back to all episodes
November 23, 2023
Seth Yakatan

Theranos was a Fraud and Elizabeth Holmes LIED

Theranos was a Fraud and Elizabeth Holmes LIED

Or listen on:

Show Notes

Mudassir (00:02.467)
Okay, so do a clap for me, please.

Mudassir (00:08.899)
Awesome. Hey Seth, welcome to the show again. How are you doing my friend?

Seth Yakatan (00:12.938)
I'm awesome, thank you. Nice to be here, appreciate the time.

Mudassir (00:17.891)
Yeah, no, I appreciate the time as well. The last time when we were talking about all the things around cannabis, all the things in biotech, entrepreneurship, venture capital, and all the things in between, we did come across one particular point. So the reason why I'm bringing that one out is...

I feel like that story should have been heard. That story should have been shared with a lot many people. So you touched on a point like, Terranos was a disaster. And that file or that pitch deck come across your deck as well, like way, way back, right? So from somebody who was interested, somebody who was insider in the industry, from somebody who knows all the things that were happening, give us like the insight, like what the heck was that platform?

what he was doing, Elizabeth Holmes, and like, yeah, the whole story. The candidates was from your side.

Seth Yakatan (01:18.115)
Well, I'm not that close to it, so I can only give you an observational view. But.

We've talked a lot about business models and cohorts and verticals and in life sciences, waves of things that come into popularity. Diagnostics is a vertical market, which is really important and has really seen an incredible amount of, you know, clinical and technological advancements in the past.

decades but it's still from an investor perspective largely been an area where the promise of liquidity and exits and value has not translated into a lot of returns so from a life science investor perspective if you're going to invest in 10 companies you might invest in one diagnostics company

and nine therapeutics companies because the diagnostics company probably has a 30% probability of an outcome.

The therapeutics companies probably have a 10% probability of an outcome, but the one therapeutics company probably is a two to three X your whole portfolio. So if I go to Theranos, the notion of precision, high speed diagnostics with a very small amount of non-invasive sample is kind of a Holy grail. So the idea of you going into

Seth Yakatan (03:06.366)
a cotton swab in your mouth or into a CVS or into a not a traditional medical environment and taking a non-invasive amount of sample like a cheek swab or a piece of your hair or a drop of blood and then having hundreds of diagnostic outcomes out of that is probably the future state of science 35, 40, 50 years from now. And it's something that a lot of people have tried to do or have purported to do.

for the last 35 or 40 years. So, you know, this concept of either a lab on a chip or taking a credit card and putting very small channels in it and putting a drop of blood in there and having a couple of tests embedded in the card to be able to non-invasively get a high amount of clinical utility from a patient sample, from a diagnostic perspective.

is something that has kind of been like Moby Dick in the industry. So when Elizabeth showed up with that idea, effectively a microfluidics based lab on a chip.

wasn't the first time anyone had ever seen that.

What was differentiated about Elizabeth was the fact that she had convinced, and I don't know how, some really powerful and influential people, both in the investment community globally, in the government community globally, and in Silicon Valley, to give her a decent amount of early stage money. And I think that was based upon the force of her character.

Mudassir (04:54.6)

Seth Yakatan (04:54.675)
and the conviction of her.

Seth Yakatan (05:00.222)
pitch, I guess, for lack of a better description. So.

Where the whole thing went wrong was the technology never worked. Okay. And, and not only that, she lied and she continued to lie. She lied about the technology not work. She lied about the technology actually working. She lied about the depth of the menu that they had for the tests. So instead of, you know, having one flavor, she said we have two or 300.

Mudassir (05:13.788)

Seth Yakatan (05:35.47)
flavors. And she continued to defend herself in the face of the lie. And then I also believe that she manufactured data to arbitrarily support the lie. So there's kind of a line in the investment community that...

you're not supposed to cross, which is that if it doesn't work or fails, just say it doesn't work and it fails. We'll chalk you up to it doesn't work. If you lie and tell me it's working to perpetuate your failure, that's kind of where the problem is. And I think that's where she

Mudassir (06:12.247)
Mm-hmm. Okay.

Seth Yakatan (06:14.186)
went wrong. There's one other thing that I could say there, which is that

Seth Yakatan (06:24.586)
What she showed up with was so...

Seth Yakatan (06:30.534)
Unbelievable. It would kind of be like me telling you, yeah, listen, we're going to launch a manned space exploration of Mars tomorrow, and we have seven people that we're going to put in deep spaceflight, and we think that we can land on Mars in a certain period of time, and that we have a hospitable environment where we could colonize Mars today.

Mudassir (06:55.11)

Seth Yakatan (07:00.278)
You want to come like that. That's about that's about how far fetched what she was saying was at the time.

Mudassir (07:00.484)
Okay. Yeah.

Mudassir (07:08.135)
How come so many people believed in it?

Seth Yakatan (07:14.846)
I don't... certain people didn't!

Mudassir (07:15.346)
No idea.

Seth Yakatan (07:21.034)
you know, certain people clearly didn't. I can't tell you why. I think that there's a... I think that there's a valid... In early stage deals, there's a validation tipping point, meaning you could look at six or seven things that are all at the pre-commercialization stage or the pre-growth stage or the pre-customer acquisition stage.

Mudassir (07:24.027)

Seth Yakatan (07:52.318)
And trying to assess the relative success of any of them is probably not really quantifiable. And trying to assess the reason why one is going to work and another isn't going to work isn't quantifiable. I could use a corollary for lots of other companies that have raised a lot of money at the same stage that she's raised money at that haven't really worked.

So I think the reason that Theranos became Theranos was because as a female founder with that much press and power, she became a celebrity. And she had so much money that people believe that she's a wunderkind. You know?

People believe the same thing about Mark Zuckerberg. Let's not forget, Mark Zuckerberg stole someone else's idea.

Mudassir (08:56.595)

Mudassir (09:02.694)

Okay, I don't know that. So my yeah.

Seth Yakatan (09:08.703)
Not okay. Mark Zuckerberg took an idea from the Wink of Oz twins and he made it Facebook. And he stole it. And he settled with them.

Mudassir (09:19.415)
Aha, okay. So the whole, you know, the smartest man on the planet kind of stuff is based on this thing. Got it. Okay.

Seth Yakatan (09:21.282)

Seth Yakatan (09:28.522)
Yeah, I mean, a lot of people, I don't know, maybe I'm controversial. I'm fascinated by Elon Musk. I'm not a follower. You know what I mean? I think he's been wildly successful, and I think he's created enough wealth for himself where he can continue to push boundaries, but I'm not like an acolyte of the school of I got to do it the Musk way, you know.

Mudassir (09:37.567)

Mudassir (09:43.761)

Mudassir (09:54.268)

Seth Yakatan (09:57.432)
I don't know.

Mudassir (10:01.961)
Okay. One question that comes to my mind is, now that you mentioned that Elizabeth somehow ended up becoming this celebrity in a way, and I totally agree. And the reason why I say that is, so my first memory of Theranos or Elizabeth Home was, there was this, Facebook was pretty new at that point. Everybody was jumping onto Facebook. I think that was the only social media that existed at that point for masses.

And there was an image for her on a front page of Forbes or something, like, you know, she's doing like Ternos and then she has this, you know, profile or something. So the question that I have in mind is, quite recently, we have seen that with FTX's failure, you know, Sam Backman Fried. And I think more recent is Paul Newman's, the WeWork guy.

So if you look at all these big companies, like 50 billion plus in valuations individually, one thing that comes to my mind is like, how the hell did they get to that point, like where they convinced millions of people in a way, so many people buy into their vision, into their dreams, and then all of a sudden it's just like, somehow the bubble burst and then it was like, nosedive from there onwards. So.

How do these people do that kind of a thing? And it's criminal, I think. Everybody would agree to that. But my thought is, do you think media plays a whole part in that? Like, you can hire the best of the best PR team, and regardless of whatever you're doing, whatever you're building, and you can, because they make you this sort of a celebrity, they make you this sort of a personal brand that everybody's gonna go follow. And then somehow,

you know, later on, you don't follow through, things go bad and then you get to see like, oh, okay, not a very genius person. I think everybody was appreciating Newman and everybody was appreciating Sam Backman Fried as well. And now they're like, oh yeah, what a fraud, what a fraud, everybody's like that. What do you think?

Seth Yakatan (12:15.271)

Seth Yakatan (12:22.35)
I think it's a little bit different.

Mudassir (12:26.398)

Seth Yakatan (12:29.978)
And it has to go, it kind of, I think, goes back to what I would call is human, just human nature. And I think, I've spent a lot of time...

Seth Yakatan (12:58.141)
I've spent a lot of time studying Charles Ponzi.

And if you know who Charles Ponzi is, Charles Ponzi is the first person to be credited with what's called a Ponzi scheme. So that's the scheme where you promise someone an outsized return. I go to you. I go to two people. I take person's number two money to pay you, and that keeps going. And that's effectively what you do.

who's the guy who went to jail? I can't remember the famous 10 years ago, Bernie Madoff. That's what Bernie Madoff did, right? So there's something about human psychology that as a species, I guess maybe two things, you kind of want an outsized return for, you kind of want to get something for nothing. You want to believe in the hope of something for nothing.

Mudassir (13:40.031)

Seth Yakatan (14:00.026)
And I also think that there's this fear of missing out syndrome that combines into coalescing around why things like Theranos and FTX and WeWork and something like MedMen and we could come up with more and more and more. You know, why they all kind of have this.

Mudassir (14:18.496)
We work. Yeah.

Seth Yakatan (14:29.922)
bell-shaped kind of movement to them. And I think what happens is if you're, you know, and I've been in, I've been involved in probably like five or six deals that have experienced the entirety of that arc without the headline, right? Without the nefarious, you know.

Mudassir (14:31.836)

Seth Yakatan (14:56.054)
billion dollar scandal. And I've also been part of a couple of story arcs where you had pieces of that arc. And I think what happens is that once you kind of get to like here, right? Like if you think about it, like just a bell shaped curve opening up, once you start to get into

the amount of speed that it requires in a rocket to like

Seth Yakatan (15:27.018)
Accelerate beyond the speed of gravity. Like, once you've built up enough momentum to achieve low Earth orbit, you have to make some decisions. And I think the decisions are, do you wanna be a reasonable and a good steward of capital? And do you wanna make sure that you execute? Or are you just gonna believe your own bullshit and get caught up in the mix?

So let's look in, and I don't know a lot about FTX. I did not, in 2019 and 2020, I probably had 15 people come to me and say, you're a complete idiot for not putting money in crypto. And I was like, okay. And at that point, no, I didn't. I fundamentally believe, if you believe in conspiracy theories, which I don't, that governments just aren't gonna allow something to exist that they can't tax.

Mudassir (16:09.393)
Did you put any money in crypto?

Mudassir (16:24.199)
Yeah, yeah. I agree.

Seth Yakatan (16:24.926)
So like no, so I didn't put money into crypto. But from what I understand and from what I've read, he had so much money being thrown at him. And he had so much demand for what he was doing that

Mudassir (16:29.618)

Mudassir (16:40.337)
Oh yeah

Seth Yakatan (16:46.858)
I didn't think he could turn it away. And I also don't think he was prepared for it. So I think he could have done one of two things. He could have said, I'm going to stop, and I'm going to do everything above board, and I'm going to do everything kosher, and I'm going to bring in a bunch of people around me who know what I'm going to do. Or I'm just going to play this out, because the music's never going to end. Well, the music usually ends. So I think there's this point in each of those where the decision maker has to decide.

Am I just going to ride this out for as long as I can and see where it goes, which is where most of these things have gone? Or am I going to hunker down and do this in a more traditional way? And I think when you're that successful, that quickly, and I don't have a lot of examples of people who stopped and said, oh, I'm going to corporatize this, I think you just think that the music's never going to end.

If I think about my own business, I've been very wary historically to turn off my top-of-funnel customer acquisition thing because I'm afraid if I do, it goes away. I think there has to be some level of that in those, but I think it all comes down to too much money, too quickly, not enough experience, and literally no adult supervision. If you look at Theranos and you look at Sam Bankman Fried, Sam Bankman Fried was effectively

an oligarch or a benevolent dictator, right? He had no controls on anything that he was doing. Kind of the same with Elizabeth, right? Like she had a board, but she was just making it up as she went along. So I think if you look at the similarities, it's like, I think when you're in that seat, you just keep going, because you've gotten to the point where you're like, wow, I've come from nothing, I've built this, obviously this is never gonna end, and I'm gonna make it work.

Mudassir (18:17.735)

Seth Yakatan (18:38.486)
Again, I don't have a great example of someone who stopped and said, all right, I'm going to increase the velocity, or I'm going to decrease the rate of speed. But I think that's probably what you experience in those things.

Mudassir (18:55.219)
Okay, yeah, I think, yeah, totally agree to that. Just a random, stupid question. With all these people, you know, they're like Forbes 20 and a 20, 10 and a 10, or like 30 and a 30, whatever that number might be. What's the credibility Forbes has now? Because you know, everybody that they label top something under this thing or under that thing, top of the world or something like that, and then they turn out to be someone like that. What sort of credibility Forbes has left after that?

Mudassir (19:27.847)
Because I always wanted to know. Yeah, I always wanted to know, like, you know, especially on LinkedIn, and then there's like everybody, like all these people, so they have this sort of a label. So I am funded by, I don't know, Anderson Horowitz. I'm funded by Sequoia, graduate of YC, Y Combinator, 430 and the 30, that kind of, so like people use this badge, some were like,

Seth Yakatan (19:28.182)
I don't know, I mean it.

Mudassir (19:55.771)
like a credibility or something like but what's the credibility they have left after all of these things?

Seth Yakatan (20:04.298)
For me, none of that stuff really matters. It's just another trophy on the wall, so to speak. I think, look, if someone made me a Forbes 50 under 50, I'm sure I'd advertise it, right? But I think it's also part of the lexicon of validation.

Mudassir (20:07.571)

Mudassir (20:15.496)

Mudassir (20:23.299)

Seth Yakatan (20:31.358)
I think for me, it's more validation. Like if someone's a Forbes 30 under 30, I'm probably gonna spend another two minutes looking at what they're doing and why they were, you know, what's innovative. But it's not like I'm gonna seek out to work with people that are Forbes 30 under 30 because they have badging or because they got, you know, money from a certain person and because they went to a certain school. I mean, you know, look at the people who invested in Elizabeth Holmes, they're supposed to be a lot smarter than me.

Mudassir (20:31.569)

Mudassir (20:39.355)
Yeah. In that. Mm-hmm.

Mudassir (21:00.695)

Seth Yakatan (21:03.079)
I think there's also something about the indoctrination of very specific universities and very specific education paths. I know...

Mudassir (21:10.724)

Seth Yakatan (21:14.57)
It's a very large fund in LA that I talk to a lot, about $10 billion of capital under management in a couple of different verticals. If you didn't go to an Ivy League, Stanford, or MIT, they're not hiring you. They're not. You can just look at their website. Well, I'm not saying that's their firm policy, but if you look at their employee stack, if you look at everybody that works for the firm,

Mudassir (21:18.578)

Mudassir (21:29.093)

Mudassir (21:34.3)

Mudassir (21:39.335)
But it's more like, yeah, yeah. That's all that they had.


Seth Yakatan (21:45.006)
The two guys who founded it went to Stanford, and everyone else either went to an Ivy League, Stanford, or MIT. So every time I meet with them, I kind of say, I don't know what the hell you guys are doing talking to me, because you wouldn't hire me. So does that mean they're better or smarter than me? Well, they've got $11 billion of capital, so they've done something that I haven't done. But I've also been playing kind of a different game than they have.

Mudassir (21:53.512)

Mudassir (21:59.427)

Mudassir (22:10.692)

Mudassir (22:15.759)
Do you think, you know, students from these big universities, they end up building something bigger? Like they are technically smarter than other random, normal students?

Seth Yakatan (22:26.798)
Um, I, I would say historically the value of that network seems to provide more credence. Um, if you look at, you know, again, the top five wealthiest people in the world, I think two of them went to Harvard and dropped out. And I don't know where the other three even went to college. Right. So I do think there's something to that.

Mudassir (22:36.863)
Thank you.

Seth Yakatan (22:55.47)
I think there's something to an institutional level pedigree that puts you for certain jobs into a different tract. Like if you want to become a private equity investor in the United States now and you're under 25, you got to go to one of five schools or like your dad has to be a partner in a private equity fund. You're not just going to, right? So it's kind of like, I do think that there's a intellectual hierarchy that's required.

Mudassir (23:03.355)

Mudassir (23:13.787)

Seth Yakatan (23:24.318)
in some instances and that necessitates that you go to a school. But if you look at another field, is someone who went to UCLA medical school a better doctor than someone who went to Johns Hopkins? I don't know. So I think it just depends. I think that there's a codified at some level institutionalized elitism for certain jobs in finance that are...

Mudassir (23:40.127)

Seth Yakatan (23:54.374)
requisite in order to get a spot. Like if you went to Wharton for your MBA, you can kind of do whatever you want. But I also think for me, like if I'm hiring somebody to be an analyst in an investment bank or an analyst in a fund for me, I'd rather find somebody who was like an electrical or a mechanical engineer, went and decided to study some vertical and then decided to come back to the fold. I like working with people that are gritty. I don't like working with robots.

Mudassir (24:25.547)
Okay, that's a better way to put it. So tell me something that I didn't get a chance to ask you the first time you were on the show. Why do you enjoy so much whatever you're doing? And what the heck is it that you're doing every day?

Seth Yakatan (24:43.743)

Seth Yakatan (24:52.846)
I guess I'm just encoded to do this. I really like helping people. I really like solving complex problems. And at this point, I really like being able to encounter something, see where I think I can get it to, and then effectuating that. And if you call that...

Mudassir (25:17.374)

Seth Yakatan (25:20.666)
validating my capability to prognosticate or be prescient for future events. I think that's what I like doing. I think at some point I will stop doing that and I will just, excuse me, create or teach. And you know, what I really do is I kind of do at this point for

Mudassir (25:26.983)

Seth Yakatan (25:49.642)
I'm involved in three industry verticals, right? So I'm involved in life sciences, I'm involved in cannabis, I'm involved in broadly speaking, direct consumer marketing companies. That's kind of what I'm involved in. And I kind of do four things. There's a vast swath of things that I just say absolutely no to. I've become a coach for entrepreneurs so people can hire me to be a coach. You know, and then I look.

for projects to get involved with where people either want my advice or they want me to help them raise capital or they want me to help them buy or sell something. And that's kind of where I make my living, so to speak. I've gotten involved in the resale of a couple of services, which has been very, very good for me. And then very marginally, I'll intervene, meaning I'll come across something or someone who just requires an intervention.

and I'll have to call them and say, you need an intervention. And that's kind of what I do. So it's just what I know how to do, I guess. And a lot of it is just, a lot of it is honestly, the psychology of the sales process. There's a company that I'm involved in

Mudassir (26:48.668)

Seth Yakatan (27:18.146)
here in Los Angeles, which is a, effectively a virtual temp hiring agency for cannabis companies who need to hire like hundreds of people. And I helped them raise $2 million from a fund last year. They needed to raise more money. I've kind of, I would say been the architect of that process. I didn't build it, but I kind of drew the plans and they're gonna raise another half million bucks. And

It literally is going to close, I think, today or tomorrow. And so watching myself be able to coach a CEO through a process where almost every single one of his instincts, I don't want to say were wrong, but needed to be augmented, having him listen to me and having him come back and say, God, you were absolutely right about how I managed the process to get to the outcome.

That's as gratifying for me at this point as anything. So.

you know, in terms of what I do, that's, and why I do it, that's kind of what I do and why I do it.

Mudassir (28:30.052)
What did he close him on?

Seth Yakatan (28:36.337)
All of it.

Mudassir (28:38.975)

Seth Yakatan (28:39.85)
Here's what my board said. Here's what my existing investors want to do. Here's the universe of people that I'm going to go talk to. What do I say to them? Who else should I talk to? Okay, here's the people that I've talked to. Here's where they're at. We've got two people in diligence. We have one fund that looks like they're going to the road of giving me a term sheet. How do I interact with them? What do I say to them? They said they're going to give me a term sheet Tuesday. It's Thursday. What do I do?

What do I say to my board? What happens if they don't come in? Who else do I go to? What's my wind down plant? Like all of it, right? So can you please talk to my existing investor base who's committed to pledge capital and tell them what we're doing because they don't believe me. How do I tell my employees that I'm gonna have to furlough that? Like all of it, like all the stuff that he's thinking about in his head at 1130 at night, he's calling me and saying, what do I do?

Like, how do I do this? So all of it, right? I'm not getting, like in some of these things where I'm the guy, I'm getting on the phone and I'm doing the pitches and I'm doing the file, he's managing it, I'm just like as conscious in that deal. But literally like all of it. And, you know, how do I message what I'm doing? How do I get them over the line? How do I not push too hard, right?

now that I've got the commitment, what do I do now? And how do we go to these other people and get them to commit? And like all of it, like the site, you know, the back of the envelope chalk talk of the game plan is what I've done there.

Mudassir (30:19.815)
So anybody who needs to raise money should get in touch with you. At least in these three verticals, you'll be super helpful, right?

Seth Yakatan (30:26.058)
Uh, yeah, I wouldn't, yes, sure, call, write. I don't work with everybody, right? I have a highly selective screening modality of who I'm going to work with, why I'm going to work with them, and how I'm going to work with them. I say no to a lot of people.

Mudassir (30:48.359)
Who are you gonna work with? Who is your ideal student, you can say that, or someone, yeah, partner maybe, I don't know.

Seth Yakatan (30:53.916)

Seth Yakatan (31:02.69)
Someone who's willing to listen.

Someone who's just willing to listen and trust what I'm going to say. That that's probably the most ideal.

Mudassir (31:15.923)
You think a lot of people are not willing to listen or they're not receptive of harsh reality, maybe truths or something?

Seth Yakatan (31:25.954)
Some of it, some of them have had a lot of success and they don't wanna have to augment themselves. So it just depends. Some of them have the ability to create options on their own. So locking into an option or a notion with me doesn't always work sometimes, it's just not a fit. But someone who's willing to listen, I also think, and this is very nebulous, but I have to believe that I can be successful.

Mudassir (31:48.648)

Seth Yakatan (31:55.562)
So, you know, I get a lot of people who come to me with, I would say, ideas. Ideas don't really work. I also have a lot of people who come to me with stuff, at least in cannabis, which is very, very early, and that doesn't really work. So, you know, I've found in my own selection criteria that usually what I've been successful with,

is something which is either commercialized and needs capital to scale and grow, or is near to commercialization at some level. So if it's a startup, it's very hard for me.

Mudassir (32:46.896)
Okay. What was the first company that you started or get involved with? And how long that was ago?

Seth Yakatan (32:55.606)
Wow, I have to really think about that.

Mudassir (32:59.163)
Okay, the reason why I'm asking this question is because I want to know, to suppose, you know, just taking a wild, wild guess, like maybe 25 years ago, maybe 30 years ago, that's when you started the first company or you get involved. Because I remember you said, you used to work with your dad and all of the things. So the reason why I'm asking the question is because I want to know how the whole entrepreneurial journey or this whole market has changed in the last 20, 30 years, that, you know, somebody who was starting a...

a B2B SaaS tech company back in early 2000s, and he's starting the same B2B SaaS today. How is that different now? What's the amount of capital now available, the amount of sports that are available, like all the things. So that's why I'm asking this thing.

Seth Yakatan (33:47.824)

Seth Yakatan (33:51.618)
Well, maybe I'll answer it in a different way. Is that okay?

Mudassir (33:57.247)
OK, yeah, go ahead, please.

Seth Yakatan (34:04.935)
I think that if you look at how things were 25 or 30 years ago to how they are now, it's

Mudassir (34:13.232)

Seth Yakatan (34:20.894)
it's probably similarly difficult to raise capital. I think the amount of capital that's available have increased, has increased. I think the number of people that provide capital in all of these verticals has increased, but the entrepreneurial spirit and the entrepreneurial universe has also increased.

Mudassir (34:27.83)
Mm hmm.

Seth Yakatan (34:44.882)
and become globalized and become ubiquitized and become democratized. So you know, whereas 20 years ago...

You know, I go to a biotech conference, and there was 12,000 people there. They go to a biotech conference now, there's 35,000 people there. So just on the notion of, you're one of more fish in the pond, so I don't think it's gotten any easier. I also think the same,

Mudassir (35:01.661)

Mudassir (35:07.536)

Mudassir (35:15.723)

Mudassir (35:19.717)

Seth Yakatan (35:22.49)
relative level of cycles occur. And we didn't talk about it last time and I hope we talk about it this time, but this notion of cohorts, you know, or this notion of innovation. I think that if you're early enough on something that's innovative and new and becomes something that people want to invest in as a large group, you can raise a lot of money.

Mudassir (35:33.259)

Mudassir (35:42.588)

Mudassir (35:48.959)
Mm-hmm. Yeah.

Seth Yakatan (35:50.614)
And I've seen that pretty consistently in five to eight year cycles over the last 25 years, for sure. I think to answer your question, I think the very first company that I founded as CEO and whiteboarded and breadboarded was in 2003, I think.

Mudassir (35:59.525)

Mudassir (36:14.247)

Seth Yakatan (36:14.954)
outside of a bunch of business plans that I had written for somebody and some things that I had sold and some stuff that I had started. But like the first thing where I was like, wow, someone came to me with an idea and I was like, yeah, let's do a company around that. You know, and it didn't work.

Mudassir (36:33.989)
Okay, why?

Seth Yakatan (36:41.526)
The technology was really difficult to reduce to practice, and we didn't raise enough money beyond our first round of capital to be able to get a working prototype of the technology.

Seth Yakatan (37:01.302)
I lost your audio there, bud. Okay.

Mudassir (37:03.163)
Yeah, yeah, let's talk about cohorts and innovation. Because I remember that, you know, we touched that briefly last time. Yeah, so let's talk about that. Like, what do you mean by this whole cohort innovation thing and the cycles and the bell curves and like all of the stuff?

Seth Yakatan (37:20.994)
So, you know, I'm going to let you under the hood in terms of how I think.

Mudassir (37:27.773)

Seth Yakatan (37:28.554)
So for me, cohorts are the most important thing and it's probably for a different reason that they're important to everyone else. All right. So when you go to an investor, an investor is gonna wanna put you in a box. So, you know, let's just say, for lack of a better description, you're a psychedelics company, okay?

Well, there's kind of like four psychedelic. So if you come to me with a psychedelics company, the first thing I'm probably gonna ask you is, are you a therapeutics company? And if so, are you public or are you private?

Are you in the clinic business? So are you trying to get people to give you, to administer product? Are you in the CPG business? Or are you somewhere else? So there's like, if someone comes to me with a psychedelics company, the very first thing I'm gonna do is I'm gonna try and put you in one of four boxes.

So that's the cohort.

Mudassir (38:35.897)
According to your own, like how do you create those boxes? Like according to your own liking, your own experiences, investment thesis, like how do you make those boxes?

Seth Yakatan (38:45.298)
No, they're usually pretty easily quantifiable if you look at, you know, general industry research. So can we go to another, you know, vertical or another market in cannabis? So if someone comes to me with a cannabis company, well, are you in cultivation? Do you have a brand? Do you process biomass? Do you distribute product? Do you operate retail? Right? Are you in payments? Do you do all of that?

Mudassir (38:55.239)
Yeah, absolutely.

Seth Yakatan (39:14.946)
Can I put you in, you know, do you do two of those things? Can I put you, can I put you in a box of something that does something like what you do?

Seth Yakatan (39:26.318)
So I think for most industries, you can figure out.

where you fit in the chain. And I want to put you in a box because then it's going to be easier for me as an investor to understand who you're up against and what you're worth and how good what you have is and how do I value you.

Mudassir (39:36.595)

Seth Yakatan (39:55.678)
and all of those things. So for me, you know, being able to establish a broad cohort and then being able to put sub cohorts together is probably the first way that I'm going to look at an opportunity because of all the things that I just said. That's the front side of it. The real interesting thing for me and the reason that I tend to look at cohorts is completely different.

Mudassir (40:17.596)

Seth Yakatan (40:26.422)
So I wanna see, has the cohort formed? Who else is in the cohort?

How much money have they raised?

Who have they raised money from? Has anyone gotten bought or sold out of the cohort? And by who? So for me, the reason that I want to look at the cohort isn't that I want to comp you against the 30 other people that are in the cohort. It's because I believe that these cohorts are like windows that open. For me, it's kind of a gauge of, are you going to be able to get funding?

Where is that cohort in the maturity of the funding cycle? Is it six months old? Is it 12 months old? Is it 18 months old? Have four or five giants come in and put a bunch of money in? It's going to be really, really hard. Has the cohort been played out? Who are your likely acquirers? How active have they been? How much money have they put in the cohort? So for me, if we talked about that escape velocity, for me, it's a measure of.

At what point in the escape velocity trajectory are you as a company? Because for me, it's going to tell me how fundable you are, how viable you are, how sellable you are. It's different for me. And if we go back, you know, to talk about something we haven't talked about, like for me, that's huge opportunity. If you're early in a cohort and you're the first or second person in a cohort, that's really interesting.

Seth Yakatan (42:07.306)
If you're in psychedelics now and you're the 60th person in the cohort, I'm out.

unless you're almost at the point where you're going to commercialize a drug. There's a cohort which I've been observing. I haven't done anything, but I'm just watching now. It's battery metal recycling.

Mudassir (42:15.484)
Got it.

Mudassir (42:19.443)

Mudassir (42:27.025)
All right.

Mudassir (42:30.782)
Yeah, you told me about that, yeah.

Seth Yakatan (42:32.106)
Yeah, and there's probably, you know, five companies that are leaders in that cohort that across them have raised probably a billion, two. And none of them have a product that works and none of them scale and none of them really have a commercialization methodology that's ubiquitously reduced to practice to address the problem. So I think there's probably two or three more companies that are going to gobble up a lot of money in that cohort and then everyone else is going to fall.

Mudassir (42:41.943)

Mudassir (42:52.081)

Mudassir (43:01.443)
Okay, so that's what you meant by chord and like this whole timing thing. Okay.

Seth Yakatan (43:08.286)
Yeah, like part of the secret of my success is I've been very lucky historically to be able to be one of the first or second things in a cohort.

Mudassir (43:24.749)

Seth Yakatan (43:27.466)
like three times. And it wasn't because I tried to manufacture that. It was just because it was like seven years of pain until the cohort finally became popular again. So again, one of the things that I'll tell your listeners, which I think is really important as part of my screening process, is that if someone comes to me with a project that is the 40th thing in a cohort,

Mudassir (43:49.849)

Seth Yakatan (43:59.316)
I don't care if they have gold at a discount, I'm probably not getting involved in it.

Because I just think that the allocation of bandwidth and capital and mindshare and all of the things that are required to put money in a company, it's already been allocated, and people are already looking at something else. I think AI is one of those places where you're still

Mudassir (44:23.792)
I was going to ask you about that, where you put AI and what sort of a core do you think? Yeah.

Seth Yakatan (44:30.727)
You're still defining the cohort. I think it's huge and it's nebulous. And I think what we've seen in the last few days relative to that vertical where you've had almost the democratization of decision-making for a company relative to its CEO is, I think unlike anything I've probably ever seen before.

Mudassir (44:33.115)
Yeah, it's pretty early.

Mudassir (44:48.488)

Mudassir (44:56.963)

Seth Yakatan (44:58.21)
For me it's also pretty darn scary.

Mudassir (45:03.496)
The AI thing.

Seth Yakatan (45:03.762)
Um, all of it, you know, just, just watch the, I don't, there's an, there's a nine cartoon prequel to the matrix. Just go watch it. Cause that's where we're heading. Like I'm, I'm happy. I'm 53. If I'm very lucky, I'm going to have another 30 or 40 years of life on the planet, cause I think it's going to get real messy soon, you know, when you have

Mudassir (45:06.981)

Mudassir (45:29.105)

Seth Yakatan (45:33.774)
afraid to have robot drones and you have the goal of a company which is to recreate human consciousness effectively. That's... I don't need thinking machines. Humans have... Yeah, sorry. Humans have empathy. Sorry, it's my phone. Humans have empathy. Machines don't have empathy.

Mudassir (45:37.095)

Mudassir (45:50.075)
Yeah. This is something that's beeping.

Mudassir (46:00.639)

Seth Yakatan (46:05.034)
And, you know, it's worrying to me. But with what you've seen in...

Mudassir (46:14.354)
Can you please say the last part again? Because the beep was like, it's gonna be hard to take. Okay, appreciate it.

Seth Yakatan (46:18.462)
I'm sorry, sure thing. Yeah, hold on.

Seth Yakatan (46:26.946)
Who's this schmuck from chat AI? Chat GPT, what's his name? Sam.

Mudassir (46:32.007)
Sam Altman.

Seth Yakatan (46:33.634)
Sam Altman, yeah. So, yeah, so what I'm saying is like, what you've seen with Sam Altman is...

Mudassir (46:35.513)

Mudassir (46:40.88)

Seth Yakatan (46:43.534)
That's not scary, but it's kind of like miraculous. Like you have a company that fires its CEO, then you have like employee backlash, now he's the CEO again. And like that whole universe of stuff, you know, really scares me. Machines are not empathetic, humans are empathetic. And if you have a combination of, you know, robot drones that are controlled by AI,

Mudassir (46:52.383)

Mudassir (46:59.657)

Mudassir (47:04.049)

Seth Yakatan (47:12.998)
and they have the capacity to think or at least take programmed controls. You know, I fear for humanity as a species, quite honestly. I do.

Mudassir (47:17.588)

Mudassir (47:27.995)
Do you think we really need it? It's a different type of conversation because usually when I talk to anybody, everybody says like so over the moon. Like yay, the AI is coming and then the age of AI is coming and people are excited. Yeah.

Seth Yakatan (47:40.942)
I don't think you need any of it. I don't think you need any of it, man. I think you have too many people on the planet.

Mudassir (47:49.323)
Mm-hmm. Yeah? Yeah.

Seth Yakatan (47:53.196)
full stop. You have a finite number of resources. You have a couple guys with a lot of money that are trying to control space.

Mudassir (47:56.446)

Mudassir (48:00.998)

Seth Yakatan (48:02.559)
I think in the next two or three hundred years the most precious commodity on earth is going to become water.

Mudassir (48:11.213)

Seth Yakatan (48:11.89)
And you know, you've been on this rock as a recorded species for about 5,000 years. And for about 409,000 of those years, you lived without technology pretty well.

Mudassir (48:19.58)

Mudassir (48:28.931)
Yeah, yeah, I agree.

Seth Yakatan (48:30.872)
So, no, I don't think you need that. I don't think you need it.

Mudassir (48:33.959)
Yeah. Mm-hmm.

Okay, okay, awesome. All right, so going back to some of the more, you know, simple stuff. One of the recent things that I've seen you doing on LinkedIn, by the way, great shout out to, you know, your team doing an amazing job. How important is it to build this sort of a personal brand? Because I was reading some posts and you were like, you started out in...

Seth Yakatan (48:56.258)
Thank you.

Mudassir (49:07.911)
I think the start of 2023, and it's been like a year or so that you guys have doubled down on LinkedIn, making connections, building these relationships, finding people, talking to them, making friendships, and then having a lot of business opportunities comes along. So yeah, what's your opinion on this whole personal branding thing? And I think planning on starting a podcast. So I say like, what's your opinion on all of that?

Seth Yakatan (49:38.571)
We might need another show.

Mudassir (49:41.729)

Seth Yakatan (49:43.278)
I think for the right person it's great.

Mudassir (49:45.968)

Seth Yakatan (49:48.702)
My journey there has been interesting and unexpected. So, you know, I've tried to adopt a philosophy in business and in life of allowing and not forcing and putting things out there in the universe that I want and giving a lot of things away to people in exchange for that. And I seem to get a lot back.

in return unexpectedly. So that's a mantra that I've kind of personally adopted a couple of years ago. And it's manifest into a number of great amazing things, both personally and professionally. And my LinkedIn journey kind of started as simply as I woke up about

Seth Yakatan (50:40.806)
the middle of 2022 and I realized I had about 20,000 followers on LinkedIn. And what I said is, gosh, I'm really dumb and I'm really old and I'd love to figure out a way to monetize them.

And it was, so I started investing a lot of time and then investing money in it. And it's kind of spiraled into a whole thing. It became pretty clear to me that at least in cannabis and in cannabis fundraising, there wasn't anyone on LinkedIn who had a very loud voice.

and a very true voice. So I started to lean in there. When that began to accelerate, I also realized that I have a lot of entrepreneurship experience. So I started to lean into that as kind of my main thing. And it's been, for me, phenomenal. I've also become aware of what I would call a broad creator economy on LinkedIn.

And I think again, as a 53 year old non-technology savvy guy to be able to become part of that group and use that as a platform to drive not just messages, but business and create authority for myself. It's been phenomenal. Usually in a business setting, the first thing that happens is someone says, I love what you're doing on LinkedIn.

I've found LinkedIn to be one of the most amazing front end, top of funnel, lead gen systems that I've ever encountered. And it's been wonderful for me. I don't know that every single person has to invest the time and energy to create a personal brand on LinkedIn. But I do think, I don't know that they do. I don't know that everyone needs to do that.

Mudassir (52:25.615)

Mudassir (52:41.971)
Yeah. Mm-hmm. Why do you think so?

Seth Yakatan (52:52.086)
I think if you want to do that, there's definitely four, kind of like in football, there's five or ten different types of offensive formations that you can run. You can run a wishbone, you can run an eye, you can run a too tight end set, you can run a four wide. There's a lot of different ways that you can orient yourself. If you spend some time and you're at it consistently...

Mudassir (52:52.4)

Seth Yakatan (53:19.794)
I think there's a lot that you can do there. I don't know that it's for everybody and I don't know that you need to create a personal brand. But for me, it's done a lot and on a lot of levels and to be candid with you, I've really only gotten started.

Mudassir (53:39.427)
Okay, awesome. Good to hear that. You have seen, I have seen personally dozens and dozens of entrepreneurs, founders, C-level execs under your comments, under your posts. What's the biggest mistake that you see entrepreneurs are doing today? Young entrepreneurs. I consider myself mildly young, so people are just starting out. What's the biggest mistake they are making today?

when they're starting a company.

Seth Yakatan (54:21.798)
I think it's probably two of the themes that I've articulated and maybe a third, which is.

Seth Yakatan (54:34.11)
I think there's a balance between forcing and allowing, and I think there's a balance between persistence and annoyance. So I think one of the first mistakes that people make is they believe, kind of like I did, that if I call enough people and I get in front of enough people and I take enough meetings and I'm really pushy and I push forward my idea and I make the end of the universe to the people that I'm going to call on as big as I can.

Mudassir (54:46.203)

Seth Yakatan (55:02.858)
and I'm relentless, I'm going to be successful. And I think what happens there is that, you know, people are forcing and they're not allowing because they're either not patient or they have a really pressing need. Um, one of the most important things that I don't think I've ever said this, one of the most important things that my dad taught me was he said, great investors never say no. Like the

Best VCs never say no, and I watched him do it masterfully. Gosh, this is really interesting, but why don't you come back in about three months when it's a little bit more developed? Wow, this is a great idea, but we're looking at something that's like this now, and we need to come to an investment decision on it. So why don't you circle back in a few weeks or let us think about this? Hey, let me take this to committee, and I'll come back to you with some feedback on it.

Mudassir (55:35.423)

Seth Yakatan (55:59.958)
They rarely say no. Private equity investors say no. This is not for me. So I also think that as part of that forcing and allowing, I don't believe that a lot of young entrepreneurs have enough reps in human sales psychology to be able to really hear.

what people are saying. They might be listening it, but they're not hearing it. And I think if they could allow and not force and hear a little bit better, they might have a higher probability of success. If I then weave back in something else...

Seth Yakatan (56:51.022)
Stuff that's in the middle of a cohort that's pretty saturated, it's going to be pretty hard to get money into.

So if I screen six to 800 projects a year, I'm probably gonna say no to 85% of them right off the bat because they're either way too early or they're in a saturated cohort. So I also think looking at where you're at in the context of the universe combined with hearing what people are actually telling you is...

is a mistake.

There's probably one more.

Mudassir (57:34.681)
Mm-hmm. Go ahead.

Seth Yakatan (57:36.758)
and we might have talked about it before.

Seth Yakatan (57:41.518)
Comparable valuations.

Mudassir (57:45.279)
What do you mean by that?

Seth Yakatan (57:46.538)
What I mean by that is...

Seth Yakatan (57:51.43)
The way that when someone comes to me to try and price around for a deal What I'm usually gonna do because I have More market knowledge than most people is I'm probably gonna go look at the last four or five deals like this that have happened and Try and come up with a with a pricing range for it. Okay Now again, I'm privy to information that other people just aren't

usually privy to so fair enough I have an advantage but I see so many people that come to me and say well you know this company which doesn't have as much as what we have and isn't as far along just raise money at this valuation and we should be there or more.

Seth Yakatan (58:43.646)
I hope you get lucky and are able to raise money there. But using those comparable valuations for companies that are in your cohort as the way in which you're gonna price your round, I also think doesn't give a company the highest probability of success in financing around, as opposed to going back and looking at four or five deals that have priced and coming up with something that's kind of at market or a little bit better than.

So I think, you know, another third big mistake that I see is people trying to value companies based upon metrics that I just don't think are real.

Mudassir (59:22.183)

Mudassir (59:26.115)
Okay, I recently write a newsletter on what's the right time to go public. What I want to learn from you is why people would want to go public, like why take company to public? Is that the best liquidity event out there? So that is one. And two is what happens, you know, post IPO? From founders perspective, from the board's perspective, investors perspective.

whichever feels closest to you.

Seth Yakatan (59:58.794)
Okay. So, let's start at the beginning. Why would you want to go public?

Seth Yakatan (01:00:09.07)
Usually there's two or three reasons behind why you're going to want to go public. The first reason is if you're in the right place at the right time, you can probably raise a fairly large amount of capital.

So the first reason that you're probably with no other constraints gonna go public is that you think you can raise a bolus of capital at a really good valuation, and it might be better than you can get it privately, but it's because you're gonna get this slug of money. All right.

Mudassir (01:00:53.282)

Seth Yakatan (01:00:54.282)
The second reason that sometimes you will go public in a biotech company or a tech company or a CPG company is because you've been funded with private capital and that private capital requires liquidity. So we've talked about this before. Remember, investors aren't your friends. Investors aren't caring about your family. Investors wanna get a return.

Mudassir (01:01:21.107)

Seth Yakatan (01:01:22.722)
Investors want to get a return and they want to drive that return however they possibly can and that's what they're supposed to do. So usually the second reason that you're going to go public is because someone wants a liquidity event. It could be the founder wants a liquidity event. It could be that the investor wants a liquidity event. But the second large reason why people tend to go public is that once you're public,

There's a way to get out. Sometimes you can sell your shares as part of the offering and get out, okay? There's a third group of people that are kind of forced to go public. They reverse through a shell or they, you know, do, they do some kind of a reverse merger into a public vehicle. Usually that's because they don't have another way to get money.

or they're believing that they're illiquid to the point that getting public equity that they can eventually sell is a way to get money. So it's usually those three reasons why you're going.

Mudassir (01:02:31.615)

Mudassir (01:02:38.817)

Seth Yakatan (01:02:39.99)
In the first two, which is like, you know, I'm doing a de novo listing and I'm going to try and get onto NASDAQ or something like that, normally as long as you perform, you can kind of manage the price of the equity within a certain bandwidth.

Mudassir (01:02:59.903)

Seth Yakatan (01:03:02.358)
you know, the market is going to dictate what that looks like, because usually there's 10 or 12 other companies that you're up against. And then you're in, you know, a management of public expectations relative to stock price game, which is different than just running a company. It's a different skill set. It's quarterly earnings. It's what did you say you were going to do? How did you do relative to that? What is the industry doing? What did you project for the year? How well did you achieve your projections?

technical fundamentals without environmental industry risk should, if you price your deal correctly, create long-term value for an equity. If you're in that third group where you've been forced to go public or you've reversed into a vehicle,

Mudassir (01:03:34.174)

Mudassir (01:03:42.463)

Seth Yakatan (01:03:50.59)
That is a dodgy lane that you need significant experience to be able to create long-term value because any time that you're on a junior market, and I would say anything with no disrespect globally than LSE, NYSE, Amex,

or NASDAQ is just a, or maybe Singapore is just a junior exchange. I don't care what it is. And if you're on a junior exchange, you're to, to quote a famous line, you're open to the slings and arrows of outrageous fortune. And, and usually if you're reverse merging into a company in the U S or in Canada, the chips are stacked against you.

Mudassir (01:04:24.987)
Yeah. Yep.

Seth Yakatan (01:04:48.462)
for the creation of long-term shareholder.

Seth Yakatan (01:04:54.142)
And I can tell you why.

Mudassir (01:04:56.231)
Yeah, right.

Seth Yakatan (01:04:59.202)
Because if you and I are in what I would call the shell game, so we have a public company that we're looking to put something into, to reverse it into a shell.

The owners of the shell don't have a lot of restrictions on what they can do post-deal. Also, in Canada, if we create the shell and we put money into the shell before we reverse in,

Usually our shares in the shell and our money that we've put into the shell is free trading the minute this goes effective so the way that those deals are usually priced are If we have a shell and we're gonna put this cup of coffee into the shell and we put five million dollars into the shell We're probably gonna get a share in the shell and a warrant in the shell and we're probably gonna price the stock At a point where we think it's gonna go up

So we're going to reverse in, the stock's going to go up, it's a pump and dump, stock's going to go up, we're going to sell, we're probably going to double our money, and then we're going to get a warrant or an option to buy more stock at a different price. And it just creates this kind of, what they call a death spiral, a self-perpetuating downward price momentum in value because people are selling and selling and selling and selling and selling and selling and selling.

There's nothing you can really do to augment that. So if you are reverse merging into a vehicle, and it's not all of them, but it's very difficult for a non-major exchange stock to achieve long-term shareholder value, usually because the structures that they put in place around those companies.

Seth Yakatan (01:06:58.514)
Incent the investor to make money as a proposed to Incenting the company to perform and create value. So I've been a part of a lot of those deals So

Mudassir (01:07:12.313)
That's how you know all the things. Yeah, that explains. That explains. Okay, so thank you.

Seth Yakatan (01:07:19.651)
And to go back to that, I've been part of nine transactions like that, and three of them really worked well, and six of them just went like this.

Mudassir (01:07:35.395)
Okay, that helps. So Seth, I appreciate the time. Really love to talk to you. This was like not a planned, and this is the first time that we have hosted, I guess that it has already been on the podcast, so I appreciate the time, appreciate the candor. None of that was like planned out, not very well-respected, it was just as candid as we can get. So I wanna ask you one last question, before we let you go, and that...

That one question is, fundamentally, if you look all the entrepreneurship, the venture capital, all the things that have been happening in the world, like fundamentally, what is one thing that's widely accepted but you disagree with? Like in a way you're contrarian, take on any of this thing, any of entrepreneurial venture capital thing.

Seth Yakatan (01:08:42.381)
Gosh, I really have to think about that.

Mudassir (01:08:45.874)

Mudassir (01:08:53.327)
off topic, it took me 30 minutes to come up with that question. So, do the test, they say. Yeah, okay.

Seth Yakatan (01:09:00.005)
Um, boy, let me think about that for a second.

Mudassir (01:09:02.235)
Okay. Yeah, go ahead, please.

Seth Yakatan (01:09:16.845)
Okay, I have something.

Mudassir (01:09:19.987)
Go ahead, please.

Seth Yakatan (01:09:22.978)
I'm not sure you can really learn how to be an entrepreneur.

Mudassir (01:09:27.909)

Seth Yakatan (01:09:28.142)
So, yep, I think that I've seen, I've gone to a lot of universities and I've seen these schools of entrepreneurship and I've seen these people that teach you how to be an entrepreneur. And I don't just think you can learn how to do it. I'm not sure that it's a skill that you can pick up. I think you either kind of innately are caught out for it, or you're not.

Mudassir (01:09:31.472)

Mudassir (01:09:38.502)

Mudassir (01:09:50.184)

Seth Yakatan (01:09:57.214)
I've seen a lot of people who try and they seem to be fighting it with their genetic encoding and their orientation and they do okay, but I'm just not sure that...

Mudassir (01:10:07.462)

Mudassir (01:10:13.416)
You can learn.

Seth Yakatan (01:10:14.338)
I think part of being an entrepreneur is just innately knowing how to sell. And I just think there's some people who aren't oriented from a personality perspective to be able to sell. So to answer your question, I would say that I don't necessarily agree that entrepreneurship is a skill set that can be taught. And that

Mudassir (01:10:20.027)
Yeah, I agree to it.

Mudassir (01:10:28.871)

Seth Yakatan (01:10:41.126)
anybody can ubiquitously just become an entrepreneur. I think you either got it or you don't. So to all the universities that have entrepreneurship schools, I hope all your students are successful. And the ones who don't know what they're doing, send them to the school of Seth Yakatan, and we can try and beat them up into submission.

Mudassir (01:11:03.939)
Awesome. Awesome, thank you. Thank you so much for that. That's it. Have a nice Thanksgiving. Talk to you soon. Okay, let me pause the recording.

Seth Yakatan (01:11:10.998)
Same to you. Thank you.

People in this episode

Other episodes

Related blog

No items found.

No Fluff,
just Great Stuff

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
unsubscribe anytime. We respect your privacy

Search podcasts, blog posts, people