The very cool (and also very hot! you can read about their recent funding rounds from Benchmark and Altimeter) fintech startup Modern Treasury recently asked if they could interview us for their internal "Coffee Break" series of fireside chats. We agreed, on one condition... that we also get to interview them and share with ACQ2! The result was a match made in Acquired interview heaven. :)
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!
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…
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!
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.”
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.
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.
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.
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.
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.
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...
Purchase Price: $1 billion, 2012
Estimated Current Contribution to Market Cap: $153 billion
Absolute Dollar Return: $152 billion
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.
Methodology and Notes:
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Transcript: (disclaimer: may contain unintentionally confusing, inaccurate and/or amusing transcription errors)
Dimitri: Hi Ben and David, thank you for making the time to chat with us. We started this tradition right around March when COVID hit. We started doing a weekly coffee break. We have a lot of customers, investors, and guests who we find interesting to hear from on the show. We're very excited to hear from you.
We spent a lot of time in the Modern Treasury working with different businesses. A lot of the content of your podcast is something that there are lots of fans and followers on. I wanted to pass it over to the co-host for today, Jenny and Andy. Jenny, we can start with you.
Jenny: Sure. David and Ben, great to have you. A big fan. Jenny Johnston with the Modern Treasury team, obviously, helping drive big partnerships for the team. Andy, over to you.
Andy: Hey, Ben and David. My name is Andy. I'm an engineer here at Modern Treasury, but I also run a podcast of my own. It's called Business Logic. You can download it wherever you get your podcasts.
Ben: I started listening this week. It's great.
Andy: Thank you. I appreciate that. That actually means a lot. It was actually largely Acquired-inspired.
David: That’s so awesome.
Andy: It's an honor. It's an honor to be talking to you two. It's worth acknowledging that this is not the first reverse interview that Acquired has done. Apparently, you two had one in January of 2020. The world's changed just a little bit.
Ben: Is that all it was?
David: Yeah. God, I thought that was three years ago.
Andy: Yeah, I think we've all a little bit more than a year since then. It seems appropriate then to do another one now. We're going to talk, I guess, about the recent stuff that has happened in the last year or so. But before we do, I thought it’d be cool to start at the beginning and basically get the origin story of Acquired. In as much detail as you two can recall, how did this show come about? Who had the original idea? Who pitched who? The more details, the better.
Ben: Before diving into that, first of all, thank you all for having us and taking time out of your day. You guys are an unbelievably interesting and fast-growing company. It means a lot to be able to talk to all of you.
Show of hands, who's listening to the show, to Acquired? That's actually everyone. Okay, cool. I just want to make sure that I wasn't explaining something totally irrelevant. David, do you want to tell the origin story? I think I probably have done it more in the past.
David: Sure. We can see who recalls better. Also, love the Friday shirt, Ben. This is the second time you've been.
Ben: It's cold in Seattle, so you got to feel tropical somehow.
David: Yeah, love it. Also, to totally echo what Ben said, thank you, guys. This is so cool. This is the first time we've done something like this with a company. This is super cool, so thank you.
The origin story, Ben and I met at a Passover dinner. Is that right?
David: At Greg's house?
David: In 2014 or 2013? I think it was 2014. It was somewhere around then. I was still a business school student at GSB. I was coming back to Madrona, the VC firm in Seattle I’ve worked at before school. I had signed to come back but I was still in my second year. I was up visiting and unbeknownst to me, Greg Gottesman—who hired me in Madrona and is now Ben's partner at PSL—was recruiting Ben to come join Madrona as well and helped start Madrona Labs, which in many ways was sort of the precursor to PSL.
We met at a dinner at Greg's house. We hit it off, kind of became fast friends. Then when I showed up after school back at Madrona, I think pretty quickly thereafter, Ben joined to help start Madrona Labs. We hung out all the time. We would get drinks. We would talk about tech stuff. Hopefully, it comes across in the show. We genuinely love this stuff, talking about it, and researching. We did it anyway, not to the degree we do now.
In early 2015, Ben was definitely the smarter one of the duo, or at least the more [...] came to me and said, hey, I think podcasts are going to be a thing. I'm really interested in the industry. I think we should start one and see what happens.
Ben: I was not predicting that it would become a thing. I didn't think I realized there was going to be 1.5 million podcasts by 2021. It was only that I listened to a lot of podcasts and I thought they were interesting, which is to pull forward a playbook theme. When you're founding something you generally are aware a problem exists, but you're not really aware that like, oh my God, I'm on the tip of this unbelievable wave. We shouldn't oversell any oracle-ness that it was a part of that.
David: Well, it seemed to oracleness. I mean, I don't listen to podcasts. I remember downloading some on my iPod in college in 2006. This seems like an old industry, not a growth industry. It took Ben about 9, 10 months from the first time we had the conversation until we actually recorded the first episode.
Ben: I dug up the emails recently. We pretty much had it sketched out. I pitched you on two different concepts. I'm really glad we didn't do the other one. I either wanted to do a podcast about companies that the acquisition actually went well or companies that have managed to create multiple unrelated billion-dollar innovations. I had this sort of working thesis that even the best entrepreneurs or the best companies sort of have one in them. Any time that people have multiple billion-dollar business lines, it's because they're leveraging existing assets.
Also, I should say, I don't think I could have described it in that way. I don't think I had the business acumen in 2015 to describe it that way. I was like, I think it's super rare that Microsoft has Office and Windows or that Apple had the Mac and the iPhone. There's 3M who has done this in material science, but there are not really companies that have two big things. You look at these Dropboxes, Zooms, or Slacks—everyone has one thing. We would have just kind of run out of episodes very quickly. I'm glad that we didn't pursue that one instead.
You're right, it did take us eight months from the email that lays out, here's how we think each of those podcasts could go, to then actually diving and starting it.
David: Ben's transformation, I would say, on this show, that you still have all your old skills too. Yeah, when we started, you’re a PM. Being a PM is great. I’m sure we have many PMs here. You've come to really own the analysis and the business analysis on the show. Just watching your growth from a computer science major who had worked as a PM, if anything, I was the investment banker. I was like, I don’t want to do that. I'd rather do the story. You've just grown so much doing this. It's been awesome.
Ben: Well, thanks. All right. We've talked a lot about one question, so let's turn it back to the real host to keep going.
Andy: It's pretty wild to think that that was in 2015, which is funny enough, the same year that Serial came out with Sarah Koenig. For millions of people, that was their first podcast. That really puts in perspective how not a thing podcasts were at the time. That was then, what about today? What are the headline numbers? Maybe give us a sense of the scale of listenership, the size of the community, whatever vanity metrics you want to share.
Ben: The best way to think about it is monthly active listeners. It's the number of unique people who have downloaded an episode over the last 30 days is 100,000. Then 150 regular episodes and maybe 50 LP episodes.
There are about 2000 people who are Acquired Limited Partners, who are part of our paid subscription program that brings you closer to the show to do Zoom calls like this once a month with folks in the community.
We have a Slack that has 6000 people and about 10% of the members are active in any given month.
David: Is it month or week? It’s probably a month.
Ben: I think it’s a month. The most common behavior in Slack is you get excited, you join, and then you're in too many Slacks. It's not one of the three that you actively participate in, but maybe you'll click the icon every once in a while.
There's totally a core group of 300 or 400 where that is the place that they go to talk about technology, which is really cool because we've gotten to know a lot of them. Not coincidentally, most of them are LPs, too, so that we get to interact more on Zoom and in other ways with them.
Those are f the headline numbers. It all didn't really happen until three and a half years into the show. It was mostly like podcasting into a void for a while. The only thing that kept us going was that we were learning and that we really enjoyed getting better at doing the podcast. We were not getting the dopamine rush of social media hits the way that we do now, of new people discovering the show. It was a lot of the same people who, frankly, knew us personally.
I think absent the passion and the enjoyment of getting better at the craft, we did not have external indicators saying, hey, lean heavily into this thing until fairly recently. It's a bootstrap business in every way.
Jenny: Yeah. At what point did you both look at each other and say, ah, this is working? We should throw even more time resources into this.
David: Like most things, it was a gradual process and then a sudden process. I think it was the first two years. We did get featured a few times, and that was great. Pocket Casts, I don't know if they still are, but they were the biggest podcast client on Android. They featured us a few times, which was great. They're an Australian company. Great folks. We have a bunch of Australian listeners, still as a core base there from that.
I think the first moment for me where I was like, wow, this might be more than I realized, was probably our first meet up in San Francisco that [...], who's become a great friend and was sort of our first Acquired superfan. He works at Lyft. He runs insurance and safety at Lyft. He's been a founder in the past.
He kept pinging us in Slack and was like, hey, you guys need to do a meet-up in San Francisco. I think there are a lot of people that want to meet you guys over. I was like, I don't know. We did it. We did it at Founders Den. It was crazy. There were a lot of people there. That was the first time I was like, whoa, this is interesting.
Ben: The way I'll summarize it is that analytics tells you a story with a data point. You're like, cool, we got X hundred downloads today. Now, if we haven't released an episode in three or four weeks, we will get 4000 or 5000 downloads from people listening to some episode we've released.
That number has worn off on me now. Every number has basically worn off on us now because there are numbers. But when you show up and then there are real people, you're like, oh, these aren’t just downloads that are accidentally happening, and no one's listening. These are people who want to say, on this episode, I have something to say about this point that you made. You're like, oh my God, you listen to that episode where we had that point that we made?
There is a compounding element that comes from people listening to multiple episodes, getting hooked, and then forming that weird one-way relationship in some ways. Unless you've actually ever met the person then, you can kind of feel comfortable with it, but formed a one-way friendship. I think showing up to the meetup or the multiple live shows that we've done and meeting so many people that we didn't know until we got to meet in person, but felt like they had a relationship with us, we were like, whoa, there's like totally something here beyond how we even think about this.
David: Then a bunch of the people who showed up there worked at companies we were covering or were VCs that had interesting perspectives. It was like, wow, this is an amazing community.
Ben: Dimitri, am I remembering right that you were working in the WeWork across the street from Benchmark. We had our first live show and you popped up when we were doing soundcheck, right?
Dimitri: That's right, yeah. I think Matt and I were there. I think it was just the three of us at the time. We were on the sixth floor at WeWork and the second floor had that auditorium thing. We were doing the episode on Venmo, which I think was your first San Francisco.
Ben: Yeah, first live show.
Dimitri: First live show. That was super fun.
Ben: Yeah. It's stuff like that where you're like, oh my God, there are real people. As humans, I think there's a high recency bias so you forget about all relationships, and there's a high multiple occurrence bias. We kind of carry every person we've ever met as a notion in our head of how I show up in the world, who is aware of me, and who am I aware of.
The podcast got to a point where that became asymmetric, where I think David and I both realize, like, whoa, more people know of us than we know of them. Well, it sounds like, duh, it's very strange to feel it. Once you start feeling that, then I think you changed. At least I changed the way I was thinking about the show into more of like, ha, I guess we can scale this because we keep putting in the same amount of energy. That asymmetry of people who are aware of us and what we do in the world keeps growing.
From a human physiological perspective, it's weird. I don't know if it's something you should lean into. But from a project, a business, and a thing that you want to exist in the world, you definitely should lean into that.
Jenny: Maybe staying on the community point is clearly something that you haven't been able to unlock. Tell us more about the LP Program and who came up with the clever marketing of a subscription model being called an LP Program.
Ben: All right. David approached me saying we should do a Patreon. David, I'll hand it over to you.
David: There's such a fun story behind this. When was this? Summer 2018? Is that right?
Ben: Sounds right.
David: Yeah. The podcast industry is such a weird thing. It's existed since 2005. In 2015, we were like podcasts, what's that? Then fast forward to 2018 and monetization was minuscule. We did our first advertising sponsorship deal with SBB in 2016 or 2017. It was great. We love working with SBB. Min Lee, in Seattle, the market manager was out of his community budget.
Ben: His personal Seattle budget. Also, we should say, I remember trying to start a podcasting infrastructure company at PSL in late 2015. I did a bunch of market analyses on this. The advertising market for total spend on podcast ads was $40 million in 2015. You can't even [...] your way to that being venture scale in 5, maybe 10 years. It's just such a small base. We threw in the towel on the project because we were just like, there's just no market here.
It's this bifurcated ecosystem of a bunch of different players in the value stream all doing what they can. It gets the round-trippable data and the features that you can control as a producer down to where it actually gets listened to. It ends up being the lowest common denominator of what's shared across the entire ecosystem, which is effectively the RSS spec.
You get no data, you get no information on who's listening, you get no email addresses—nothing. How do you build a real business and a real ecosystem on top of that morass?
David: Yeah. We got to summer 2018, we saw usage. We did these meetups. We're like, wow, we have a thing here. We're also looking at the whole industry. Advertising is lagging. There might be a different way to do this. We saw Patreon. Podcasters we're starting to use Patreon. They were doing bonus shows through Patreon. We thought about that. It was two lenses.
One, would it make sense for Acquired to do a Patreon? Whether it's right or not, we don't want to appear that we’re like—
Ben: Does it destroy the cache of Acquired if we're out there saying, please, sir—holding out the tip jar. It can be a great business model, but it felt antithetical to what Acquired was talking about with the scale businesses.
David: Plus, we wanted to own our audience and all sorts of stuff. We thought, well, what if we could take that, essentially, business product model, build it natively in-house ourselves? But then, the other piece of it was, maybe a lot of podcasts would want this. It really was a co-project of the LP program. The first MBP for what became Glow, which is the company that powers it, that Ben and then shortly thereafter, Amira joined within PSL to build that. They still power us and many other podcasts to this day.
Ben: If you were to ask me this in 2018 when we were building Glow and then starting the LP Program on top of it, I would have told you that the key unlock was pay for value. We wanted this to be a subscription-like the New York Times, not a tip from your favorite creators.
We made 50 episodes so far of VC fundamentals and how to price your product. Really like nuts and bolts, hardcore value delivery for people who are listening to Acquired and want to get better at their craft—whatever their craft is.
In talking to lots of LPs, a lot of them are doing it, one, for support. Like, hey, we just produce Acquired for free. We want to help you guys do that, which is funny because I was so against it being a support value proposition.
The second one was feeling, in some way, closer to the show. We've decided really to lean into that closer to the show. We're still producing tons of episodes and plan to continue doing that. We changed all the merchandising and marketing to be much more around the show only gets better if we're able to get tighter feedback. The show for us is most rewarding as a vehicle to interact with listeners, have community, and have relationships form in our community outside of us.
If we can be a mesh network rather than a hub-and-spoke, I think it was David that threw out Slack for the first time. Like many Acquired things, one of us throws it out. The other one doesn't love it, but we try it anyway because that's the culture that David and I have, and it goes well. We love tracking the slack DMs because I don't DM that many people and neither does David. But there are tons and tons of DMs happening in our community—Slack, which is awesome. That was the goal.
We introduced the idea of a book club so people can be on Zoom calls with us. Then the author is what we talk about the book that we read. We introduced the LP calls. Once a month, we get together with people. We've just tried to lean as hard as we can into, how do we build that tighter relationship, not just with us, but with everyone who listens to the show who can learn from each other?
David: The only other thing I’ll add in real quick and then we could go to the next question. Like in so many things in startups, we were just wrong about everything. The advertising market in the past 12 months has finally woken up. I don't know, Ben may know better than me, but the podcast advertising market is going to be a multi, multi-billion dollar market in short order if it isn't already. That was a fundamental change to our business too in the past years.
Ben: It just hit a billion dollars. A lot of what to thank for that is consolidation. You're seeing the Spotify in the world in some of these hosts who then start to grow further and further in their capture of the value chain to do, hey, we're going to handle your ad sales and we're going to handle your ad insertion.
As we own more and more of it, we can instrument more and more of it to provide end-to-end data, which then makes it more valuable for the advertiser, for the podcaster, maybe at the expense of the listener experience, though I don't really think we've seen that yet. That would sort of be the counterargument.
Andy: Between the LP subscription and the show sponsor, which I understand is Tiny for season eight, you have two revenue streams going for you. Acquired is a proper business, and you two are very well practiced at analyzing business models and their motes. If you had to introspect and analyze what makes the Acquired model really great, maybe even independent media generally, how would you think about that?
David: This is such a fun question. Should we do powers, should we do grading?
Ben: I’ll start with playbooks. Ben Thompson is the best in the world in talking about this, but I'm going to steal it from him because there's just no better articulation than what he has put out there. It's the idea that the internet favors two things. It's not obvious from the get-go because you would think the internet just democratizes everything. What actually happens is you have massive amounts of centralization because in a zero marginal cost, zero distribution cost business, you can have these aggregators show up.
Facebook, Spotify is trying to become one in podcasting. The New York Times is that in media and journalism. We just released the New York Times episode. They have five times the number of subscribers paying for The New York Times as the next paper on down, which I think is The Washington Post.
Returns to scale happen in a big way on the internet. That's largely because if you have a fixed-cost business like the media is, it costs a certain amount to produce it. The greater an audience you have, the greater you can amortize the cost of the content. Content gets better as you have more audience because you can afford to spend more on the content. Your profitability just grows as you get bigger and bigger and bigger because your cost of production really doesn't grow that much, but your audience can scale dramatically.
David: Yeah, just like Netflix.
Ben: That's the head of the curve. The magical thing about the internet is—and this one I think was a Patrick O'Shaughnessy thing when we had him on—a game of niches where you can say, hey, I'm being weird about this thing here on the internet, come be weird with me. There might only be five people in your town who are weird in the same way you are, but there's a ton of people on the internet.
That's the thing that just keeps smacking David and I in the face of like, if you would have told us when we first started, you can totally get your biggest audience ever once you move to 3+ hour episodes where you are super indulgent and esoteric, I would have been like, no. People don't like podcasts that are that long, and certainly, that'll hurt our audience numbers, but it hasn’t.
David: My wife Jenny keeps being like, you guys are ridiculous. Why do you think anybody would listen to you? I'm like, well, I don't know. Every time we go longer, we get more listeners.
Ben: There's a quality element to it. I think the more that you can specialize, have an opinion, be known for something, or occupy a niche in online media, the more you can win because people who want that now know where to find you. I think if you're going to be vanilla on the internet, then you better be huge in vanilla because otherwise, it's not going to work.
David: Maybe it's just recency bias, we haven't done the New York Times episode. I think it has become clear to me and probably with Ben too, we're a media business. Media businesses are great businesses just like newspapers. They sell advertising and they sell subscriptions, we’re the same with cable.
This is why the cable industry was amazing. It was even better. It was like the iPhone version of this where they were sold a lot of advertising on cable networks. But then, you're paying for every cable channel out there in your cable bundle whether you realize it or not. We were talking about Fox News on the New York Times episode, pretty much everybody in America who has linear TV is paying $2 a month for Fox News. That's a lot of money, and they're selling a lot of advertising.
Ben: It's a $5 billion dollar business, Fox News.
David: With 50% EBITDA margins.
Ben: Which makes it 3% bigger than The New York Times by revenue. Let's see, I think The New York Times has a 10% EBITDA margin, so it just blows it out of the water in profitability. That was a massive discovery for me doing that episode.
David: We have the same dynamics at a much smaller scale. We make content, we do what we love, we sell advertising, and we sell subscriptions.
Ben: I want to get indulgent on one thing here where David said the media business is a great business. The media business is like the software business. It's like its precursor. It's still the second-best business model only to software.
When you think about it, the software has this magical thing where there are zero marginal costs, but so does content, so does media. Software’s edge is that it has the ability to be used over and over again where if you typed a word that is just a word that someone reads, they're not going to want to read that word many times. You'll read a book two, three, or four times, but that's kind of it. If you write a word and that word is executable in software, that can be used hundreds of thousands of times.
David: You guys are better business than us.
Ben: Yeah, it has this second vector of reusability where the one dimension that it moves in is zero marginal cost, but the other dimension that it moves in is repeatability over time. Of course, you have to maintain software, fix stuff, and add new features to compete. But if the content is n, then the software is n2. Very few businesses are even n. The media is great.
Jenny: Well, we hope to someday have the same fandom that you’ve attracted at Acquired over here at Modern Treasury.
David: You’ve recorded. You got to start releasing these, build your own content.
Jenny: Exactly, we’re trying. If you’ve seen our journal, that's at least how I thought about Modern Treasury. It was coming through our content channels.
David: Oh, cool. This is becoming a thing. Look at Figma, look at Notion, look at all these leading-edge software companies. They're building content, they're building community, and that's their go-to-market strategy.
Ben: Okay. Continuing to indulge on that point, I do think that content is the most underinvested, high-return thing that startups can do for getting to market. I'm sure many people here have thought about this more than me. I'd actually like to hear if people have other thoughts.
All coin up—customer acquisition, social media search—you have to have it as a part of your mix eventually. All of the value has been arbitraged away. These platforms are 10 or 15 years old. People understand how to use them. There are no more corners where you can go exploit it and then go get a bunch of customers in a way that's super scalable. You're not paying the toll to get them.
I think content done well—especially community done well, which in some ways is like, if content is n, then the community is n2. It is the most under-invested go-to-market strategy. Probably, because the returns take a while to show up, and it's hard to do. It’s hard to do well and build not only the right set of people, one person who's good at content, or good at community, but then they also need to have that sort of Venn diagram of also being knowledgeable about your domain and your company.
A lot of times, that's why its founders at first. But founders don't necessarily come from a content writing background, content structuring background, an SEO background, or any of that. That's a huge secret weapon for startups right now.
Jenny: Outside of content, we also are having an explosion of other independent media channels or just channels for people getting into the conversation and sharing their expertise, whether that be Substack, whether that be Clubhouse, and they're just absolutely growing like crazy right now. How would you describe how they fit into your ecosystem, as well as where they might be going, and the effect that they might have on business?
David: Could you guys help us? We're trying to figure it out in real-time. We have no idea.
Ben: We have no idea but a lot of opinions. This is an area where David and I are playing to our strengths. Neither of us are efficient writers. We can probably get more efficient by investing a lot in it, but we basically have sworn off Substack or a meaningful email newsletter. We have taken the step of turning our episodes into bullet points on the playbook, but that's about as far as we're going to take it. We also do transcripts for folks that want that.
Over and over again, people are like, turn your episodes into blog posts. Or if you're not going to do an episode on a company, at least do a post on it in kind of the Acquired style. We probably could bring on people, franchise the brand, or do something to make that work. But we've just decided that's just not our bread and butter. There's going to be something left on the table, and that's okay.
The way we're thinking, at least right now about Clubhouse, is if you think of Acquired as a funnel—the top of the funnel right now is social media, referrals, or someone browsing Apple Podcast. Then mid-funnel is, hey, I'm actually listening to the show. I like it. The bottom of the funnel is deciding to engage deeper with us by either becoming an LP or going to a meetup. There are other mid-funnel activities like joining Slack.
At the bottom of the funnel, that's where we do our deepest community stuff. That's where we engage on Zoom with our LPs. In some ways, when I say Clubhouse—
David: I should also say, the other dimension of this, I think is kind of unique to us why I love our business is the true, true bottom of the funnel for us is we meet awesome people in this community and we invest in them. We personally have been through PSL.
Ben: Or they join one of our companies. If they’re also an investor, we get to co-invest with them. Maybe we'll work for them someday. The bottom, bottom of the funnel is building the relationship you then get to have a 10X or 100X larger value thing you get to do together at some point.
Clubhouse is interesting. This audio community medium is really interesting. That's the thing that we do with the people that we already have the tightest relationship with. It feels strange to go and do it with people that may not even listen to the show at all or know about the show. The thing that we're realizing is maybe the Clubhouse-type thing is actually a great ultra top funnel. It's the same reason why a lot of podcasts cut up their podcasts into clips and throw them on YouTube to just get in the algorithm.
Dave and I are looking for what's a lightweight snackable way to discover us and Acquired on a Clubhouse or on Twitter spaces that might then lead you to want to engage with us in deeper ways, but as a different thing that's more also native to that medium.
I have been looking closely at Twitter spaces too because obviously, we're pseudo-established on Twitter, not huge followings. In fact, I think, our reach for podcasters is widely disproportionately-weighted toward people subscribed to the podcast feed, and actually fairly few social media followers relative to the podcast presence.
But the way I've been looking at Twitter spaces recently is it shows up at the top for people who follow you. It’s an engage-with-existing rather than capture-a-new-audience opportunity, whereas Clubhouse feels more like a roulette wheel to me where you go in there and who knows what's going to happen.
Andy: Ben and David, this has been super fun and super insightful. I feel like we could go on and on, but we want to reserve some time for you to do what you do best and ask Modern Treasury whatever questions you might have. Before you do that, I think it would be cool to have a lightning round of questions. It's pretty self-explanatory—just a few questions, answer as concisely as you can.
David: That's going to be a challenge.
Ben: Yeah. Apple. Jeff Bezos. No. Five trillion.
Andy: Oh darn, that was fast. Okay, first one. What will happen first, does Ben move to San Francisco or does David move to Seattle?
David: I've already lived in both places. My wife's family is here so I don't think we're leaving.
Ben: I'm doubling down on Seattle in a big way with PSL and PSL Ventures, so I think neither is likely.
Andy: What about your favorite character that you've ever covered on Acquired? Characters, literally any human being you've talked about. It could be Henry Raymond from New York Times, Satoshi Nakamoto, anyone.
Ben: It's pretty hard to beat Elon Musk. He's probably the most interesting person we've ever covered, and it's cliche but things are cliche for a reason.
David: I'll answer a slightly different question of my favorite guest. I think it's a tie between Nolan Bushnell and Trip Hawkins, neither of which are among our more popular episodes. These are literally people who invented not just in the gaming industry, but in Atari's case, the computing industry. Nolan is such a character, oh my goodness. Those were fun.
Andy: What about the company that each of you wishes most that you had founded? Bonus points if it's one that was featured on Acquired.
Ben: Mine is Webflow because I get it so through and through, and I would have gotten it 15 years ago also. No one but Vlad could have really founded Webflow the way Webflow is, but that's just a company that I think has got so much running room ahead of it, and it's a company that just sings to me in its value proposition.
David: I'll pull forward a soon-to-happen episode, Berkshire Hathaway, which we're going to cover later this season right before the annual meeting—for a bunch of reasons. The biggest one is I have literally zero, beyond negative desire to be a CEO. Manage an organization. If I had to start a company, I think Warren and Charlie have it pretty good on that front.
Andy: When it comes to recording the show, do you prefer sitting or standing? This is a question for both of you.
Ben: I stand to force brevity, which obviously doesn't happen, but it's good to have some counterforce to our lengthiness.
David: I stand for energy. Brevity is not my strong suit.
Andy: Lastly, what is your favorite podcast that is not Acquired?
David: Oh, this is fun. We just went on Jason Calacanis' TWiST yesterday and said there (and it's absolutely true) my current favorite is All-In. That's worth a whole other discussion if you guys want that. What they have done with All-In and built in a short amount of time is nothing short of incredible, and the show rocks. It's great. Previously, my favorite podcast was a fun show called Wizard and the Bruiser, which is like Acquired for nerd history. I'll let Ben go.
Ben: All right, I have two. The most entertaining podcast I listen to that is regularly awesome, and I know they've had a kerfuffle recently which is a shame, is Reply All. The podcast that I listen to every single episode of is Dithering because it is the side of my brain that is the Apple nut and has been for 20 years, combined with the strategy part of my brain which I feel like I've come into via Acquired over the last five years. Ben and John at Dithering are just great together.
Andy: Wonderful. Any questions for Modern Treasury?
Ben: A lot. We're going to ship this as an LP episode, so first of all, who wants to take a stab at telling me—who's only looked at your website for 30 seconds—to understand what you do? Enlighten me. Give me the Modern Treasury pitch.
Dimitri: I guess I'll jump in. Modern Treasury is a payment operations platform. When you think about payment ops, it's this funny thing that exists in every single company, and there haven’t been products around it. There are things around it like accounting, the bank portal, and so on, but not something that actually stitches it all together into a software experience that makes sense.
That's what we think about all day. If you think about payment, for whatever reason that a company is issuing a payment, that travels through the whole system. There are different teams inside of these companies that interact with it, whether it's the customer service team, the accounting team, the controller who has to release the payment or all those sorts of things. There hasn't been a single product for that.
There are lots of ways to look at it, but at the end of the day, all those people who are spending their day looking at the mechanical payments of what makes up these businesses is what we spend our time thinking about—the magic view and the magic experience for.
Ben: Let's dive right into strategy. What do you think about the things that you should own inside of Modern Treasury versus say, we're a horizontal platform that plugs into all these other systems, and we're okay with existing pieces of software and companies owning other parts of that experience?
Dimitri: I think the number one way that we think about that is in the fintech world, we're very much on the tech side of fintech. We are not in the flow of payments. And the moment you step into the flow of payments, there are lots of other implications to that, both to you or the company from a legal and regulatory perspective, but also in the way in which you interface with banks and others. We just want to be the best software for this.
That clarifies a lot of things. When you think about getting into the flow of funds, that actually becomes in a way more vertical by definition. When you think about companies that are doing that, each one of them owns (at best) either some vertical industry or some kind of news case, versus a product like Excel. Excel's not a B2B thing or B2C thing, it's just this thing that everybody can use, and that's how we think about payment ops.
David: If you were to be in the flow of funds, would you have to have a banking license to do that?
Dimitri: I don't know that you have a banking license because I don't know that you have to necessarily be the one issuing depositor accounts. We were at the Venmo episode—that's an example of a company where they hold some of those funds, so there's a bunch of implications on that. Those funds aren't sitting at Venmo bank, they're sitting at some bank that we all know the name of, but it could be a number of different banks that they work with.
In some ways, we think that there are 3000 banks in the US. By and large, this is maybe the Berkshire Hathaway [...]. If you really think about it in 50 years, it will probably be something like 3000 banks. We're not going to make a bet about how they all changed, but fundamentally, things aren't going to change that much. But the software to work on top of them is something that will continue to evolve and change much faster.
David: I remember, Dmitri, talking to you having physical coffee a few years ago when you guys were first starting out. Wondering to myself completely wrongly how many applications company services out there could need something like Modern Treasury. Obviously it's a lot, and I assume changed hugely over the short life of the company thus far. What was your thesis going in about what the market was and what's happened over the past couple of years?
Dimitri: One thing that has changed quite a bit—I'm not sure if it's the last couple of years or the last five years only—commerce on the internet used to be very much a credit card thing. If you would go back 15 years ago, people were afraid of putting their credit card numbers into a web form. By and large, the startups that were being started were ecommerce, retail subscriptions, travel, things like that.
If you look at the companies over the last five years, all of a sudden you have companies that are innovating in real estate, health insurance, and education. Those aren't things that are really credit card things—you buy these things over ACH, wire check, et cetera. All of a sudden, the earliest companies in that space—things like Airbnb, Uber, even Coinbase, and others—really had to build a lot of infrastructure for something that the ecommerce companies never needed.
The internet is starting to mess with parts of the economy that never were messed with 15 years ago, so all of a sudden there's a lot more. Ecommerce and the internet mean a whole different thing from a payments system perspective than they used to back in 2010.
David: Even Glow who we were talking about earlier, right? Anybody who's not just taking payments, which you could do with a credit card, it wouldn't be payment ops but dispersing. I just have to imagine that there have been exponentially more companies doing that than there were a few years ago.
Dimitri: Our earliest clients were health insurance startups and real estate brokerages—things that aren't really ecommerce but very much have this problem. It's a very horizontal problem for them, it's not really specific to how a real estate company works.
David: What customer verticals do you have now? What are your biggest ones?
Dimitri: Going back to the Excel comment, we don't think of it as verticals. We certainly have pods of companies that are in the same areas. Like I mentioned, real estate is a big one. Investing in fintech is a big one, so whenever you have to deposit or withdraw from an investment app—some sort of retail investing app that might exist out there—people might...
David: Yeah, who would want to do that?
Dimitri: There are certainly more esoteric things around insurance and so on where people are buying now, paying later—things like that. All of a sudden, there are lots of different versions of that. But again, from our perspective the way we think of it is an ACH, a check is a check. You have to be able to account for it. You have to be able to answer customer service support questions.
If you imagine calling a company up and saying that the payment you were supposed to get didn't arrive in time, what is the person on the other side of the phone actually looking at? How are they making sure, are you kind of full of it or you actually have a real problem? Is it going to clear tomorrow? Is there a refund on its way? What is happening?
Ben: I see, so it's almost like it makes debugging easier for the person who's trying to figure it out. A customer's claiming something, I have to figure out where it broke and if it broke.
Dimitri: Yeah. On the investing side in the venture industry, think of the capital call process. There's not a lot of technology in that.
David: It gave me the hibbie jibbies.
Ben: Or even in the capital deployment process. It is mind-bending to me that I release a wire and then it's not immediately showing up in the company's bank account. So there is this no man's land period where it's like, okay cool call me in an hour if it's not there yet. Really? That is how this works?
Dimitri: That's right. You talked a lot about this in the Bitcoin episode. The first half-hour is all about the ACH system and how all this stuff was really innovated on in the 50s and 60s. This is what computers are supposed to be good at. It's kind of strange that we, as a society, stopped investing in it sometime around 1980, and then we're still just dealing with the same...
Ben: Is that regulatory capture? Are there forces at play causing us not to innovate there?
Dimitri: I think there's an element of that, but part of it is also just that there are other areas that people are investing in. The plethora of banks probably makes it a little bit harder for a single one of them to invest heavily in it. There's a lot of coordination as a problem here.
Some of it is maybe captured, but some of it is also just the complexity of it. You read about smaller countries like Estonia having SaaS payments and it's like, well fine but how big is that versus the US? When you think about the US financial institutions, that's just a much larger problem to solve.
Ben: Estonia also got to start from scratch with everything in 1990. They vote with a sim card. It's awesome, but totally starting from scratch.
Dimitri: You brought up Berkshire Hathaway. I think there's an element of this, which is they invested in Burlington Northern Santa Fe. Part of the reason why they invested in it, their thesis was nobody's going to build another railroad in 2021, 2015, or whenever they invested in it. I think there's an element of that as well. It's hard.
We're seeing real-time payments, RTP, being one of the new payment rails that people are starting to use. That's an alternative to ACH, wire, and so on. FedNow is something that the Federal Reserve is proposing. We very much think it will happen in the next five years, but it is definitely a long time coming for the US.
Ben: I have a question that is probably going to take focus away from Dimitri. What does go-to-market motion look like in a company like this? How do you decide who you're going to go after as a customer? How do they find you? How much person-power do you have to throw at closing them? How self-serve is this? How self-serve can this be? I'm curious about all those things.
Jenny: I should take that one. There's a bunch. The first and most important is content. When you guys were talking about the uniqueness of content for startups I was nodding very vigorously. We read a lot about the secret underworkings of how money really moves in America. Most of the money in the US, 76%, moves over ACH wire paper checks. Cash and credit cards we live with as consumers, but most of the American GP goes this way.
Writing about that and the nitty-gritty of that—the technology, the analysis—we love doing that. That's one way we get our story into the community. There are actually seven different motions for us to go to market. It looks like a traditional enterprise software go-to-market.
We rely heavily on content. We do some paid, we do sales. We have a lot of community and network building. We also have a channel through our banks, our wonderful bank partners. So lots of different things going in parallel.
Ben: Let's zero in on content. Who comes up with the ideas for what you should write about? How much of that are you like, hey this is really core for us to do in-house versus hey, we can work with a great set of external folks to help us get this done?
Jenny: Sorry for my barking dog. We write everything ourselves, we're nerds about this. We're readers and writers by culture. We read the history of payments—most of us read that as part of our onboarding. There's a famous book in the industry written by a consulting shop called Glenbrook, called Payment Systems in the US. Everyone reads it cover to cover, and if something piques your interest, you dig in and write more.
There are certain things we care more about and emphasize more, but I would say it's still organic and authentic to who we are as a startup, and less of a program. I think that's why it's working. It's sort of like your content works. You guys love what you do, your exuberance is infectious. The way you interview is very real. We hope that's the same thing we're hitting with our writing.
Andy: Just to add to that, there's also feedback between what our customers are telling us and the content we're writing. The more customers we talk to, the more ideas we get in terms of what we can cover in our content.
Ben: Who makes the decision to be the purchaser of Modern Treasury at a company?
Jenny: Great question. There are two characters in the story. One character is a developer of some kind, a product person like you used to be, or someone in the technical organization that is trying to bring a product to life or scale a product, or lives in old school business and is trying to create efficiency about the movement of money. It’s an insurance company, financial services—there's a lot of industries. There's a whole way that we sell and talk to a product- or technical-focused buyer.
And then there's a second person, and they live in a finance organization. Their name is controller, accountant, or CFO, and they really like that we're technically-aggressive and innovative, and we serve the technical teams. But their job is to control the money—to track it, to tag it, to book it, to be responsible for it on behalf of the organization. And although most of our sales happen through one lead or the other, every sale has both. We have to check both boxes, and I think that's one of the really great insights of our founders.
They were the technical team, but they were always giving answers to their finance team when they built this, when they were an in-house lending home. That's one of the core insights of the product—our features are offered to both. You could ship it all day in the API and never log in to anything. You could also live in an operational environment and be clicking and approving in an application. Our sales reflect that.
David: Literally, just yesterday, we had Jake Saper from Emergence Capital back on the LP show. We'll release that probably next week or the week after. The big thing we talked about was this idea of software being built for jobs to be done instead of for personas within a company. You guys seem to be such a beautiful example of that.
You're not building software for finance people, you're not building software for developers, you're building software to move money. That requires both finance people and developers. I would imagine you guys know better than me that communication and workflows pre Modern Treasury across those personas within a company were maybe more difficult than they are now.
Jenny: Couldn't have said it better.
Ben: I’m going to use air quotes here for those listening at home. That's typically called a "complex sale", and something that you want to run screaming from when there are multiple—2, 3, or 4 people who have to say yes in order for your software to get purchased. If we're moving into a world where that's always going to be the case, how do you handle that with getting multiple decision-makers over the line?
Jenny: Maybe I'll answer that, I'll head into that. It is a complex sale. It involves the education and consulting process. Like I said when talking about content, we love this stuff so that part of the process doesn't feel onerous. That's where we're getting really deep with how a company really works, so how our product is supposed to work. We get to help them scope and learn about the nitty-gritty of moving money, to bring that thing to life.
We also have a whole part of our go-to-market that is self-serve that allows the long tail of the internet to try things out, to not go deep. Maybe it's before they have a CFO and they’re in their cycle. They can click, login, and sign up. Maybe Matt could talk a little bit about the product edition on that side.
Matt: I guess when we think about our API as a product, the APIdock as a product. We spend a lot of time thinking about how we can make that really easy as a developer to get through and build an integration. So building the developer tool that you want, it's really easy to stand up in integration because for developers, to get to AS, you want to be able to build something, make sure that it works, and have the confidence to tell the other part of the company, I can build against this, move money, [...], I can debug things, and so forth. Minimizing reasons they say no.
The same thing on the finance side, we invested a lot in controls so things like setting up custom accrual rules, roles-based access control—just the stuff that you have as a checklist when you're evaluating Modern Treasury, making sure it's really easy to understand the product.
I think it's just understanding really well what you need to get a yes from those people at the start and investing in both those experiences and there's that natural [...] in our roadmap. We're building one product like you said, but do we build the features that make developers' lives easier or finance lives easier, and we have to bow to those two parts of it.
Andy: I think it's a huge feature as well in some ways. I think good fences make good neighbors. Sometimes we can go inside of the same company and tell the other person at the same company how the other team is thinking about things. That actually is very helpful sometimes in the sales process because we become the experts.
Part of why we do these coffee breaks, part of our weekly realities—we just get to nerd out and understand how different businesses work at a very mechanical level. I actually think from a go-to-market perspective, that gives us a certain amount of confidence to be able to have a strong opinion about why we are the right answer. And if we're not the right answer, why not? We can address that on the product side.
But if you're not in the trenches doing non-scalable things, trying to actually help customers fix their problems, then I think eventually your product becomes a little bit too templatized and not quite right. There's a lot of LTV and CAC things that you can think about and throw at it, but at the end of the day, you have to do unscalable things and that's okay because that's actually what gives the product the magic feeling that hopefully we could get to.
Ben: That's great. Well, I at least have to jump. I want to say thank you so much for having both of us and taking up one of your valuable customer slots to have Dave and I come in.
Andy: Thank you, guys.
David: Thank you all for—also so many of you in the organization—giving us your time.
Jenny: Come back for coffee anytime.
David: Love it, hopefully in person at some point.
Ben: Next time I’ll be around San Francisco, or maybe Dimitri and I up here and everyone else in SF.
Dimitri: We can do it in person up here. All right, thanks so much.
David: Thanks, guys.
Jenny: Thank you, bye.
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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