Tax season is upon us so we decided to bring on a guest from the Interplay ecosystem to help break down some must-knows for startups when navigating the process. The guest is Kate Kelly, CEO and Co-Founder of Chelsea Capital. Chelsea Capital is a financial services company, offering alternative financing, accounting, tax, and fractional CFO services. Kate shares some great tax season tips for startups.
Here’s what’s covered during the other partner meeting segments:
Transcript (this is an automated transcript):
MPD: Welcome everybody. I'm Mark Peter Davis, managing partner of Interplay. I'm on a mission to help entrepreneurs advance society, and this podcast is part of that effort. Today we've got our normal partner meeting. We're gonna have a couple of conversations with partners, but we have a special guest, an internal guest, my partner in crime, c e o of Chelsea Capital, Kate.
Now there are five companies at Interplay where we have co-founded the companies in partnership with the ceo and we work with them closely. And so they're really are partners even though they don't have the title of partner interplay. And we, we care about what they're doing. We're involved in the businesses and we're really supportive.
But we we had this moment internally, we were talking about how this is getting into tax season. It's a crazy time for the folks over at Chelsea Capital, they do accounting tax and cfo. And we thought it would be worthwhile to have her on to shed some light on how to think about taxes for all the entrepreneurs out there, because the reality is there's a bunch of hacks and tricks that no pe most people dust don't know, and it's not rocket science.
And I think the perspective is super helpful. Without further ado, we're gonna jump into this week's session and look forward to introducing you to Kate Kelly of CH Chelsea.
It's tax season and none of the startups, business people or anyone else wants to deal with it, but you need to we thought it'd be appropriate to bring Kate Kelly my partner and CEO of Chelsea Capital on Chelsea Capitals and accounting tax and CFO firm, working with tons of early stage companies to give us some basic tips.
To make it less stressful for entrepreneurs. So Kate first do you want to give everyone a little background on Chelsea just so they know who you are and what you're doing? Sure thing.
Kate Kelly: So founded Chelsea Capital with the mission of taking all things off of founders plates that tend to be stress invoking and often neglected.
Those things being accounting and tax for sure, and also fractional CFO services. Very
MPD: cool. Okay. Tis tax. What's the basic headline? We'll drill down a little bit. What does everyone need to know about taxes? Sure
Kate Kelly: thing. So it is tax time and you mentioned a big word that comes off pretty often and that's stress.
So my number one thing with taxes is don't freak out. Take a couple of deep breaths. I know the i r s can sound daunting and terrifying, but you've got plenty of time to do this right the first time, so it won't come back later.
MPD: Okay, but there's a deadline, right? When's the corporate deadline? And Absolutely.
There's a couple of different dates floating. Yeah,
Kate Kelly: so the big ones are gonna be March 15th and April 15th. However, there's a thing called extensions, which I highly recommend that everyone take advantage of. There's no downside. It gives you plenty of time to get yourself in order, clean up your book, and then you're talking September and October
Okay, so what's the March 15th? What's the April 15? And how do those correlate to the September and October? Yeah,
Kate Kelly: so your March 15th deadline, that's going to be for S-corp and partnerships. And then your April deadline, which will be April 18th this year, that's going to be for your C-corp. If you file those extensions, that pushes those dates out to the fall, which will be your September and October deadlines,
Cause there's all these dependencies and taxes, right? You gotta get your tax document from other people. You do business. So that you can file your taxes and if they're late, you're
Kate Kelly: host. Exactly. Especially as a business owner, when you're talking like W2 employees, your employer is gonna get you that W2 in early January and you've got plenty of time till April to file your A business owner if you're invested in other companies waiting for those K one s, like I said, can take a long time.
You're also gonna have to close your books which can sometimes take till January and February, and then by the time you're turning around to a March deadline, that can come up pretty
MPD: quick. Okay, let's talk extensions. Cuz as unexciting as this might seem to a lot of people, this is one of the biggest aha moments for me as an entrepreneur.
Your whole life through school, junior high school, all this, you can't churn a paper in late. That's the one thing you can't do. Shit. The bed on the paper , you can make a bad paper, but you can't turn it in late, right? That's no-no, you get an F, but taxes you can turn in late and there's no penalty.
Kate Kelly: if you file that extension, there really isn't a downside. There's no, consequence for taking that tons of extra time to get things done. If. Wanna take your paper analogy. It just buys you so much extra time that you really should take advantage of
MPD: When this kind of clicked.
I, so all of my tax stuff goes in, in the October deadline now. , right? I, the April 15th now is just a administrative, like a little bit of paperwork that's signed, but my taxes are done in the fall. Yeah. Which is a big mental shift cuz it gives all the other things that I'm involved with. Time to.
If they're late, I think still get stuff in and then it gets done. So what's, when I heard that, I thought it was too good to be true. What is the actual downside to filing an extension? Why is everyone not filing an extension? So I
Kate Kelly: think it goes right back to your paper analogy. Nobody wants to hand in their taxes late, even though there is no penalty about it, it's still that anxiety of, Hey, this is the deadline, I'm going to miss it, and the IRS is gonna come and take my house and children away.
That is not going to. So you've got that time and I think it's really just people wanna cross that, that box off their to-do list of taxes are done. So now I can breathe. It is way better to take that extension time to get it done correctly than sprint through it and have to file an amended return. An amended return is going to get looked over by a human being, not a computer and far more likely to
MPD: get audited.
And it costs you more money cuz people have to do a bunch of work. Exactly. Headline for me is I always do extensions. Why would anyone not do an extension? I guess it's just if you have everything upfront and it's super easy, but if you have any complexity, extension, I
Kate Kelly: totally agree with you, and even for the simplest returns.
At Chelsea Capital, we file extensions for everyone with, even if we know we're gonna get 'em done. Plenty of time before the deadline, everybody gets an extension. Again, there's no cost to it, there's no penalty, so you might as well do it even if you
MPD: don't. Yeah. And just six months is way extra months is way more chill.
Kate Kelly: Yeah. And even if it's just end of April, early May, it just gives you that breathing time to take the opportunity to review your return things as little as an address change you might catch. And if you rush through it, you might not, and then you're filing an amend, amended return.
MPD: Got it. Very annoying.
Okay, so that's the high level. What should everyone be thinking about? What are the best practices for people when they're dealing with. Founding team, maybe they're scrappy. No one's ever done this for business before. I know they're gonna go to their tax people and their tax people are gonna tell 'em most of the stuff they need to know.
What are the kind of the tricks of the trade outside the extension that people should be aware of?
Kate Kelly: Yeah, so it starts out with having clean books. So a lot of times people will jump to the tax portion of it, where really the data that's fed into that is going to be from your accounting.
So you wanna make sure that all of your books are closed, everything's buttoned up, and then that makes your tax accountant's job so much easier and you can't do one before the other.
MPD: Okay? If it's a solo practitioner, one person shop is an Excel sheet with the money they made and the expenses they had enough.
Kate Kelly: That could be enough. If you've got really low transaction volume, you can get away with that. We typically put clients on QuickBooks or some other accounting software. It makes things a lot easier. If you're an accrual based company, you definitely wanna go with something like that. We're actively taking on a lot of clients that we're doing that cleanup work for them now, so pretty much taking an entire year worth of transactions, cleaning that up into a QuickBook similar software or QuickBooks.
And and having that reporting available. So that could be something you do on a yearly basis, where right now you do the cleanup for the year. Other transaction volume heavy companies are gonna wanna be doing that monthly just because it's a lot of load and it's really difficult to remember a transaction that you maybe did a year ago that's an accountant has a, has
MPD: a question about, you can't remember how to classify anything.
Nope. Not happening. I remember one of my early lessons as an entrepreneur was you do your proper bookkeeping and account. Early in the business because the year two three cleanup is far more expensive cuz it's all this guesswork, it's all this noise than just keeping the book straight from the beginning.
You'll see first time founders go out and they have to, it's just not here nor there, they're just, they think it's not a priority and it's not the number one priority, but if you can do what you do, the pros, mult, serial founders, they start their accounting on day.
Kate Kelly: And that's something we see very often and I get it.
A lot of these entrepreneurs did not start their businesses for their love of accounting and tax filings, . That's not what they're in this business to do. And exactly where we got our start was I want founders to be able to focus on growth and scaling and fundraising and have the peace of mind behind their accounting and finance.
Everyone agrees that it's really important, but oftentimes it can just trickle down to that bottom of the to-do list and for good reason. You're hiring people, you've, you're grown a company, you're doing a lot more things that tend to take priority in the moment, but when it comes to this time of year, it can be daunting and a little terrifying because you haven't done the proper workload all year
Okay, so someone's got their book straight. They hired an accounting firm. They're getting their monthly reports, they. End of the year comes and they've got clean books. What else do they need to do? Gosh, that makes our life
Kate Kelly: so much easier. , . But if that's not the case, it probably saves them a lot of money.
Certainly help with cleanup. Yeah. It's not as daunting when we do it every day. So we can certainly help with, Hey, I haven't touched my books all year round. We can handle it, get you off to a clean start, and then you can maintain those books throughout the year. Okay. So once they have clean books that goes right to our accounting team, or sorry, a tax.
They take a look. We collect all of the documentation that we need, usually financial statements, some payroll documentation. We do a first pass where we'll do a draft return, and then we're gonna ask any additional questions that we have any complexities that we wanna address, get that final return to you, you review, and then we have that scheduled for filing
But this is a foreign language, right? You're a business person. Yeah. Your accountant tax person comes and says, here's a draft return. It's 800 pages long. The forms are terrible. Oh, they're the worst . Yeah. It's, they're like, sign here. You don't know what the hell you're looking at. Yeah. So what, what should a ceo, a founder know to look for?
What are the things that they need to know to move this process forward? Us assume they're hiring a professional. Absolutely.
Kate Kelly: And before we do any filings, we try to break down that, Complexity of those monster returns to really high level of here's the amount of income that you took in, here's the tax reductions.
We were able to find here's the ultimate amount that is due. We go through the state nexus analysis, so you don't really have to sift through that return and ask. You don't know the questions to ask a lot of the time.
MPD: Yeah. What are those questions? So first of all, what's the state nexus? You dropped that one.
Yes. State nexus pin is a, this is a big thing for a lot of companies
Kate Kelly: often add a lot of complexity, especially for SAS companies. State Nexus is essentially whether a state is expecting a return from you. So you might think, Hey, I only do business in New York City. I'm gonna file in New York, and that's it.
Not necessarily as cut and. And every state has different rules, which makes it particularly complicated. So some are based on payroll, so if you have employees in other states, you might have to file. Others are based on like where that income was sourced. So again, if you're a SaaS company, selling that all over the country, some states might be expecting a return because you had a client.
Nebraska we're somewhere
MPD: probably applies to e-commerce too, right? . Exactly. You ship to Wyoming. Yes.
Kate Kelly: Whatever. And again, every state is different, so I highly recommend those businesses take advantage of using a tax professional that can do that analysis. And then you make sure that you're filing those state returns that are
And there's some hacks to that, right? A good tax accountant can figure out which system to count you on to minimize. Taxes overall. They do
Kate Kelly: this all year round, right? So they know the states that you know what are expecting. They've got it all broken down. They do this every day. So for them, it's not complicated for the regular person trying to figure out, if you have State Nexus, that can be a big deal for you to take on by yourself.
And this also applies to sales tax as well. So that could be another element that can get tricky. Okay.
MPD: Return comes. It's drafter churn. We got Nexus. What else should I be asking about to kick the tires on?
Kate Kelly: Yeah, another big one is r and d tax credits for startups. That's a really probably the most popular tax credit that we see getting taken advantage of, and I highly recommend getting looking into that as well.
So this is a credit on your return for any r and d related expenses, and that credit can be directly applied to payroll. So if you have software developers, for example, on your team that you're paying a salary that can be count counted towards those r and d expenses, and you would get a credit that would be applied to your future payroll taxes.
MPD: Huh. So this is like government incentive for innovation. This is the
Kate Kelly: big one. Yeah. And it can really add up. So we've seen r and d tax credits in the, a hundred thousand range. So absolutely worth looking into even if you're. A lot of r and d tax credit shops will take a small fee. They'll do the heavy lifting for you, which I won't get into that, but yeah, it's pretty simple as a founder to take advantage of.
MPD: should be checked out. Any other things to kick the tires on that we should be asking about or you just sign on the dotted line after that and move on? ,
Kate Kelly: I would definitely take a peek at it. We take a handhold approach where we, if you wanna schedule time with us to go over the nitty gritty of your return, we can tell you all of the credits that we've looked at and taking advantage of.
Really break that down to, to be as simple as possible. So your review is actually done along.
MPD: I got one more for you. I'm beginning spammed by a lot of inbound marketer email marketers. Oh, yes. Let me guess. Yeah, the e r c something so
Kate Kelly: close. What is it? It's the employee retention tax credit. Okay.
What is that and is it a real thing and should I respond to those emails?
Kate Kelly: It is a real thing, but it's gotten really spammy. So this came about during covid, this followed the P funding. And this was in to incentivize people, to retain their employees and reduce the number of layoffs. So the government wanted to keep people working.
So if you experienced hardship as a business during those years and saw a decline in revenue and kept your employees on staff, there was a credit that you can apply for. So right now, The, there's still time to look into that. So if you did have, there's criteria, but a significant decrease in revenue during that time, you can apply for this credit, it's pretty simple to apply for, but there are a lot of spammy companies out there that are taking huge chunks of whatever they can find as their fee.
Ah, and a lot of founders are like, great, this is money I didn't have. I'm happy to pay a 50%. But you could also hire someone else to do it for a flat fixed cost. That would be much less.
MPD: Isn't this just in scope for a standard tax accountant? Do you need these outside firms or is the e r c just something that should be part of your tax
Kate Kelly: filing?
So it's not really part of your federal and state tax filings? It's a separate program. Similar, if you went through the P process that had nothing to do with your income tax. So it is something that would be done addition. A lot of accountants are just gonna be focused on that state and federal filing, so won't necessarily dabble in this.
And it does take a little bit of analysis to do. You've gotta run some payroll reports, you've gotta look at your revenue to make sure you hit all the criteria. So it really is a separate credit outside. So
MPD: I should state, federal, respond to those spam emails and say, yes, please. , or is there, how do you do this?
Kate Kelly: Yeah. So it's pretty simple to do a back of the envelope analysis to see Hey, am I even close? You would have to show at least a 20% decline in revenue quarter over quarter. If you were, upward trajectory all through covid, then it's not even worth taking a look. Got it. But you could do, a kind of spitball analysis to see if you're in the ballpark, and then you could either talk to your tax advisor to look into it further or find a service provider to do it for you.
But I would be on the lookout for what those fees are gonna cost you.
MPD: Okay. But I'm just trying to get one piece I feel like you get a certain number of good advisors in your business orbit. And the specialists who come out of the woodwork are sometimes they're selling snake oil that your generalist.
Is this the kind of thing that most business tax advisors should be advising on? Should the average company out there assume that their tax professional is gonna say, Hey, check this out, we can help you with it, or,
Kate Kelly: no, I wouldn't assume that your tax professional is gonna guaranteed. Look into this credit.
It's, like I said, it's outside of the traditional scope of your tax accountant that's gonna be focused on state and federal. So I would either bring it up to your tax professional directly and say you want this analysis done? And really take ownership of it because yes, there's a lot of spammy companies out there that are gonna be trying to push.
But I think it really starts with the founders that it's worth taking a quick peek, or at least having your outsourced financial advisor take a look for you. If
MPD: people are looking for a solution for those who should they contact?
Kate Kelly: You can talk to whoever's doing your tax filings. And then there's, I would just do a quick search of the best firms that are doing this.
There's a lot of spammy ones, so you're gonna have to do some digging, but I would start with the people that you. They'll be able to do that back of the envelope a analysis for you and at least give you the green light of whether it's worth looking into
MPD: or not. Cool. Thank you. Kate from Chelsea Capital.
Appreciate you. My
Kate Kelly: pleasure. Thanks for hanging out with me. Cool.
Mike Rogers: What's up, man?
MPD: Welcome, Mike. You're tired. Yeah. You know what? I had a little bit of a grinder weekend just doing Oh, too much stuff. Too much stuff. Yeah. . Yeah. The couch chore. No, I actually had real work. And then I
Mike Rogers: called you on Friday and you said that you were gonna do something
MPD: that night.
Yeah, no, I'm not saying I didn't have a life. Oh, okay, cool. And then I just, Monday came around and Yeah. Then you were, then it was too late. It's too late. But I'm good. But I like working, so whatever.
Mike Rogers: What'd you watch this weekend? What's on your content agenda
MPD: list right now? What kind of content are we talking news or entertainment or what's.
I wanna do it
Mike Rogers: all. Let's start with, let's start fun like entertainment. What are you watching about shootings? Good.
MPD: Okay. Man, there's a theme for me. The content I like, and I had this realization the other day, it's super nerdy. The base levels around how humans organize in society function.
Okay. And so my entertainment content right now is the Handmade Tale, which is totally dystopian social reorganization. The book I just crushed was Dalio's second book, rise and Fall of Empire. And those are the two entertainment bits that I'm working through Now what about you? That's a cool thread,
Mike Rogers: but you mentioned you don't really love Last Of Us, which is also a dystopian reorganization, but maybe this haven't gotten to reorganizing yet,
MPD: which is like you don't like Yeah.
The reason why is cuz it's more about a couple of characters and setting versus I get like when I'm watching the Handmaid's Tale and I'm like, oh, and here's another implication of what they would've. For example I'm early, I'm in season three. , and I think like season six is out.
You have a moment where they arrive in DC and the statue of Abraham Lincoln's been destroyed. And you're
Mike Rogers: like, so you, it's your planet of the Apes moment where you see the,
MPD: all of those little, to me, what's fascinating about the show Yeah. Is discovering the different implications of this parallel multiverse.
Yeah. Okay. I got you. The, with the last of us, which I'm March. When another zombie comes out and they kill it I'm just not, the action's cool, but it's not the main thing for me. Okay,
Mike Rogers: cool. There's some compare there with, they're moving through cities
MPD: And I also watched too many episodes or seasons of the Walking Dead.
I think I did eight or 10. You're over zombie and I think I think it ruined it for me. Okay. What about you? What are you watching?
Mike Rogers: I'm watching The Last of Us excited for the final season of success. Which will be cool. I like that. It's the final season. Yeah. They nailed it with that.
They nailed it cuz they, if they go one more after this, they're gonna blow it.
MPD: Season five six was gonna be shitty. They would've made more money. Yeah. But HBO cred right? HBO put something out and I'm like, it's gonna be good. Cousin Greg is gonna get his own show. Yeah. That makes sense to me. Yeah.
Yeah. Has he been in anything else? I don't know. We gotta scout on him a little bit. Yeah. So I want to figure that out. Yeah. But anyway, content
Mike Rogers: more generally, like you mentioned you like this dystopian stuff. What do you, is that, does that thread run through to
MPD: podcasts? Yeah.
It's not dystopian. It's I had this realization. That's one of it, yeah. It's one like manifestation of it. I'm really into how humans organize and so cool. I know that's weird and I, but I literally wrote down the other day, I was like, this would be my thing. And it's a little bit psychology, right?
How the different types of personalities that are out there with humans and how those fit together as puzzle pieces. Interesting, I love history and it's seeing patterns and machinations. I'm into frameworks like Dalio's latest thing on the rise and fallen of empires, which is a framework for how things going up, top it down.
So yeah, for podcast content that I'd consume, not for news per se, but more casually, but intellectually, I like Sam Harris. Waking up, like if folks aren't, give us a quick on that. Yeah. Yeah. Sam Harris. It's a big, it's a major podcast. If you haven't heard it, it's not some edge case thing.
He's got millions of subs. What does he do? He talks about, thank you, . He talks about social issues. Okay. Current social issues. What I think is novel about Sam, and he's controversial. Is he is violently rational and that has made him put him at odds with both the left and the right through a lot of the things he's talking about.
I'm sure not everyone agrees with everything he says but what's fascinating about it is the degree of the logic of the bullying statements, if this and that, where it really takes you through a journey. Thinking deeply about topics that you may not have thought deeply about or you might just be reacting to.
The headlines and the brainwashing we're all getting. Whereas Sam's gonna go down to the base assumptions and build it back up and come out with a conclusion. Got you. And it doesn't sit, it doesn't align well with our either party, which I quite like. Cool. What
Mike Rogers: about you? I, let me ask a question about that podcast is because our producer Will and I, were having this conversation before, I think it leads in nicely.
Do you, is the podcast conversational or is it just him spewing?
MPD: It's conversational. He has lots of guests on, they're big names. It's Neil Degra Heiss. It's, you name it. It's the who's who. Cool. He's the best guest on the show. Gotcha. That's great. And he'll stop and drop knowledge and wisdom and perspective and, it's rare that the host is the art.
They're usually the frame. In the picture. In this case, I think Sam is like a big part of the art. That's super
Mike Rogers: cool. We were talking about, and just, I've been thinking a lot about what makes a good podcast and we're on one right now, but more like just for my own, like what have I enjoyed and I've I've run through lots of different ones now.
Had a hard time finding some I like, some I don't like, I think there's a thread that is as a VC I see patterns, so I'm starting to like pattern match on podcasts of what I think works really well for me, but also like clearly has just become more popular. And I think the idea with podcasts, For most people, I think the content matters, but I think most people are listening to podcasts.
To feel like they're in the conversation with the podcast host. I think it's interesting that you mentioned the host as your favorite person. Cuz it, I feel like when you put on look at like the All In, which is one that I'm sure everyone listening to this also knows. Yeah. Terrific. What's great about that podcast?
Forget the content. The content's good. I think people like feeling like they're hanging out with those guys. They're in the room with them as part of the conversation, even though they're not. That's as close as they can get. Look at smart lists, which is probably one of the top five podcasts in the world right now.
I don't know where it ranks, but I don't know if everyone's listening to it to listen to the guests. To your point, they're there because the hosts are awesome fun guys, and when they put their ears in and they're listening to them, they smile and they feel like they're part of that conversation.
MPD: I think these all harken back. Content formats that existed before podcasting was a thing. I think it's just a new medium. Yeah, that's talk radio. That's talk radio, the older format we do less often now, but we used to do is like the deep interview, outside of all the scandal stuff, but it's like a Charlie Rose format.
You're doing like a deep dive. 60 minutes. 60 minutes, yeah. You're trying to really understand something. There's other formats and I think this format we've been doing, Has been a little bit more, the partner meeting has been a little bit more like the Daily Show, and I used to love the Daily Show when John Stewart was on it, right?
Where you'd have different people come in and drop some knowledge bite size Now theirs, theirs was obviously comedy. This is not so funny. Unfortunately. It could be funny. Yeah, we're just, I'm just not a funny person. No, not at six o'clock. No, not on any day unfortunately. But it's, there's a format there.
There's format parallels. It's just moving to this medium. Yeah. I don't think anything's being reinvented. Like you could argue the all-in format is pretty similar to the View the TV show, obviously different content, different demo, all of that. But it's a conversational underhand pitch question to specific people, and they have a dialogue and there's a relationship dynamic between everybody.
Yep. And a debate. Yeah, and a debate. And it's. I don't think there's a lot of novel concepts coming out now. The one thing that's different, I guess maybe this is not that different, actually. Probably nothing's that different. Yeah. It's probably like the podcast version of an audio book. Is the history stuff I nerd out on.
Dan Carlin's, hardcore History. There's Martyr made, there's a handful of podcasts out there. These are extremely long form monologues. 20 hours plus per topic. It's fucking awesome. It's told like a story, a narrative. Yeah, and I think the reason why it, why I love it, it's not facts and dates, history, that's just super boring to me.
It's concepts. It's what happened when the Roman Empire fell. What happened to the Catholic church? How did that position them of, these are audiobooks. They're basically, it's audiobook. That's what it is. These,
Mike Rogers: I, I personally have a hard time with these because for me, the podcast. And speaking personally, of course.
Yeah. The, I have a hard time with audiobooks. I get distracted, I pick my phone up. I, for I, I'm not listening to the last five minutes. I'm like, oh shit, I gotta go back with a podcast where it's three knuckleheads, either having a smart conversation or a dumb conversation. If you miss five minutes, it really doesn't matter.
MPD: Yeah. You can't do that with all the history stuff. Yeah. It's like when your friends
Mike Rogers: are chatting and you zone out for five minutes. You go to the bathroom, you come back in, you're just in the conversation. You don't go, hold on guys. Rewind 30 seconds. I wanna hear what you said while I was taking a leak.
MPD: That's how it works. But I'm an introvert. I think extroverts want more conversation in their life. I'm never on the chatter to hear more people talk. You have to talk. I wanna shut off and watch tv. I bet you all the extroverts are like, fuck, I got no one to talk to.
Let me listen to people talk.
Mike Rogers: Interesting. That's a cool poll. I'd love to put out. I'd love to know and maybe throw us up on the Twitter and just ask a quick poll. Extroverts, verse, introverts, what do you like to do on podcasts? I
MPD: bet there's some correlation. Yeah that's a talk radio thing like that always drove me nuts.
Like you're, People, you're at a taxi and it's 8:00 AM I don't want to hear other people talk. Yeah. I don't give a shit what they're talking about. Yeah, sure. I wanna learn, for me, I need to learn something. Yeah. Or be entertained. It's one of the two and it's like nowhere in between. Okay. One of
Mike Rogers: the, one of the other forms of content.
So you got, we got, we went through the kind of like pure media stuff and Netflix, HP
MPD: what do you get your news? What do you do for news? News?
Mike Rogers: Man news a tough one. That's a conversation that might get us censored, if we have too deep
MPD: of a talk right now. Yeah. We don't have to. We can keep it apolitical.
Yeah, there, there's
Mike Rogers: two different types of news I have relevant business use for that. It's, there's a plethora of good newsletters and really good content aggregators. So I think you're doing a good job of the. Aggregating deal announcements and talking about
MPD: gives some shout outs.
Mike Rogers: Yeah. I don't wanna gimme shouts. I don't have anything top of mind right now that I think is worth shouting out, but there's a lot of, I think there's a lot of good stuff out there. I don't think anyone's doing like an amazing job. And then, world stuff. I like the answer from you.
I don't have a good answer.
MPD: I, I think I have two really good sources for, there's no such thing, but fairly unbias. Global content in one newsletter and domestic content in another. Okay. And yeah. And I've been through a lot of the popular newsletters, which certainly have a bias and they have more of a humor built in.
But I found two medium dry to the fucking point. No bullshit. . So one is a new one called 1440, and I don't think most people have heard of it yet. It's 1440, cuz that was the year of the printing press was made. And their objective is to write completely unbiased news. That's what they're trying to do.
Is that possible? No, but they'll take a headline that's in liberal and Republican outlets, and they'll strip away all the positioning and they'll say, Trump announced candidacy. And it's just a fact. You take all
Mike Rogers: like the adjectives and
MPD: verbs, the adjectives, or who, a big thing is like who did what to who.
That position's good and bads. It's su subtly. Totally. They take all the protagonist anta, and it's just the facts. It was this date, said this. Da. That's it. This is amazing. If
Mike Rogers: you read headlines, every single headline has a tilt. Oh. From the major publications. It's actually hilarious. If you look at it and laugh, it's
It's so subtle. I don't think most people no. And I think most of the time for everybody, you don't even catch it unless you stop and say, wait, look at how they. The headline. Yeah. This is the Israeli Palestinian conflict. Depending on what side someone's on, they always, it's whoever starts the sentence is the bad guy.
This group did this to the other. Yeah. It's it's, that's it. And that's the formula. And
Mike Rogers: you're trained, think about it. You're trained from childhood to think that way. It's go back to like lower elementary school. Like Billy did this to Joe. That's it. And I said that to you. By the way, you think Billy did something bad to Joe?
Billy's an asshole. Nope. What do you mean? Billy
MPD: might've given him a cookie. Billy was a great.
Mike Rogers: That's a point though. It doesn't matter. They're prying on our instincts. Totally. They know that when you phrase something that way in the English language, you are assuming like malicious intent.
And your brain goes there. You don't even have to, it doesn't matter what the article
MPD: says. Yeah. I got one more shout. 1440 does mainly US news. , I don't know. I think maybe they don't need to cause we're a huge country, but I think more Americans. Should be paying attention to the rest of the world.
The rest of the world is paying attention to everything else except for us. In Bremer's Signal Newsletter, oh, I think I've read this one before the jam. Cool. And it will, the US is maybe a quarter of the news, but it'll try to explain the dynamic in Turkey and it tries to give context around the issues and it feels there's no unbiased cuz there's certainly perspective.
Even for the way it covers the US media, it's talking about implications and did this, and this might mean this, and it's just a lot more strategic and intelligent on international news that, so those are the two pieces that I look forward to opening in the morning. I always wake up every morning at seven.
In bed while my body's waking up. I read the news. You let your,
Mike Rogers: the blue light from your phone start triggering the dopamine in your brain, get you outta
MPD: bed. Use it to your advantage,
Mike Rogers: bro. Yeah, no I do the same way I hack. Yeah. And then at night I put my phone away. I can't look
MPD: at it. Yeah. And like I work out at seven 30, so I need a lot of blue light.
What's a workout mean
Mike Rogers: for you? Like you Oh my God. Walk
MPD: downstairs. Walk back upstairs. That I'm old. That old. No, I do I'm old and at old you're not that old. But at old. I don't think you're old. Okay. But even you're 40. All my friends in their forties. It's, I was laughing that at night dinner conversation always includes at least 30 minutes about body maintenance.
, no matter who I'm with, they're like, okay, what are you doing for exercise at this point? What are you eating? Are you still drinking? And I saw this great forward alcohol has become the new tobacco. Yeah. What was it? Weed has become the new. I can't remember what it was. probably have to cut that part.
But , alcohol's out. Weed did no alcohol. No, it was mushrooms were the new weed. It all had shifted. And alcohol was a new tobacco. Yeah. And weed was the new Al or Al weed was the new alcohol. I wonder when sugar will fall. Yeah. I don't know. But when you think about that parallel, it makes total sense.
Yeah. Mushrooms now the illicit thing that a lot of people are experimenting with. Yeah. The crazy hippies are doing right. Yeah. And then the legal part, the legal, but edge case is the weed and now everyone's talking about how bad alcohol is for you, like it's a cigarette shout out
Mike Rogers: to monument or most recent investment.
MPD: Totally right. In that trend. Yeah. Driving that trend. Driving the trend. Absolutely. Yeah. But anyway. Yeah, no. So working out for me is 10 to 15 minutes of stretching. No, I don't actually care. You don't fucking care? No
Mike Rogers: Question for you On the working out thing though, do you think that cycles out at 50 and you guys stop talking about that stuff or do you
MPD: think, I don't know.
Keep going. It's new territory. Interesting. But it's, I was, we were talking about how it's a perma conversation for all the four year olds. It's the weather for you now. Yeah. Everyone's what are you doing? Okay. Your back hurts. Okay. What are you doing for that? It's on everyone's mind, like body maintenance.
Cause it's just a problem. I literally was just talking to someone on our team. I was like, yo, when I read my phone, I don't do this anymore. Cause hurts. Yeah, you gotta head up, you gotta put your elbows. Someone taught me the elbow technique. Oh really? Elbows against the ribcage and it hold your neck up.
Mike Rogers: Yeah.
MPD: got the tech neck, man. And if you don't do that, but yeah. Anyway so what were we talking about today? Was, that's it. Today was content.
Mike Rogers: Yeah. I thought it was a good wrap on content. Like where do you get
MPD: it? How do you trust it? All right, so tech, that's what's out there. What's the path?
Like, how does this get better? What tech platform do you use to consume your news? What do you want?
Mike Rogers: News is phone,
MPD: email, and phone. What do you re It's e, it's all in email. It's,
Mike Rogers: it's mostly email
MPD: newsletters. Okay. I've and Twitter, I've shipped it to Google News app on the phone. Yeah, but that's just a Google algorithm feeding shit.
No. On the four U section you can tag, Hey, don't show 'em anymore like this and train it. Two second killer feature. I get my Washington Post article up, which may not be my desired news source, whatever, but the tagline, it's the headline they chose to give me. Yeah, I can. And I don't have a subscription there.
I click other all news coverage. All coverage, and I'll see it from every publication. On the exact same story. By the way, back to what we were talking about before about the brainwash. Really great to see all the headlines next to each other. Interesting. You've got the Fox, the cnn, the msnbc, the WaPo Framing, and you can see the spin on this side, the spin on that side.
It's so good and it's so obvious when you line 'em all up and they have a button for that under every article. It's,
Mike Rogers: I've seen, I'd say over the years, five or six companies try to build. And I think the, an you just answered it. It was just a feature that like it wasn't a standalone app.
Someone who was a classic aggregate. Google's gonna build it and now
MPD: it's here. Flipboard was a big venture company for a long time. Flipboard, that was a big thing. And it was just an interface.
Mike Rogers: Yeah. There's one called Blind Spa that I get sometimes too. There's a bunch, there's a bunch out there that are doing a pretty good job.
Blind Spot actually shows you headlines in a newsletter and they report on which news outlets covered it or didn't even cover. So they'll be like shooting an X, Y, Z, and it'll show you like, it'll, have five blue as centrist to four or five red, and it'll literally show you like no one on the right covered it.
And all these ones on the left covered it,
MPD: but you already know that it's but to your point on framing brainwashy and scamming,
Mike Rogers: just framing the headlines next to each other, it's interesting to see contextually, right? Yeah.
MPD: I know on a headline which group is gonna be promoting it, which group is gonna be silent?
I know that. Oh, man. But what I like is when they cover. It helps you see through the bullshit. Yeah. A little bit to see the, it's basically like a debate. You see the five headlines next to each other and you're getting a little debate and then you click on the one that looks the mo, the least bias, right?
Which is none of the ones we know.
Mike Rogers: And then you're like, do I trust this source? ?
MPD: We're fucked.
Mike Rogers: We're fucked. Yeah. . All right, later.
MPD: Good session, Mike. Bye. What's up Chris? So Mark, happy Friday. Happy Friday. Although this won't be released on a Friday, so that'll just confuse everyone listening.
That's true. , take that out. I really enjoyed this segment. I wanted to share that with you. Cause thank you. People in the tech world don't, we don't really talk a lot of like politics and the economy really. It's too high level in private markets, and this is my excuse to get a. I think if you're on Wall Street, you hear this stuff.
Yeah. In the, by the water cooler. We don't hear it. We're talking about, tech companies, big and small, and founder needs, it's just more micro. So this is a, yeah, a nice kind of refreshing perspective moment for me every week. Yeah. I
Chris Zhang: honestly think, I think people in the tech world in private markets should care more about.
Macro markets. I know last week we spoke about how, we should be taking a long-term approach and not get direct into the day-to-day, but macros definitely factor into the ultimate outcome for private investments as well. And when you're thinking about exits and timing it and business cycles and how do you make business decisions when it comes to inflationary environment?
It is definitely relevant, so I'm glad that you're enjoying this. I hope it's add value
MPD: everyone else. All right. Do you wanna kick us off? What do you got this week? Yeah let's start
Chris Zhang: with earnings. We are about 95% wrapped up with Q4 earnings. So it's about time that we take a more aggregate approach and look at what, what's happened overall.
There is a good JP Morgan report that came out a couple days ago, so I'll just grab, I grabbed a few stats from that and let's use as an angle to dissect this. So overall very mixed back, but maybe not as bad as we anticipated. Still very bad. What does that mean? About 64% of the companies ca that reported so far?
Remember, 95% has done.
4K earnings estimate. Okay, so that sounds great on paper, but if you're looking at that, but you have to adjust for banks analyst biases in predicting those results in the first place. And we talked about this internally, that there is a inherent sort of bias towards predicting better results.
So you have to really look at it in conjunction of so comparing it to the past four quarters. Past four quarters, on average, 70% of the company beat earnings, right? So this is a clear downshift from past four quarters. Same thing goes for top line revenue. Says about 67% of the company reported beat revenue.
That's versus 69% in the past four quarters. And what's even more interesting is if you take into account the magnitude. Of the surprises, right? So if you take an weighted average of all the reports, earning surprises, actually were on the downside. So we're the, and we basically were downside surprise by 2.4% versus an upside surprise of 4.1% in the last four quarters.
So just based on these two stats, you can tell that this is. A shift in a direction shift in a trend shift in the graph, and and likely this will continue into the next few quarters soon.
MPD: So this is all misleading. As on the surface when people hear the 64% or whatever, cuz all these companies are sand tagging.
Yeah. They're setting out targets that they're gonna Yeah. Be and they're working with their analysts to set those expectations and then they beat 'em precisely, but they're beating 'em less than they usually do. So indexing against sandbagging. The group is not doing as well as it typically does. Got it.
Chris Zhang: Yes. And the downside, the losers the one that they've underperformed, the gap is larger now versus the upside beats. So that's what the second staff takes into account, the magnitude of these surprises. So overall, it has not been an earning good earning season. And what's even more interesting is so they, JP Morgan did a meta-analysis on the keywords, right?
The most cited keywords in statements, in, in earning statements, and those are higher costs, shrinking demand and macro environment. And on top of that, I think there's this very helpful graph. The track, so the corporate sentiment on the cost of. And that has become very negative. Like we're at a point where it's near the levels last seen in the great financial crisis, right?
So at the, so cost of capital, shrinking demand is on everybody's mind. That's, at this point it's there as a fact. What's but how, but if you really look at s and p, look at probably market overall it's pretty resilient. So that's to me, a little worry.
It just, it's, to me, it's a signaling, a bit of a, a kicking the can down the road and equity market when it comes to, going down and reversing a trend, it tends to happen in gaps, right? So it doesn't just happen every day, 1% at a time. It just tanks five, 6% of the time and continue to do so for a few sessions.
And all of a sudden, before you know it we're at a negative 20% category. I am little concerned about the dichotomy between earnings report and how the actual indices is performed. And so I'll be very cautious if I've, I'm currently an investor in public markets. I'll be looking at protecting the downside for sure.
MPD: Lemme ask you a question. When you hear that earnings report, what's the headline? Not the actual report, what's the implication for you? Are you like, all right, we're going into some bigger recession than people have expected? Or this is the natural evolution of how the market's been evolving and it's not news.
What's this expected? What do you take away from it? Oh, it's not
Chris Zhang: news to me. It's certainly not news to me. Nor is it to any really shrewd market participant. But it what is definitely signaling to me is the job cutting the expense management. We're not, we're nowhere near.
There should be way more adjustment than what's currently already baked into the market because more layoffs, every company's still trying to manage, expect layoffs are gonna come in more sectors than just pack And not just app, but also wage growth should slow down. Demand should slow down as a result of that, which will then translate into earnings in the next few quarters, maybe potentially into 2024.
So this is not going to be a one time thing that's clear. How will the equity investors handle these news and digest it and reinvest capital is a separate story. That's something we should, we know there's no clear sign how that will pan out yet. We should definitely keep a wash on that.
All right. Anything else?
MPD: That's okay if you,
Chris Zhang: Yeah. I've got a few things, but maybe I'll just quickly brush, brush on these. Last week we talked about corporate defaults, specifically when it comes to commercial real estate, and they're more news this week are on that to Blackstone. Just re just defaulted on a 562 million bond backed by a portfolio of, offices in Europe.
So 562 million, just to be clear, is a drop in the bucket for the commercial real estate. , but it's Blackstone that really stands out for me. So we're talking about the blue chip companies in these markets are now starting to default, and that sets a signal to the rest of the market. So how, how is interest rate markets going to respond to that?
How will these impact the downstream investors in their portfolios? We're definitely starting to see that. And so I would really caution. Any negligence in this sort of market right now, we should definitely focus more. The mainstream media is not nearly covering enough on corporate defaults and commercial real estate.
Last thing I will mention though, I think, which was interesting, Foxcon, I'm not sure if you've talked, if talked about this already with with other folks. But yesterday there's a news. That Fox song, which is the, everyone knows Apple's largest suppliers and major manufacturers of of iPhone components announced that they will invest around 700 million US dollars to build a new plant in India.
So this will create a thou hundred thousand jobs. This is a massive plant. And there also reports that, apple is seeking to ramp up production in India to account for 25% of their total. And this is a very clear shift away from China. And Apple's not alone. They're just the biggest guy, but they're not alone.
Everyone's trying to do that. And in over the past five years, I think it's safe to say that India and Vietnam have emerged as sort the front runners in picking over production outputs from China. A lot of this geopolitics, a lot of this is cost because it's clear that there's a rising cost of labor in.
And how will this shift sort of the dynamics going forward in terms of global power and economic outputs? I, is something that everyone should be asking, right? So this is to me a pretty major move and it's starting potentially start on an end for sort of manufacturing. Superpower in, in the world.
But I think the
MPD: plan in China, right? If I was building China's economy, you start out by doing the manufacturing. You bring in a bunch of capital, you train a workforce, and then you level up to do more white collar. You're generating real ip. They've done all that. And in doing that, yep, you raise the cost of labor.
And you're no longer competitive for the low, the lower cost jobs. That's why we don't do them in America. Cause we've leveled up and they're not, it's not affordable here. And yep. I think that's gonna be the shift to Vietnam. And now India makes total sense from a labor cost perspective. What I'm interested in, that's the natural evolution.
That to me, that's a signal that China's plan is working. What I look at this though, and I'm curious about is. How much of this is actually geopolitics? How much of this is Yeah, risk. Just normal economics. Apple's hedging against, hey, if there's a shutdown or there's something, we wanna be able to deliver product and or the state department's talking to Apple, right?
Tho, those are more interesting nuanced dimensions.
Chris Zhang: I, I agree. So the one thing I'll say about that is so first of all, this is for sure a part of a normal economic cycle evolution that that China is trying to shift into a more service oriented sort of first world country, if you will. But what's at hand there?
There's something that should definitely, I want to consider is China, after I still a one 25 billion population country. When, and these sort of shifts, right? We're talking about a hundred thousand jobs at a time from one company. So if these shifts happen in dramatic fashion, like we've seen from Foxconn, this will cause a, an unemploy unemployment problem, which leads to instability.
So there's this, I think I sent, it's internally, I sent this very interesting , two cows explaining everything and that the slide about China and is a joke of course. They send a hundred thousand people to milk two cows and call it full employment. That's the . That's what the country's been doing for the past two decades to stimulate the economy that they're trying to find these high labor participation, high intensity manufacturing jobs, so that everyone, not just the top 25%, but the rest of the population can increase their quality of.
But when you shift from a blue collar oriented economy to a white collar oriented economy in a couple of years, the amount of unemployment you will have will be dramatic. Absolutely. So that, how does China handle that domestically will be the key. And if that leads to instability, which is the number one enemy of the Communist Party there will be consequences.
So that, that's the one thing it'll highlight.
MPD: Fascinating. Thank you. Appreciate you and a quick reminder for everyone listening. Chris is an s e c registered r. And nothing he said should be considered investment advice.
Alright, this was a new session. Very grateful for Kate coming on the show. Jumping on a podcast is not in anyone's comfort zone. I think I'm two and a half years in and it's still weird for me. What Kate's doing is really cool. The, they're really taking a new approach to. The accounting tax and CFO business, just running it the way.
I as a customer, thought it should be run really high quality, making my life easy, filing all my documents away from me, just taking all of the work off my plate as a concept. So anyway, they do a really good job with that. If you have questions on any of the tax stuff, you get hit me up or whatever and I'll put you in touch with people.
But more importantly, I hope everyone got some of those big takeaways. Cause I think the big. Thing of the delaying your actual finalized, finally, extension to the delay strategy. Every, almost everyone should be doing that. And I think people don't know about it and it just creates a lot of stress.
So anyway, I hope this was helpful and we'll catch you next time.
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