And so, AI is a perfect solution in that type of category to provide basically a sales assistant, a sales receptionist. And that's what Hey Libby does. I'm also cooking up some things in the real estate space that I haven't announced yet that are kind of related in this general space of productivity and helping real estate agents achieve their full potential using AI.

Yeah, I mean, I think you said something about Hey Libby that was sort of a, we're all going to have an AI that represents us.

Yeah. I mean, I, I really believe that. I think if you think of the productivity stack that, that most people really in any, in any vertical have, think about it over the last 30 or so years, like there was a time when it was just a phone and then it got an answering machine and that was kind of a step change in productivity. And then they had a cell phone and that was a step change in productivity. And then they had text messaging and email, which was another step change. And, somewhere along the way they added in most verticals, a CRM so they could keep track of their conversations with clients. Well, I'm pretty confident that the next step change in productivity is going to be an AI assistant or probably several AI assistants, depending upon, different workflows and different needs. And so, whether you're an accountant or a lawyer or a real estate agent or a plumber or a, gym, or a VC or an angel investor, you're going to have some AI incarnation of yourself that does top of funnel triage.

So, like I already have it on my socials from Hey Libby. So, if you go to my LinkedIn or my Twitter, my TikTok, my Instagram, et cetera, you'll see a link that says chat with me. By the way, that's where Libby comes from. It's Libby is link in bio. So the link in bio on all of my socials is my Libby. And you'll tap on it and you'll say like, Hey, I want to talk to Spencer and I'll say, great. I'm his AI assistant. Tell me about your situation. And you'll say, I'm a founder. I want to pitch him on something. It'll say, great. He does this type of investing, et cetera, et cetera. And so probably 10 or 20 times a day, my AI assistant, my Libby speaks on my behalf and does top of funnel triage for people in balance, people that want to chat with me about something. And then it all gets summarized for me. It connects to my CRM. It, you know, I get text notification, address, follow up notes. It basically does exactly what you'd imagine and AI assistant would do. So, think we're all going to have versions of that, just to get a little more crazy, they're going to be interacting with each other.

Think Minnie about the prep that we did just to get ready for this podcast. You know, you sent me an email saying, here's what I talk about. I was like, great. That sounds terrific. And we kind of went back and forth four or five times. In the future, our AIs will do that for us, and it'll all get summarized for us.

Totally. We're always talking about like, you know, you're not marketing to people anymore. You're marketing to the AI algorithm that decides what to put in front of Spencer.

Yeah. And, I mean, think we'll have multiples. Yeah. They'll all have a work persona that is my AI assistant where people want to interact with me. And that probably responds to email and text and other messages. I'll probably have an AI persona for my friends that will make plans for me with my friends, and I'll have a different energy and a different vibe as the kids would say. you know, as it interacts with my friend's AI.
No, I know. I keep talking to the wellness people who are going to know your AI is going to know, did you sleep well? Are you in a good mood? Like, is Spencer lonely today? Should we call him?

Yeah. And I, you know, COVID and quarantine and Zoom already pushed us in this direction. I mean, I don't like, we don't have to get too. philosophical here, but I don't know if that's even really you right now. I mean, I'm looking at you here on a zoom screen and I, you look like Minnie, you're talking, I think like Minnie, but I mean, it could very well be an AI driven avatar of you. It's not even necessarily you. And there will probably be a future. The future is basically upon us where you already can create a video AI version of yourself. And maybe someday you won't even be doing your podcast. You'll just send your AI out into the world and it'll. Start interviewing people that you identify for it and it'll record and edit your podcasts and post them and you it won't even be you anymore

But as you know, that's not the fun of having a podcast, right?

You may choose not to do to pursue that future but I mean, we're already seeing these AI generated podcasts by the way where you know in the news space this is happening quite a bit where AIs are just creating and posting and publishing and an AI conversation about the news of the day as a podcast, and there's not even a human behind it. So, we've seen AI generated news articles for a long time for, least a couple of years, but now it's coming with, uh, with audio format and increasing the video format

So, you're incubating these AI startups. Do you have more theories around AI, and you know, VC Twitter is talking about how AI kills SaaS and companies will be building everything in-house. What are you seeing in the broader ecosystem?

I mean, AI and SaaS are sort of merging. Like there's no, I don't think there'll be a difference. There already is not really much of a difference in my mind. Like a vertical SaaS startup is going to use AI. I mean, they already are so it's kind of all the same thing, and if you call it a small business and you call a gym owner. Like, they don't care or know or understand or want to think about whether it's AI or not, they just want to know if you're solving their problems. So AI and SaaS are merging, AI is a technology. just like mobile is a technology or web is, I guess, a distribution technology, that helps you solve problems. So, AI and SaaS are sort of one in the same and from my perspective.

Yeah. How about, with 75 and Sunny? Like, have you changed your model some? I think of you more as a studio than maybe I did before.

Yeah, I mean, I have changed it a little bit. So, I mentioned we're investors in 60 or 70 companies and I've done a lot of pre seed, seed and series a investing. And, about a quarter of that is in prop tech, about a quarter of it is in B2B SaaS. about a quarter is kind of creator economy or Hollywood meets Silicon Valley type stuff, and a quarter is just other things I find interesting, like robotics and space, a couple other things. but I'm deemphasizing in that early-stage angel investing and I'm spending more time focusing on the incubations partly because I find it more rewarding to work more closely with the team that I can have a greater impact with and partly because I just end up owning more of the company
So, the, sort of passive $50K, $100K still do that from time to time, but it's less interesting and it was not, I don't know. It wasn't like emotionally satisfying, have a relatively small amount of money in a startup that I wasn't really having much of an impact on. So, I'm spending more time incubating a little bit less time angel investing.

Yeah. has your approach changed? Have you sort of thought about the studio model?

Yeah. I mean, I've thought a lot about the studio model and I've had, dozens and dozens of conversations with other studios, and I've actually, convened at my house a couple of working sessions with 15 or 20 other studios to compare notes. One thing that I really enjoy about the studio model is everyone's pretty collaborative because I mean, VCs are pretty collaborative also because the VC model is an assembly line from the Pre-Seed firms try to send deal flow to the seed firms, the seed firms send deal flow to the Series A firms. And there's some overlap, of course, but there's a lot of collaboration in the venture world. In the studio world, there's also a lot of collaboration because they're not competing and so I've learned a lot one of the main things that studios think about and in some cases struggle with is how much equity to keep at the studio level.
And, if you look at the last five or ten years of studio models, they've significantly reduced the amount of equity that stays with the studio. It was kind of 50, 60, 70%, and now it's normalized around 10 to 20%. And it's, because of your world, really. It's because, the early-stage venture firms, have thrown up on that. And so the response to that has been for the studios to reduce their take. So it seems like they've reached sort of a equilibrium where most of them are putting in, at least my model is for us to put in between 250,000 up to 1one million dollars and end up owning somewhere in the 10 - 20 percent range. Usually once you're through the pre seed, so we'll sort of put in $250k up to $1M and help catalyze a pre seed round around that of maybe 2 or 3 million and then end up owning kind of 10 to 20 percent at that stage.

I mean, but that didn't, you didn't need to convene people to know that, you know, to figure out the cat table and that's like, what are some of the active conversations when you're convening?

Yeah, well, one of the other big questions is my idea or your idea. All right. So, like, to the studios. work on their idea list, and then, like, when to attach the founder. So, some studios take things pretty far down the line in house. They have their own design and software engineers and, PMs, and they do a lot of iterating and ideating and AB testing.nAnd then only once they're really ready to, to really create a company, do they then, or even after that, do they then attach a founder? That's not my model. my model is generally, I mean, basically people come to me and usually it's people I've worked with in the past and they say, I really enjoyed working with you.

Let's, let's jam on stuff and, you know, it was through that process that Pacaso was born. I mean, that started as a conversation between Austin Allison, who worked with me at Zillow and he and I spent months. Ideating before we ended up on this luxury vacation co ownership concept. sometimes in the case of Tony and Anna, who are the co founders at, Hey Libby, it started off with an interest in the technology and there we just spent months thinking about how AI was going to impact small businesses, so, those have been my, my models. I can give you a couple more examples, but, you know, that's basically how I work is by iterating with a co founder or co founding team.

And do you think it works to be passionate about so many things at once or what's the hardest part for you?

Yeah. The context switching can be exhausting, absolutely. And if you looked at my phone, you'd see eight slacks, one for each company and one for 75 and Sunny. If you look at my email inbox, you'd see eight email inboxes with eight different email addresses. And that there's a cognitive tax that I pay for that context switching where I'll be selling one candidate on company x and then immediately hang up the phone and have to be pitching a VC on company y and then Brainstorming on company z like all within an hour and that is a tax that I pay.

Where I draw my energy is from Mentoring and coaching. So, I was on the field as a founder and CEO for a long time. I was at Zillow for 15 years, I was at Hotwire for basically five before that. And being a full-time founder, totally obsessed and focused on one company and building company and culture, for two companies across 20 years, I didn't want to do that anymore. What I want to do at this stage of my life is coach and teach and mentor and try to help other younger versions of me achieve their full potential. whether it's companies that I'm a small angel investor in, companies that I incubate, or students that I teach in, in my classes.

Do you find it's really different teaching Gen Z and sort of the kids? Like they have a different approach to life.

For sure. For sure. uh, yeah, I mean, I've been teaching an undergraduate entrepreneurship course at Harvard for four years now. And so I commute to Cambridge every week to teach this. This year I have 125 undergrads. They're incredibly passionate, very, very smart, far more qualified and accomplished than I was at their age, like by, you know, by an order of magnitude. They, are very directed, I think, contrary to the stereotype, at least these kids that these are Harvard undergrads that I'm mostly interacting with. They're super directed, like, like almost to a fault. and meaning that they've been on this ladder for throughout high school of, you know, accomplishment reward accomplishment reward. And so you know, they're, they just are very like reward focused. And, if anything, know, I say, say it's like to a fault, meaning that it's hard to allow yourself to have time for creativity you know, with that type of, of a career path starting at, you know, starting almost at birth nowadays.

And so have a lot of college students that want to start companies or are starting companies. And I. I know this sounds weird for someone who teaches an undergraduate course in entrepreneurship, but to some extent I sort of discourage it. And what I mean is the way I describe it is being a good founder is like being a musician that goes into a studio and writes an award winning album.

And there are some 16, 18, 19 year olds who can do that. But most people can't, most people need to go out. And sleep on a train, and fall in love, and lose a parent, and travel through Europe, and have all your stuff stolen, and like have crazy life experiences happen to you, and then at age 20 something, 25 or something, or 30, you get in the studio and you've got your lyricist and your drummer and your, producer and your, your co-writer, you've got your, your bandmates and your collaborators, and you've got your VC that you worked with, you know, at some investment bank or at your business school, or you've got your, you know, software engineer that you met at your first job in big tech, and now you've got your bandmates to try to collaborate with, but everyone's in a rush, and a lot of these students are trying to do it all right away, and it's hard to force inspiration and creativity, and so I actually encourage them to do Slow down and go see the world and work in big tech, work in small tech, do an internship in venture, and just sort of like let things happen to them before they need to go off and create something.

I like it, I like the musical, I say something similar. People said, how did you know how to build shift? Like, build a lot of the internal systems. And I was like, it's like saying, how do you know how to be a parent? Like, one way you know how to be a parent is if you have good parents. And so, I worked at Google and it had a lot of this stuff figured out. So, I kind of just copied a lot of the stuff because I'd seen it working before. Anyways, similar to, you know, writing love songs without having your heart broken or something. okay.

So that's, that's the teaching of the kids. So you're telling them, go get these life experiences. Do you find like what you just said about context switching all the time? I feel like that's actually the new skill and the grownups are complaining that they're not focused, but the kids are great at that.

Yeah, for sure. For sure. I mean, adults in the workplace call that context switching, but when we're talking about it with our kids, we call it ADHD. at some point that bug becomes a feature. And, you know, I think the question is, can you also be productive? Or are you just context switching for the sake of context switching?

Totally.

It's funny, my, my kids high school has, they did like a couple of years of study to change the schedule to increase the length of time of each class from 45 minutes to I think like an hour and 10 minutes. So now they only have, I think it's like five periods a day instead of nine. And they're doing that to reduce context switching to get kids to focus more for longer periods of time, because there's all this research that says if you're in a class, it takes 20 or 25 minutes before you finally flip into like math mode.

So, we're all learning this as these smartphones and also just society moving so much faster are causing us to, you know, to just live differently you think about how our parents worked. It's so so so different.

Yeah, I'm interested in your lessons on company building and how things have changed. and maybe we can touch on Pacaso because I think it's an interesting one. I think when I talked to you last on the pod, you were building it fully remote.

Yeah. Yeah. Pacaso’s a couple hundred employees fully remote. We started that way pre COVID. And, what I have found is that people and companies have really self-selected. So, when I talk to, You know, some companies like luxury presence that I'm an investor in, which is I think 300 something employees, super successful B2B SaaS company, they're entirely remote. It works great for them. They wouldn't have it any other way. but then, a lot of other companies have switched back to in office. And so people are self-selecting and they're choosing the culture that's right for them. I tell my students, and I would tell any early career person listening to this that you should seek an in office environment or early career that the mentorship and education and networking that you build by being in office in your early twenties invaluable.

Do you have advice for your portfolio companies? Like I have a lot of companies that ask me, should we have maybe our, let our engineering be remote, but have our salespeople in house?

Yeah, I like that model. Well, I think it's very founder specific and usually my advice is like, it's up to you. All I can tell you is across data points of 70 or so companies, this is what I've seen. And I would summarize it as, it is harder to have intentionality about culture if you're remote, it takes more work and effort. It is to be, creative and to move fast, but it's easier to recruit and retain remotely. So those are the tradeoffs, now that you have it, you can decide what's right for you. If I were starting a company today and it were completely up to me, I would, probably have executives, sales and marketing, and, and probably product central and engineering remote, and do like frequent office visits for engineering.

Any other just ways you've seen company building change?

Well, I mean, everyone is doing so much more with less, you know, I'll give you a couple of data points. one company that I have, which has about 70 million of ARR, they have 350 employees. And I asked that founder, I said, if you were starting today and you were baking AI into everything about your company, how many employees would you have?

And he said, 75. So, you know, and, and I said, well, why don't you just downsize to 75? And he said, well, really my plan is to revenue by three X from here and keep headcount flat.

And is that like internal productivity, like the coding and the customer service?

Yeah, yeah, yeah, exactly. I mean, he, he walked me through. Every functional area, he's like, we used to do content marketing and write blog posts. Now, AI is doing that. We used to write press releases. Now, AI is doing it. We used to have customer support. AI is doing it. software engineers are twice as productive, all of our testing is, is through AI. Like, he just went through every single part of the organization. So I mean, it's great. You're going to continue to see sub 10 employee companies. I mean, I have one today that pitched me. I think they have 4 million of ARR on 12 employees,.And I was like, that's awesome. That's amazing. you know, that would not have been possible two years ago. So that's the future.

And where does that lead? Sort of square that with what we're seeing with exits and later stage companies, and multiples and the lack of exits.

Yeah. I described the venture ecosystem as, as pretty broken right now. It's an assembly line. You've got startup ideas. they raise pre seed, then seed, then series A, B, C, D, etc. And there, I think it's 35,000 late stage private companies now, and that's a record high. Like, the end of that assembly line is sort of broken because there aren't enough IPOs, there aren't enough M&A exits, partly for regulatory reasons, partly because of price expectations just haven't adjusted from the big rounds of a couple years ago, and those companies aren't dying because they raised those big rounds during the zero interest rate era. So those are the three types of exits, M&A, and death, and none of those three things are really happening.
So, I remember you were working with companies and some of it was like helping them look like a public company, helping them get ready for that. Are you doing something where you're helping them get ready for a PE exit or something?

Well, so, I mean, Pacaso is doing something quite interesting and trail blazing right now. Pacaso is doing a reg A offering. And because late state venture market is so broken as we described, and because it's consistent with the we've basically done a quasi IPO and Reg A is a, a law that came out through the jobs act, which is to encourage more startups and innovative companies to raise money from individual investors.
So Pacaso now files audited public financials every six months. So rather than every quarter, every six months, and we're selling shares to the public right now, at about a 750 million valuation and retail investors, individual people can buy shares. The shares don't trade. so there's not like a daily stock price, but, dozens of companies have raised tens of billions of dollars through this, this Reg A concept.

It's sort of a bit of a bridge between, like, late stage private and IPO. And it's super consistent with the company's mission of trying to democratize access to an asset class. And so that's why we were attracted to it. But I think you're going to see more and more creative solutions to this problem. That's Reg A fundraising under Reg A is an obvious creative solution. other forms of crowd funding. you know, you saw the SPAC phenomenon be a reaction to this as well, but that didn't end so well because the government basically changed the rules of the game in the midst of the SPAC boom.
Private Equity is stepping in a little bit mini, like you're seeing a lot more private equity, M&A, in the software space, but those, you know, they, they need companies at scale. The sweet spot for private equity is like 500 million to 3 billion enterprise value deals. And so those are companies that are at a pretty significant scale. and so for most tech companies are not, you know, not at that scale, they're still in the, in the earlier stages.
So tell me on the sort of the pros and cons of the Reg A. Should more companies be doing this?

I think so. And I think Pacaso I think will be looked back as a trailblazer. And ever since we announced it just a couple weeks ago, I've had dozens of VCs and dozens of companies reach out saying, like, tell me more about this. I didn't know this was a thing. Like, how does it work? and, and as I say, we didn't like create this. There have been dozens of other companies before that have raised tens of billions of dollars through this method. I wish in retrospect that Zillow had done a Reg A offering. It didn't actually exist back then but had it existed, we would have done this, you know, in the step after our last venture round, but before the IPO is a way to build bigger retail investor base, get more people rooting for the company.
You know, in the case of Pacaso, we have the added benefit where we're raising awareness of people to invest in the company through Reg A. And some of them are also interested in buying Pacaso's shares in these units, in these homes. And, and I think that's another added benefit for consumer companies doing Reg A offerings.

What's the downside?

The downside is there's transparency on your business results. So, I mean, we basically file the equivalent of an S1, they call it, I think, a reg one, and that's one is the IPO prospectus. It's a couple hundred page legal document. So firstly, it takes a long time to create that. you need an audit of financials. You need a, a public company ready company, and so that's not cheap and it's certainly not easy. And then. Everybody gets transparency into your business competitors, the media, you know, other startups that might choose to compete with you in the future. And that can be uncomfortable, from my perspective, that all makes us a better company, just like when Zillow went public, it made us a better company.

I think the scrutiny and the bright lights that being public, or in the case of Reg A being quasi public, provide, make the company just better run. Like causes everyone to stand up a little straighter. Operate at a slightly higher degree of scrutiny because we are under that and that brings out the best in people. you know, in a sports, metaphor, I'd say it's the equivalent of playing football on Sunday rather than playing football on Saturday. You know, it's like you're in the pros. Now you're not in college anymore. And that's what being public or quasi public through a Reg A affords you.

I totally appreciate that. But let's shift gears. Talk about you. You're passionate about LA tech. What do you think makes an ecosystem inflect? And is it just about having huge successful companies like a Microsoft in Seattle?

Yeah. I mean, Microsoft, Amazon, and then to a much lesser extent Expedia and Zillow, uh, really helped make Seattle Seattle. LA has all the right ingredients. I mean, we've got tons of venture capital, early stage, mid stage, late stage. Angel investors, frankly, we probably have too much venture capital. We're probably overfunded in LA,, you know, relative to the number of deals that, are here. So, we've got the, the, the funding thing figured out and it was not that way five years ago. certainly not that way 10 years ago, so, VC, check. other, ecosystem participants, like the lawyers, the consultants, the investment bankers, kind of the advisors, the startup coaches, the mentors, like, uh, the universities. So that, support ecosystem, check. We have all that. big companies, we sort of have that. We certainly have that in certain categories like space we have it with snap and then with Netflix and Hulu and Disney and some in certain categories like streaming and diversified media. What we don't have yet is enough exits in some of the other categories.

So, we're weaker on cloud, we're weaker on AI, and we're weaker on B2B SaaS. That's where a lot of the value has been created. And we're stronger on creator economy. Which has been a terrible category over the last couple of years. So, I think that's the challenge for LA and what we also have, I guess, which is important to a community is the level of collaboration and excitement and energy and community building and that we have in space like that, I feel stronger than ever. and that is a good leading indicator to success for the community.

I think it's a huge deal. I think it's like building culture in your company. Like the community has a different culture and it's great.

Yes, totally agree. Totally agree.

I asked my partners; we had our partner meeting right before this podcast. I said, what should I ask Spencer? And he said, why is he so sunny? That was the question.

Well, it is the name of my firm. So, so, I mean, I spent almost 20 years in Seattle, running Zillow and I had a folder on my desktop and in my email that, I just, I don't know why, but one day I just called it 75 and sunny, which was everything that was like my next chapter. So, houses that I saw in Southern California that I was interested in or business ideas or like just anything that was next.

And so, for me, that always meant next and, I mean, being a founder is, is all about being optimistic and being an investor is all about being optimistic. So, I, that's the way I go through life. And I named my firm that, cause of course it's a nod to the Southern California weather, but it also reflects. I was born in 1975 and I am Sunny. So, 75 and Sunny Ventures is the name of what I do and it reflects my attitude and personality as well.

It does. It really does. It's lovely. Before you go, I have to ask about office hours, your podcast. You've had amazing guests on the show. What are some of the lessons that stand up.

Yeah, I mean, I did, I did office hours for many, many years. I think probably a hundred episodes or so. I haven't done a season in, in, uh, probably two or three years and I, I'm going to restart it probably in 2025. You know, I had a number of military leaders, on um, office hours and I've never been in the military far from it. I wouldn't last very long. I don't think, but I always found it. I always love interviewing military folks and the similarities between being a tech founder and being in the military pretty significant. It's all about mission orientation, communicating a vision and strategy. actually, decentralizing decision making more than I expected. You would imagine that the military has a very tight command and control. It actually doesn't. they try to push decision making out to the nodes as much as possible because that's where the information resides. It's in the foxhole. It's, you know, with the unit level, just like it is at startups, because that's where the information is. And so, Ideally, you want that to be the unit of decision making, in most cases. so I just, I love interviewing military folks and I've had, probably half dozen on office hours. and I'm fascinated by that.

You know, Sheryl Sandberg talked lot about the career jungle gym, which is something I talk a lot about in my course, in my college class, because a lot of my college students yhey say, Hey, I want, I want to be like Minnie someday. I want to be a founder turned VC. Like that's the, that's the gold standard that most of my students want. And they say, how do I do that? And the answer is there is no single way. There are an infinite number of paths. And this is what Cheryl talks about in her book and in her social media. Is this, there's not a career ladder. There's a career jungle gym, you know, in a jungle gym, you go up, you go over, you go down, you go up, you go, you know, you go around and like, you kind of make your way through a jungle gym. it is not a career ladder straight up.

And it can be very disconcerting to a college kid, especially a high performing college kid who's used to like, okay, if I do well on the PSAT, then if I do well on the SAT, then if I get into this college, then like there is no, if then in the career path that you've chosen or I have, so you have to kind of roll with it, which can be a little bit uncomfortable.

No, I totally, I liked what you said at the beginning about sort of the space for creativity. Like you can't think what gets me to the series B like you have to think for yourself about why you're building and what you're building and how it's going to resonate for customers, all that. Like you can't, there isn't the next ladder to look at.

That's right. That's right. And that, that's, that's awkward. And that, that's, you know, that's one thing I will say about the, the other career path that many of these kids take is investment banking. And the, you know, one of the attractive aspects of investment banking is the career path is clearly understood. You get a summer internship, then you get the full time job as a entry level analyst. And if you just stay there and keep your head down and do a decent job, like you know, you'll become an associate and then a VP and then an MD and an SMD. And, you know, and you're kind of on your way. And that you know, that can be very comforting if that's your jam.

Yeah. Well, congratulations on where you are now. It sounds like to me, like a dream job. Like I, I kind of, I kind of always want to be building like five things at once.

It's fun. It's fun. I'm enjoying it.

And, thanks for coming on the pod.

Thanks, Minnie, thanks for having me.