Hacking Meta's AR glasses, a shakeup at Initialized, and the best startups of the decade | E2021

Alex and Jason kick off the news show! (0s)

• The industry is at a turning point with private equity firms trying to buy positions, offering discounts ranging from 20% to 75%, with some offers being considered as "bottom feeders" (19s).
• A private equity firm offered to buy one of the positions in the first fund at a discount, which would return 1.5x the fund, making it a 2.6 or 2.7x fund with some holdings still in it (39s).
• The consideration of selling the position is to get a firm to return actual cash, known as DPI, rather than just having the returns on paper (49s).
• The goal is to get the returns on paper to match the actual DPI returns, which is around 4.9 to 5x (54s).
• The discussion is part of the news show "This Week in Startups," which is brought to you by Squarespace, and also sponsored by LinkedIn ads and The Washington Post (1m10s).
• The hosts, Jason Calacanis and Alex Wilhelm, welcome listeners to the show and introduce themselves, with Jason mentioning his newsletter "Cautious Optimism" (2m3s).
• The show is now live twice a week, on Mondays and Wednesdays, and features a full docket, including a controversial demo that will be discussed later in the show (2m15s).
• The demo in question is considered the most controversial of 2024, and the hosts will discuss it in more detail later in the show (2m36s).
• The hosts also mention the Rabbit R1's CES era demo, which was initially exciting but later became infamous (2m46s).
• The show will feature live guests, including a demo that might be considered the most high-profile launch, along with ChatGPT and Chpt1 (3m1s).

Overview of Harvard's AR glasses tech demo and club projects (3m26s)

• A demo of hardware combining AI technologies and Meta's second-generation AR glasses was created, allowing users to identify anyone on the street by collecting information from a photo of their face and scouring the internet for more pictures, then using data sources to find their name, phone number, home address, and relatives' names (3m28s).
• The demo streams video from the glasses to Instagram, uses AI to detect faces, and feeds the collected information back to an app on the user's phone (4m8s).
• The application is considered a potential "killer app" for augmented reality, providing users with information about people they see, such as mutual friends, home address, and LinkedIn page (4m35s).
• The unique aspect of the demo is not the facial recognition itself, but the combination of facial recognition with data sources, made possible by large language models (LLMs) and their ability to process huge amounts of data quickly (5m1s).
• The creators of the demo, Anu and Kane, worked on the project for about four days and spent additional time making a video and writing a document on how to erase personal information from websites to make the tool ineffective (6m13s).
• Anu is from Nebraska and Vietnam, working on human augmentation at Harvard, while Kane is from Indiana, working on a physics major (5m46s).
• The inspiration behind the project was to raise awareness about the potential risks of facial recognition technology and to provide a solution to the problem by showing how to erase personal information from websites (6m38s).
• A group of students at Harvard formed an augmented reality (AR) club, which was considered the "nerdiest" club on campus, even among other clubs like the chess and Dungeons and Dragons clubs (7m33s).
• The AR club consisted of students familiar with tools like Chach BT and had experience with open-source intelligence, which involves extracting information from publicly available data (7m12s).
• The club's project involved using this technology to gather information about people they met in public, but instead of using it in a malicious way, they decided to use it to play a "wholesome prank" on people by flattering them and making their day (9m9s).
• The inspiration behind this project was to show people that this technology is real and can be used to gather information about anyone, and to take technology outside of research labs and computer science classes and put it into the real world (8m58s).
• The students went around Harvard Yard, meeting random people and trying to get to know them using this technology, and most people did not get upset or realize what was happening (9m27s).
• The project was not intended to be a way for the students to meet girls, unlike Mark Zuckerberg's creation of Facebook, which was reportedly motivated by his difficulty meeting girls (9m51s).

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• Hiring a web shop can cost thousands to tens of thousands of dollars, and there's a risk of them disappearing, changing careers, or ghosting, leaving the client with a mess (10m22s).
• Squarespace is a trusted platform that has maintained and evolved its web presence over the decade, and it's suitable for every business, including startups, schools, banks, projects, and books (10m38s).
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Discussing responsible tech use, privacy, and entrepreneurial aspirations (11m35s)

• The creators of a demo for Meta's AR glasses, which can be used for doxing, have chosen not to open source the code due to privacy concerns, despite having what is considered the coolest demo in the world right now (12m1s).
• The project started as a side project, and as it developed, the creators realized the potential dangers of the technology and decided to take extra steps to protect people's safety and privacy (12m16s).
• The system leverages the ability of LM to understand and process different features to make it work, and the creators have provided some information on how it was put together, but not enough for others to easily replicate it (12m48s).
• The creators believe that by sharing some information about the technology, they can raise awareness and help people protect themselves, and that the benefits of this outweigh the potential risks of others trying to reverse engineer the technology (13m27s).
• The strategy used in the demo, which involves using public databases and facial recognition, is similar to tactics used by scammers, who have been using these methods to commit crimes for years (13m59s).
• The creators acknowledge that the technology could be used for malicious purposes, but also believe that it has positive uses, especially if people opt into it, and are considering entrepreneurship as a career path (14m41s).
• The creators' decision not to open source the code is seen as a responsible move, as it would allow people to protect themselves from potential misuse of the technology, and is compared to the tradition of sharing information about security vulnerabilities to raise awareness and promote protection (13m52s).
• Two 21-year-old entrepreneurs were offered $125,000 and incubation for their company by a potential investor, with the option to finish school or quit to focus on the business, as long as they don't have a criminal record and are morally and ethically sound (15m13s).
• The offer went viral, and the entrepreneurs received various reactions from students, peers, and journalists, ranging from enthusiasm and interest in buying their product to concerns that the technology shouldn't exist (15m39s).
• The entrepreneurs received feedback from people saying it's the greatest invention they've ever seen, while others think it's a bad idea and shouldn't be built (16m11s).
• The reactions were polarized, with some people in the middle, and the entrepreneurs noticed that there were no responses from institutional bodies, only from their peers and the media (16m28s).
• The entrepreneurs have been talking to a lot of press and received inbound interest from people, including a couple of magicians who want to use their tool for magic tricks (16m45s).
• The tool can be used to scam people, similar to the Clairvoyant scam or the fortune teller scam, where scammers use information gathered from the internet to deceive people (17m6s).
• The original trick involved using general knowledge and stereotypes to make educated guesses about a person's background, such as guessing someone's nationality based on their appearance or name (17m28s).
• The Persian Jewish people were affected when their state became an Islamic State (18m8s).
• The top 10 careers and top 10 names are known, allowing for a certain kind of game to be played (18m17s).
• A question was raised about the majors being pursued in college, specifically at Harvard University (18m25s).

Guests' academic focus and future in technology (18m30s)

• The individual's academic focus is in Physics, with a self-designed concentration in human augmentation, which falls under the Computer Science department. (18m30s)
• Human augmentation is their passion, and they have been exploring ideas in this field, including new interfaces to interact with AI. (18m44s)
• They have built multiple projects related to new interfaces, such as smart glasses that can listen to conversations and help with short-term memory, ideation, creativity, and providing context-based intelligence. (19m17s)
• These projects aim to create a seamless interaction between humans and AI, with the goal of enhancing human capabilities and providing game-changing technologies in the next 5-10 years. (19m39s)

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• There are over 50,000 venture-backed startups in the United States, making targeted marketing crucial to stand out from the competition (19m42s).
• To effectively target the right prospects, LinkedIn ads can be used to precisely reach professionals who are likely to find the ad relevant (20m4s).
• LinkedIn ads allow for targeting by job title, industry, location, and even specific companies, making it ideal for businesses to build relationships and drive results (20m13s).
• LinkedIn is an environment where people are receptive to business, with a billion members, 100 million decision-makers, and 10 million C-level executives (20m41s).
• LinkedIn ads can help convert B2B audiences into high-quality leads, and a $100 credit is available at linkedin.com/thisweekinstartups for startups to claim (20m52s).
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AR technology trends, practicality, and ethical considerations (21m27s)

• Mark Zuckerberg was initially perceived as awkward but incredibly focused and good at copying and improving existing ideas, as seen in his creation of Facebook by making it cleaner, faster, and more stable than its predecessors like Friendster and Myspace (22m0s).
• A key lesson for founders is that what they think the world wants and what it actually wants can be different, and they should keep trying and learning from their experiences (22m59s).
• AR technology is still in its early stages, and it may take a while for it to become mainstream, with hardware advancements, such as lithium battery density, being a significant factor (23m26s).
• The AR Club, started by the speakers, had a good turnout and interest from people and big company sponsors, despite AR being in its early stages (23m44s).
• The cost of building an AR headset can be relatively low, with off-the-shelf headsets like the Meta Ray-Ban being available for around $300 (24m32s).
• The Meta Ray-Ban headset has a white light indicator when recording, but it is suggested that a red blinking light would be a better design choice for societal norms (24m57s).
• The speakers' AR demo used a bot to take screenshots of frames from an Instagram stream, allowing for facial recognition, but they acknowledge that this technology may be subject to laws and regulations, such as the ban on real-time facial recognition in the EU (25m23s).
• The speakers researched the laws and regulations surrounding facial recognition technology and found that while it may be banned in some places, the technology is still publicly accessible and usable (25m51s).

AI advancements, deepfakes, and AR in healthcare (26m10s)

• Scammers are using AI to create clones of people by taking an hour of video or audio, and there have been attempts to spoof limited partners, calling Venture Capital firms and changing routing information to steal money (26m11s).
• A type of confidence scam called "Pig Butchering" or "Pig Slaughtering" involves a woman connecting with a guy, sharing fake trades, and convincing him to invest in a fake crypto exchange (26m52s).
• The scammer makes the victim win small trades, gaining their trust, before setting them up for a big loss, often by asking them to invest a large amount of money (27m26s).
• Mark Bowen sees a potential use case for this technology in emergency rooms, where it could be used to automatically retrieve a patient's chart history, allowing for more efficient triage (28m4s).
• The technology could also be used in other ways, such as displaying people's names above their heads, which could be useful for people who are bad with names (28m15s).
• The risk associated with this technology is not the AI models themselves, but rather the lack of data privacy rules in the United States (28m30s).
• An offer is made to start a company using this technology, with a potential investment of $125,000, and the opportunity to have a well-known investor as the first investor (28m45s).

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• This week in startups covers two news programs every Monday and Wednesday, discussing various topics such as startups, the economy, Venture Capital, and global issues that impact businesses and entrepreneurs (29m38s).
• The Washington Post is a valuable resource for entrepreneurs, providing coverage of business, technology, and global perspectives, in addition to politics and the environment (29m57s).
• The Washington Post is no longer just a newspaper, but also offers apps, podcasts, and newsletters to deepen understanding of critical issues (30m11s).
• Subscribing to the Washington Post allows entrepreneurs to stay informed and up-to-date on important issues, making them more worldly and better equipped to build and run their companies (30m22s).
• The Washington Post offers an audio feature that reads articles aloud, allowing subscribers to multitask and stay informed on-the-go (30m29s).
• Subscribers can use their knowledge to speak intelligently on important issues in business meetings and come across as smart and informed (30m41s).
• TWiST listeners can subscribe to the Washington Post for just 50 cents per week for their first year, which is 80% off the typical offer, by visiting washingtonpost.com/twist (30m50s).

Insights on young founders and the podcast's live format evolution (31m6s)

• Young founders who are early in their careers can exhibit impressive intelligence and energy, despite their age, with some individuals having a combined age less than that of the hosts (31m18s).
• The hosts acknowledge the common narrative that younger generations lack certain skills, but point out that some young founders are successfully working on complex projects, such as hacking (31m28s).
• The hosts appreciate having live guests on the show, citing the unique energy it brings, and plan to have more live guests in the future (31m35s).
• The hosts also want to incorporate a call-in segment, similar to sports radio, where they can take live questions from callers and be surprised by their inquiries (31m42s).
• Jason from Initialized Capital is mentioned as someone who won't be coming on the show, implying a past disagreement or conflict (31m49s).

Venture capital trends and Initialize Capital's restructuring (31m58s)

• Initialized Capital is restructuring its team to a smaller size, with the goal of getting back to basics, as stated by Brett in a blog post, after the firm had success and grew but lost its edge over time (32m11s).
• The firm has undergone significant changes, including the departure of its founders, Alexis and Gary, who had a falling out, and Gary's subsequent departure to take a bigger opportunity (32m32s).
• The venture capital game is changing, with a lack of distributions and the overhang of large rounds, leading to a "cataclysmic creative destruction" and the need for firms to adapt and make changes (33m5s).
• The situation is compared to the New York Knicks trading Julius Randle for Karl-Anthony Towns, where the team got better objectively but had to say goodbye to a beloved player, illustrating that sometimes changes have to be made to make a company or firm work better (33m51s).
• The decision to restructure Initialized Capital is likely a mature and thoughtful one, but it may still result in job losses or people leaving the firm, which is a natural part of the process (34m31s).
• The importance of change and adaptability is emphasized, as sometimes shaking things up and changing the organizational structure can allow a company to build a better product (35m15s).
• When someone leaves a company, even if they were great in their position, the company often ends up with a better person, as the firm learns from the previous employee and levels up, allowing the new employee to build on the foundation set by the previous one (35m32s).
• Changes in companies can be beneficial, as a team that has been in place for a long time can form patterns that make it difficult to adapt or change, and sometimes breaking these patterns can lead to finding more efficient ways of doing things (36m46s).
• Initialized Capital has not made any new investments recently, with their last two funds raised in December 2021, and no new Form D filings, but they have made 14 investments this year, which doesn't suggest they are out of cash (37m19s).
• Initialized Capital's previous fund had a successful investment in Coinbase, which was a career-making investment, and one of the great investments of the last cycle, along with Uber, Airbnb, and potentially Stripe (37m51s).
• Having a successful investment like Coinbase can give a firm momentum and allow its partners to make big bets and potentially start their own firms, as seen with Alexis and Gary Tan (38m32s).
• Initialized Capital is re-evaluating the firm from first principles, possibly due to a couple of years of not meeting expectations, which may be why they made recent changes (38m48s).
• The firm may be preparing to go out fundraising, but their current fund isn't showing enough returns, leading them to shake up the partner list and make other changes (39m4s).
• The changes may include lowering the overall burn at the company, cutting fees, and making other adjustments to prepare for a new fundraise (39m10s).
• The recent changes at Initialized Capital appear to be a comprehensive, top-to-bottom cleanup, rather than a partial or half-measure approach (39m25s).

Founders Fund and CRV developments, returning capital to LPs (39m28s)

• CRV has returned money to its limited partners (LPs), following a similar move by Founders Fund, which returned half of its billion-dollar fund last year, indicating a mature approach to investing by realizing that companies don't need as much money as they used to (39m29s).
• The current investment landscape is different from the past, with fewer large rounds and less competition from investors like Masayoshi Son and SoftBank, allowing for more thoughtful investment strategies (39m52s).
• The next two to three years of investments, or "vintages," are expected to be among the greatest of our lifetime, with the potential for three world-class vintages in a row (40m5s).
• Despite criticism of unicorns and their large funding rounds, there are some amazing companies in the current crop that will likely produce great outcomes (40m31s).
• According to a Financial Times article, only two companies in the last 20 years have met the threshold of $10 billion in annual revenue and $1 billion in operating cash flow, which is considered a benchmark for having "made it": Meta and Uber (40m52s).
• The importance of the metrics of $10 billion in revenue and $1 billion in operating cash flow for deciding the true winners is debated, but they are considered interesting numbers to look at for determining the endurance of a company (41m10s).
• The traditional benchmark for IPO readiness is $1 billion in revenue, but some companies are now going public with less, and having a certain amount of cash flow is necessary to be a real business (41m33s).

Analysis of scale insurgents and successful startup unicorns (42m2s)

• Companies like Amazon and Tesla had to eventually stop investing and focus on building cash reserves after years of growth, illustrating the violent nature of the J curve in both directions (42m2s).
• Uber's cash burn was astronomical for years, but after some operational changes, it now generates significant cash, demonstrating how companies can transition from cash-intensive to cash-generative (42m32s).
• An analysis identified six companies from the 1990-2003 era that met certain requirements, including Google, Nvidia, and possibly Salesforce, which has a billion dollars in trailing cash flow and is a "money printing" company (42m52s).
• The list of companies from the 1990-2003 era is likely all-tech, with Apple and Microsoft already formed during that time, and YouTube being a subsidiary of Google (43m25s).
• Salesforce fits the criteria, with $900 million in operating cash flow and $99.3 billion in revenue last quarter (43m48s).
• The analysis mentioned that only two companies in the last 20 years, Meta and Uber, met the requirements, but this is disputed, with potential examples of Airbnb, Stripe, and Shopify also meeting the criteria (44m6s).
• Airbnb, founded in 2008, has become profitable and has a revenue run rate above $10 billion, making it a potential example of a company that meets the requirements (44m11s).
• Stripe, founded in 2010, processed over $1 trillion last year and has a 3% cut, resulting in $30 billion in gross revenue, and is reportedly "robustly cash flow positive" (44m32s).
• Coinbase, while not profitable, generates significant revenue from custodial fees and has a strong potential for profitability, with $895.7 million in net cash operating activities over the last six months (45m1s).
• The discussion highlights the power law in the tech industry, where a small number of companies generate a disproportionate amount of value, and the importance of entrepreneurs, VCs, and capital structures in taking risks and creating successful companies (46m12s).

Secondary market opportunities and fund exit strategies (46m39s)

• A company offered to buy a position in a fund at a 20% discount, which is a relatively low discount compared to the 50-75% discounts commonly seen, and selling this position would return 1.5 times the fund, making it a 2.6 times return for the fund with some holdings still in it (46m40s).
• The decision to sell or hold onto the position is a major part of a fund manager's job, and they must consider the potential returns and the psychology of the general partners, including their need for liquidity and their carry, or share of the profits (47m51s).
• The general partners' individual net worth and how much the investment matters to them can also impact the decision, as illustrated by the example of Mark Zuckerberg being offered $1 billion for Facebook and deciding not to sell, which ultimately led to him becoming worth 250 times that offer (49m48s).
• The fund manager must balance the desire to return money to limited partners (LPs) with the potential for further growth and the discipline to make a good decision, taking into account the LPs' cash-in and cash-out situation and the fund's overall performance (48m10s).
• The decision to sell or hold onto a position can be complex and influenced by various factors, including the general partners' carry, their individual net worth, and their motivations, making it essential to understand the psychology of the general partners (48m52s).
• Venture capital firms may consider selling a portion of their position in a company to allow limited partners to receive a return on their investment, while still holding onto some shares in case the company experiences further growth (50m27s).
• The connection between exit timings and total DPI returns based on general partners or venture partners' net worth is an area of interest, as it may be influenced by the length of holding periods and the incentives of the parties involved (51m2s).
• Realtors who list their own houses may leave them on the market longer to get a higher offer, as they receive 100% of the gains, whereas they only receive a fraction of the gains when selling a client's house (51m18s).
• Incentives play a significant role in decision-making, and entrepreneurs should be aware that it only takes one buyer to make a sale, as seen in the example of WhatsApp's $19 billion sale to Facebook (51m46s).
• Founder-led companies can make bold decisions, such as Mark Zuckerberg's purchase of WhatsApp, but this also means that the wrong person at the helm can lead the company astray (52m12s).
• The concept of "founder mode" allows for one person to have control and make decisions, but it also requires the ability to adapt and change, which can be a challenging muscle for companies to maintain (52m49s).

New Twist 500 members: Snyk and Nym (53m0s)

• Snick, a cybersecurity company, has been added to the list, with the company raising money from an overseas sovereign wealth fund and fitting into the cyber security theme. (53m9s)
• The company's financial statements show a revenue of $220 million for the year ended December 31st, 2023, up from $147 million the previous year, representing over 50% revenue growth. (54m18s)
• Despite the revenue growth, the company's administrative expenses decreased, with the company spending less money this year than the previous year, aligning with the theme of static team size and getting more out of people. (54m45s)
• The company's losses have dramatically decreased, from $267 million in 2022 to a significantly lower amount, with the company now in a better position to go public. (56m1s)
• The company's financial performance is seen as a good recipe for lowering losses and eventually becoming profitable, with the potential to continue growing revenue while cutting costs. (55m32s)
• The company's transition from a high-loss to a potentially profitable business is attributed to its ability to shift from a zero mindset to a more sustainable business model, making it a good addition to the list. (55m56s)
• Nim is a company doing automated medical coding, which is a significant market, especially with companies like Epic Systems being huge in the medical space (56m42s).
• The company's valuation is not explicitly stated, but it is mentioned alongside other companies with multibillion-dollar valuations (56m37s).
• The Austin City Limits event had a record-breaking audience of close to 100,000 people, with Pink Pony Club being the main act (57m35s).
• Pink Pony Club was booked for the event last year before they broke out, and they honored their contract despite their increased popularity (57m47s).
• The event organizers make bets on acts by booking them a year in advance, similar to how investors make bets on startups, and sometimes these acts become giant successes (58m10s).
• The success of Pink Pony Club is attributed to their popularity on TikTok, where the algorithm accelerates the ascension of pop stars (58m35s).
• TikTok's algorithm is different from YouTube's, as it relies on the "for you" feed rather than subscriptions, views, and comments (58m42s).
• Pink Pony Club's increased popularity led to them upgrading or moving shows to larger venues, and they were the second-to-closing act at the Austin City Limits event (59m41s).

TikTok's impact on the music industry and content creators (59m56s)

• The TikTok effect has been significant in the music industry, with artists like Chapel gaining massive popularity, and even niche genres like metal core seeing increased attention, as seen with the band Bad Omens, who gained a big following on TikTok and saw their ticket prices skyrocket from $20 to $60 (1h0m32s).
• Bad Omens' success on TikTok led to sold-out shows, demonstrating the platform's influence on the music industry, even in niche genres (1h0m43s).
• Chef Reactions, a content creator with 3.6 million followers, has built a business around reacting to people making food, and has gained significant traction, including partnerships with major brands like Thermador and Headley Bennett (1h1m9s).
• Chef Reactions' success has led to him becoming a spokesperson for brands and even having his own custom menu at the Michelin-starred restaurant, The French Laundry (1h2m59s).
• The success of Chef Reactions and other direct-to-consumer businesses like MrBeast and Warby Parker highlights the importance of unique products and distribution strategies, with Chef Reactions having spent zero money on distribution (1h3m41s).
• Chef Reactions' content has gained significant views, with one video having 8.3 million views, and he has built a business around his reactions, including merchandise and partnerships (1h1m43s).
• The creator of Chef Reactions was initially given $25,000 as an experiment to pursue his content creation full-time, and has since grown his business to include two full-time employees and a significant income (1h1m17s).
• The success of Chef Reactions demonstrates the potential for niche content creators to build significant followings and businesses on platforms like TikTok (1h2m14s).

Investment discussions with Chef Reactions and TikTok creators (1h3m48s)

• A product by Chef Reactions is considered a great company with potential, and the creator is selling it directly, which is why there's a search for more influencers with low millions who don't know how to build a business to join Founder University's ninth cohort (1h3m48s).
• To join Founder University, one can go to the website or DM Jason on Twitter X, Instagram, or email him at jason@calacanis.com, as he's always looking to meet more founders and make investments (1h4m5s).
• Jason is looking for investments in companies at the year zero stage, before they're incorporated, and before they join accelerators like Y Combinator or Tech Stars (1h4m23s).
• Jason regrets not spending time with Chef Reactions when they met briefly while playing poker, as he now better understands the thesis behind the Chef Reactions investment (1h4m31s).
• Some cool companies being considered for investment include WAP, Name CU, Exat, FVO Energy, Poly Market, Cobalt, Medals, and Merge API (1h4m49s).
• Jason is trying to get the founders of Merge API on the show, and there's more live news and exciting developments coming up (1h5m0s).
• Jason is looking for a temporary event space in Austin and a building for sale to use as a podcast studio and event space, and is open to sharing the building with others (1h5m21s).