all the free options that come stapled to that business, which are the NFT business and every other venture that they're going into.

On top of all of this, I think a great way to play crypto in Web 3.0 is to look at the companies that have centralized all the activity and are able to run Web 2.0–style businesses or Web 2.0 business models using the heat and light that's all shown on Web 3.0. Coinbase is literally the best example of that.

David: Not only that but Coinbase and FTX. They make money whether crypto goes up or down, as long as it's moving.

Ben: If it goes up or down faster, they make more money.

David: Right.

Ben: So my pick is Coinbase.

Mario: I got to say I really like it. I think it's really good.

Packy: I was thinking about this one, too. I think what talked me out of it were a couple of things. One, I see a lot of pitches from senior ex-Coinbase people. It feels like there's a post-IPO brain drain happening a little bit, which is natural and you also don't love to see. There's a lot of comparing FTX and Coinbase because they're right around the same market cap right now. FTX is like 200 people or something.

Mario: And 14 engineers.

David: This is the most surreal moment of Acquired, but that might have been second when we were interviewing Sam.

Ben: This is Sam Bankman-Fried, the CEO of FTX, who Mario wrote a three-part unbelievable series on.

David: He was just in the middle of his office and people were trading behind him.

Packy: Almost certainly playing League of Legends.

Ben: Fair, Packy. The FTX bear case on Coinbase would be that derivatives are actually a much bigger market than trading direct equities or direct crypto. I think it's like 3X the volume in any given market is derivatives rather than the underlying asset. FTX is better poised for the derivatives market than Coinbase is. I still think Coinbase has this market cap that is an absolute steal.

Mario: I agree. I think FTX is scary in lots of ways and is so efficient as a business, but I am especially factoring in the NFT play. I think there's a really nice upside here. The stuff that they've shown at least on the NFT side, I think looks pretty promising.

Packy: It's a bet that crypto stays big and that decentralization is probably not as important to the next billion users as it was to date, which is a pretty safe bet. I love the pick actually.

Mario: Also, would any of us have thought at Coinbase IPO time that they would be shipping enough to do like a big NFT play? I had in my head thought like okay, we sort of have reached product staleness but they've actually shown like a rejuvenation on it.

Ben: Another way of framing this is I liked this pick so much in January and other people on this stage did, too, that there were investments made in the company. I'm speaking with a passive voice for fun. I like it a lot more today than I liked it then.

David: Me, too. Ben, you made me nervous for two reasons.

Ben: Because when I beat you.

David: That was one. The other is when you were doing your not picks, which I'm not going to do. I got really scared that you were going to take my pick because my pick is the company that built this arena, which is Amazon.

Ben: Bought the naming rights, built is aggressive.

David: Didn't actually build. I was thinking about this. It's trading at about a one and a quarter trillion dollar market cap. Most folks probably know, probably a lot of folks here work at Amazon. The stock got hammered last week after reporting earnings.

Just looking at the fundamentals, Amazon did $470 billion of revenue in the last 12 months. That is the second highest amount of revenue that any company has ever done. The only larger one being Walmart, which Amazon will almost assuredly pass very soon. That means that Amazon is trading at 2½ times revenue times last 12 months revenue.

Ben: What are Amazon's margins, David?

David: I thought about that. About $400 billion of that is retail revenue, but about $75 billion, more than $70 billion, is AWS revenue, which is very high margin revenue.

Each of those retail in AWS, I think there is a bear narrative around that I just simply don't agree with right now. I think the bear narrative on AWS is, yes, it's amazing. High margin business. Hats are off to Bezos and to Andy Jassy for building it, but its days are numbered.

Azure and Google Cloud are growing faster. Amazon, despite being the early leader in cloud, might actually end up losing this market. I think that's utterly ridiculous. AWS is growing at 37% annually on a $75 billion base. Google and Microsoft are growing at 45%, but their market share combined is still significantly less than Amazon. Yes, it's growing slower, but it's bigger than both of them combined.

None of that matters. The market that we're talking about here is the Internet. This is the Internet. This is the picks and shovels of the Internet. Amazon is the clear market leader growing 37% a year. I cannot imagine any other asset. I would rather own, period anywhere. That's AWS.

On the retail narrative, like you said, literally, Goldman issued a research note last week. That was a thought exercise, they didn't actually mean this, but valuing retail at zero. People have been doing this for 20 years.

Ben: Wait, can we get to that for a second? How does that work? They issued a research report as a thought exercise.

David: They have a buy on the stock. I think they were saying that the upside is so much that even if you just valued Amazon based on AWS, you would still buy the stock. They think retail is worth something, but that was the thought exercise.

AWS has over a 33% market share of cloud of the internet. The largest application of the internet by revenue is ecommerce. Amazon has a 56% market share of US ecommerce. There's a really cool feature. If you go to your account in Amazon, of course this is so Amazon, you can download CSV reports of your own spending. It's scary. I did this.

Ben: They intentionally make it so that you have to download a CSV report and you can actually see that in the web UI. That will be very scary.

David: Just me over the last five years. I've grown my spend on Amazon by 34% a year. In the last 12 months, I ordered 230 items on Amazon because we had a kid.

We have garage delivery setup. We have the Amazon credit card, they're launching Buy with Prime on the Internet. I'm highly influenced by Amazon sponsored listings, which is a $30 billion high-margin revenue business within retail.

Ben: Which was approximately zero five years ago.

David: Exactly. This is my point. The narrative that retail is worth zero completely misses the point. The reason that retail lost a billion and a half dollars last quarter is Amazon invested so far ahead of the curve. It's unimaginable to me that I would buy things anywhere else but Amazon. That moat is so deep that if they were to stop investing, they would become incredibly cash flow positive and they would still have years of runway before any competitor caught up.

Ben: To your point, I think their capex last year was something like 3X or 4X any of the other big tech companies because you're just building out these warehouses and data centers.

David: Totally. To borrow a Bezos framework, I think you got to think about what's not going to change in investing. I think what's not going to change is: (1) the Internet is going to keep growing, so I want to own AWS. (2) I and others are going to keep buying more stuff online, so I want to own Amazon retail. I think that on the retail side, they'll keep adding credit cards, advertising, Buy with Prime, leveraging their infrastructure across other retailers on the Internet, and all of those are high-margin products.

Packy: What happened (though) to Apple stock after Steve Jobs?

David: I think Andy Jassy could be the Tim Cook of Amazon.

Mario: I love that. I love that analog. That's a good one. That's a neat little framework.

David: All right, Shu?

Shu: I'm going to change the rules a bit. But first, I'm going to make some generalist comments. The first is you all said we're not good public stock pickers. I'm going to posit that the future of investing is people who understand and create narratives. That's what you all do.

You actually are very good stock pickers (period) because you understand the power of stories and narratives. This is the future of investing, in my view. It's no surprise you all are launching funds. That's overall comment number one.

Overall comment number two is you all think like venture investors. Nobody talked about downside. I was waiting for the bear case, and what could go wrong, and they didn't come up.

For example, Coinbase over earns from a consumer pricing point of view compared to any other platform you look at that sells to consumers by some dramatic. It's a total outlier. If that collapse is 80%, what happens to the stock? Maybe 120 is really expensive, et cetera. There was none of that.

The third thing is you were all focused on companies that are cheap. There was a focus on, now's a good moment because it's cheap. Expensive companies can be great investments, expensive, so to speak. I think it's probably because we're in this part of the market cycle, so everyone's focused on, everything's dirt cheap at these prices.

By the way, the consensus pick is Twitter between the two of you. I had five criteria. One was upside. The other was downside. The other was timing. Why now? The other was novelty, which you all failed on, by the way.

Snowflake could maybe the most novel. There's no science to novelty. Obviously, stock can be a good investment. The final one was flair, a very scientific criteria. I liked BPS for breakfast and General Patton. That got me going.

I have my ranking, but we're going to get the audience involved. I don't know if you know this from an old show. I'm going to hold my hand above ahead and then you clap a certain volume. I'll go one by one and the loudest clap wins. Then I'll tell you if that was my pick or not. Okay? We start with random order.

Opendoor, okay? That's Opendoor. Okay, I kind of got that clap. That was like a 5 out of 10 clap.

Then we go with Amazon. That's a solid 8 out of 10 clap. We are in the Amazon arena, so I'll notch it down to a seven. Home crowd.

Coinbase. That was better than the Amazon clap. That's an eight.

Then Snowflake. Just like the French elections, this is going to go to a runoff. Between Snowflake and Coinbase.

Think about it, okay? One of these two, Snowflake or Coinbase. Snowflake. Coinbase. And the winner is Coinbase. My pick was Snowflake, for the record, only because of General Patton. I think I'll leave now.

Ben: As excited as I am to be victorious, and I am excited.

Shu: How many people own crypto in this audience? That's probably why.

Ben: Time will ultimately be the judge. There is a tracker. There's an idea to enter a tracker spreadsheet that listener James Avery maintains. We'll get to, at any given point, look back and see who actually won tonight.

Packy: I think Opendoor reports tomorrow.

David: That will be fun.

Shu: We're talking a five-year hold period?

Packy: I think that's right.

Ben: Yeah.

David: Yeah.

Shu: We reconvene again here in 2027 and judge this contest.

Mario: You'll need to use the rest of the arena at that point.

Ben: That's right. Packy, Mario, Shu, thank you so much not only for doing this, but for flying five hours to do this. Let's give them a hand.

Mario: Thanks so much.

David: Even more important than flying five hours, thank you guys for being our friends.

Packy: Thank you guys. This is the best.

Ben: Notboring.co, readthegeneralist.com. You should follow Shu on Twitter. He's perfectly entertaining.

Shu: The future of public investing.

Ben: If you like tonight, you're in for a treat on the Internet. Thanks, Shu.

David: Thanks, guys.

Ben: I think it's time to tell the audience about one of our very favorite companies. We thought about not doing this at the show. Then we got to thinking, actually, it would be way more fun to do it at the show and have some of our friends with us here in person.

For our first sponsor of the night, our presenting sponsor for all of season 10, Vanta, the leader in automated security and compliance. We're huge fans. As many of you probably know, Vanta and their approach to the whole compliance process, SOC 2, HIPAA, GDPR, and more. Tonight, we have Vanta's head of engineering, Matt Spitz. Thank you for joining us, Matt.

Matt: Thank you for having me.

Ben: Matt, I understand that you have played hooky on your company's off site to be here with us.

Matt: That is correct. I'm taking advantage of not having children this week and doing an 18-hour turn and burn to Seattle.

Ben: We will make the absolute most of your time here. For folks whose friends dragged them to the show and they've never heard of us or Vanta before, what is Vanta?

Matt: As you mentioned earlier, we do automated security and compliance. What that means is that we offer a continuous security monitoring platform that enables companies to improve their security posture and prove it via compliance standards or otherwise.

Ben: My understanding of the normal way or the way before Vanta that this happened is you spent three months trading documents back and forth. I think you use technology to accomplish this.

Matt: Compliance is the currency of security proof. In order to prove to a potential prospect or someone who wants to use your cool tool, they want to make sure that you don't leak their data all over the Internet.

The language of that is a SOC 2 compliance certificate. This is a certificate where a human looked at your security posture and all these spreadsheets and screenshots that you put together to prove to them that you are secure. They're inherently looking at a sampling of your data. It's like 5% of your data at a point in time to assess that you are a trustworthy company. You might imagine that this is something that is very lossy.

Ben: Yeah, it seems like kind of a shoddy way to assess if a company's currently trustworthy or not.

Matt: Exactly. These are good for up to a year. They're based on sample data monitored by human provided by the company. What we offer is a continuous security monitoring solution that enables our customers first to monitor their own security posture.

We offer them real-time notifications if we detect something that represents a potential security threat. Then we use all that data and throw it into a dashboard that both our customers and an auditor can look at, that just helps them sail through a compliance process.

Ben: All right, my final question, why should anyone care about getting a SOC 2? I'm running a startup. It might die. I'm just trying to survive and find product/market fit. Why should I go check this box?

Matt: When you talk about compliance, what it really is a security. It's proof of security. Companies tend to invest in security for one of two reasons. Number one, they just got breach and that's too late.

The other reason why companies invest in security for the first time is to get a compliance certificate. It's not just big companies trying to sell the big companies. A lot of our customers are two-person startups that want to make their first business deal.

The platform that we offer them is really the foundation of their security program, around which they can build workflows and things like that, and enable themselves to keep their company and customer data secure beyond that first audit period.

Ben: If I'm hearing you right, the answer is company should care because it's potential revenue on the table. If they become compliant, then suddenly there are new buyers who are available to buy their software.

Matt: That's typically the entry point for security. Yes. There are long-term benefits to investing in security too. A lot of the things that you do to simplify and centralize a lot of workflows end up paying efficiency dividends down the road as well. It's a sort of hidden secret to investing in security earlier because it actually makes you a more efficient business also.

Ben: Thank you, Matt. Appreciate it. If anybody wants to use Vanta to become—I don't have this in my script, but I've said it so many times, I think I know—compliant in weeks instead of months and get compliance that doesn't SOC 2 much, if I've seen your billboards correctly. I believe they can go to vanta.com/acquired and get a 10% discount.

Matt: That's right.

Ben: Awesome. Thanks, Matt.

David: Awesome.

Matt: Thanks so much for having me. Appreciate it.

Ben: All right, David, what is act two of our evening?

David: All right. We're ready for act two. For act two, we have a story that I think most of you know, but that we have not yet told on the main feed of Acquired itself, and that is Y Combinator.

Specifically, tonight, we're going to tell part two of the YC story. I think most people know about YC's accelerator business that produced Airbnb, Dropbox, Stripe, Brex. Friends of the show, Modern Treasury, Vouch, Vanta came out of the accelerator business.

But most people don't realize that that is only one half of what YC is today. They're also one of the biggest and most active late-stage growth investors in the valley. They have deployed literally billions of dollars into Series B, C, D rounds in startups, both YC alumni and non-YC alumni alike over the past several years.

Tonight, we have Anu Hariharan, the managing partner of YC's Continuity fund, which leads all of these late stage investments, here to tell the story with us. Anu has had an amazing career. She went from a junior engineer at Qualcomm—a great semiconductor company—to partner at Andreessen Horowitz, to now running YC Continuity where she was on the boards of Brex, a local fan favorite, Convoy, Faire, Monzo, Gusto, RevenueCat, Rappi, and Vouch. Ladies and gentlemen, welcome Anu Hariharan. It's so good to have you here.

Anu: Thank you for having me.

David: I don't know if you noticed, but we picked that walk out music just for you.

Anu: I know. I don't know who can save San Francisco.

David: Pat Monahan, the lead singer of Train, obviously a San Francisco band, I think he wrote that song because he moved up here to Seattle.

Ben: Anu is foreshadowing your next...

David: Yeah, when YC is ready to move up to Seattle.

Anu: YC right now is remote first. We all live in San Francisco, but we don't have an office.

Ben: So the Mountain View facility is?

Anu: We own the Mountain View building. We have that. But since the pandemic, all our batches have been fully remote.

David: Wow, so there's no requirement. It used to be before the pandemic, no matter where you are in the world, you had to come to Mountain View.

Anu: Yes, that's not been true for the last three years. We have learned to do everything remote. We always read applications online, but we learned how to do interviews remote.

That was strange for us because we believe in bringing everyone for the interview. We had to learn how to test for that on Zoom. We also learned how to run the batch on Zoom. And we learned how to do a Demo Day on Zoom.

David: And this is the new normal going forward?

Anu: This is the new normal going forward, except there will be tweaks for the new batch. It has not yet been announced. There will be a little bit of mix of in-person, as well as largely remote. But going remote really helped us, 50% of our batches are international.

David:: Wow. What's the application deadline for the next batch?

Anu: The deadline has passed, but we are still accepting applications. YC always accepts even late applications.

David: yc.com/acquired. Get your [...].

Anu: Right, all for it.

Ben: Not a real URL. Let's dive right in. We wanted to ask you what is YC Continuity, but in a very mechanical way. Literally, what is YC Continuity? Is it a fund? Is it a set of funds?

Anu: It's literally the word continuity. The way it was formed, a lot of our founders, the alumni came and said, hey, you took us through the 12-week program. This is really why we started a company. It would be so cool if YC can continue to support us in the form of investment and in the form of programs down the line too. Why do you stop at the accelerator?

That's really how we came up with continuity. It is a multi-stage fund. We pretty much do primarily the growth stage, Series B and above. We have invested in primarily YC companies, actually. We doubled down in YC companies.

Our goal is to be a lifelong partner for all the enduring companies in YC to the extent possible. We also do a tremendous amount of post patch programming. People don't know this. If you go through YC today, you get 10 times more what you got in 2012 batch or 2014 batch.

We run three programs in Continuity. We run the Series A program. We help you and teach you how to raise the Series A. We work with you on pitch decks, how to negotiate term sheets, and how to identify investors.

David: That happens well after the batch.

Anu: Usually, most companies raise Series A, 2–3 years after the batch. Very few raise during the batch. We pretty much helped them 6–9 months before they raise the A. We sit down with them and say, are you ready to raise the Series A? Do you really have metrics that you need to see for a typical Series A investor? How to put the pitch deck together? We run workshops for how to help you raise the Series A, how to identify all the prep work. YC runs on WhatsApp. I don't know if you guys know this.

David: I did not know that.

Anu: We have around 4000 companies and more than 8500 alumni. Literally every morning, my phone is buzzing because I have so many WhatsApp groups depending on which batch.

Ben: We actually can vouch for this, listeners. You're on the board of RevenueCat. We're doing our diligence, so we texted Jake because Jake is another fellow Ohio State alum. He actually was at our very first Acquired meetup in San Francisco. And I was like, well, tell me about some stuff with Anu. He was talking about how you WhatsApped him.

I don't know exactly how much I can share. You proactively were WhatsApping him before a round was coming together to tell him you were considering an investment.

Anu: Yes. We actually know our founders from day one. YC is one team. So even though Continuity was launched seven years ago, by the way, YC itself is 17 years old. We are one team, so we actually know the companies through the batch.

I knew Jacob and the RevenueCat example, I think even at the time of Demo Day, when he was trying to figure out which investors to work with, he had reached out to us to say, hey, how should I think about this, whether to raise from seed investors or Series A? Then he went through the Series A. That's how we helped him figure out which partner to go with. He decided to go with Index.

Behind the scenes, we had actually helped him a ton with how to pitch, how to negotiate the term sheet, and all of that. I usually say, by the time we are investing, I'm not waiting for the founders to come tell me I'm fundraising.

David: Acquired has been an investor in Acquired. Y Combinator has been an investor in these companies for years at this point. Before Continuity started, were there any experiments in doing investing after the seed stage before Continuity or was Continuity the beginning?

Anu: Continuity was the beginning. Partners always invested in companies that graduated from Demo Day. I'll give you an example. A lot of people may not know this, but Coinbase, which was the idea winner, did not get any money or I think he got 20%–30% of his ideal goal on Demo Day.

He went out and said, I want to raise $750,000. Only 30% of the round got failed because no one understood Bitcoin at the time. But our early-stage partners have worked with these founders for 12 weeks. They're not picking a company.

They don't go by idea. They are going by who are the most earnest founders that I want to give them a shot to build. Quite a few of the YC partners helped fill Brian's round, so that he can go back to building.

Ben: Initialize being one of them, if I remember, right?

Anu: Yes. Gary, in fact, was the one that accepted Brian into the batch. That was the culture in YC before Continuity. It was more of the partners helping out the founders.

Ben: Individual investors. There was no YC follow-on capital. It was individuals who built those relationships.

Anu: No, there was not. Continuity was the first time there was follow-on capital.

David: How did this idea come together? It's sort of obvious now when you say all these things. But thinking back to July 2015 when Continuity was started, the idea of raising a growth fund or Y Combinator, most people would have thought that was crazy. How did this happen?

Ben: Or people would have been skeptical and then were picking winners.

Anu: Yes. I think that at that time, because growth stage capital itself was frowned upon. Remember, the narrative was, you need to go public. The late-stage investors are just throwing cash. There were only less than 10 people who could write $100 million checks there. What you saw was there were less than 10 funds that could write $100 million checks. The median time to IPO, can you guess what it was in 2015?

David: 11 years?

Anu: 11 years. YC alums came to YC partners often and said, you train us so well at Demo Day, and you teach us how to raise, and then we are in the woods. We tell our founders, it's never going to be as easy as Demo Day.

David: Yeah. The pyramid has widened, it's still a pyramid. But I didn't thought about that back then, yeah, there were less than a number of investors you could count on two hands that were writing $100 million checks. If I can't go public, but I need $100+ million to finance this stage of growth in my company, it's a supply-demand equation, right?

Anu: Yeah. It was really bad. But I think YC's mission has always been, how do we support our founders more? YC was learning through its evolution. Remember, seven years ago was when Dropbox had raised a late-stage private round. YC itself was learning what its companies are going through?

When do they get help versus when do they not? We saw an opportunity. We saw that these companies still need help. We are in a great place and an amazing platform that really, kudos to PG and Jessica on how they built it, YC can play a significant role.

One of the things that people don't understand—and I didn't, I was at Andreessen Horowitz before—is the YC founder never views YC as an investor. They view YC as the parent. What does that mean? Anytime a company is going through any issue, five years after they've graduated, they will first come to their YC partner.

They don't have to talk every quarter. They don't have to talk every month. They may not even talk for a year. But they will reach out to the partner and say, I need it urgent. There's an urgent issue. I need you for five minutes. I need you to help sort this through.

Ben: Does continuity change that relationship knowing that you are available capital now?

Anu: We worked very hard not to change that. It goes back to our mission. If you ask venture funds, most of their mission statements are, one on 10%–15% or 20% of the best companies. Our mission statement deliberately doesn't have that. We want to help more founders start companies and more founders build enduring companies.

What that means is there are many times we may offer term sheets and they would say, we would not want YC this round and we would like YC in the next round because you're already in the cap table. And we will respect that because it's one day. We don't say, oh, let's play all the tactics that we need to play in the closed process.

We also know that if you've really helped them and earn their trust, we will earn the right to win. In term, we have a saying that you have to earn the right to win. As long as it's the right decision for the company, sometimes with the right partners—sometimes we aren’t—we have to be honest about that. For us, YC companies succeeding is more important than what the returns of our funds are. But if we do right by them, we know that we can have incredible returns. History has shown that.

Ben: How do you structure the partnership? Are YC partners one big pool that comprise one investment committee across accepting into the accelerator, making growth investments? Or is it more like, a couple people are YC continuity and then a handful of people are the accelerator partners making those admission decisions?

Anu: The early stage has group partners that run the groups. On Continuity, it's Ali and I, Ali Rowghani, who was the former CEO of Twitter and CFO of Pixar. We both run the Continuity fund.

On the early stage, only one group partner needs to say yes. Then the company is accepted into the batch, so they apply. We shortlisted a bunch of them. They go through the interview process. But as long as one group partner said a strong yes, I really need them in the batch, they're accepted.

Remember, the group partner is taking them and working with them for 12 weeks. If they didn't pick the right team, the feedback loop is really fast. So they learn and they roll for the next batch. That's why we went with the model of one yes is enough. On continuity, it's a three-people investment committee. It's just me, Ali, and one early-stage work in case Ali and I don't agree, but it's primarily the Continuity decision.

Ben: Fascinating. One other question just to help frame up the Continuity operations. You're not a very high-velocity investor. The continuity fund (I think) only does a handful of deals a quarter, maybe leads 2–3 investments a quarter?

Anu: Yeah. We've done 35 investments in seven years.

David: Wow.

Ben: Wow, so even less than I thought.

Anu: We have 3500 companies that have gone through YC, so we've done less than 1%. It's for two reasons. We pretty much were a startup within YC. When we first launched, we were holding our investment strategy—what's right and what makes sense for the broader YC.

I would say we've always been under capitalized relative to the success of YC company. We are changing that. But every time we change that, the batch size grows and they're more successful.

Ben: YC has just had a ridiculous track record. I'm sure there's some vanity stat that you know off the top of your head. Is it total combined market cap of all YC companies?

David: It's on the PitchBook wall out there?

Ben: What is it?

Anu: It's well over $500 billion.

David: PitchBook says $600 billion.

Ben: I think no matter how much capital you raise, you're probably always going to feel like you're under.

Anu: Yeah, we always feel undercapitalized. Also, we do global. Our entire team is sitting in San Francisco, but we have investments in India. We have three investments in India. In fact, the top three breakout companies in India in the last two years are all YC.

We have investments in London. We have investments in LatAm. We have investments in the Middle East. Because for us, it's about enabling entrepreneurship globally. That's a mission. Continuity needs to support that mission.

David: It's just crazy to me that YC is 17 years old. I guess that's true, but that makes me feel really old.

Ben: In my head, it's still like an innovation in the venture capital landscape.

David: That probably says more about the venture capital landscape than anything else.

Ben: That's true.

Anu: That's why we have a new tagline, the YC mob. How many of you heard that?

David: We hear noise about that.

Anu: We've never thought of the mob, but I was like, oh, we are the YC mob.

David: I used to be on the other side of this because I quazi used to compete with YC and leading seed rounds. The number of VC firms throughout the whole life of YC that talk about YC often in negative terms, can you believe what they're doing? Can you believe how many companies they're taking? Can you believe they're investing now?

It's just like the Andreessen story that we told. If your name is on your competitor's lips, you're winning. It doesn't matter what they say. You're winning.

Anu: It is so true. I also think it's really hard to understand and appreciate an organization like YC from the outside. You really deeply understand YC in only two ways, if you're a YC founder and if you work within YC.

When I was at Andreessen Horowitz, I actually did not understand the depth and the cultural nuance with which YC was built. It's really hard to grasp that.

David: Can we talk about that for a minute? I put this in the notes. My current mental model of YC is like a university, a top Ivy League University. It's very hard to get into. You take classes every year or every six months. There's an endowment attached to it, which is Continuity now.

Ben: Wait, David. What do you mean by endowment? Are you saying that all of the proceeds from YC exits go into a big pool of capital that then funds Continuity? Is that what you're suggesting by endowment?

David: No, but I'm curious if that's the case. I meant more just like, it's really weird that a large part of the private capital markets and the venture capital markets in America, those dollars come from educational institutions, mostly private educational institutions. That's just very bizarre. Anyway, that's kind of what I meant. Is that a good mental model of YC? What is it like?

Anu: Yes. In fact, we say that. We say YC is university for startups. Think of the accelerator as the undergraduate program and Continuity is the graduate school.

We are modeled after university in the sense of we have applications you don't need to know anyone to apply to YC. Second, we were the first to do mass production of investments in a batch of startups. No one had ever done that. Everyone usually does, I met a set of companies, we have a Monday partner meeting, and you pick one or two.

YC from day one was a batch. They always received investments together. That, I think, goes to the insight that the founders of YC had at the time, which was entrepreneurship is lonely. Being in a group is how you motivate each other to learn from each other. And that's your peer group.

Fundamentally, it came from the approach of a university. Continuity is graduate school. As I talked about, Series A is just one of the programs we run. We have two others, Post-A and Growth. Post-A focuses on two months within you raise the Series A. That's a six-week program. We rebatch you, so now you have a new set of peers.

Our scale founders come teach how to form a recruiting team, how to hire engineers, because your job changes as a CEO. No one is writing a book about how your job changes and how to learn. Remember, the median age of a YC founder is 27, which means they have probably managed the sum total of three people in their life before these founders.

David: They really are like undergrads.

Anu: Yeah. You cannot expect them to know. How are you going to provide resources so that they can learn from others and they do as few mistakes as possible and as quickly as possible? Because when you're scaling, you just go on a rocket ship, but the amount you demand out of these founders is a lot. The bar you're setting is really high.

In our community, that's why Brian Chesky comes to speak every batch. He's the opening speaker of every batch. Right now, for all these programs that we run, the group program is how to scale as a CEO. That's literally the program. It's an eight-week session. It talks about hiring execs, performance, management, culture, and so on.

We have scaled founders and scaled exec. Tony Xu comes for that. His execs, the CFO of DoorDash, the head of engineering of DoorDash, come for the respective session. It's really good to see the entire community working to transfer their learnings to the next batch of companies.

Ben: I actually want to ask on a thing that I, for some reason, ask David, even though I probably should have asked you. When a company exits or it has a liquidity event, such as Airbnb, what does YC do with that liquidity? And is YC an LP in itself for future Continuity funds?

Anu: Right now, it's set up just like any other funds. We have incredible LPs, primarily university endowments because our mission is more university-oriented. The structure is very similar to other funds. I think that's a new change for YC since 2015, because when YC was started, this model wasn't proven. It was actually self-funded by the founders.

Ben: Okay, so self-funded by the founders. I know Sequoia was involved at one point putting up capital. I think that was the capital invested in two batches for five-ish years?

Anu: Yeah. There were quite a few LPs that came in on a batch basis. Remember the first check in YC? The first batch was $20,000. When you're self-funding something, that's how you start.

Then as time progressed and when we asked startups to come to San Francisco, they needed at least $100,000–$125,000 given all the inflation, even if they wanted to stay in Mountain View for a period of time. That's when we brought in LPs based on a batch, so that they could pretty much fill the rest of the gap that YC was not able to fund.

Ben: Is that still how it works? Each batch and each Continuity fund has its own set of LPs that you go on an individual sort of fundraising mission for that specific vehicle?

Anu: Yeah. We have early-stage fund as well as the late-stage funds. We have pretty much the same set of LPs across both funds. Because our ambition is to grow the batch. Why is that? Because we want to keep the bar high. When we say the bar high, we want the founders to be working on the right problems, not the wrong problems.

There are amazing founders. But if they're working on a problem because it's following a hype cycle and it's not a unique insight, then accepting them we are doing a disservice to them because they've decided to stop doing whatever they're doing to work on this. But we're not like an Ivy League institution that thinks that the batch size has to be only, like Princeton probably has a fixed class size that doesn't grow.

We don't want to be that because we think there are incredible founders everywhere. If we have a chance to give them that first opportunity and that really opens up doors for them, we want to be able to do that.

Ben: We can see batch sizes of 1000–2000 YC companies in the future.

Anu: Our criteria is if our application volume keeps going up and if there are that many really good applications, we need to learn how to scale.

David: You're already approaching the scale where you're like a liberal arts college at this point, where you're graduating that many number of companies.

Anu: Our acceptance rate is still below 3%, but yes. Our acceptance rate has only decreased. I think this is why I think it's very hard to compare YC to a venture fund. If you look at the types of opportunities we've given people in different parts of the world, they would not have stood a chance anywhere else.

That was true for Airbnb. That was true for Coinbase. That was true for DoorDash. One of the partners that YC kept funding DoorDash, because nobody believed in the idea. It was the third food delivery startup that came out when they came.

David: Rappi.

Anu: Rappi. It was a late application. He applied one week after the batch. We have pretty much like the batch started. I think that's why it's such a powerful and mission-oriented organization. It's very different.

David: Maybe that's a good place to wrap. We talk about powers on Acquired. We can speculate a lot. And I think we probably have on the show about YC's power at various points in time. You're in it.

What do you think YC's power is, in the Hamilton Helmer sense, that enables YC to earn better differentiated returns versus your competitors in the venture ecosystem? The traditional VC power is brand, but it feels like it's something else with YC.

Anu: I think brand also comes much later. You can either get brand because you have a lot of things you've built before and you launched, or you just launched something and it takes just the way you all started Acquired. It takes an incredible amount of time to build a brand. It's never an overnight success.

At YC, I would say, if I had to pick one thing YC is really good at across both early and Continuity is we go by based on founders. I know it sounds cliche, but I think we also have an incredible advantage in assessing what makes a founder a really good founder.

We have incredible amounts of data, pattern recognition, and learning that we have honed it to a point that we know how to spot them. You all have heard of the famous 10-minute YC interview and everyone asks, how do you know in 10 minutes? The fact is we probably know in the first two minutes.

We actually don't need the full 10 minutes. But sometimes, one or two people will surprise us with the end of the interview. I think the three things that can articulate what it is on the founder we look for.

One is the continuity stitch. Often in the growth stage, people pay attention to the founder, but they don't. If you're at a venture fund or a growth fund, you probably hang out with the founder for a week or two weeks before investment, some a total of three hours. By the time Continuity invest, I probably know them for years, or months, and I've had those interactions.

Ben: You're saying that you're paying attention more to the qualitative founder properties—even at the growth stage—than you are to their specific growth rate, or what their margins look like, or anything like that?

Anu: Yes, but if the three qualities hold, the metrics will show. I can either look at metrics, but sometimes metrics don't tell you how good the internal sausage making is. Many people can package the metrics in a fundraise deck. It's very well done. We teach you to do it.

We're really experts at it. Therefore, we know it's going to look great. We also teach them what points to emphasize on. We actually do practice runs. In Demo Day, we actually even write the script sometimes if they don't understand what it is.

David: That's a how-can-I-help moment.

Anu: Yeah. What we look for is, how fast does the founder move? What is how fast do they move mean? How fast do they ship? How fast do they iterate? Is it single biggest indicator and correlation to how successful they're going to be and how soon?

You won't be right about members' many decisions early on, but at least, are you learning from them fast? And are you making changes? That's one we measure. Second of the growth stage is how well are you hiring. If you're sloppy in hiring, it always hits a wall.

One of the things we look for is how well are they hiring engineers, how well are they hiring execs. Will they be able to convince an incredible exec to come join them? That's second. Third is clarity of thought. Clarity of thought in the growth stage for us is, can they write out two pages what makes this a $5 billion or a $10 billion company really well?

If you're doing those three things, you're going to be on top of your metrics, your product-market fit, your attention. There will be rough edges. I think because of YC, we've had the benefit of watching everyone from day one.

We know how Tony scaled. We know deeply well how Josh had Gusto scale. We know a lot of those founders. We then know, okay, these were rough edges, these are okay. These other founders had and this is how you and I know.

David: We've told a lot of these stories on Acquired. If you're a growth investor looking at these companies new, you're like, I know this is all going great, but you know those companies don't always all go great. Tony had some serious near death moments. Airbnb was not up into the right journey the whole time.

Ben: If I had to summarize, I know we're interviewing you. Not me here, but it seems like you invest based on the inputs rather than the outputs or maybe the leading indicators rather than the trailing indicators, where if somebody's operating with those three principles, the business probably won't consistently produce the results that someone would like to look for in the growth stage investment. They have a much higher probability at any given time of producing high quality results because those are the inputs that matter.

Anu: Absolutely. That's why we feel strongly that inputs can be influenced. If you're learning best practices and those are your inputs, then you can actually influence company building. When Tony comes and teaches our Growth Program and says these were my darkest moments, these are my mistakes I made, and I sure hope you don't make the same mistakes, but these are two things I did really well, that's incredibly valuable. That color is very hard to get outside of YC.

Ben: Yeah. All right. As we wind to a close, longtime listeners know there's a way that we need to close this and that's grading. With these episodes, where we're covering a company in flight, the only real way to grade it is to try and forecast future paths that could happen.

Anu, I'm curious in your mind, paint us the A+, the C, and the F for YC a decade from now. Let's start with the F because I think it's interesting. YC is so dominant. How could the whole thing go up in flames at this point?

Anu: I think YC is the only platform that has strong network effects. As all network effects have shown, if we mess up the YC community, that is… We have this platform only because of the YC founders. There are community values. We have written down community values. We have an internal book face. We have an ethics code. Name one VC fund that has all that. That's why we don't look like a venture fund.

For us, as long as we do right by the community, we'll be good. Network effects are very powerful, but they also decelerate very fast. If we do any mistake with the community, then that would be the F.

Ben: It's almost like operating leverage. A heavily community-dependent business is just heavily-levered.

David: It reminds me of Acquired, our community.

Anu: Exactly.

David: Absolutely.

Anu: This is an amazing group that you have. Congratulations from how far you've come.

David: But we feel the same way. It's so amazing, but that is our fear. We're nurturing the community and keeping it. The amazing thing that it is is the number one thing that we do.

Ben: The C is boring, so we won't cover it. But I want the A+. Give me the BHAG for YC from here. How do you change multiple orders of magnitude from where you are? Or do you want to?

Anu: B or the A?

David: The A.

Ben: A+.

Anu: We definitely want to. Our mission is to be the partner of the companies for the life of the companies. Continuity, I would say, has only strengthened the YC community. Because before, they would reach out whenever they wanted help or once in a while.

But now we have a full machine all the way to IPO. We have programming as I talked about. It's really gotten the community super close. As I said, we are highly undercapitalized for the success of YC companies.

Ben: When you say all the way to IPO, so is IPO the end? Ten years from now, is there a YC post-IPO component?

Anu: Maybe. It's so funny. We started with the Growth Program, which was just the CEO scaling program. The Post-A companies were like, well, we need a program. So we said, okay, we did the Post-A Program.

Now our companies have come and said, we need a pre-IPO program. You got to get Airbnb and Coinbase to come teach us this pre-IPO. I'm sure soon there will be like, it's never empty.

David: It's not like there's some magic moment and Brian Chesky, Brian Armstrong, and Tony don't have problems anymore.

Anu: Yeah. It's company building. It's as hard as it gets. It never gets easier. You do it so many times that you get better and better at the job, but you have other questions to ask and you need a peer group for it.

I think our ambition is, how do we scale YC to support more amazing companies and to especially also do it globally? I think the remote will show us that companies can come from anywhere. We already see that. A lot of B2B startups are based outside the US, but they service US customers.

I'm sure you all have heard of Deel. And Alex lives in Israel. YC has to learn to scale globally because talent is everywhere.

Ben: That it is. Anu, thank you so much.

Anu: Thank you for having me.

Ben: Thank you. All right. We do have another friend that you want to talk about. It is quite related to our last segment. For our next sponsor tonight, we have another one of our favorite companies and we aren't just saying that. This is literally one of David and my favorite companies in the world.

Vouch was founded by a fellow Ohio State alum that I went to college with. David and I have the privilege of being angel investors in Vouch and we're customers. Acquired is insured by Vouch.

To tie it all together of course, Anu is an investor in Vouch, I believe a board member with the YC Continuity fund. Please welcome Travis Hedge, our good friend and the co-founder of Vouch who is here to drop some big news on stage tonight. Travis, welcome to Acquired. Great to see you.

Travis: Thanks, guys.

David: Welcome, sir.

Travis: Thank you. Great to be here.

Ben: All right. I don't know who, but some people might not know what Vouch is. Let's start with that. What is Vouch?

Travis: Voucher is an insurance company for the technology industry.

Ben: That's pretty simple. You're telling me that tech startups need insurance, like business insurance?

Travis: Yup. You're just as likely to get sued as a tech company as you are any other business. We protect against litigation, theft, and particularly important for our clients, cyberthreats.

Ben: I see. If I'm a startup and I'm based in Seattle, like many startups here are, can I use Vouch?

Travis: I'm so glad you asked.

Ben: I hear you have an announcement to make tonight.

Travis: This is particularly special follow Anu because we launched our first market on Demo Day, August 19th, when we got done with our YC batch 2½ years ago. After two and a half years, 32 states can now say we cover 97% of US venture activity because as of today, about 12 hours ago, we're live here in the State of Washington.

David: That is literally Ben dying.

Ben: I'm jumping out of my seat right now for all 50-ish PSL portfolio companies at this point to actually be able to use Vouch and get insurance in literally minutes instead of 8–12 weeks through a traditional broker. It's so game changing. I am very excited tonight, personally. I know many other folks are, too.

Travis: I don't have the words for how excited I am.

Ben: I did want to dive into one interesting piece of sausage making in the business of insurance. There are actually three layers to it. For folks who are very interested in this, I'm sure you're going to publish what you sent me as a blog post. We'll link to that in the show notes when this comes out. I just found the whole narrative about how an insurance company works under the scene is totally fascinating. Maybe just as a little teaser on stage, what are the three layers of an insurance company? And what do you do versus what do you outsource?

Travis: The three layers start with distribution, then you have underwriting, and then you have capacity—the capital to actually pay the claims when bad things happen. Most companies, the vast majority of the industry focuses on one of those layers. Distribution is your typical broker. They go to underwriters. Even with claim, underwriters go to their capacity providers.

What's unique about Vouch is that we started off with getting licensed to sell insurance like anybody else. If we were taking the lean startup methodology, we would have just stopped there and just sold you guys a Chubb policy, whatever policy like anybody else. But the experience wouldn't have fundamentally changed.

If you think about what Salesforce did, for instance, somebody who took the Rolodex and turn it into on-prem CRM, the magic doesn't happen by just digitizing each layer. It happens by creating entirely new business models out of that.

For us, the equivalent of moving on to the cloud and creating new revenue models, was tackling the underwriting layer. We created the policies where we basically just started from scratch. If you're designing risks specifically for technology companies, what would that look like?

We, from a capacity perspective, partnered with the largest reinsurance company in the world to be our capacity provider. But when you're doing things like cap table coverage and cloud coverage that the industry have never seen before, regulators and traditional insurance companies don't have the most excited reaction to that.

About three months in, once we realized we had product-market fit, we very quickly shifted gears to say, we've got to own as much of the value chain as possible so that we can control those decisions. We spent the next few months building the Vouch insurance company. We launched that last summer, as well as a few other big infrastructure investments.

It took a year-and-a-half to do the first iteration on our products to now we can do that in months, in weeks. Those investments that will enable us to really compound and accelerate our progress over time.

Ben: It's fascinating that you were able to get to market as a new insurance company in a market that's extremely regulated, working with customers that don't look like most customers, like startups have no money and then only lose money for a while, and have tons of risks.

I'm just fascinated by this idea that you were able to launch with a product that felt good for most people, even though you weren't doing most of those layers on the back end, because it takes years and years and years to be able to prove to regulators and underwriters and gain the confidence yourself as an underwriter that you actually can do that stuff.

Travis: Yeah, it comes back to breadth versus depth for me. We went super deep and saying, we're only going to cover venture-backed technology companies. Most people looked at us like, that's a really small market. Are you sure about that? But guess what? Those companies go on to become really big someday.

By focusing narrowly, we were able to get really good at underwriting those companies. That means we say no to a lot of business. We don't serve your typical mainstream businesses, but that level of focus is what enables us to do what we do.

Ben: It's awesome. Travis, thank you so much for joining us tonight.

Travis: Thanks, guys. It's great.

Ben: Hey, listeners, Ben and David here back in the Acquired home studios. We want to say a huge Congratulations to Vouch on their Washington launch and their Florida launch recently. I can say as a Washington resident, I am very excited for all of our Pioneer Square Labs companies to have the opportunity to use Vouch. I've been waiting literally years for this, so it's about time.

David: Indeed, and all the Miami startups now.

Ben: There you go. Our next episode will be the part two of The Arena Show with Jim Webber, the CEO of Brooks. I was just listening back to the segment this morning. It's truly an unbelievable business growing from $20–$30 million in revenue two decades ago to clearing over a billion dollars in revenue last year. A part of Berkshire Hathaway, deep personal relationship with Warren Buffett, purpose-driven brand. There are just so many great things about the story.

David: Jim is so wonderful. We realized we had to make it its own episode.

Ben: Yes. We will be launching that in a couple of days. We really wanted to give it the space that it deserves. If you aren't in the Acquired Slack, you should come join the 11,000 other smart, creative members of the Acquired community there.

We have one more friend of the show to thank, and that is the SoftBank Latin America Fund. As folks know, their thesis has always been that the region was overflowing with innovative founders and great opportunities, but always short on that one essential ingredient of capital. The short answer is that they were right.

After all these years, they've been successful in deploying $8 billion in 70+ companies. They have one gigantic takeaway from all this. Technology in Latin America isn't about disruption, but really just about inclusion because the majority of the population is underserved in almost every category, from banking to transportation to ecommerce.

Businesses similarly are underserved by just not enough great software solutions. A great example of this is a portfolio company, Gympass that we've talked about on this show. They help employers offer gym access and other services like therapy and sleep guidance to employees through a network of over 50,000 gyms and studios around the world. They've got this unique software platform. They're clocking double digit month over month subscriber growth as companies design hybrid workplaces.

David: It's so cool. It's a global software company built in Latin America. Amazing.

Ben: Just great. That's just one example of how SoftBank is pairing great founders in Latin America with the capital and expertise they need. To learn more, you can click the link in the show notes or go to latinamericafund.com. Our thanks also to Vanta, Vouch, PitchBook, and their whole team for doing this entire crazy thing with us.

David: Oh, my gosh. This was such a life experience. Who would have thought seven years ago that Acquired would be doing this?

Ben: There were 44 people on and off the stage involved in the production of that event. Too many to think. Definitely, the PitchBook team came out in full force to put it on. We're super excited to share the gym story with you and the story of Brooks. We'll be doing that in a few days here. Listeners, we'll see you next time.

David: We'll see you for The Arena Show part two.

Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.

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