[00:00:00] Sasha: It is well known from both his books and his ambition. It's Eric Ries, author of the lean startup and founder of, I would argue one of the most ambitious projects of all time, the long term stock exchange. And so this podcast is a lot about focusing on these defining moments in a company history. And as listeners know, and I am a curious nerd about capital allocation.

[00:00:27] Sasha: Today is a very special episode for me because Eric is leading the way About how we should think or rethink capital allocation decisions for companies with this ambition of the long term stock exchange. So as an audience of founders, CFOs and finance teams who are making capital allocation decisions every day, this is going to be fun.

[00:00:45] Sasha: So Eric, welcome to the show.

[00:00:48] Eric: Thanks very much. Thanks for having me.

[00:00:50] Sasha: Cool. All right. So, uh, from a little Googling online, although I probably realized I should have taken this from your website. The long term stock has changed started on September 9th, 2020 as the [00:01:00] only national security exchange in the U S that has been designed designed to specifically promote a long term focus amongst investors and companies alike, which too many operators.

[00:01:10] Sasha: Sounds amazing. Um, and so you promote, uh, the unique approach to governance and voting rights, aiming to reduce short term pressures on public companies and promote long term thinking. So that's great. So Eric, correct me in the definition and explain to the audience what LTSE is. Actually, it's

[00:01:27] Eric: yeah.

[00:01:28] Eric: Thanks. Thanks for, uh, thanks for saying such kind things about it and me. So, yeah, I've been working on this project for a really very, very long time. We, we put long term right in the name of the company to help remind everybody, including ourselves that this is not going to be an easy thing to do. And LTC is the 1st.

[00:01:45] Eric: Approved by the SEC National Securities Exchange with a different listings model, really, since the creation of NASDAQ in the early 70s. So, so as a society, we've gotten, you know, more than 50 years between attempting this so much so that many people [00:02:00] in the journey of building this kind of, you know, Didn't know even how you go about doing it.

[00:02:04] Eric: It's like, it's like creaky old infrastructure that doesn't get used very often, and it's been really a fascinating exploration. The short version is you read it exactly right. We are a national securities exchange. So we're in the same regulatory category as NYSE or NASDAQ. We take companies public. And when you're public on the LTSC, you're a real public company.

[00:02:22] Eric: Same as if you were on any other exchange, but our listing standards. Are different. They, they hold companies to a higher standard and allow companies to get the credit for in the case of the companies we list, usually things that are already doing, but that don't factor into investors, um, investment thesis the way that they should, because voluntary commitments and promises are worth, you know, pretty much.

[00:02:44] Eric: The paper, the press release is printed on namely nothing because anything you can voluntarily do, you can voluntarily undo. So we help companies devise a way to, um, implement their kind of unique mission. Their unique purpose. They're the things that they do that are uniquely special. We protect [00:03:00] those things.

[00:03:01] Eric: We enshrine them into the company's governance and give investors a way to understand and believe that those commitments are for real.

[00:03:08] Sasha: And, and actually I think I read online that you actually do something different because in the typical days of going public or listing, you ring a bell and that starts a bunch of mayhem.

[00:03:18] Sasha: But I think you guys do something slightly different. Is that right?

[00:03:21] Eric: Yeah, we actually have a, I don't like, I actually have the first, we have, um, the first artifacts we built for our first listed companies. I can't reach them right now. They're literally, I keep them on my desk as, as souvenirs. Cause we did a whole, a whole ceremony and we had the founders, um, write and sign a letter.

[00:03:37] Eric: About their intentions for the future. And then we sealed it with a physical seal. Anyway, it was, it was very different than, than ringing a bell. And although we provide to companies the same full complete liquidity you get from conventional exchanges, our goal is to find companies that are not focused on the quarter, not focused on the share price, not focused on.

[00:03:55] Eric: Um, you know, getting the, the maximum juice to the stock, but I really focus on [00:04:00] performance over the longterm. And the. The interesting thing about it is people often ask, does that mean that I'm anti investor or is this, you know, anti investor? We are so used to a society seeing our world as everyone locked into the zero sum struggle between investors and managers.

[00:04:16] Eric: Where any gain by one is at the loss of the other. We've like utterly forgotten the parable of the people who killed the goose that laid the golden egg. Like they're actually, the data is unequivocally clear that companies that are run with a philosophy of long term thinking perform better for their investors, nevermind their superior social consequences and how they treat their employees better and they make better products and they're an awesome place to work for all, all these other benefits.

[00:04:38] Eric: But in addition to all that, they also tend to make more money for their investors. And in fact, I was just a friend of mine was just sharing with me. He was a. Long time public company executive, uh, led several public company turnarounds, you know, uh, is now in retirement. He was showing me this study that they had done for one of his companies.

[00:04:54] Eric: This is years ago. And they had looked in their category at the top performing companies over [00:05:00] three decades. And, you know, which companies had performed the best. And in each of the three decades, he's like, we noticed two really interesting patterns. One is the people who, like the top three companies in each of those three decades, it was the same three companies.

[00:05:14] Eric: They were, they would trade order with each other, but they were always in the top three, top five best performance over the course of that decade. All three of them had very unusual, um, ownership and governance structures. None of them were the typical investor controlled company yet. They perform best for their investors.

[00:05:30] Eric: And the stat that blew my mind, he said, and we also looked, none of those three companies over the whole three decades was ever the top performer in any individual quarter, says it all to me.

[00:05:44] Sasha: So if we, if we think about sort of this project and your book, you seem to be really motivated by sort of customer value creation, actually sort of building for your customers the right way.

[00:05:57] Sasha: What got you excited about [00:06:00] this problem? And I say that with the caveat of like, I think we all like want to do that, but it doesn't seem to. Feel like it's possible. Sometimes

[00:06:08] Eric: the number one challenge with this project is everyone's certain knowledge that it's impossible since everyone knows the way things are as inevitable changes, obviously by definition, impossible.

[00:06:17] Eric: And even after we've shown that change is possible, people still treat it like it's impossible. It's really interesting.

[00:06:22] Sasha: Well, you, you seem to have, um, convinced a couple of very high profile investors that people might've heard of founders fund Andreessen Horowitz, that little Walton family, uh, around, how do you, how do you convince investors, uh, to fund.

[00:06:36] Sasha: Something as ambitious as this, but also that's gonna probably take a long time.

[00:06:41] Eric: Okay, well, to answer that question, I gotta answer your previous question first, so let's do them, do them in order. So the first thing is, in my life, I've had the kind of privilege, or some might think of it more like a curse, but the fact is that I have multiple times in my life Gone so deep into a certain topic or interest that I thought I would spend my whole rest of [00:07:00] my life just doing that thing and then had the universe pull me out of it and say, okay, now that you finally mastered it time for you to do something you know nothing about.

[00:07:09] Eric: And I've learned to have gratitude for it, but it's actually like it is. This is actually kind of painful when this happens. So I, I grew up as a software engineer. All I wanted to do was build software. You know, from as young an age as I can remember, programming computers was my first, my first love. And I, I, I still to this day, I can remember the moment I found out that you can get paid to program computers.

[00:07:27] Eric: I couldn't believe it. I thought I'd won the lottery. Like, the greatest, it was like, you would pay me to play video games. The thing I like to do the most is also, like, valuable to the world. People will pay you for it. I couldn't believe it. It was an incredible feeling. And I thought, well, I'll never It will take me my whole life to master software engineering, computer programming, and I'll never want to do anything else.

[00:07:46] Eric: And. You know, long story short, I got into entrepreneurship. I was in, I was doing my CS degree during the. com bubble. Uh, so of course I got sucked into that. And now, you know, people can read all about it. The stories I've told, told many times and [00:08:00] long story short, I wound up in Silicon Valley. I wound up being a software engineer and technical co founder, you know, of companies, and I thought that was the most fun you could possibly have.

[00:08:08] Eric: And I was perfectly happy to do that my whole career. I was really excited to be on the Silicon Valley track. And then. You know, through a variety of circumstances, I started to, um, struggle against the dominant paradigm for how these companies are managed. So I became introduced to the theory of management, which I had never given any thought to at all.

[00:08:26] Eric: I had no independent interest in, I'm not someone who was like, Oh, I'll go to business school one day and become a CE. I was never on my radar as something I wanted to do, but. I kept having the experience of phenomenon as you know, now is well understood startups fail, you know, so often, but, but I was like, well, I don't mind if they fail for good reasons, but they're failing for dumb reasons.

[00:08:42] Eric: They're failing because they got no customers. I feel like they never tested their hypothesis. They're failing because they operate in a very unscientific way. And so, you know, I got sucked into the theory of management and ultimately wound up writing the lean startup and developing this, you know. Yeah.

[00:08:55] Eric: A new theory of management started out as a managed as a management theory, [00:09:00] specifically for situations of high uncertainty, entrepreneurial situations. But through that, you get sucked into everything else that goes to that. Yeah, I became obsessed with capital allocation, product management, design, finance, legal accounting, compliance.

[00:09:11] Eric: And I either do that. And although most people know me in Silicon Valley, know me as the guy who developed the management theory for startups, um, in other, there's a whole other community of people inside large organizations where I spend an extremely large amount of time, uh, working on. What happens to companies after they hit product market fit and go public and become major enterprises.

[00:09:31] Eric: What about, I got asked by some of the world's largest companies and even governments and nonprofits, massive institutions to come in and help them redesign their management system, uh, to be more innovative and to bring innovation back in some cases when it had been lost. And I, you know, I wrote about that in, in the book startup way.

[00:09:46] Eric: So I'm on corporate enterprise people. That's how they know me. And I got to the point where I felt like I have really. Mastered this new theory of management. I felt really good about it. I got to the point where when people ask me questions about difficult [00:10:00] management questions, I learned all the different functions of the corporation.

[00:10:03] Eric: You could ask me about compliance or deep sea oil drilling, or you could ask me about the interaction between regulated bodies and companies. You can ask me about the fights between finance and legal and engineering and operations. I learned about factories and manufacturing. I mean, it was just an incredible learning experience.

[00:10:20] Eric: And just as I felt like I was coming to understand that really well, I came up against the limits of management. I thought management was the most powerful force in the world after having previously thought technology was the most powerful force in the world. And then I learned that companies face forces that are beyond management, things like governance.

[00:10:39] Eric: Like the gravity that money exerts, like the relationship between investors and their companies, the, the limitations on capital allocation, the limits of corporate alignment, the, the limits of compensation as a, as an alignment tool and all this other stuff that I knew nothing about. And I felt that same pain of [00:11:00] being kind of sucked into that issue, but each time it's felt very natural.

[00:11:05] Eric: Because all I wanted, all I wanted was to build great products in the first place. It was like, I want to build great technology and have it change the world for the better and people use it. And all these things keep getting in the way of that happening. And that has continued to happen to me. I feel like these forces prevent even the best managers, even the best design companies ultimately become these bureaucratic lame messes and we treat it as an inevitability, just like, well.

[00:11:28] Eric: That's what happens when companies get larger, but that is definitely not true. I think we have absolutely given up on a really important aspect of human existence and just eating at the soul of our civilization from the inside out. So it's like really a devastatingly, um, uh, What's the word I'm looking for.

[00:11:48] Eric: It's like a learned helplessness. We have an impotence. We feel like we can't do anything about it. And so anyway, I guess when you're a, you know, when you're an entrepreneur, you know, they say that old saying that, you know, all you have is a hammer. You know, every problem looks like [00:12:00] a nail. When I encountered this for the first time, I thought, well, we should try to do something about it.

[00:12:05] Eric: And it's so interesting. If you talk to any investor, any middle manager, any founder, just ask anybody who's had any experience in our capital markets for more than five minutes. What are the problems? You know, how's it going? Is it going well? Do people feel like it works great? You know, your company, is it being successful in spite of, or because of, because of its investor?

[00:12:24] Sasha: Are you loving your quarterly, your quarterly earnings report? Yeah. Anyone feel like

[00:12:28] Eric: your quarterly, the quarterly pressure you feel is really like improving your, I mean, everyone, people start going on and people would tell me just unload story after story, the story of short sighted thing. We're going through it right now.

[00:12:38] Eric: You can see all these companies were in this like innovation recession where companies in order to make their books seem more efficient or laying off all their innovation projects. And then the stock price getting a short term boost to the stock price, which offsets the morale loss of the incompetent layoff.

[00:12:52] Eric: And you're like, Oh, you know, now our morale is bad because we did it incompetently. You know, it would make morale go up. Let's let, let's get the stock price up again. Let's do some more. And just people are caught in this. Like [00:13:00] it's terrible. Anyway, people, if you ask me, what's the problem, they will talk to you for hours.

[00:13:04] Eric: You middle manager, you can't shut them up. Once you get started, it's like pulling the string. You're going to be just here. Tirade after tirade, story after story of just like, here's an incredible innovation that was never commercialized. Here's like a totally counterproductive thing. You know, anyway, go on and on and on.

[00:13:17] Eric: But if you ask people, well, how do we solve that problem? They look at you and they're like, it's like, it's like you asked them to solve the problem of gravity. They're like, it's just how it is. What do you mean solve it? You know, it's just how it is. And I feel like how many people must have felt when they were like, what if we build an airplane?

[00:13:33] Eric: Like, no people stay on the ground. They don't fly. You know what I'm thinking about? Like, what was up? Someone was like, we should go to the moon. The moon, the moon is not, that's not a place where people go, you know, it's, it's totally nuts. And so, When I conceived this idea of long term stock exchange, I didn't really think I was going to do it as a company.

[00:13:51] Eric: It was a thought experiment, you know, a provocation, an idea. And when I first started talking to people about it, forget going to the moon, they looked at me [00:14:00] like I was suggesting we should build a new moon, which is like a category error twice over. First of all, we already got one. You remember the money pad is it though?

[00:14:08] Eric: We already got one. We already got one. So we don't, we don't need another one, but also making a celestial body is not a thing that human beings do. It's just like, who do you think you are to reshape the landscape of the universe? You know, it's just like, that's super felon material, delusional material.

[00:14:25] Eric: That's how people were about it. And what's interesting about me is that the more people told like people who were really knowledgeable about finance spent the most time explaining to me how inevitable. Things are. This is doom because it's inevitable. And I used to get really discouraged by that, but I noticed that those people go on TV all the time and talk about how inevitable it is and how everything's impossible and everything.

[00:14:47] Eric: And I started to be like, if something's inevitable, why do you spend so much time, energy, and money telling everybody? That's if it really was inevitable, what would it matter? Like I'm delusional. What, [00:15:00] why does that bother you? I'll obviously learn my lesson when I try to make this thing and have it fail.

[00:15:06] Eric: Why do you need to talk me out of it? Why is that so important to you? And it just like, it was like a clue. It's a tell a psychological tell people tell you something is inevitable. It's actually like they're, they're expressing their anxiety.

[00:15:18] Sasha: And so is this, yeah, that's how it started. This is a story that you go, let, tell me about your first investor and then, and how do you continue going.

[00:15:27] Sasha: Is this the same story? Has it changed? Has it evolved? What gets them over the finish line to say, Yeah, I believe Eric, this is great. Go off and do this to like, no, here, take my money and go build this.

[00:15:38] Eric: I've, this is by far the hardest thing I've ever tried to raise money for. And I've counseled a lot of founders doing a lot of crazy things.

[00:15:44] Eric: And for some reason I didn't expect this even in Silicon Valley, it's seen as one of the craziest projects that you can wear. And I mean, these are probably where people work on immortality. To tell me that I'm crazy working on this. That's, that's how crazy it's seen. And I realized doing it that in [00:16:00] Silicon Valley, all of our wealth that we have all made, all of our success is based on these financial derivatives that we take for granted, it's just like a whole system.

[00:16:10] Eric: Stock, like stock options are like an ingenious. Um, financial engineering feet to effectively borrow money from the future to make it possible to do something in the present. And it's an incredible alignment tool to get people feel like their net worth is tied up in the enterprise value of a company that doesn't exist 10 or 100 years from now.

[00:16:28] Eric: And, and drive investors to make an investment, not based on the assets that a company has, but its probability of realizing a huge outcome in the future. Since a company with a 1 percent chance of becoming worth a hundred billion dollars is being built. Basically worth a billion dollars right now. What an incredible innovation, but it's precisely because those things are so metaphysical that I think we who make our money from them are very uncomfortable at actually examining those foundations.

[00:16:53] Eric: And so people were very hesitant to do it. And, you know, it was just [00:17:00] years and years and years of my life trying to understand how it could be done, trying to understand the legal and regulatory requirements, trying to understand just like the team building requirements, how would you go about it? And then learning how to pitch it to investors.

[00:17:14] Eric: You know, I pitched it to everybody, anyone who was an active investor at the time we raised these rounds, they have had, they, everyone, and people may deny it now, but everybody got paid. I know everybody and I went to every office and I eventually had to learn to start screening people. I said, look, if your fund has an IRR target, 7 year, 7 to 10 year IRR target for your GPs.

[00:17:32] Eric: You could, I can save you the meeting. No reason to have the meeting. It's not, it's not going to work. I need people who are looking for cash on cash returns, you know, who are willing to make a truly contrarian bet and the number of contrarians that were just like, well, what do other people think about it?

[00:17:46] Eric: Yeah. But you're the contrarian. You're going to be non consensus and right. What happened to that? Well, well, I mean, really unbelievable process. And here's the thing I used to think, I used to think that, [00:18:00] um, an investor investing in you meant that they believed in you, right? It's not true. It's actually not true.

[00:18:06] Eric: I, I, the, the thing I do understand is that the number one best attribute of an investor is conviction. Someone who's able to make an independent judgment to do a thing without needing any external evidence or proof from other investors is like the most prized. Those are the investors who have the best returns and other people you really want to work with as a founder.

[00:18:24] Eric: There's a thing, an attribute to cultivate, but conviction is not the same as belief. Which you could have bowled me over with a, with a feather. The first time this happened to me. And I learned this because we raised, I mean, we've raised quite a bit of money for LTSC and I'm incredibly grateful to our investors who've backed us on this journey.

[00:18:41] Eric: And even after telling them how hard it was going to be, and even after telling them, putting long term in the name of the company and giving them month after month of update, that's like, look, I understand that we rate the way this works. When we raise money, we go into the desert for a forced death March for multiple years in which there will be no.

[00:18:55] Eric: intervening signs of progress at all. But at the [00:19:00] end, we will either be dead or we'll have accomplished a miraculous thing. You know, you got to be patient. Even giving people all those disclaimers 29 times till Sunday, people still, of course, get really impatient. And yet, when we finally did it, like, I remember, I never forget when we, we finally got the SEC approval, that was the first kind of miracle of this company, is we got proof to build this exchange.

[00:19:19] Eric: Nobody thought it was possible, and that was after multiple ambushes and sabotage, and it was absolutely brutal. However bad you think our regulatory process is, and the things you think about DC and the corruption and whatever, I, just, just try it, and the other stuff will seem tame to you, I promise. The, I was so proud of having done it that I actually printed out the SEC approval order on paper and I carried it around with me, not because I'm vain and because I have a big ego, although obviously, but because when I would meet with CEOs and founders and so on, I'd be like, guess what?

[00:19:53] Eric: We got this thing approved. They would, they wouldn't believe me. They'd be like, no, that's impossible. [00:20:00] And I was like, literally, I'm going to, here's a signed order from the United States federal government. Here's like, you can read the reasons why they, they had to issue a, you can go look it up on the SC website.

[00:20:10] Eric: Still right now, the approval order has like 20 pages of their reasoning about why this is actually a good. And people had a hard time believing it. And even our biggest fans and investors, when I would tell them we got this done, nobody said, Eric, I knew you could do it all. Every single person reacted the exact same way, which was like, Really?

[00:20:31] Eric: Are you sure you like nobody actually thought it could work, but it was like, just audacious enough. And with the right return profile, they were willing to take the risk anyway, in spite of not really being sure if it would turn out, you know, which is just like, that's, that's, that's. Like, an incredible leap of faith, really, if you think about it.

[00:20:52] Sasha: Okay, so, we just kind of glossed over, so I just want to, I want to paint a picture, and then tell me if this is right. So, ambitious founder, [00:21:00] goes to DC to save the world from itself, and, and the SEC probably, you know, they, like, when are you coming? I want to roll out the red carpet. Come in, the paper's ready, just let me know where and when to sign.

[00:21:11] Sasha: That that's what happens. Right. So super easy, super

[00:21:14] Eric: easy. Couldn't, couldn't be

[00:21:15] Sasha: a YouTuber

[00:21:18] Eric: who has a thing. That's like, uh, super easy, barely an inconvenience. I forget. I got to give credit to whoever that is. Anyway, that's a great comedic bit. And that's exactly right here. It's like unbelievable. You know, I look, I don't want to go,

[00:21:32] Sasha: how does that happen?

[00:21:33] Sasha: Like, obviously, I don't want to make myself

[00:21:35] Eric: into a martyr here. Like there's people in this world who do way harder things than this. I mean, you know, don't, don't, don't get me wrong. Um, and you know, it's not like being a nurse. Give me a break. It's among business challenges. It's very difficult. So, so it was a real education for me.

[00:21:49] Eric: I didn't know how these things work. And I, I, I spent a lot of time studying it. I spent time talking to people who knew about it, interviewing people. And I, and I eventually got myself. So the first question was like, [00:22:00] how do you pitch something? Like I literally asked people, how do you create a new stock exchange?

[00:22:04] Eric: And people were like, what do you mean? But like, how do you create a new moon? You, you, you don't, it's a celestial anyway. I finally got to this lawyer who sat me down. He's like, Oh, shorting a stock exchange. Yeah. You fill out the form one application. And I'm like, I couldn't even parse the sentence. Like, I don't know what that means.

[00:22:23] Eric: And he was like, okay, you understand how government forms are all numbered. And I'm like, sure. He's like, well, there's something called SEC form number 001. The number one is literally, it's called form one because the, you know, the number is the numbering start at one and they go up from there. Well, the first and most fundamental form in all of the SEC's bureaucratic wisdom is form one, the application to establish a national securities exchange.

[00:22:48] Eric: And I was like, it's a, he's like, yeah, you know, it's 400 pages long. So, you know, Complicated form, but it's not like people act like it's like a mystical thing that no one knows how to do. It's like it's the United States [00:23:00] Congress and all its wisdom has directed the SEC to establish a procedure to do this.

[00:23:03] Eric: We just don't, the fact that we don't do it that often anymore is not, doesn't mean it doesn't exist. So I was like, okay, learn about this form, try to figure out how to do it. I, All the legal learning about all the legal things. Anyway, I then meet a lobbyist in DC. I'm going to ask everybody like, who are you?

[00:23:20] Eric: Who do I talk? If I want to talk to the sec, who do I talk? You can just call the sec, you know, unless you're a whistleblower. Who do I talk to? I want to talk to the sec. I eventually met, met a, um, a lobby lobbyist. Lobbyist said to me, ah, great. This sounds good. I think they're going to find this really interesting.

[00:23:34] Eric: And he's like, I was like, so what do I need to do? It's like, well, the first step is you need to have a legal memo. What's like, what? He's like, you'd have a legal memo that explains the sec. Why? What you want to do is legal. Oh, good. I got this great lawyer who taught me about things. And he's like, well, let me explain to you the most important thing about this legal memo.

[00:23:52] Eric: And I'm like, so, Mr. Smith goes to Washington. The quality of my legal arguments, the precedent that I can cite. He's looking at me like, with pity, [00:24:00] pity. Oh, oh, sweet summer child. The most important thing about this legal memo is whose letterhead is it written on? They need to hear from someone that they trust.

[00:24:11] Eric: Who's your lawyer? And I'm like, so and so, and they're like, so and so, never heard of so and so. I was like, well, who should I, who, what lawyer do I have? He's like, there's only three lawyers in DC that could possibly have the stature to do a thing like this. And I'm like, how do I get these? Like, I'll take you to meet the three.

[00:24:28] Eric: So I go and I meet these lawyers, I pitch them and they, you know, they, and I will never forget one of the lawyers. You know, we're, we're going on and on about each lawyer was like more difficult than the previous one who was like, oh, this is going to take millions of dollars of legal research to discover if it's legal.

[00:24:42] Eric: I finally talked to the lawyer who really knew what she was talking about and I remember I was like, look, I want to do this thing. I know it's difficult. I know. And she's like, turns to one of her staffers and she's like, so and so, um, when we were on the commission, did we pass a rule about this? And he's like, sure, yeah, you just need to know about [00:25:00] this rule.

[00:25:01] Eric: She's like, yeah, such and such rule, like no problem. And I was like, wow, okay. I understand that this person is going to charge me an astronomical arm and a leg for this legal service, but in the end, it's going to save me a fortune because they actually know the law at the level of detail necessary to know what I want to do and how.

[00:25:18] Eric: And it was like a really important lesson about how, just like how the system works. And so like, I, um, I'll, I went to the sec and you go to the sec for these meetings, you know, uh, one of the most important questions you got to answer is whose conference room will it be in because it's going to be in the department of trading markets or Corp Fin, like which, like who's going to be in the room.

[00:25:39] Eric: You know, I came with my aunt or I had an entourage by this point. My entourage meets with their entourage to like sit down and work out. And it was like, for people from the outside, this all sounds very silly. And sometimes people even think it's like borderline corrupt, but once you understand the system and how it works, everything makes sense.

[00:25:56] Eric: It's actually very logical. The SEC is tasked with doing an extremely [00:26:00] difficult job. You know, with all these issues of regulatory capture and trying to preserve the dynamism of the economy, but also be charged with keeping investors saying like they're under unbelievable pressure often without having been given the statutory tools they need to do the job they're asked to do.

[00:26:14] Eric: So like I learned to become very sympathetic to the situation that they find themselves in. But anyway, that was the beginning of a multi year odyssey. And I won't spare you all the really boring wranglings. And I mean, like I said, we were, we were successfully ambushed By, by shadowy figures who, who, who wanted us to die.

[00:26:32] Eric: And we came back from the dead and it was, it was a lot, but you know, at the end of the day, to like, people say that the, the most important entrepreneurial trait is perseverance. And that really is true. Like at some point, like if you just refuse to go away. You can do remarkable things in this world.

[00:26:49] Sasha: So I'm excited.

[00:26:50] Sasha: I'm excited to start talking about some actual conversations and the actual listings. Cause you have companies actually listed, which is so exciting. But first, can you just [00:27:00] paint for us the picture of like, how are you notified? That you're going to get approved.

[00:27:07] Eric: Well, that's a funny story. Uh, you don't, you don't, you don't, they don't, they don't tell you.

[00:27:12] Eric: They just post the approval order to their website and you're approved. But here's the thing that's so funny. Our, our, uh, the approval that we have now is not our first approval told about being ambushed. The first time we got approved, I'll never forget this. They posted their website, the approval order.

[00:27:30] Eric: And we're reading it and we're having a team, whole team meeting to celebrate. We're all on zoom. We're like, we got the approval. This is an incredible mile. We've been working on it for so many years and I'm looking around. I want to give, um, credit to our head of policy. Like the, the, the person who had led the effort, their whole team is on the call.

[00:27:49] Eric: Everyone's there. The whole company is there. There's a big company at this point and she's not there. I'm like, anyone know where she is? No, they crawl. And I. Don't know, don't know, don't know. And I'm [00:28:00] like, I call, I'm texting her. She's like, hold on. I'm just getting a phone call. You know, I'll brief you later.

[00:28:05] Eric: And I'm like, it's like in the movie, that's like the worst possible, you know, the music of the ominous foreshadowing music and like, she calls me, we're still celebrating and she's like, you know, actually, you know, there's a chance they're going to rescind the approval, like they just, they literally just approved it an hour ago.

[00:28:24] Eric: She's like, I know. And it was like, I won't, I'll spare you. But then we went through a whole rigmarole of having, uh, having the approval rescinded and we had to do an, a way to start over from scratch and start over with a whole new application and do the whole process again, the second. So you understand why I had it printed out.

[00:28:40] Eric: I was like, we are not celebrating this thing until it's like, Unrescindable for sure actually happening. And honestly, I didn't actually celebrate until another, almost two years later when we got the exchange actually open, which was just as hard as getting the approval, like approval is just like a taxi, but Dallian, they hand you a piece of paper, but that's not the same as you have a [00:29:00] taxi, you know, you've got to actually go build the engine and get the whole anyway.

[00:29:03] Eric: So yeah, I, it's, um, for, for such a long and weighty process, every step of it is super unexpected because they don't. They don't leak, you know, they don't tell you what they're going to do. They just do it. And you're just, you're always at their mercy. It's a really fascinating experience. The, the psychopathy psychology and the emotional wellbeing of the people who make these applications is definitely not the top priority in the design of the product.

[00:29:28] Sasha: So we, we talk about, or should it be, no, there's so many milestones. It's, this is a, this is a big deal. Like you're, you're a regulator in your exchange. You're, you're taking shareholders money. You're listening to this. This is important stuff. And, and it. Should have a high level of scrutiny and it's exciting to see you come on the other side, but like, is there a moment before we move on?

[00:29:49] Sasha: Yeah, we talk a lot about like This, uh, CFO who like had a billion, 2 on their IPO and like came in and they're like, he's hitting refresh on their [00:30:00] bank account, like literally anywhere. Cause they're like, they know what's happening at some point, but there's like, as you want to see the money, is this the same thing where you're like, I don't know exactly when it's going to happen to tell you the day.

[00:30:08] Sasha: And you're just like hitting refresh on the sec website. Somebody you have just like hitting the first time we did

[00:30:12] Eric: that. The second time we did not do that. You learn, you learn. And it's actually, it was good for us. Like, you know, ultimately like what I thought at the time was the worst thing that ever happened to the company turned out to be, turned out to be the best.

[00:30:22] Eric: And, and definitely like, if anyone has a spiritual practice of equanimity, it will serve them very well in this kind of project I've learned to just really. Accept that. I just don't know what's good and what's bad. So something happens and I want to judge it and fix it and change it. And I've learned to be very circumspect about that because exactly right.

[00:30:41] Eric: Like you, you know, unless you've had this experience in your life, it's kind of hard to understand what I'm talking about. And I know a lot of people have made a lot of money, you know, and then are miserable. So like, it's, people think they know what will make them happy and they're often wrong. You know, if you've actually done the thing of like refresh, refresh, refresh, and you're like, finally, we got, I've been like, I was like, you know, [00:31:00] praying that this would be the thing.

[00:31:01] Eric: And I would, I will do anything if you just give me the thing. And then it's like, Not only did you not get the thing, like you, it's like humiliating. You had the experience of joy. You thought you had thing. And like, then it turns out to be worse than you could possibly have imagined. So, yeah, it's, um, I can't think of something where you just learn to really take everything that happens in stride one way or the other and, you know, and just onto the next thing.

[00:31:24] Sasha: Yeah, I constantly think about if I, if I'd never tried chocolate, would I be happier? Because all I want to eat is chocolate all the time. Um, and I can't because you get fat and lazy and it's not good for your teeth. All right. LTSC, LTSC is obviously like a high profile company with high profile investors and a high profile founder in a regulated space.

[00:31:43] Sasha: And you've been in this for a while. So there have been some high profile names rumored to have thought about listing or dual listing, and I know you can't comment on specific names, I know you're talking to me, I'm not talking to you, but I'd love to learn a little bit more about what goes on behind the scenes.

[00:31:59] Sasha: So we don't need to talk about [00:32:00] specific companies for obvious reasons, but like, what are the, what are the types of teams that you really like to work with? So

[00:32:12] Eric: this way of thinking about company building cuts against the grain of what we've all been taught. So, you know, most founders, when they're, you know, being indoctrinated into the system, we learned that like there's a nonprofit company and a for profit company and for profit companies do everything possible to maximize returns for their shareholders, you know, they, they're ruthless and they're more efficient.

[00:32:32] Eric: And we're just, you know, we cut down, we mow down our competitors through our ruthless efficiency. And, um, you know, we, We, we use the language of changing the world to raise money and to raise our profile. But when challenged on our ethical responsibilities, you know, we're like change the world. Who said that?

[00:32:53] Eric: Oh, we're just a little software company. What are you talking about? Right? Like we, we back off, we hide from those things and we [00:33:00] try to blind ourselves to the consequences of our actions. Trusting that if it's legal, it must be, it must be okay to do. And that way of thinking we are taught is the only way to build a company.

[00:33:09] Eric: It has an associated set of governance, you know, implications. We do a Delaware C Corp, we incorporate in a certain way. We have a fiduciary duty to our investors. We have investors and independent from the board. Like there's a whole set of consequences. We, we hire, you know, bankers and lawyers and our CFO.

[00:33:25] Eric: Everyone's aligned around this, around this idea. And whenever, what usually happens is the founder will be like, yeah, that sounds good. But I also want to make sure, you know, we take care of our non employee. You know, workers on our platform, right? Our stakeholders, they sometimes call it or like, I want to be the best place in the world to work, or I want to make sure that quality is not like they'll have some other attribute that is important to them.

[00:33:50] Eric: And they don't realize the first time they go through this, they don't realize that all the kind of finance and legal people around them are like laughing at them when they leave the room. I'll tell you a story. I [00:34:00] literally, this literally happened to me. Uh, there's a company that I helped prepare for IPO.

[00:34:04] Eric: I spent two years of my life at this company. I had an employee badge. I wasn't an employee. I was just friend of the founder, but I had, I had a badge. I was in there all the time helping them prepare. And I'll, I'll never forget. We're having a meeting, the CEO asked me to come to the meeting where he's meeting with all his top lieutenants on the finance, everyone working on the IPO, and he's like, I want to make sure that if you want to say that it's our top priority to do this thing, you know, it's going to be important to our stakeholders and everyone solemnly nods and says, yes, sir, in the meeting, and then he leaves and they all start laughing.

[00:34:38] Eric: They literally laugh out loud. And I'm sitting right there and they know that I'm going to, like, they don't, they're so secure in their views. They don't think it matters that I'm sitting there and I'm like, what's so funny? And they're like, yeah, that's another number one priority. Let me add it to my list of all the other number one priorities.

[00:34:55] Eric: He wants me. So they don't understand. And so, [00:35:00] um, when you talk, you know, like I'll give you another example, a lot, like very commonly founder will be like, you know, I want to, you know, uh, you know, I want to take a really long term view. I want to have a corporate foundation with a seat on my board and I want to have, what's called a mission trust.

[00:35:12] Eric: Or I want to have, you know, I have people have these ideas about how they're going to protect their company long term. They go to their lawyer, Laura says, same thing. Oh, it's too early to worry about that. Don't worry about it. Can always do it later. And it's like this, you know, you don't do anything nonstandard.

[00:35:24] Eric: People might, investors might not like it. And my mom was like, who, who might not like it? He would be specific. I thought that I don't like it, but someone else might not. Why not just, anyway, what I've learned is that it's always too early until it's too late. And I've been with these founders where they're like, wait a second.

[00:35:37] Eric: Did we ever do that thing that we talked about IPOs in 18 months now? Are we, and they're like, Oh, you were serious about that? Oh, sorry. It's way too late for that now. It's like, but before it was too early. Now it's too late. When was it the right time? You're telling me on July 3rd, July 3rd through 6th of last year, there was a brief window and it was the right time and you didn't mention it.

[00:35:56] Eric: What's so silly about this is we [00:36:00] act like, and we try to bluff founders into thinking that the standard structure that we do is the only one, but, and therefore the best one, but not only is it not the only one, if you go out into the wider world and study public companies, as I have, Unusual governance structures because of the survivorship bias, because these structures work, they're actually a very large percentage of the success stories that you meet.

[00:36:20] Eric: You'd be like, wait a second, that that's allowed. I could have done that. And they all have this kind of weird story of like, well, it just so happens that the family, this thing, you know, just like something, so it was always an unusual circumstance that allowed them to make this exception. But then if you ever asked people who have one of these exception structures, would you like to trade for the standard structure?

[00:36:37] Eric: They're all like, you gotta be kidding me. So we tell founders that this is the only way, even though the way we're telling them is not that good for the things that founders care about. So I bring this all up to answer your question because the teams I like to work, to work with have just had that realization that the mission of the company, its purpose is the most important thing.

[00:36:59] Eric: That being a [00:37:00] trustworthy counterparty to their employees, to their investors, to their customers, to their suppliers, to their vendors, that that's an asset. That's a source of competitive advantage and ruthless efficiency is actually not efficient at all. When we squeeze our employees, when we squeeze our customers, when we cut corners, yes, we get a temporary short term boost, but we also create a liability.

[00:37:25] Eric: A vulnerability that competitors one day will exploit. In fact, I often tell big company people, you know, when you do that, every time you do that, some startup you've never heard of is high fiving each other, but you've just created an awesome, like for my friends in Silicon Valley, this is great news.

[00:37:39] Eric: Please, you know, make your customers as miserable as you can get away with. That's awesome. Your, your losses are gain, but if you care, if you have some purpose or some reason why you started a company, then you care about that. You know, you have to do something to protect it. So when we can find founders who get that, when they have a, when they, you know, put supportive rather than, uh, [00:38:00] Exploitative people on their board when, uh, when they've hired us, frankly, when they've hired a CFO who has loyalty to them and their mission, it's actually quite rare among companies going public.

[00:38:09] Eric: That's a huge sign that we're going to be able to do something extraordinary, whether they list with us or not, is to me kind of a side issue, but just help them to actualize those goals. It's something that I'm really proud of whenever we get a chance to do it.

[00:38:23] Sasha: I remember the story hearing of the Netflix team all silently listening to the earnings call of Blockbuster and being at the end, um, and going.

[00:38:33] Sasha: This is our moment right now. Um, and literally birthed one of the most valuable companies of the entire world. So that resonates. What are what you're having talks with, obviously high profile companies, companies that are planning to go public. What are some of the challenges or questions that they ask you behind the scenes?

[00:38:52] Eric: We talk actually just as often to companies that are already public and are considering listening with us also. So we do both and it's interesting. So I mentioned [00:39:00] before that the idea that this is impossible is the main liability of the company. That's still true. So, um, when I meet with founders and I tell them, look, we can, we can protect your vision and nurture the mission and put this like protective barrier around it that keeps it true.

[00:39:15] Eric: Now we've said, but look, unless you're working on a cryogenic startup, my understanding is you plan to die someday. So like, we need to talk not just about protecting you, but what about your successor? What about the next CFO of this company, the next CEO, the future board? Are they going to be, are they going to have fidelity to your values?

[00:39:30] Eric: Are they going to, you know, do their own thing? And I can, I can tell you a hundred stories of a founder, founders on their deathbed, regretting like their life's work ruined, undone by, you know, a bad board member, or like, you know, being naive about some of these issues. It's extremely common. So. I'm sorry, what was your question again?

[00:39:51] Sasha: Something about some of the, the questions. Oh, the questions, yes. That you get behind the scenes. And then maybe you can tell it through the lens of like, maybe some of the questions or concerns that a founder has. And [00:40:00] then similarly, maybe a CFO as well. Yeah, yeah. Maybe there's a difference between experienced CFO, a first time CFO, a public CFO.

[00:40:05] Sasha: Totally.

[00:40:06] Eric: So I sit with a founder and I explain to them, we can do this thing. And they all say, well, it sounds too good to be true. And I'm like, no, it's, it is possible. It's do, we can do it for you. It's it's real. And they're like, man, if only it was real, if only I could do it. And it's just, I've never had a product like this where the challenge is not usually when you have a product, people take its existence for granted and you have to convince them it's 10 times better.

[00:40:28] Eric: But I've never had one where people automatically grant that it's a million trillion gazillion times better, but it doesn't exist. You're like, no, but it does. So creating the sensation, look at my letter.

[00:40:36] Sasha: I have it. It's right here. And I used to say, I used to say when we

[00:40:38] Eric: get approved, then people will think it's real.

[00:40:40] Eric: And then I used to say, when we get the, when we're, when we're trading stocks, when you could see, we're literally in the, if you look at the like national breakdown ticker, every day we trade stocks every day, you can see we, you know, it's right there. I just said, well, that will make it real for people. And then I used to say, when the first companies list, like when you see you go on Yahoo finance and you look at our listed companies and it.

[00:40:59] Eric: You know, whenever they [00:41:00] have a finance reporter, whenever they list the name of the company, they always say ticker symbol, right? Parentheses that it says LTSC, like it's right there in the tickers. I said, surely when companies have listed, then people, and like, it's, it's such, you have to understand how profound our psychological blocks here are because we're so implicated in the system and we're so indoctrinated to the idea that it's inevitable.

[00:41:20] Eric: So that, that is usually the main obstacle. Once we get the founder to believe, now we have the issue of all the people around them. It's interesting. It's usually the C suite, the people who work at the company are universally super excited about this. If you look at the social media, we follow this very closely.

[00:41:35] Eric: When a company lists with us, we look very closely at their employees, social media. And it's not, and it's interesting, even these companies that are extremely good companies to work for, you know, the nationally recognized and stuff. People don't write in the social media. I knew it. We're the kind of people, right?

[00:41:51] Eric: I'm so relieved that it's real, right? That our company is really sincerely committed. Like it means something deep in the heart, but it's funny. So we, we meet with a CFO [00:42:00] though. Some CFOs will be like, well, what's in it for me? And we're like, I'm sorry, your founder just said, we're going to protect the company, make it more valuable over the longterm.

[00:42:08] Eric: You're going to attract better. And they're like, yeah, that's great. But what about, what am I going to get this quarter? Well, have you looked at the name of the company that says like, that's kind of what we're, and like, I used to really fight with those people and be like, you really don't get it, but like, they're the ones with the control, not me.

[00:42:24] Eric: Right. So like, you've got to meet the customer where they are. And so we've learned to speak to them too. I'd be like, actually, you know, we like, I'll give you an example. Companies really care about the quality of their investor base. So we have this thing we call the LT score. We actually can quantify how long or short term a given investor is down at the level of the sub fund, the beneficial holder, not just the brand at the top.

[00:42:46] Eric: And we can look at a company and we look at a company's comp group that they themselves defined. And we show them, here's how long term your investors are versus them. Here's the investors that ought to be invested in you that aren't. And we, We help them see, and like, we have really good data now about the consequences of listing an [00:43:00] LTSC, the effect that it has on the investor base.

[00:43:01] Eric: That's something that CFOs really care about. And so, uh, you know, we're starting to build that case that they're actually like, there are short term tangible benefits to doing this. And one of the ones that's hardest for people to believe, it has commercial consequences far more than even I expected. So this is not public yet.

[00:43:18] Eric: So I gotta be a little careful what we say, but we, we did a, a study with, um, with Google. Uh, where we, we, um, did kind of like a, an AB test, like split test experiment that they did it under controlled circumstances to show people certain brand, you know, with the fact that they've listed with LTSC versus just more of a general thing.

[00:43:35] Eric: What is the commercial uplift? In terms of how many of a purchase, uh, behavior of, of consumers. And it was like, the numbers were so high. We had to run the study again. And we were like, neither they, nor we really believed it. It was like too good to be true again, too good to be true. It's kind of like a common refrain.

[00:43:51] Eric: So like, yeah, so I'm like, okay, in addition to these like metaphysical and long term consequences, we can actually help you make more money and have better investors in the short term. Like, surely that's [00:44:00] good enough. But to be honest, even with all those benefits, you know, it's We still have the burning platform problem that most companies are just satisfied with the status quo.

[00:44:09] Eric: And by the time they realize they have a problem, it's too late to do anything about it. So I've been with several companies. I've been at this long enough that I've been through the hype cycle multiple times of like, you know, I remember a company that was like, so flying high. This is gosh, five ish years ago, you know, they were going public.

[00:44:29] Eric: They just like everyone around them was telling them what a genius they were. And I'm explaining to them that they're going to have these issues. And they're like that, that's not going to happen to me because we're special. Everyone tells me that we're special. I was like, look, honestly, the same people that are telling you special will be the people pulling the knife out of your back on the day that they, um, end your life just heads up.

[00:44:47] Eric: And they were like, he's so negative. What a dowdy downer, you know, whatever. They did not listen to me. And that company is gone. You don't even exist anymore. Utterly, thoroughly betrayed. And like, that's the problem. You're like master of the universe. It's never going to happen to [00:45:00] you by the time it happens to you.

[00:45:01] Eric: I mean, it happened to another friend of mine where, um, you know, I told him to make a certain governance change and he didn't do it, whatever it did. I won't get into the details of it, but like, didn't, didn't take my advice. And I was like, look, this won't matter to you, but like 10 years from now, you're going to regret it.

[00:45:17] Eric: And he was like, yeah, yeah, yeah. But he was his first time. He didn't think it was that important. And like, I was tracking my prediction. It was not 10 years to the day. I was off by 191 days before it blew up in his face. And it's like, it's really hard. And, and, and he feels bad, but I feel bad. I feel like I let them down.

[00:45:37] Eric: I'm like, my job is to try to help people prevent these problems. It's like very, very difficult to get people to imagine that they're going to have problems when they're not having problems and when they're having problems, it's often too late to do anything about it. So that's really like, we are challenges to help people see this as kind of an inexpensive insurance or preventative maintenance.

[00:45:54] Eric: That has these really consequential long term effects. And it's super cheap. Like on the grand scheme of things is very [00:46:00] inexpensive compared to the consequences of doing it. And then of course, for compliance, people that are always worried about risk is going to affect liquidity. Is it going to affect it?

[00:46:06] Eric: You know that, and we have like, that's, I've spent 10 years of my life. Like making sure that all the rough edges have been sanded off here. It is like, it's absolutely low risk. There's no, no impact. It looked like I got all the data backing me up, you know, to, to the wazoo for that. But that, that is also a very common fear that doing something different, you know, there's a saying, I can't remember where it originates as I first heard it in New Zealand.

[00:46:26] Eric: They call it the, the tallest poppy is the one that's cut down first. So like, if you stand out, I can do something different. It's a risky, but of course. Like our capital markets today are like a howitzer, everyone's getting cut down no matter how tall they are. So I'm like, I don't, I just like, I, if, if being the same doesn't protect you, how about try being different?

[00:46:45] Eric: You know, we'll give it a shot. So it'll take us time. Like we have to be patient. This is a change, a fundamental change in thinking of what it means to be a for profit company. And so it's going to take time for people to get comfortable with it. But I think once that happens, the same inertia that drives us crazy today will be on our side.

[00:46:59] Eric: And once this [00:47:00] becomes seen as the thing that the best companies do. Then all the best companies are going to want to do it.

[00:47:05] Sasha: And so it happens. It's on a thread app, tell us about it. What can you talk about?

[00:47:11] Eric: I mean, I, you know, I'm not, I'm not allowed to talk about the specific company, so it's kind of limiting.

[00:47:15] Eric: Um, but yeah, I'm obviously very proud of those companies. I think those CEOs are extremely visionary and I thought so, you know, before they listed with LTSC, um, And I've been surprised actually, um, how consequential it's been for them. Not that like, I don't want to take any credit for their success, you know, and, and, and nor for their difficulties.

[00:47:36] Eric: Like both those companies since listing I've had ups and downs, like it's been really interesting. But again, if you compare the, if you look, if you take the x ray to the data and look at the ownership of the data, You know, the quality of ownership. You look at what's happening behind the scenes. Um, it's, it's made a difference and I feel good.

[00:47:51] Eric: Like I, I, part of, I wake up every day feeling like I am supporting some of the most important companies on this planet who are really trying to do something good for the world. Um, you know, I'm [00:48:00] probably to protect them in a fundamental way. Like that's, that's extremely meaningful to me. So I hope I, you know, we hope it's the first of many, but we don't, you know, like people always ask me, um, You know, why is it taking so long or how come it hasn't happened yet?

[00:48:13] Eric: Or, you know, whatever, like, they're like, you know, are you disappointed with how many companies are listed? And it's like, there's this implicit assumption that certain thing was supposed to have happened by now. And I always ask them like, on what basis do you say that this hasn't been tried for 50 years?

[00:48:28] Eric: So how do you know how many companies should list per year? How do you know what, how long it should take for a company to, and like, why should companies rush into this? I don't even, I don't advocate that companies rush into it. They should take their time, do the, like, we only want companies to do it who are really serious about it, who, who really are committed.

[00:48:42] Eric: The worst thing that can happen to us is someone lists with us and tricks us somehow into getting on the exchange who doesn't believe. That would be horrible. So the patience is difficult. But that's really, I mean, honestly, we're just, to me, we're just as much in the first inning now as we were 10 years ago when we started, like it's, this is all the preseason, all [00:49:00] just getting ready for the change that is to come.

[00:49:03] Sasha: And it is, it's also, uh, unfortunately been an IPO drought, uh, for quite a while. Uh, a long way. Well,

[00:49:09] Eric: I listen, I've been at this long enough to have gone through multiple cycles. The IPO window has been open and closed multiple times while I've been at this. And I can tell you when things are good. Things are too good for change.

[00:49:19] Eric: It's like, we can't rock the boat cause it's too good. And when things are bad, things are too bad for change. Now we got to do everything we can to claw our way back to the top. So yeah, I've learned to, to just not believe those excuses. It's never the right time for change. Reform is always something you'd like to put off.

[00:49:33] Eric: And like I said, it's always too early until it's too late.

[00:49:36] Sasha: Well, it's exciting because now it's a reality. Uh, and so it's not a theoretical exercise anymore. It's, it's a reality. And so given that, um, like just sort of close on, on a couple of questions for CEOs and CFOs thinking about going public or that are public and enlisting, what, what advice do you have?

[00:49:54] Sasha: For CEOs that are thinking about going public.

[00:49:57] Eric: Okay. So the first thing you have to [00:50:00] understand, like companies, we're talking about CFOs in particular, companies go through a very defined cycle of CFO acquisition and discarding. There's usually three CFOs by the time a company goes public. There's the one who helped them actually get started and set up the business in the first place.

[00:50:18] Eric: And then there's the like, more seasoned, real CFO that got brought in to say that everything that that person did is crap. And we gotta have systems and regularity and whatever, you know, someone who knows, knows what they're doing. And you bring that person in, and that person's gonna be with you forever.

[00:50:31] Eric: And then at a certain point, you're like, you know what we need? CFO's taking companies public, and so it's like, hi, good friend who helped me do hit, put that person right in the ejector seat and bring in a real CFO. Now, here's the problem. People think that that their CFO, their GC worked for them. I always ask people, well, what, what was the most important reference call you made when you decided to hire this CFO?

[00:50:55] Eric: They're like, well, I needed to make sure that they were well liked by the bankers and the other people who [00:51:00] work on CF on IPOs. Because like, this is their 12th IPO. And I really needed someone who's done this before. It's like, interesting. So if there's ever a moment when they have a choice to piss you off or piss the bankers off, what do you think they're going to choose?

[00:51:14] Eric: And they're like, but he works for me. I was like, does he his job here? It's often almost always a man, his job. Is to make sure you have a successful IPO defined by who they're like defined by me. Of course. I'm like, really is you, are you an important stakeholder for that? When you asked other people about the CFO, did you ask them if the CEO is happy being a public company CEO now, did you ask them about the mission and purpose of your company?

[00:51:40] Eric: And they're always like, no. I asked them if the markets perceived the IPO to have been a success. I'm like, so C CEOs surround themselves. And this is not bad. I'm not, this is not a criticism. This is a fact CEO surround themselves with people whose loyalty is to the transaction. You hired them to do an IPO.

[00:51:57] Eric: You did not hire them to, it's [00:52:00] like you hired them like a wedding planner. to make sure you have an awesome wedding. You did not hire them to help you with your marriage. You trusted that that was going to be fine. But it turns out, unlike a wedding planner, the choices you make at the time of IPO have a long lasting, consequential, um, determinant of how your life is going to be later.

[00:52:18] Eric: And so maybe have a mix of people in there that have actual long term loyalty to you and your purpose. Is, is kind of the most important piece of advice. The other piece of advice is like really dumb and so boring. And everyone says they're going to do this. And then they don't, it's unbelievable to me, which is just allocate your shares to people that are, that believe for the longterm.

[00:52:37] Eric: And everyone's like, what else would I do? But like people who are in private companies cannot fathom what it's like to be a public company. Public company CEOs literally do not know who owns their stock. You don't know. Can you imagine if you're a private company person right now, can you imagine running a company and you don't know what your investors want?

[00:52:52] Eric: Meanwhile, you have a fiduciary duty to serve them and you don't know who they are. And what they want. So like, no wonder we [00:53:00] run to the lowest common denominator of share price go up. Okay. I guess it must be good. It doesn't matter who the share price going up. Cause I'm a horrible activist wants to dismantle you for parts.

[00:53:08] Eric: I guess it's okay. So like, so you really got to get away from that. You got to allocate to people who believe and you're like, well, how can I find out if they believe I know I'll go on a road show and I'll meet with them and I'll look in their soul. I'll look them in the eye and see if they believe it's like, well, everyone tells you they believe it when they want your allocation, have you noticed how everyone believes the stat?

[00:53:26] Eric: I don't have the stat in front of me. Something like three fourths of IPO allocation shares are sold within two quarters. And everyone acts surprised every time, even after I told them this was going to happen. They're like, but they said it wouldn't happen to me. I'm special. I'm a master of the universe.

[00:53:43] Eric: So like, don't do that. Find ways to differentiate between the tourists and the citizens of the Republic and reward the citizens. Give them extra say in the governing of your company, give them extra economics, give them extra vote, like treat them like your real partners and let the tourists [00:54:00] come and go.

[00:54:00] Eric: Do not run your company for the benefit. Everyone's like, of course I'm going to do that. But I mean, I'm like, show me your call sheet. And I'll, we did this one exercise for one company. I won't say who. Where they actually gave us the banking. I forget what it's called. The RFP process where the bankers show you all the investors, the awesome name brand investors are going to get into your company, and normally they only show the company that top level.

[00:54:21] Eric: It'd be like, fidelity is going to be in your company. And this, you know, this company that this, this awesome investor, but some of those brands now are so big that under the hood, BlackRock Fidelity, they have not, they have long term holders, but they also got plenty of hedge funds and all kinds of stuff in there.

[00:54:33] Eric: So it's like. And, and usually companies don't want to share this information, but we got a company who said, look, we're under NDA. We'll confidentially share with you. We made the banker show us the sub fund recommended, recommended allocation. We said, great, we will just run us all. We'll do. We're not gonna show you the data.

[00:54:46] Eric: We just present an analysis to you. We have a scoring mechanism. We will score every investor that they suggested by long term, medium term, short term red, yellow, green. And, um, we'll do it not just on their behavior in general, but their [00:55:00] behavior as it relates to your public comp group. So like, this is how these investors have behaved.

[00:55:04] Eric: In the past with the companies you view as relevant. And we, we did, I'll never forget. We had the presentation. We've had the slides and slide one, there were like three greens. It's like tiny, huge, sharp, tiny font. I don't know, 50 rows per page. And there's like three or four greens at the top, like 20 ish yellows, and the rest are red.

[00:55:26] Eric: And they're like, that's pretty bad, but I guess, okay, it's not so bad. I was like, sorry, this is just page one. And they're like, what do you mean? Let me show you page two. Page two is all red. So is page three. So it's page four. So is page five. We just went on, click, click, click, click. This is who they're going to allocate your shares to.

[00:55:49] Eric: Is this really what you want? And they're like, we're going to call the bankers and tell them right away. I was like, You're not thinking structurally. You still think you can [00:56:00] solve these problems through the force of your personality, because that's how, that's what got you to where you are. And the hardest thing for any CEO is to acknowledge, like to realize that at some point these issues become systemic and you have to have the same passion for the structure of your company as you have for the structure of your product.

[00:56:15] Eric: And that's for people to make. So, yeah.

[00:56:19] Sasha: I've never, I've never taken that jump. I know a lot of people have, but it reminds me on a very smaller scale for earlier stage startups, the sort of when you're in Y Combinator and everybody will do whatever you want to. And the day after demo day. You're just, you're one, you're one of the rest.

[00:56:36] Sasha: It's like, did you set it up? Well, I just took investors. It was here. Did you know what this investor did? Did you research them? Did you look to see, and now you're locked in. It's hard to fathom that when you're locked into a bad investor or a bad board member, you can't change it. Right. The only thing you can change is leaving your own company.

[00:56:54] Sasha: You put your blood, sweat, and tears into, and they are sad. It happens way

[00:56:58] Eric: too often. And it's, it's totally [00:57:00] preventable. It's a, that's actually very sad. You know, Jeff Bezos has this framework. He calls it one way doors versus the two way doors, right? You gotta be way more considered when you're walking through a one way door and two way door.

[00:57:08] Eric: But the, the reason why Jeff Bezos is so rich and the rest of us aren't, is that the hard part of that advice is not what to do with a one way door, but a two way, but, but how do you know? Which doors are one way, like the whole point of a one way door is after you go through it, it's too late. And, and so as founders, we, you know, we can't be cautious, right?

[00:57:26] Eric: If you, if you, if you, if you operate in a cautious way, you take everything takes too long. You never get anything done. You have to take those leaps of faith. So developing the skill, the intuition, the judgment to know, like what's likely to be a one way door. And what's not, how do you listen to advice?

[00:57:41] Eric: Who do you talk? Like those skills are so underrated in the founder journey, but they're so important for this exact reason.

[00:57:47] Sasha: Yeah, your cap table is. is quite important as is the governance structure and it should align with what you want to do. This has been amazing. So what, what can you share? What's next for LTC?

[00:57:56] Sasha: What's next for Eric?

[00:57:58] Eric: Well, LTC is regulated. So, so, so [00:58:00] little I can share. You can always go to ltsc. com and see our latest, uh, latest things that we're allowed to say. Um, I, uh, I have a new podcast, The Eric Ries Show, um, which I'm happy to link to and have people can, can get into some of these issues, um, um, you know, in a very direct way and hopefully people will, will enjoy that and, um, yeah, and it's been, you know, between doing LTSC and all the work that's going on in AI and just working on the governance of so many companies, it's been an extremely busy time, but a really interesting time, uh, for these issues.

[00:58:29] Eric: And I think, you know, I really feel like there's a movement for change afoot. It's starting to bubble up as like founders start to say, you know, I don't want what happened to them to happen to me. I don't want, I don't view these past couple eras of tech to have been an unequivocal success. I want, I want better for my company, my industry, my future.

[00:58:46] Eric: And since that really aligns with what your customers want and what your employees want, like it's actually like, it's a pretty good way to be. And we're starting even to see investors embrace it as a source of competitive advantage as their, you know, as, as a differentiation. So I kind of feel like we're going to look back on [00:59:00] this, um, as a kind of a, a seminal time in the history of capitalism, when, when this idea of what it, what it means to build a company.

[00:59:09] Eric: Was redefined and I'm, I'm pretty excited about

[00:59:12] Sasha: it to thank you. It's, it's hard to not want to follow the footsteps before you, but if you didn't have a choice, what else could you do except complain, but now you have a choice thanks to you and your team and a lot of hard work and some investors who have been very patient and very excited to be very excited about what you're doing.

[00:59:29] Sasha: So thank you for everything you do. Thank you for coming on the show and, uh, appreciate it.

[00:59:33] Eric: Thank you. Thanks. And, and, uh, yeah, I really, really appreciate the show. Glad you're glad you're doing it and congrats on all your success too. [01:00:00] Thanks