David Sacks: Silicon Valley's Rainmaker

[00:00:09] Morning folks and welcome to today's episode called David Sacks, Silicon Valleys Rainmaker. And Sacks is a very interesting and powerful figure. He started his tech career with PayPal and it was Sacks, together with other PayPal founders, who organised the coup that got Elon Musk fired as PayPal CEO.

[00:00:32] He went on to start up Genie.com and Yammer, selling Yammer for $1.2 billion. He then set up a venture firm and he has risen to prominence, you could say, through the All In podcast. And then in 2024, President Trump made him AI and crypto czar. So it's Sacks who is advising Trump on the type and amount of regulation required for AI. A very powerful and important position.

[00:01:02] So who is Sacks? How did he get to where he is? This is a cracking episode. Enjoy. So David Sacks, born in Cape Town, South Africa in May 1972. His father was an endocrinologist. And in August 1977, when Sacks was just five years old, you had the Suecio uprisings. They happened the year before. There were international sanctions were tightening in South Africa. So the family left and they moved to Memphis, Tennessee.

[00:01:32] At school, because of his accent and the fact that he was an outsider, he gets bullied. And Sacks credited those early hardships, I suppose, with giving him this self-reliance and this tendency to question rules. Now, he excelled academically. And in 1990, he went to Stanford to study economics.

[00:01:54] And it's there, of course, where he meets Peter Thiel. And Peter Thiel had founded the Stanford Review, this conservative libertarian college paper. And Sacks is appointed editor-in-chief. And he frames the editors and writers as the real radicals on campus. He targets political correctness. He targets what he calls dumbed-down admissions.

[00:02:22] The whole structure, I suppose, of campus multiculturalism. But the most controversial thing he produces at Stanford is a book that he co-wrote with Peter Thiel. And it's called The Diversity Myth. And you can tell by the title what it's all about. Because it's fair to say that Sacks was really anti-woke well before the term was even invented. But one section of that book really came back to haunt him.

[00:02:49] And this is where he and Thiel asserted that date rape was, and I quote, belated regress. Now, in 2016, Sacks walked that back, and he issued a public apology. And this is a quote from him. This is college journalism written over 20 years ago. It does not represent who I am or what I believe today. I'm embarrassed by some of my former views and regret writing them. And I think that's fair enough.

[00:03:16] Like, I think it's nearly a rite of passage to have beliefs in college that you look back on now and you think, geez, how stupid was I? I know I do. Anyway, after graduating from Stanford in 1994, he went to Washington to work as a legislative aide, drafting policy briefs. But he found it stifling, slow-paced. He saw that there was too much compromising in politics.

[00:03:43] And so he enrolled at the University of Chicago Law School in 1996. He finished that in 1998. And initially, I didn't know this, he went to Los Angeles with a job offer. But he decided, and it's a quote from him, that, it was so brutally competitive, I didn't want to be another random producer with no resources. So stick a pin in that, because he does return to LA when he has resources.

[00:04:09] But for now, he moves to San Francisco, joins McKinsey as a consultant. But he stays in contact with Peter Thiel, because Thiel wants him to join his startup. Now, it was initially called Confinity, but it becomes PayPal. So I'm going to stick with the PayPal name. So the whole story of PayPal, it is remarkable. I think it's the best startup story ever. And if you want a great read, then buy Jimmy Sonny's book, The Founders. It's all about it.

[00:04:37] And myself and Keith did an episode on PayPal in June 2024. So I really recommend going back and listening to that. So basically, the foundations of PayPal was that they were developing a product that would allow PAM pilots to beam money to each other. That was their main product. But to enable people who didn't have PAM pilots transfer money, they also developed a secondary email money transfer product.

[00:05:02] Now, the founders of PayPal, they had very little interest or regard for the email money transfer product. But Sachs saw straight away that this should be the focus. This email product should be the main product. So he said to Thiel, he joined PayPal if the email product was going to be the main product. Thiel assured him that it would be. But this was kind of a fudge. For a while after Sachs joined, both products were given equal status.

[00:05:32] So initially, Sachs is pissing off a lot of people by being very vocal about what he thought of the PAM pilot idea. In other words, it was a shit idea. He was telling them that. And he was right. Now, Thiel, of course, got a lot of pushback from the others for hiring Sachs. But Thiel hired him because he knew that Sachs wasn't afraid of going against the grain. That he would always speak his mind.

[00:05:57] He also knew that Sachs was very focused and very organized. Anyway, Sachs was quickly proven right about the email transfer money product because the product was quickly adopted by eBay's users and sellers. So for a bit of context, back then, eBay was the hottest and one of the most popular websites in the world. And there wasn't a convenient way for people to pay for goods on the site until the email money transfer product came about.

[00:06:26] And so PayPal's growth suddenly took off. For example, in November 1999, PayPal had a thousand customers. Three months later, they had a hundred thousand. So the PAM pilot idea, it's dumped and everything now was focused on the email money transfer product. And Sachs, he is credited with getting the team to focus a hundred percent to make sure they got the product right. Here's a quote from him. If you didn't have a good product, you didn't have anything.

[00:06:55] And that shaped my entire subsequent career. Now, then interstage left Elon Musk. So Musk had founded X.com and he had far bigger ambitions than PayPal. He wanted to build a one-stop shop for all of your financial needs. But just like the PayPal team, he'd also developed the email money transfer product, almost the exact same as PayPal's as a side thought. But the same with PayPal as well.

[00:07:26] Once the eBay community started to use Musk's email money transfer product, it became the main product. And for a few months then, PayPal and X.com were caught up in this massive and very, very expensive battle with each other. And they soon realized that it made sense to merge. So that happened in March 2000. And on the same day that the merger happened, they also closed a $100 million round of financing.

[00:07:54] And the timing could not have been any better because just a few weeks later, the dot-com bubble bursts. So now they have $100 million in the bank. They were the dominant company in the money transfer market. And that position becomes even more solidified because as a result of the burst bubble, most of their competitors were now gone. But internally, the company was not a happy camp.

[00:08:18] There was a huge amount of tension and infighting between the X.com team and the PayPal team. There were arguments over what type of technology to use, what the name of the company should be. Musk, unsurprisingly, has always been fixated on X.com. And he wanted to keep it because he still believed they should continue with his vision of building a huge all-in-one banking platform.

[00:08:46] Sachs and the PayPal team, they were dead set against that. They wanted to stick with the PayPal name and focus on just the money transfer product because that was growing at a huge rate. So Sachs, together with Thiel, Reid Hoffman, Max Levshkin, who is the PayPal co-founder, they organize a coup. They wait until September 2000, when Musk left to go on a delayed honeymoon to Australia.

[00:09:11] And while Musk's plane is still crossing the Pacific, they send a letter of no confidence in Musk to Sequoia Capital, their main backers. The board sides with the conspirators. By the time Musk lands in Sydney, Peter Thiel had been installed as the new CEO. Musk is out, though he remains the largest individual shareholder. And despite the acrimony, Sachs and Musk always got along really, really well.

[00:09:40] Which I think is a testament to Sachs' overall capabilities. Because Musk never has any time for people who aren't good at what they do. So now with Musk gone, PayPal is focused on their single product. But it's also facing another crisis that could kill the company. International fraud rings had figured out how to exploit the system. And the losses, they're running into the millions of dollars a month. Bad enough that the business, it mightn't survive.

[00:10:09] And this is where Sachs' focus on the product combined with, I suppose you'd call it his operational rigour, it really comes to the fore. Because he develops what he'll later call the cadence. A disciplined, quarterly operating process that gets product and engineering and finance and marketing and customer support all pulling in the same direction.

[00:10:37] But working with Sachs isn't always easy. To get a feeling as to what it's like to work under him, here's a quote from a former colleague. There's masters and there's slaves. He doesn't have partners. It's you do what I tell you to do, or you're one of the few people that tell me what you want me to do. Part of his drive is that he believes he is one of the small number of elite people who really get it and are capable.

[00:11:04] And I think anybody who has listened to Sachs on his podcast will understand that. Like, Sachs has a huge amount of self-belief, and rightly so. But there's also a lot of arrogance there as well. Anyway, while Sachs is getting PayPal into shape operationally, the engineering team under Levchin, they're building sophisticated fraud detection systems,

[00:11:29] pioneering tools like Captcha to defeat the fraudsters and the combined effort it works. By the end of 2001, PayPal is thriving. Revenue has grown from about $14 million in 2000 to $105 million in 2001. And in February 2002, the company goes public. At the end of its first day of trading, it's valued at roughly $1.2 billion. And to celebrate, the PayPal team, they get some beer kegs,

[00:11:58] and they have a party in the car park of their office. And Thiel took on 10 players in quick succession in games of speed chess, and he beats nine. He loses only to Sachs. And there is a great photo of Sachs celebrating that win. Just Google David Sachs beats Thiel in chess, and you'll see the photo. It's really good. Then, in October 2002, eBay buys PayPal for $1.5 billion.

[00:12:25] Now, it's never been revealed how much Sachs made from this, but the best estimates are that he would have had maybe 1% to 2% equity, which would give him something between $15 million and $30 million. So Sachs, along with other PayPal executives, they initially go to work at eBay. But in one of his first meetings, eBay's consultants give the PayPal team a 137-page PowerPoint deck. Sachs looks at it, turns to his colleagues, and says,

[00:12:55] If we stay here, you're going to have to build a whole PowerPoint team, because that's the only way to communicate with these people. So, no surprise, he leaves eBay. And he relocates to Los Angeles to start Room 9 Entertainment, a film production company. And I really love and admire this move, because Sachs loves movies, and while he initially thought about a career in Hollywood back in 1998,

[00:13:23] he knew that if he wanted to be in control, he'd have to have his own resources. So he goes off to work, got his money from PayPal, and makes the movie he wants, which I'm going to get into. So, big kudos. Now, to fund the film, he also gets some investment from Thiel, Hoffman, and Leftchin, essentially the PayPal mafia, because these guys now have become well-known angel investors. And indeed, Sachs himself, around this time, becomes an early investor in SpaceX, as well as Palantir. Anyway, back to the movie.

[00:13:53] Sachs has his sights on Jason Reitman's adaptation of Christopher Buckley's satirical book called Thank You for Smoking. It's about an unscrupulous, sharp, funny tobacco lobbyist. And fair dues to Sachs, because he resists the standard studio instinct to soften the main character. And the movie is all the better for it, because it really is a very good movie. I watched it a few years ago.

[00:14:22] The Guardian wrote that it's a witty, cynical, spin-doctoring masterclass. It gets a Golden Globe nomination. And not only that, it's a financial success. Like, not a blockbuster success, but it was made for just 8.5 million, and it takes in 39.3 million. But despite the success, the experience, it actually puts Sachs off Hollywood, because he grew bored with the slow pace,

[00:14:50] and he realised that he preferred the speed and control that comes with start-ups. So, in 2006, he co-founds Genie.com, a website that helped people build their family trees online and connect with relatives. But as Genie grows internally, the team, they run into a problem that a lot of fast-growing companies ran into back then.

[00:15:13] You see, email wasn't any good for the kind of rapid, cross-functional communication that they needed. So, they're looking for a tool that would give them quick updates, visible across the company, but completely contained. Think of Slack. But it didn't exist at this stage. So, Sachs and his team built their own system in 2007, and it's meant to be for their own use. But it works so well that they spin it out as a separate company called Yammer.

[00:15:44] It was launched at TechCrunch50 in 2008, and it won the top prize, beating 52 other start-ups. And TechCrunch described it as Twitter with a business model. On the very first day that it launched, 10,000 people signed up. And the reason it spread so fast is the strategy that Sachs uses to get sign-ups. Here's how it works. Any employee with a corporate email address can sign up for free. They invite colleagues.

[00:16:14] Conversations start before long. Business discussions and, I suppose, institutional knowledge are living on Yammer. And then eventually, the CIO or the CTO discovers that hundreds or even thousands of their employees are using a platform that the company never officially approved. So, if management wants security controls, compliance tools, administration features, they have to buy the premium version.

[00:16:39] So, the IT department doesn't choose Yammer. They get dragged into it by their own employees. Essentially, Sachs creates a product that spreads organically from the bottom up until management have little choice but to embrace it. It's a classic land and expand strategy. You know, establish a beachhead inside the company. By 2012, Yammer has over 5 million corporate users.

[00:17:07] About 85% of the Fortune 500s. It's raised $142 million. It has $60 million in annualized revenue. And also, in 2012, Microsoft is in a difficult position. Because its core internet product called SharePoint, it has no real-time social layer. And the whole Office franchise, it's under a lot of pressure from cheaper cloud alternatives like Google Docs.

[00:17:36] So, Microsoft approached Yammer early that year, 2012, to discuss a potential deal. And Sachs plays a very, very clever game. He doesn't appear too eager. He's just raised $85 million in early 2012, which gives Yammer a valuation of about $600 million. And he uses some of that money to buy a company that strengthens Yammer's product offering. Essentially, what he's doing here is he's sending a signal.

[00:18:03] First of all, that Yammer has enough cash in the bank. And also that it's intent on having its own full standalone documentation collaboration suite. So, he's signaling that he's not desperately looking for a buyer. Very clever. And it works. Microsoft pays $1.2 billion in cash in June 2012. Double what Yammer was valued just a few months previously. Again, we don't know exactly how much Sachs makes from this deal.

[00:18:33] But it's estimated that he would have cashed out at least $150 million. And it could be as high as $300 million. A few months later, a few months later, in November 2012, Genie.com, the genealogy platform, is sold to MyHeritage. Now, Genie.com was a private company. So, we don't know how much it sold for. But crucially, Sachs converts his Genie.com founder's equity into MyHeritage shares. And MyHeritage was sold in 2021 for $600 million.

[00:19:04] So, it's likely that he walked away with tens of millions from that deal. So, by the end of 2012, Sachs has had a very, very good run. But, as we all know, in every entrepreneur's career, there are always bumps along the road. And for Sachs, it came in 2014 when he made what he said at that time was his largest investment to date in a private company. This is when he invested in Zenefits.

[00:19:33] Now, I couldn't get the exact amount of his investment, but it was in the millions, not the tens of millions. So, Zenefits was a human resources software startup started by Parker Conrad. After investing, Sachs became COO. By mid-2015, the company had raised over $500 million. It had a valuation of $4.5 billion.

[00:19:54] But then, in late 2015, investigators revealed that Zenefits has been allowing unlicensed sales reps to sell health insurance. And even more than that, Parker Conrad, the founder, had written a custom browser extension that lets Zenefits sales agents fake their way through California's legally mandated pre-licensing training course.

[00:20:21] So, unlicensed employees could operate as insurance brokers. In short, the company was violating state insurance laws across the board. Now, Sachs had nothing to do with these infringements. So, Parker Conrad resigns. Sachs takes over as CEO. And again, big kudos for the way that Sachs managed what must have been a very pressurized and tricky situation.

[00:20:49] So, in one of his first major decisions, he slashed the company's valuation from $4.5 billion to $2 billion. So, this is so that the last round of investors can see their equity increase from around 11% to 25% without putting in any new money. And they agree then not to pursue any legal action. Of course, in doing so, Sachs massively diluted his own shares. Next, the company laid off more than 350 employees.

[00:21:18] Then, Sachs changed the product itself. The old Zenefits product made money on insurance commissions. The new product is a pure SaaS subscription model. And finally, Sachs reaches settlements with regulators across 17 states. So, he steadied the ship. Then, he set it on the right path. And he steps down in 2017. And Zenefits is eventually sold privately. Now, it's likely that Sachs either lost money or, at best, broke even.

[00:21:47] But he has to be given a lot of praise for, you know, stepping up to the place and saving the company. It really was a textbook example of fantastic crisis management. Now, after leaving Zenefits in 2017, Sachs co-founds Kraft Ventures. And the strategy is pretty straightforward. Take everything that he's learned and apply it systematically to early-stage investing. They focus on B2B SaaS, developer infrastructure, marketplace platforms.

[00:22:17] And Kraft and Sachs, they've backed or held positions in more than 20 startups that go on to achieve billion-dollar valuations like Airbnb, Uber, Slack, Reddit, Affirm, Vanta. And they're also heavily invested in AI, crypto, and cyber security. Now, most of you will also know about Sachs' involvement with Twitter. When Musk took over, Sachs gets heavily involved in the early stages. And he put some of his own money in as well.

[00:22:46] Though not a huge amount. Which turned out to be the right call. Because Twitter is not in a good place. Like, revenue has fallen from $5.1 billion just before the takeover to an estimated $2.9 billion based on the last known figures. And the company is saddled with a $13 billion debt. Which translates into around $1.5 billion a year just in interest payments. I mean, that's gotta hurt.

[00:23:14] But Sachs himself, he is in a very good place. Like, in terms of his overall net worth, it's difficult to find an accurate answer to that. It's believed to be somewhere between $300 million and over a billion. And his public profile has also grown substantially since 2020. Firstly, with a massively successful All In podcast. The podcast was started almost by accident. So it was March 2020. COVID lockdown hits.

[00:23:43] Sachs, along with Chamath Palapatea, Jason Kalikinis and David Freeberg. They decided to take the arguments that they'd been having at their weekly poker games and just to broadcast them. And it became a massive success. It's mostly tech and politics. I've listened to it a good few times. And look, if you want an insight into Silicon Valley, into Bitcoin, AI or any kind of tech investments, these guys have great insights. This is their speciality.

[00:24:13] And they are very, very good at that. But the politics? No thanks. Just not my cup of tea. But then his profile went up a good few notches when, in December 2024, Trump announced that Sachs would serve as the White House AI and crypto czar. Now, as you know, I try to stay out of politics as much as possible on this podcast.

[00:24:38] But I kind of have to talk about it here because Sachs has put himself into the political sphere in a very, very big way. Now, listeners will know that I'm not a fan of Trump. But I'm also not going to criticise anyone for supporting Trump when they've been open and honest about their support for him. I mean, listen back to my episodes on Palmer Luckey or Dana White. The problem I have with Sachs isn't his politics. There's plenty I disagree with him on. You know, his relentless war on woke.

[00:25:07] I just find it a bit boring at this stage. His stance on Ukraine, where he basically blames NATO for the war. I find that ludicrous, but fine. I mean, like, I've always believed, and I've said it numerous times on this podcast, that people should be able to disagree on politics and still be respectful towards each other. My problem with Sachs is the contradictions. I mean, first, let's go back to the January the 6th riots. These are Sachs' own words. This is from his podcast.

[00:25:35] What Trump did was absolutely outrageous. He will pay for it in the history books, if not in a court of law. Sachs also deleted up to 20 tweets that he posted after the riots, including one where he said Trump had disqualified himself from being a candidate at the national level again. So, what's changed with Sachs? Well, this is what Sachs now says. January 6th was a PSYOP designed to make President Trump look bad. As I learned the truth, I updated my views.

[00:26:06] Now, look, I understand some of my listeners also believe this PSYOP narrative. I don't believe it, but that's besides the point. My point is that when it comes to Sachs, it's really hard to know what he actually believes and to trust what he says. And I'll explain what I mean in a minute. But regardless of whether or not Sachs believes that January 6th was a PSYOP, it served its purpose.

[00:26:35] He got the job he wanted. AI and crypto czar. Now, you could argue that this is simply realpolitik, a calculated move to maximise Silicon Valley's influence in Washington. And it's working. I mean, Sachs has become genuinely very, very effective at pushing through a largely unregulated AI agenda, which I think is kind of scary.

[00:27:05] And look, I believe that the EU over-regulates when it comes to technology. But when it comes to AI, such a transformative, revolutionary and disruptive technology, I think it's very, very dangerous to have a business person in charge of regulation. Especially when you take into consideration Sachs' framing of let the private sector cook. That's his motto.

[00:27:32] He's essentially arguing that the people who are set to profit most from AI should also set the rules for AI. That's such a flawed structure. And just a few hours before I started recording this episode, Anthropic has come out and suggested a global pause on building the most powerful AI systems.

[00:27:55] Because they are saying that the latest models are beginning to show signs they could escape human control. Folks, this is one of the best AI companies in the world. Most of us, including me, use and love Claude. And the people behind Claude are telling us that it could escape human control. They are being the grown-ups in the room. They are being cautious, responsible. They also said,

[00:28:25] Without a global coordination mechanism, companies and governments will have to make difficult decisions about safety while under competitive and geopolitical pressures. I agree with that 100%. We need to listen to responsible AI experts. And going forward, I too believe there needs to be global cooperation when it comes to AI.

[00:28:51] Now, getting back to why I find it hard to trust what Sachs believes. Look, he has been a lifelong libertarian. Libertarians oppose tariffs. That is a core principle. And yet, here is David Sachs defending tariffs. And just to be clear, people will argue that Trump is using tariffs as a negotiating tactic. Sure he is.

[00:29:16] But Trump also believes in tariffs 100% and has so for decades. And he is using them as an economic tool even outside of negotiations. A principle that is denounced by libertarians. Libertarians also oppose foreign interventionism. Again, this is a core principle. But in the last year, we have Sachs supporting Trump's proposal to buy and or just take over Greenland.

[00:29:45] Again, these aren't fringe libertarian positions. They are core principles. Now, Sachs would be well able to defend himself and provide a reasoned argument for why he's willing to forget principles he's held his whole life. He's brilliant at arguing. But brilliance in argument is not the same as honesty. And for all his intellectual firepower,

[00:30:10] I believe what he has demonstrated is a willingness to contort his values into whatever shape gets him a seat at the table. That's why I just don't trust him. But look, I'll leave the final word to someone who knows him far better than I do. So this is a quote from a very good friend of his. And in this quote, his friend is referring to Sachs when he said,

[00:30:37] some libertarians care about the freedom of only one person. And the friend who said that, it was Peter Thiel. Anyway, whatever your thoughts on Sachs, he makes for a very interesting business story. And this brings us to listeners emails. And this one comes from Anthony, who'd love me to do an episode on Calvin Klein. And Calvin Klein actually wasn't on my list. I think I might do that next week or the week after. So thanks a million for listening, Anthony, and for the suggestion.

[00:31:06] And remember, if you have any comments, any corrections, or any story that you'd like me to cover, email me at info at gbspod.com. All the best, folks.