Josh

Rob: Welcome to this week’s episode of Startups for the Rest of Us. I’m your host, Rob Walling. Each week on this show, we cover topics related to building and growing startups using an ambitious yet sustainable approach. We’re not willing to sacrifice our health or our relationships to grow our company. We view relentless execution and a long-term mindset as things that we value. This is episode 521. Speaking of long-term mindset, we’ve been doing this show for over 10 years. Today, we are tackling some news stories. This is a startup roundtable episode where I bring on a couple of guests and we talk through topics today that relate to bootstrap and mostly bootstrapped startup founders. Today, I have Tracy Osborn joining me. Tracy’s been on the show many times. She is the program manager at TinySeed so we work together on a day-to-day basis. She is the founder of a startup called WeddingLovely that she worked on pre-TinySeed and shut it down shortly before joining us. My other guest is Einar Vollset. He is my co-founder in TinySeed. It really is a trio of TinySeed folks here today. Einar co-founded TinySeed with me. He does a lot of the investor relations work and works in the accelerator as well. He also founded Discretion Capital, where he helps SaaS founders who are doing $1 million or more in ARR sell for revenue multiples. He’s been on the sell side of SaaS for quite some time. It’s a good panel discussion today. We cover topics ranging from a recession impending. We talk about the Google antitrust and how that may or may not impact our types of companies. We talk about work from home, DropBox going to permanent work from home, and a handful of other topics. Before I dive into that, I got some good feedback—both constructive and some positive feedback—on TinySeed Tales. The final episode of season two goes live here in just a couple of days. I heard from JJ who said, “Love this episode’s great stories and excellent content about the challenge of being a startup founder.” From Dan, he said, “I love listening to this format of the podcast. I find them really interesting and entertaining, as well as hearing some of the smaller scale problems that bootstrappers face. They remind me a little bit of the first Gimlet Series which I truly enjoyed and wish was still around.” From Kyle, I got some feedback saying, “I like the general idea. I did stop listening to season two after a few episodes. I’m a little fuzzy as to why I stopped, but I want to say it didn’t seem as if I was going to learn that much from the company or from the episodes. I’m thinking what would’ve been more intriguing is if you were in more of a cultural and I get to hear you coach them more. Again, if I recall correctly on season one, Craig was further along and he was experienced so you coaching him seemed less critical, but in this one, I felt like I wanted to hear more of your voice on their journey.” We really appreciate everyone who wrote in to me. This was just a sampling. Again, I’ve received both positive and constructive feedback on it. That is what I’m looking for to figure out, (a) should we continue to produce the TinySeed Tales episodes? and (b) what changes we should make to the show format as we move forward? With that, let’s dive into our conversation. Tracy, thanks for joining me on the show today.

Tracy: Yeah, happy to be here.

Rob: Einar, you as well.

Einar: It’s very good to be here.

Rob: It’s good to have the band, I was going to say back together, but this is the first time the three of us were appearing on the podcast. I think it’s cool. You both have made multiple appearances over the past 12–15 months, but I haven’t done too many of these. I get a lot of requests to do the three- and four-person news roundtables, but they tend to be pretty hard to plan. The logistics are tough, and then it’s oftentimes hard to find enough topics that really relate to our crowd. We can talk about stuff that is broader news. Jason Calacanis says this with great success on This Week in Startups, but he’s relating it to the world. He’s talking about trade policy and this and that, and I find that it can sometimes be hard to link that back to boots on the ground, MicroConf, Startups for the Rest of Us, TinySeed-type startups. But I do think we have a good docket today. The first topic we’re going to cover is a listener question about the economy. It’s from an anonymous listener. He said, “Early on in the pandemic, you described a broad revenue trend along the lines of, about 20% of companies that you’re invested in or had the financials off their way down, 60% had a minimal difference and 20% are way up.” This question asker says, “Hey, we actually landed in that 60%.” I said that off the cuff one day and then I came back to it a week later. I looked at the numbers and it wound up being closer to 15%, 70%, and 15% for what it’s worth. Give or take, it doesn’t really matter. He says, “So, here is the question. It’s 6–7 months later, what does that picture look like now? I suspected a lot of us in that initial 60% group are starting to feel signs of a real recession. Maybe a few extra customers churn, maybe customers feel renewed but get lower users. The effects aren’t huge, but they’re there. My sample says it’s small but I’m seeing it. It’s not falling revenue but it’s flat where I had expected growth. There’s a lot of reasons why people don’t want to admit this stuff. Revenue failing to hit forecasts is not a good look. Disappointing looks are hard to face. No one wants to consider the implications of that for themselves or for others. If other startups out there are seeing signs of this, it might be helpful for the community to know what to look for and what to do about it. My business is fine and we have a broad customer base, but I’m curious to see what you’re seeing out there in the space.” Einar, you want to take this first?

Einar: Sure. My view is things haven’t changed all that much. I still think the breakdown is roughly what you said. Particularly SaaS businesses that are serving industries—whether that’s travel, schools, or restaurants and things—I still think they’re hurting. I don’t think it’s quite in the same deep freeze as it was back in March–April time frame but certainly, a lot of those companies are still hurting. I don’t think it has expanded necessarily. I do think on the other 15% side, the growth spurts that came for the winning companies have slowed down a little. We saw some companies, in particular—before COVID were growing 30%, 40%, 50% a year—who all of a sudden grew 100% in 3–4 months because they were at the forefront of whatever, work from home, or something that’s COVID-related. We’re starting to see more normalization for these guys’ growth rate. Some of them are back to where they were, 30%–40%. Some of them are coming down off the peaks and perhaps stabilizing at a higher base. Certainly, that’s true (for example) with things related to ecommerce, delivery things, and stuff like that. In the middle, I don’t know, actually. I’m not 100% sure. I feed bad for the question asker. I want to say, yeah, that’s what I’m seeing all over, but that’s really not fully what I’m seeing or at least hearing. People are still tentative. Budgets are harder to get on and approvals are a little harder, but I’m not sure that it’s going to slow down into the fall, from the people I talked to, anyway. It’s peculiar to this small sample size.

Rob: Tracy, you have insight into at least 23 companies across TinySeed batch 1 and 2. What are your thoughts?

Tracy: One thing I was wondering about this question in terms of timing—and I was going to post a question to you, too—was the possibility of things sliding to a recession, but also worrying about that happening while we’re also going into the holidays. What is the drop in growth? Is that something that happens with startups? It’s something that happened with me in my previous startup because we were so…

Rob: Seasonal?

Tracy: Exactly, we were a seasonal startup. I was wondering if people were like, oh, should I be worried about a recession if it’d be worthwhile to go over what you just see go into the holidays—keeping in mind that holidays are in COVID so things are going to be weird—versus if it’s a recession, how that’s affecting your business.

Rob: My thoughts there are obviously if you’re an ecommerce, Black Friday’s coming up. Any type of ecommerce SaaS, software, or whatever is going to be going up into the right over the next month, and then it’ll drop down in Q1. I saw seasonality in all of the companies that I’ve run. It wasn’t seasonality; it’s too strong. I would see (usually) dips in growth, especially if it was SaaS. It wasn’t the revenue drop, but it was the growth that would slightly decelerate. We get fewer signups right around tax day in the US—mid-April—and then around December. I was counting it lucky if December grew at all. If we stayed flat, that was fine, but I really wanted to have a good November. Then, we would come out swinging pretty hard in January. We often launch big things in January.

Tracy: That’s exactly what I was getting at. I’m curious to see how things would happen in January, also depending on US politics, where we are in COVID. This going […] and getting at is, is it too early to say about the recession, being that there are other things going on?

Rob: The uncertainty of COVID, the uncertainty of US elections and holidays coming up, I can see them making people uneasy and not wanting to purchase. The question asker, his business is flattening or not growing as fast. It could be justified by that. I’m invested in between TinySeed and my independent staff. I have 35 investments, and I’m not hearing that there’s slowing down. I’m not seeing plateaus or slowing across the board. There are two questions here. One of them, I may be answering with no, I don’t think everything is flattening right now yet. The second question he’s asking implicitly is, do you think there is a recession on the horizon when we look out 3–6 months? For me, it’s a big I don’t know. I was talking in 2015–2016, there has to be a recession coming. There was in 1989. Well, no. There was one in 1993, there was one in 2000, there was one in 2008. I kept thinking it’s not that it’s every seven or eight right years, but this has been going on, the stock market’s really overpriced. When I sold Drip and had all this cash, I remember just agonizingly investing in the market. I was like, I’m waiting for this thing to be cut in half any day. That really didn’t happen until COVID. It happened in January of 2016. There was a big correction but it came back the next month, so there’s no recession there. The next big hit obviously was when COVID started, but it was so short-lived that I don’t know what’s coming.

Einar: Well, it was short-lived. There’s sort of a binary outcome to start. I don’t know if we’ll be turning to a stock discussion program here, but if you look at the companies that are listed on the stock industries, you see that basically the reason it’s recovered is because of the big tech firms like Amazon, Facebook, Twitter, Zoom, those kinds of things. They’ve done really, really well, versus the Russell 2000 which was the small-cap companies that are listed. They really haven’t recovered. They’re still down 20%–30%. It’s been a story of two different trade industries, which also partly backs up my view of the market. This relates to M&A, too, in the software space. It’s been very strong. If you’re in software or anything semi-positive, like you had tailwinds for at least the last few months now. Today, I think the Dow is down 3%. There’s obviously a lot of uncertainty around the elections. Who knows what’s going to happen with the vaccine and things, but certainly, the last 3–4 months, if anything, I’ve seen tech firms have tailwinds through the last few months at least.

Rob: I think you’re combining two things because you’re talking bear market, bull market, and stock prices, and I’m thinking more recession or not. I’m thinking of SaaS companies just getting started to several […] and revenue, mostly bootstrapped, are they still growing? Even about the retail store here in town, they don’t necessarily care about the stock market. It obviously impacts the broader economy, but when I think about it, if I was running a SaaS company today—whether I was doing $100,000 a year or $5 million a year, and I was, again, bootstrapped or mostly bootstrapped—I would be slightly cautious right now because of how much uncertainty there is. None of us can predict a recession, but there are a lot of things that can go wrong in the next six months. Personally, I’m fairly risk-averse especially when I’m running a company that I don’t want to lay people off. I don’t want things to go to zero. I don’t want to miss payroll or whatever it is. I would be thinking about being a little bit conservative or having a little more of a cash cushion than I would have in the boom times. I mean, you go back a year, you don’t need so much of a cash cushion if you’re going 10%–20% a month. Right now, I would be thinking about, what are my plans B, C, and D if things start to go sideways here? What if growth flatlines for six months, are we good? I’ll be asking myself some what-ifs and figuring out which of these could be company impacting

Einar: Yeah, I think it’s fair. And buy some Bitcoin, obviously.

Rob: Oh my gosh. Tracy, you’re on crypto?

Tracy: My husband is very into crypto, but I am not. I’m sorry, I’m going offhanded here. It’s fun being adjacent to that world but then listening to Einar and his thoughts.

Rob: Einar is just in it for the big score. I definitely know crypto that people who listen to podcasts know that I dollar-cost averaged in. I blend it on these big runs because right now it’s up. I do a little with a dollar-cost averaging out, so I feel good about that. Our next topic is a story from the New York Times, and it is about the Google antitrust suit. The US accuses Google of illegally protecting a monopoly, the Don’t Be Evil moniker that Google had for many years. A lot of us especially small startups who have experienced whether it’s direct competition, whether it’s being stepped on accidentally, whether it’s having AdWords constantly being more expensive, whether it’s having our keywords be not provided, whether it’s having them not send us traffic because they’re doing snippets at the top of the homepage, I definitely think there is a sentiment in early-stage startups that certainly, Google’s doing something that may not be fair or encouraging of the ecosystem. Tracy, what are your thoughts on this antitrust suit and how do you think it impacts the startups in our community?

Tracy: Google just feels like it owns everything. It has its fingers on everything intact, and you can’t avoid them. People are still talking about Superhuman—this other email thing—while everyone’s like, oh, but Gmail’s the best. You’re like, okay, I won’t talk about advertising, Facebook advertising, Reddit advertising when really, Adwords is a thing you have to start out from. You get a new phone, and Google is on your phone. That’s what you said earlier, that’s a lot of these antitrust cases about the phones and everything coming with that bi-standard. I’m a fan of any kind of breaking up at least a little bit because I feel like Google being in all these areas and having its fingers in everything is slowing or preventing some amount of startup innovation in those spaces. What will we see if Google wasn’t number one in everything that we do? In some way of breaking it up and allowing for more innovation from people, where would tech be if Google wasn’t the behemoth that it is right now?

Einar: Ditto. I broadly agree with that. The specific case that the DOJ brought against Google is pretty narrow. If you read it, they’re saying like, okay, it’s antitrust to protect their search monopoly by paying billions of dollars to Apple and whatever to make Google their default search platform. Broadly, I agree. It feels a little bit similar. It’s like Google is walking towards the situation that Microsoft was in years ago back in the 90s. Microsoft was the big bad wolf that squash you, outcompete, buy you, or do whatever. It’s funny that basically, Microsoft got sued by the DOJ for antitrust when they were 22 years old, and Google is actually 22 years old this year. It’s almost like a college graduation thing, like, congratulations, you made it, here is a lawsuit from DOJ. You look at what happened with Microsoft when they did face that sort of thing. That’s overall been good for the startup ecosystem, that stranglehold that they had on tech. There are two ways to look at it. Either the fact that they go sued and things open up some innovation, but then the flipside of that, too, is people have to work around that monopoly to a large degree. That’s why you get WebApps and things when you did in the early 2000s. I don’t know. It’s one of those really big market-moving things, a direct impact on bootstrap software entrepreneurs. It’s more TBD, to be honest with you.

Rob: The big thing that I’ve seen Google do over the past 15 years as I’ve been more involved in the ecosystem, as I’ve started running Adwords, that has been anti-innovation or anti-startup directly, is this slow titration or this decrease in the amount of data that they give to people who are trying to market their businesses. When I started pulling keywords out of Google Analytics, they give Not Provided instead of the actual keyword people were using to search their site. Before Not Provided, I was a small business that was marketing on the internet. I was either doing SEO or was buying AdWords, but it would tell me, hey, they clicked through this keyword and they converted. This keyword converts really well for you. They pulled it out and they gave some […] excuse about it being privacy. First, it was only SSL and then they just rolled it out to everything. What it did is it forced you to buy ads from them. If you buy their ads, they give you the keyword. So how is it so? It never made sense. There was a bunch of uproaring, and Google said we don’t care. Then, they slowly pulled all the data out. Their keyword tool is completely useless now. They said they would never sell search rankings, but if you just search for any term, the top three, four, five positions now are all ads. The organic number one is oftentimes below the fold depending on how many things you have on your screen. You can’t even identify the damn ads. It’s a tiny little box. I had to teach my kids that those were the ads. My mom still—I’ve watched her using the computer—clicks on the top result every time. I’m actually like, oh, you just cost that store money. She’s like, why? I was like, well, you clicked on their ads. She’s like, how is it an ad, it’s a top search. People don’t understand. That’s not what this suit is about. This suit, to be clear, is about the default search engines on these mobile devices. It’s all intertwined. It’s a lot like Tracy said. They are everywhere. Do I believe that they have used monopoly-like powers to just throw their weight around and not care what the market says? I do.

Einar: Oh, yeah. Just ask Mike Taber. The hoops he had to jump through to be able to get to what effectively is the default email client in the world. That’s something that Google can do. All the big boys do it. Twitter is famous for yanking their developer API after the developer helps them become famous and become popular in the first place. I agree with that.

Rob: Our next story is about Dropbox. I’m reading this on businessinsider.com. By the way, we will post all of these stories in the show notes. The headline of this story is, Dropbox will let all employees work from home permanently as it turns its offices into WeWork-like collaborative spaces. Shouldn’t they just say coworking-like collaborative spaces? Why does it have to be WeWork-like? That’s interesting. It’s like saying, Kleenex instead of tissue, or Band-Aid instead of a bandage. Anyway, in essence, Tracy is this just the rest of the startup world? The Silicon Valley startup world is finally catching up to what bootstrappers have been doing for the past 10 years because we didn’t have the money for offices?

Tracy: No kidding. There’s a lot of negative effects from COVID and the effect around office spaces. There are just these norms that once you got to a certain size, you had this office space. What was it? Yahoo! used to let you work from home, then Marissa Mayer became the CEO and she rescinded that because that was the norm. Yahoo! is innovative before but they’re using that as an excuse to bring in […] back in when she was there because she said that everyone works better together. Bootstrappers know that you can’t get just as good work done remotely but all these companies were facing this norm that was pervasive. Finally, COVID is forcing people to make this change. Now, these big companies are waking up to this idea of, hey, you’re not having your employees drive an hour or two from the office. They have simpler lives. Maybe, they’re getting more work done because they’re faced with fewer distractions from being in the office. I’m looking forward to seeing how this plays out in the next year. Hopefully, as COVID gets better and maybe things are opening up again. I’m hoping that like Dropbox, these other co-companies will also have these policies put in place and that employee’s lives, hopefully, will match something a little bit closer to how bootstrappers have learned to work from home or at least have learned to work from home.

Rob: Einar, you live South of the Bay area. I bet you’re seeing lower traffic now that people are working from home. Do you feel like this is going to change the landscape of these big campuses? I know Facebook. My brother and dad worked in the electrical contracting industry in the Bay Area for years. They were part of doing work on the massive Google campus, the massive Facebook campus, the massive CISCO campus, and all of that stuff. Is that done at this point? Do you think most companies are going to wind-up going at least half remote or work from home permanently?

Einar: I don’t know. I’m torn on this whole subject just like the resident extrovert here. I certainly think like some of the traditional views. I saw some venture capitalists on Twitter making a big deal about the fact that they’re no longer going to make it a requirement when they invest or a qualifier that a company has an office before they invest, which I always thought was really stupid. On the other hand, I do think there might be backlash once the vaccine’s in place. I feel cooped up just in my home office, not seeing people just day-to-day. There’s value in interacting directly face-to-face with people, but there will be a fundamental shift in the expectation probably mostly from the employee side. It will probably start with tech companies and then trickle down where maybe they’ll be there a portion of the time. Maybe they work from home 2–3 days a week and then in the office a couple of days a week. What Dropbox is doing is smart because that facilitates that thing, which, in general, is a good thing. We’re already seeing it just in the real estate markets in the Bay Area. The shift where it’s not a good time to own a one-bedroom condo in downtown San Francisco because everyone is just moving out and buying cheaper, bigger places elsewhere. It’s definitely a trend, but do I think it will become everything is remote-first and offices are going the way of the dodo? I don’t really buy that, but I guess we’ll see. In general, commercial real estate is a bit screwed, particularly in California if Prop 15 passes where the tax increases and things. I don’t know what they’re going to do. It follows on from the fall of shopping malls because e-commerce has taken over. They’re just empty malls everywhere. What are they going to do with all of that real estate? The questions are almost the same even if it’s a small trend, like you say 20% of companies or 20% of employees don’t go to offices regularly, that’s a big drop in the occupancy rate of these places. What are we all going to do with this office space that isn’t being used anymore?

Tracy: Couldn’t we convert some to housing?

Einar: That’s what I think. There’s a mall in town where I live. I looked at them and I’m like, why isn’t that converted into an apartment complex at this point? I don’t think that this is going to fill out again in any way, shape, or form. I don’t see why it can’t be a hybrid: partial apartments and partial shopping-restaurant complex. That stuff takes time, I guess.

Rob: For me, I’ve always been a believer that a lot of the companies that have been remote—the larger companies, let’s say a company with 50–500 employees that is remote—tends to be a lot of introverts. They do tend to hire people who work well remotely. We haven’t done an experiment this large, to your point Einar, with companies that didn’t hire specifically for remote workers or have more extroverts, just more of an extroverted workforce. We got the balance right with Drip when we’re in Fresno. There were 10 of us, and there were some people that were fully remote. They were in New York and I went to other states to find the best people; that’s what I had to do. Everyone in Fresno, we came to the office two or three days a week. The third day was optional. I saw Derek, I saw Anna, and I saw my co-workers. When we sold, we moved to Minneapolis, it was three days a week mandatory. It was Monday and Thursday, everyone had the option and most people just work from home. That is such a good arrangement, especially if you have to do any type of maker time. When I’m at home, I would try to block off and not have as many meetings on those days. I like to keep the mornings to myself, and I would have zero interruptions. In the office, I got social time. We did a lot of whiteboarding, but I get interrupted all the time. At a certain point, I said, I’m no longer a maker. It’s just not going to happen in an open office space. I hear you on that. I don’t know if there will be a transformation of these office spaces into living space, if they alter the form into escape rooms and trampoline parks. I see a lot of these warehouse districts. That’s a thing. It will hurt commercial real estate. The rates on a startup office space are higher than the rates you can charge a trampoline park or whatever innovative new entrepreneurial thought does come out of this. There will be a hit but we’ll just have to see how back to normal things get once there is a vaccine and things start to clean up.

Einar: That’s true. Even if you just take your example, if the majority of companies end up adopting what you’re saying, that’s two days out of five. That’s very low-low.

Rob: Yeah, then we’ll have to figure out, we just paid the rent as if we used it because we had it for 30 days a month. We had it 365 days a year, we just didn’t use it all the time. That was the decision we had to make.

Einar: You could end up with a scenario where two companies split it. You have Monday, Tuesday, Friday, or maybe both of them come in. Everybody comes in on Fridays. That’s a big party. You can see those types of situations.

Rob: Yeah. The fact that WeWork has had some major issues and has tanked pretty bad, but can you imagine if there were a more successful, more sustainable model that a lot of these are just turned into shared office space, into more of a WeWork model. I wonder if there becomes an opportunity, there’s that old phrase of like, I want to be the second buyer of everything because the first buyer, the first investor puts a ton of money in, they burn through it, they prove out the model, and then when that goes out of business, I can buy it for pennies on a dollar. Now I have this asset that there’s an opportunity. I wonder if there isn’t going to be that in commercial real estate in terms of office space. Our next topic is an interesting one. Listener, follow me along with this. This isn’t as relevant to someone who’s running an extreme early-stage startup. I know more than one founder who has hit the point where they’re doing (let’s say) $2–$10 million in ARR, they go to try to raise money, and they don’t want to go the venture unicorn track, but they do want to have some liquidity perhaps for themselves or to pump into the company to continue to grow. There’s a couple of things that tie into this. The bottom line is due to the regulations in the US, it’s virtually impossible to do that. It’s not worth it because of the high expense of going public in the US. First is in Canada, there’s the Toronto Stock Exchange and in Australia, there’s (I think) the Australian Stock Exchange; I forgot the name of it. In Toronto, if your company’s market cap is $4 million, you can go public on their exchange. The fees are between $10,000 and $200,000 depending on how much money you raise. It’s actually quite inexpensive. You could imagine a SaaS app, much like you would meet at MicroConf who’s doing $3, $4, $5 million a year going public. The phrase ‘going public’ has such gravitas with us. It’s like only GE, Apple, and Google are public, these are master companies, but I don’t think that should be the case, actually. Einar, you want to walk us through a little bit? We have a couple of topics to touch on here. One, why the hell is it so expensive and hard to go public in the US. And then, the real topic that leads us into is these things called SPACs which are Special Purpose Acquisition Companies and they’ve been in the news quite a bit lately. I’ve heard them on This Week in Startups and there’s a Forbes piece on them. They are suddenly becoming a popular way to go public in the US.

Einar: It is slightly strange. I think most US investors don’t really look abroad. They just think this is the way it’s become. The trend over the last 10–15 years has become that even though this (perhaps) does not have your regulations than they already were, you end up in a scenario where a company like Airbnb is going public after (maybe) 12 years of existence instead of the more typical which is a decade or plus ago with 4, 5, maybe 6 years. It is slightly weird to me that you have to be one of a small number of unicorns in order to go public. As you mentioned, that’s just not the case in other countries. There are dedicated exchanges like the TSX Venture Exchange in Canada. Being Norwegian, I know there’s one called […] in Norway. There’s a couple of ones in Germany. Basically, people understand that if you’re buying stock on this exchange, then yeah, there are some compliance and things, but these are much riskier bets than your GE, Google, Apple or things like that. On a philosophical level, I don’t really understand why that is impossible. Investors can go on the Robinhood app—like I did—and buy a bunch of put options on United thinking that Donald Trump is going to announce some sort of a vaccine before the elections so it’ll jump up. You can lose all your money as I did in a week. Nobody’s stopping you. There’s no accreditation process or doing that. The stock market is, as we in part of seeing through COVID, to a large degree is a good way to lose a lot of money very quickly. But fundamentally, I think one of these things should exist in the US where if you get a certain size, as you say, $5–$10 million in ARR, why not go public? Companies like that go public all the time abroad. It gives access to retail investors who don’t have access to private markets. Fundamentally, the fact that things take longer to go public means that the average investors who don’t have inside access don’t get to participate in the value creation there. I think I actually like SPACs—to circle back to the topic at hand. SPAC’s a sort of a symptom of this problem. SPACs are basically like empty shell companies that people put together and they go public. They list an empty company, the company basically says, we’re going to sell $500 million worth of stock in our company—in the shell company—and then turn around, use that capital to buy or acquire a private company. Effectively, it’s like a backward IPO almost. The company becomes a public company by virtue of being acquired by the shell company. My view is that that sort of a symptom of how complicated and how long it’s taking for all of these companies to go public. I think we’ll start to see more and more of that trend. I’m sort of pro at it. I don’t think there’s any reason why more companies shouldn’t be public so that more investors get access to the value creation that obviously happens there because you get to $10 million, as you say, what’s your option at this point? It’s to sell to private equity, to sell a portion to private equity for some liquidity and things. But are they really giving you the best price? Wouldn’t it be better to just sell 20% of your stock to the public and not have basically one boss who may have the wrong view of how you should grow and what your strategies should be going forward?

Rob: Yeah. I think SPACs are kind of a loophole or a workaround to what I would say an overly regulated, overly complicated system. I certainly think there need to be investor protections. Yes, most of the laws that are governing all of these were written in 1935. They haven’t really been updated. There was the jobs act that was a little bit for crowdfunding, but really, there are still a lot of problems with what’s going on today. Tracy, you’ve witnessed it first hand as we’ve been raising funds for TinySeed Fund II. Einar came back to us because he was doing research and he said, if you raise a venture fund, which is what TinySeed’s raising and you’re raising more than $10 million, the highest number of investors you can have in that fund, these are accredited investors who either have a million dollars or more in liquid net worth, not including their primary house or they have an income of $200,000 a year for the past two years or $300,000 if they are married. To put this, the definition of a sophisticated investor in the United States, even then, you can only have 99 of them in your fund. If you want to raise, for example, a $40 million fund, you need people to give you your minimum investment to be $400,000 per as average out to that, which is kind of crazy. Because if you could have a thousand investors, then you can drop your minimum way down and you could make it more accessible to so many more people. I think given our love of what we are doing and our belief in this space, that we would prefer for more people to be able to participate. But I’m curious, had you heard of this 99 investor problem before now and any other thoughts on it?

Tracy: This issue really goes back to me as someone who isn’t an investor, has always dreamed about becoming an investor, kind of a baby investor. Coming into TinySeed, I had no idea about what went into raising a fund and being a part of a fund. TinySeed’s thesis, which you put on our website—working here, I totally agree with it—we’re talking about TinySeed being an index fund into B2B SaaS. When you’re talking to people who can be a credit investor, that those require you have before but maybe just barely meet those requirements, a lot of people are very into the mission we’re doing, a lot of people don’t have $400,000, but they’re like, hey, this sounds like a winning bet to me. I love to put it in 5000. It sucks to be like, no, we can’t. We can only talk to the people who already have enough wealth that they can just blow this massive amount of money into TinySeed. It creates this problem between wealth equality in a way that people who are coming from disadvantaged backgrounds have a hard time getting to that level of wealth to be able to throw around that amount of money. When we have something like TinySeed—again, I totally believe in what we’re doing, think they were going to be a success—I want to help other investors, especially from disadvantaged backgrounds, also be a success with us and we have to constantly tell them no. It just drives me absolutely at the wall. The fact that the 99 investor problem exists—Brad Feld wrote a blog post about this if you Google for it—it’s frustrating. And because in 2018, President Trump signed (I think) the startup act or whatever, that was hoping to solve this problem between 99 investors being allowed to invest to be in a fund by opening it up to 250, if I recall. But that only applies to funds that raise less than $10 million, which is ridiculous, because the funds are raising more than $10 million and need to have more number of investors who are able to invest in it. I feel like it’s a huge issue. It leads to the restriction of wealth growth to these already wealthy people. It’s like I can go to a casino, I can spend $5000 in a casino, and no one would bat an eye. But I can’t take $5000 and try to invest it in some larger fund which, because they’re kind of indexing, arguably might have more chance to succeed that’s not allowed for me because those funds are restricted to only large investors. It’s just bananas.

Einar: I obviously agree. I talk to investors all the time and I tell them, I’m sorry, our minimums are minimums. People get frustrated and they’re like, you know, I want to put $50,000 into this. Often, they’re successful operators. They’re people who maybe bootstrap to SaaS business, got it to a million or two, sold it, and now they want to put some money into the area that they understand. In part to support the community and in part to obviously make a return. The crazy thing is, it’s already even worse than that because technically speaking, there are two definitions of investors. There’s more, but the main ones are the accredited, which is what you’re saying. Really, then you’re a pretty wealthy person if you qualify as an accredited investor. But there’s a higher threshold called a qualified purchaser. Basically, what a qualified purchaser is is somebody who has at least $5 million in investments. That’s obviously wealthier than someone who is “just an accredited investor.” But the funny thing is, that you can actually take off the 1999 qualified purchasers. What that means is, our minimums, and any fund’s minimums can be lower for the wealthier investor. Which doesn’t make any sense. I can take $5000 from you if you want to, but only if you’re worth at least $5 million. If you are “only worth $2 or $3 million,” well, I’m sorry, but then I have to take $400,000 or whatever the minimum for the fund size is. That doesn’t seem to make any sense to me. I don’t know that I’ve ever read a good reason why the limit is 99. I don’t understand why it should be like a thousand. You don’t want something that turns into a scam, then gets a million investors caught up in it, but 99 just seems really arbitrary.

Rob: If it was a million then it’d be a public company. If you had that many […] public. But you’re right, there’s a big difference between 99 and a million. We’ll see what happens. I’m just throwing my hands up and being like, somebody needs to figure this out because I do believe this is hurting innovation. Much like the high cost of healthcare in the United States, I think the regulation around going public and the regulation around 99 investor limits on funds, those three things are the things that I have experienced first hand over the past year or two, that are seriously impacting the startups that I’m working with. Not only with TinySeed, but just all around MicroConf and the people listening to Startups For The Rest Of Us. Hopefully, we can do something about it and I would be remiss if I did not recommend people go check out tinyseed.com/thesis. If you click through there, you can of course send Einar an email. You fill out a form and he gets an email, and you could chat with him to hear about the TinySeed thesis and to hear more about what we’re up to and how we’re raising that fund. Our last story of the day is from Reddit and it’s a warning about Glassdoor. The person says, “For the past few years, I’ve often defended Glassdoor as a useful resource, as part of any job seeker’s overall job-seeking toolkit. About a year-and-a-half ago, I interviewed with the company that had horrendous reviews.” This is a thousand […] summarized from here. In essence, there were a lot of negative reviews, the person took the job anyway, the job was not good, and the environment was toxic according to this poster. They wind up going back to Glassdoor and posting a negative review, that then not only got removed but every one of this person’s reviews on Glassdoor was removed. They implied at the end of their post that they’ve heard that Glassdoor has supposedly done a minor pivot into brand management so that perhaps it’s becoming less reliable than it’s trying to get rid of negative reviews or something to that effect. The question I have is maybe two-fold and we’ll start with you, Tracy. Glassdoor has tended to be a bit of a mixed bag, but I’ve used Glassdoor quite a bit for salary recommendations which I find to be pretty reliable. I also used it back when I looked at lead pages, Glassdoor as an example when we were talking about being acquired by them. There have been companies where I have tried to research whether I think they have a positive or a negative reputation with their employees. I have always wondered, much like Yelp and much like Amazon reviews, these things do get gamed eventually. I’ve always had in the back of my mind, I wonder how reliable these actually are. Do you have much experience with Glassdoor and what are your thoughts on this whole topic of can this be a game, do we think that as something gets big, eventually it just does lose its value because they can’t control the potential review spam?

Tracy: It’s just funny to me because I’ve never used Glassdoor other than for salary information like you mentioned. A previous company I worked for had Glassdoor reviews and they were terrible. It was the funniest thing to me. I believe one of the large reasons why they completely renamed and rebranded the company was because their Glassdoor reviews were so terrible and they needed to have some way to wipe the slate clean. This was about seven or so years ago. There are probably a lot more systems to game it now. But back then, you just had to wipe the slate clean in order to get rid of those past reviews. I have checked them recently and they have better reviews before. I assume that they made some management changes in addition to rebranding the company. It’s definitely been games in the past in a very complicated matter like that. I absolutely think it’s being games now. I read that article, that Reddit post they are mentioning. It’s just like Yelp. All these companies are going to be very concerned about their reviews because it’s going to vastly affect the quality of the employees they get. Savvy employees are going to leave bad reviews and they’re going to stay away. Now, these companies are going to be doing whatever they can to either with Glassdoor or otherwise to scrub those reviews just like Yelp. I think what’s going to happen, just like Yelp, I think people are going to use it less now that these things are coming more in the forefront. But I’m curious to hear what you two say about this.

Rob: I’m wondering if this does open up the door, the opportunity for a new Glassdoor competitor to come in and have a better algorithm from the start or some other way of validating this stuff that then becomes reliable for a few years and then the same thing happens. Einar, do you have thoughts or experiences with Glassdoor?

Einar: I don’t have much experience specifically with Glassdoor. But I do think in general, anonymous reviews of things, I think it’s prone to gaming in general. I think you’re right. I think there’s probably a way to make Glassdoor not so easily gameable, but it doesn’t surprise me at all that companies will want to try to do it. Like I said, one of the hardest things—recession talk aside—is to get people to want to work for you, to get quality people to do, and if you have a horrendous review on Glassdoor that says this is the worst place in the world to work, that’s going to be a problem. I think in general. As I said, it’s a little bit like Yelp reviews. Do you really know or is it somebody who has a real aversion to creamer in their coffee and this particular way that this café does it and decides to make it their mission to take this café down? That’s hard to know.

Rob: Yeah. Obviously, if you listen to this, you’re probably at a pretty early stage. Maybe 0 employees, maybe 10 or 20 employees, I do think at least for now that people will go to Glassdoor. If you have no profile, that’s probably fine, because you just say, we’re so early that we don’t have one. The danger is, if you don’t have a profile, someone leaves a negative review, and your only review is negative. I would consider having some type of presence on Glassdoor if you are going to be doing the hiring and you do have at least a couple of employees. You can ask folks, hey, can you just post an honest review of your experience here? I don’t know that this needs too much more commentary or thought, but I do think that’s the problem of these big reviews, especially anonymous reviews. That’s the thing. Yelp, you can effectively be anonymous. You could, over time, can buy accounts on Yelp that have already great reviews. You could set up a new one, leave a bunch of positive reviews, and leave negatives. There are ways you can do that and these things just tend to be really hard if it’s not tied to some identity.

Tracy: As I say, being a Yelp Elite in the early days of Yelp was pretty sweet in the Bay Area. I say as a former Yelp Elite.

Einar: Wait, what’s a Yelp Elite?

Rob: Oh man, you are not in the know.

Tracy: I know right? I was like, how do you not know this? They have this whole program that if you’d left enough reviews—if I recall correctly— you’ll be invited into the special Yelp Elite program and then you will get invitations to restaurant openings and special events. The idea is that they will give a bunch of free food and alcohol and give positive reviews afterward. There was this one summer—quite a while ago for me, like 10 years ago for me—where pretty much every weekend I was drinking for free based on being Yelp Elite.

Einar: What? Oh my God.

Rob: You’re famous. Tracy Osborn, you are @tracymakes on Twitter, and Einar you are @einarvollset. We will link both of those up in the show notes. Einar, thanks so much for joining me again on Startups For The Rest Of Us.

Einar: Thanks for having me.

Rob: And Tracy, thanks for coming on.

Tracy: Happy to be here.

Rob: I really appreciate Tracy and Einar taking the time to record this with me. I hope you enjoyed this episode format. I’ve done just a handful of them over the past several months. If you really enjoy this type of format, please write in questions@startupsfortherestofus.com or hit me up at Twitter @robwalling and let me know what you think. If you think they could be improved or if you just love to hear them more often. I’ve only done them maybe once a quarter, both due to the lack of new stories that are maybe discussion-worthy in our community, but also, they’re a little more effort to set up. But I am willing to do that if I hear resounding yes, yes, yes, this is something that I’d really love to hear. Thanks again for joining me this week and I’ll be in your earbuds again next Tuesday morning.