Google, Microsoft, and Snap earnings, plus the state of VC in the Middle East | E1834

Episode Summary

Executive Summary: Jason Calacanis discusses Saudi Arabia’s rapidly changing startup and venture ecosystem, predicts the wider region could become a leading VC market, and considers how incentives may attract international founders. The show also reviews Google, Microsoft, and Snap earnings; AI’s impact on work and media production; Snap’s governance and profitability concerns; Greycroft’s investment-team changes; and a framework for evaluating venture fund managers.

Main Topics: Saudi Arabia and the Middle East startup ecosystem: Calacanis describes social and economic changes in Saudi Arabia, startup support such as grants, office space, and long-term visas, and a growing investment pipeline from family offices through funds and co-investments toward direct startup investing. He predicts the region could become the world’s second-largest venture capital player within a decade and proposes a 12-episode regional podcast series. Big Tech earnings and AI-driven productivity: Google beat overall revenue and earnings estimates but missed cloud expectations, while Microsoft beat estimates and reported strong Azure growth. The hosts discuss AI copilots as potential productivity tools across professions and cite automated podcast transcription and indexing as an example of work made much cheaper by AI. Snap’s growth, profitability, and governance: Snap reported user growth and more than five million paid subscribers, but remained unprofitable. The hosts question its product focus, user-engagement metrics, debt-funded share repurchase, and founder control, arguing that investors should demand unusually strong product or growth performance when governance protections are limited. Greycroft’s restructuring and fund strategy: The hosts interpret the departure of five investment-team members and a shift away from healthcare and fintech toward AI as strategic repositioning, not necessarily distress. Calacanis argues that reported fundraising targets may be maximum amounts filed with regulators rather than realistic operating goals, and says raising nearly $1 billion in the market is itself a sign of strength. A framework for evaluating venture fund managers: Calacanis outlines three core criteria—proprietary deal flow, a disciplined decision-making process, and the ability to double down on winners—and adds the ability to compete for deals. He also prioritizes a manager’s drive and work ethic over simply collecting fees. Startup finance, equity compensation, and AI media tools: A CLA guest warns founders to understand equity compensation, including option types and 83(b) elections, to avoid unexpected tax liabilities. The hosts also discuss AI-generated podcast clips, arguing that tools that export editable layers to professional software could best serve enterprise editors.

Key Arguments: Calacanis argues that Saudi Arabia and neighboring markets are building a path from family-business wealth and private equity into venture funds, co-investments, and direct startup investment; supportive programs and proximity to large populations could make the region attractive to founders. The hosts see AI as a broad productivity layer rather than a single product category: copilots could help many professions, while automated podcast archiving demonstrates how AI can replace expensive manual work. Snap’s user scale and low valuation do not alone make it attractive. The hosts say persistent losses, founder control, debt, and unclear product direction make profitability or exceptional growth important evidence for investors. Calacanis contends that Greycroft’s team changes and sector shift can be active portfolio management. He cautions that reported fund targets may reflect regulatory filing limits, not the manager’s practical fundraising target. For venture fund selection, Calacanis emphasizes differentiated deal access, sound investment decisions, and follow-on capacity; he also looks for managers who remain highly motivated to win. Founders should understand equity compensation before making promises: a mismatch between promised terms and a company’s later valuation can create substantial tax exposure for employees.

Data Points: Saudi/Middle East venture capital ranking: Could become number two within 10 years - Calacanis’s prediction for the broader region, in both LP commitments and startup investing. Proposed regional podcast series: 12 episodes in 2024 - Calacanis’s plan to feature regional founders and investors and explain the ecosystem to a U.S. audience. Saudi startup hub capacity: About 150 startups - Calacanis describes Riyadh’s Garage workspace as housing roughly this many startups. Google Q3 revenue: $76.7 billion, up 11% year over year - Google beat overall analyst estimates; its cloud revenue was reported at $8.4 billion, up 22.5% year over year but below expectations. Google workforce: About 182,000 employees, down from a peak of about 190,000 - The hosts use the decline alongside revenue growth to illustrate a focus on efficiency. Microsoft fiscal Q1 revenue and net income: $56.5 billion revenue, up 13%; $22.3 billion net income, up 27% year over year - Microsoft beat top- and bottom-line expectations; Azure growth was reported at 29% year over year. Podcast archive project estimate: About $100–$200 per episode; roughly $500,000 for 2,000 episodes - Calacanis’s estimate of the former manual transcription and indexing approach, compared with an AI-powered archive. Snap daily active users: 406 million, up 12% - Snap’s reported daily active users; the hosts question whether app opens alone fully reflect meaningful engagement. Snap Q3 revenue and net loss: About $1.2 billion in revenue, up 5% year over year; $368 million net loss - Snap returned to revenue growth but continued to lose money. Snapchat+ subscribers: More than 5 million at $2 per month - The hosts note this implies at least $10 million monthly subscription revenue before other considerations. Snap cash and debt: $3.6 billion cash and marketable securities; about $3.75 billion debt - Discussed in the context of Snap’s proposed share repurchase and continuing losses. Greycroft fundraising: About $980 million raised against a reported $1.6 billion target - The report described fundraising as roughly 40% below target; Calacanis cautions that filed targets may be upper limits rather than practical goals. Greycroft investment-team departures: Five people, including two partners and three principals - The departures accompanied a reported reduction in active healthcare and fintech investing and a greater focus on AI. Potential equity-compensation tax problem: About $200,000 - CLA’s guest gives this as an example of the tax exposure that can arise when equity promises are based on outdated valuations.

Pivotal Quotes: "This is far from a sign of weakness." — Jason Calacanis: His conclusion that Greycroft’s departures and investment refocus could represent active strategic management rather than a fund in crisis. "This is going to be the number two player in venture capital within 10 years." — Jason Calacanis: His forecast for the Middle East and North Africa region’s future role in venture capital. "If a company has the governance and the capital situation that Snapchat has ... then you need to be absolutely blown away by the product." — Jason Calacanis: His proposed rule for assessing consumer companies where founders retain control despite financial and governance concerns.

Implications: The discussion suggests founders and investors should assess emerging markets by their full support systems, not just local capital; treat AI as a practical productivity tool; and scrutinize governance, profitability, and manager incentives alongside growth.