Skip to content Skip to footer

Ep 15: The Big Business of Wacky Domains

 
  • Listen to this episode here on Spotify

Shaan: Sheel you’re here.

Sheel: Yeah.

Shaan: Did you bring your A game?

Sheel: I always bring my again.

Shaan: All right, do you stretch in the mornings? Do you eat your breakfast? What do you do to get gone in the morning?

Sheel: I actually eat no breakfast, drink no coffee ever-

Shaan: So, you’re-

Sheel: I just-

Shaan: … a faster now? And I mean fasting, but not by… that’s not what you called it. [crosstalk 00:00:19] cannot eat breakfast.

Sheel: I just happened to not eat breakfast because I don’t like it. And then if I drink any coffee, I won’t sleep at all like a wink at night. So no caffeine for me. I just naturally I’m lucky that I wake up with a lot of energy. It’s awesome.

Shaan: Great. And so you’re here to tell your story. I met you maybe four or five years ago. I don’t remember how long it was.

Sheel: Yeah probably.

Shaan: You came over to my office, and I don’t even know how you got there to be honest. I don’t even know… Did I reach… I probably reached out to you.

Sheel: Some-

Shaan: I don’t know what happened.

Sheel: I remember yeah.

Shaan: But I remember sitting at the bar in our office-

Sheel: I do yeah.

Shaan: … and you told me one of the craziest stories of how someone made it, that I’ve met here in San Francisco. So million dollar question, you’ve made a million bucks, how did you do it?

Sheel: Yeah, so I sold internet real estate to the tune of a half a billion dollars worth. And when I say internet real estate, I mean top level domains, which is like a domain would be like million.com. But a top level domain would be the .com part. So, there all these new ones that came out .app .blog .church. Some of these you’ve probably seen-

Shaan: Right.

Sheel: … my company was responsible for selling a lot of those.

Shaan: Got you. Okay. If I wanted to create sean.com, which I do. And was taken, and so I was like, “Okay, shit, what do I want to be instead? I can do sean123.com, that’s less cool.” Could I get sean.co? Could I get Sean.-“

Sheel: X, Y, Z.

Shaan: Sean.app, Sean.xyz, Sean.badass, whatever. Right?

Sheel: Yeah.

Shaan: So, these other domains, these other dot whatevers exist now. And you were responsible for selling them to the highest bidders. The whole class of dot… Like what’s one of the famous, like not .com, not .co, but like what are some of the other big ones?

Sheel: So.app is a big one. A lot of these have just started to come out in the past couple of years, so you have not heard of them that much yet, .app is going to be a big one I think. .blog potentially all the blogs have gotten… decreased in value since this whole thing came out, .xyz, a friend of mine owns and his thing is the alphabet ends in .xyz, why shouldn’t your domain name?

Shaan: Okay. He made a bet on that.

Sheel: Yeah.

Shaan: Okay. So, there’s a whole bunch of these that are out there and you were selling them. So let’s rewind to the beginning of that. You’re sitting around, where do you get the idea to even go do this? How do you even realize that this is an opportunity worth chasing?

Sheel: Yeah. So I just heard through the news that you could buy your own dot whatever. In 2012, it was all over the news like people can get your own dot whatever. And so I wanted to find out more about this. And naturally there are a few things that come to mind. Like if you were doing it today, you might want to do something like in the crypto space like .ptc. Unfortunately in 2012 nobody did that. So, in 2012 you had apply, you pay $185,000 to apply for your own dot whatever. So what would you apply for?

Shaan: So like I would… I mean, the first one that comes to mind is like porn basically.

Sheel: .porn, okay.

Shaan: [crosstalk 00:03:02] Right? Like what’s the most popular thing on the internet? Like .xxx, porn, sex, something like that.

Sheel: Sure, sure.

Shaan: Right? Because if I owned that, then every… Basically anybody who wants to have a porn site now they have an alternative to .com, which is usually taken.

Sheel: Exactly.

Shaan: They can come to me and I can sell them their other domains essentially.

Sheel: That’s exactly right. Yeah. ICANN, which is the governing body of the internet actually made an exception and like a while ago created .xxx.

Shaan: How do they decide which of these are going to exist? Because some of these are actually country codes, right?

Sheel: So all of the two letter ones, .co, .vc, .tv, they’re all country codes. So .vc is Saint Vincent and the Grenadines.

Shaan: Oh really? What’s TV?

Sheel: Tuvalu.

Shaan: I don’t even know what that is. Okay great.

Sheel: .io is like the British Indian ocean territories. They’re all [crosstalk 00:03:48].

Shaan: Got you. So under the premise of every country can have their own, it actually immediately got co opted by business to be like great, .tv?

Sheel: Yeah.

Shaan: You know, sports.tv.

Sheel: Remember like 10 years ago there were all these like .ly domains.

Shaan: Yes.

Sheel: That’s Libya. You’re supporting Libya.

Shaan: Do they get anything out of it?

Sheel: Yeah, they do. Like the country manages them. And like if you buy .co domain, that’s Columbia.

Shaan: So nobody else could have bought it. The country owned it, and they sell off the different things. So how much does the… Do you know how much of the country’s make off? Like how much did Libya make off of all the .ly’s it sold? Do you have any idea?

Sheel: I don’t know. Think about it this way. They’d probably make, whatever it costs… And we could easily do the math, but it’s in the hundreds of millions that they’ve made.

Shaan: Wow. Okay. So those are the country ones. And then they started doing just words, like .app or whatever.

Sheel: Yeah. So, the way this thing worked was in 2012 you’d apply for your own dot whatever. So let’s say that me and you applied for .app. You had to pay $185,000 just to apply. And by the way, they got 2000 applications, which means they made $360 million in application fees.

Shaan: Wow.

Sheel: And if you are the only one that applied for .app, you got it. It was yours. You paid 185K one time and then some ongoing fees, but it was yours. And then by the way, you could sell everything .app, like facebook.app would have to pay you something per year. All these things would have to pay you. But if you me, and let’s say some third party… who should we use a third party.

Shaan: So me, you and Donald Trump get into a bidding war.

Sheel: Okay. So, me, you, and Trump. So, me, you and Trump all-

Shaan: Oh, we’re just doing this so I could beat Trump.

Sheel: Yeah. So me, you and Trump all want .app. So ICANN, the governing body of the internet says, “You guys figure it out amongst yourselves. If you can’t figure it out at some later date, ICANN will hold an auction and they’ll get all the proceeds.”

Shaan: Okay.

Sheel: But ICANN prefers that we sort it out amongst ourselves. So what happens next? So you go to Donald Trump and you say-

Shaan: Well, we first anti up our fee. We just put 185K and just to say-

Sheel: That was just the application fee.

Shaan: … I’m interested. Right?

Sheel: So that’s basically a sunk cost.

Shaan: Right.

Sheel: And then they had a reveal one day. They were like, here are all the people that applied. And then we found out, oh shit, Sean applied, Trump applied, I don’t know if I’m going to get this.

Shaan: Right.

Sheel: So then what happens is like the three of us would like be in this what we call contention set, which means like-

Shaan: Contenders to win it.

Sheel: Contenders to win it. And so this happened and the players aren’t like me, you and Trump, although kind of similar. They’re like Google, Amazon. There’s this billionaire guy who lives in the Cayman islands, really interesting fellow. There’s a company called Donuts that raised $180 million seed round effectively.

Shaan: Just to do this.

Sheel: Just for this.

Shaan: Okay. So, me, you and Trump, we go into the bidding war.

Sheel: Yeah.

Shaan: And we’ve each paid our application fee.

Sheel: We’ve each paid our application fee. And then what I said was, are you a better negotiator than Trump? He wrote the art of the deal man. Are you a better negotiator? And you might say no. And the people involved again are these… It’s like Google and this billionaire.

Shaan: Right.

Sheel: And so what we said was we can create a fair, transparent mechanism for you guys to sort this out. The way it works is in this three party auction, it’s what’s called ascending clock, second price auction. Okay?

Shaan: What does that mean?

Sheel: So, what that means, it’s really simple. Ascending clock, it’s a clock auction meaning it’s timed.

Shaan: Okay.

Sheel: So in this case, every 20 minutes, it increments up and it’s ascending.

Shaan: Okay.

Sheel: Simple. So in a three party auction, we’d start the bidding at $200,000 times the number of bidders. So, it’d be like $600,000 to start. Every 20 minutes, it goes up by 600,000 with a minimum increment of 20%. Once we get to 3.6 million, it goes up higher.

Shaan: Okay.

Sheel: What’s your willingness to pay?

Shaan: Okay, so I’m willing to pay right out the gate. And now my strategy, should I be telling my top bid or my low ball offer?

Sheel: So for the sake of this, you’re going to tell us your top bid.

Shaan: Okay.

Sheel: But in the actual auction, you’d only say whether you’re in on each round or not.

Shaan: Okay, cool. So let’s say I’m willing to pay up to 10 million bucks to-

Sheel: 10 million bucks. Okay, cool. Donald Trump, he says he’s a billionaire. I don’t actually think he has that much money. So let’s say his willingness to pay is like 5 million bucks.

Shaan: Okay.

Sheel: And then my willingness to pay, like… I think .app has a lot of value, it’s going to have a lot of value in the future. Domain names are less important, but you still want your like .app, and like your app is what’s important. And it’s a memorable way for people to remember what the thing is. So I’m willing to pay more. I’m going to say I’d be willing to pay like 12 million bucks. So in this auction, what’s going to happen is when we start the bidding 600,000-

Shaan: And we need to just say yes, we’re still in.

Sheel: We’re in.

Shaan: Okay.

Sheel: So, either you say you’re in or you’re out, and if you’re out you say what price you were in. Let’s say Donald Trump was actually only in for a half a million bucks. In the first increment, he would say, “I’m out and I’m in for 500,000.”

Shaan: Right.

Sheel: Okay. So we keep bidding, we keep bidding. And then Sean, once we get to 10 million, you’re out.

Shaan: Right.

Sheel: That means I have won. And so I pay 10 million bucks.

Shaan: Okay. So, you were willing to be in at 10, you might’ve continued to be in up till 12-

Sheel: I would have been, but nobody knows that.

Shaan: Nobody else was there. Yeah. Nobody knows what your real numbers is going to be.

Sheel: Exactly.

Shaan: Okay.

Sheel: And then, so I pay 10 million bucks, but the real beauty of this auction is where the 10 million bucks goes. So who gets the money?

Shaan: Well, nobody owns .apps. So, is it ICANN that gets it. I don’t know, who gets the money?

Sheel: So, a lot of people would think ICANN gets the money, but actually this is a separate auction from ICANN. So, in this auction, the people that get paid are you and Donald Trump. So, the 10 million bucks that I pay-

Shaan: Oh, [crosstalk 00:08:58] pay to go away?

Sheel: Yeah, we’re paying you off effectively to go away. And really what this is, is like anytime you’re splitting a partnership, this is like a good way to do it. So like if you and me, we’re in business together, 50-50 JV-

Shaan: Right.

Sheel: How would we decide like… how much would I have to pay you to like free-

Shaan: To give you my shares?

Sheel: Yeah, exactly. So, we would basically do this kind of auction where like whoever’s willing to pay the most to the other person, and that’s the idea behind this action.

Shaan: So, they actually get the money.

Sheel: They get the money. So I’m paying you guys each 5 million bucks minus my auctioneer fee, which would be, in this case, $400,000. So, we took 4% of the auction fee.

Shaan: Wow. So, the first thing is, were there people who just went into the auctions trying to get paid out? Trying to los-

Sheel: You couldn’t because you had to apply basically a year before any of this, like you knew that this-

Shaan: Before you knew how the auctions would work?

Sheel: Yeah.

Shaan: Okay. Okay. That’s cool. So that already prevented that from happening. The second thing was your top auctions went for how much? What do we… Is it like 10 million or is it more like 100 million?

Sheel: It’s over 100 million.

Shaan: Wow.

Sheel: Yeah, so I can’t talk about the exact prices on the names, but the top couple went for over 100 million. And the cheapest one probably still went for like half a million bucks.

Shaan: Right. Okay. So I’m fascinated. But you were sitting there and you said, “Oh cool, interesting. They’re releasing these domain names.”

Sheel: Yeah.

Shaan: But then we fast forward to two and then I’m running these high stakes $100 million auctions.

Sheel: Yeah.

Shaan: Certainly there was something in between where you were like, okay, how does this work?

Sheel: Totally.

Shaan: Do they need an auction solution? Can I make that auction solution? You know, how did that idea come together from the moment you were just curious about these new domains?

Sheel: Yeah, so it was really, my co founder is like an expert in auction theory. We knew this was happening and we just like sat down and we were like, “How do we devise a way for this to work? And how do we build any credibility in this industry? Nobody knows us.” So we did a couple of things that I think worked really well in our favor. A, like our co founder has a PhD from Stanford in auction theory.

Shaan: And this was just a buddy of yours or?

Sheel: Buddy. Yeah, actually there’s another totally random story. But I met my cofounder on a train in India in 2006.

Shaan: Just sat next to him.

Sheel: Kind of yeah.

Shaan: Wow.

Sheel: It turned out he was a friend of a friend, but he’s like a German dude.

Shaan: Right.

Sheel: And I was traveling in India. We ended up on this like 40-hour train ride together, we became really good friends. Have like worked together a bunch of times since.

Shaan: Wow. Okay. All right. That’s amazing. And it’s also funny how common that is. How common the randomness is.

Sheel: Yeah.

Shaan: Your buddy knows a lot about auction theory.

Sheel: Yeah. And so-

Shaan: How did you even know that the companies were going to have trouble sort of sorting this out amongst themselves? Because these are billionaires and Google and Facebook so you’re not even talking to these people. How did you know that they needed this type of a solution versus-

Sheel: We actually just talk to them and we were like, “Hey, do you need a solution?” And most of them said no actually. Like they were like, “We don’t want to work with you.” And in fact like for a long time it looked like this business was going to be a total goose egg.

Shaan: You did what there? You emailed the lawyers. You were calling somebody?

Sheel: Yeah, emailed, called, like show up in person. So they had these conferences three or four times a year, we’d go to all the conferences and-

Shaan: The domain conferences?

Sheel: Domain conferences.

Shaan: Okay nice. It must be a… That sounds like a party.

Sheel: Yeah. It was cool cause they were like all over the world. Like I went to Johannesburg, Buenos Aires, Singapore, like-

Shaan: You didn’t even know if this is a business yet, you’re just following your nose. You’re just curious.

Sheel: Curious yeah. And so my co founder, [Orig 00:12:27] loves to tell this story of like you got to just get in front of these people. And so I literally just like looked up everyone who had not responded to me on LinkedIn, on Facebook, whatever, and tried to find their face. Like memorize what their face looked like, and then at this conference I would just be searching for them. And then so at one point I saw this guy that I needed to get in touch with for one of our auctions. Because like in this three party auction, if I only have two of the three parties, I don’t have an auction, I don’t make any money. And so-

Shaan: So you need all the people who-

Sheel: And these auctions, some of them were like 13 or 14 parties.

Shaan: Right.

Sheel: So, if I got 13 of the 14, I don’t have an auction, I have no money. But if I get 14 I’m really doing well.

Shaan: Right.

Sheel: So, this party that I could not get in touch with, no matter how hard I tried. I was in Buenos Aires, saw this guy outside smoking. And then I was like, how do I get in touch with this guy? I don’t smoke cigarettes, but I bought a pack of cigarettes and then I just went outside and started smoking a cigarette with them and I was like, as if I hadn’t been trying to get in touch with them this whole time. I was like, you’re just shooting the shit, and then ultimately like became friendly with this guy. And I was like, “Oh like you’re the guy. It’s funny like we’re running this auction, I’ve been trying to get in touch with you.” And then he was like way more amenable. He like started [crosstalk 00:13:39].

Shaan: That’s amazing. Okay. It’s not quite like, you know the CIA operatives that go undercover and start doing heroin to get into the cartel-

Sheel: No.

Shaan: … but it’s close. It’s as close as I’ve heard. Okay, so you started smoking the cigarette. So, you’re trying to get in touch with all these people-

Sheel: And then convince them that our way is the way to do it. And we had a couple of problems. It was the billionaire in the Cayman islands I was telling you about. He did not want our auction to happen. If our auction happened, he was reasoning that the prices would go up, because people are incentivized for the price to go up because they want to sell.

Shaan: Right.

Sheel: They want to make money.

Shaan: They want to get the money. Yeah.

Sheel: And so he wrote like a letter to the department of justice and was like, if these guys do this, would this be a bad thing? And the department of justice sent him basically a non-response, but he publicized it as if the department of justice was against what we were doing.

Shaan: I see.

Sheel: And so that made Google a lot more suspect of us.

Shaan: Right.

Sheel: And they don’t want to do anything that could potentially be afoul of the department of justice. So we ended up having to work our asses off to get Google. Like I spent a year like going to Mountain View, convincing people. Like I met with a lot of people at Google trying to convince them like John a whiteboard, our solution.

Shaan: Right.

Sheel: The reality is this is better than another outcome for the department of justice. The other option is they could get into a room and negotiate. I don’t see how that’s better than this auction.

Shaan: And why did they ultimately come around? So what was your pitch? You finally get in front of Google and you’re like, “Look, you’re the guy who needs to agree to do this.”

Sheel: Yeah.

Shaan: Their initial reaction you’re saying was, no, we’re not interested in this… in working with you guys exactly. And if one party doesn’t want to work with you guys, it doesn’t work.

Sheel: It doesn’t work.

Shaan: It seems like a terrible business, but I love that it worked out. So, ultimately what was your pitch to convince them that this will be better for you than everybody free for all trying to negotiate?

Sheel: Okay, so a few things. Some people would worry that the price would go up based off of this. But the reality is if like everybody has a price that they’re willing to pay, you’re not going to bid higher than the price you’re willing to pay because then you might end up getting it.

Shaan: Right.

Sheel: Like if you end up winning the auction for a higher price just because you’re trying to drive up the price, that doesn’t make any sense. So, like this whole notion was unfounded. And we were able to convince them of that. Like we got Google’s chief economist, Hal Varian, involved and it was cool. It’s like a really amazing experience.

Shaan: That’s amazing.

Sheel: And then Google tested us out first. They had us run another auction for them, just to see how they liked working with us.

Shaan: Right.

Sheel: And it went well.

Shaan: And is this a piece of software or how did you actually… What was the product in this case?

Sheel: Yeah, the product is, yeah, it sounds like relatively trivial. It’s actually not that trivial to build. Like there’s a lot of security involved, and yeah, it is like a online portal where you can go in, make bids, see what happens. There’s also of course like a banking component. So even to enter a bid you have to have put down a deposit. And we have, because the bidders are so international, they’re in accounts all over the world. And then even after you’ve bid, we have to hold a bunch of money in escrow.

Shaan: Right.

Sheel: And one of our bidders, a large software company, had a requirement that you couldn’t use the money that they gave you to bid against them in a future auction. So we basically had to hold this money in escrow. So, we’re holding like hundreds of millions of dollars in escrow in accounts like in Hong Kong. It’s kind of nuts.

Shaan: It’s actually pretty smart of them though, to put that in. Can I tell you my bidding story like this?

Sheel: Yeah. I think I know the story and it’s a beautiful story.

Shaan: So I didn’t know how I made of this shit works. But four or five years ago, maybe more, I don’t even remember at this point. My investor, Michael Birch comes to me, he’s on the podcast. His episode’s called The Hippy with $1 Billion. So he comes to me and he says, “Hey, you know this company I sold to AOL called Bebo. It’s actually, AOL wrote it off. This guy kind of bought it off them. He is not really doing very good with it. In fact we’re going to sue him because he took our money. We invested in him, it’s not really working out.

Shaan: But long story short, this company’s going to go through bankruptcy. Would we want the asset? Like we could get the domain name, we could get the servers, we can get the email list of maybe 80 to 100 million people. Maybe there’s some value in this and hey, wouldn’t it be cool if we could turn this around? It was more really that it was like-

Sheel: Wouldn’t it be cool if-

Shaan: Yeah, that was my baby. I sold it to them. They kind of [inaudible 00:17:40] it. I’m like, maybe I’ll buy it back and do it again. Like wouldn’t that be cool? And I was like, ah, I don’t know. Yeah, well you know I was like interested, because I don’t know any better. And he was like most internet companies never make come back, but let’s try it. Same sort of thing. It goes to this bankruptcy process. I don’t know anything about bankruptcy. But there’s like a few weeks and then it’s like there’s a court date in LA. We’ve got to go to LA, and what we’re going to try to do is we’re going to try to buy it out of bankruptcy essentially.

Shaan: And we were just had to pay up a few debts, whatever the money we put in that’ll go to the debtors, and the asset could be ours. So we go down to LA, it’s me, our lawyer, and our COO. And beforehand we’re trying to come up with our strategy, and we’re like chickens with our heads cut off. We’re like, “Well, what’s it worth?” And we’re like, “Well who the hell knows?” There’s like… We had very little data plus you were just like estimating what you think you can make it into, which is a dream really. And we don’t know who else is interested.

Shaan: We’ve seen in the data some other companies that are sniffing around because they requested some data. And then you could see who opened the folders. Okay. It looks like these other companies are involved. We don’t know. So we show up in LA, we go to the court. I still don’t even know actually how this process is going to work. I assume the judge is going to say something. The judge immediately just says, “All right, you three companies are here to buy this. Go in that room over there, sort it out amongst yourselves.” This is kind of what you’re talking about. Right?

Sheel: Yeah.

Shaan: “Sort it out amongst yourselves and then come back to me and tell me who’s the winner and what’s the price.” And we were like, what? And there’s like, yeah, there’ll be a mediator that will sit there and like just watch the proceedings happen, just to make sure there’s no foul play. So we’re like, we go in this tiny room, smaller than this room are doing this podcast in. And it’s us and it’s match.com and then there’s Tagged, which is another social network, but then lost… MySpace lost to Facebook and were sort of still around.

Shaan: And so we sit down at the table. I have no idea what’s going to happen. I hoped it was a process, like what you’re talking about with some structure and like whatever. And instead it’s like, okay, so what’s the starting bid? We’ll start the bid at 150,000. And we’re like, so somebody says 150, we’re like, “We’ll do…” And they just have some minimum, like you have to go by whatever. I was like, “All right, we’ll do 180, we’ll do 230.” Whenever it just kept going up.

Sheel: Wait, so at this point, did you have a number in your head?

Shaan: Yes. So we had in our mind, we had valued the thing, we were like, “Okay, I think this thing’s probably worth just on the parts, if you just resold the parts right away.”

Sheel: Like the domain name.

Shaan: The domain, the servers, the lists, stuff like that.

Sheel: Half a million buck or something.

Shaan: This might be half a million bucks.

Sheel: Half a million bucks. Okay.

Shaan: Optimistically, half a million, maybe it’s 350,000 whatever. We were talking about that. And then Michael, in his wisdom was like, look, I don’t think we’re going to go in and we’re going to be able to get this for like 300-400,000 so like I don’t think we should try to figure that out. I think we should be like, what are we willing to pay? And I think this thing’s going to go for 1 million bucks and I’m willing to pay 1 million bucks.

Sheel: Yeah. For him there’s emotion tied into it too. Like it was his baby.

Shaan: Exactly. So he was like, “I’m willing to pay 1 million bucks,” and were like, “Okay. Well I guess that’s our strategy now.” So in my head I’m like million bucks? I have no idea what these other guys are thinking. And we sit down and so it starts going up, it starts creeping up. At about 350,000 Tagged is like, you could tell this guy was like, I flew to LA, I thought like nobody would be here. What the hell am I getting myself into? He was just like, “Like I’m out. I don’t know what’s going on here. You guys do whatever you’re going to do with this.”

Shaan: So, now it’s just heads up, us and the IAC group. And so we continue and it just… Everybody’s going up in very even increments of like, whatever the first person through, was like 30,000 more or something like that, the next… That’s just how it went up every time.

Sheel: Every time. That’s a lot of increments.

Shaan: And everyone is trying to have like a poker face about themselves. And at about 700,000 they like stepped out of the room to be like, we need to make a phone call. Is that okay? Really. We’re like… The mediator was like, “Yes, no problem. You can take a break.” So they go out, take a phone call and I’m huddle up with the lawyer. I’m like, okay, this looks like this is probably what they were preapproved for. Because they got to go call their boss to figure out what they can do. They’re going to come back and say, no take it. Fantastic. Or they’re going to come back with a new kind of like top price in their mind. And so this is probably going to be an even number. So just test like every time it gets to 800, 900 or a million, don’t let them get that number, like jump above it a little bit.”

Shaan: And I talked to the mediator, I was like, “Hey look, they can’t do this again.” And she’s like, “Yeah, okay, we’re not going to do any more breaks that interrupts the process.”

Sheel: So you knew that they had an upper limit. And if you go a little bit above that upper limit, it’s yours.

Shaan: Exactly. And I went outside to try and make small talk with them too, to be like, “Man, what are you guys going to do with this anyways?” And they actually like fools were telling me what they were going to do with it. So I was like, “Oh, they don’t have like a robust plan. It was just like they just wanted the SEO, and they wanted some other benefits. So I was like, okay, these guys aren’t super serious. So that’s exactly what happened. They come back in and it starts going up again and at a million, our top was supposed to be a million. It was that 900 something, and our lawyer just jumped and went 1 million and 15,000 and just threw 15,000 on top. And they were just like, “Take it.”

Shaan: And we were like, “Great.” And I was like, what was your max? She’s like, “A million was our max.” And he’s like, “We just didn’t know how far you guys would go.” And I told him, I was like, “Dude, our guys like emotionally attached to this, like he’s going to keep going. You should just drop out now before like, yeah, this gets out of hand.” And so they just let us take it our also max. And so I just remember sitting there and being like, this was a crazy experience, like a crazy hand of poker I got to play. But I should’ve even thought in that moment like, there’s got to be a better way. And it sounds like you guys actually built a better way.

Sheel: But actually like the way you guys did it, is not bad. I mean, so typically in that thing, what I would have suggested is like you each put a number in an envelope and that’s what it is.

Shaan: Right.

Sheel: But actually like what you guys did allows the bidding to go higher.

Shaan: Right.

Sheel: Because there’s like excitement, and like you said, like they had to go out and come back in-

Shaan: Go make the phone call yeah.

Sheel: But like generally in auction theory, we optimize for the fairest price. And we’re not necessarily optimizing for the highest price.

Shaan: And that’s why yours ends with the second highest price basically.

Sheel: Yeah. And the reason for that is, let’s say if all three of you put your numbers into an envelope, you’d be thinking like, “What is somebody else willing to bid?”

Shaan: Right.

Sheel: Instead if it’s like I’m going to pay the second price anyway, you’re going to put-

Shaan: Put my max.

Sheel: … put my max.

Shaan: Yeah, that’s brilliant. Okay. And you didn’t invent that. You just took-

Sheel: That’s like a known auction theory thing. In like eBay auctions, if you can bid as high as you want and you’ll pay one increment over the next highest bid.

Shaan: Right.

Sheel: So that’s like a standard auction theory thing. We didn’t invent it.

Shaan: Got you. So you basically built this high stakes eBay selling internet real estate, which is incredible. And you did this… This whole process took about how long? So, from you guys have the idea to like your first auction, how long was that? Because I like to give people a sense of like how Long business takes to actually mature. Because when we say it, it sounds bang, bang, bang. But things do take time to-

Sheel: I think it took like eight months and that was a very difficult eight months. Like we really didn’t think it was going to work, and then we had no idea how much these things were worth. The first auction, so to give you an idea, I think we did eight names in that first auction, and we were like taking bets amongst ourselves. Like how much is each of these things? The first ones we did, it was like .vote .photography .now .red. These were the ones in the first auction that we did. And so like .photography, I’ll use this as an example. How much do you think .photography went for?

Shaan: Jeez, I have no frame of reference. I don’t even know what you can make off these. So I mean, I’ll throw a number out there just to be [crosstalk 00:24:27] I don’t know. I would say .photography, somebody’s going to pay 15 million bucks for it.

Sheel: Okay. It actually went for a lot less. It was like a single digit million number. But a lot of people say that’s a lot for .photography. Like who’s going to use .photography? In such a long name, like when you’re used to like a three letter TLD or two letter even for the country codes, .photography is really long. But actually it turns out that photographers want to be like… they like their name .photography.

Shaan: Right.

Sheel: They don’t want their name .photo because that seems unprofessional. So they like their name .photography, or like wedding.photography, or like SanFranciscowedding.photography, all these names. I’m not going to tell you exactly how much it costs, but let’s say it costs 3 million bucks.

Shaan: Right.

Sheel: So, when people learned of this, they were like somebody paid $3 million for .photography, that makes no sense. But in that first year there was some of these names for like 50 bucks, a .photography name, and they sold like 100,000 in that first year. In the first year they made 5 million bucks out of it. And then if you think about it-

Shaan: It’s recurring, right?

Sheel: It’s a recurring, it’s like kind of like an annuity. Like obviously there’s degradation over time, there’s churn, but it’s pretty consistent.

Shaan: Right.

Sheel: And so-

Shaan: So that set the tone then for you guys?

Sheel: Yeah. And there were peaks and valleys of like after that first auction, and then the first name started selling and we realized, “Oh shit, people want these names.” Then the prices started going up. And then we had some crazy ones that were in the hundreds as I mentioned. And then after a while when the first several had a lot of success, because they were the first names, the first new names sold. And there are all these like domain squatters were like buying them. And then when we realized like, oh shit, now there are a lot of these new names, then people started selling them-

Shaan: For less.

Sheel: Yes. And they had started going-

Shaan: Got you. Okay. And so you said those eight months were tough. What was tough and how were you feeling during that time? Like tell me some stories about-

Sheel: Yeah. So, we didn’t actually get any of the… like we didn’t get the biggest name folks involved in the first auction. Google, Amazon, that billionaire, none of them participated in that first auction.

Shaan: I see.

Sheel: And we were like, well our business kind of blows if we don’t get those guys in because those guys are in the bulk of the auctions.

Shaan: Right.

Sheel: So we got these like piddly ones but not the big ones. And then we decided to take 4% we had no idea how much it was going to go for. So, and oh by the way, we had a half a million dollar legal bill.

Shaan: Right. And how are you paying for this? Because this is such a weird company.

Sheel: It’s such a weird company.

Shaan: So, did you raise money? Did you-

Sheel: We didn’t raise money. We sell financed, but we basically just we self financed by not paying our legal bill.

Shaan: Fine. This is easy. Don’t pay your bill, they don’t need funding.

Sheel: Yeah. Because other than that our only expenses were like our time, and flying around to these conferences and meeting with people.

Shaan: And give people a sense of were you wealthy before this? Were you doing okay? Were you broke? Because I know-

Sheel: I was fine. I didn’t need-

Shaan: Your previous job was like consulting or something.

Sheel: Yeah. So my background, I was in consulting before and I had started a bunch of other random businesses that-

Shaan: Tell me some of them.

Sheel: Yeah. So-

Shaan: What was your first foray into business for you?

Sheel: I would say like first of all like I always wanted to be like a businessman. So like I joke like on my LinkedIn it used to just say businessman.

Shaan: Right.

Sheel: Because I always just wanted to be a businessman. I didn’t even know exactly what it meant or whatever. I would always be like doing stupid shit like fixing computers as a kid. I think a lot of people have these stories.

Shaan: Yeah. Were you an eBay flipper? I’ve noticed this with my guests. A lot of them sold stuff online on eBay or-

Sheel: I didn’t do much of that. I did a little bit, but no I wouldn’t call that my profession ever. Also like a timing thing. But I did sell like, I’ve got a CD-ROM and made CDs and I sold to high school kids, like these sort of small things.

Shaan: Sure.

Sheel: And then in 2002 or something like that, or 2003 maybe, the iPod mini had just come out in four different colors. It was blue, green, yellow and pink. And the Apple headphones at that time were really iconic if you remember, like in the ads.

Shaan: Yeah. That was all the ads were. It was a silhouette with white-

Sheel: Exactly. So they had those iconic headphones. I got this iPod mini from my work at the time, and my headphones broke. I was biking and they fell on my bicycle spokes or something and like they broke. And so I went to the Apple store. And Apple wasn’t selling replacement headphones at that time. So I was like, okay, I’m just going to make headphones that look exactly the same as those headphones, and then match them in the different colors that the iPod mini is in. So we did that, made headphones and those different colors. I like found a cheap flight to China, flew to China. I didn’t know anything about China, but I flew…

Sheel: I was like, I knew Southern China is where-

Shaan: How old were you at the time?

Sheel: 22, 23. No, actually I wasn’t even 22, I was 21 I think. Yeah.

Shaan: And so you’re just like, “Okay, I need to go figure out where these things were made.

Sheel: Yeah.

Shaan: And I need to get somebody to make these, the ones I want.

Sheel: Actually I flew to Hong Kong, there was something like electronic show that I like read about online. And I was like, “I’ll go to this electronic show, I’ll meet somebody and that’ll get me in. And so I went to this electronic show in Hong Kong, and then I did actually, like I met a bunch… These electronic shows are amazing by the way. It’s just like an insane number of people selling the same shit, and they don’t speak English at that time. So, you’re just like on a calculator negotiating like in dollars-

Shaan: Right. Pointing-

Sheel: And you’re just like point and then like, yeah, they’re like $8. And then you’re like no, 15 cents.

Shaan: Right. Yeah, yeah. The difference is like a 100 [crosstalk 00:29:28].

Sheel: Yeah. And so ultimately I got these headphones, I got these Apple headphones for 80 cents a piece, including packaging, everything, and I did… At this Hong Kong fair, I went and I negotiated, and then I went to visit the factory. That was awesome by the way. And then I went to this other fare called the Canton fair.

Shaan: I’ve heard about this.

Sheel: Yeah. Okay. So it’s the world’s largest trade fair. I think it’s twice a year, April and October. I think 300,000 people go to this fair. It’s in the world’s largest trade convention center. It’s like massive kilometer long thing-

Shaan: Yeah, my friend told me this is like hundreds of football fields or something.

Sheel: Hundreds of football fields. That’s exactly right.

Shaan: Like just the fair is so big. And so it’s like, oh I’m interested in headphones or this thing was SOCs. And he’s like, “Dude, there’s like thousands of SOC providers in a row. Like you’ll start your morning on one side and by the end you’re like, it’s dinnertime. And I’m still, there’s more providers here to go talk to.”

Sheel: You can buy literally anything from like a pencil… Oh no, not even a pencil like to the like the cap that holds the eraser onto your pencil. You could buy that in a piece of container quantities.

Shaan: Dude I have to go to the Canton fair.

Sheel: Two, you could buy like construction equipment, like you buy everything there in container quantities. So anyway, I went to that. It was just an amazing experience. Like for a young kid, it was my first time to like China and I learned a lot.

Shaan: So, you’re kind of fearless. I think one thing that is common in a couple of these stories, I mean we’ve only touched on a couple of things you’ve done, but you have a willingness just to get up and go. Like, just go to the convention, go to the conference, just go meet them.

Sheel: Yeah, just try it out. Because like what’s the harm? Like the harm is you fail, but then you’ve learned something. And I think that like, I’ve always been willing to try stuff, and it doesn’t always work. And actually I have a poor memory of like bad stuff. So, like-

Shaan: You forget the hard times.

Sheel: … I only remember the good stuff. But actually in the auction business there definitely were hard times, where like me and my cofounder were like, at odds with each other. We were like, this is really hard and annoying. And also like, living in San Francisco, our bidders are all over the world. So we’re getting on calls at 3:00 AM all this shit. It was just like a tense time, especially if we knew the business wasn’t going to work. And then when we had that first auction, we were like, “Oh, all right, this is happening. It’s on. We are going to convince Google. We’re going to convince everyone.” And it was awesome.

Sheel: But anyway, going back to the headphone business, I started buying some real estate. I grew up in Pittsburgh. I bought my first house, I was 22 years old. We live in San Francisco now, so it is unbelievable what I paid for it.

Shaan: Okay, that’s-

Sheel: Okay, so let me tell you about the house and you guess what I paid for it.

Shaan: Okay.

Sheel: So, pretty hip, like up and coming neighborhood, now 15 years later it’s like probably the coolest neighborhood. At that time, it was like in transition. And it was a two bedroom, one bath with a garage, small porch yard. Guess what I paid for it.

Shaan: Okay. So I don’t know what year this was, it sounds like it was a while back.

Sheel: This was 2004 maybe.

Shaan: 2004, okay. So, educated guess, I think this is going to be very cheap. This is going to be like under $150,000, maybe under $100,000, so I’m going to say like 80 grand is my guess.

Sheel: Okay. Close yeah. I paid $47,000 for it. And-

Shaan: So, your down payment is what? Eight grand.

Sheel: Yes. It’s hilarious, right? It’s like, that’s like one month of rent for somebody at San Francisco. And that’s like-

Shaan: The whole house, yeah.

Sheel: … the whole house. Yeah. It’s funny because you know, a few years ago here I actually, like I was living with a buddy, some buddies of mine, we were paying 8,000 bucks a month in rent, one month. And that’s sort of six months of rent was the equivalent of the house that I bought in Pittsburgh. And so I bought that house-

Shaan: You bought it to live in or you bought it to rent?

Sheel: To rent out. And kind of did some minor fixing ups and then ultimately rented it out, got the rent over five years up til like 1100 bucks a month. So, actually it was a very fast payback on the investment. And then I actually bought another house in Pittsburgh and then ended up buying… Realized that there’s a good opportunity if you buy a multiunit. So like if you buy under a four unit, it’s still considered residential. . So, you don’t have to get a commercial loan, you get a residential loan, which is favorable rates. So I started… I really liked the idea of buying multi-units. So I bought a three unit in Chicago, and I had moved to Chicago, so I bought and lived there. Here in San Francisco, I bought a four unit, and I-

Shaan: Yeah, you told me you still have that one, right?

Sheel: Still have that one. Yeah.

Shaan: That was a cash cow, right?

Sheel: Yeah, it’s awesome.

Shaan: That’s awesome.

Sheel: And it’s hard to find a cash cow in the Bay Area-

Shaan: Yeah, because here it’s an appreciation game, not a cashflow game. But I think you got both here.

Sheel: Yeah. Again, it’s like, I would say being willing to just go in. Sometimes like the best opportunities are like no pictures of this thing online. You’re like, what the hell? What kind of stupid real estate agent doesn’t put pictures of the place?

Shaan: Right.

Sheel: And then you look inside and it’s gorgeous. And then you’re like, okay, that person just lost out on like… That person lost the seller many hundreds of thousands of dollars because people didn’t go see this place because they didn’t have… Stuff like that. It’s weird.

Shaan: Yeah. Those are the opportunities. So when you bought this first house, you’re only 20 years old, you’re buying this place, you want to rent it out. So you’re thinking already, how do I get an asset? How do I make cashflow off of it? Which a lot of people who are listening right now, they’re either A, are already doing that, or want to do something like that. Some of it is, yeah, I need the confidence to take the leap. But the other part is like what I call the light bulb turning on. So were you reading a book and were like, oh this is how this strategy works. Did you have a mentor? Were your parents telling you what to do?

Sheel: Yeah. Okay. So it’s really weird, I was just like searching the internet like crazy for this. And there was this forum, do you remember Fat Wallet?

Shaan: Yes.

Sheel: Okay, so Fat Wallet was a place where you could trade like coupons or like the best deals. They had a forum section and actually this forum section had this one thread about buying a house, and like making money by buying houses. And it had like thousands of responses. And I read this thing religiously before I bought this house. And I was like, “This is it. This is the first house. I’m going to do it.” And I definitely nervous because I didn’t have so much money-

Shaan: Did you post it on there, like, “Hey guys, this is the one I’m looking at. Here’s the numbers.”

Sheel: Yeah, yeah. Here’s the numbers. Like what do you think?

Shaan: That’s how I learnt to play poker. There’s two plus two forums is this longtime forum on the internet and that’s where I learnt. I would just read this thing all night, and because I didn’t know any friends who did this.

Sheel: Yeah, same. I didn’t really know people in the space. Actually, my dad like knew I was interested and he had another family… We had another family friend that was interested, so he had me go down with that uncle and just learn from him for a couple of hours what he did. But then this forum is really where I learned a lot. And so that was it, that gave me the confidence to do it.

Shaan: Unbelievable. Okay. So you did some real estate. Were there any other notable businesses you did? The headphones thing, how much were you making out of the headphones thing? You sort of, you get these in different colors-

Sheel: So, the rough numbers, because I don’t remember the specifics. We were buying these things for under a buck, and we sold them online for, depending, we sold them for like 15 or 20 bucks. So obviously a great profit margin, but we didn’t really know how to market. But this was a great crash course for me on marketing.

Shaan: Right.

Sheel: So, originally we only bought 1000 headphones so it only actually cost $1,000 to set up this business. Because you bought that… I mean, obviously there was my trip to China, whatever, whatever. But it was like a few thousand dollars maybe to set up the business, and then made the website. And then we were trying to figure out how to market online. And I had never done it before, and I think this was at a time where there weren’t your standard ways to do it. And Facebook wasn’t really a thing. But when Facebook launched, I was actually one of the first marketers on Facebook. And so here’s how it worked. Actually I think you’ll really like this.

Sheel: So Facebook at that time when they launched ads for the first time, they were ads on your campus. Because remember Facebook at that time was like only within your campus. So, I went to Carnegie Mellon university, so I had access. I could put an ad and the idea was like you’d put a flyer for a party, and this is how unsophisticated they were at that time. It’s insane to imagine Facebook being so unsophisticated now.

Shaan: Right.

Sheel: But it was like-

Shaan: Everybody sees it basically.

Sheel: It was everybody sees it on the campus, and it was five or $10 per day to market to everyone on your campus. And it didn’t matter what campus you were at. So, what I did at that time was I got friends who went to the university of Michigan and like, Ohio State. And I was just like, “What are the biggest universities that I have friends at? Because that’s going to be the cheapest ad space.” So, I got their Facebook passwords and I posted as if I was them, these ads. And that ended up being like-

Shaan: Amazing.

Sheel: … a clever-

Shaan: That is so good.

Sheel: Yeah.

Shaan: I love that.

Sheel: Yeah. And so it was just like, you asked about how much money we made, I actually don’t remember, but we ended up selling 11,000… I remember our first order was 1000 headphones. Our second order was 10,000 headphones, so we bought them for nothing, like 11,000 bucks. And then we sold them for whatever, 150,000+ but we spent a lot on marketing. So it was a great side business that I would say the money was really great to me at that time in my life-

Shaan: Yeah, in college it’s like, wow, if you can make a thousand bucks a month in college, you’re like yeah-

Sheel: It was a great amount of money. But more importantly I learned like how to market online.

Shaan: Right.

Sheel: And we were doing all sorts of other stuff. Like at that time blogs were really popular, and that was how a lot of people got content. And so we would do like giveaways with blogs. It was just like, it was a time to experiment. I think at that time there wasn’t a lot… People weren’t writing a lot about how to market online.

Shaan: Right.

Sheel: And so I had to like figure it out on my own, which was awesome.

Shaan: Yes, that’s great. And so you’ve done a bunch of different things and so you’ve made a little accessories company.

Sheel: Yeah.

Shaan: I think you did stock after. Were you just trading at some point?

Sheel: Yeah, options trading. Yeah. So this is actually like through a friend of mine. A friend of mine really got me into this, and we basically realized that you could look at… Most of the internet companies, you can look at like Google trends data and at this time, which was like 10 years ago, the market totally was not correcting for this already.

Shaan: Right.

Sheel: So, we would look at Google trends data, make an estimate on whether there were a lot of visits to that site or not. So we were doing these for like priceline.com TripAdvisor, Travelzoo, these sites. And we’d basically make guesses based on these-

Shaan: Trends.

Sheel: … mainly this one data source, which was the Google trends data.

Shaan: Right. There’s one blue squiggly line.

Sheel: Yeah. And we’d sort of see what the analyst had recommended. And then we basically based on Google trends data, we were like, okay, do we think this company is going to outperform this quarter? And so we would do an options trade. Literally we would do it the day of earnings, and that earnings we either had made a killing or not.

Shaan: Right.

Sheel: But we did pretty well. And I would say like with the trends data, we were probably right three out of five times, which if you’re trading options is pretty good.

Shaan: Right. And so you’ve dabbled in all these different things from trading, to real estate to starting a tech business. You’re an angel investor right now.

Sheel: Yeah.

Shaan: You’ve made a podcast and sold a podcast, which nobody frigging does.

Sheel: That’s true.

Shaan: If you haven’t heard the Pitch, check out the Pitch. It’s now… You sold it to Gimlet.

Sheel: Gimlet, which got acquired by Spotify.

Shaan: So you’ve done all this awesome stuff. I think is great because it’s kind of inspiring because I myself also don’t want to be one track for my whole life. There’s some things I know I’ll do forever. I’ll always be interested in businesses. I’ll always be interested in teaching, which is kind of how I think about this podcast. But who knows? I might dabble in 10 different things. What’s been your favorite? So most fun ones to work on. I’m curious about that. And then the second is, in terms of moneymaking, which one do you think was actually the best way to make money? Was it more investing, starting your own company, the online sales of different stuff, options trading, real estate? So, which one was most fun? Which one was the best for money?

Sheel: Yeah, I’d say the most fun, like I had some pretty high highs with the auction business. And it was mainly because for the first time in my life I felt like, boy this is something that I am really good at. And like it was really this business development making these deals happen. So I’d say you had to have like some strategic thinking, like understanding of economics to build this auction model, and like be a people person to connect with these people.

Shaan: Right.

Sheel: And I felt like this was a perfect… this was really good for me. And I had such high highs when it started to work. I told you, I had such low lows also like with my cofounder and like… But when it was working I was like, boy for the first time in my life, you know I was like 30 years old, 30 something. And I was like, for the first time I life, this is what I’m meant to be doing. Something that like brings all my skills together and my weaknesses I can let go of a little bit and let other people handle it.

Shaan: Right.

Sheel: So that was a super high, high. Another high, high, actually it was not… This is sort of counter to this podcast, but I spent a year volunteering in India and I was doing microfinance and I lived on a dollar a day. And actually like in India it’s not as hard as obviously us here. But I learned a lot by that process too. And I think it’s-

Shaan: That was also just an adventure you wanted to go on.

Sheel: It was an adventure yeah.

Shaan: There was no like calculated purpose for going and doing that.

Sheel: No, no, no. It was an adventure. So, I would say like recommendations wise, fucking choose adventure.

Shaan: So give me an example where you could’ve chose non adventure, you could’ve chose maybe a practical choice or an economic choice.

Sheel: Yeah, well, I mean like when I did that, I was a management consultant making a six figure salary at 25 years old, and I chose to move to India for zero money and it was amazing. And like-

Shaan: How did you make that decision? Like what was your thought process? You’re like, okay, today I’m doing this. Tomorrow I’m going to be in India living on a dollar a day. What was that?

Sheel: Yeah, I was getting like annoyed at the management consulting life, and-

Shaan: As you do.

Sheel: … as you do, as everybody who has worked in banking, consulting, like lawyer, big law, everybody knows this feeling. And then I had seen this movie, it’s called [Foreign language 00:42:43] it’s an Indian movie. And it was like very inspiring to me. So, I saw this movie and I was like, “I want to do something for India.” And so just for background, I grew up in America, but my parents are of Indian heritage, and I always felt a strong tie to India, even though I’d never really lived there. So I was like, I got to do something for India. I heard about this fellowship, applied for the fellowship and I ended up working with Kiva. kiva.org for those of you guys don’t know, it’s a really cool site. It lets you make a loan to an individual in the developing world.

Sheel: So for example, you can go on the site, and with $25 on your credit card, help a farmer in Ghana by an irrigation pump. And you get your money back almost always, it’s like 99+% repayment rate, but you don’t get any interest. So, what you’re giving up is your interest. And so-

Shaan: You could just roll it over to the next person-

Sheel: Roll it over to the next person.

Shaan: So, you put 25 bucks in once and you might end up helping 10 people over the course of a few years or whatever.

Sheel: That’s exactly right. Yeah. As you get paid back. So I was doing that in India and I was helping set up India for them, and there were regulatory concerns anyway. But the coolest thing was I got to experience so many different things. Through the course of this year I ended up… we followed people around who were in our demographics. So I spent a day as a rag picker. So, rag pickers are like the recyclers of India. They go around, it’s like in San Francisco you see like these like Asian men and women like picking up the cans-

Shaan: Can yeah.

Sheel: In India it’s really poor people who do this stuff for recycling. And so I spent a day with this kid who was probably like 11 or 12 years old, just following him around, and picking up rags. Learning what’s recyclable, what’s not. It’s funny I actually real… I learned at that time that still applies to me today, plastics are just not really that recyclable, and especially like the shit we throw here, it’s just actually not that recyclable. You should use more like aluminum stuff. Stuff that you can recycle. It was such a hard job, and I was like, oh for the first time in my life, this is something I really cannot do ever again.

Sheel: There was a time where we like, we jumped into a dumpster, and a dumpster in India is really fucking gross.

Shaan: Right. The street is dirty.

Sheel: The street is dirty-

Shaan: Imagine the dumpster.

Sheel: That’s exactly right. The street is so dirty, the dumpster is just shit. But we went in there and I realized man, people have really hard lives. And I think before that I didn’t truly have an appreciation for how difficult other people have it. Because I grew up not in a rich family or anything but middle class-

Shaan: Normal yeah.

Sheel: … my parents… My dad’s an engineer, so I never had to worry about anything in life. And this was the first time I realized, boy, life is tough. And it made me really appreciate that and also want to spend some part of my life in helping those people or something.

Shaan: Right.

Sheel: So, now what I do is I invest in FinTech companies and everybody, the bullshit thing is like we’re making the world a better place, whatever, whatever. I definitely can’t argue that all of our investments do that, but I think we strive to try to make the world a little bit better. And it’s like, you know, helping underserved could be one angle to it. It could be helping people like us, just like, Oh shit dealing with my bank sucks. I want a better alternative. So-

Shaan: And do you think you’ll ever jump back in-

Sheel: The operating side?

Shaan: Yeah, just start another business?

Sheel: It’s a great question.

Shaan: I’m surprised you’ve been investing for as long as you have been now.

Sheel: Yeah, it’s true. I think part of the reason it’s been good for me is I invest really early and then have companies working out of my office. So, the companies working in my office, like every day I’m talking to them. So I get the feeling that I’m working on them, and I share some of their highs. It’s not the same because the highs are not nearly as high, but also the lows are not nearly as low. So, it’s kind of [crosstalk 00:46:18].

Shaan: Fair enough.

Sheel: Yeah, so for me, I like getting my hands dirty with the companies, so I do do that and that’s where I get some fulfillment. But I think maybe ultimately I’m really enjoying investing and probably going to be doing this for a while. In retirement or something, I probably will start some other businesses.

Shaan: Nice. You have this investing framework, six Ts.

Sheel: I found it online.

Shaan: I’m coining this for you.

Sheel: Great yeah.

Shaan: You’ve said this, and it’s not like super, super revolutionary, they’re sort of obvious things, but I like the six Ts I think that most people… it hasn’t been put that way, I don’t think. And it’s pretty catchy, so I like it. I don’t even know if you remember all the six Ts now.

Sheel: No. No. I’m like, “Man, what are they?”

Shaan: I can help you-

Sheel: I hear… I’ll tell you what I remember.

Shaan: But tell it through story because you invested in… You’ve invested some good companies, take an investment you’re really proud of, and then walk us through the six Ts, and then we’ll wrap up after that.

Sheel: Sure. So we’ll talk about Fl export because it’s like a few billion dollar company.

Shaan: Fl export, it’s amazing.

Sheel: Yeah. So Fl export really-

Shaan: For those who don’t know.

Sheel: For those who don’t know, it’s like a… It started out as a customs broker and now it’s like a really all things shipping company, mostly focused on Trans-Pacific trade. So like US to China, and that US to China I think is like 30% of the global trade. So it’s a big thing.

Shaan: Right. So, they’re connecting who? They’re connecting the cargo, the shippers, basically with people… with the customers who are trying to send, receive and then the brokers in between essentially, right?

Sheel: Yeah, exactly right. Yeah. So I met Ryan, the CEO like five years ago.

Shaan: How did you meet him? You just reached out to him cold, or he reached out to you?

Sheel: No, no. Friend of a friend and we met at a party and I was like, this guy’s awesome. We shared this like love for like hacking stuff. So to give you another example, at that time we were buying AdWords with our Uber promo codes, and-

Shaan: What does that mean?

Sheel: So, you know how like there’s an Uber referral, you get like 10 bucks if somebody else uses your referral code.

Shaan: Yeah. So, you were just advertising your referral code.

Sheel: We were just advertising our referral code on Google. And so we were buying Uber for 20 cents to the dollar.

Shaan: Great.

Sheel: So we totally bonded over these like hacky things that we love to do. And then I was like, okay, like when you’re… He was telling me he was at the time not-

Shaan: You were doing that with him or you were doing that with your other friends?

Sheel: With him.

Shaan: Oh, with him. Okay.

Sheel: And then he was telling me like, you know, he wanted to start this business Fl export before he went to YC, like all this stuff. I was like, “Dude, whenever you’re ready I’m giving you money.” But I said that early on and it was really strength of team. So, like the first T-

Shaan: First T.

Sheel: … is team. This guy, I could tell he’s somebody is going to break through walls to make success happen. And not only that, he’d already been successful. He had this other company called Import Genius, so he knew… Import Genius, basically a list of all of like the stuff that’s being imported in the US and makes it easily accessible. And so he was doing like several millions of dollars a year in that bootstrap business, in revenue, and it’s obviously a related business to the business that he wanted to start. So he knew what he was doing.

Shaan: Team, checkmark.

Sheel: Team checkmark. Technology. So the second T. Is there a technology need here? Fuck yeah. This is all a paper and pen and fax process.

Shaan: Old school.

Sheel: Old school, customs brokers are like phone banks. You’re on the phone and calling people. And so is there a need for technology? Absolutely. Okay. Another T, this is kind of a cheat, total addressable market.

Shaan: Okay, sure. How big is the market?

Sheel: How big is the market? Shipping, are you kidding me? It;s a trillion dollar market. So easy, easy check.

Shaan: For three Ts on the way to six.

Sheel: Three Ts on the way to six. Is it six or is it five?

Shaan: Maybe five.

Sheel: … or four, or three. Maybe it’s just three.

Shaan: No, no, no. Traction.

Sheel: Traction. Yeah. So traction was one in this case when I invested, he didn’t have any.

Shaan: Right. But with his previous business, which was in a related space-

Sheel: Yeah, exactly. So you kind of like, at some point you make a leap of faith and say this guy’s going to bust through walls and get the traction. And also early traction, if you’re able to start selling into other startups, you can get that.

Shaan: Right.

Sheel: I didn’t have a doubt that he would be able to get that. So he did.

Shaan: I have the two other Ts for you.

Sheel: Excellent. Tell me.

Shaan: Terms.

Sheel: Terms. Okay. So what are the terms of the deal? Yeah, so the terms are fair. And you know-

Shaan: So that investment for you now is… that’s a big win.

Sheel: It’s a big win.

Shaan: Are you going to make more off that than you did off any of your businesses? You might.

Sheel: No. Probably not. Probably not.

Shaan: So, okay walk me-

Sheel: But it is a very-

Shaan: Walk people through a normal angel investment. So let’s say, oh I’m listening to this podcast. I’m inspired by all these tech companies. I want to write $25,000 checks.

Sheel: Yeah. And that’s what I was doing by the way. 25,000 and sometimes at the earliest stages, I didn’t have that much money. I was like, “Would you let me in for…” They would be like-

Shaan: Yeah, can I do 10?

Sheel: I’d be like, “What’s your minimum?” And they’d be like, 50.

Shaan: I’ll do half that.

Sheel: Yeah, I’ll do half that. Okay. I’ll do 25 if you let me. And then you have to be like, “I’m going to be so helpful to your business,” whatever, whatever.

Shaan: Because I’m doing some angel investing now, but I don’t know if I’m doing it right. Okay. So here’s how I’m thinking about it. Tell me if I’m wrong.

Sheel: Yeah.

Shaan: So, I think that I’m going to be writing checks that are about 25,000 on average. And I’m setting aside 300,000 to 400,000 to do it.

Sheel: Yeah, that’s great.

Shaan: So I’m like, okay, that’s like 10 bets-

Sheel: That’s great.

Shaan: … or 12, 15 if some of these are lower checks, then I get to 12, 15 bets. And I’m risking, let’s say that’s going to be less than… It’s going to be like 10% of net worth basically.

Sheel: I think that’s a-

Shaan: Right? So, I’m like okay, if I lose it, I lose it. But that’s how many bets I have. Where were you kind of… How was your calculus when you’re like, right, I’m going to start writing these risky checks?

Sheel: I would say my calculus was similar.

Shaan: Similar, yeah.

Sheel: And then I ended up doing a lot more of them, but I had some early signs that things were going really well. Now part of it is at that time was a great time to invest as compared to today unfortunately. The valuations were just so much lower. Some of these companies, you know, I invested in that are now billion dollar companies, I invested at $5 million valuations. And now those companies raising a seed round, it might be like 12 and if you think about it, like that’s a big difference.

Shaan: It cuts your return in half-

Sheel: In half. And people really don’t think about entry point valuation as much as they really should.

Shaan: Right. And so, okay, so in a win state, you’re at a $25,000 check, at let’s say whatever, 5 million valuation. It becomes a billion company, a $1 billion to $3 billion company, something like that. What do you make as an angel investor on the home run like that? What is the base-

Sheel: Yeah, yeah, sure, sure, sure. So here, let me just… I think the way-

Shaan: Because you to factor in a little bit of dilution.

Sheel: Yeah. Okay.

Shaan: [crosstalk 00:52:18].

Sheel: So let’s say you invested 25K in Flexport’s seed round. So Fl export seed round, it was at a… There are many different-

Shaan: Seeds.

Sheel: … it was many different seeds. But where I invested the first seed, it was a $10 million cap, which was very expensive at the time. But I had-

Shaan: Faith.

Sheel: … I had faith in Ryan. And-

Shaan: The seventh T faith.

Sheel: Faith. It’s faith.

Shaan: The hard T.

Sheel: The hard T yeah. And so he’s taken a lot of money in subsequently and now it’s $3 billion company. But obviously it’s not 300 times your money-

Shaan: Right.

Sheel: … because there’s been so much dilution along the way. So, actually where this one sits today I think is 87 times. So that $25,000 ended up becoming over two million.

Shaan: 25 grand turns into over two million.

Sheel: Yeah. And a lot of people are selling now. I’m not, I’m still a believer in the company. So like-

Shaan: So, it could end up being more-

Sheel: It could end up being a lot more, if you believe in like the company keeps… continues to grow. Could this be 10X? And then you’re talking like, wow, that’s a lot of money for an individual. Yeah.

Shaan: Amazing. Yeah. Okay, great. And I think the last T if I remember that you had said was totally random-

Sheel: Totally random.

Shaan: [crosstalk 00:53:23] this one, so I want to make sure that we touch on it.

Sheel: So totally random. Yeah, so it’s like when I make an investment in a company, I’m investing in a person typically, or people. And I want to spend time with these people, and if I can’t spend time with these people, I am not interested in investing. And it’s been like… The folks that I’ve invested in, I’ve spoken at their weddings. It’s been awesome. And so Ryan for example, his bachelor party was a month ago. We had a really good time. He’s investing in my new fund. These are relationships that I want to really cultivate.

Shaan: Right.

Sheel: And for me I have a lot of fun talking about business. So I want to have other friends that talk about business with, and help them, even if I’m not helping them, I’m learning about what they do. So, the totally random piece is like are these cool people? Can I have random discussions with them-

Shaan: Right.

Sheel: … and have a good time?

Shaan: Awesome dude, you have a hell of a story. I’m really glad we did this. Caught you when you were back in town because you travel all around the world. Following you on Facebook is like following the National Geographic. It’s like oh he’s in a tunnel in Egypt, and he’s posting a photo. Then he’s like at the top of this tower in Moscow or wherever. You are a traveler. All right, so this is awesome. If somebody listens to this and they want to either help you, get in touch with you, something like that. How should people follow you, find you?

Sheel: Twitter is good. Or you can email.

Shaan: So, what’s your Twitter handle.

Sheel: @Pitdesi P-I-T-D-E-S-I. So, for those you don’t know, so I grew up in Pittsburgh, so Pit and then Desi. Desi is like short for Indian, and this is like totally lame but I’ve had it since eighth grade. So, it was my AOL screen capture.

Shaan: Yeah, you kept your AOL handle.

Sheel: I kept my AOL handle.

Shaan: Most of us knew to shed that, in like college, we were like, “Oh wait, that was stupid. I’m no longer…” Mine was Mr [Gubapo 00:55:03]. So I’m no longer Mr. Gubapo, I don’t know what that was, but I got rid of it.

Sheel: Twitter’s easy, email. I’m starting a new fund and just starting to fundraise for it. It’s called Better Tomorrow, and I’m [email protected]

Shaan: Okay, I’m going to invest in your fund.

Sheel: Awesome.

Shaan: Great. Let’s do it.

Sheel: That’s fine, man.

Comments

Leave a Reply

avatar
  Subscribe  
Notify of