a16z, Anish Acharya： Is SaaS Dead？ Do Margins Still Matter？ Why We Are Not in an AI Bubble？ | 20VC with Harry Stebbings

You have this innovation bazooka with these models.

Why would you point it at rebuilding payroll or ERP or CRM?

The general story that we're going to vibe code.

Everything is flat wrong and the whole market is oversold software.

I'm so excited to welcome Anish Akhaya, GP at Andreessen, where he leads consumer and fintech investing at Series A.

An interesting topic that's not discussed is the cost of transitioning from one SaaS provider to another, going dramatically down.

So systems integration.

I don't think we're allowed to believe in luck at Andreessen.

We have to see 100% of the deals in our domain and that we win 100% of the deals that we go after.

Ready to go?

Anish, dude, I've wanted to do this for a while.

We've been going back and forth.

Yes, we have.

And so I'm so glad that we can do this in person.

Thank you for joining me.

Of course.

Thank you for having me.

I'm diving right in.

We were just chatting now and I was saying I think it's better to build in London than in SF or in other places other than SF.

Talent is cheaper.

It retains for longer.

You don't have the promiscuity of people jumping from role to role.

Yes.

And you've built a company now, both in Canada and in SF.

How do you reflect on what I just said?

I disagree with you.

I wish it was true.

I simply wish it was true.

And I want it to be true.

And maybe it will be true that it will be.

You know, the whole thing that we always love to say to ourselves around sort of talent and opportunity not being.

You know, talent is equally distributed opportunities.

Not the truth is that cities are the original network effect.

And for technology, there is a network effect for builders in SF.

And for this moment in technology right, where so many of the secrets are these sort of things, whispered down shadowy hallways, the benefit of being in SF is enormous.

There's also, we just talked about this, there's a selection bias question.

Do you care enough to make it happen in SF?

You can make it happen anywhere in New York, London, Toronto, Tel Aviv, you name it.

But there's something different about saying I'm going to give everything else up and be singular in my focus and move everything else up to make it happen.

Are there any other locations where you think there is actually positivity associated with their being located there?

Tel Aviv.

I think, Tel Aviv, you can be incredibly ambitious and uncompromising on that ambition and have a really, really good reason to be there.

I think the other nice thing about the Tel Aviv ecosystem is that the country is so small it's 10 million people that you can't possibly fool yourself into thinking that the domestic market is going to be big enough for whatever you're doing, so you immediately go outside.

Whereas if you're in London, there's 60 million people here.

Okay.

And you might say, well, that's actually a lot of people.

And you know what?

There are parts of the market, like FinTech, where the LTVs are so high that perhaps 60 million is sufficient.

But for most mass market products, it's just not sufficient.

And if you end up starting focused on the domestic market, it's often hard to actually move on to a bigger market.

So there are all of these reasons that it's just it's not that it can't be done.

And there are incredible counterexamples like Eleven.

But I do think that is just that much easier in SF.

And that's why that's where I focus.

You said the word sufficient there.

Yes, you can build a sufficient sized business, say in the UK three to five billion dollar business, say as an example.

Respectfully.

When we look at companies being created today, three to five billion dollars just doesn't seem like it's interesting enough.

Has the world of venture changed so significantly on what is sufficient for a venture outcome?

I mean, three to five billion is an extraordinary outcome.

Don't get me wrong.

So in no way am I like minimizing that.

And look, I do think that those types of venture outcomes stack to create really meaningful funds.

So this is not about working backwards from venture economics, but the biggest companies in the world today are trillion dollar companies.

If you want to build a trillion dollar company, if that's your intention, you've sort of got to start with a set of assumptions that can lead to that.

If your intention is to build an extraordinary enterprise, and you build a three to five billion dollar enterprise, you are one of the few people in the world.

When we say about those three to five billion dollar companies, I mean I had a brilliant statement, which is the sassica, the massacre of SaaS companies that's going on in public markets today.

And when we look at it essentially, investors are no longer confident that traditional enterprise revenue is sticky or durable.

Are they right to question whether traditional enterprise revenue is sticky and durable?

I think software is completely oversold.

I think it's a silly story.

I heard it called SaaSpocalypse today.

It's very funny.

Bloomberg is trying to get that to stick.

Look, if you look at SaaS spend today, if you look at IT spend overall, it's 8 to 12 of enterprise spend okay.

So even if you vibe coded your ERP and your payroll, with all the kind of risks and dangers that that entails, you're going to save eight to 12.

You have this innovation bazooka with these models.

Why would you point it at rebuilding payroll or ERP or CRM?

Right.

You're going to take it and use it to extend your core advantage as a business.

Or are you going to take it to optimize the other 90 percent that you're not spending on software today?

So I just think that, of course, there will be secular losers.

There are like specific business models that are now going to be disadvantaged.

But I think the general story that we're going to vibe code everything is flat wrong and the whole market is oversold software.

Okay.

And so we are actually overly negative and we are being too critical on these companies.

How do we think about then, the continuing negative growth that we've seen in a lot of these companies, the continuing seat contractions in a lot of your say, CRM providers or Mondays of the world?

Well, I don't know if that's what we're seeing across the board.

I looked at the data this morning and if you look at public market SaaS companies, 75 have raised prices since ChatGPT was released.

75%.

And they've raised prices meaningfully.

The mean is 8% to 12%, but there's a large group that have raised it 25% or more.

Is that not because they have to?

Because they're not growing seat count and so they have to grow revenue count?

Price is a measure of product market fit, right?

And if you have enormous competitive pressure, you are not raising prices.

You're typically cutting prices.

So I think one, you've got this dissonant fact that prices are going up.

Two, if you look at the incumbents today, ServiceNow is not IBM.

They're a highly capable incumbent.

They just went public and they raised guidance.

I think it's very easy to look at these things and say, incumbents, incumbents, incumbents.

Again, they're not Sears.

They're very, very capable and I think they actually have a right to win and deploy technology in the context of these workflows.

Now, will there be disruption?

Of course, we've talked a bunch about companies that were once priced on seats, which are now going to be priced on outcomes, and that is going to be a big drag.

But I think for the majority of SaaS it has so little upside in being rewritten and vibe coded and so much downside.

Why would you do it?

Now, an interesting topic that's not discussed is the cost of transitioning from one SaaS provider to another, going dramatically down.

So systems integration.

If you and Alex said this funny thing and I know you laughed and I laughed too which is that some companies have hostages, not customers.

Yeah, I love this statement.

I love it too.

If you actually have an SAP system, you are a hostage of SAP and they need to do nothing after they win you as a customer, except the bare minimum.

If you want to switch to Oracle, oh my God, that's like a multi-year high risk.

It's probably going to fail and you're probably going to get fired.

It doesn't happen.

But now, with coding agents, the complexity of transitioning from SAP to Oracle is dramatically lower.

The speed, the risk.

So that is how I think coding agents shows up in enterprise software, especially amongst public names.

Decrease switching costs.

More customers, less hostages, which is a positive incentive for the entire ecosystem.

You mentioned Alex Rumpel.

I actually, sounds super weird.

I actually think about Alex every day.

I do too.

Yeah.

Well, there we go.

Because he says the most brilliant thing, which is and I'm going to butcher it slightly, but you know will the incumbent acquire innovation before the startup acquires distribution?

That's right.

Yeah.

How do you think about who wins in this world?

The public SaaS company who has distribution, be it a HubSpot or a Salesforce who has millions of customers, or is it actually the startup who has speed, agility and incredible engineers?

If history is any guide, and to reference Alex, he would say that it often is.

Those who have actually studied history tend to do better than those who have not.

What I would say is that when you have this product cycle and you have a capable incumbent, what happens is they usually make their product better for their existing categories.

So Microsoft will make a better word processor than they've ever made.

Google will make a better search engine than they've ever made.

And we're actually starting to see that, some of that anyway.

What you instead see is the native categories that did not exist before the product cycle being owned by startups.

I think that's a little bit of what we're going to see.

If you said something like software movies or AI moviemaking or AI-assisted movies, that's just not a category in which there is an incumbent.

I'm betting that a native company will actually win that.

It probably won't be Adobe.

Will Adobe make a better Photoshop and Illustrator than ever before?

Probably.

You said there about native being an opportunity.

In terms of where opportunity sits in the stack.

Why do you think the application layer will create more value than foundation models?

I don't know if it'll create more value, but I think that it is under-discussed how much value it's going to create.

If you think of what the models are.

So if we lived in a world and we were actually thinking about this a lot in 2022 and early 2023, which is, if you had a single foundation model company, which at the time was OpenAI, which was a whole generation ahead, then they essentially were this unique supplier to everybody downstream in the innovation ecosystem.

And they could do what you would do if you, for example, controlled the Beatles and you're the only record label that had the Beatles.

It's like, do you want the Beatles or not?

You can charge 99 of your customer's gross margin, and you do, and you actually tend to charge 100 or 110.

So that actually was a big risk to the ecosystem.

What has instead happened is we have all these foundation model providers.

They're all innovating roughly in lockstep.

80% of what they do, I think that they're actually substitutes for.

And then there's the open source models, which also do the same things.

And then in the 20%, which arguably is where a lot of the value is, they are all specialists.

So, because you live in this world of multi-model, where for some use cases they're substitutes, for some use cases they're actually specialists, there's a lot of value in having an aggregation layer, and that is the apps company.

So let me tell you two categories specifically.

One is coding.

I think that if you actually look at coding, you might know that Gemini is great for front-end, Codex is great for back-end.

If you're vibe coding your project, you probably want to use both and you don't want to switch between two CLIs all the time.

It's just a pain.

So being able to use Cursor as a single way to orchestrate all the models is valuable.

Similarly for creative tools, right?

We're seeing this specialization fragmentation specialization, mid-journey in CREA with their CREA 1 model.

These are the most aesthetically opinionated models, right?

They create this incredible, beautiful imagery.

Conversely, if you look at ideogram, ideogram is often used by graphic designers.

It is intentionally not opinionated from an aesthetic perspective.

If you're somebody who's working as a creative at a big company sometimes you're doing graphic design and sometimes you're just doing beautiful photography for print ads.

You want to actually have access to both.

And to do that, you use an apps company.

So I think we massively overestimate the durability of revenue of AI companies more broadly as well.

I think there's a chance that Cursor loses half of their revenue this year with the cannibalization of them by Clawcode.

I don't know anyone who's not moved to Clawcode.

When I hear that someone's still on Cursor, I'm like, wow.

Yeah, I think the thing that we are underappreciating is that we assume efficiency is increasing but ambition and number of customers is staying fixed.

I think this is one of the incorrect assumptions that keeps getting made around AI.

It's like, well, what are all the people going to do?

Where will all the jobs be?

It's like our ability to be ambitious, for wanting more things always grows so much faster than our means.

And, in the same way, if you look at software, the desire and demand for software, both to make it and to consume it is dramatically more than the supply that we have today.

And I think there is a developer and developer adjacent archetype for whom cursor is going to be perfect codex as an app, codex as a CLI quad code.

Like all of these products are going to find market fit and all grow.

And if you look at any of the other markets, like creative tools, they're going to specialize in Fragment in their own directions.

So when you think about market composition for that market and kind of developer tooling space, does that look more like cloud or does that look more like Uber and Lyft?

I don't think it looks like Uber and Lyft.

I think Uber and Lyft are, to my mind, the most extreme examples of pure substitutes, and a lot of the sort of price has been competed away.

You look at cloud, you sort of have this oligopoly where they all actually have pretty reasonable margins, right.

And you can squint and say of course they have their specializations, but they're roughly substitutes and yet they've all done well.

I think the foundation model companies look a little bit like that.

And I think in the apps layer you're just going to have people that want to consume the code they generate through a rich IDE and those that want to be closer to the metal.

And that's probably closer to AWS Google Cloud than it is Uberlift.

So when we think about that, I think, how do you think about competitive investing?

It seems to me like it doesn't matter anymore.

Back when I started, it was a big problem.

You didn't invest in competitors.

Now everyone is investing in competitors.

Are we in a world where that no longer matters?

I mean, when you think about a firm that's organized the way we are, which is we actually do stuff for our companies, it becomes very difficult to invest in directly competing companies, because then you've got the same resources, the same sort of Fortune 500 buyer, the same engineer that both companies want to hire.

And I just like, I don't think we can run our business by investing in directly competing companies.

Now, with that said, I think we're in a part of the market where companies are diverging very rapidly.

So even companies that appear to be directly competing today tend to be not competing in 12 months, 18 months.

Going back to what you said about the opportunity in the Atom Slayer, when we think about that, one threat that's often posed to the Atom Slayer is the models themselves providing products, whether it's OpenAI focusing on health now a lot or whether it's called code or actually.

I saw Anthropic do some clawed attachment to legal yesterday.

To what extent is models invading the apps layer a credible threat to the verticalization of apps?

Yeah, so this is such an interesting topic.

So Granola, which we're not investors in, but I admire them a great deal.

It's a great company.

They've built a really interesting thing in their first, of course, to live meeting recording and transcription, which is awesome.

They have been copied to the moon right now.

Everybody has a meeting transcription feature.

OpenAI released one within ChatGPT.

Very cool.

The thing about Granola and I assume this is true is that their vision is not to be a meeting transcription product.

I assume it's to be a productivity suite, right?

They're going to build Word and Docs and Spreadsheet and all of these other products around that core primitive.

Does OpenAI have the sort of prioritization, the resources and the ambition in that direction to build all the feature surface around the primitive?

So I think the models will often actually recreate the primitive and even do product marketing, which I think the Claude legal stuff was.

But if you have a market that demands a lot of feature surface, I just think the model companies are less set up to prioritize it.

Do you not think, if bundled into an existing solution with 80 of the features, the majority of people just go fuck it?

Perhaps.

I just think that the model companies have ambitions in so many directions that it's hard for them to prioritize building opinionated UIs for the legal community.

I also think in many of these categories, again, being multi-model is important.

And OpenAI is only going to ever give you OpenAI models, right?

Anthropix is only going to give you their models.

Same with Google.

So if you are multi-model, rich feature surface, I think being an apps company is better.

Boring wins is a statement that you said to me before when we were talking about kind of apps, layers and where value will accrue.

What do you mean by boring wins, and how does that translate to the next generation of iconic companies?

Oh, did I say boring wins?

Yeah.

Oh, well, let me make the sort of exact opposite case.

I think weird wins.

Huh.

Yeah.

So I mean, here is something that's actually very interesting, which is the nature of these models.

Is is very different than the nature of any technology we've had before.

I'd say a lot of the technology we've had before.

It's quantitative, it's clinical, it can do incredible things, but it's bounded in the range of feelings that it can capture.

Now we have this wild non-predictable emotional, very human technology, and sometimes it gets pointed in these directions that are very human but perhaps uncomfortable to a big corporation.

What is the human experience?

It often involves disagreement persuasion sexuality, and we see that mirrored in some of these AI products.

Yet if you're Google or Apple, you have a thousand committees that are explicitly designed to ensure there's never any persuasion, disagreement or sexuality expressed in your products.

I think that there is a pocket that startups can really thrive in, which is building these weird products that really touch on many core aspects of humanity that the models can reflect but the big corporations are uncomfortable with.

What's the example?

I mean, everything in companionship.

Every product in companionship has been both well received by customers and a little uncomfortable for the labs to build, perhaps modular rock.

I'm sorry, when you say companionship, you're Character, but also janitor, right?

There's a ton of products that are there for replica, which is probably one of the most healthy and nourishing forms of companionship.

But all of these products are there, and they're there to facilitate friendships between people and technology.

And a lot of that stuff is just uncomfortable for big tech to do.

Would you encourage your children to use them?

Absolutely.

In fact, one of the products that I would love to exist.

My request for startup is what I call a contextual companion for my son who plays Minecraft.

My son plays Minecraft.

He plays it online.

He absolutely loves it.

You know, like the other kids, playing Minecraft may or may not be the best influence, often not the best influence.

I love to actually have an AI companion play Minecraft with them.

So there's this context in which they interact.

And I don't know, just sort of models pro-social behaviors and is still cool and chill.

I think there's a lot of room for teaching through these types of relationships, and technology can help provide that.

Do you not think that it engenders or removes the ability to interact with other humans and makes people even more withdrawn or used to building a relationship with technology than we already have?

I think it does the exact opposite.

I think people are able to be more self-reflective and explore aspects of themselves and human relationships that they often just don't have another person to explore these things with.

And I think you know, if you're wealthy and perhaps educated, you know, maybe you're interested in therapy and that's like an outlet for it.

Or if you are like you and I and you've got this embarrassment of social riches and you have all these people that want to hang out with you and you go to these dinners where you stay up late having all these philosophical conversations.

Or perhaps if you're one of the relative minority today, that is spiritual or religious some way and it's very emotionally nourishing to you.

There are directions in which we can explore these things, but I think for the majority of our society today they just don't have an outlet.

And I do think technology can be that outlet.

I like the idea.

I also like it, especially when you think about the amount of old people who are alone and you think about the companionship there.

Yes.

And by the way, I think the whole thing is that there's got to be a level of indirection.

This is why I think contextual companions are very powerful.

Because I think for a senior citizen like you know, it's important.

They have a big sense of self-respect.

So if an AI calls them every night to like check in on them, well they can be like hold on, I don't need that.

You know, I don't need to be babysat.

But if instead they I called to you know check to see if they'd taken their medicine, ask them how their day was, maybe lightly flirt with them.

Talk about World War Two.

I don't know.

Like suddenly they've got a context in which they're interacting.

There's a level of indirection.

But the thing that's actually delivering is sort of spiritual nourishment.

How?

It was shittest question ever, but you know, after 10 years I'm not embarrassed to ask shit questions.

Go for it.

How does the UI and paradigm change in a world of AI?

Like everyone's like, now we're just all going to be voice.

Do you agree with like, it's all voice.

Voice is amazing for enterprise.

I think that one, dynamic UIs and two, chat UIs are overstated in consumer.

The best thinker on this is actually Eugenia, who founded Replica and now Wabi.

She's great on this.

What she would tell you if she was here is that look, most people don't want to save time, they want to spend time.

OK and the products are designed by the most high agency people in the world, like Sam and Elon are the most high agency people in the world.

For them, the optimal UI is a chat box where you say exactly what you want and, like voila, there it is.

But for many people, they are again looking to waste time, spend time.

They want a browse-based interface.

They're not quite sure what they want.

They can't always articulate it.

So I think that in a world where we have intent-based and browse-based, browse-based largely stays the same.

And perhaps the future of intent-based is chat.

I'm still a little skeptical.

I think people are consistently concerned by we mentioned it earlier but defensibility, switching costs durability,

When we think about moats and Alex's statement of hostages, not customers, in a new world of AI, do we just accept that there's no defensibility, or are new moats created?

I think defensibility still exists and still matters.

Networks are the gold standard and they still are.

A network effect product is incredibly powerful.

Now look.

You might argue that something like MoldBook is a new type of synthetic network.

That perhaps means there are certain types of networks that are less defensible than they once were.

But something like an Airbnb.

You can have all the vibe coding in the world.

Their network effect is incredibly powerful.

So one, I think defensibility matters, traditional modes still do matter.

I do think that within modes like systems of record, there will be some who are more or less prone to disruption.

So if you're an on-prem database and there's no engagement layer and there's not a lot of human workflows built around the so-called system of record, I think that you actually are at some risk.

If you're the core system for a bank, you've got thousands of transactions per second.

You've got hundreds of humans that interact with you.

You have this incredible demand for accuracy.

I still think that you're sort of as good as gold in terms of defensibility.

Is there any forms of defensibility which were very prominent in the prior 10 years which are no longer as prominent?

Yeah, I'll give you the opposite.

I was always skeptical of the sort of data network effect.

You know that was like this thing that got thrown out a lot when you couldn't think of what mode to say.

But today, if you look at companies that have proprietary data sets, and not just proprietary, OpenEvidence is a good example of this, but live, proprietary and live is a very, very powerful mode.

When you say live, what do you mean, like your health data, for example.

Right, that's our sort of live and ever-changing source of data.

Now there's a question of how proprietary can that be?

But once you actually have data like that, or perhaps live data about a product that's running Now, you can put a relatively commodity model in front of it and get much better results than the most cutting edge model that does not have access to the proprietary or live data.

Okay, so we have actually relatively the same forms of defensibility that have existed before.

That will continue to make.

Many.

I'm always trying to understand.

I feel very kind of insecure right now as an investor because I'm trying to understand what holds true from the prior decade and what doesn't, and I need to change my mind on.

You know, when the facts change, I change my mind.

When we think about a lot of the forms of responsibility remaining true.

I was always taught that margins matter.

I walk with my mother around London, poor woman, and I'm always like, Mom, margins matter.

Yes, I can imagine holding your hand.

Yeah, poor mom.

Handheld, yes.

No wonder she wants to finish the walk.

My question to you is, Do margins matter as much in a world of AI?

And are we entering a new way that we should be thinking about margins?

Yeah, so here is actually where I think there's nuance in the margin conversation.

That's important, okay.

So if you look back at any time you've gotten we should talk about, you know, the bubble that doesn't exist.

Or perhaps there is some sort of subsidization and distortions happening in the market.

For the record, I don't believe or in that period.

But I do think that anytime you have this sort of superheated markets, you have some distortion okay.

If you look at the distortion from 2021, you essentially had this indirect subsidy of Google and Facebook.

So you would invest in a fintech company.

You would give them 10 million.

They would go spend 8 million on Google ads and Facebook ads.

So there's a subsidy that was happening that were sort of these empty calories for the startup.

If instead, you look at the form of subsidy that happens today, what it typically means is zero margin or negative gross margin credits for the user to try the product.

So these things tend to be a drag, but these are actually very healthy calories for the companies, because out of that you get conversion into high paying users and many of whom are actual power users.

So I do think that The blended margin story for AI native companies tends to be worse.

But if you look at the overall sort of form of distortion that's happening, it's a much better one than we had five years ago.

Does that make sense?

It does.

Jason Lemkin is a very good friend of mine from Sasta.

And he said to me yesterday, a brilliant statement.

He said, for the best companies, inference is the new sales and marketing.

Yeah, I love that.

100% correct.

Yes.

Yes, I also think that power users are so much more powerful than they ever have been.

Like Andrew Chen used to say pre-AI, and I love this, like power users are just users.

And it was true.

Because even if they got 100x more value, they typically didn't pay 100x more.

Like you look at Spotify, great European company.

The very best Spotify SKU with the highest bitrate music, totally lossless.

All the pods, all the videos, family plan everything was 20 25 a month.

So there was a belief that the price ceiling for consumer products mass market was 20 to 25 a month.

You look at Grok Heavy, it's 300 a month, ChachiBT 200 a month, Gemini Ultra 250 a month.

So we're seeing 10x higher prices paid and you have consumption revenue on top of it.

So for the power users are paying incredibly high subscription rates plus consumption revenue.

So the S&M costs, of acquiring those users are very wisely invested.

And I think this is an important point that's changed.

You're telling me then, for my team, when i'm looking at margins with the investing team, that we should have the same high bar that we carried, or we should have greater elasticity to lower margins.

So, first of all, it's typically a lot of organic traffic, one i would look at your m1 you know your sort of month one as um traffic not truly acquired users, because it's organic and it's free to acquire.

And then second, I would take the look at the sort of margin cost of those users, free trials, and sort of just say hey, that's CAC.

And that's okay.

And then look at the margin profile of people who convert and say that's the sort of durable margin profile of the product in the business.

Does that make sense?

So you're sort of unbundling the CAC oriented margin spend versus the durable margin, which is what's associated with your power and paying users.

It totally does.

The challenge becomes if you're trying to work out a cat to LTV metric that you can kind of oscillate around.

It's very difficult to get an accurate sense of LTV in such a changing landscape where you're not sure of the durability.

Is the LTV 12 months or is it 48 months?

Yeah, well, I think that retention really matters.

And if you take a look at the best AI products, you know, even if you look at M2 as the new M1 right, because again you're getting a lot of sort of tourists who come in at M1, you're not paying anything for them.

I'm sorry, M1 means month one.

Month one, that's correct.

If you look at M2 as your first month for some of these products that are acquiring a ton of top of funnel traffic, then you apply the same high retention bar you ever applied to them.

What's an M12 that would make you very excited?

I mean, like the bigger the better, but certainly 50% is solid, right?

And if you're 60, 70%, I mean, we're very, very happy.

Okay.

So we have that in terms of margins.

I do want to touch on, you said bubble.

No, I'm not in that camp.

I like to attack things while I'm there.

Why are you not in that camp?

Well, there's a little quip that I like to use, which is like it's not a bubble, and it's good that it is.

And I'll tell you why.

Look, this is not my area of focus or expertise, but one, you look at OpenAI's recent investment announcement, sorry, which is that there are 20 billion of top line.

And the way that they got there is they 3x capacity and they 3x top line.

So every time they bring on capacity, all of that supply, that inference supply is 100 spoken for and we're seeing that story happen over and over again, whereas in previous, you know, sort of so-called bubble periods you saw this incredible build out of supply far ahead of demand.

So so far we're not seeing that right.

Two, if you actually look at the prices that customers are paying, they're going up.

So you're not seeing the sort of price compression that you would get from a typical overbuild of supply.

And then three.

As I said previously, even if there is subsidization, there's always going to be some distortion in subsidization.

It's a sort of intelligent subsidization that's mostly being paid for by big tech and the labs.

And it benefits consumers and startups.

Like, God bless.

I'm all for that.

I do a show with Jason Lemkin and Rory O'Driscoll and Rory said something brilliant, I think, which is like this will all work out if we see the transition of spend from the 12 SAS budgets that we operate in today, transition from that budget to the human labor budget.

Do you think we will see that transition?

I mean, we're already seeing it.

I think DG was on the show talking about CH Robinson, right?

Like we're seeing a lot of companies start to see the productivity improvement from this new technology.

I mean, how can they not, right?

It's not just coding agents in which this is showing up.

You talked about voice.

Voice is the wedge into the enterprise.

Voice agents are so powerful.

By the way, I think that the near-term story of a lot of voice.

I know we talked about support.

You talked about customer support.

That's interesting.

But the more interesting thing is why is support an isolated function?

Why is that?

Let's go through it.

You typically have had sales, support, operations, and collections.

Who is the person that's really good at customer support empathetic, they're a listener.

They really understand the product well.

Who is really good at sales?

They're more of a yapper.

They're a talker.

They're high energy.

They're very charismatic.

You know, they're sort of good at the upsell.

They're always in a good mood.

You've got these two different human archetypes for these two different roles.

We've typically organized the enterprise around these two archetypes, right?

But now the models can be either of those people at any time.

So the most sophisticated companies are starting to take support sales collections operations.

Bundle them all together with one broad goal like CAC improvement.

And I think that is going to be the 10x on productivity, more than saying hey, we're just going to take cost out of customer support.

How do you think about competition within markets?

I'm jumping around so much.

You brought up customer support.

I tweeted it the other day and I tweeted it before.

I just can't get my head around this market.

There are like 50 providers with over 50 million in funding, 10 with over 100 million.

And I'm very much of the Peter Thiel school of thought that you know, competition is for losers and we want to have monopoly markets.

With your Dacagons and your Sierras and your Intercoms and your Poloas and I can go on and on.

Fuck, I don't know.

Well, the question is, how do you define market?

That is an important point.

I would argue that in many cases, what you're calling a market is actually an industry.

Let's look at legal.

Many great companies have been funded, and there's still room for another dozen.

I think the reason for that is legal is a 500 million infrastructure for capitalism broadly.

Is there going to be one company that wins the entire market of infrastructure for capitalism?

Of course not.

That is an industry, not a market.

You're gonna have dozens of winners that all specialize, just as in legal today you've got dust and dozens of specializations.

So i think in many of these markets we are talking about as if it is one market, when it is much, much bigger and all the companies will specialize in their own directions.

Well, it's a 500 billion market.

If you assume that we eat their market, not we're an attached to it, correct?

Correct, yeah.

And we are an attached to it.

I mean, that's an open question.

I don't think that we're in the 8% to 12% anymore, right?

50 billion legal software traditionally.

I think we're going to be somewhere between the 50 and the 500.

And I think closer to the 500 than the 50.

What does that look like?

That means AI-native law firms?

Possibly.

I think it means dramatic productivity increases for lawyers, dramatic productivity increases for programmers and engineers.

I think that the difficulty of doing 100% of a job is really, really high.

It's this thing of pretty easy to get to 60%, 70%, 80%.

So I do think that's why a 20% productivity increase.

So far, we're seeing it show up more, as you know, a four day work week than 20 less jobs, because jobs as bundles of tasks don't set themselves up to be 100 automated.

So far right.

You can do all the customer support you want, but sometimes you got to take the customer out for a steak dinner.

And so far the models are not doing that.

They're not.

We mentioned the $500 billion TAM.

Do you do TAM analysis work when investing?

Here's what I think.

I think we tend to consistently underestimate how big the markets are and consistently overestimate how easy it is to go from zero to one.

I think when you squint you can take something that's not working and say I can see how it will work.

And that is why, in my mind, seed investing is its own sort of art.

I focus very much on the Series X.

I believe that having shipped something and having sold something is such a dramatic signal um to me, that is actually that you know the optimal point in terms of information provided slash entry ownership, um and price, whereas at the seed it could be anything very, very difficult to get something working.

Once you do get something working, i believe these companies tend to be even greater and greater versions of themselves for a long time to come.

And then I think the mistake that many venture capitalists have made is just not estimating the market to be as big as it is.

I'm enjoying this so much.

I have really three things I want to dig into there.

You said about markets and underestimating size.

Um, our dear friend alex at deal.

I met him at the seed round and he told me about you know deal, and i was like yeah dude, you're brilliant.

The payroll like sorry, rather deal.

And 11, i'm sorry off.

I didn't tell you earlier.

What's your next pass, please?

Granola, pre-seed.

Okay, well, great.

Chris knows this.

Just keep them coming.

Chris knows this.

I sent a voice note to my partner saying will someone please set up a JustGiving page for Chris, because no one's going to invest.

I will send you my next pass.

You know, most investors, when they send you the pass, you're like, wow.

I look forward to your downtime.

Mine you should do.

Yeah, 100%.

Yes.

You said about market underestimation.

I underestimated the payroll market specifically.

I thought Alex was great.

I didn't underestimate him, but the market I did.

What market did you underestimate, which you later realized you were wrong on?

And what did you learn?

It's such a good question about which market we underestimate.

I mean, I've made this mistake a couple of times, you know like, for example, I remember when we were acquired by Google and I remember looking at the sort of the stock price and telling my co-founder like well, maybe this can go up 10 or 15 or 20 or 30 percent.

How much bigger can it possibly get?

So if you look at a company like that, which was so capable but seemed dominant in their core market, it was very hard to squint and see what they would become.

And they're so much more valuable than they once were.

I think another interesting example of this is Credit Karma.

Free credit scores for Americans, and I know the credit score is a much bigger concept in America than it is where I grew up, in Canada, or even here.

I think you'd sort of ask yourself if you did the back of the envelope, you would say well, most people tend to use their credit score once or twice a year.

Right.

And most people don't even actually need it that often.

It's only when you're applying for a new financial product.

And then for most people, you either have exceptional credit and you don't really need to look at it because you already know that, or you have terrible credit and you just don't want to look at it and you kind of already know that.

So now you've got this torso of people who infrequently need access to their credit score.

Is that really a big company?

And if you then look at Credit Karma, you know, it's like over 100 million Americans use it.

You've got 50 million quarterly actives.

You've got people logging in on average four times a month.

And the reason that it works is that the credit score is actually this sort of mirror that people like to look in and see how they're doing objectively as an adult.

Whether you're doing great, whether you're doing poorly, whether you're doing just okay.

People really find a lot of sort of satisfaction in the feedback loop of looking at their credit score.

Not something that I ever would have predicted.

And, as a result, Credit Karma has many opportunities to sort of inform and sell their customers' products.

And it really, really works.

So how do you reflect on that?

Like missing that?

I think when you have a formidable founder and they're showing a lot of early momentum, in a market, inertia is the best mental model.

In my mind, inertia is the most powerful force in the universe.

So everything that is happening today is going to default happen forever.

And when you have a formidable founder making tremendous nonlinear progress, you have to tie break in the direction of them doing it forever.

That has to be your underwrite.

So funny, we're just going to mention Merle.

He says when I found a continuously hits target, you should bet on them continuing to continuously hit target.

Don't overthink this shit.

It's hard to hit target.

Well, this is, you know, I'll tell you a funny thing.

So when I first started I remember sitting I spent a bunch of time with Mark and Dixon and everyone.

So I remember sitting down with Mark and saying, all right, Mark, what's the process?

Like, tell me exactly what the process is.

And, you know, and Mark said this maddening thing, which is just be right a lot.

And I was like, Mark, of course, be right a lot.

But what else?

What is like?

And of course, you know, there's a bunch of things that we talked about.

But ultimately, having reflected on that, I think his view is like your process doesn't matter, as long as you're consistently winning.

When I started my career at Amazon as an engineer in 2003, they had a very similar thing.

I think it's still a part of their kind of leadership principles, which is that you're consistently right.

And I remember being 23 or 24 years old and just finding it to be maddening because, like well, why are you right?

How are you right?

But this quality of being right sort of supersedes the why or the how or all of our very intellectual, mental models of how long it can sustain.

And you said, like, just win and the importance of winning.

What we said downstairs.

I lost to a wonderful colleague of yours Seema, in a company, Ars Leo in Germany, in the Series A, And I reflect on this a lot.

A lot.

I can tell it's on your mind.

When you reflect...

What was your most painful loss, and how do you reflect on that?

I haven't lost a deal.

You've never lost a deal?

I've never lost a deal.

How long have you been in Andreessen?

Six and a half years.

Huh.

Yeah, yeah.

Do you worry about that?

I mean this in the nicest way.

I asked Ram Pal about this because he lost the A of Relit and then did the B, which is great and fantastic.

Well done him.

Yeah.

Perhaps risk aperture is not high enough if you're never losing deals.

Maybe, I don't know.

Like I think that there is a process by which you can be a part of most important companies that you want to be a part of.

I think that there are some very difficult pre-existing conditions to overcome, like somebody has a very healthy, successful relationship with a past investor.

You're just never going to overcome that, right?

And, by the way, like Having been that, I think, healthy and supportive past investor for many people, I would never expect those founders to go work with someone else.

What do you do in those situations when they're like this?

I love you, but I've known these guys for 10 years.

They backed me before.

Do you joke, hey, we're going to be the collaborative partner and try and nestle in now?

Yeah.

Or like, we'll just peace out and not take part.

I think that there are no games to be played.

And I think this is the magic of being in this business and being at Andreessen Horowitz.

You know, when I started, I had this nervousness around like maybe it's a sales job.

But I've realized, if you just sort of show up with the right intentions and, like you know, you have to assume that they know everything you know.

Of course they do.

We live in this era of very, very sophisticated individuals and founders.

And you respect that and say, look, I want to respect the relationship that you have.

With that said, our mission is to be a part of every important technology story that happens.

If there's a way to be a part of it now, great.

If not, let us get to know each other and earn the right to be your lead investor at the next round.

And sometimes that's the right thing.

How elastic will you be on ownership in order to win deals?

Not very elastic.

I try to explain what our model is, but I'm very elastic on price.

I should probably be careful about saying that.

I mean, my mental model is that below a certain threshold, the price doesn't matter.

You just have to be a part of it.

I want to learn from you.

Yeah, yeah, well, I mean, this is my mental model.

No, no, no, it works.

I've learned in venture, simply copy often works.

Yeah, yeah, yeah.

So like very elastic on price and below a certain price, it doesn't really matter.

What is that price?

I mean, look, I think price starts to really matter once you're into the hundreds of millions.

And certainly at the stage that DG does, price does really matter.

But I think at the early stage let's say sub 100 million, like 50 70 100, even 120 the main way that price shows up is it may impair your ability to raise the next round because you price something so high.

We're very transparent about that.

I'll tell a founder, look, you've got great metrics.

We can do this series A as 12 on 60, 15 on 75.

12 to 15, it's a little bit of a wash for us in terms of the check size that we're writing.

It's more about what expectations you want to sign up for at the next round.

And look, the one thing that we typically don't flex a lot on is ownership, because that is our whole model.

And like the model of hey, we're going to put all the chips in behind you doesn't work if we're not real partners.

200 versus 300.

Yeah, I mean, it's in the margins.

Again, I think a lot more at that sort of price threshold.

I start to think a lot more about the next round than the absolute dollars in, right?

The absolute dollars again for a sufficiently large fund probably aren't going to make or break the fund, but your ability to raise the next round, especially once you're in that growth territory right.

The $500 million round is a hard round.

The difference between having to raise at 300, 500 and 700 is pretty significant.

Do you think we're skipping that round?

And what I mean by that is if you think about the companies that are raising at 100 to 200 with 1 to 3 million in revenue, say early signs of PMF, and then they're growing so fast that they're hitting 30 to 50 within I don't know 12 to 24 months.

Well, then they raised a billion and that 500 million tweener round is now gone.

Yeah, that's right.

Yeah.

Look, I think that happens.

And I think in the case where it's because core metrics are super healthy, like good for them.

God bless.

You know I have a lot of enterprise, SaaS companies that do double-double or triple-triple-double-double.

Is the world of triple-triple-double-double dead?

And do we all have to be lovable or up in 11 labs to get funded?

I don't think so.

I mean, I think that a lot of it is dependent.

It's calibrated to your part of the market.

So product velocity plus business velocity.

I do think that you have to be top quartile compared to your peer set.

I think there are some markets that are consumer led or bottoms up, where you can just see this explosive growth, and that is awesome.

It's extraordinary to see.

But look, if you're selling an ERP, you've got a much more cautious customer.

It's a much more high stake sale.

If you're selling payroll now.

Granted, in the case of payroll, Alex and team have done a tremendous job of what should be like a slow boil sale and turning it into a fast boil sale.

And they've got some very specific ways that they do that.

But typically, that is an industry that moves on slower cycles.

So I think that there is just physics to some of these markets that mean triple triple double, double is phenomenal.

But there are other markets in which, especially with these new primitives, you can go like 10 to 100 or 10 to 200.

So you bring in triple, triple, double, double to partnership and they won't shit on it?

Absolutely not.

No, no.

Yeah, look, again, I think that these are all heuristics that we use and we throw it around.

First of all I want to say like I respect the difficulty of getting to a million in revenue dude.

It is so hard.

Like getting anyone to pay you anything that's not, you know, a family member or friend is hard.

And then going from one to five or 10 is super hard and 10 to 100 is tremendously hard.

So one, I think that it's, I hate it when investors are very flip about this.

And then two.

No look, I think it's all about the sort of assumptions that the founder is making the data as a way to validate those assumptions and the kind of direction, the what if it works.

What is the sort of direction of the curve?

What's the area underneath it?

Right, totally yeah.

And, by the way, sorry to interrupt, there are companies that are area under the curve, companies where it may be a much more complex sort of slower growth story, but the area under the curve is much more significant than companies that have very high slope but potentially have challenges with defensibility Super interesting.

So you're saying that the length of the start line?

As Des Treanor at Intercom says, it takes a very long time to build, like in Figma.

And Figma, for three or four years, was kind of in the build process.

Absolutely.

Yeah, area under the curve.

And what do you have today with Figma?

You have an N of one network effects product, right?

That, by the way, is sort of ahead of where I think the market is going in terms of moving from products focused on execution, which today are being subsumed by coding agents, to markets focused on thinking.

And I think a lot of the thinking work is going to be done in products like Figma.

I'm not sure that Dylan and team saw that 10 years ago, but I think they're well positioned today.

Area under the curve companies.

How does the world change for them today?

And do they still hold inherent value of fundraising early?

How does that change?

Because it's difficult to sell.

I think the challenge for area under the curve companies is that you've got to have enough momentum that you can continue to fundraise.

You've got to have enough substantiality that your customer loves you.

They're willing to pay you upfront.

They're willing to expand with you.

It has its own idiosyncrasies and difficulties.

But I think often some of the most significant companies are these area under the curve companies.

And they're, look, they're these like 20 year overnight success stories.

And those are, I think that those are underestimated in venture lore.

The like one to 100 companies are extraordinary and we all love to be a part of them.

But we may talk about those and lionize those, perhaps sometimes at the expense of the area under the curve companies.

You said you very much focus on the Series A.

We mentioned some of the pricing kind of differences there.

I get in trouble with my team constantly for tweeting things like oh Harry, you make my life so much harder.

And I'm like, it's too easy otherwise.

And I say that Series A is the hardest place to be investing right now because essentially you have a million in revenue, very little signs of product market fail, honestly, at a million in revenue.

I disagree.

You're paying 100 to 200 XAR and it's incredibly competitive.

The price to progress ratio is incredibly mismatched between a 25 million seat.

Why am I wrong?

Yeah.

Well, okay.

So first of all, I think as an investor, you have to decide what kind of risk you want to take.

Okay.

So that is what we're paid to do.

So let's talk through what are the different types of risk.

So the first risk is one that you mentioned, that is competitive risk.

Can I win this process or not?

Okay.

The second risk and this is maybe a slightly less good risk to take, but I think still a fine one is pricing risk.

Did I overpay?

And again, I think the way that shows up is the difficulty of the next round, based on your entry price, right.

Maybe the third risk is team risk.

Can this team actually go the distance and try?

Like you know, can the company be?

Can they be big enough to fulfill the company's ambitions?

I think the founder themselves can attenuate or amplify a company's destiny.

The company can't be bigger than their ability for it to be big.

The fourth one, I think, is a little bit of geographic risk.

Maybe this is less true today, but is a Silicon Valley team going to do this?

The fifth is fundraising risk a non-consensus deal that actually has no other investor interest around it.

That is not to say that you need investor interest, but if the team has a difficult time fundraising, no matter how good they are at product and technology, they're not going to get the opportunity to see their vision through.

So I think taking competitive risk, can I win?

And pricing risk.

When you say, sorry, can I win?

You're saying, can I win as an investor?

Yes, against the other VCs.

That is what we should do.

That is like the number one most important thing that we do.

Win the deals by building trust with the founders.

Being smart on the markets, you know being first to conviction, like all of these things.

And that's why I think the Series A being hard, it's supposed to be hard.

And you should be winning anyway.

A couple of questions on the back of that.

They're leaving their startups faster than ever, having just raised big rounds to do new things.

Are we seeing this increased promiscuity from founders, do you think?

I think we've always had to assess how authentic their connection is to the problem at hand, because as it is doing these startups is a little bit irrational.

Alex said this on the pod and I think he's exactly right which you have to be a little bit irrationally optimistic to do it.

I think you also have to be irrationally interested in the domain in which you're working, because these things get hot and cold all the time.

And I think that that authenticity, which is not like a comment on intent sometimes really well intentioned people I've been this person have a reason that they're building their company other than authentic connection to the problem.

I just don't think that's a good setup.

That's a setup for promiscuity.

Do you mind?

When someone comes in and says listen, I don't have any particular interest in, I don't know sales for car dealerships, but I saw it was a ripe area for innovation and where models can be transformative.

Do you mind that?

I think there has to be some sort of irrational direction in which they're pointed.

Maybe it's pure capitalism.

They're like look, I've studied the living shit out of this market and it is a means to an end for me, but I'm going to get there or die trying.

You need to see a little bit of that outlier emotion and commitment.

I think it's best expressed when it's in the direction of the problem, but it doesn't have to be.

I think if somebody comes in and they're like I did a case study on it and it looks great, not a great setup.

Do you find with the founders that you work with, the best founders are the best fundraisers?

Or actually, can they be a bit quirky?

Are the best founders generally great fundraisers?

I mean look, I don't think they all have to show up the same stylistically.

You know the sort of like polished, you know, go to market oriented whatever, like the type of founder we saw more often five years ago.

I mean, the Crea guys to me are a great example.

You know they come into our first pitch, first meeting with everyone in the room Thanksgiving holiday.

And, you know, I think they're both wearing matching kimonos.

They're both drinking Celsius's.

You know, Victor's got his like long skate hair.

He's just this total badass who looks exactly the opposite of every MBA founder that we've been meeting five years ago.

And he's got a quiet presence and a lot of it comes from his command of the technology and the domain.

It's a totally different style.

It works really well for fundraising.

So I think you do need to be able to fundraise and you can be very authentic in the way that you do it.

In terms of having a command of technology and you said earlier about the challenge of shipping products and getting from zero to one showing that you've had a success.

Building in the past is a great way to prove that you can do it, moving forwards.

Do you have an unreasonable or an unwavering leaning towards serial founders who've proven that they can do it because of their track?

I'll give you a nuanced take on this.

I think that repeat founders working in their domain of expertise are formidable.

The Clutch guys sold a company to Carvana.

They weren't super happy with the way that the whole thing ended up in terms of their startup achieving their ambitions.

They went and then started another company out of that also in the auto space called Clutch.

It's going extraordinarily well and they know they're taking all the shortcuts because they know the market.

So I do think particularly in enterprise.

Working in the same domain and being a repeat entrepreneur is a huge source of alpha.

I actually think conversely, in consumer, having a beginner's mind and a high willingness to be embarrassed is a competitive advantage, because so many consumer products feel embarrassing and you know they're immediately dismissed as embarrassing or impossible or a silly, non-serious thing to be working on.

When you're 25 and like the stakes are low, you just want to make something happen in the world.

That is a perfect setup.

Once you've sold a company, all of a sudden it's like Your venture.

Friends are like what are you working on?

Your girlfriend or your boyfriend is like, what are you working on?

You want to sound cool at dinner parties or at the bar.

And that slight hesitation to be embarrassed can sometimes hold you back from the most ambitious, interesting consumer ideas.

I said earlier, you know, when the facts change, I change my mind.

What about the way that you used to invest has changed most significantly?

Well, I think the number one thing and here's my, my free advice to other investors, but also founders is just like you have to use the products today more than ever.

You know, and I think, the investing landscape of five or seven years ago when there was a ton of fintech and I'm a fintech guy, I love fintech, but it was harder to build intuition for, you know, like a small business factoring solution.

I'm not really, I don't know, maybe I should start a small business.

There's too many steps to actually try the product.

But today, being native in this product cycle, just means waking up every day and being like if there's three new models.

Today I'm going to try three new models.

I'm actually going to make something.

So holding yourself to an incredibly high standard of trying everything just gives you so much information and intuition.

I think it's non-negotiable for founders and I think it's incredibly important for investors as well.

Yet most don't do it.

We say about kind of trying product.

I mean 90 of the companies that I get pitched today, especially on the application side, are agent-led or agent-first.

You said before there might be agent overhype.

Can you talk to me about this?

Why do you feel there's agent overhype today and what does that mean?

Here's what I think.

I think that the extremist view that we are going to have autonomous agents that simply do everything over incredibly long time horizons like maybe we'll get there someday.

But I do think that at a minimum, you need humans in the loop for exception handling.

And then these models are only as good as the instructions that we give them.

Our instructions, think about the way you manage your team.

Your instructions are often frustratingly vague.

I do think that we need people in a tight loop with the models to actually achieve our objectives.

I think that the agent maximalist view, which is you just chill out for the day and your AI does everything you need to do, is probably a little bit ahead of where we actually are.

Do you take the view that agents won't remove tasks from what you do, but they'll enable you to do tasks that you didn't have time for?

I think it's both.

I think that they will do tasks.

They'll do the low NPS work that you don't want to do.

Do the work that you want to do, not the work that you have to do.

I think the second thing is yes, like the surface area, the sort of circumference of ambition is going to go dramatically up for us as individuals, but also for us as a species.

Harry, how can this be the peak expression of our ambition as a species?

You've read enough sci-fi books to even have a glimmer of what that looks like.

And I think that's a world that we're going to actually live in, which is, if you are ambitious in a direction, you should be able to fully chase it down and express and fulfill it.

And the only question is who are the ones that are ambitious to go do things, because I don't think execution or expertise is any longer a constraint.

When we think about kind of those best place to win an agent first game.

I had Eric from Podium on the show.

We had a fascinating story of like a kind of traditional SaaS provider that's now gotten 100 million plus agent-led business.

And he said that fundamentally, if you want to win in an agentic world, you have to own the tools, the workflow and the data.

And so you have to kind of own the full stack. a la, of course, him and Salesforce.

Do you agree that you have to own the stack to really be a big player, or can you be a meta layer on top of a core provider?

I think that you can use a core provider via tool use.

To me, the big question is just ambiguity, as one of the big questions for how much leverage you get out of agents.

If you look at BPO's business process outsourcing, they're the areas in which there's the least ambiguity, where the job is literally a series of tasks, where people in offshore call centers take a task off the queue.

Those things are very well set up for automation and agent replacement, because you've got incredibly well-defined tasks and you've got jobs that are bundles of these well-defined tasks.

I think there are many jobs in which there's just such a high degree of ambiguity.

Even in software development, arguably the coding is the easy part.

The tough thing is, what are we coding today?

How do we adjust and how do we adapt to what the customers are saying, what the market is saying, what our own epiphanies were overnight?

The models are incredible at getting us into these local maximas.

And sometimes the local maxima is the global maxima.

But I think often it takes human intuition to break from the local to the global.

And that is something I think the agent is just not going to do.

You mentioned BPOs there.

How do you think about the future of UiPath?

They've had a tumultuous journey in the public markets.

Is that one that's sadly suffering from this, or actually, are they well positioned to take advantage of distribution that they have?

I wish I knew more about UiPath.

I just don't know enough about the company to comment.

I think RPA is super interesting, but vision models haven't nearly kept up with the way that we've talked about them.

Can I ask you one thing that we haven't discussed, which I want to, is kind of open versus closed.

It's a big question.

A lot more use open than actually they say publicly, I find.

And there's a lot more willingness than ever to use open.

Open source?

Yeah.

How do you think about the distribution in terms of open versus closed and how that looks in the next kind of 24 months?

That's a good question.

So I don't think we're at a point in the cycle where companies are focused primarily on cost optimization.

And I think that is one of the reasons to choose open.

You know which is like get an open source model, host it and then have a cost benefit as a result.

I do think there has been some interesting properties of open models like Kimmy K2.

I believe that they didn't post-train it to sort of restrain what it could say.

As a result, it was just a lot more interesting in terms of text generation in many directions.

So it had this sort of interesting product characteristic that a bunch of companies built around, a bunch of companion companies in particular.

So I think there are these idiosyncratic reasons we choose the open models for product quality.

But in most cases I think companies are thinking about maximizing the sort of direction of ambition and their ability to fulfill it, versus taking cost out and closed is still a bit advantage there.

Now, the nice thing about closed is they too have been cutting their costs, right?

So granted, closed is more expensive than open in many cases, but the cost of actually a token on GPT-40 has gone down 100x since the model was released.

You said that we're not in the period of cost optimization, which I agree and think is a very interesting point.

Jason Lampkin said to me, he's a real builder with one of your tools actually with Replit.

I think he's literally one of their top users.

It's insane what an incredible power user he is.

But he uses 11 Labs as part of the voice for one of his games.

And he said, this will be the year where we see the true substitution of AI products based on price.

He's like, 11 labs.

I love it.

It's amazing.

It's too expensive.

This is the year where we've moved from trying things to shit.

It works, but it's too expensive.

No comment on 11 labs.

But do you agree that we're going to see this transition in mindset from shit?

It works to shit.

It's expensive.

I don't think so, because I think what we keep seeing is, as the models get better, downstream players' ability to take those capabilities, productize them and raise prices has outstripped the raising costs.

The incremental cost increase potentially and in many cases not a cost increase, but it's not a cost decrease is so far outweighed by what the new capability unlocks.

Coding agents, right?

What you can do with coding agents, Cloud Code came out last February, is dramatically better.

Is anybody here saying well, I should go back and use Sonnet 37 because it's cheaper, you know, or I should use something other than Opus 45 or Codex 52?

Like nobody is saying that because the capability is so much more powerful.

It really like sparks your imagination in the other direction.

What more can we do rather than how do we make the existing thing cheaper?

It is interesting.

I remember when he said he's got like a startup game and he's like dude.

I'm terrified that people are going to use it because I'm going to go bankrupt.

Okay, so this is actually a fun topic, which is that the fact that these products have costs are a very good thing.

But what it means is Jason's going to have to figure out his business model early.

So this field of dreams investing, where a company builds a free product and they're like someday we'll figure out a business model that's not viable.

It's like no, you have costs today, the way that every small business in the history of small businesses has had pre-software.

So the fact that these companies have costs actually forces a business model hygiene that I don't think existed across the board 10 years ago.

And that's a good thing.

If you were 11 Labs, would you not just say, fuck, subsidize, cut prices, own market.

This is a land grab.

Don't risk churn by price for the next year or two.

They've just raised 500 million.

They could have raised 5 billion more.

I think there's so much more to be done at the frontier and there are so many more categories and capabilities that those things unlock.

It's just a better use of time.

Today, again, we talked about 8% to 12% of enterprise spend is on SaaS.

How much of consumer disposable income is spent on software today?

A few hundred dollars a month, maybe.

We're going to asymptote to 80 to 90%, I believe, for consumer spend and enterprise spend.

The way we do that is by pushing the frontier, not by cutting.

80 to 90% of consumer spend. the sort of discretionary spend.

Of course, there's going to be rent and food.

But yes, dude, I think that software is going to eclipse many parts of our discretionary spend.

And we just talked about companionship and friendship.

We talked about entertainment.

We talked about potentially therapy, potentially health care.

Potentially professional, right?

A lot of the spend that I do on things that help me be better at my profession, education.

So there's a tremendous sort of area for software to expand into.

Let's forget about taking costs out of things for now.

I don't know if you're including food in that.

If you're including a DoorDash, then I can get on board with that.

Discretionary.

Non-discretionary spend is fixed, right?

And you're clearly not European because you missed one crucial one, which is fashion.

Yeah, fashion.

Which would not be that.

I thought you were going to say wine.

Dude, no one buys wine.

No one drinks anymore.

Okay.

Tough to be in the wine industry.

Not even the Europeans?

No, no, no, no, no, not at all.

It's super interesting.

Do you agree with King making today in terms of the belief that you know, as I think you know, but like an anointed winner?

Do you think King making is real?

One.

I think an example of where there is a very positive catalyst in their investor base for enterprise companies is YC.

YC is an awesome place to start an enterprise startup that sells to other enterprise startups.

And they've got these good vibes within the community.

That makes it easier to sell into even much bigger, more established YC companies.

So I think that's a good example in which picking the right investor is actually a big benefit.

You know, a lot of what we do is connect companies that are small but have really important product and technology to the Fortune 500 and 2000.

But we can't force them to buy that technology, right?

And again, you have to assume that the buyers, especially these days, have perfect information.

So I think that the right investor can be a catalyst, But I don't think that you can take a product that would not otherwise be the winner and anoint them the winner.

Do you agree that the best founders you work with don't need their VCs?

I think the best founders that I work with know how to maximally leverage their VCs.

I think there is a set of founders who perhaps would never need their investors, but I do think that the best founders know how to extend their success and increase their momentum by leveraging the right investors.

Like Alex does, right, dude?

I mean, I basically have a sales quota with Alex, you know?

And DG would say the same thing.

And Ben, he's even calling Ben saying, hey, Ben, can you help make this introduction to XYZ?

Like he knows how to get the best out of Andreessen Horowitz and all of the.

It's not just the investors, the entire team shows up for him that way.

Could he do it without us?

Of course he could.

What advice would you give then?

We have so many founders that listen.

What advice would you give to founders on how to have maximum value extraction from an investor base?

Yeah.

Well, first pick an investor that does stuff, I think.

Number one.

I think number two is... How do you know everyone says they do?

Well, the best way is to talk to other founders.

You should talk to other founders.

I think the second thing is, again, the VC can't distort the market.

All they can do is make all the introductions.

And I think the best thing Mark talked about this is when you're small, the VC sort of gives you power.

That's what you want.

The VC basically takes your brand, which is not big, and they lend you their brand.

So, you're not an XYZ company, you're an Andreessen Horowitz company.

Now, over time, your brand becomes much bigger than Andreessen Horowitz and that is great.

But they can help bootstrap you and create credibility in conversations, but you still have to have the best product technology go to market to go win the customer.

Totally agree with that in terms of I think the lending of brands I think it's how you've described it before is phenomenally valuable.

Can I ask you, when we think about kind of the lending of brands, who's the single best founder you work with?

Alex is just such a beast in terms of his go-to-market instincts, his product creativity and just his responsiveness.

The guy's nuts.

Alex is 100% working all the time.

It's just incredible.

I've got a fun story.

We have Project Europe, which is like the Teal Fellowship for Europe.

Basically back 18-year-olds with a big dream and technical capability.

Oh, yeah.

Jane was telling me about that.

Yeah, it's amazing.

Anyway, I pinged Alex on a Sunday morning at 7 am saying hey, they want an intro to a sales rep on your team.

Who's the best person?

He's like, intro to me, please.

I'm like, dude, it's like a $1,000 deal.

He's not worth your time.

He's like, no, no, to alexatdeal.com.

That's what I mean.

I'm like...

Yeah, he's so impressive.

But look, there are other founders who have specialists in their domain, like the Clutch guys I mentioned, who are deep technologists and know how to apply to product, like CREA or the Happy Robot team.

So there's just so much to learn from all these individuals.

And I know it sounds trite, but I'm privileged to work with them.

No, the Happy Robot guys, I wish I was invested in that too.

They're amazing, man.

Please don't tell me you passed on that at the seed too.

No, no, I never met them.

Thank God.

Okay, good, good, good.

That's one of those ones where it's one that I wish I was in it, but I never had the chance to be in it.

They're wonderful.

Incredible technologists, really earnest people, and they're seeing a ton of success.

When you reflect on companies or investments that you've made that were not good.

What did you not see?

I mean.

I think again, if there's a mistake that I've made, it's been being a bit too casual about product market fit.

And this was more of a 2021 mistake, which is assuming something had product market fit and perhaps it didn't.

And perhaps the founder had a super credible theory which, by the way, matched my theory for why it would get to product market fit.

But as I said, it's easy to overestimate the sort of path from zero to one.

And and I'd say if there was a sort of mistake I made, it was not being intellectually honest about is this actually working, or do I think it will work in the near future?

Now, look, I've done a bunch of seed investing and I've made the bet.

And I think if you're intellectually honest and sort of clear sighted about a belief that it will work, then that's a fine way to invest.

But investing with a sort of self-deception of like well, let's just assume it's working when it's not quite working, is a mistake.

I think, you know, a good investment or a bad investment in the first three months.

Do you agree?

I don't know.

I think the area under the curve companies take time to develop.

I get you when you speak to the teams and even if that.

Here's what I'll tell you.

I think that there are moments when you win a deal and you are just you're like, you know, the feeling is like sheer relief.

And I'm sure that there are moments I haven't experienced this, thankfully when you win a deal and you're like wow, I want it.

You know, and and you're sort of faced with uncertainty.

And I think the sort of psychology of that latter moment is very telling.

Have you ever felt that the Andreessen brand holds you back in any way?

Like maybe with the.

No?

No, not one bit.

It's a massive tailwind in a lot.

There's never been one where there's been a political question.

Not at all, no.

And Mark and Ben are so special and authentic.

What Ben has said many times is that they feel like it's their responsibility to extend the surface area of the entire industry, and I see them do that every single day.

So no, there's never been even a moment at which it held me back.

In fact, it's been just the opposite.

Dude, I could talk to you all day.

I do want to do a quick fire round with you.

Okay.

Are you ready for this?

Okay.

What's the most memorable first founder meeting you had?

It doesn't have to be like the best founder, but the most memorable first founder meeting you had, and why?

I mean, yeah, so it's probably the guys at CREA, just because, you know, they'd been so mysterious.

We'd been unable to get a hold of them for nine months.

They'd been making all this noise on X with their sort of creative tools and their models.

And, you know, there's so much anticipation meeting them.

It was Thanksgiving week.

We all sort of flew in.

Mark was there.

And just to see these two guys walk in total badasses with their matching kimonos, with their Celsius drinks and just hold the room by being these deep, authentic technologists and product people, it's just not something that I had seen before.

And there was so much of a setup to the meeting that it's one I'll never forget.

Mark, Ben, DG, who's the best investor?

I mean, they're all extraordinary.

Let me tell you the strengths.

So like, Mark is the guy that can just tell you one, he'll paint a picture of the future, but two, he knows everything about everything else outside of technology.

He's read every book.

He's memorized them all.

He's got these incredible stories.

Of course, he invented the consumer Internet.

So he is just his his storytelling ability is extraordinary.

Then, like to me, I mean, Hard Things was the first honest business book.

OK, and I always say about business books, like the business model of business books is selling business books.

It's not making you better most business books are full of shit and hard things is the first one that was like authentic and if you've read it as a founder you're like, oh my god, somebody finally sees me.

So just his sort of stories of wartime and navigating these inflection points and his ability to contextualize that for whatever you're going through totally unmatched.

The thing about dg that's so special is A lot of us are these founder investors.

We are learning how to be investors through the lens of being a founder.

DG is a pure and highly, highly seasoned investor.

He has this pure play investor clarity that I tend to learn a ton from.

He, to me, is so, so interesting at the growth stage, in the same way that Dixon is interesting at the early stage.

So much of our best thinking is Dixon and also DG.

What's been the hardest decision that you've had to make in the last two to three years?

I mean, to me a big decision was coming into investing and not being a sort of hands on builder anymore.

I wasn't sure because I'd you know, I've had some incredible investors.

I've had some investors that you know just weren't the best, and sometimes through no fault of their own.

Sometimes they're sort of early career and sometimes, you know, they just were disengaged in a way that I never wanted to be.

So I was uncertain about whether I wanted to move into investing.

And I remember sitting down with Ben, you know, who was I to ask Ben questions?

But I'm like, well, I guess like I'm not sure anyway.

So let me just be direct with Ben.

I'm like, well, Ben, how do you prevent bad behavior, investor bad behavior?

How do you prevent the sort of high anxiety?

How do you prevent the person that's disengaged?

And he's like, well, in the near term, we don't measure you based on returns.

We measure you by going and talking to every one of your founders every two years, doing a 360 on you.

And if your founders say you're telling them the truth, you're showing up, you're doing the work, you're being responsive, regardless of how those companies are performing, then you're doing a great job.

If your founders say anything other than that, regardless of how the companies are performing like, you're looking for a job elsewhere And, by the way, we do those.

We do these GP 360s every two years.

It's always a little terrifying, but the incentives are all structured in the right way.

And that that moment in the answer to that question is was that which I knew like hey, this is, this is not a VC like every other VC I've seen out there.

This is like a company.

I remember someone from Andreessen telling me, I can't actually remember who it is.

I'm not actually being deliberately coy.

It might have been Brian.

It might have been DG.

It might have been Alice.

I really can't remember.

But they said like, I'm sorry.

And they said like in Andreessen, it's totally unacceptable to lose a deal.

Yeah.

But it's very acceptable to not have seen it and it'd be great.

Is that fair?

To not have seen it?

Like random company does very well.

We never met them.

We never had the chance to meet them.

I don't think so.

I don't think we're allowed to believe in luck at Andreessen.

We have to see 100% of the deals in our domain.

Now look, I think it is acceptable to make a decision based on the information you have and have the decision be wrong.

Like you invest in the company, it doesn't always work and that's okay.

That's the business.

But the expectation is we see 100 of the deals in our sector and that we win 100 of the deals that we go after.

That was very clear.

There was no... No, I love it, dude.

Okay, good.

Good, right.

That ends that conversation.

Sorry to scare you, dude.

I mean, hey, look, some things are ambiguous, but that part is not.

No, no nuance.

Good.

I hate nuance.

It depends.

It's the worst answer.

You can invest in one seed firm.

Which seed firm do you invest in?

All right.

I think Brompton is pretty special at what he does, actually, at Abstract.

I agree.

Why?

Yeah.

He's I mean, one, he's a cold blooded capitalist, you know, which is awesome.

He just has great instincts.

And I think the seed to me the seed stage is the hardest stage at which to invest, because it's easy to make one great seed investment but it's hard to have a system.

I think, for doing great seed investing because there is.

Even when the people are amazing, there just isn't anything there yet.

There is no product, the true seed, there's no product and there's no go to market yet.

A post-product pre-traction, that gets easier.

Post-product post-sum traction, that gets a lot easier.

And I call that a series A. But at the true seed, it's just hard to be right a lot.

And he has consistently been right a lot.

So when I sort of look at a seed manager, I respect.

I don't know exactly what his witchcraft is, but it's working.

He's right a lot.

What have you changed your mind on most in the last 12 months?

I think the thing that surprised me about this product cycle.

You know I was building my first company in the mobile product cycle.

And in the mobile product cycle the sort of like.

The anointed winners in 2008 2009 were not the eventual winners.

So we had the cycle where you sort of had the Friendsters, and then two or three years later, you had the Facebooks, right?

In this product cycle.

What's actually interesting is a bunch of the early leaders from 23 and 24 have maintained their lead.

You know we talked about harvey.

That's a really impressive company.

You know gamma is a really impressive company.

Cursor is a really impressive company.

Like the companies that were early have so far continued to actually be dominant, and that's something that i've sort of changed my mind on.

I think in 26 we're going to see a whole new set of categories because can i share my view and where we are on the market, i think that Late 22 November 22 is ChatGPT.

23.

A lot of the kind of obviously good ideas and that's not to denigrate them, they were obviously good were started in some of 24.

In the end of 24, reasoning models started working.

So even the ideas that were obviously good but not working suddenly, many of them suddenly started working with the advent of O1 and DeepSeq.

25 of those companies scaled, so now we are starting to see for existing markets, which is like customer support and the evolution of that chat creative tools code.

We have these early leaders.

Those markets are somewhat established.

It's going to be very hard to be like another customer support or coding tool today.

Conversely, we're going to see a set of AI native categories emerge in 2026.

Knowing what we all know now, what company would you build?

That is the operative question.

OpenClaw and MoldBook are just the beginning of that.

Those are ideas that were inconceivable two years ago.

So I think that the thing that I learned over the last 18 months is like hey, maybe the early leaders will just be the leaders.

And over the next 12 months I'm going to pay a lot of attention to who the early leaders are in the sort of new native categories.

How significant is Malt Book?

Everyone's very excited by it.

Yeah.

You're a lot more product-centric than me.

How significant is this?

I mean, it's just so damn cool.

Just to talk about it, to observe it, It's shallow.

Bology called it robot dogs barking at each other.

I think that there's an element of truth to that.

Any humanity they have is just the sparks of the humanity that it's taken from the context of its owners.

I think though, what is very interesting is the idea that we can have these digital twins.

You know, these echoes of ourselves going and interacting with other people.

I mean, we were talking about dating downstairs, right?

And sort of how the dating apps are a mess and probably not durable.

Um, in their model.

Like you could imagine a world in which i train, i'm married but uh, you know, if i was not, i'd train a little digital twin of myself and other people would do the same and they would go have, you know, pseudo dates.

And then they would come back and match, make us and say like hey, we had this like virtual date and it went kind of well and maybe you guys should hang in person.

So now we're able to kind of replicate and scale ourselves in a way that was totally science fiction five years ago, one year ago.

I don't know if you've seen Matchcom today, but the stock price is down like a huge amount because someone basically did this UGC.

Oh, yeah.

Yes.

Yeah.

The hinge thing.

Yeah.

That's tough.

Yes, I think that, like you know, people are looking at the point and they say that we're overhyping it, but they're not looking at the slope which is being underhyped.

And I think that's correct, right?

The point old book as an individual data point is probably overhyped right now, but what it points out directionally is underhyped.

Next 10 years, final one.

What excites you most?

What do you like most?

I like optimism.

What are you most optimistic for and excited about?

Oh my God, dude.

I mean, where do I start, right?

Like robots, pet robots.

So, if it's specifically like actually medical, I think we'll have amazing breakthroughs in treatments like multiple cirrhosis, which my mom has, which is previously she's been like oh, like bad luck.

Yeah, I think we'll have real breakthroughs there, which is super exciting for me yeah, okay.

Well, let me let me tell you something personal to myself, which is i'm a long time uh, transcendental meditation person.

I've been meditating since i was a little kid 25, 30 years and it like brings me this, you know, this peace and joy, that maybe you see a little bit of my personality, And I think that the idea that everybody could have a little slice of that peace and joy is something that is now becoming more and more possible, because I think that, with the technology we have, it's going to take away a lot of the rote parts of life.

It's going to give people access to more of these types of relationships that they find so fulfilling.

So i think just the kind of the nps of the human experience for lack of a better phrase is on the way up and like, i love that for my fellow person.

That's what i'm excited about, dude.

It's such a pleasure to do this in person.

Thank you so much for sitting down with me.

I really enjoyed it.

Sorry, i'm a little loopy.

I can't tell if it's 3am or 3pm.

[The Strategic Edge: Why AI-Native Apps and Human-Centric Innovation are the Future of Venture]-[a16z, Anish Acharya： Is SaaS Dead？ Do Margins Still Matter？ Why We Are Not in an AI Bubble？]

📋 Summary

The Strategic Edge: Navigating the AI-Native Era

The Fallacy of the "Vibe Code" Revolution

The Application Layer vs. Foundation Models

Rethinking Defensibility and Margins

The Case for "Weird" Innovation

Investment Philosophy: The Andreessen Standard

🎯Key Sentences

📝Key Phrases

📖 Transcript

[The Strategic Edge: Why AI-Native Apps and Human-Centric Innovation are the Future of Venture]-[a16z, Anish Acharya： Is SaaS Dead？ Do Margins Still Matter？ Why We Are Not in an AI Bubble？]

📋 Summary

The Strategic Edge: Navigating the AI-Native Era

The Fallacy of the "Vibe Code" Revolution

The Application Layer vs. Foundation Models

Rethinking Defensibility and Margins

The Case for "Weird" Innovation

Investment Philosophy: The Andreessen Standard

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🎯Key Sentences

📝Key Phrases

📖 Transcript

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